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5.3 Conclusion on asset allocation

KiwiSaver assets are weighted by 54% towards income investments and 46% toward growth assets. Australia and a small number of other jurisdictions with comparable DC systems have higher allocation to growth assets than New Zealand pension assets, however, most OECD pension systems have a far greater allocation to conservative assets. KiwiSaver at an aggregate level has a lower weighting to growth assets than other large investment portfolios in New Zealand controlled by long-term investors such as the Crown financial institutions (NZSF, ACC and GSF). Given the long-term retirement income adequacy objectives of KiwiSaver, this allocation should lead to lower retirement income outcomes than one weighted more heavily to growth assets. We find that over a one, three and five year period, KiwiSaver in aggregate has had mixed performance compared to the Crown financial institutions with NZSF outperforming KiwiSaver over all periods. We also find that over all asset classes, returns in aggregate have not outperformed benchmarks chosen by us, a finding supported by another empirical analysis.

We find that allocation to overseas assets is growing and the home bias of KiwiSaver funds has now dropped below 50%, which is observed similarly in other jurisdictions having comparable pension system. New Zealand KiwiSaver has a low home bias both for fixed income assets and equities when compared to the Australia, Canada, Japan, United Kingdom and United States. Nevertheless, investment in domestic assets continues to grow as KiwiSaver AUM grows.

We do not observe an impact from KiwiSaver on domestic capital markets as institutional investment in aggregate has remained flat while direct retail investment has risen in recent years. It appears therefore that sources of capital for investment by institutions in NZX listed companies may have changed as the managed funds market has changed, but the flow of capital has not noticeably altered. The effect of KiwiSaver funds in domestic capital markets may become more noticeable as assets in the system increase in line with our forecasts.

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