Capital Markets Reforms: KiwiSaver Investment in Private Assets

The Ministry of Business, Innovation and Employment (MBIE) is consulting on several reforms to New Zealand's capital markets.

This update deals with the reforms proposed to the KiwiSaver regime to make it easier for KiwiSaver funds to invest in private assets. The Government wants to encourage investment in infrastructure (such as transport projects, renewable energy generation and housing developments) and productive businesses while exposing KiwiSaver funds to different asset classes and potentially increasing member returns. The discussion document notes the comparatively low investment in private assets by KiwiSaver funds as compared to Australian superannuation funds.

You can find more information on the consultation, including details on how to make a submission, on MBIE's website here.

As part of the broader capital markets reforms, Cabinet has also approved:

• MBIE to consult on adjustments to the climate-related disclosures regime to reduce director liability and increase certain reporting thresholds. You can find more information on that consultation in our client update here; and
• amendments to the Financial Markets Conduct Regulations 2014 to make prospective financial information optional for initial public offerings. The necessary regulations are expected to be in place by May 2025.

Together, these reforms are referred to as "Phase One" of the capital markets reforms. "Phase Two" will commence in 2025 and will cover:

• changes to takeovers law as recommended by the Takeovers Panel (the principal regulator of the New Zealand corporate takeovers market);
• product disclosure requirements related to equity and debt offers; and
• liability settings for auditors, and for directors of listed companies in relation to their continuous disclosure obligations.

 

Proposed changes

There are four proposals in the MBIE discussion document:

• First, amending the KiwiSaver Act 2006 to explicitly enable the use of liquidity management tools (such as "side pocketing") while still complying with KiwiSaver portability requirements (ie, transfers and withdrawals);
• Second, amending the Financial Markets Conduct Act 2013 (FMC Act) to clarify that KiwiSaver providers may amend governing documents to allow for valuation practices that support investment in private assets;
• Third, improve private asset visibility in KiwiSaver providers' public disclosure requirements by amending asset categories; and
• Fourth, consider changes to the way the total expense ratio that KiwiSaver providers are required to report is calculated.

 

Our view

We expect many industry participants will find the objectives of the MBIE consultation on KiwiSaver investment in private assets and the broader capital markets reforms laudable.

We are pleased by the focus in the discussion document on what we see are the key issues hindering KiwiSaver investment in private assets, being maintaining liquidity to support KiwiSaver portability and the requirements for daily valuations.

The proposed amendments to total expense ratio calculation are unlikely to be a complete solution to perceived issues with the KiwiSaver Act requirement not to charge "unreasonable fees". In our view, the Financial Markets Authority's "Managed fund fees and value for money" guidance plays a significant role — that guidance has been interpreted by many in the industry as requiring (or at least strongly encouraging) a lowering of headline KiwiSaver fees. We consider there would be merit in reviewing that guidance and, in particular, including an explicit acknowledgment that value for money may look different for private asset investments.

The discussion document also notes several other issues with KiwiSaver investment into private assets, such as challenges with building the necessary skillsets / capability to invest in private assets, lack of clear regulatory guidance, KiwiSaver member financial literacy, limited suitable investment options in New Zealand and related party transaction settings under the FMC Act. While not dealt with directly in the discussion document, MBIE is open to receiving feedback on these issues. We encourage participants to submit on these issues, particularly regarding lacking (or unclear) regulatory guidance on liquidity and "value for money", and related party transaction settings, which are key issues understandably preventing more investment in private assets (for all retail managed investment schemes).

Finally, we also note media coverage regarding listed investment vehicles, which are seen as an alternative solution to the liquidity and valuation issues associated with traditional unlisted unit trust investment vehicles. We agree that this is a sensible solution and note that our overseas colleagues are already assisting clients to establish and list private asset funds in Australia. Similar vehicles already exist in the United Kingdom and other jurisdictions also.

 

Next steps

Stakeholders (KiwiSaver providers, financial markets participants and KiwiSaver members) are invited to provide feedback on the proposed changes by 17:00 on 14 February 2025.

The feedback received will be reviewed and used to inform recommendations to the Minister of Commerce and Consumer Affairs in early 2025. Based on this feedback, the Minister will propose policy changes to Cabinet for approval.

Please let us know if you have any questions regarding KiwiSaver investment in private assets or would like assistance drafting a submission to MBIE.