KiwiSaver funds under management increased 7.2% for the first quarter of the year (from $107.5 billion to $115.2 billion) to deliver 18.6% over the previous 12 months, but the value of NZ assets fell for the quarter.
The value of KiwiSaver NZ assets decreased 4.17%, from $49.1b at the end of December 2023 to $47.1b at the end of March this year. This compares to overseas assets which rose 25% ($58.3b to $68.1b) over the same period.
Simplicity’s Sam Stubbs, says the decline in local assets is the impact of equity market performance and currency. The New Zealand dollar weakened and although the local share market was positive, returning 3.1%, whereas the MSCI ACWI returned 14.5% in unhedged NZ dollar terms.
However, zooming out 10 years, the gap between overseas and NZ asset allocation in KiwiSaver investment has been steadily widening.
NZ assets recorded an annual increase of 9.5% ($42.9b to $49.1b) compared to a 16.8% increase for overseas assets ($54.2b to $68.1b).
Compound annual growth rate (CAGR) of KiwiSaver FUM for the past 10 years is 18.4%, but over the same period the CAGR of NZ assets is 16.4% versus 19.9% for international.
In the four years since Covid, international assets have grown 126% versus New Zealand assets at 41%. Meanwhile NZX trading value last year was the lowest in a decade. Year to date, its value traded is down 12% on last year.
Stubbs estimates about 70% of money is going overseas through lack of local investment opportunities and it’s going up every day.
Companies are moving to Australia, local authorities are tapped out on debt and there is a lack of infrastructure and private equity markets. “It’s one of the reasons we’re investing in build-to-rent housing and mortgages, trying to redress that imbalance.”
Kernel managing director Dean Anderson says there’s a structural decline in investment towards New Zealand's capital markets at a time when KiwiSaver continues to grow.
“There’s no lack of capital. There’s billions of dollars of capital that could flow into supporting NZ growth, capital markets and infrastructure but it’s not. It’s simply going overseas at the moment.
“A lot of people point the blame at the exchange on this. We’re not seeing listings or we’re seeing some pretty average listings come to market and delisting of large companies.”
It’s the ecosystem
But, it’s not down to the exchange, rather it’s an ecosystem challenge, says Anderson.
One factor is collective regulatory compliance and the costs associated with listing, one being the requirement for NZX-listed companies over $60 million to do climate related disclosures.
“For relatively small companies and future growth companies, it's another piece of compliance and cost they have to carry and they can all add up. That’s when it starts to become attractive to do a private sale or a trade sale or to raise private funding rather than an exchange listing.”
Anderson is heartened to hear that the NZX is working with Commerce and Consumer Affairs Minister Andrew Bailey on the compounding effect of various different pieces of legislation on market listings.
Brokers looking to bring companies to market also need to work closely with the exchange to make it attractive to list rather than doing a trade sale or selling overseas, he says.
And asset managers need to direct assets here and realise there’s probably some really good value in our local market, he says. “The whole ecosystem needs to work together.”
Anderson says asset managers are conscious of peer risk and will keep close to norms.
“A lot of managers keep an eye on the target allocations of others, including how much is domestic and international, and are conscious of being different from the market. So, if there's just been general growth towards international assets, others may follow because they don't want to take on that peer risk.”
The zone of possibility
Stubbs says the large scale, long term solution is more KiwiSaver money in infrastructure and housing and institutional ownership of housing and infrastructure.
“So that’s where there's an opportunity to soak up a lot of money in a sensible investment but that obviously requires the government or councils to make projects available for funding, and also for KiwiSaver managers to step up and be ready to fund them.
“We haven't had a history of that in New Zealand; we’ve had one-off, bespoke infrastructure projects which have been PPPs [public private partnerships], but there’s this rising pile of KiwiSaver money now where we can start to think about writing cheques which would be big enough to help fund infrastructure projects. We're just getting into the zone of possibility now.”
This wouldn’t need changes to the KiwiSaver Act, rather clear direction from the Financial Markets Authority on the acceptability of illiquid investments.
“What the FMA and the minister need to do is effectively green light, or give formal permission for KiwiSaver managers to have more money in unlisted assets, as long as they're managing liquidity properly.
“There’s been a good deal of uncertainty to date about what an acceptable amount of private asset investment is, and so if the FMA and the minister signal that to the market, then the market will basically respond accordingly and start putting more money in.”