News and developments
The untapped potential of KiwiSaver funds in the M&A market
New Zealand’s M&A market is known for its strength and vitality. Many world-class businesses have yielded substantial returns for private equity investors, showcasing the lucrative nature of this sector. However, KiwiSaver funds, despite managing billions of dollars, have largely remained on the side-lines of this vibrant market.
As of March 2023, the Reserve Bank of New Zealand) reported that a mere 0.18% of KiwiSaver funds were allocated to direct investment. By contrast, in Australia, AFSA reports that in the June 2023 quarter, for entities with more than six members, the NZD2.3 trillion in investments of entities with more than six members, was made up of 53.8% in equities (21.9% in Australian listed equities; 27.0% in international listed equities; and 4.9% in unlisted equities). Property and infrastructure accounted for a further 15.6% of total investments.
Private equity makes up approximately 4% of the New Zealand Superannuation Fund’s investment portfolio.
KiwiSaver providers have a broad discretion to invest KiwiSaver scheme assets, provided it is in accordance with the fundamental requirement to act in the best interests of investors and within any asset class or other limits they impose in their schemes’ Statements of Investment Policy and Objectives (which are publicly available documents established and maintained for each scheme containing the scheme’s investment objectives and strategies). But comparatively few are taking the step of investing in private assets.
There is a significant opportunity for KiwiSaver funds to become more active in the M&A market within existing mandates. Their continued absence not only represents a missed opportunity for KiwiSaver members, but also for New Zealand businesses seeking access to capital.
We believe that there is a significant opportunity for KiwiSaver funds to become more active in the M&A market. The continued under-investment in private assets not only represents a missed opportunity for KiwiSaver members, who could potentially invest in local businesses and reap the associated rewards, but also for New Zealand businesses seeking access to capital. The position will become starker as KiwiSaver funds undermanagement inevitably increases, and even more so should there be any changes to contribution rates (another area where New Zealand lags behind Australia).
By becoming more active in the M&A market, KiwiSaver funds could provide a valuable source of capital for local businesses, fostering growth and innovation within the New Zealand economy. At the same time, KiwiSaver members with the appropriate risk appetite could benefit from the potential high returns of M&A activity.
While there are valid reasons for the cautious approach of KiwiSaver funds, we think it is worth exploring how these funds can safely and effectively participate in the M&A and direct investment market. Doing so in the right way could unlock significant benefits for KiwiSaver members and the broader New Zealand economy.
- Reasons for KiwiSaver providers’ reluctance towards direct investment
- Examples of KiwiSaver funds undertaking direct investments
- What we’re seeing and predicting