Fund manager wants to sink KiwiSaver billions in councils' leaky pipes

Thursday, 15 April 2021

Tips from the Commission for Financial Capability can help people in the 45 and under, 46-65, and 65-plus age groups get the most out of KiwiSaver. (First published May 2018.)

New Zealand’s KiwiSaver schemes have billions of dollars to invest in the country’s creaking infrastructure, but the door remains closed.

And one fund with close to $3 billion in its coffers says Kiwis could miss out as competition for financing heats up, and overseas interests come calling, including organisations across the Tasman.

Sam Stubbs, founder and managing director of non-profit KiwiSaver scheme Simplicity, recently told a forum of Wellington business people that his fund and others could play a big part in financing infrastructure.

The capital needs billions of dollars to fix old and failing water and sewerage pipes, and $6.4b to fund its transport system in the Let’s Get Wellington Moving project.

* Private superannuation savings schemes 'underperforming'

* Government debt is low and borrowing is cheap; time to think very big

* KiwiSaver could turn New Zealand into a Pacific Tiger economy

Latest figures show there is about $75b held in the nation’s KiwiSaver schemes, and Treasury predicts that to grow to $200b by 2030.

“The size of the pool is huge,” Stubbs said.

“And there’s something very special about the money. You talk about politics but this the most depoliticised pool of money, because it belongs to everybody.”

Simplicity and other KiwiSaver schemes already invest in the Local Government Funding Agency (LGFA), the pool of cheap debt for various local bodies.

But that also includes major investment from overseas funds, and Stubbs believes there’s a case for direct investment for Kiwis, by Kiwis.

“I’m going to invest in water systems all over the world, it doesn’t have to be here [Wellington], but it seems to me kind of silly that we wouldn’t invest in our own backyard.

Workers remove part of the ruptured pipe which sent sewage spilling across Victoria and Mercer streets, Wellington. The city needs to spend billions of dollars to bring its infrastructure up to date.

“Why should the good investments be just for the council, the Government and … big foreign buyers?”

Murray Harris, head of KiwiSaver at Milford Asset, agreed that infrastructure could become a viable investment as the pool grew and fund managers looked to diversify.

“We have invested in private equity, and we could see infrastructure being an extension of that.”

Stubbs said fund managers were taking a long-term view, so any return on investment wouldn’t need to be much more than that available through the LGFA, and wouldn’t have to involve ownership of that infrastructure.

“There is a magical sweet spot between what the council would be prepared to pay for someone else to fund this, other than rates, and the return that you should expect to receive for funding and taking the risk on.

“It’s not likely we would be politically allowed to buy the pipe, and own it.”

Wellington City Council chief financial officer Sara Hay says the door remains open, but the price still has to be right.

Other nations, including Singapore and Australia, had dipped into pension funds to pay for infrastructure and build wealth.

Stubbs said KiwiSaver fund managers had been approached by both Melbourne and Sydney.

“They have very hungry cities for infrastructure…the conversation is, look, here’s our 30-year plan, here’s what we want to do, what we need to fund… and we are just going to see all of the pension funds.

“If there’s no engagement we are going to be investing in Sydney’s water pipes, not Wellington’s.”

But Wellington City Council (WCC) chief financial officer Sara Hay said those Aussie cities were talking to KiwiSaver fund managers because they didn’t have access to their own LGFA.

She was happy to talk with Stubbs or any fund manager, but “it will come down to what’s the best proposition for Wellington”.

“Even though debt today is deemed cheap, Wellingtonians still have to pay that back, so what you are balancing is how much you want to deliver for the city versus what we can ask Wellingtonians to pay, the impact our borrowings have on rates.”

Council treasurer Martin Read said the council was looking at raising its debt ceiling from 175 per cent of revenue to 225 per cent.

That would mean its projected debt rising from about $820 million in this financial year to “well over” $1b in the next decade.

Much of that would come through the LGFA.

Hay said the council could still work with a third party, such as a KiwiSaver scheme, but that would need to be off the balance sheet and involve a sharing of the risk.

“To that risk sharing, often you have to transfer ownership of assets, and there’s probably not a lot of political appetite for that.”

Stubbs said that was common thinking around many of the local authorities he had talked with, including the council.

He could see the “light-bulb going off” but the door was often closed, politely but firmly.

However, he believed they would be back.

“What will bring everybody to the party is sheer desperation,” he said.

“When you are sticking through rates increases of the type they are talking about in Wellington, and you’ve got those same ratepayers who have got billions of dollars saved [in KiwiSaver], and there’s not a dollar of foreign money in it, then necessity will be the mother of invention.”