The post-Vanguard Simplicity has officially rolled out its tax-effective German-built global investment products, showcasing seven new funds while knocking a further basis point (bp) off fees.
Simplicity also ratcheted up the allocation to NZ private assets, including mortgages and direct property, to 10 per cent from the previous 7.5 per cent across all its diversified funds.
Under the freshly completed deal with Deutsche Bank asset management subsidiary, DWS, the $3 billion or so of Simplicity global shares and fixed income assets have transitioned into NZ-domiciled portfolio investment entities (PIEs), removing a tax inefficiency that has dented member returns over the previous six years.
According to Simplicity estimates, the DWS-run PIEs will collectively save members between $4 million to $7 million annually compared to remaining in the Vanguard Australian unit trusts.
Sam Stubbs, Simplicity chief, said the PIE switch only become economic in the last year or so as the group’s offshore assets hit “scale”.
Stubbs said Simplicity fees would’ve been pushed higher if the manager had adopted the local PIE structures any earlier.
“About a year ago it started to make sense,” he said.
DWS won the mandate following a “pretty long beauty parade”, Stubbs said, with the German-owned manager selected for its “best in execution” skills, cost and benchmark construction flexibility.
Vanguard ruled itself out of the competition after exiting the institutional investment business in Australasia in 2020.
The new global funds will follow Bloomberg benchmarks tailored to Simplicity exclusions while the underlying DWS pricing is only a point or two cheaper than the Vanguard wholesale fund costs (which were already in single basis point figures).
DWS and Vanguard managed most of the transition process in-specie while Simplicity tweaked a few currency-hedging positions.
“The funds were never out of the market,” Stubbs said.
As well as the higher allocation to NZ unlisted assets, Simplicity also lowered its exposure to Australian equities following the DWS change: previously, the manager invested via a specially built Vanguard Australian shares fund.
The increase in local private assets is “not material”, Stubbs said.
“We’re still 90 per cent passive.”
As part of the investment revamp, Simplicity has introduced two new diversified funds – high growth and defensive – for KiwiSaver members and other investors, adding to the existing growth, balanced and conservative options: all carrying an annual fee of 0.29 per cent.
The manager is also offering the DWS global shares (hedged and unhedged) and hedged fixed income portfolios in stand-alone form at an annual all-in fee of 0.15 per cent,
Simplicity runs local assets in-house, bar a venture capital allocation outsourced to Icehouse.
Overall, the group now manages $4.8 billion including about $3 billion in the KiwiSaver scheme.
The $3 billion Simplicity deal marks the biggest NZ mandate for DWS, which has a large Australian presence but is little known this side of the ditch. Simplicity was also the largest wholesale NZ client for Vanguard, which has turned its attention to the retail market in Australasia.