Submissions are due by 5 November on the KiwiSaver (Periodic Disclosure) Regulations 2012, released last week for public consultation by the Ministry of Business, Innovation and Employment (MBIE).
This Brief Counsel outlines the purpose and intended timing of the regulations, the disclosures framework and some key issues.
The regulations will require the manager of every KiwiSaver scheme (other than a restricted scheme) to complete quarterly and annual disclosure statements for each investment fund within the scheme. These must be:
- provided to the Financial Markets Authority (FMA)
- made available on the scheme’s website, and
- copied to members on request.
The Quarterly Disclosure Statement (QDS) will be required within 10 working days of each quarter-end and must summarise:
- performance and investment returns
- fees and costs
- asset allocations, portfolio holdings, liquidity and liabilities, and
- key personnel and policies and any conflicts of interest.
For a QDS prepared as at 31 December, the earliest start date for the 10 working days will be 15 January.
The Annual Disclosure Statement (ADS) will be required within 60 working days of each year-end and must provide more comprehensive summaries.
The purpose of the QDS and ADS is to give investors, advisers, regulators and market commentators standardised scheme information enabling informed fund comparisons.
MBIE expects the regulations to become law by December 2012 (effective 1 April 2013).
The first QDS (relating to the 12 months ended 30 June 2013) will be due on 12 July 2013. The first ADS (for the 12 months ended 31 March 2014) will be due on 30 June 2014.
Performance and returns
Each fund’s investment performance for the relevant period must be shown in dollar terms as a worked example, for a hypothetical member:
- with $10,000 invested in the fund at the beginning of the period, and
- who makes no contributions, withdrawals or other changes in the period.
The example must show the change in value over the period after deducting PIE tax at the top rate, fees and costs and trading expenses.
Each QDS and ADS must also show:
- the fund’s investment return as a percentage of average net asset value (AVNAV) before fees, costs and tax
- the fees and costs charged to all members of the fund as an AVNAV percentage, and
- the total tax paid by all members of the fund, again as an AVNAV percentage.
Bar graphs must show percentage returns (after fees and costs but before tax), and annual fees and costs, for:
- each complete tax year since establishment (or for the last 10 years), and
- the total period since establishment (compounded/averaged).
Fees and costs
Each ADS must disclose in a table for the relevant 12 month period (using prescribed sub-categories):
- fund fees and costs – those affecting all members in proportion to their interests in the fund (including fees and costs charged by underlying funds), expressed as AVNAV percentages
- membership fees – the average membership fee per member (and total membership fees as an AVNAV percentage)
- individual fees – those charged individually (generally for member-specific decisions such as withdrawals, transfers or switches), in dollar terms and as a total AVNAV percentage, and
- Total Expense Ratio – determined based on the International Organisation of Securities Commissions (IOSCO) standard.
The QDS need only show in a table the individual fees information (in dollar terms). The other fees and costs can each be shown as single dollar amounts (taken from the latest ADS) for an investor with $10,000 at the start of the period.
The regulations will permit best estimates where actual fees and costs figures (for example, for underlying funds) are unavailable.
Each QDS and ADS must:
- list the fund’s top ten assets (by percentage of asset value) and provide information on each of them
- show the aggregate value of those top ten assets as a percentage of asset value
- include a pie graph showing asset allocations (by sector) as at the reporting date, and
- show the fund’s target (i.e. benchmark) asset allocations as at that date.
The manager must also disclose the fund’s portfolio turnover rate for the relevant 12-month period and, as at the reporting date:
- its liquidity ratio (the proportion of assets convertible to cash within five working days without materially affecting prices), and
- its debt ratio (the percentage of assets funded by debt).
An ADS must also append lists of all assets held directly by the fund, and all assets held by an underlying fund (unless that underlying fund comprises less than 5% of assets or already publicly lists its assets, in which case, any such list must be hyperlinked).
Key personnel, policies and conflicts
An ADS must provide information, in a table, on each of the “5 personnel who had the most impact on the fund’s overall investment performance”. It must also disclose:
- any material changes during the relevant period to trade allocation, trade execution or proxy voting policies, and
- the fund’s exposure, as a percentage of total asset value, to related party transactions (defined in a schedule) and the names of the related parties.
As to key personnel terms, a QDS must provide information only on the one person who has had the most impact on investment performance. It also need only:
- disclose whether or not, since the last QDS, there have been any material changes to trade allocation, trade execution or proxy voting policies (or entry into any new related-party transactions), and
- if relevant, describe where those changes/that information is documented and provide a hyperlink.
Schedules set out the required formats for the tables and example forms of QDS and ADS. The disclosures must use these formats (and essentially the same words).
The manager must certify with each QDS and ADS that:
- the QDS or ADS has been prepared for the purposes of the regulations, and
- to the best of its knowledge (after making reasonable enquiry) all required information has been disclosed in accordance with the regulations and the information presented is accurate.
MBIE seeks submissions on:
- any areas where the regulations may be able to integrate additional concepts from international standards, as well as the IOSCO and Global Investment Performance Standard (GIPS) concepts already used
- whether there are any other areas (as well as fees and costs) where providing actual figures may be exceptionally costly or difficult and allowing best estimates may be necessary
- whether additional requirements (as well as generally accepted accounting practice) should be specified for valuing assets and liabilities
- whether providers should be required to use an electronic format allowing for automated data extraction (and any resulting additional costs)
- the benefit (and burden) of requiring more up-to-date fees and costs information in a QDS
- whether there is a better measure of fund liquidity
- whether disclosure statements will give sufficient information on fund assets to assess underlying liquidity
- whether the formatting requirements are too rigid and more areas may need flexibility for minor variations, and
- any changes that could be made to the tables and examples “to improve the usefulness and comprehensibility of the statements to potential readers”.
MBIE also notes that it is considering other options for the disclosure of underlying manager fees and for calculating portfolio turnover (and describes those options).
We think that a manager would be wise to prepare its own mock-ups of the QDS and ADS (before the 5 November 2012 submissions deadline if possible) to inform its analysis of whether the regulations might impose any exceptional difficulty or added cost.
Teething troubles can be expected in relation to the first four QDSs, which will precede the first ADS. Providers must generate (for those QDSs) information that would have been disclosed had an ADS been needed for the year ended 31 March 2013.
For assistance in addressing the impact of the regulations, and/or preparing a submission, please contact the lawyers featured or any other member of our specialist team.