NZ equity management: Will the tight-five continue to dominate play?

A recent article in Good Returns highlighted that a handful of broking firms account for the bulk of New Zealand equity trades. How about the "buy-side" of our market – does it paint a similar picture?David Scobie, a senior consultant at Mercer Investments, takes a look at the evidence.

Saturday, June 18th 2016, 2:42PM

Mercer monitors the scale of equity assets held by New Zealand managers over time. Firms surveyed (currently 11) include those who are based in this country and manage funds for institutional and retail clients. Collectively these entities now manage $8.4 billion in New Zealand shares, representing a 29% increase on three years ago.

If we were to add in holdings of Australian stocks, the amount totals $10.9 billion, representing a 35% increase over the same period.

The breakdown

The chart below illustrates, by dollar value, the proportion of NZ equity assets held by the firms surveyed (excludes Australian equity assets). 

NB. The data includes actively managed funds from both broad-market and listed property/infrastructure mandates (excludes advisory-only).  The survey does not include providers focused on discretionary retail mandates such as share broking firms. 

Our analysis highlights several points of note:

Game conditions

The funds management industry has experienced considerable change over the last decade, with many firms having come and gone.

The development of KiwiSaver has provided a notable tailwind to participants, as have the PIE vehicle structure and mostly-buoyant market conditions post the Global Financial Crisis. Notwithstanding, it is interesting to observe that there has been a remarkably steady equilibrium number of around a dozen managers operating in the industry.

For existing firms which have grown their asset bases - to heady levels in some cases, amid a local sharemarket which offers limited liquidity for larger trade parcels - the challenge exists to not let size impede performance outcomes.  The scope for the emergence of new and agile managers appears strong, at least in theory.

For those who are prepared to navigate a regulatory environment more stringent than in the past, opportunities exist for skilled and well-structured entrants to claim their stake of funds under management. Will there be parties up for the test? Few newcomers appear to be jostling for position. 

In their absence, the cry from the sidelines may be: "feed the backs"!

Earlier Article: Trades concentrated with top 5 brokers

David Scobie is a Principal in Mercer's Investments business, based in Auckland.

Tags: Mercer

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