Small Kiwi market a problem for KiwiSaver

Capacity constraints are a looming issue for the KiwiSaver market to contend with as it grows, research house Morningstar says.

Tuesday, April 28th 2015, 6:00AM

by Susan Edmunds

It has released its latest quarterly KiwiSaver survey, which showed healthy returns for investors across all providers and risk profiles. There was a direct correlation between allocation to growth assets and performance during the quarter.

But the report noted the small size of the listed equity market in New Zealand could be a problem as managers sought to place their growing assets under management locally.

It said the small size of the market would present a problem for managers as the pool of assets they had to invest grew to a point where they were limited in their ability to invest successfully in the local market.

“As fund size grows, it becomes more difficult for managers to manoeuvre their portfolios without impacting the price of relevant stocks. This problem also extends to the fixed income market, especially given the lack of issuance in New Zealand and reliance on Australian banks and the local government funding agency, but the concern is more imminent with regard to domestic equities.”

Manager research director Tim Murphy said: “It’s going to reach a point where unless a significant number of new firms come to list, where it becomes problematic.”

He said many managers were nearing capacity. The challenge for consumers was that they could end up with too much invested in stocks that were hard to get out of in a liquidity event. “It’s not an issue yet but there will come a point when it is an issue.”

Managers could allocate more off shore, or more managers could come in to the market and invest in New Zealand equities, he said. “We’re seeing several new successful boutique firms that have cropped up in recent years and there is room for more of that.”

But he said KiwiSaver had never been stronger and managers’ approach to it had improved. Morningstar now gives higher ratings to managers, on average, than when the scheme first launched.

Providers were now focusing more on their KiwiSaver offering. The growth of KiwiSaver was having flow-on effects to providers, asset managers and unitholders, he said.

Tags: KiwiSaver Morningstar NZX