A new report “from the coalface” of super fund investing has gone some way to quantifying the cost of shonky investment management, with members potentially losing out on hundreds of thousands of dollars.
Surging equity markets have driven the Future Fund’s return higher, but its prediction that inflation will be stickier than expected has been born out and it “remains conscious of the potential for significant deterioration”.
NZ industry survey finds ESG U-turn, AI ignition
The NZ industry has flipped its views on responsible investing in record quick-time, according to a just-released survey. In a follow-up to the inaugural 2016 report, the second BNP Paribas Securities Services/Investment News NZ industry survey found almost 70 per cent of respondents would increase their focus on ESG factors this year compared to just 20 per cent in 2016.
“While this year’s survey gave the ‘no’ camp three options (compared to just one in 2016), the total negative ESG score fell nearer to 36% – down from the previous 51%,” the report says. “Just as dramatically the ‘uncertain’ statistic fell from 28% in 2016 to less than 1% this time around.”
The result highlighted the rapid response of NZ investment managers – particularly KiwiSaver providers – in the wake of the ‘cluster munitions’ media outcry last year that triggered a raft of portfolio re-dos.
However, the survey found respondents were also engaged in more forward-looking activities with about 75 per cent gearing up for the ‘fintech’ challenges posed by innovations such as robo-advice and artificial intelligence (AI) tools.
“More than 50% said a digital response was either ‘essential to our business’ (26%) or a ‘high priority’ (25%) – with both of these groups building technological solutions,” the report says.
In addition to the new fintech questions and expanded ESG section, the BNP Paribas/IN NZ 2017 survey tracks year-on-year changes across a range of other metrics.
Concerns about regulation, for example, have eased somewhat during the year with the NZ investment industry perhaps relieved after negotiating the final phase of Financial Markets Conduct Act (FMC) implementation late in 2016.
Nonetheless, regulation remains the number one concern for respondents with almost 25 per cent citing it as their biggest sleep-deprivation factor in 2017.
Data and technology worries, meanwhile, more than doubled compared to 2016 while concerns about business and investment complexity leapt from 1 per cent last year to 10 per cent in the latest survey.
Doug Cameron, head of BNP Paribas NZ, said the result underscored some major shifts over the year as local managers moved to holding global securities via direct mandates rather than in offshore-domiciled unit trusts.
Cameron said NZ institutions were able to take on direct offshore holdings due to increased scale, cost reduction pressures, greater transparency and the need for better oversight (including of ESG implementation). However, he said trend did introduce operational complexities for local managers.
“The change sees administration and custody of assets being big movers in the most important operational services category,” Cameron said. “Managers and their providers validate prices for securities held directly in a variety of markets across all major asset classes and provide custody services for the assets in those markets. This has always been the case but the volume of these assets has increased significantly which is positive news for the industry.”
Interestingly, the survey also picked up a marked drop-off in concerns about generating returns and investment issues in general. After years of positive returns and low volatility the results suggest a degree of complacency has crept in – a view confirmed by several participants in recent industry presentations that previewed the survey findings.
The full BNP Paribas/IN NZ survey report is available free for download:
