The NZX has forecast funds under administration (FUA) in its investment platform could hit $50 billion by 2023 with 80 per cent of that target already lined up in potential deals.
According to the group’s half-year report released last week, the currently $2.1 billion NZX Wealth Technologies platform has $40 billion of prospective FUA negotiations underway, including the next tranche of funds set to flow across from “foundation client”, Craigs Investment Partners, later this year.
Craigs shifted about $1 billion of unit trust money from an in-house system to Wealth Technologies last year in a phased approach that could ultimately see the group’s $17 billion plus of clients funds move to the NZX platform.
The NZX investor presentation says Craigs’ “timeframes for second phase commencement have move to Q4-19 to allow their internal analysis and design completion with go-live dates to be determined”.
Stephen Jonas, Craigs head of client services, said the firm was scoping out the best route to “create efficiencies” through administration platforms.
“We’re having discussions with Wealth Technologies,” Jonas said. “But it is slower process than we thought at the outset.”
Wealth Technologies was expanding its “core platform”, the NZX says, into new growth areas such as the discretionary investment management service (DIMS) market.
While Craigs is the only client on the new Wealth Technologies platform, the NZX plans to migrate customers on the legacy Apteryx system (that include NZAM and Public Trust) it bought in 2015 for $1.5 million
It is understood, the NZX is also a likely bidder for the now-on-sale ASB-owned Aegis platform. Aegis, which as about $15.2 billion in FUA, was dressed up for market again this July almost a decade after a previous deal fell over in 2010.
Lisa Brock, Wealth Technologies chief, says in the NZX report that the platform is the “sole wrap provider offering KiwiSaver” among other “points of difference”.
Brock says clients can either access a full custodial wrap or use the underlying NZX technology to run their own platforms.
She says the NZ total wrap market is estimated at “approximately $87 billion”, of which the NZX is targeting a slice of somewhere between $35 billion to $50 billion over the next four years.
“This industry is ready for new solutions, and our team is currently managing a strong sales pipeline opportunity in excess of $40 billion in funds under administration,” she says.
Over the six months to June 30, the NZX reported a $186,000 loss for Wealth Technologies on revenue of $838,000 and just over $1 million in costs.
But as the platform battles for market share, the NZX funds business turned in a tidy profit of almost $3.2 million over the latest six-month period, the report shows. The NZX funds arm – covering superannuation and KiwiSaver provider SuperLife, and exchange-traded fund (ETF) business, Smartshares – reported about $3.5 billion under management as at June 30, up almost 20 per cent year-on-year.
Mark Peterson, NZX chief, says in the report that the “steady move to low-cost, passive funds and growth in KiwiSaver” supported ongoing expansion for Smartshares and SuperLife.
Peterson said the larger funds business “will require ongoing additional investment for product development, distribution, staffing to manage growing member numbers, and IT infrastructure to efficiently service this growth”.
The funds arm has 47.5 full-time equivalent staff compared to 36 allocated to Wealth Technologies.
Since purchasing SuperLife in 2014 for $35 million, the NZX has transferred most of the underlying funds to Smartshares products, seeding a wide range of ETFs. In June this year, Smartshares launched another batch of eight ETFs, managed by the BlackRock-owned iShares, bringing the total product suite to 31.
“Further new ETF issuance to extend the current product range is expected,” Peterson says in the report.
Hugh Stevens, Smartshares chief, said the new ETFs would likely include more ‘smart beta’ options that may appeal to institutional investors – a sector the NZX began to re-engage with last year.
Stevens said the NZX has also rationalised its fund back-office operations, handing most of the Smartshares and SuperLife administration and custody responsibilities to BNP Paribas this year. Previously, the NZX carried out some fund admin in-house while outsourcing custody to BNP Paribas and Public Trust (via a nominee company) across different products.
He said the funds business would also focus on delivering “financial well-being solutions” that included an element of risk protection as well as investment.
In the past, traditional superannuation funds offered cost-effective “holistic” financial solutions to many employees in NZ but the decline of that sector – driven in part by KiwiSaver – had left a gap in the market, Stevens said.
“We’re going back to the future,” he said.
SuperLife has one of the largest remaining group life contracts in NZ, Stevens said, insuring some 14,000 plus lives through Fidelity Life.
Over the six months to June 30, SuperLife has won three corporate super gigs, including the Tongan Retirement Fund, the NZX says.
The funds business contributed about 22 per cent of the NZX total operating profit of almost $14.5 million over the first half of 2019. For the same period last year the NZX generated an operating profit of over $13.9 million on a like-for-like basis (excluding the now-sold agribusiness business).
The NZX also booked a loss of $85,000 on the sale of FundSource to Australian research house Zenith this June, according to the accounts.
During the last financial year, the NZX wrote down FundSource by $325,000 to a holding value of $425,000, implying Zenith picked up the asset for about $340,000.