By Amanda Morrall
Kiwibank's acquisition of Gareth Morgan Investments (GMI) will reposition the state-owned bank to a respectable 6th place in terms of total retirement funds under management, but who will manage all that NZ$700 million nest-egg remains to be seen.
For the time being, it's the status quo. Morgan and his key investment team won't be displaced under the takeover and will therefore continued to manage their client roll. Kiwibank's KiwiSaver, currently managed by AMP Capital, will also remain as is, pending a decision in roughly six months about how to manage the two schemes.
Morgan told Interest.co.nz it was his ambition to sweep Kiwibank's KiwiSaver business onto his table for management.
"Going forward, it doesn't make sense to run two schemes. The obvious thing is we would do it,'' said Morgan.
AMP declined to comment Wednesday saying it was premature to speculate.
The arrangement between Kiwibank and GMI will see Kiwibank grow its KiwiSaver membership from 15,000 to 72,000 and its funds under management leap from NZ$56.3 million to more than NZ$700 million. (For more details see this story by banking and finance editor Gareth Vaughan and parliamentary reporter Alex Tarrant).
OnePath, by comparison, has more than NZ$2.3 billion under its control.
Economies of scale
Investment Savings and Insurance Association CEO Peter Neilson said KiwiSavers could expect to see further consolidation within the industry as providers looking for long-term survival chased economies of scale.
Boutique provider Fisher Funds Management was among the first to make such a play last year when it bought up Huljich's KiwiSaver business, growing overnight from 20,550 to almost 100,000 with NZ$400 million in assets. (See Amanda Morrall story here for more).
Neilson said the Kiwibank deal with GMI was a smart move because of the bank's high profile, Kiwi branding and direct channel to retail customers.
Chris Douglas, co-head of research for Morningstar, which does fund analysis on KiwiSaver and other managed funds, echoes that view.
"If you don't have a branch bank or an aligned advisor or sales forces, it's hard to get critical mass. GMI has done really well to date, but the question they must have asked themselves was whether they could continue to achieve the growth they've achieved.''
Douglas said the takeover raises some interesting issues, the main one being who will ultimately end up managing the NZ$700 million nestegg.
Morningstar, in its new rating system of KiwiSaver, has put AMP "under review" with a recommendation for those interested in placing their KiwiSaver money with the provider to hold back potentially raising some concerns for investors.
Douglas, in an interview with interest.co.nz, said the rating had to do with unresolved questions and details related to the merger between AMP and AXA and also a heavy exposure to an unlisted property fund that's dragged AMP's KiwiSaver funds into the bottom five performers across all categories since inception.
Morgan said the decision was out of his hands and would ultimately be made by the head of Kiwibank's wealth division, adding: "The obvious thing is they've just bought a business that is in the business of managing funds, so it would be logical for them to do it in house.''
Debate over performance and returns
While Morgan might be keen to take up the challenge, investors might not share his enthusiasm.
GMI has courted controversy not only for shunning peer comparison tables and analsyis, but also for disappointing returns.
Its balanced fund (after tax) has returned a negative - 0.1% per annum since inception and its growth fund a negative -3.4% p.a. Its conservative fund has fared better at a positive 2.4% p.a.
To see after fee adjusted returns for other KiwiSaver providers and funds see our performance ranking section here.
When questioned at a press conference on fees and returns (watch Alex Tarrant video above) and later in interview, Morgan accused investors and the financial media of ignorance.
"There's a difference between performance and returns and this is the real problem here with financial literacy. The everyday person and press don't understand what risk is and how to quantify it and you can't compare returns across different asset classes and risk profiles,'' said Morgan.
Morgan also rejected the credibility and objectivity of league tables produced by Morningstar and Fund Source, accusing them of being biased and inaccurate.
(For more on GMI's KiwiSaver performance and methodology see our three part interview with personal finance editor Amanda Morrall here; Part I, Part II, Part III).
Morgan said a key focus for GMI with respect to its KiwiSaver funds was wealth preservation and amid the events of the past few years, he maintained the boutique provider has done a good job. Compared to the composite index it measures itself against, its growth portfolio has returned a negative 13.1% as opposed to a negative 27.1% for the benchmark.
"Wealth preservation is a big thing for us and wealth enhancement is number two and you have to remember these markets have gone nowhere. I've been focusing on retaining capital and against the benchmark we use we are marginally ahead. It’s nothing to write home about sure, but there are times when you have to content yourself with just treading water.''
Who has how much?
| Provider |
FUM (funds under management) to Sept. 30, 2011 |
Rank |
| OnePath | $2.324 billion | 1 |
| ASB | $2.024 billion | 2 |
| AMP | $1.106 billion | 3 |
| Westpac | $1.043 billion | 4 |
| AXA | $700 million | 5 |
| Kiwibank/GMI | $700 million plus | 6 |
* Adds interest.co.nz performance ranking table.
22 Comments
GM : ..... " New Zealanders running Kiwisaver for New Zealanders ..... isn't that cool ! "
....... no Gareth , it's not cool if you're frigging useless at what you do .... not cool at all .
Excusing your poor returns , by claiming a better performance , is akin to the fastest horse in the race not winning because it took an alternative route , whereas the others ran straight around the track . You still lose , no matter how stylish you think you performed , you lost .
Oh no , GM didn't lose , his clients did ..... the poor saps in his KS funds lost out .....
..... GM made out just fine , an undisclosed mega-profit for him personally , from selling out the business to someone else ......
Gummy is on the side of the investors , not the operator who has taken the easy money , and done a runner ... the old feckers of the American wild west , the Cornelius Vanderbilts & John Jacob Astors would have heartily approved of GM's tactics ........
I've got a time-weighted return of 8.1% with GMK due to them letting you change your investment direction for free, 3 times a year. The financial transparency they provide helps educate the investor. Sit on your arse and expect them to make you money generally doesn't work - unless your'e a lucky gambler.
Give me all your money. I'm always looking for capital. J/K the trick is to own assets that produce cashflow for retirement. Go and read a few books about investing, the first book I read on investing was Rich Dad Poor Dad, really simple easy to understand advice.
If govt bought in self managed kiwisaver I would join, and lap up all the freebies, doubt that would happen though, it was a gift to the fund managers after all.
Skudiv, read it. I have a general grasp on the basics, our rental/future home is paying itself off nicely. I meant I haven't looked into any of the kiwisaver schemes in detail, but joined for the freebies. Am gonna take an active interest from now on.
I dabble in shares with our spare change. As close to gambling as I'll get. I just dont get pokies, I mean WTF? Spinny things and flashy lights? Went/got dragged to the casino once, up $300 on the spin wheel red black thing. Never going back.
"its growth portfolio has returned a negative 13.1% as opposed to a negative 27.1% for the benchmark"
And nothing in the black? Who around here have consistently predicted that kind of trend for spread-risk (trending to averaged, in other words) 'investments'?
The Peak Oilers, is who. The limits to growth'ers, in other words.
Morgan will regret those glib lines in Poles Apart - p17 from memory - where (in a book otherwise strong on understanding the peer-review process) he lets fly with an inane comment about the Club of Rome. No supporting data, no reference.
If he'd have studied their projections at all, he'd have known that they didn't actually fall due to impact until about..............now.
That kind of return about now, is something I've been predicting confidently since about
1975.
But then, I'm not an economist.
So we are ignorant, and financially illiterate;
The everyday person and press don't understand what risk is and how to quantify it and you can't compare returns across different asset classes and risk profiles,'' said Morgan
GM certainly was known for his straight talking, and I have always found this enlightening, but the attacks on everyday persons is not good practice as maybe it he who doesn't understand risk reward and how to compare it.
The benchmark should be the risk free rate of return, i.e. the minimum you can earn with no risk, (I use the term no risk loosely given govts can fall over).
This investment enables my capital to be subject to the minimum risk (GM's fist rule) and secondly provides a low but positive return, (GM's secondary rule).
From there we can plot the various risk(x-axis) rewards (y-axis)for any assets and asset classes over time.
Sorry Gareth, it is not impossible to compare returns, what is hard is making investment decisions that provide an outcome that increases the return as the risk increases as unfortunately they are not linearly related. I would hazard a guess that the risk is always understated when compered to reward.
I'm finding myself wanting to know how PeoplesBank is going to finance this. Debt financing or are they just assuming they can use my equity (that the IRD took against my wishes, as I don't believe in government owning such assets)?
And as I'm going to own this business, against my will, can I please have a look at the valuation used to make the offer?
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