KiwiSaver schemes would be able hang on to some member assets well past current transfer deadlines while the number of funds captured by climate-reporting rules could halve under proposals tabled by the government last week.
In draft changes first hinted at by Commerce Minister Andrew Bayly late last year, KiwiSaver schemes would have discretion to retain member holdings in illiquid assets after the existing legal transfer or redemption periods.
Bayly said in a statement that the move could boost KiwiSaver investments in private assets, bringing “risk diversification and potentially higher returns” for members.
The proposed amendments would clarify rules around the use of ‘side pockets’ in KiwiSaver schemes (and possibly other managed funds) to sequester illiquid assets if it was in the exiting members’ interests.
According to the consultation document, side-pocketing would not equate to members belonging to more than one scheme – an option Bayly promoted last year.
Side-pocketing “would leave most of the current KiwiSaver settings in place (e.g. the 10-working day transfer timeframe and withdrawal settings), but explicitly enable all KiwiSaver managers to override the scheme transfer and withdrawal requirements when it is a necessary step for them to manage liquidity risk of investments”, the consultation says.
“In practice, we expect this would likely require clear disclosures in trust deeds, Statements of Investment Policy and Objectives, and Product Disclosure Statements as appropriate that LMTs may be used and communication of how and when they might work. As updates to these documents are made, members would have a choice to opt in or out of the scheme if they chose.”
Schemes would also be able to bury private asset fund management fees in unit prices under one proposal. Furthermore, the consultation lays out plans to improve disclosure of private markets holdings and ensure schemes have robust valuation methodologies for the asset class.
At the same time, the government has lined up significant climate-reporting relief that could see the number of licensed fund managers caught by the regime fall to nine from the current 23.
The consultation offers two options to lift the climate-reporting disclosure (CRD) threshold to either $5 billion per manager or $5 billion per scheme – that latter a subtle distinction that aligns with the recently introduced Australian legislation.
Under the status quo measures, licensed fund managers with a total $1 billion or more in assets must produce annual climate reports, which encapsulates 23 firms, 119 schemes, 956 funds and $185 billion: if government opts for the $5 billion per-manager threshold, the respective numbers fall to 12, 56, 690 and $150 billion; or 9,10, 136 and $90 billion via the per-scheme model.
The External Reporting Board (XRB), which sets the CRD standards, is slated to “consult on the establishment of a differential reporting strategy for climate-related disclosures in 2025”, the proposal says, in a move that would affect all entities captured by the law.
For example, the latest government reform package if adopted could raise the NZX climate-reporting kick-in barrier from the current $60 million market cap to $550 million in another Australia-aligning shift.
Submissions on both of the government consultations – part of a broader capital markets improvement program – are due by close-of-business on February 14 next year.