A KiwiSaver win-win
KiwiSavers should be able to invest in private companies, John Berry writes.
Finance minister Grant Robertson raised hackles last week when he declared more KiwiSaver funds should be invested in New Zealand.
His (perfectly reasonable) claim met an outcry.
‘‘This is why you never have state-sponsored, state mandated, state-governed retirement schemes: at some stage politicians can never help meddling or using [the scheme] for their own electioneering purposes,’’ said one ‘‘Mark Hubbard,’’ commenting on a story in the National Business Review.
Hubbard and others joining the chorus, are right. We can’t trust politicians with our savings. But they also miss the point.
Robertson was simply saying it would be great if more KiwiSaver funds could find a home in New Zealand markets.
Sadly, however, the logic for investing offshore is compelling.
Our share market is tiny. At only 0.10 per cent of world markets, it’s a touch larger than Peru’s and half the size of Ireland’s.
The NZX is not keeping pace with its peers. Over the last 30 years, the Australian market has grown over 12 times, yet New Zealand’s has grown only five times.
We’re failing to deliver a consistent pipeline of quality new listings. Too many start with promise, but deliver disappointment (think Wynyard, CBL Insurance and Intueri, to name a few).
We lack diversification across industries and sectors. Take listed property: our focus is office, retail and industrial companies, while US and European listed property sectors diversify across storage units, data centres, cell towers, residential property and forestry.
There are few growth businesses among our top listed companies. Losing Xero to Australia this year left only two growth stocks in the top 10: A2 Milk and Fisher & Paykel Healthcare.
Our top 10 includes infrastructure (Auckland Airport), utilities (Contact, Mercury and Meridian) and other defensive stocks (Spark and Ryman).
In the US conversely, the top 10 is dominated by growth companies: Apple, Microsoft, Amazon, Facebook and Alphabet (Google), with no pure utility companies.
There’s nothing wrong with defensive investments if you want a solid dividend stream, but they’re not driving new industries, technologies and jobs.
New Zealand needs a circuit breaker. And the answer could be KiwiSaver providers becoming active in private equity.
Unlisted companies have a long history of high returns, but they are typically only accessible to sophisticated wholesale investors. The average investor needs a way in.
Local private equity investments often deliver 15 per cent to 20 per cent per annum over long periods.
It’s a similar story in Australia where consultants Cambridge Associates calculate private equity funds have beaten the listed market by 6 per cent per annum over the last 15 years.
Private equity investments can’t be sold or valued as easily as shares on the NZX, but a small KiwiSaver allocation would benefit long term growth investors.
The KiwiSaver schemes of Milford Asset Management and Booster already have some unlisted asset exposures. Given the potential for decent long-term returns, other KiwiSaver managers should follow.
This could help companies learn investor expectations away from the public market spotlight. Potentially, many more private companies would grow and eventually graduate to public markets.
Robertson should walk the talk and set a supportive legal framework.
The upcoming government working group on KiwiSaver gives a once in a generation opportunity.
It would be a win for KiwiSaver investors, an opportunity for private companies seeking capital and a lifeline for our local listed market.
More importantly, the change will keep private savings private, which is sure to please even the most sceptical NBR reader.
John Berry is co-founder and CEO of Pathfinder Asset Management, and an independent director of Punakaiki Fund Ltd.
‘‘New Zealand needs a circuit breaker. And the answer could be KiwiSaver providers becoming active in private equity.’’