A $5.2 billion KiwiSaver and fund manager “blacklisted” SkyCity Entertainment Group shares as part of an ethical investment mandate.

Sam Stubbs, co-founder and managing director of Simplicity, says none of that firm’s six KiwiSaver funds
nor any of its total 16 funds invest in gambling.

All up, Simplicity manages $5.2b of KiwiSaver funds.

“We haven’t had SkyCity shares for about five years. Under normal circumstances, if we weren’t excluding them, we would have had around 1 per cent of shares in that company,” Stubbs said.

Stubbs said this week’s Department of Internal Affairs move to seek a temporary casino licence suspension raised further issues.

“Obviously if you were a shareholder, you would be asking serious questions about the governance. This is a regulated industry,” he said.

“SkyCity is blacklisted by Simplicity. Our members are also better off due to SkyCity’s poor relative performance in the last five years.”

A SkyCity spokesperson said in response today: “Each investment manager makes decisions based on their investment philosophies and processes and SkyCity respects that.”

Stubbs said Simplicity had been successively removing industries or sectors based on ethical measures for some years.

“We don’t invest in gambling, fossil fuels, weapons, nuclear power or pornography. Apart from SkyCity, the only other [major NZX-listed] company we don’t invest in is Genesis Energy due to their coal-burning power generation due to not buying into fossil fuel businesses.”

He said the move to ban such companies from its funds was almost universally well-received by investors.

“It’s very mainstream in NZ for KiwiSaver members’ money to be invested ethically. I’ve seen some estimates that up to 90 per cent of investments now have some sort of ethical screen on them,” Stubbs said.

Simplicity wouldn’t hold SkyCity “because gambling has bad social outcomes. Effectively it’s feeding addictions. There is considerable tax take which is funding the ambulance at the bottom of the cliff. By not encouraging gambling, you’re building a fence at the top of the cliff. It’s not where the majority of our members want their KiwiSaver money invested.”

SkyCity shares had also underperformed cumulatively the NZX Top 50 index in total by 65 per cent lately, Stubbs said, citing Bloomberg.

“We’ve taken total return to shareholders v the NZ share market overall. If you invested $1 in the overall market, you would have been significantly better off in terms of returns than if you’d just owed SkyCity shares.”

SkyCity could become “starved” of capital because of investment funds actively excluding it, Stubbs said.

“Capital for that company is going to become more and more expensive because, over time, more and more KiwiSaver managers are unlikely to want to be investing in gambling and that’s because of the members.”

Greg Smith, head of retail at Devon Funds with $2b under management, said the business held SkyCity shares in some of its funds but not in others.

“We do exclude SkyCity from some of our funds on ethical grounds but environment, social and governance strategies encompass so much and it’s about holding companies to account,” he told the Herald today.

“SkyCity would probably exist regardless of whether fund managers were investing in it,” Smith said, noting the company’s host responsibility and harm minimisation programmes.

On the share price, he noted the sharp fall yesterday wiping around $260 million off the company’s market capitalisation.

“We saw that during the onset of the pandemic. But the shares recovered quickly back then. There’s estimates of the quantum of what the costs could be if there’s a stand-down period of $10m to $20m ebidta. The market cap lost was around $260m yesterday which vastly outweighed any earning impact,” Smith said.

What the market is concerned about is whether this marks a change in the regulatory landscape and something more draconian, like more severe regulation. We’ve seen what’s happened in Australia where SkyCity also has an operation under review, he noted.

“The NZ complaint was received some time ago but only released somewhat ironically at the start of Gambling Harm Awareness Week. It must be pointed out this isn’t to do with money laundering but host responsibility. It just gives uncertainty and that’s why a significant discount is being applied to SkyCity shares.”

Smith cited a precedent for the SkyCity move: a Dunedin casino lost its licence for two days in 2006 but he also noted Internal Affairs then sought a seven-day stand-down.

Last month, Mindful Money released a report showing KiwiSaver investments in what it called harmful companies hit a record $8.6b. Founder Barry Coates said almost 9 per cent of total KiwiSaver funds were aligned with companies in fossil fuels, gambling, alcohol, animal cruelty and areas of digital harm.

“The level of KiwiSaver investment in harmful companies has never been higher,” Coates said at the time.

He said most KiwiSaver providers claimed to invest responsibly or using an ESG (environmental, social and governance) framework but only a few funds were truly avoiding investments in harmful companies.

Funds invested in oil, gas and coal increased to $3.2b, with a doubling in exploration and new field development.

Skycity said it wouldn’t say any more about Internal Affairs referring a gambler complaint to the Gambling Commissioner.

Shares today recovered somewhat from trading below $2 yesterday, to around $2.14, giving a market cap of around $1.6b.

Anne Gibson has been the Herald’s property editor for 23 years, has won many awards, written books and covered property extensively here and overseas.