Inside Money: Super smart deal aims to activate NZ passive investors

Photo / Richard Robinson

The NZX-owned KiwiSaver scheme, Smartkiwi, will be closed early next year following the stock exchange's purchase of Superlife, according to NZX chief, Tim Bennett.

Bennett said the scheme, which had just over 1,413 members and just over $32 million in funds under management (FUM) as at March 31 this year, should close by voluntary member transfer to the Superlife equivalent rather than a full-blown, expensive merger process.

Smartkiwi, which invests into the five underlying NZX-owned Smartshares exchange-traded funds (ETF), has struggled to attract members since its launch in 2007, with its current membership less than 300 above its March 2008 numbers. In fact, Smartkiwi was one of the few Kiwisaver schemes to see membership go backwards in recent years.

Part of Smartkiwi's problem was its limited investment range - a relatively small palette of New Zealand and Australian share ETFs - but issues like that have never stopped growth in organisations with powerful distribution networks, which is where the NZX-owned KiwiSaver scheme really suffered.

By contrast, Superlife has built up a tidy mid-tier KiwiSaver scheme (boasting about 25,000 members and $315 million in FUM as at this March) mainly via its strong relationships with employer super schemes. Indeed the bulk of the $1.27 billion of Superlife FUM that will transfer to NZX hands is from the group's employer super business. According to the latest Superlife annual report, the employer super business managed about $1.15 billion for over 15,000 clients.

Bennett said while the employer super funds represented the "mature" side of the business compared to KiwiSaver, there was still scope for growth in both arms.

He said the NZX planned to grow the business through Superlife's existing employer networks and also via direct retail and financial adviser channels, which neither parties have excelled at.

However, the real reason NZX paid $20 million (and up to $35 million pending performance hurdles) for Superlife was to kickstart its ETF business, which has languished for years.

Bennett said the NZX would launch a new range of ETFs (a couple launched today tracking Australian property and high dividend-paying company indices) covering debt and equity in both domestic and global markets. Superlife funds will eventually tip into the NZX ETFs (still under the Smartshares label) - some sooner than others.

Superlife invests mainly on a passive basis, running domestic equities in-house while global shares and debt are outsourced to Vanguard, State Street with a sprinkling of iShares (owned by the world's biggest fund manager, Blackrock). The new NZX ETF range will replace all of these in time, Bennett said.

He said with more scale and choice ETFs should experience the same growth in New Zealand that occurred in offshore markets. According to Bennett, the extra scale will also enable Smartshares to reduce its ETF fees, which have routinely been criticised as too high.

"We've done a fee review and have responded [to market criticisms] and that will be reflected in the products we launch this week," he said.

It is understood another former high-profile investment executive is also close to launching a purely-index KiwiSaver scheme, which would indicate there's a bit of action to come in the passive business.