PAUL MCBETH: Milford’s KiwiSaver muscle

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. He has owned units of the Milford-managed active growth and aggressive funds since January 2024, and had his KiwiSaver with the manager’s active growth fund since 2014.

KiwiSaver continues to be very much embroiled in a turf war.

The reason is simple – more funds under management equals more management fees for the well-heeled individual making the big investment calls on behalf of investors.

And as the financial statements for the various schemes slowly get lodged with the Disclose Register, we’ve already seen hefty outflows for ASB Bank and the Harbour Asset-managed BNZ schemes, carrying on the theme that the landgrab made by the major banks early in the savings vehicle’s history is unwinding.

After all, the convenience of logging into a single app to check your mortgage, bank accounts, insurance and retirement savings might not necessarily drag you into the comfortable living bracket when it comes time to retire.

The big four banks shed a net $2.17 billion to other scheme providers in the March 2025 year, with ANZ feeling it most keenly with a net outflow of $1.08 billion for the country’s biggest lender – and largest KiwiSaver provider.

That seems likely to have continued in the latest period as ASB’s net outflow to other scheme providers accelerated to $540.7 million from $476.6 million, while BNZ’s net outflow rose to $338 million from $259.8 million.

I didn’t feel a thing

Of course, the structure of KiwiSaver means that losing ground to others doesn’t necessarily halt a scheme’s growth. Members and their employers continue to pump in plenty of cash while investment gains keep compounding – ASB’s funds under management rose to $20.13 billion as at March 31 from $18.03 billion a year earlier and BNZ’s grew to $6.76 billion from $6.22 billion.

We’ll get a clearer steer on how the banks fared when big blue and big red – ANZ and Westpac – file their statements in the coming weeks, but if Milford Asset Management’s inflows are anything to go by, they’ll have both kept losing customers.

Milford was the big winner of the March 2025 year when it nabbed a net inflow of $1.49 billion from other schemes, and that’s swelled further in the latest period, with a net $2.07 billion coming in the door from other providers.

That accounted for more than half Milford’s growth of KiwiSaver funds under management, with $13.9 billion at the end of the March up from $10.49 billion a year earlier.

It’s not just KiwiSaver that was a winner for Milford. Its investment funds recorded a net inflow of $4.85 billion in the year, taking the non-KiwiSaver investments to $24.33 billion under management.

Just put your head down and go

With more than $35 billion under management, Milford has turbocharged its growth since the late Brian Gaynor stepped back from the day-to-day management of the fund manager in 2019, when it was overseeing $6 billion of assets.

The firm’s reputation is formidable.

Its flagship active growth fund – the single biggest KiwiSaver fund with $8.41 billion under management as at March 31 – has retained a tight grip on the coveted top spot for 10-year performance since Morningstar started tracking that in 2017, and its balanced and conservative fund options are also leaders of their respective strategies.

It seems only natural that a scheme designed to encourage long-term savings to bolster people’s retirement should probably fixate on a long-term performance rather than the market noise that comes in quarterly updates.

In the inaugural September 2017 quarter, Milford’s active growth fund had $760.4 million and had notched up annual pre-tax returns of 13% after fees over 10 years, and was streets ahead of its closest rival among growth options, with second-placed Fisher Funds’ $1.41 billion growth fund generating annual returns of 7.2%.

Fast-forward to the March 2026 period, and the active growth fund posted a very respectable 9.8% annual return over the past 10 years, but had the $196 million QuayStreet growth fund nipping at its heels with a 9.1% annual return, while ASB’s $6.87 billion growth fund and BNZ’s $2 billion fund weren’t much further behind at 8.5% annual returns.

Look in the eye and testify

Herein lies the tricky balancing act for a fund manager. While the fees mount as the money comes in the door, it’s harder to get the same bang for your buck from making astute investment choices.

A big winner for Milford back in the early 2010s was its investment in the Board Books governance app maker Diligent, when Gaynor sent analysts to check out the then-NZX-listed firm’s operations in New York to determine whether it was worth buying into the beaten-up stock.

It turned out to be a great investment, crystallising healthy multiples from Diligent before fully selling out when governance issues cropped up at the software firm, but the same success would barely move the dial in 2026.

Which isn’t to say that things are souring for Milford.

Sticking with the active growth fund as a barometer, the KiwiSaver vehicle grew to $8.96 billion under management at the end of June, with a quarterly return of almost 5%.

It trimmed its effective cash position to about 0.2% of the fund and beefed up its international equities exposure to almost two-thirds, with names like Nvidia, Amazon, Microsoft and Alphabet claiming four of its five biggest stock positions.

And it’s still delivered an annual pre-tax return of 11.6% a year since its inception in 2007, tracking above its 10% hurdle for a performance fee, albeit one that hasn’t been hit since the March 2024 year.

Got a taste of evidence

But the slowing pace of returns is a reminder that a successful active manager’s job gets harder as they get bigger. Smaller positions that delivered genuine outperformance become less meaningful, and building larger investments – and unwinding them – can ripple through prices.

That sets a higher bar for the manager, and demands closer scrutiny from their investors, who ultimately just want the best result they can get from the level of risk they’re comfortable taking.

It’s up to them to keep delivering on expectations or explain what they got wrong and why investors should stick with them. With the wave of upstarts making rapid inroads, such as Sharesies’ self-managing scheme or Kernel’s very cheap targeted passive funds, there’s no shortage of firms setting themselves up as the next big thing.

The likes of Milford, Fisher Funds and Generate tout their nous as the reason why investors should trust them to manage their money for decades, but history is littered with one-time wunderkinds who were never wrong until they were.

Much like the banks are finding out, patience wears thin when there’s a viable alternative and a new crop of hungry managers waiting for their slice of the investment pie.

Image from Infrarate.com on Unsplash.