NZX fund subsidiary, Smartshares, officially cracked the $10 billion threshold last week, folding in former Craigs Investment Partners manager, QuayStreet, into the mix with a promise of delivering an ‘enhanced passive’ strategy to the index-flavoured firm.
According to the just-published NZX 2022 annual report, the $1.6 billion actively managed QuayStreet would “provide Smartshares, in time, with an enhanced passive product offering”.
“The acquisition (through NZX’s wholly owned subsidiary, Smartshares Limited) is aligned with NZX Group’s strategy to capture complementary opportunities across its Funds Management, Wealth Technologies and Markets businesses,” the annual report says. “The acquisition of the high-growth fund – aligned with a powerful private wealth network – will drive scale in Smartshares and complement its existing systematic and passively managed product offering.”
Including the $31 million splash for QuayStreet, the NZX has forked out more than $90 million to build its fund empire since buying the SuperLife business in 2014 for $35 million and a further $25 million to snaffle the ASB superannuation master trust seven years later. Prior to SuperLife, Smartshares managed about $360 million held across five exchange-traded funds (ETFs).
The shopping approach, to date, has paid off with Smartshares topping the NZX quarterly revenue charts in the September 2022 quarter and contributing a pre-tax profit of $8.7 million for the calendar year including almost $1.6 million from the yet-to-be-fully-integrated ASB master trust.
Hugh Stevens, the soon-to-be-ex Smartshares chief, said the NZX now offers a wider palette of investment choices for clients ranging from the now almost 40-strong ETF suite, the “cost efficient” SuperLife funds and the “fully implemented” QuayStreet selection.
Stevens said the “full service” investment buffet is important in the institutional market with one new $500 million wholesale client already taking advantage of the pick-n-mix option.
Under his watch, Smartshares has made several behind-the-scenes changes such as reconstituting the SuperLife superannuation scheme funds as stand-alone portfolio investment entities (PIEs) for general consumption.
And the manager’s growing size has enabled Smartshares to adopt other “scale efficiencies”, Stevens said, including a just-implemented move to hold direct global equities in two SuperLife international shares funds.
He said the change saw about $200 million of offshore equities shift to Smartshares control, cutting out fees previously paid to underlying manager, Vanguard.
Stevens signs off an a five-year stint at Smartshares in March with the manager well on the way to the $15 billion to $20 billion of assets flagged by NZX chief, Mark Peterson, as ideal for ‘synergies’.
Including QuayStreet, the Smartshares funds under management (FUM) currently amounts to about $10.4 billion.
“Our market analysis indicates $15- $20 billion of FUM is the point when cost bases are at their most efficient for New Zealand fund managers,” Peterson says in the 2022 annual report.
If Smartshares acquisition-fueled expansion and organic growth (spurred on, particularly, by the – now waning – post-COVID retail investor splurge on ETFs) has seen the business unit exceed long-term goals, the NZX investment platform play, Wealth Technologies, remains well off-target.
Wealth Technologies funds under administration (FUA) fell almost 10 per cent during 2022 to just under $10 billion as client onboarding stalled amid weak investment markets.
“We believe in the business,” Peterson says in the annual report. “That’s why in November we announced we were considering whether there was a strategic partner for NZX Wealth Technologies that could enhance and accelerate the opportunities it has ahead of it.”
The NZX has spent about $30 million in building out the platform since acquiring the original service (known as Apteryx) in 2015 for $1.5 million.
In a letter to investors, James Miller, the outgoing NZX chair, says Wealth Technologies “pipeline prospects remain strong”.
“Further FUA growth is underpinned by a large, contracted client being onboarded in 2023/24,” he says.
Miller departs the NZX board this April with Peterson set to follow suit next year.