File image. Photo: 123RF
The Financial Markets Authority (FMA) has identified a number of risks for fund managers to grapple with.
A review by the FMA concluded increased regulations had reduced risks in the funds management industry to medium/low, though there were a number of emerging risks to test the sector.
The report noted effective risk management by fund managers was an important mitigant against the potential for harm to investors in such funds as KiwiSaver.
"Without controls, the risk would be medium/high," the FMA said.
"Examples include investment risk for mortgage fund managers, governance risk for the managers of smaller funds, and operational risk for the managers of larger and more complex funds."
FMA director of investment management Paul Gregory said the overall results of the review were encouraging.
"It's very, very important that these risks are well managed, and that's why licensing and supervision and being properly regulated is also important," he said.
"What's in their KiwiSaver and what they're investing in is likely their largest asset and certainly one of the most real ways that they engage with their futures meaningfully."
Investors should be aware of the risks they were taking when choosing a fund manager, he said.
"What we're saying to investors and consumers as the same message that we usually say, which is make sure that you're aware of the risks that you are taking on when you take on an investment manager and pay attention to the capabilities that manager brings to us - how are they performing, how are they performing relative to the market index? And do ask them questions if you want to know how good they are at their job."
The report also pointed to emerging risks, such as whether fund managers had adequate business continuity plans in place, cyber security and whether they could meet future climate-related disclosure obligations.