There's a lot more to selecting a KiwiSaver fund than just checking past returns and fees. If your hard-earned money is invested in KiwiSaver, you need to ask the important questions to understand where and how that money is invested.
Note: The following information is taken from Generate Kiwisaver Scheme's own website, fund updates, and the product disclosure statement published in March 2020.
Facts & History of the KiwiSaver provider
Generate is a New Zealand owned and operated KiwiSaver specialist. Over the last six years, Generate has led its industry with more than 90% of all new Generate KiwiSaver members speaking to an adviser before they join. New Zealand owned and operated, Generate’s investment decisions are made by an investment committee which is made up of experienced investment professionals. They generally invest in funds that have substantial funds under management and are run by well-resourced teams of investment managers and research analysts located around the world.
✅ New Zealand Based Provider
Below you will find a link for more information on their history:
The Generate KiwiSaver Scheme manages seven funds and has Total Assets Under Management (AUM) of over $1.7 billion and 83, 213 members, as per the annual fund report of March 2020.
The investment team, structure and their alignment with clients
Sam Goldwater - Portfolio Manager, Director & Investment Committee Member
Sam has over 20 years of financial markets experience. Locally he worked in fixed income sales and trading for the National Bank of New Zealand Treasury, co-managed the bond desk at First NZ Capital, and immediately prior to Generate led the investment management of a sizable portfolio of family assets. He also worked for three years in London in fixed income trading and origination. Sam co-founded Generate in late 2012.
Henry Tongue - CEO, Director & Investment Committee member
Henry has 19 years’ experience in the financial markets, beginning as an equity analyst for a New Zealand stockbroking firm before moving to London in 1999. In London, he worked as an analyst for Credit Suisse and Abbey National. Returning to New Zealand in 2003, Henry joined a private investment company in the management of their Australasian equity and property portfolio. From 2007 until 2011 he was Senior Portfolio Manager responsible for investments across all asset classes at Huljich Wealth Management. Henry co-founded Generate in late 2012.
Peter Brook - Non-executive Chairman & Investment Committee Member
David is Deputy Chief Investment Officer and is the Portfolio Manager of the Milford Diversified Income Fund. He is also the Co-Manager of the Milford Trans-Tasman Bond & Global Corporate Bond Funds.
David joined Milford in 2013 from Merrill Lynch where he worked in Sydney and London for eight years in a variety of areas including credit research, emerging market research, and principal investments in high yield/distressed credit. Prior to this, David spent four years as a fixed income analyst at BT Funds Management and Principal Global Investors, based in Sydney and London.
Nick Bowden - Investment Committee member
Nick is an advisor to a London based fund manager. He has over 20 years’ experience working with various financial institutions and investment firms in New York and London.
He has primarily focused on investment portfolios but in addition, he brings deep operational experience in dealing with the changing risk and regulatory environments. Nick also worked at First Union in New York, which became part of Wells Fargo, from 1995-1999 in an institutional sales role.
The Manager of the Scheme is to Generate Investment Management Limited (“Generate”), who is also the investment manager of the Scheme. The investment team at Generate is made up of a four-person executive team (listed in the previous section), responsible for the oversight and portfolio management of specific funds. In regards to the key personnel involved with the management of the Generate Growth fund, Sam Goldwater is responsible for the portfolio management of the fund, with six years and nine months' experience with this fund.
Generate has delegated the performance of certain administration management functions for the Scheme (including registry) to MMC Limited (MMC). Generate and MMC are reimbursed from the Scheme’s assets for the day-to-day administration of members’ balances and for maintaining the member register for the Scheme.
Generate is proud to say that 95% of new Generate KiwiSaver Members surveyed rated their Generate advisers 4 or 5 out of 5 when asked: “Can you rate the experience out of 5 – with 1 being not very informative or helpful and 5 being really valuable information and a good use of my time”.
Over 70,000 Kiwis have joined Generate through an adviser… at no cost to them. That advice has resulted in Generate having one of the highest rates of members in growth funds and one of the highest rates of members getting some or all of their annual Government contributions. This according to Generate adds significant value in retirement to the relevant members. They also have one of the highest rates of net transfers from other KiwiSaver schemes which Generate claims is a reflection of their focus on advice, returns, and service.
In its unique value for money assessment SuperRatings has awarded Generate a Gold Rating every year from 2016 to 2019. The rating methodology looks for KiwiSaver schemes that “offer the greater potential to maximise the retirement savings of its members in a well serviced, secure environment whilst offering suitable, well-priced benefits such as member education and quality impartial financial advice”.
Governance & Compliance processes
All KiwiSaver Scheme Providers must ensure they meet regulatory standards and act with customer interests in mind.
KiwiSaver Scheme Managers must exercise care, diligence, and skill in the investment of scheme assets and act in accordance with the stated investment policy and objectives. The FMA monitors that KiwiSaver Schemes are compliant with their obligations. Additionally, KiwiSaver Scheme Trustees also have a responsibility as front-line supervisors for monitoring the management and administration of these schemes.
The Supervisor and Custodian of the Scheme are the Public Trust (PT). The PT is responsible for the Scheme's supervision and the performance of Generate's duties as manager of the Scheme. The PT is independent of Generate and is regulated by the Financial Markets Authority.
A custodian plays a key role in protecting your investments. They hold your money and investments (i.e., keep custody of them) on your behalf. So they are the legal holder of your assets while you are the beneficial and ultimate owner.
A supervisor is a licensed entity independent of a KiwiSaver scheme provider that supervises the provider’s management of the scheme. KiwiSaver schemes are trusts, and (except for restricted KiwiSaver schemes) the terms of the trust deed states that the supervisor (or another custodian) must hold all contributions and investments in trust for the investors.
Below is a link for more information on the Public Trust (PT):
The Manager is a New Zealand owned and operated KiwiSaver specialist. The purpose of the Generate KiwiSaver Scheme is to help you save for your retirement and provide you with retirement benefits. The Scheme is a registered KiwiSaver scheme under the Financial Markets Conduct Act 2013 (FMCA). The Scheme is structured as a unitised trust, governed by a trust deed which appointed Generate as manager and Public Trust as a supervisor.
The Manager’s general philosophy is that markets are inefficient and that an actively managed portfolio of diversified assets can exploit these inefficiencies. The manager has an Investment Committee (IC), which is made up of experienced investment professionals. The IC is responsible for overseeing the Scheme's investment decisions that are made by the Investment Executive (IE) and monitoring compliance with the SIPO. The members of the IC or IE may change from time to time without notice to you. The IE is made up of senior members of the investment team and the CEO.
For more information, please click on the link below:
The investment processes followed by the manager
The long-term performance objective of each of the Funds is to outperform (before fees, expenses, and tax) the notional return of the relevant benchmark index over the long-term.
Generate’s International Equities investments are predominantly made through underlying funds that invest in equities. We look for underlying funds who have proven themselves with outstanding track records over a long period of time. Some of the underlying funds may use other securities and have the ability to short-sell assets and use leverage.
Below is the criteria Generate uses when deciding where to invest:
Investment philosophy and strategy – Do they have a clearly articulated philosophy and strategy and do we agree with that strategy based on our view of the investment environment?
Ownership and alignment of interest – Do the ownership structure and business model of the fund and the Underlying Fund give the right incentives to maximise risk-adjusted returns for their investment?
Investment team experience, track record, and stability of personnel – Does the investment team have the right skills and depth? Have they proven they can outperform over a long period of time? Have they worked together over a number of cycles and have a low turnover of staff?
Liquidity – They prefer funds with large funds under management and that have good liquidity.
Leverage – They prefer funds that have no or what we consider are acceptable levels of leverage.
Fees – Do the fees offer good value in their opinion? Does the addition of a particular fund keep Generate’s overall fee structure at a reasonable level?
Portfolio Management – Does the fund fit into Generate’s wider portfolio and does it provide adequate diversification?
Independent auditor – The fund’s auditor must be independent and reputable.
Custodian – The custodian of the fund should be independent or an independent function within a larger organisation.
Regulator and jurisdiction – All investment funds must be regulated in a well-recognised jurisdiction.
Fixed Interest Investments:
Fixed Interest investments can include loans to the Government, local authorities, banks and corporations. The borrower pays interest on the loan. The value of fixed interest investments changes with movements in interest rates. Ordinarily, these loans return capital plus a fixed return over time
Below are the criteria that Generate measures when deciding where to invest:
Credit worthiness – Where rated, Generate has an 'investment grade' minimum for our fixed interest securities. They look at the rating of the issue and issuer. Where the fixed interest securities are unrated they can invest in the issue if, in their opinion, the issue is of equivalent quality.
Structure – What are the specific terms of the issue?
Pricing – Do they think the current price reflects fair value?
Liquidity – Does the issue have good liquidity?
Portfolio management – How does the addition of security affect their sector and issuer diversification? How does it affect the maturity profile of the portfolio?
The Manager also takes into account the following empirically supported investment philosophies in determining the most appropriate investment strategy for each Fund:
Benefits of Direct Securities.
Managed funds on the other hand are limited to implement the core strategy to only those investment vehicles suited to New Zealand-based longer-term investors. Therefore, part of the due diligence undertaken in selecting the managers of these vehicles will be focused on ensuring they have an appropriately documented approach to optimising tax outcomes resulting from their underlying investment philosophy and process.
The Investment Executive (IE) continually reviews tactical asset allocation and makes changes / new investments as described earlier. Asset allocation and investment strategy is reviewed by the IC every two months at the IC meeting. Long-term Target Asset Allocations are formally reviewed by the IC at least once every two years.
The IE updates the Portfolio Valuation Report on a daily basis and the Administrator provides daily unit pricing (with a one business day delay). Daily changes in the Portfolio Valuation Report are reconciled with the Administrator’s daily unit pricing. The daily unit pricing is used to monitor the performance of each of the Funds, generally on a daily basis. Absolute performance is reported to the Supervisor as part of the Manager’s report on a monthly basis and relative performance versus the Funds’ benchmarks is reported quarterly in the Manager’s report. The performance figures reported to the Supervisor are after fees but before tax. Absolute performance is disclosed on their website and on the Disclose Register on a quarterly basis via their fund updates. Performance figures disclosed in their fund updates include returns after fees and both before and after tax.
Social and Ethical Considerations
Socially responsible investing (SRI) or Environmental, Social and Governance investing (ESG), also known as sustainable, socially conscious, “green” or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about social change regarded as positive by society.
Basically, SRI investing is investing in companies that have a positive impact on society, based on a number of factors.
Investing in a way that incorporates environmental, social and governance (ESG) issues, manages risk and generates sustainable long-term returns is an important consideration in Generate Investment Management Limited’s (Generate) investment decision making process. Generate believes that proactively managing ESG issues will deliver stronger long-term investment returns.
Generate became a signatory of the United Nations Principles for Responsible Investment (UNPRI) on 9 May 2018. As an investment manager signatory, we have declared our commitment to the UNPRI regarding responsible investment.
Generate has committed to:
As per the Generate Responsible Investment Policy document, across all Generate funds, including their KiwiSaver funds. Specifically, direct and Underlying Fund investments into companies involved in the following activities are excluded:
An investment will not be eligible for inclusion on the AIL if it is an excluded investment. On a six-monthly basis, the Investment Executive will repeat Generates’ due diligence on a sample of the AIL, or at any time if relevant material information becomes available. If a directly held AIL investment is discovered to contravene their excluded investments, Generate will sell the investment in an orderly fashion to protect members’ interests.
In addition to the above listed excluded investments Generate will avoid investing directly in companies that have displayed behaviour that they determine shows a complete disregard for Generates’ approach to responsible investing. We will take into account any evidence of change in company activities or behaviour when making these exclusion decisions.
The following roles are responsible for the execution, management, and oversight of the Responsible Investment Policy:
The Generate Responsible Investment Policy will be reviewed annually or more regularly as required. During this review, the persons responsible will consider developments in responsible investing practices. This policy is subject to change at any time.
Below is a link for more information on Generate's Responsible Investment Policy:
We have looked at the best performing KiwiSaver funds based on their 5-year returns, however, looking at past performance of a fund is just one aspect when choosing a KiwiSaver fund. Other questions you should be asking include:
Our research team at National Capital looks at over 100+ funds and can recommend the right KiwiSaver investment for you.
Our KiwiSaver recommendations look at the big picture and not just the scorecard. So, what are you waiting for?
Generate KiwiSaver Scheme has the following KiwiSaver Funds. More details on each of these funds can be found in the links below.