Top-performing KiwiSaver fund manager Huljich Wealth Management has been hit by allegations it artificially boosted its returns to attract more savers.
Several surveys have ranked the Huljich scheme, run by Rich-Lister Peter Huljich, as the best performer since KiwiSaver was established in 2007 and its performance has been strongly promoted in its marketing.
As of December the three Huljich funds – Balanced, Diversified and Growth – had grown to a collective net asset value of $100 million. All three are in the top 10 for two-year returns according to fund research group Morningstar.
The funds' prospectus notes proudly: "The Huljich KiwiSaver funds have been ranked first for annual performance in 2008-2009 by Morningstar, FundSource and Aon."
However, sources have told the Sunday Star-Times those performance figures were boosted early on by transactions in which shares were sold by related parties into Huljich funds at well below fair value, allowing them to book a strong return when the shares were marked to market or sold.
While this would not have directly disadvantaged any KiwiSaver clients, the opposite in fact, there are concerns about the potential to mislead investors.
"It's misrepresenting performance, which is their selling proposition," one market source told the Star-Times.
Another said: "Given their size, they would only have had to spend $50,000-$60,000 to achieve that [gain] and that stays in their returns because they're all percent, so it's cheap marketing."
Huljich's funds have long attracted sniping from rivals, particularly since Huljich had no track record of managing public money when he launched his fund management business in June 2007, partnered by former National Party leader Don Brash and Auckland mayor John Banks.
The firm's three KiwiSaver funds were initially accompanied by a suite of unit trusts, but these were later abandoned to focus on KiwiSaver.
Accounts for the three KiwiSaver funds show it took some time to build a base of investors. The largest, the Growth Diversified Fund, was worth just $75,000 in March 2008, rising to $11.6m a year later. The smallest Conservative Diversified Fund grew from $6170 to $2.7m over the same period.
The funds' small size, it is said, meant unit prices were particularly sensitive to one-off gains.
Unit trust prices collected by Morningstar show some volatility, particularly in the Growth Fund – in March 2008, for example, it rose from 92.5c to $1.01, a gain of 9% in a single month. The fund's accounts show it was invested wholly in cash by month end and its only investments during the year were in other Huljich unit trusts.
Disclosures associated with the funds reveal no unusual transactions, save one. The Huljich Balanced Diversified Fund – one of the unit trusts to survive the chop – noted the following in the year to March 2009: "During the year the fund acquired shares for the nominal value of $2. The fair value of these shares at the date of the transactions was $61,423. These transactions represent an ex gratia payment from the manager."
The Star-Times asked Huljich for further details of these transactions, whether there were similar deals in other unit trusts and whether they affected KiwiSaver valuations.
In an emailed response he said: "I have thought about your questions and advise that the information you are seeking is commercially sensitive."
Brash, a director and shareholder of Huljich Wealth Management, said he was not aware of any moves by the funds to inflate performance figures. Asked whether he would take a dim view of such practices, he said: "Absolutely."
Government actuary David Benison, responsible for the regulatory oversight of KiwiSaver, said he would be "concerned and disturbed if this sort of thing is going on", although a similar effect could be achieved by waiving certain fees.
KiwiSaver has been a real success story for the fund management industry as traditional funds suffered declining popularity. Figures from FundSource for the year to December showed net fund inflows of $1.2 billion, the bulk of it due to KiwiSaver, offering fund managers a strong incentive to invest in building a profile as a KiwiSaver specialist.
For Huljich Wealth Management, the cost has been significant, with shareholders required to pour in $3.2m last year to keep the business afloat until its funds reached critical mass.
Peter Huljich is also a director and shareholder of two listed companies – Diligent Board Member Services and NZF Group.
According to Huljich senior portfolio manager Henry Tongue, its KiwiSaver funds have never held stock in Diligent or NZF. It is unclear whether the same is true of Huljich unit trusts.
- Sunday Star Times