7 Sep 2016

Fund manager bows to KiwiSaver pressure over arms investments

5:35 am on 7 September 2016

One of the biggest fund managers in the world is bowing to pressure from KiwiSaver providers to come up with an ethical investment option.

A man de-mines a road behind a warning sign at Sri Lanka,in 2009.

Several KiwiSaver providers were found to have money tied up in companies that make cluster bombs, land mines and nuclear weapons. Photo: AFP

Last month RNZ revealed all nine default KiwiSaver providers had investments, either directly or indirectly, in companies that made cluster bombs, anti-personnel mines and nuclear weapons.

People who sign up to KiwiSaver but do not pick a scheme to enrol in are automatically allocated to one of nine providers hand-picked by the government.

These default providers are ANZ, Westpac, ASB, BNZ, Kiwibank, AMP, Mercer, Grosvenor and Fisher Funds.

Westpac, Kiwibank, Grosvenor and ASB all invested in such companies through a passive fund run by American-based fund manager Vanguard International.

Vanguard said it was willing to create a new fund just for New Zealand that complied with the law and investors' concerns, but it needed the KiwiSaver industry to agree on what should or should not be excluded.

Westpac, ASB and Grosvenor have since dumped the fund or were in the process of doing so, while Kiwibank is still reviewing its investment.

Vanguard head of market strategy Robin Bowerman said the company was now in talks with its major clients in New Zealand about coming up with a better solution.

"We're very keen to actually find a solution that will work for New Zealand investors so that we can continue to operate there."

"We obviously would be looking at doing that sooner, rather than later, but it also involves establishing a new product, there's regulatory licensing issues as well as investment issues to get through, but we will be working on this as a really high priority in the next month or so."

The newest KiwiSaver provider on the block, Simplicity, opened for business just this week and its low-cost model is based on investing all its money through Vanguard.

Managing director Sam Stubbs said he was in daily talks with Vanguard and if it didn't come up with a solution he would be taking his business elsewhere.

"They have every opportunity to bring a product to the market and we hope they will,"

The best thing for the KiwiSaver industry would be to align with the policies adopted by the New Zealand Superannuation Fund, because that would be in clear alignment with all the treaties and legal obligations New Zealand had, Mr Stubbs said.

Vanguard's Robin Bowerman said he was open to that idea and it would not be difficult to do but was proving a challenge to get KiwiSaver providers to agree.

"Is it just armaments, is it other things? It is nuclear? In other parts of the world tobacco is an issue. There are a range of issues around what is it you're looking to exclude."

"We think if we actually get an agreement on that with a baseline of stocks that is acceptable to New Zealand investors then that will be relatively straightforward to implement," Mr Bowerman said.

Vanguard said the legality of its investments in controversial weapons still needed clarification.

Official advice provided to Commerce Minister Paul Goldsmith said knowingly investing in cluster bombs was against the law and it was an offence to aid, abet or assist a person to manufacture or possess nuclear weapons and land mines.

Amnesty International laid an official complaint about KiwiSaver investments last week but the police had yet to launch a formal investigation.

"We've been working with the Financial Markets Authority (FMA)," a police spokesperson said.

"Police continue to assess information we've received in relation to KiwiSaver Funds.

"While this assessment is ongoing, we're unable to provide specific information.

"However, we continue to liaise with other government agencies in gathering information to assist in our assessment and, if necessary, inform any future action which may be required by police."

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