Bigger KiwiSaver investment overseas predicted
KiwiSavers should expect a larger portion of their money to be invested overseas by 2020, even if fund managers invest in shares in our partly floated state-owned companies, the scheme's biggest provider says.
ANZ-owned Onepath's managing director of global wealth, John Body, says the New Zealand capital markets will not grow quickly enough to mop up a predicted quadrupling in KiwiSaver money in the coming decade.
Onepath predicts KiwiSaver will grow from about $12 billion now under management to $50b by 2020. At the same time its share of retail funds under management will increase from about 40 per cent to about 70 per cent, with total retail funds reaching about $70b, it says.
"The more money available [from KiwiSaver] the more money can come into the New Zealand capital markets and the more companies will use them," Body says.
"But the growth in the [KiwiSaver] industry will probably be too fast. That means more global exposure for a lot of fund managers."
Body says state-owned asset sales will help. "But if you think about the raw numbers, we think KiwiSaver is going to grow to $50b in the next 10 years and the [assets] float is about $6b in total.
"If we are going to provide good diversified portfolios, there is going to be a tension between investing locally and investing globally. We wouldn't want our fund looking like a whole bunch of power companies, because that is not diversifying risk."
Fund managers usually spread KiwiSaver investments thinly around different countries and different types of assets to protect people's nest eggs. People's jobs and house prices are already tied to the New Zealand economy, and it is a small one by global standards, so managers have to look overseas to hedge their bets.
Reserve Bank figures show that of the $12b under management in KiwiSaver, $6.3b was invested in New Zealand as at the end of March, mostly in conservative assets such as bank deposit and bonds.
Less than $1.2b was invested in New Zealand shares along with about $300m in New Zealand property. That compared with $3.7b invested in overseas shares while the remaining $2b is in overseas fixed interest funds and elsewhere.
But Body's view on the need to shift more KiwiSaver money overseas is not shared by at least two other providers.
Matthew Goldsack, head of Investment Solutions at BT, the manager of the Westpac KiwiSaver scheme, says despite their growth, KiwiSaver funds remain a small part of the overall investment market and the saturation of the NZX will not be a problem in the near future.
To date about $1b of KiwiSaver money is invested in the local share market from a NZX market cap of $58b.
Even if growing savings sees that triple by 2015, by that time the NZX may have a market cap of about $75b thanks to growth and proposed SOE privatisations, he says.
Goldsack says KiwiSaver is cannibalising workplace super funds and other managed investments, vacating investments those funds would have been making. New Zealand shares have relatively high levels of foreign ownership, he says.
"In the unlikely event that KiwiSaver flows were to drive New Zealand asset prices up to expensive levels . . . then it may see an increase in global exposure," he says.
"But in our view it will be the relative attractiveness of New Zealand assets versus opportunities offshore that will be the key driver."
Tower Investment's Sam Stubbs says as long as KiwiSaver money keeps flowing in, demand will ensure supply so he does not think a great share will go overseas in the foreseeable future.
Most SOE shares will end up in Kiwi hands, he says.
- © Fairfax NZ News