Personal finance editor Amanda Morrall talks to Chris Douglas at Morningstar about rigorous new KiwiSaver analysis the research firm is undertaking

By Amanda Morrall

KiwiSaver funds and their managers are set to come under closer scrutiny as research house Morningstar expands its investigative work into the nascent retirement scheme.

Chris Douglas, co-head of research for Morningstar, says the Auckland-based firm is undertaking a more rigorous study of KiwiSaver with a view to providing a forward looking barometer of a fund's worth.

That's in contrast to standard performance benchmarking that focuses on how a fund has done in the past.

Douglas said the goal was to provide the investing public with better understanding about where and how their money is invested and the kind of returns they're getting.

"From a fund research perspective we are going out to the market, highlighting the funds that we think are good and not so good and we'll be doing that on a qualitative forward looking basis with a recommendation along side it.''

Douglas said Morningstar's independence allowed it to be objective about how KiwiSaver funds are tracking and also how they fairly stack up against one another.

"We're staunchly independent so we don't follow a pay-for-review approach. By that I mean when we go out and research fund managers or listed companies there is no payment involved so we can say exactly what we think and we can be very critical about fund managers and companies and we are.''

The evaluation process is five-fold; it looks at people, processes, parents, performance and price (the total cost of the fund).

"We think it's important to look at the people who are running the funds, understand their process, how long they have been running this process, does it make sense, does it work in practice? We'll also be looking at performance and in an attempt to get an understanding of how the fund will perform in certain market conditions.''

Douglas emphasised the importance of fees.

"I think when you look at the total cost you are paying for a KiwiSaver fund, it's the one factor that a fund manager can control. They can't control what markets are going to do in the future but they can control the costs that they charge to investors. And in many ways it can really enter the long-term number (add up) if it is an onerous charge.''

To start, Morningstar is focusing on the eight largest providers in terms of funds under management. That's the six default providers _ AMP, ASB, AXA, Tower, OnePath and Mercer, plus Fisher Funds Management and Westpac. Together, these providers hold 85% of the more than NZ$8 billion under management in KiwiSaver.

Douglas said Morningstar would look eventually to include a wider net of providers but for now was keeping the focus narrow.