KiwiSaver

Generate becomes one of the largest boutique KiwiSaver managers.

Generate has cracked the $5 billion in funds under management (FUM) mark, making it one of the largest boutique KiwiSaver providers (outside of banks).

That growth has been driven by strong long-term performance, award-winning customer service and its focus on educating and empowering Kiwis to make smart KiwiSaver decisions, chief executive Henry Tongue says. 

“Our purpose is to grow Kiwis wealth. We do that through strong long-term performance and educating and empowering Kiwis to make smart decisions with their KiwiSaver, like getting into growth funds for the long-term and contributing more than the minimum 3%," Tongue says.

As active investors, Generate have been able to take advantage of market movements, which has helped it develop a track record of strong the results.

The most recent Morningstar KiwiSaver Survey showed each of the original Generate KiwiSaver Scheme funds placed in the top two in their respective categories for 10-year performance to 30 September 2023;

• The Generate Focused Growth KiwiSaver fund ranked 1st out of 8 funds in the Multi-sector Aggressive category
• The Generate Growth KiwiSaver fund ranked 2nd out of 14 funds in the Multi-sector Growth category
• The Generate Moderate KiwiSaver fund ranked 1st out of 12 funds in the Multi-sector Moderate category

Generate is also committed to achieving investor returns through responsible investment. This means it specifically excludes a number of harmful industries from its potential investments and looks for opportunities to invest in initiatives that make a difference for local communities, such as social housing developments in partnership with community groups. 

Fisher Funds chalked up very sluggish growth in its KiwiSaver funds under management (FUM) through the first quarter of owning Kiwi Wealth but the wholesale side of its business is growing at double-digit rates.

The latest MJW survey showed Fisher's wholesale FUM grew 14.6% to $18.36 billion between the September and December quarters of 2023.

MJW's Ben Trollip says his company's data covers all the wholesale funds its clients invest in, so the total may not include all Fisher's wholesale funds, but it does include the vast bulk of its wholesale FUM.

Not all Fisher's wholesale vehicles showed growth in the quarter – its NZ fixed interest fund, for example eased from $2.75 billion on Sept 30 to $2.73 billion – but others grew at a fast clip, including the international select equities fund which near doubled to $3.2 billion.

Fisher's KiwiSaver FUM grew just 0.38% in the year ended March 2023 – the year-earlier comparison is the sum of Kiwi Wealth's funds and Fisher's.

Among the top 10 KiwiSaver managers, that was the most sluggish growth with the exception of AMP, whose KiwiSaver FUM shrank by 0.63% to $5.8 billion.

At $14.42 billion, Fisher was the third-largest KiwiSaver manager, behind ANZ with $18.71 billion and ASB with $14.47 billion.

Growth does tend to be slower the larger a manager gets – ANZ's growth in the year was 1.03% and ASB's was 3.33%, while fourth-largest player, Westpac grew FUM at a 2.9% pace.

Milford Asset Management was the fastest growing of the top 10, increasing FUM by 17.3% to $5.65 billion.

Milford's wholesale FUM, as measured by MJW, grew 5.1% in the December quarter to $8.67 billion.

Fisher's investment style has always been a “buy and hold” strategy while Kiwi Wealth, which was started by Gareth Morgan and later sold to the Kiwibank group, was run on the belief that because most of the assets most New Zealanders own are concentrated in NZ, the KiwiSaver strategy should be to invest offshore to provide diversification.

Which is somewhat ironic since most of Kiwi Wealth's clients probably were also Kiwibank customers and had chosen to go “local” in choosing their bank.

“Swings and roundabouts” on investment returns

The results shown in MJW's survey show very much a “swings and roundabouts” returns from Fisher's own funds and the Kiwi Wealth funds.

For example, the Fisher growth fund was the second-best performer in the December quarter out of 15 funds with a 7.3% return while the Kiwi Wealth fund was fifth best performer with a 7.1% return.

The Fisher fund was 11th out of 15 funds over three years with a 3.2% annual return but third out of 13 funds over 10 years with an 8.2% annual return while the Kiwi Wealth fund was second over three years with a 5.2% annual return and seventh over 10 years with an 8% annual return.

Fisher didn't answer the question directly about how its Kiwi Wealth customers were feeling about the change in strategy, but did say both the Fisher and Kiwi Wealth funds had been run together since March 2023.

“The performance of each fund has been right near the top of the pack, driven by strong outperformance in our active equities strategies,” Fisher said.

“Fisher Funds has been very pleased with the returns generated for Kiwi Wealth clients since taking over the ownership, both on an absolute and relative-to-competitor basis,” it said.

“Given both Fisher Funds and Kiwi Wealth funds are now all invested into the same assets by the same investment team, any recent differences in performance between the two brands can be attributed to modest differences in strategic asset allocation of the funds.”

Fisher noted that growth funds are long-term investments and do experience short-term volatility.

“We are focused on delivering long-term results for our clients and we believe our active investment philosophy and approach will continue to do this.”

Fisher bought Kiwi Wealth for $310 million in November last year.

KiwiSaver has finally hit a speed bump shrinking for the first time to end the September quarter at $96.2 billion. That’s down around $2 billion from June.

This was entirely due to market movements and to be expected, says Morningstar data director of Asia-Pacific Greg Bunkall.

“As a growing product, inflows have overshadowed outflow and market movements but as KiwiSaver matures we can expect market movements to have more impact leading to more ups and downs in the overall KiwiSave balance. It’s normal and to be expected.”

Market maturity means providers need to start thinking about KiwiSaver as a traditional investment product with ups and downs in market movement and no longer in terms of guaranteed revenue growth, he says.

Recently there has been a significant increase in options and providers particularly with white label funds brought onto platforms such as InvestNow and KiwiWRAP and offered as KiwiSaver.

Bunkall until this point, New Zealand hadn't had the same level of proliferation as Australia, but the trend there is reversing with the number of super funds falling from 170 to about 120. ”Regulators are really trying to increase the scale at which the super funds operate. Australia Super, for instance, is a A$263 billion fund in assets and it anticipates to be at A$500bn at 2026. QSuper and SunSuper, which were about the same size were put together and are about the same size as AustraliaSuper with similar growth aspirations.”

Bunkall says Morningstar anticipates increased scale, heightened competition, larger member balances, passive investment strategies and regulatory pressures.

Drawing insights from what we can see overseas we would expect these trends to persist and continue downward pressure on fees.

Fees reduced but expensive funds grow

In KiwiSaver multi sector categories, about $310 million worth of fees were generated in 2016, more than doubling in the last six years to around $645m.

While the industry has experienced great revenue growth, the average fee paid by members per dollar has decreased by about 9%. In 2016, this was about 87 basis points which has been reduced to 80. But that 9% decrease has been masked by investors moving into more expensive funds i.e., from conservative to growth products generally.

In 2016, conservative and moderate categories, which are cheaper, accounted for about 45% of assets under management and now make up only 27%, says Bunkall. “Investors have preferred to shift more recently into growthier, more expensive,

KiwiSaver options. That has meant a lot of the fee deductions in those more expensive categories have been negated. If we actually look into it, the average balanced category has gone down by 16% and the average growth has gone down by 22%.”

Asset allocation

Investors are starting to take note, checking their risk profile and moving towards growth funds. In 2011 overall asset allocation was 60% income and 40% growth. This is now more like 45% income and 55% growth.

This shift is not uniform across providers, though. Analysis of the banks, Milford and Fisher Funds revealed some quite varying splits with one of the most conservative providers members split 50/50, while one of the most aggressive providers coming in at 61/39 towards growth.

“A provider with 50/50 is going to have a lot of headwinds trying to generate market share compared to one focused on market progression,” says Bunkall.

Exposure to international equity ranges from 30% to 50%, NZ equities from 9%-18% and alternatives from 0%-9%.

For the September quarter the five largest KiwiSaver providers accounted for approximately 68% of assets and fees but the landscape is changing. ANZ led the market share with more than $18.8 billion followed by Fisher (15.5%) which knocked ASB back to third place. BT (Westpac) dropped to the fourth spot ahead of Milford, which debuted in the top five.

Almost all multisector KiwiSaver funds produced negative returns over the September quarter. Average returns from the multisector category after fees and before tax ranged from -1% for conservative funds to -3.1% for the aggressive category. Among the defaults, SuperLife did best, losing the least.

Over 10 years, the average annual return for aggressive funds was 8.0%, followed by growth (7.6%), balanced (6.1%), moderate (4.3%), and conservative (3.9%).

Over longer periods, Quay Street, Milford and Generate continued to perform well across the categories in most periods.

With an average balance of more than $120,000, KiwiWrap is way ahead of other KiwiSaver providers, although it has under 300 members.

Melville Jessup Weaver’s KiwiSaver market review for the year to March 2023 revealed the top ten providers for average balance size, with only one major bank making the leaderboard.

The Consilium-owned KiwiWrap KiwiSaver Scheme is a self-select scheme designed for investors wanting customisable investment choices. It focuses on making sure its members benefit from financial advice through advisers who can monitor and report on clients’ portfolios through Consilium Wrap (FNZ). They and investors have access to more than 400 investment options, including international shares, ETFs and bonds.

From KiwiWrap’s $120,000 it was quite a drop to the next three biggest balances on average; MAS at around $70,000 followed closely by Craigs and Milford. Coming in at just below $60,000 were Maritimes, newcomer Sharesies (with just 16 members at the period covered by the report) and Summer. They were followed by ANZ’s OneAnswer, Select and InvestNow all hovering above $50,000.

The bottom five (all around the national average of $27,000) were Booster, Aurora, BCF (Brethren Christian Fellowship), the Muslim targeted AE (Always Ethical) and BNZ.

The report looked at the highest and lowest contribution ratio. Sharesies and KiwWRAP led but because of their low membership numbers were not that informative but the next three NZDF, Maritime and Supereasy (at 80% or just above contribution rates), which the report said, may reflect good engagement with restricted membership pools. Aurora, Kernel, Kōura, Pathfinder and BCF all had high engagement rates of just below 80%.

Changes bubbling from below

On other key statistics, rankings by member numbers were fairly static with ANZ at the top, followed by ASB, Westpac, KiwiWealth (now part of Fisher Funds) and BNZ . However, five schemes managed to grow their member base by more than 10,000 people, with Simplicity adding more than 15,000.

For assets under management in a single fund, ASB KiwiSaver Scheme overtook ANZ to reclaim the title of largest single scheme (almost $14.5 billion with $464m added).

Otherwise, the ordering of the top ten schemes did not change ASB, ANZ, Westpac, BNZ and AMP. In terms of asset growth, Milford stood out with a gain of $832m, significantly reducing the gap to AMP in fifth place.

Fisher Two added $681m, although this mostly reflects the transfer in from the Aon scheme which was closed over the year. Generate, the aforementioned ASB, and BNZ round out the top five in terms of growth. Several smaller providers have seen strong growth relative to their asset base. Aurora and Kōura more than doubled in size, while InvestNow was just shy of this mark. In its first five months, Kernel gathered $43m.

Once accounting for consolidated ownership, competitiveness measures weakened this year, bucking the trend seen since 2015. The purchase of Kiwi Wealth by Fisher was the main driver.

In aggregate, Fisher Funds accounted for $14.4b, having taken over the Kiwi Wealth KiwiSaver Scheme which had $6.7b under management as of March 2023. This saw Fisher Funds group reach a comparable size to ASB ($14.5b). ANZ group ($18.7 billion) remains the largest KiwiSaver participant.

Once accounting for consolidated ownership, competitiveness measures weakened this year, bucking the trend seen since 2015. The purchase of Kiwi Wealth by Fisher was the main driver, the report said.