The NZX has called off a prospective sale, or equity partnership, of its Wealth Technologies investment platform citing significant client growth potential and a path to profitability for the cash-hungry business by next year.
In a statement released along with the group’s half-year results last week, the NZX says it “did consider whether there was a strategic partner that could enhance the business” during the latter half of 2022.
“With NZX Wealth Technologies’ long-term growth prospects continuing to strengthen, this is no longer a priority and discussions with a limited number of parties have concluded,” the release says.
Wealth Technologies secured five new clients over the first six months of 2023 – including several advisory firms and the Cook Islands National Superannuation Fund – that will add about $550 million to funds under administration (FUA) over the next few months.
As at the end of June, the platform boasted about $10.8 billion in FUA, up almost 8 per cent since the end of 2022 – mostly due to rising markets.
But the NZX also flagged a large ‘software as a service’ client currently boarding Wealth Technologies as well as several, more lucrative, “full custodial” deals on the table including “advanced stage RFI [request for information]” talks with an unnamed “significant” prospect.
The platform was on track to double FUA in the near term and hit longer-term goals of $35 billion to $50 billion that would catapult Wealth Technologies above rivals FNZ and Apex (ex MMC/Aegis).
While operating earnings rose to almost $3 million in the first half or 2023 from about $2.3 million during the previous six months, the NZX platform still booked a more than $3 million loss for the period after depreciation/amortisation.
“We are conscious of Wealth Technologies’ cash burn and are targeting that business to be cashflow positive by late 2024 based on the current migration pipeline,” the release says.
The platform has a net asset value of $22.8 million on the NZX books, which also count the Smartshares fund business at $66.3 million.
Smartshares, which now includes QuayStreet Asset Management and the former ASB employer superannuation master trust, turned in operating income of almost $18 million for the half-year and a net profit (before tax and interest) of close to $7.9 million compared to $13 million and $4.1 million, respectively, for the six months to the end of 2022.
However, Smartshares operating costs also jumped almost 22 per cent to $7.7 million for the latest half-year period on the back of rising employee numbers (97 versus 77 as at December last year) post QuayStreet and integration costs of its two new assets.
The group aims to shift all administration and investment services for its recent purchases from both ASB and Craigs (ex QuayStreet owner) Smartshares control over the next year or so.
“There are sizeable efficiencies to be made in the business in coming years by streamlining, aligning and automating systems and processes [of ASB master trust and QuayStreet],” the NZX report says.
Collectively, the NZX spent over $57 million to buy the ASB master trust ($25 million) and QuayStreet ($31.25 million), taking on debt to cover much of the funding. Craigs is also in line for further pay-outs of about $18 million for QuayStreet under earn-out agreements.
Smartshares also released five new exchange-traded funds in June including an ASX 200 ESG model and others tracking global listed infrastructure and property indices as well as a hedged US 500 and international sovereign bond products.
The NZX ended June 2023 with net debt of almost $49 million compared to $22.5 million at the same date last year.
NZX chief, Mark Peterson, also revealed plans to continue in the role past his previously announced exit date next year.
Peterson, who joined a chief of the NZ bourse in 2017, was slated to leave next April but would now stay on for an unquantified period.
He is not the only NZ financial services chief to reverse-quit this year, following Mark Ryland, who also rescinded his resignation as chief of Milford Asset Management in February.