Monday 6th August 2018
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Upstart fund manager Simplicity NZ has shifted into positive cash flow territory after a whirlwind two years where it's now managing more than $400 million of assets.
The Auckland-based not-for-profit reported a deficit of $380,000 in the year ended March 31, compared to a deficit of $147,000 a year earlier. Fee income soared to $997,000 from $138,000 but was outpaced by operating costs more than doubling to $1.3 million. That's left the fund manager reliant on $900,000 of interest-free loans from chief executive and founder Sam Stubbs, with some $647,000 outstanding at the balance date, and he's committed to providing additional support if it can't meet its obligations.
Simplicity posted a negative operating cash flow of $291,000 in the March year, but Stubbs says it's now generating positive cash flow, which "means a huge difference" for the not-for-profit fund manager, and plans to donate $220,000 in the year ending March 31, 2019, up from $113,000 made in the year 2018 year
"We're continuing to accelerate and have been the fastest growing KiwiSaver scheme for a couple of quarters now," Stubbs said. "It shows you how little it takes to run a KiwiSaver scheme."
Simplicity has positioned itself as a challenger model, offering discount fees by using Vanguard funds to track the major indices and replicating the asset portfolios of the large schemes for direct investments.
As at March 31, the fund manager has attracted 11,300 members to its KiwiSaver funds with almost $301 million under management and estimates its members have collectively avoided $2.8 million of fees, paying about $615,000 in management fees and a further $225,000 in administration fees. Since then, the KiwiSaver funds have swelled to $368.8 million as at June 30, of which almost $269 million is in the growth fund.
Stubbs says much of the fund's growth has been down to 'word of mouth', which helped limit the marketing spend to $149,000 in the year.
He sees the scheme's charitable trust ownership as a real point of difference from existing scheme providers, with Simplicity members engaging in surveys on how to distribute its donations, which have gone into child poverty, homelessness and financial literacy. If Simplicity can achieve a 10 percent market share by 2030 from its current 0.8 percent, Stubbs reckons it can donate $10 million a year.
Stubbs spent much of his career in the traditional financial services before setting up Simplicity, and said his scheme's decision to donate 15 percent of fees sets an example for the industry which has largely seen corporate philanthropy as "just really marketing".
Simplicity has also branched out beyond KiwiSaver funds, launching three open investment funds that have more than 2,000 investors with more than $100 million under management, again dominated by growth assets. Those funds paid management fees of $135,000 and administration fees of $22,000 to Simplicity.
Stubbs said he's optimistic about the rising tide of equity KiwiSaver funds will provide, but is worried the government won't take advantage of tapping that resource.
"There's a really golden opportunity here to fund the next wave of infrastructure," he said. "When you've got a massive pool of domestic equity you can do the really long duration infrastructure stuff because you know the money is going to be there."
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