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 Mercer Kiwisaver Scheme's own website, fund updates, and the product disclosure statement published in 31 August 2020.
Facts & History of the KiwiSaver provider
In 1937, William M. Mercer Ltd began in Canada and grew to become a premier provider of actuarial and benefits consulting services. Acquired by Marsh & McLennan Companies in 1959 and merged with its own employee benefits department, the firm expanded through growth and acquisition to become a global leader in health, retirement, investments, and talent.
Today, Mercer works with clients in 130 markets around the world, helping them continue to advance the health, wealth, and performance of their clients.
Mercer is a wholly-owned subsidiary of Marsh & McLennan, a professional services firm in the areas of risk, strategy, and people. The company’s more than 60,000 colleagues advise clients in over 130 countries. Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment through four market-leading firms. Marsh advises individual and commercial clients of all sizes on insurance broking and innovative risk management solutions.
Below you will find a link for more information on their history:
The fund management division of Mercer is ranked 82nd in the world for the total assets under management, with Assets Under Management (AUM) totaling $199.7 billion as of 2019.
Mercer manages seven funds under their KiwiSaver scheme, varying in levels of risk from the Cash fund to the Shares fund. As of June 2019, the total AUM for Mercer KiwiSaver was over $2 Billion.
The investment team, structure and their alignment with clients
Martin Lewington - CHIEF EXECUTIVE OFFICER (MERCER NZ)
Martin was appointed Country Corporate Officer of Marsh & McLennan Companies, New Zealand, driving business strategy across all operating companies in New Zealand. Martin has been CEO of Mercer NZ since 2009. He is responsible for the firm’s Wealth, Health and Career businesses.
Martin has also held senior roles with Mercer in investment management and investment consulting businesses since joining Mercer in 2006.
Philip Houghton - CHIEF INVESTMENT OFFICER (MERCER NZ)
Prior to joining Mercer in July 2012, Philip gained 23 years of investment experience, including working as the chief investment officer for OnePath/ ANZ (NZ). He also worked for AMP Asset Management in London managing international equity funds and as an analyst for FPG Research, researching fund managers.
Philip holds a Bachelor of Commerce from Canterbury University, a Diploma from the Chartered Institute for Securities & Investment (UK) and is a holder of the right to use the Chartered Financial Analyst® designation.
Kylie Willment - CHIEF INVESTMENT OFFICER (PACIFIC REGION)
Kylie leads the Delegated Solutions portfolio management team which consists of asset allocation strategists, portfolio managers and analysts across Australia and New Zealand. The team is responsible for managing over $30 billion in assets within Mercers Multi-Manager Funds.
Kylie is a member of Mercer's Pacific Investment Committee, Mainstream Assets Global Investment Committee, the Institutional Wealth Leadership Team, and the Pacific Leadership Team. She is based in Sydney.
Ronan McCabe - HEAD OF PORTFOLIO MANAGEMENT, DELEGATED SOLUTIONS PACIFIC, MERCER AUSTRALIA
Ronan has previously held portfolio management roles at Pioneer Investments (part of the Amund group, Europe’s largest asset manager), Incisive Capital Management, and DZ Bank Ireland.
Relocating from Dublin to Sydney and commencing in February 2019, Mr. McCabe will be responsible for leading manager selection and portfolio construction at the asset class level for the Mercer Funds. In addition to his strong skills and expertise in multi-manager portfolio management, Ronan also brings to Mercer a diverse perspective through his international experience.
'Manager of Managers' Approach
Unlike some other KiwiSaver providers, Mercer uses a ‘manager of managers’ approach. As a manager-of-managers, Mercer selects specialist investment managers for each sector, thereby delegating the selection of securities to those managers.
They have more than 100 staff involved in manager research which allows them to track over 5,400 managers and more than 26,000 investment strategies across the globe. Each investment option is carefully constructed and Mercer monitors every manager on behalf of their investors.
Mercer selects Investment Managers who specialize in their particular investment markets and who have demonstrated the capability and conviction in portfolio construction and the execution of investment strategies.
The process of selecting these managers includes an assessment of their ability and performance and is continuously monitored with formal performance reviews.
Mercer is responsible for the investment of the Scheme’s assets, in accordance with legislative requirements, the Trust Deed, the Product Disclosure Statement (PDS), and this SIPO. Their responsibilities include:
Maintaining the investment governance framework including effective investment policies.
Mercer is responsible for reviewing the performance of its investment managers and is undertaken on a regular basis. These managers will be reviewed on factors such as investment style, organizational strength, performance relative to investment objectives, and many other factors to demonstrate the company’s dedication to the success of their funds in accordance with their objectives.
The returns of Mercer funds will be compared with the returns of a suitable peer group and is monitored on a monthly basis to best meet the fund’s objectives and compliance with their respective benchmarks.
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.
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.
The custodian for Mercer KiwiSaver is BNP Paribas Fund Services Australasia Pty Ltd. BNP Paribas in Australia and New Zealand offers a range of highly specialized financial and advisory services. Their global assets under custody stand at NZD $22 Trillion as of January 2019.
Below is a link for more information on BNP Paribas Fund Services Australasia Pty Ltd.
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.
Mercer KiwiSaver Scheme’s supervisor is Trustees Executors Limited. Trustees Executors is a professional New Zealand Trustee Company that provides a range of financial and trust services to individuals and also the corporate sector as a Licensed Financial Markets Supervisor. Trustees Executors oversee the administration and supervision of client funds totaling in excess of NZD$122 billion.
Below is a link for more information on Trustees Executors Limited :
The Company has a Board of Directors who is required to ensure that each Fund is administered according to the Fund’s Trust Deed, other governing rules, and superannuation legislation. The Board has adopted a charter that sets out its role and responsibilities in administering the Fund.
The make-up of the Board is also governed by the Constitution of the Company and the Board Governance Policy. Board proceedings are also governed by the Constitution and the Board Meeting Protocol. The Company’s Board currently comprises five Non-Executive Directors and one Executive Director. A majority of Directors are also “Independent” Directors.
The investment processes followed by the manager
Mercer’s investment approach is based on the belief that an optimal investment strategy takes full advantage of investment opportunities by diversifying across investment classes (in a multi-sector fund) and investment styles, thereby achieving maximum investment efficiency. Mercer believes that a “manager of managers” approach is the most effective and flexible way of delivering the best outcome for investors and that well-constructed combinations of highly-rated specialist investment managers generally result in securing a portfolio of investments that provide consistent, above-average performance over time.
Underpinning this approach, there are five basic elements to Mercer’s investment beliefs
ACTIVE MANAGEMENT: Mercer believes that active management is a skill and its manager research process can improve the likelihood of identifying capable and skillful managers.
OPERATIONAL EFFICIENCY: Mercer considers overall investment returns can be enhanced by having a monitoring and governance framework that focuses on evaluating and quantifying investment efficiency
RISK MANAGEMENT: Mercer believes that asset allocation and diversification are the most important decisions to be made in relation to the investment process. They are also of the view that risk and return are related and that risk is itself a multidimensional concept.
DYNAMIC ASSET ALLOCATION: Markets can exhibit trends over the medium to long term and can be behavioral in nature, which is why Mercer believes Dynamic Asset Allocation can add value through higher returns and also mitigate downside risk in a Fund.
SUSTAINABILITY: Mercer believes that environmental, social, and governance (ESG) risks and opportunities can have a material impact on long-term risk and return outcomes and considers that taking a sustainable investment view is more likely to create and preserve long-term investment capital.
Mercer also believes that active ownership helps realize long-term shareholder value.
Mercer focuses on selecting Investment Managers who are specialists within their particular investment markets and who have demonstrated capability and conviction in portfolio construction and the execution of investment strategies.
A formalized process of screening potential managers, including a detailed assessment of their ability and performance, is coupled with on-going monitoring and formal performance reviews. The aim is to achieve a level of returns meeting or exceeding the objectives set, from time to time, for each Fund and which is consistent with the risk profile of each Fund.
Mercer is responsible for reviewing the performance of the appointed Investment Managers. Such monitoring is undertaken on a regular basis. Factors taken into account in these reviews will include investment style, resources, organizational strength, investment performance relative to objectives, product structure, and any other factors considered relevant to the Investment Manager’s continuing ability to meet the applicable investment objective.
Returns will also be compared with returns earned by a suitable peer group, such as a group of other professional investment managers. Reporting on performance against each Fund's objectives and compliance with benchmarks is monitored on a monthly basis. Exceptions, including unexpected performance dispersion or negative outcomes, are highlighted in this reporting, and any recommended remedial actions are noted.
The Funds, excluding the Cash Fund, are subject to a Dynamic Asset Allocation (DAA) process designed primarily for risk control, capital preservation, and incremental value add. DAA assessments are conducted on a regular basis and involve two stages.
First, each asset class is assessed to determine whether it warrants being under or over-weighted based on a broad range of factors. Secondly, position size (i.e. the extent to which the asset class weight is ‘tilted’ within the benchmark ranges) is determined based on the level of conviction as to the expected value such tilts will add, and dictates the Target Allocation.
This DAA approach aims to produce a more stable pattern of returns for the relevant Fund, especially during unstable market periods.
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.
Mercer New Zealand’s Responsible Investment Policy is guided by:
The three components of the policy are Sustainable Investment, Ethical Exclusions, and Corporate Governance & Proxy Voting.
Mercer believes a sustainable investment approach is more likely to create and preserve long term investment capital.
As an investor in New Zealand and international markets, Mercer believes that Environmental, Social, and Governance (ESG) factors can have a material impact on long term risk and return outcomes. Further, Mercer believes that principles of active ownership and investment stewardship are of value in the investment process. For that reason, ESG factors are incorporated in Mercer’s decision making and ownership practices for its investment funds/options in New Zealand.
Mercer is also a Signatory to the United Nations Sponsored Principles of Responsible Investment
Mercer may exclude investments in companies that they view as doing substantial and irreparable harm to society or the environment provided the risk/ return implications of excluding such companies is not expected to lead to a significant financial detriment for clients and can be effectively managed.
Below is Mercer’s responsible investing document that outlines the strategies used to employ ESG:
Corporate Governance & Proxy Voting
Mercer applies principles of active ownership and exercises its duties as an owner, including share voting and engagement. In regards to New Zealand and Australian shares, the decision on how to vote is ultimately made by Mercer, with oversight provided by Mercer investment professionals tasked with the management of compliance with Mercer’s approach to corporate governance and proxy voting.
The following key principles underpin the Mercer approach:
Please see the link below for more information on Mercer and its products:
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?
Mercer KiwiSaver Scheme has the following KiwiSaver Funds. More details on each of these funds can be found in the links below.