Huljich unfit to be a KiwiSaver provider

OPINION:

THE WHOLE sordid Huljich KiwiSaver affair leaves a number of players with egg on their faces. More seriously it has further undermined the public's confidence in financial markets and the behaviour of some who operate in it.

The fact that the core event in the current saga has yet to be properly addressed by regulators simply fuels further distrust.

This is precisely the issue that the Capital Markets Development Taskforce emphasised in its call for adequate institutional structures to help restore trust and safety in financial markets. There is a hell of a difference between ordinary investment risk and investment manager delinquency where investors have near zero recourse from those public servants charged with regulating and enforcing codes of behaviour.

Peter Huljich has admitted to manipulating returns figures. What he did was tell lies about his performance in order to instil confidence in prospective investors in the Hiljuch KiwiSaver funds. As such, in my opinion, he is totally unfit to be a KiwiSaver provider. The only issue really from here is whether the regulators between them have the gonads to deal with him appropriately. So far they have demonstrated a decided lack of bottle. And we wonder why New Zealanders have so little confidence in our financial markets.

When it is possible to manipulate figures and get away with it like this, New Zealanders are absolutely rational to shun our capital markets. They are not free markets at all, they are stacked in favour of men such as Huljich.

Consider this reported comment last week.

"Managing director Peter Huljich said the clarifications did not alter the scheme's overall top-ranking with research house Morningstar, although it did affect two of the funds' rankings." (Dominion Post, February 20, 2009).

Isn't he just so cute? If we look at his performance from the beginning of KiwiSaver to March 2009 – the full period over which he manipulated the investments – it tells a very different story. The graph is reproduced here.

That Peter Huljich can blatantly mislead prospective investors in his KiwiSaver scheme without sanction from the Government Actuary is an unconscionable indictment of the current regulatory and enforcement regime. In my view the man is not fit to make financial offers to the public. The Huljich schemes should be wound up and funds distributed across the default KiwiSaver providers – that is the only course open to restore any confidence in KiwiSaver supervision.
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Next, for the sake of their own reputations, Don Brash and John Banks should resign from Huljich Wealth Management. Certainly for Banks, facing a super city election in the near future, it seems a no-brainer.

Even more worrying is that the regulators, with their "once over lightly" examination of this case, have accepted this man's word at face value again, despite the deficiencies in the previous prospectus and accounts. The new, supposedly corrected, prospectus claims the following:

"Our KiwiSaver track record speaks for itself. The Huljich KiwiSaver Funds have been ranked first for annual performance in the year to 31 March 2009 by Morningstar. Even without compensation provided (as more fully explained in the prospectus), the manager has calculated the Huljich KiwiSaver Funds would still have retained their overall first ranking for that year in the Morningstar unit price tables (based on average rankings across their three categories). Past performance is not an indication of future performance."

Prospective members are entitled to rely on this statement, but such selective use of the data is misleading because it ignores other time periods. As the graphs show, Huljich is a below par performer – and the truth reveals a performance absolutely miles below the announcements Huljich has promulgated.

That brings me to the next point – what are the ratings guys up to? This unsavoury episode raises questions about the competence of the likes of Morningstar and Fundsource. They slavishly published the returns Peter Huljich fed them despite some "too good to be true" numbers, seemingly without one scrap of due diligence done on those numbers.

Sure, Morningstar is desperately trying to regain some respect after the event but only after we revealed how the data – which Morningstar regurgitated and newspapers printed – had been manipulated. The Capital Markets Development Taskforce recommended a truly independent monitoring of KiwiSaver fund performance, implying that private sector firms in the pay of providers cannot be trusted to be sufficiently diligent.

It's ironic a National-led government has sanctioned a set of recommendations that, had they been implemented last year, would have helped prevent these manipulations by a KiwiSaver provider, directed and part-owned by the previous leader of the National Party.

For the public's sake, Justice Minister Simon Power needs to fast-track the implementation of those CMDT recommendations he agrees with. But before he does that he needs to put the Government Actuary and Securities Commission on the mat.

Huljich is unfit to be a KiwiSaver provider. Deal to him.

Gareth Morgan was a member of the Capital Markets Development Taskforce. He is CEO of investment management company Gareth Morgan Investments and a director of Gareth Morgan KiwiSaver, a competitor of Huljich Wealth Management.

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