Are KiwiSaver members at risk from having money invested with one manager?

I have had a couple of enquiries over the past week about an article on Stuff expressing concern that KiwiSaver members are at risk from having “all your money invested with one manager”.

I have given this some thought and it is not something that particularly concerns me.

The writer gives the analogy that it’s a bit like going into a supermarket and being told you’re only allowed to buy food made by Wattie’s. I don’t think this is a fair analogy. Individual fund managers invest in a wide range of assets, asset classes, indexes and fund managers to manage their clients’ money. For example, they will employ the use of asset managers and risk management strategies where appropriate.

If the writer wants to make an analogy to supermarkets, then I think a better analogy would be it is a bit like shopping at one supermarket. Of course, the supermarket has a wide range of products and brands. And it’s not like we have a lack of competition in the KiwiSaver market in New Zealand, with around thirty providers. Unlike the supermarket industry.

The writer does not back-up their claim that in New Zealand, no single manager has good depth and breadth across their product range. Indeed, I would contest this assertion. In fact, that is the exact reason I am comfortable putting our clients’ funds into an appropriate KiwiSaver fund manager. The fund managers we deal with have large investment teams with exactly the capability to provide the depth and breadth across their product ranges. They have the scale and resources to undertake research, have the scale and relationships to leverage the research of well-established international asset managers with expertise in their geographies and markets, they adopt a mixture of active and/or passive management as is appropriate for their fund, they re-evaluate their portfolios as appropriate, and the active fund managers have strategies to manage risk relative to the expected return. These are not “tin-can” products as suggested in the article.

The fund managers we deal with provide regular updates of their portfolios and strategies. The role of the financial adviser is to ensure the client is in an appropriate fund, provide oversight of the fund and ensure your client understands what they are invested. To my mind, people come unstuck when they don’t understand what they are invested in.

I feel compelled to add a bit of balance to the claim made in this article. I don’t think that evidence is provided to back-up this claim.

You’ve only got to look at some of the fund managers providing KiwiSaver schemes to understand the breadth of investments that are available. The schemes provide diversification across asset classes, diversification within asset classes, geographic diversification, mixtures of active and passive management techniques, direct ownership of assets, the use of market index funds, the use of asset managers, correlation analysis, risk management strategies, and alternative asset classes where appropriate.

An example of the breadth of investment approaches is an initiative by Booster which helped a local iwi, Ngāti Toa Rangatira, to fund the purchase of 40 school properties in the Wellington area from the crown, under a Treaty of Waitangi settlement. Debt facilities were provided to the iwi to fund the purchase of the properties which were then leased back to the Ministry of Education. Booster was awarded Public Trust Debt Deal of the Year at the IFINZ Awards for this deal.

The author introduces three platforms as an option for KiwiSaver investors who would like a multi-manager approach. These platforms provide an additional alternative for KiwiSaver investors and the Consilium KiwiWrap platform provides one option. I like Consilium, their team and their offering. However, the fund managers we use also have access to global fund managers and global share markets, so I will not be using a platform service to the exclusion of our existing KiwiSaver providers. I believe that our existing KiwiSaver schemes offer the range of alternative to ensure our clients’ portfolios are constructed using a diverse mix of assets to meet their investment needs. We will always look for alternatives, but members having their KiwiSaver funds with one manager is not a risk I’m losing any sleep over.

Stuff article