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Increased asset allocations to illiquid investments

Published on 01/05/2023


What is happening?


With effect from 28 April 2023, following consultation with our Supervisor, Public Trust, we will increase the benchmark asset allocations to unlisted New Zealand shares, unlisted New Zealand property, and home loans secured by first mortgages for some of our diversified KiwiSaver and Investment Funds. 

This means that these funds will be able to invest a higher proportion of their portfolio into these types of assets in the future. 


A summary of this change is as follows: 

Scheme Fund Unlisted Shares Unlisted Property Loans secured by first mortgages
Current maximum allocation^
New maximum allocation^
Current maximum allocation^
New maximum allocation^
Current maximum allocation^
New maximum allocation^
Simplicity KiwiSaver Scheme              
Conservative Fund Nil No change Nil 5.0% 7.5% 10.0%
Balanced Fund Nil No change 2.0% 5.0% 5.5% 10.0%
Default Fund Nil No change Nil No change 5.5% 15.0%
Growth Fund 2.5% 5.0% 3.0% 7.0% 2.0% 5.0%
Simplicity Investment Funds Scheme              
Conservative Investment Fund Nil No change Nil 5.0% 7.5% 10.0%
Balanced Investment Fund Nil No change 2.0% 5.0% 5.5% 10.0%
Growth Investment Fund 2.5% 5.0% 3.0% 7.0% 2.0% 5.0%
             
* New maximum allocation takes effect from 28 April 2023.

^ There is a range around the benchmark asset allocation. The above table compares the change in the upper limit of that range.

Why the change? 


We believe that investments in unlisted New Zealand shares, unlisted New Zealand property, and home loans secured by first mortgages have been making a positive contribution to our funds’ performance, and that it is in our investors’ interests to increase the proportion of the fund portfolios that can be invested in these asset classes, whilst still remaining within prudent limits.

What does this mean? 


These asset classes are not traded on a recognised securities exchange, meaning they are not subject to daily market valuation, and are illiquid as they may take longer to sell if we need to convert them to cash to meet withdrawal requirements. This results in the risks of less frequent valuation of these assets that underlies the value of an investor’s fund holdings, and potentially the inability to redeem these holdings in a timely manner. The higher benchmark asset allocations to these asset classes will result in a higher exposure to these risks. We have established valuation policies and protocols for these assets so as to provide regular fair valuations, but this will be less frequent than daily market valuations. We have developed a Liquidity Management Policy to monitor and manage liquidity risks, we consider that the increased benchmark allocations are manageable under this policy.

While this change allows a greater proportion of the Funds’ assets to be invested in these asset classes, this increased investment is not immediate and will take place gradually over time. 

We have done this because we want to make our members more money over the long term.

Where can I find more information?


Benchmark asset allocations are part of our investment policy, and you can find further details in the Simplicity KiwiSaver Statement of Investment Policy and Objectives (SIPO) and Simplicity Investment Fund Statement of Investment Policy and Objectives (SIPO)