Last week was a red-letter moment for two of the most ancient cogs in the NZ funds industry machinery as Aegis, the ASB-owned investment platform, flashed a for-sale signal (again) and Australian research house, Zenith Partners, finally took FundSource from a grateful NZX.
While neither pieces of news came as surprise, the FundSource sale was long overdue after a protracted negotiation period dating back to at least last year – although, the NZ research house had been shopped around by its reluctant NZX owners for much longer than that.
FundSource has long been a quiet, non-achiever under NZX ownership, in a financial sense anyway. In February this year the NZX lopped more than $350,000 off its book price, valuing the research unit at $435,000, or less than half the $900,000 plus it paid previous owner, NZ Funds Management director, David van Schaardenburg, in 2006.
It is understood Zenith likely shelled out less than half again of the revised-down FundSource book value in the deal announced last week.
David Wright, Zenith managing partner, said for now the group would retain the FundSource brand in NZ as well as the relationship with UK data supplier, FE Analytics.
“We will be collecting some data ourselves as well,” Wright said.
Zenith has also dispatched a team to NZ to meet with local fund managers before writing a new batch of qualitative reports. Previously, FundSource outsourced ‘qual’ report-writing to another Australian-based researcher, Darren Howlin of ResearchIP.
Howlin won’t be involved in the Zenith NZ effort.
While it’s early days, Wright said other FundSource collateral such as KiwiSaver reporting and manager awards event would probably continue under Zenith.
FundSource staff, including head of the fund research business Glen van Echten, have been reassigned duties in the broader NZX data unit.
But if the FundSource sale puts a full stop on speculation, the Aegis “strategic review” announced the previous day has opened up many new – and old – questions.
“The purpose of the strategic review is to assess whether Aegis can grow and better serve the interests of its customers under ASB’s ownership, or if Aegis’ potential could be better realised under new ownership,” the ASB release says.
Like FundSource, Aegis has faced constant sale rumours and, in fact, was almost bought by the-then George Kerr-owned Perpetual Group (via Pyne Gould Corporation) in 2010 before mysterious last-minute issues scuppered the takeover.
FundSource and Aegis also share a similar mid-90s vintage and both can lay claim as pioneers in the NZ fund research and administration fields, respectively.
Unlike FundSource, though, Aegis has been a reliable cash cow. When it last filed financial reports as a separate entity in 2014 (platform results were buried in broader bank numbers from 2015 after a restructure), Aegis spun out a net profit of $8 million on fee income of $16.3 million and funds under administration (FUA) at the time of about $8 billion.
ASB likely earns more off the platform by providing banking, foreign exchange and other asset services.
As at March 31 this year, Aegis FUA has grown to $15.2 billion but the underlying client composition has changed somewhat. A number of smaller advisory books have been encouraged off Aegis in recent years in favour of larger wholesale clients.
The strategy carries risks, however, and industry whispers suggest a key Aegis institutional client – possibly Westpac – could be about to jump platform.
Regardless, the competitive landscape has also shifted considerably from when Aegis was king of the NZ fund administration world.
Aegis has certainly lost its crown as the biggest NZ platform, now held by main rival FNZ, which reported about $16 billion in FUA at last count.
At the same time a couple of later arrivals, Adminis and the NZX-owned Wealth Technologies (admittedly, the latter a reboot of the older Apteryx platform), are carving out niches with newer technology: other fintech players may also pose a threat.
Most of the above are potential buyers of Aegis; all of them will likely kick its tyres.
Other surprise platform-shoppers might emerge out the woodwork but if so Australian banks won’t be among them. The Aussie banks took a lot of stick in last year’s Royal Commission (RC) over their platforms; ANZ, the National Australia Bank and ASB-parent, the Commonwealth Bank of Australia have since all made moves to offload their investment administration arms.
The RC was almost certainly a factor in the ASB decision to review Aegis and in the current environment no Australian bank would be in the mood to take on a small NZ fund platform.
Zenith’s Wright, however, is confident an Australian owner can make a go of a small NZ fund research house.
He said the growth of KiwiSaver and incoming adviser laws that impose stronger client-care duties (and create an Australian-like regime for advisory firms) should strengthen the case for independent product research in NZ.
“Globally, there’s a push to greater compliance and oversight [of financial advice and markets] and that’s only moving in one direction,” Wright said. “But we know we have a lot to learn about the NZ market and we don’t think it’s exactly like Australia. We’re going in with our eyes open.”
Looking back, the history of Australian fund researchers in NZ does not provide much encouragement: Morningstar, for example, has scaled back its on-shore presence here while Lonsec and van Eyk came, saw and flunked.
If Zenith can’t succeed with FundSource that could be it for Australian fund researchers in NZ; they’re running out of alphabet.