The TSB Community Trust-led (TSB CT) joint venture would’ve paid about $170 million for the 51 per cent stake in Fisher Funds it bought last week based on the last recorded trade in the Takapuna investment firm’s shares.
According to the latest TSB CT accounts, the New Plymouth-headquartered entity stumped up $75.6 million for a 22.6 per cent share of Fisher in October 2015, more than double the almost $33 million paid in 2013 for its original 26 per cent slice of the $7 billion funds management entity.
However, despite the inflated price paid in 2015, TSB CT values its 49 per cent share in Fisher (held via subsidiary TSB Group Investments) at about $97 million as at March 31 this year – down from $101.7 million in 2016.
Even at the lower valuation, TSB CT and joint venture partner, US private equity firm TA Associates, would need to come up with some $100 million to clean up the Fisher share register at the implied price, of which about $43 million would accrue to interests associated with founder, Carmel Fisher.
As well as the 22 per cent held by Fisher family interests, the remaining 29 per cent of the firm’s equity is spread in much smaller parcels among current and former senior staff (including Frank Jasper, Murray Brown, Glenn Ashwell and Mark Brighouse), directors and groups associated with Wellington-based investment business Morrison & Co.
Under the deal announced last Thursday TSB CT exercised its option – close to expiry date – to purchase the outstanding 51 per cent share of Fisher Funds. Initially, TA Associates, which is also the majority-owner of Russell Investments, will take almost 25 per cent in Fisher, rising to 34 per cent “following receipt of required regulatory approvals”, according to a press statement.
Hayden Wano, TSB CT chair, said the group also courted local JV partners but was pleased with the extensive global funds management expertise TA Associates would bring to Fisher.
Wano said TSB CT primarily required a partner to help fund the deal “but we were also looking for someone with fund management experience”.
He said the group was not fazed by TA Associates majority stake in Russell Investments, which provides funds management services to the BNZ KiwiSaver scheme, a rival to Fisher KiwiSaver products.
“We don’t see any issue with the Russell connection,” Wano said.
TA Associates would ultimately supply board members to Fisher, he said, as well as ideas to grow the business.
“Although it’s a little premature to say any more on that,” Wano said.
Carmel Fisher said the new ownership structure would not impact the fund manager’s investment process or day-to-day operations.
“TSB is not a new shareholder,” Fisher said. “And the new shareholder, TA, is not a majority owner. They know how Fisher invests and have no intention of changing the style.”
She said the funds management group she launched 20 years ago would more likely experience “organic growth” from here on in rather than the buyout-fueled expansion of recent times.
“For us the quantum leap was with the purchase of Tower Investments [in 2013 for $79 million],” Fisher said. “I don’t know if there is another quantum leap opportunity out there – or if Fisher needs it or wants it.”
To finance the Tower deal Fisher took on a loan of over $40 million (originally from ANZ), now reduced to $21.5 million debt with BNZ, according to the manager’s latest financial report.
“The Bank of New Zealand loan matures on 31 July 2019, is secured over all the assets of Fisher Funds, and there are financial covenants and event of default triggers, as defined in the loan agreement,” the Fisher report says. “The loan is payable on maturity with interest calculated daily on a floating rate [averaging 3.83 per cent over the last year].”
KiwiSaver, which makes up about half of the manager’s current $7 billion under management, was the biggest driver of growth for Fisher, she said.
“Wholesale is not a large part of our business,” she said.
Despite stepping down as chief executive about two months ago – replaced by former Co-operative Bank head, Bruce McLachlan – Fisher said she would stay on as a director and investment committee member at the group.
Since first buying a 26 per cent stake in Fisher in September 2013 (originally through TSB Bank), TSB CT has received dividends of about $30 million from the firm, almost clawing back the initial purchase price of just under $33 million.
In the 12 months to March 31 this year, TSB CT was paid out almost $13.7 million from Fisher, the accounts show, compared to about $9.7 million in the 2016 period.
TSB also earns fees and commissions for distributing Fisher Fund products through its bank network.
According to the most recent Fisher Funds accounts: “In the year to 31 March 2017 Fisher Funds made payments to TSB Bank Limited for introductory fees $219,000 (2016: $144,000) and commission $131,000 (2016: $48,000).”
Fisher also has distribution arrangements with the Co-op Bank and the Credit Union network.
TSB CT restructured in 2015 with a new entity, TSB Group, holding TSB Bank and Fisher Funds.
“All directors of TSB Group Ltd are appointed by the TSB Community Trust Board and must be trustees of the TSB Community Trust,” the 2016 TSB CT annual report says.