The $6 billion plus Kiwi Wealth has struck a deal with a German index-maker to provide benchmarking services for its global share portfolios, paving the way, too, for a new passive KiwiSaver default fund.
Steffan Berridge, Kiwi Wealth quantitative and responsible investments strategist, said the agreement inked with Solactive would also enable the Wellington-headquartered manager to more easily implement exclusions in line with environmental, social and governance (ESG) policies.
Berridge said Solactive – in its first foray into NZ – had created a bespoke global equities index for Kiwi Wealth, carving out over 100 exclusions out of an investable universe of about 3,000 stocks distilled from the benchmark provider’s existing Global Markets Large and Mid Cap Index.
“We have about 450 exclusions but only 100 or so in the benchmark – the other companies are too small for us to invest in anyway,” he said. “But I expect we’ll make more exclusions in the future.”
Initially, the Solactive Kiwi Global Markets Screened Index would serve as the reference benchmark for the Kiwi Wealth Core Global Equity Fund – a roughly $1 billion portfolio outsourced to JP Morgan.
But Kiwi Wealth would extend the Solactive index to its two other larger global share funds – covering in-house managed quantitative and thematic styles, respectively – in the coming months, Berridge said.
The moves will see the exit of current benchmark provider MSCI from Kiwi Wealth international shares indexing duties.
Berridge said Solactive provided more flexibility in managing ESG exclusions as well as substantial cost-efficiencies compared to MSCI.
“This sets the stage for us to launch a low-cost passive option, firstly to meet the low-fee requirements for the KiwiSaver default fund,” he said.
Kiwi Wealth was one of the six successful bidders following the statutory KiwiSaver default review conclusion this May. The process saw Kiwi Wealth, an incumbent default, knock down its headline fee from 0.52 per cent for the current conservative portfolio to 0.37 per cent for what will be a balanced risk profile under the new regime due to start on December 1.
Post the change, Kiwi Wealth would switch from its current active management to a more passive approach to the default portfolio.
In a statement, the group says: “When used to benchmark Kiwi Wealth’s active strategies, it will allow portfolio managers to more accurately target active risk without the necessity to replace excluded companies with proxies. When used to benchmark a passive global equity fund, it will also facilitate benefits such as tax efficiency, low management costs, and sustainable proxy voting.”
While Kiwi Wealth has a large tilt to global equities, Berridge said recently the manager had increased its exposure to Australasian shares – partly to take advantage of tax-efficient local opportunities but also to align more closely with peers.
He said the NZ shares now represented about 7 per cent of the Kiwi Wealth growth portfolio equities holdings.
“We now have a structurally higher allocation to NZ equities but it’s still lower than the average manager here,” Berridge said.
Solactive, originally known as Structured Solutions, was founded by Steffen Scheuble in a management buy-out of the nascent Deutsche Bank index business in 2007. Today the Frankfurt-based firm offers a wide range of made-to-order benchmarks as well as index calculations for over 450 exchange-traded products.
In 2018 Solactive landed in Hong Kong to tap into the booming Asian exchange-traded fund (ETF) market. The German benchmark creator also serves as the index behind several products offered by Australian ETF firm, BetaShares, including the group’s ultra low-fee ASX 200 fund.
According to a release: “As at April 2020, Solactive served approximately 450 clients across the world, with approximately US$200 billion invested in products linked to our indices. Solactive is registered with ESMA as a benchmark administrator and is supervised by the BaFin.”
Earlier this year the US private equity firm, Summit Partners, took a €50 million (NZ$85 million) minority stake in Solactive.