New Zealand’s KiwiSaver managers have outpaced foreign-owned ones by heads and shoulders. It’s time to give credit where credit’s due.
Call me a tall poppy, but I think New Zealanders do the things we do better than most.
Give us an industry and we’re going to find a way to excel. Be it film, animation, tech — hell, you name it and chances are we’re going to be wandering with our eyes downcast near the front of the pack. And perhaps it is because of our reticence to make a song and dance about these things that we don’t hear enough about successes outside of the golden trio; rugby, farming, and our recent COVID suppression.
One prime example of our low key success is in the KiwiSaver industry, where locally-owned KiwiSaver managers have consistently given New Zealanders better bang for their buck. Our analysis of Morningstar research shows that over the last five years, Kiwi owned managers have outpaced the market across all of the four key fund categories; growth, balanced, conservative, and moderate.
Source: Morningstar Research, Q1 2020 KiwiSaver Performance Summary
New Zealand’s success as the best KiwiSaver managers needs to be recognised, not just by the industry but by all Kiwis that employ their services.
In our recent blog post, we exposed the $383m in fees being sucked out of the New Zealand economy to internationally-owned KiwiSaver managers at a time when there’s a collective movement to “buy local”. This money leaking out of the New Zealand economy would be a whole lot easier to stomach if they were making us more money, but the evidence shows that foreign-owned managers have been squandering potential returns.
So you may be asking why it is that New Zealand-owned managers are so much better? With so many managers to choose from, there’s no single answer that will be true of everyone, but I see it as simmering down to three main things.
New Zealanders care more about our own retirements
When you’re a New Zealand owned company, you’re more intimately aware of the impact your work is having on other Kiwis and their retirements. There’s a fundamental disconnect among internally-owned management companies about the KiwiSaver investment results and the impact that positive results will have on Kiwis lives. A difference of 1% in returns each year can equate to tens of thousands of dollars down the track for Kiwis, which is something that kōura and most other locally-owned managers think about every single day.
A matter of focus
For the likes of ASB, Westpac, and the other foreign-owned banks in the KiwiSaver industry, they can’t hand on heart claim that they’re 100% focused on something which makes up just a small fraction of their profits.
KiwiSaver is way down these guys’ laundry list behind their core business of lending, and we can see that in the consistently sub-standard results. Their most talented people won’t have anything to do with the KiwiSaver funds and will instead be looking after the things that are making these behemoths the big bucks (loans and deposits).
The lumbering beasts
Large financial organisations are notorious for being slow bureaucratic beasts. This is no different in the KiwiSaver space. We were particularly shocked last year when a senior executive at a large international bank told a reporter they were particularly proud that they had managed to modernise their KiwiSaver product at a record pace. It only took them nine months from the time they realised that their product was no longer fit for purpose.
Markets move quickly, as do the products that serve customers. A KiwiSaver provider needs to be able to move quickly to ensure they are continually delivering the best possible outcomes for their customers.
Risk aversion
Banks think of themselves as being synonymous with security and stability, which they try to bake into their KiwiSaver offering. Even if the funds are making a couple of fewer percentage points in annual gains, as long as they don’t drop as far when things are stormy, they feel happy they’re serving the interests of their Kiwisaver investors.
Unfortunately, this mindset means the banks’ results are consistently dawdling behind more focused local outfits that spend their days working hard for far superior gains, and they still do a better job at protecting against losses in the downturn.
What this means for you
You can’t argue the numbers on this one. New Zealand managers are dominating foreign-owned managers in every single statistical category, and yet Kiwis are still making the mistake of heading to big, distracted foreign-owned banks to look after their financial futures. Over 80% of Kiwi's trust their KiwiSaver to a foreign-owned fund manager, if they had supported local they would now be thousands of dollars better off.
This is a tall poppy syndrome at its most detrimental. Not only are we bleeding money out of our economy, but by not putting our faith in our better performing local managers, New Zealanders are losing tens of thousands of retirement dollars.
Over $350m of KiwiSaver fees are shipped offshore each year. Time to bring it home.
