Sir Michael Cullen outguns Winston Peters in the impending duel over KiwiSaver reforms, according to Milford Asset Management founder, Brian Gaynor.
Both political veterans have re-entered the KiwiSaver fray post-election – Cullen, tangentially, as head of the tax working group, and Peters, directly, as champion of a government-run scheme – but the former is the man to watch, Gaynor said.
As chair of the yet-to-be-formed tax working group, Cullen’s ambit will extend to the KiwiSaver tax incentives and its portfolio investment entity (PIE) sub-structure. Peters, meanwhile, has secured rights to an expert talk-fest under the just-unveiled KiwiFund member’s bill set to establish another working group to report on the feasibility of a government-run KiwiSaver scheme.
While the KiwiFund “broad principles” include a government guarantee, Gaynor said the proposal – if adopted – would only have a marginal impact for existing providers.
“If the government puts a guarantee on a conservative fund some people might find that attractive,” he said. “But in the end the Cullen working group will be more influential for KiwiSaver providers than a KiwiFund – we will be paying more attention to the tax proposals.”
Last week Gaynor also argued against KiwiSaver compulsion, which has once more bubbled to surface of political discourse. In a, perhaps, unique position for a KiwiSaver provider, he said compulsion would make fund managers “lazy” as guaranteed flows drowned any competitive impulses.
“If everyone is compelled to contribute, it takes a lot of the competitive onus away from fund managers. Having a voluntary scheme keeps us more on our toes, having to perform better,” Gaynor told media last week.
And that lack of consumer-focused competition could bite particularly hard during any sustained bear market, he said.
“Our view is that the real pressure on KiwiSaver providers will come when we have a market downturn,” Gaynor said. “If we have two negative quarters, for example, will people stop contributing or change providers?
“But if KiwiSaver is compulsory there’s no pressure for providers to work hard to help members during a downturn.”
Although Milford is not picking a market crash anytime soon, he said a negative quarter or two at some point “is inevitable”. Currently, the $5 billion plus manager has adopted a “defensive and aggressive approach”, Gaynor said with a slight asset allocation shift away from NZ equities to fixed income and offshore shares.
“We’re conscious that we have to move quickly if there is a downturn,” he said.
At a stock level, for example, Milford has eased off its exposure to a2 Milk – the star NZ equities performer of 2017 – as a risk reduction (and profit-taking) measure. As an aside, last Friday a2 celebrated another milestone with its dual entry into both the S&P/NZX 10 and S&P/ASX 100 indices.
The fact that a2 could manage the trans-Tasman double-benchmark trick further clouds Xero’s logic for delisting from the NZX, Gaynor said. (Coincidentally, Xero exited the S&P/NZX 50 index last Friday (but will continue trading on the local bourse for another month or so.)
“I still can’t really understand why Xero would delist from the NZX,” he said. And despite losing the first round of an effort to keep Xero on the NZ exchange via a shareholder vote (knocked back by the NZX), Gaynor said Milford, along with other managers, had not given up the fight.
“I’m amazed at the level of agreement among NZ institutional investors about Xero,” he said. “We’re sill in discussions [about how to keep Xero at home].”