Bank fund managers 'conflicted on exclusions'

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KiwiSaver provider Simplicity has hit back at claims that sector exclusions are not the best way to manage investments responsibly, saying banks have a conflict of interest that stops them achieving the best outcomes in New Zealand.

Monday, July 23rd 2018, 6:00AM 1 Comment

by Susan Edmunds

Kiwi Wealth issued a white paper saying that sector exclusions were a blunt instrument to tackle responsible investment. They could work against investors and meant managers were neglecting their fiduciary duty to act in investors’ best interests.

“Not only are sector exclusions inflexible and limited in building investor value, it’s an approach that doesn’t necessarily effect any real or positive change in the behaviour of companies within excluded sectors.”

But Simplicity founder Sam Stubbs, who has excluded sectors including pornography, guns and fossil fuels, said the view was short-sighted.

He said while engaging with a company to effect change was ideal, it was hard for fund managers in New Zealand to do. 

"By adopting a ‘let’s talk about it’ approach vs actually selling the companies, you remain invested in them, validate their wrong doings, and have a very weak voice for change from NZ. And the data suggests that you will underperform.

"The question investors need to ask of managers who talk and not walk is, ‘why are you advocating change in a manner that risks higher returns’."

If they wanted to engage with global companies they would have to employ someone to advocate on their behalf.

“You become one of hundreds if not thousands of managers and your voice has no particular weighting with the advocate, then by the tie it gets to the company it’s diluted further.”

He said the only other option for New Zealand managers making global decisions was to opt for exclusions.

Data showed that boosted investor returns, he said. “It’s a virtuous circle because you’re denying capital, making it more expensive so [the companies] become less profitable. It becomes a circle over time.”

Stubbs said banks were doing nothing to advocate for change in the market. They were conflicted as investors because they wanted to be able to lend to those same companies, he said, and make money for their shareholders as well as returns for their investors.

“Banks have an inherent conflict of interest. As KiwiSaver managers, selling all their shares annoys the very companies that they, as a bank, want to lend and sell services too. Talking about it is an easy way to pretend you’re doing something, when what you really want is to sell them banking services to benefit your shareholders. It’s a serious issue for shareholder advocacy in NZ when 85% of the KiwiSaver managers are effectively muzzled by their bank owners."

But a spokesman for ANZ, the country's biggest KiwiSaver provided, rejected Stubbs' suggestions.

"As an investment manager we act independently and apply exclusions as stated in our disclosures. These are agreed through our responsible investment committee, which is independent of lending decisions (or opportunities for potential lending)."

Kiwi Wealth chief investment officer Simon O'Grady, who wrote the white paper, was travelling and unavailable for comment.

Tags: banks KiwiSaver Sam Stubbs

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