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4.4 Financial performance of KiwiSaver fund managers

Excessive profits by firms in a market are an indication of a lack of competition. We reviewed, as a case study, the six largest providers by AUM. We analysed the profitability of these firms using net profit margin and return on assets (ROA) ratios. Net profit margin and ROA provide a comparative and accurate analysis of the levels of profitability in the market, due to their simplicity and wide spread acceptance.[58] Ideally this analysis could have been completed using economic value add rather than book value because asset values of fund managers bear little relationship to the economic capital invested in the fund manager. Additionally, we were limited by data availability on performance of subsidiary fund manager entities within financial institutions.

We produced net profit margin and ROA ratios using the respective KiwiSaver providers' asset manager annual report data. There are possible deficiencies in this data as it is not always possible to accurately attribute the profits identified directly to the particular asset manager's KiwiSaver business unit (and these could be attributable to other lines of business within the asset manager). Only one provider - ASB - separates its different asset management revenue streams to reveal that 67% of the fee revenue received by ASB Groups investment limited is attributable to KiwiSaver.[59] That same share of revenue may not be replicated among all six providers we analysed.

Additionally, it is not possible to compare all asset managers due to differences in size and revenue streams. As a result, the ratios we have produced below may not be a fair comparison and are indicative only. A final issue is that this analysis is static in the sense that it only examines the most recent annual report, and thus it may not represent the true profitability of these firms over time. Despite all of these limitations, the analysis is the best possible with publicly available data and is still useful as a proxy to gauge the profitability levels of the wider funds management market, which KiwiSaver undoubtedly plays a growing role in. We have tested these findings directly with fund managers in interviews. The methodology and results are presented and discussed in full in Appendix 4.

Notes

  • [58]The return on assets ratio was chosen over return on equity as it better captures the economic capital that has been invested and the return it is generating, and it is independent of the capital structure of the providers - many of which are wholly-owned subsidiaries.
  • [59]ASB Group Investments Annual Report (2013).
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