Sam Faulkner, of Russell Investments, has written a report looking at the rapid growth of KiwiSaver assets and their effect on the New Zealand equity market.
KiwiSaver assets have grown from $1.2 billion in 2008 to $35.6b this year and it is expected to continue to grow rapidly.
Faulkner said the value of New Zealand listed equities within KiwiSaver had mirrored the growth of total KiwiSaver assets but the market capitalization of the NZX50 had not.
He said Russell estimated there was that there was about $10b of institutional actively managed capacity in the New Zealand market, and AUM was at $9b.
“We estimate that the average New Zealand equity manager believes it can successfully manage around 1.7% of the total market. Some already manage well in excess of this proportion,” he said.
“There could be some pinch point in terms of capacity over the next two, three or four years.”
If New Zealand were to follow Australia’s lead, the trend would only increase and the issues would get bigger, he said.
That capitalization squeeze could be countered with more listings on the NZX, providers dialing back their allocation to New Zealand equities, or more passive investment. “Our experience has been that these things aren’t happening,” Faulkner said.
Russell managing director Alister van der Maas said the home bias was prevalent around the world. but in other countries there was not so much of a capacity and liquidity issue because of the size of the market.,
“The challenge is when there’s a market event of some form that causes asset allocation changes en masse, if they no longer want growth assets and want income, what can you do about that if you are at capacity and there is no liquidity in the market?”
He said that was one of the risks fund managers would have to consider but it was not accurately reflected in the new risk indicators, which provide a rating based on historic performance.
Faulkner said a small-cap manager would have to invest contributions into less-frequently-traded stocks and with a low level of liquidity this could move the price of the stock.
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