The New Zealand government is proposing a major shift in KiwiSaver regulations, aiming to make it easier for fund managers to invest in private assets such as unlisted companies, infrastructure projects, and property. The move, announced in late 2024, has sparked debate over whether the potential benefits outweigh the risks. While supporters argue that increasing private asset exposure could unlock billions in investment and boost long-term returns, critics warn that reduced transparency, liquidity issues, and higher fees could erode confidence in the retirement savings scheme.
Why the Change?
KiwiSaver, introduced in 2007, is a voluntary savings scheme designed to help New Zealanders build retirement funds. Currently, most KiwiSaver funds invest primarily in publicly traded assets—stocks and bonds—because they offer liquidity, transparency, and relatively low fees. Only around 2-3% of KiwiSaver funds are allocated to private assets.
The government’s proposal seeks to increase that figure, bringing it closer to Australian superannuation funds, which allocate over 15% to private assets. The Ministry of Business, Innovation and Employment (MBIE) argues that a higher allocation to private investments could provide better diversification and higher long-term returns while also funding critical infrastructure projects and businesses that struggle to access traditional capital.
The Potential Upsides
Supporters of the proposal say the changes could benefit both KiwiSaver members and the broader economy. Private assets often deliver higher returns over the long term, making them well-suited to KiwiSaver’s long investment horizon. According to Milford Asset Management’s Senior Investment Manager Tom Monti, long-term funds like KiwiSaver are naturally aligned with private asset investments. “To compensate the investor for that [illiquidity], they have the ability to generate above-average returns over the long-term, and they have done so,” Monti said in a recent podcast.
There is also a strong economic argument for the move. Increased KiwiSaver investment in private assets could provide capital to local businesses, help fund new infrastructure, and create jobs. Unlike investing in offshore markets, keeping more KiwiSaver dollars in New Zealand could strengthen the domestic economy.
The Risks: Liquidity, Transparency, and Fees
Despite the benefits, critics argue that the risks could be significant. Private assets are inherently illiquid, meaning they cannot be quickly sold if members need to withdraw funds. Under current regulations, KiwiSaver fund managers must allow members to switch providers within ten days. A large private asset allocation could make this difficult, leading to potential delays or forcing fund managers to hold onto a portion of investors’ money until assets can be liquidated.
There are also concerns about how private assets are valued. Unlike publicly traded stocks, which have real-time market prices, private assets require estimates that can lag behind actual market conditions. As Monti explained, “Private assets lag because they don’t have a listed market… They require a fund manager to make an estimation on fair value.” During financial downturns, this could lead to discrepancies in fund valuations, potentially disadvantaging investors.
Fee transparency is another contentious issue. The government’s proposal would allow KiwiSaver providers to exclude some private asset-related costs from their reported fees. Professor Aaron Gilbert, a finance expert at Auckland University of Technology, warns that this change could make it harder for investors to compare funds. “Removing private asset costs from disclosures will make it harder for New Zealanders to compare the fees on different funds,” Gilbert wrote in The Conversation. Private asset management also tends to be more expensive, requiring specialised teams and additional valuation costs. If fees rise significantly, it could eat into any potential gains from higher returns.
Managing the Risks
To address these concerns, several risk management strategies are being considered. One proposal is the use of “side pockets” or “sidecars,” where illiquid private assets are kept separate from the rest of an investor’s portfolio. This would allow investors to switch providers without forcing immediate sales of private assets. However, as Monti pointed out, there are still many unanswered questions: “Who decides the correct time to then exit that? There’s a lot of subjective questions, and [they] can be managed well, but these all go to confidence, which is super important.”
Other proposed safeguards include redemption gates—temporary restrictions on withdrawals during periods of market stress—and stricter regulatory oversight to ensure fair valuation of private assets. The government is currently consulting with the industry and the public on these measures.