PAUL MCBETH: Getting a private Booster is no slice of Pie
Tapping into private markets is a complicated business.
Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. His KiwiSaver has been managed by Milford Asset Management since 2014.
From back here in the cheap seats, it very much looks like KiwiSaver funds are going to be asked to carry a much bigger load when it comes to paying for the nation’s retirement.
Various policy prescriptions are being proffered by professionals in the know, and policymakers are trying out their best lines before we start getting into the election campaign proper.
In the game of superannuation bingo, cardholders with means-testing super, lifting the age of eligibility, compulsory KiwiSaver, increased KiwiSaver contributions and a $1,000 baby kickstart will be pretty happy with their prospects of yelling out the magic word.
And we can already see the impact drawing down your KiwiSaver account can have.
In the June 2025 year, some 928,000 people collecting the pension were paid $23.19 billion, just shy of $25,000 each.
Dressed up like you’re something else
Meanwhile, in the March year – because why align fiscal and tax years – almost 31,500 over-65-year-olds drew down $3 billion from their KiwiSaver funds, or roughly $95,000 apiece, while another 197,000 people of pension age were still in the scheme.
That’s an extra $120 a week on top of the $480 pension payment if those people were to stretch it out from 65 to 80 – a tidy wee buffer on the modest stipend, or at least a helpful buffer for those unexpected bills.
Something’s going to give, even if the current crop of decisionmakers is likely to kick the can down the road to whichever unsuspecting political aspirant is left to clean up the crisis their forebears are unwilling to face.
That also makes the lifestyle we want to live in our dotage increasingly dependent on how much juice KiwiSaver fund managers can squeeze out of our contributions.
We’ve already seen the shift towards growth funds as almost two decades of lifting financial literacy gets oversimplified to the rule of thumb that if you’re young enough, you can ride out market downturns.
Tryna be cool
That’s also seen managers lift their allocations into alternative assets, such as speculative cryptocurrencies, private equity and credit, and venture capital, the latest of which being Pie Funds Management’s deal with VC firm Altered Capital.
Pie has already had success with the local granddaddy of venture capital having committed $10 million from its growth funds to IceHouse Ventures, and it’s eyeing up similarly outsized wins by allocating up to 4% of its $80 million aggressive fund to Altered.
Founder and chief investment officer Mike Taylor is rather cold on the prospects for New Zealand’s public markets, which he doesn’t see as holding the cachet to attract the next Xero or like-minded local growth companies.
Plus, increasingly volatile public markets are discouraging firms from putting themselves out there and following the whims of the animal spirits that often drive price movements.
The trade-off for the easy buying and selling on a public market being an expectation of a bigger return – in the case of those VC investments, Taylor reckons it should be 15%-plus.
It’s all been done before
Since the end of 2018, when Xero waved haere rā to its local listing, the benchmark S&P/NZX 50 has climbed 6.3% a year on compound basis, a smidge behind 6.4% for Australia’s S&P/ASX 200 but left in the dust by the Nasdaq’s 20%.
And for managers, spruiking a stronger performance not only makes it easier to bring in the KiwiSavers in an increasingly competitive market but also comes with a sweeter fee – after all, these guys aren’t charities, even if they are filling a gap the government’s struggling to address.
The thing about getting into those more opaque alternative asset classes is that they don’t come with the same set of rules that people have got comfortable with over the past 15 years or so.
Much was made a couple of years ago about making it easier for the multibillion-dollar fund managers to pour more of that KiwiSaver money into private assets, which could solve the nation’s ills by providing deep pools of capital to back local businesses, generate outsized returns from those moonshot bets, and deliver reliable income from long-lived infrastructure.
There might very well have been some form of magical thinking going on at the time, given the lack of a formal mandate didn’t stop the likes of Milford Asset Management’s inhouse private equity team or Simplicity’s foray into developing rental properties.
Watching your back like you can’t relax
Of course, innovation isn’t left to run unfettered, as Booster Investment Management is finding out.
The ninth-biggest KiwiSaver manager started chasing those extra returns in private markets through the latter half of the 2010s, setting up a vehicle to invest in small- and medium-sized businesses that often find it hard to access capital.
Everything seemed hunky dory for a few years, although the ever-vigilant Tim Hunter at the National Business Review would semi-regularly pick up on various disclosure and related party aspects at the firm that didn’t sit too well with him.
All of that came to a head a year-and-a-half ago when the Financial Markets Authority filed civil proceedings in the High Court against Booster over the way it used investor money for the related Tahi private equity vehicle to build a wine group. The fund manager vigorously rejected the claims, saying the wine group is scaling up and delivering distributions to Tahi.
That dispute is heating up with the substantive hearing due in February next year, although some of the early skirmishes over what documents Booster can access have shed a little more light on the dispute.
Why’d you have to go and make things so complicated?
The nub is that the market watchdog reckons the fund manager should have sent back every investment decision to its committee to approve and certify, whereas the firm is of the view that once it made the initial commitment, the committee didn’t need to be involved in the subsequent drawdowns.
It’s pointy-headed stuff, but the consequences will likely stretch beyond the Wellington firm’s internal processes given the wider market practices are relevant to whether there’s been any improper conduct. Don’t be surprised if the judge’s findings find their way on to various board agendas to make sure their own houses are in order.
And let’s be clear, the FMA doesn’t like turning to the courts.
That’s always the issue with innovation. Being an early mover can provide the outsized rewards KiwiSaver providers will likely need to bridge that retirement shortfall, but can bring them unwanted regulatory glare when a watchdog wants to firm up some of the guardrails for regular investors like you and me.
