Pressure on Kiwi equities market
KiwiSaver accounts are pushing many New Zealand equities managed funds to the limit.
Sunday, September 22nd 2013, 8:56PM 
4 Comments
by Susan Edmunds
And investors seeking domestic stocks may need to reclassify what they consider local.
Milford Asset Management announced last week that it was closing its Active Growth Fund to new investors because it was nearing its maximum size. Reports put it at $620 million in August.
It invests mostly in Australian and New Zealand listed companies and Milford’s Brian Gaynor said he had concerns that the Kiwi sharemarket was not growing fast enough to keep up with the pace of investment.
Many commentators have concerns about managed funds when they reach $1 billion.
Over the past five years, many fund managers have shown huge growth on the back of KiwiSaver funds. AMP grew its funds under management from less than $800 million in 2008 to more than $1.2 billion in 2013.
Fisher/Tower grew from less than $400 million to just under $1.2 billion.
ING, Milford and Harbour are also reporting FUM near $1 billion. The total managed fund market for New Zealand equities is about $10 billion but it is expected that KiwiSaver inflows will soon see an extra $300 million to $700 million a year flow into equities here and in Australia.
Clayton Coplestone, of Heathcote Investment Partners, agreed it was a problem that the sharemarket was not growing fast enough. He said the amount of money coming in via KiwiSaver was at risk of distorting the market.
“There’s too much demand and not enough supply… there are not enough managers out there that have the capacity.”
The only way forward was likely to categorise Australian equities as domestic, he said. He said it made sense due to the prevalence of dual listings. “Other than that, there’s not going to be a lot of new floats that soak up that capital.”
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Comments from our readers
Separately - what a great problem to have as a country and industry. From a country point of view we have a readily available pool of capital wanting good business and investment opportunities.
From an industry perspective, this provides people which the opportunity and confidence to establish investment businesses (and funds). More boutique investment businesses would be a real bonus.
a small market flooded with Kiwisaver dollars = overvaluation
plus a weak heavily indebted economy = more risk
plus EQC broke and shakes and quakes and Fonterra = more risk again
NZ shares are a little too scary so no home bias for me
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The market is not static; it is a dynamic system. If you have high inflows from KiwiSaver into New Zealand equities the following happens:
Stock prices go up (and thus valuations start to get expensive); therefore two things should happen: 1. asset allocators will allocate away from NZ equities probably to global equities or whatever provides the best expected risk/return mix; and 2. it will become more attractive for firms to list on the market (high valuations = lower cost of capital); thus you will see more IPOs.
As for the fund manager side of things, more IPOs will increase overall capacity at the margin, but you will also see new fund managers popping up.
So it's not really that much of a problem, and if it is a problem it's a good problem.