This paper aims to examine the performance and benchmark asset allocation policy of 70 KiwiSaver funds catergorised as growth, balanced or conservative over the period October 2007-June 2016. The study focuses on the sources for returns variability across time and returns variation among funds.

Design/methodology/approach: Each fund is benchmarked against a portfolio of eight indices representing eight invested asset classes. Three measures were used to examine the after-fee benchmark-adjusted performance of each fund: excess return, cumulative abnormal return and holding period returns difference. Tracking error and active share were used to capture manager’s benchmark deviation.

Findings: On average, funds underperform their respective benchmarks, with the mean quarterly excess return (after management fees) of −0.15 per cent (growth), −0.63 per cent (balanced) and −0.83 per cent (conservative). Benchmark returns variability, on average, explains 43-78 per cent of fund’s across-time returns variability, and this is primarily driven by fund’s exposures to global capital markets. Differences in benchmark policies, on average, account for 18.8-39.3 per cent of among-fund returns variation, while differences in fees and security selection may explain the rest. About 61 per cent of balanced and 47 per cent of Growth funds’ managers make selection bets against their benchmarks. There is no consistent evidence that more actively managed funds deliver higher after-fee risk-adjusted performance. Superior performance is often due to randomness

Originality/value: This study makes use of a unique data set gathered directly from KiwiSaver managers and captures the long-term strategic asset allocation target which underlines the investment management process in reality. The study represents the first attempt to examine the impact of benchmark asset allocation policy on KiwiSaver fund’s returns variability across time and returns variation among funds.