A lot’s been said about getting KiwiSaver providers to pour more of their members’ money into private assets in recent months, but a key component has been missing in the discussion – they aren't a single class of asset.
Investing in a public-private partnership entity helping finance a new state highway has a very different risk profile and expected return than say backing a biotech start-up.
Both are highly likely to be unlisted, but the chance of failure – and reward for taking that risk – of the two is worlds apart.
One provider that’s clear about the difference is Booster Investment Management, which last month had about $391 million in various private assets of its more than $7 billion funds under management for its 200,000-plus customers.
Booster’s been investing in the unlisted space for about eight years, building up its inhouse capability and investing in the team.
“We started with the investment thesis that it was a good place to be,” chief executive Di Papadopoulos said. “We could see the benefits to the portfolio.”
And investors can get a clear idea on how to think about the different unlisted asset classes due to the fact that two of Booster’s entities that invest in them are themselves listed – the $21 million venture capital Booster Innovation Fund, which invests in early-stage companies, and the $217 million Private Land and Property Fund, which does what it says on the tin.
Their respective disclosure statements explain the relevant risks attached to investing in early-stage companies and in property, and their objectives underline that not all private assets are equal.
The innovation fund seeks to outperform the S&P/NZX 50 over rolling 15-year periods – which was a compound annual growth rate of 9.8% between 2009 and 2024 – whereas the property fund targets a pre-tax and after fees return of 6.5% a year on a rolling seven-year period.
Small end of town
Booster’s other vehicle to invest in unlisted assets its $153 million Tahi limited partnership, which focuses on small and medium-sized business, and isn’t separately open to retail investors.
All of which are very different from the way unlisted assets have been characterised by policymakers pitching the loosening of liquidity rules for KiwiSaver providers as a means to invest in infrastructure.
And as an example of what that kind of returns investors should expect from those unlisted assets, the New Zealand Social Infrastructure Fund – which invested alongside the NZ Superannuation Fund to tap into burgeoning appetite for PPPs 15 years ago – is estimated to deliver an annual internal rate of return of 8.5%-to-9% when it’s finally wound up.
Finding places to invest capital is one of the issues facing fund managers as KiwiSaver balances continue to swell.
And the larger a provider gets, the harder it is to find an opportunity big enough to meet its investment mandate – an issue that can limit the likes of major institutional investors such as the NZ Super Fund.
Not a new challenge
For Booster, those regular inflows of investors’ money and relatively small exposure to total funds under management help manage the liquidity profile of the funds to ensure it can meet the existing rules that require it to hold enough easily saleable assets to redeem or enable a switching of a members’ funds to another provider.
As at March 12, those allocations ranged from zero for Booster’s default, cash and conservative KiwiSaver funds, up to more than 7% for its high growth and shielded growth funds.
“Managing liquidity is not a new challenge,” Papadopoulos said. “We can work those things within a tolerance that’s acceptable – we model that to death about what that investment exposure can look like.”
Understanding the risk profile is key, and something she said is her team’s bread and butter: “It’s what the team do.”
It hasn't all gone smoothly, with the Financial Markets Authority filing civil proceedings against the fund manager over related party transactions involving its Booster Wine Group in the Tahi entity. Booster has denied any wrongdoing and is defending the claims.
The fund manager’s investment philosophy is very much focused on managing the downside – an issue currently facing global markets when US President Donald Trump embarked on his worldwide tariff regime.
“If you’re tracking outcomes over a 10-year period, people forget how important managing that downside is,” Papadopoulos said in an interview before Trump’s announcements on April 2 in the US.
And expanding the world of investment opportunities should help drive a virtuous cycle if it can deepen the domestic capital markets and help drive productivity in the broader economy.
“The big picture is we’re looking for opportunities for investors to access a range of opportunities that they wouldn’t otherwise be able to access,” Papadopoulos said. “On the flipside of that, in order for investors to be successful, you need to have a healthy economy and capital markets.”
Reporting by Paul McBeth. Image from Annie Spratt on Unsplash.