Investing in Bonds -

Powers of Collective Investment

April 2015


A recent New Zealand Herald article highlighted the difficulties faced by many investors wanting to buy New Zealand bonds directly.


The article noted that primary offers are often attractively priced but require a minimum purchase of at least $1 million, and that many bonds require a large minimum parcel size even when purchased in the secondary market. It also noted a lack of transparency in secondary market pricing.


For many New Zealand charities, the allocation to New Zealand bonds is too small to hold a large parcel of any single bond issue, as the resulting portfolio would lack diversification. This effectively limits the universe of bonds available for investment to a narrower set which may offer less attractive returns. Furthermore, many bonds are not listed on an exchange, so the prices at which they trade are not transparent. In practice, smaller charities are generally offered less favourable pricing in the secondary market than larger investors.


Trust Management manages a Group Investment Fund designed specifically for New Zealand charities, the New Zealand Bond Fund. Investing through such a fund helps solve many of the problems faced by charities investing in New Zealand bonds, as illustrated by the following two examples.

The Fund recently participated in a primary offer to buy a bond that was available only to large institutional investors. This bond is New Zealand dollar denominated, but guaranteed by the Government of Canada. It has a AAA credit rating, which is higher than the New Zealand Government rating. Moreover at the time it offered a yield around 0.5% higher than an equivalent New Zealand Government bond. The purchase yield in the primary offer was also higher than has since been available in the secondary market.


Another example is the Fund’s recent purchase of a Mighty River Power bond in the wholesale market. Transacting in this bond requires a minimum parcel size of $500,000, in contrast to the $5,000 minimum for a similar retail listed bond. Importantly the wholesale bond offers senior security, versus the subordinated security for the retail bond. The Fund was therefore able to utilise its size and access to the wholesale market to acquire a bond with more attractive investment characteristics.

In summary, small investors are able to access many of the economies of scale available to larger investors by investing in suitably structured pooled funds.


Footnote: A further advantage for New Zealand charities of investing in Trust Management’s Group Investment Fund is that it is available only to New Zealand charities. This means that the Fund benefits from an exemption on withholding tax.


If you have any questions, or would like to know more about our Group Investment Fund, please do not hesitate to contact John Williams, Investment Manager on 09 550 4046.


Grant Hope

Chief Executive Officer

09 550 4044





Shane Coward

General Manager

09 550 4045







John Williams

Investment Manager

09 550 4046




Under the Financial Markets Conduct Act this communication may be deemed to be an advertisement for an offer of units. Trust Investments Management Limited is the issuer of the units to be issued under the offer to which this advertisement relates. A product disclosure statement for the offer, which sets out the terms and conditions of the offer, is available, and can be obtained at