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Review of the KiwiSaver Fund Manager Market Dynamics and Allocation of Assets

5 KiwiSaver Investment Performance and Asset Allocation Review

As outlined above, the composition of household balance sheets has changed with the growth in saving via KiwiSaver. Reserve Bank data shows that saving in financial assets via mutual funds has grown as KiwiSaver has also grown. Total assets in KiwiSaver funds are still relatively small in comparison to banking system assets, however at an aggregate level, are reaching the levels of the holdings of the Crown financial institutions NZSF and ACC. The proportion of KiwiSaver in household balance sheets is also relatively small. However, the forecast rate of growth of KiwiSaver from contributions and returns means that financial assets - chosen by KiwiSaver fund managers - will represent an ever larger share of household's balance sheets over time.

The implications for public economic policy of increased household wealth held in this institutionalised system are numerous. The increased (re-)allocation of saving to KiwiSaver has consequences for the risk profile of New Zealand households and wider macro-economic implications as a larger share of saving is intermediated via fund managers rather than banks or direct investment by households. The data on households' holding of equity capital in unincorporated entities (such as farms and private SME ventures) or loans to the same have only recently been captured as estimates in the national accounts. Therefore it is difficult at this stage to accurately measure changes in household saving and investment patterns.

Furthermore, a greater exposure to mutual funds and financial assets means that returns or capital growth from assets for households are to an ever greater extent linked to the performance and decision making of institutionalised mutual funds managed by KiwiSaver fund managers.

This section of the review is focussed on analysing the aggregate performance of KiwiSaver and the asset allocation of KiwiSaver fund managers. We compare KiwiSaver to benchmarks and the performance of Government financial institutions. We review the overall allocation of KiwiSaver assets, examining the split of domestic and overseas assets and observable trends. We also review the allocation of savings across asset classes, making international comparisons where appropriate.

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