The Government is looking at ways of improving New Zealand's capital pools.
News that the Government is looking at loosening the rules around KiwiSaver to help boost the capital pool available for investment in infrastructure has met with broad approval from the finance industry.
About $120 billion is in KiwiSaver funds, much of it invested in listed companies and overseas.
Current regulation does not clearly enable KiwiSaver fund managers to invest in private, or unlisted, assets.
A challenge for KiwiSaver fund managers is that it is difficult to use appropriate liquidity risk management tools.
The current settings enable KiwiSaver members to withdraw their investments within 10 days, making investment in illiquid, private assets difficult.
The Ministry of Business, Innovation and Employment (MBIE) is consulting on options to allow KiwiSaver fund managers to use common-practice liquidity management tools.
MBIE says “preferential gating”, which enables KiwiSaver members to opt-in to a fund where they agree to a longer notice period for withdrawal, would enable fund managers to invest more confidently in illiquid assets.
Commerce and Consumer Affairs Minister Andrew Bayly said part of New Zealand’s low-productivity problem was that relatively shallow pools of capital meant businesses often struggled to raise money to invest in labour-saving technology and equipment.
The Government’s reform package is made up of two strands of work that will begin now, plus a commitment to undertake further work in 2025, Bayly said.
The first strand included changes to make it easier for KiwiSaver funds to invest in unlisted assets, such as infrastructure projects and private New Zealand businesses.
The second strand was a series of adjustments to reduce the costs and barriers faced by companies listed or listing on the New Zealand Exchange (NZX).
Most of the $120 billion in KiwiSaver funds are parked offshore in foreign stock exchanges, generating little good for New Zealand’s economy, Bayly said.
Similarly, only around 3% is invested in unlisted assets, compared to around 16% of Australian superannuation funds.
“Leveraging the money held in KiwiSaver to invest in unlisted assets, particularly domestic ones – such as transport projects, renewable energy generation or large-scale housing developments – would be a win-win,” Bayly said.
For Kiwi investors, exposure to different asset classes means risk diversification and potentially higher returns, he said.
Sam Stubbs, chief executive of KiwiSaver provider Simplicity, said the announcement was welcome news for the industry.
“We are broadly supportive, but with these things the devil is in the detail,” he said.
“We all want this to happen in principle, it’s just how we can make it happen that is fair to KiwiSaver members who are ultimately the ones fronting up with the cash for all of this.”
Separately, the Government was looking at changes to improve the competitiveness and attractiveness of the NZX.
“The fact that only a handful of companies have chosen to list on the NZX in recent years speaks to the unattractiveness of our capital markets,” Bayly said.
“A particular concern is the cost associated with providing forward-looking financial information – known as prospective financial information – as part of an initial public offering and the burden of complying with the climate-related disclosures regime.”
To address these issues, the Government proposed introducing greater flexibility about how companies provide prospective financial information and proposing changes to the climate disclosures regime to better align New Zealand with international peers.
NZX chief executive Mark Peterson said the package of reforms would unlock access to capital, and boost New Zealand market liquidity and economic growth.
“New Zealand needs to remove regulatory roadblocks that are hindering investment and access to capital for New Zealand companies and projects,” Peterson said.
Bayly’s announcements on streamlining or removing regulations that add cost to companies looking to list, and the intention to consult on changes to climate-related disclosures and KiwiSaver settings, were a positive step in supporting investment, he said.
“The package of changes, which include making the requirement to provide prospective financial information for initial public offers optional, signalling consultations on climate-related disclosure settings, and general disclosure requirements – alongside the Law Commission review into director liability settings – will materially improve the viability for companies wanting to meet their growth aspirations via the listed market,” he said.
Peterson said adjustments were urgently needed to improve New Zealand’s climate-related disclosures.
He said the NZX supports climate reporting but there needed to be balance in how this is applied.
As it stands, Peterson said New Zealand’s climate-related disclosures (CRD) standards and settings do not align with other international markets.
NZX is of the view New Zealand’s mandatory CRD reporting requirements need to align with global standards – particularly with those of Australia and its approach to implementation.
“If New Zealand is serious about transition, disclosures would also apply equally to both listed and unlisted companies,” he said.
He aslo welcomed consultation on KiwiSaver settings.
“KiwiSaver funds could invest in range of New Zealand assets, including hospitals, schools, roading, housing and water infrastructure – if the products were structured right.
“Those assets would be built, Kiwis would still receive a steady flow of returns into their KiwiSaver accounts, and our country and people would benefit not only from the assets being delivered, but through jobs and growth,” he said.
The two consultations, led by MBIE, open today and close on February 14 next year.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.