MAKING EVERYONE LOOK GOOD BAD? (PART II)
A BETTER APPROACH FOR BENCHMARKING KIWISAVERS
(AND A PROPOSAL FOR A FAIRER DEFAULT SCHEME)
In the second of a two-part series on performance benchmarking in New Zealand we review the practices of KiwiSaver managers. Unlike in the local institutional market, where we argue total portfolio benchmarks are often easy beats, few KiwiSaver managers deliver returns in excess of their composite performance benchmarks net of fees. We find current practices are not serving anyone and propose a better solution – clear, transparent and easy to understand KiwiSaver Benchmarks.
‘The current benchmarking practices, rather than bringing clarity and transparency, simply add to the overall confusion…. Current KiwiSaver benchmarks are far too complicated.’
Matthew J. Arnold, CFA, CAIA,
Director,
Russell Investments
MAKING EVERYONE LOOK GOOD (PART I)?
HOW ‘EASY BEAT’ BENCHMARKS DISTORT THE MARKET
(AND WHAT TO DO ABOUT IT)
In the first of a two-part series on performance benchmarking in New Zealand, we review the practices of local fund managers and institutional investors. We find that through inappropriate benchmarking of single asset class funds, many fund managers set themselves easy to beat targets, often collecting performance fees in the process. Next, we argue that the ‘Reference Portfolio’ construct is an improvement on the unnecessarily complex and opaque, but often ‘easy beat’, total portfolio composite benchmarks used by many local institutional investors.
In the second part of the series, to be released shortly, we review benchmarking by KiwiSavers. We suggest regulatory objectives, as well as fund manager, financial adviser and member requirements are not being met by current practices and propose a better alternative – simple KiwiSaver Benchmarks.
' The industry and its many participants have incentives, financial and otherwise, to adopt easy beat benchmarks. Chief Investment Officers, Risk Managers and governance teams as well as Fund Supervisors must hold themselves accountable for ensuring that representative, transparent, appropriate and fair benchmarks are used.'
Matthew J. Arnold, CFA, CAIA,
Director,
Russell Investments
WHAT’S (NOT) IN YOUR BENCHMARK (PART III)?
A QUICK LOOK AT GLOBAL EQUITY INDICES AND
INDEX-ORIENTED FUNDS USED BY NZ INVESTOR
In our third paper, we do a deep dive on global equity benchmarks and some of the index-oriented funds available for NZ investors.
'Through their choice of fund, some local investors may be unwittingly investing in controversial stocks and sectors. Others may be unaware of just how much of the opportunity set they are missing out on, due to their highly restrictive fund and benchmark.'
Sam Tither,
Investment Analyst,
Russell Investments