Simplicity declares war with 2.95% mortgage

Always look for the flow of money: " The firm will fund the loans through KiwiSaver contributions". So lending money is contingent upon KS contributions coming in from their client book. No doubt they have crunched the numbers, and I certainly hope it works for them, but if a recession comes along, a cheaper supplier, poor performance, liquidity crunch, what will happen if these ongoing contributions suddenly start to dry up... Recall of mortgages? Does this mean that potential KS holders are at risk of having illiquid assets, given it is the broader KS client base that is providing the funding. I'm also interested as to how or if the Trustee approved using client money for investment into mortgages? Begs the question why Banks haven't thought this up yet? Hmmmmmm

There is no way the product would have been launched without the Supervisor being all over it. The assets are all going to be the highest possible quality and there are strict lending criteria according to the press release so if there is a liquidity crunch these will be the sort of assets you'd want to be holding. Why haven't the banks done it before - why would they when they can make a margin of at least 2.2% and it is a giant cartel of self-interest.

GG I think you have missed the point with Smitty's valid question about liquidity at the KiwiSaver portfolio level. Of course KiwiSaver funds are locked in but investors can change their fund options. What is missing from the article is confirmation of what yield the KS funds will actually receive. Is 2.95% or some reduced amount due to admin charges

At the portfolio level the impact on liquidity is going to be small if they lend $50mln on a total book of $1.2bln. The annual liquidity ratio will reflect this too.

Correct me if I'm wrong regarding this. But I imagine, the lending will be sold by simplicity as a company and purchased by KS members as FI units. All of their funds currently have a decent amount of % attributed to NZ FI, so regardless if a member switches between funds they'll still have sufficient amount of members funds in the pool. Plus the even if they took a portion for 'admin' the return is going to be higher that most FI options out there. I imagine most of this relies on the OCR staying low for a very long time.

Lets hope you are wrong Skeptical...but I fear you are not. For a company that is quick to have a crack at other providers over fees and ESG issues they seem very happy to enter into vertically integrated structures with conflicts of interest whereby they commit their KiwiSaver investors to investment options that Simplicity support and presumbly benefit from in some way. Their commitment to a PE fund is another example. Surely their investment managers must have the ability to not invest at all in these products if they decide that is most appropriate. It would be interesting to hear what their Supervisor thinks about this arrangement.

Why not just invest in a company buying and building rentals? That way they do good in increasing the housing stock and get the low term equity grow while having a conservative rental income. I am dubious about the robustness of their model to withstand fluctuating economic cycles. The cynic in me, thinks it is almost like an entity that is struggling to cover the costs of their operation due to their low fee sales pitch so they are now trying to play a different game. Someone is going to get burnt.

Well done Simplicity! What a fantastic initiative.

Why not just invest in a company buying and building rentals? That way they do good in increasing the housing stock and get the low term equity grow while having a conservative rental income. I am dubious about the robustness of their model to withstand fluctuating economic cycles. The cynic in me, thinks it is almost like an entity that is struggling to cover the costs of their operation due to their low fee sales pitch so they are now trying to play a different game. Someone is going to get burnt.