We’re introducing more Private Equity investments to our Growth and Balanced KiwiSaver funds. Private Equity involves investing in private companies or ventures not listed on public markets, providing access to innovative and high-growth opportunities that aren’t available through traditional investments.
While Private Equity offers the potential for strong returns, and enhanced diversification, it also comes with some risks, such as lower liquidity, valuation uncertainty in the absence of verifiable market pricing, and a longer-term investment horizon. To manage these risks, we’re carefully selecting and diversifying these investments to a target exposure of around 10%, balancing them with more liquid and stable assets within the funds, and valuing them in accordance with our valuation policies.
By carefully integrating Private Equity into our funds over time, we aim to enhance the growth potential of your KiwiSaver investment.
Discover Chief Investment Officer Ashley Gardyne’s latest insights on Private Equity.
Embracing private assets in KiwiSaver to improve long term investment outcomes
Investments in private assets remain unchartered territory for many KiwiSaver providers, despite them featuring prominently in the portfolios of some of the world’s most successful superannuation and sovereign wealth funds.
Investments in areas like private equity, venture capital and infrastructure can provide access to high-growth companies early on their journey and before they hit the stock market, or exposure to the build-out of critical digital or renewable energy infrastructure. The long-term commitments required to make these types of investments are also ideally suited to KiwiSaver – where many investors have an expected investment timeframe of decades.
If we want New Zealanders to get to retirement in the best possible shape, private market investments can play an important role – by lifting expected returns, adding diversification, and potentially providing other risk mitigants like inflation protection.
A natural evolution
For well over a decade government-related entities have been leading the charge domestically in private market investing. Both NZ Super and ACC have well established and successful programs, and it is the private sector that has been behind the curve in making the shift long choreographed by our global peers. For example, some Australian superannuation funds have 20% allocations to private markets.
The appeal of investments in areas like private equity lies in the potential for superior risk-adjusted returns, with these asset classes having a long history of delivering higher returns than public markets. This isn’t a trivial point, as even an extra 0.5% return per annum on your KiwiSaver investments could result in tens of thousands of extra dollars in retirement.
With fewer new companies being listed on stock exchanges, investments in areas like venture capital and private equity can also provide access to investments in sectors that are becoming under-represented on public exchanges.
Making a start
New Zealand has plenty of talented entrepreneurs and high-quality businesses that could benefit from new capital and expertise to help them scale and reach their full potential. With over $120 billion dollars invested in KiwiSaver today, there is also now plenty of capital available.
A handful of KiwiSaver providers are already moving in this direction. At Fisher Funds we have invested in direct commercial property for well over a decade, and in recent years have added investments in areas like private credit (lending to private New Zealand enterprises and projects), private equity (through established domestic firms like Movac, Pioneer and Direct Capital), and infrastructure development (through our investment in Lodestone Energy). As KiwiSaver providers scale and add more capability to their investment teams, the breadth and depth of these private market investment programmes will continue to grow. This may include new asset classes, or potentially selectively making direct investments.
Managing the risks
No asset class is without its risks. Listed equities feature prominently in most diversified portfolios – but are regularly subject to intense bursts of volatility. Private market investments have their own unique risks – with liquidity risk and valuation transparency & timing being two examples that are frequently given.
As with the risks posed by other asset classes, these need to be considered carefully. They also need to be considered in the context of how they may change the risk profile of the portfolio they are being added to.
Talk to us
If you have any questions about your investment or would like to make sure you have the right investment strategy to reach your ambitions, get in touch with us – our team are always happy to help.
