Hedge fund-style KiwiSaver plan launched
New Zealand's first hedge fund-style KiwiSaver scheme has been launched today.
The Generate KiwiSaver scheme offers Kiwis the chance to put their retirement savings into high-octane growth funds designed to be invested primarily in shares.
The scheme, which will be marketed through financial advisers, will use a fund of funds method - placing money with 10 to 15 share investment fund managers overseas, including Australia's Platinum Asset Management.
Investors will have to take something of a leap of faith when investing as Generate will not reveal the names of all the managers it plans to put investors' money with in its offer documents, saying it will reveal them on its website as it makes its investments.
Some of these fund managers will have the ability to short shares - effectively selling shares they don't yet own in the hope the price will fall and they can buy them at a cheaper price before they have to be delivered to the new owner. A falling market delivers the fund manager a profit but the risk is that the price goes up instead of down.
The scheme's founders are well-known in the local investment market and include former Fisher Funds manager Warren Couillault and Henry Tongue, a former fund manager with the Huljich KiwiSaver scheme the assets of which have since been onsold to Fisher Funds.
Generate is hoping its scheme will stand out from the mass of generic KiwiSaver schemes.
Though it will have a conservative fund, the core offerings are growth and "focused" growth options though there will also be a lifestages-style option which will progressively lower the risk of a savers portfolio as they get older.
"Most schemes are homogenous and there is not a lot of difference between the major KiwiSaver offerings," Tongue said. "There are really only a handful of schemes to choose from. The quarterly Morningstar survey lists 15 schemes. The banks/default funds control approximately 85 per cent of the market with approximately 40 per cent of industry funds under management being in cash or default funds."
The default schemes have helped get high numbers into KiwiSaver with average balances now approaching the $10,000 mark.
"Many KiwiSaver members are [now] looking at what fund is best for their retirement and we think that trend will continue. The industry is saying, 'let's try and educate KiwiSavers and provide advice that will get them into the fund that is best for their retirement'. We think it's a natural progression and hopefully KiwiSavers will find our product benefits attractive."
Tongue said the fund managers Generate would invest with all had long-term average track records of delivering returns of over 10 per cent to investors.
"We believe the investment decisions are of a far higher quality as these managers have scale that is not matched in New Zealand. Simply put they have more resources. That allows them to employ more high-end investment professionals. For example, one of our selected funds has eight portfolio managers and 40 research analysts."
Fees will be higher than for more traditional KiwiSaver schemes because it included the fees of the underlying managers.
Along with investing in other funds, the scheme will also put money into Australian-listed property companies, infrastructure investments and fixed interest securities.
The scheme's investment committee includes Couillault, Tongue, Peter Brook (currently a director of Argosy Property Ltd and chairman of Burger Fuel Worldwide and Trust Investments Management Ltd), fixed interest specialist Sam Goldwater and former Credit Suisse hedge fund and Asian specialist Jonty Edgar.