Pie Funds newly-launched Juno KiwiSaver scheme would not be cross-subsidised by the $800 million boutique shop’s other funds, according to chief, Mike Taylor.
Taylor said the cut-price actively-managed scheme would have to be self-sustaining – eventually.
“We definitely expect [the KiwiSaver scheme] to be profitable in its own right in time,” Taylor said. “Say, in five years we should have a decent market share.”
Under figures published in scheme documents last week, Pie would charge members with balances between $100,000 to $1 million an annual fixed dollar fee of $600. The tiered pricing model includes a fee-free option for members under 18 or with less than $5,000 on account.
While some competitors were sceptical the Pie pricing model would be sustainable, Taylor said as KiwiSaver member growth soared towards 3 million there was plenty of scope for niche players to carve out profitable opportunities.
“Simplicity, for example, has grown to 15,000 members in a couple of years,” he said – a membership figure that would translate into Juno revenue of $9 million, assuming they all sat in the $600 fee bracket.
In fact, Pie is making a direct pitch at the cost-conscious Simplicity market with a fee comparison showing the Juno scheme all-in price falls permanently below its passive investing rival for balances above $180,000 – and close to, or under, for lower account sizes.
The Pie projection, based on a number of assumptions including average annual returns of 8 per cent, shows Juno costs sinking to about 10 basis points for large KiwiSaver balances compared to roughly 40 basis points for Simplicity.
“We think our actively-managed approach will resonate with people who have their KiwiSaver at boutiques or banks,” Taylor said.
The Juno scheme won’t invest directly into any of the other 10 funds in the Pie portfolio. Instead, the KiwiSaver funds will be managed in three risk profiles – conservative, balanced and growth – investing in a mixture of cash, offshore equities and global fixed interest.
However, the Juno investment strategies would dovetail with Pie’s other global share funds, including the recently-launched Climate Friendly large cap international equity product.
Taylor said he wouldn’t be running the KiwiSaver portfolios with those duties delegated to: Pie head of research and ex PwC accountant, Mark Devcich; former Milford Asset Management portfolio manager, Victoria Harris; and, Bianca Fledderus, who started as a junior analyst at Pie about two years ago.
The Juno global shares portfolio of about 50 stocks would consist of about half of “household names” with the rest comprising Pie best picks.
“We think that’s enough diversification,” Taylor said. “How much more alpha can you add if you have 400 stocks?”
Juno’s global fixed exposure – which applies only to the balanced and conservative options the growth fund targets 100 per cent equities) – would come via an exchange-traded fund (ETF), he said.
Most likely, Juno would invest in the iShares Global Aggregate Bond ETF that targets the Bloomberg Barclays Global Aggregate index.
“We may use others but that will depend on the market and our view of it at the time,” a Pie spokesperson said.
As of next April, Pie also plans to discontinue its performance fee model in lieu of a higher management fee approach across the fund range.
According to its just-released accounts for the 12 months to March this year, Pie racked up almost $8.5 million in performance fees and over $8.2 million of investment management fees. The latest result represented a revenue gain of $2.6 million compared to last year (comprising about $8.3 million in performance fees and $6 million of investment management fees).
However, year-on-year net profit before tax increased only about $160,000 ($6.99 million versus $6.83 million in 2017) after expenses jumped to $10.1 million from about $7.8 million in the previous annual period.
The firm has about $5 million of cash at the bank and a similar amount invested in other financial assets (mostly in Pie unit trusts), the accounts show.