Mutual Fund Performance and the Impact of Superannuation and Financial Regulation

Abstract

Financial innovation such as a new superannuation scheme can allow for broader participation in retirement savings by individuals, but might also impact existing investments. On the other hand, mutual fund regulation involves a balancing act between protecting investors, and allowing fund managers to exercise their skills. Some recent changes in the fund environment of New Zealand allows an examination of the impact on performance from those changes in a small, open economy. Using a sample of New Zealand mutual funds, we compared performance before and after the introduction of two significant changes in the financial environment of New Zealand. In 2007, a state-sponsored investment scheme called KiwiSaver was introduced, providing significant incentives for more and more New Zealanders to save. Participation was substantial, and by 2015 KiwiSaver funds under management had exceeded traditional open-end funds. At the time of KiwiSaver’s introduction, mutual fund regulations was quite lax, particularly in the area of financial disclosure. However, in 2013 a new law was introduced, substantially increasing the disclosure requirements for those funds participating in the KiwiSaver scheme. First we examined, the impact on the New Zealand mutual fund industry upon the introduction of KiwiSaver, and then on the introduction of the increased KiwiSaver regulations, in order to determine if these harmed the overall New Zealand mutual fund industry. We found that the New Zealand mutual funds which focused on New Zealand or Australian equities experienced some negative performance after the introduction of KiwiSaver, but the impact on the overall industry was not significant. We also found that the increased regulations had some positive impact on performance, particularly for those funds emphasising global equities.