The NZX has penciled in further fund acquisition and product launches as part of its ‘2.0’ growth strategy revealed along with annual results last week.
Following the $25 million purchase of the $1.8 billion ASB employer super master trust finalised in February, the NZX-owned Smartshares/SuperLife funds under management (FUM) now top $8 billion – but scale is everything in the low-margin passive investment game.
According to the strategy document, the NZX has slated further “organic and inorganic FUM growth” as a business priority for the funds arm over the next couple of years.
In a release, NZX chief, Mark Peterson, said: “The acquisition of the management rights for the ASB Superannuation Master Trust (SMT) by Smartshares, and being proactive and competitive in our pitch to win KiwiSaver default status, are examples of the importance we are placing on scale in the Smartshares business, which allows us to unlock these further opportunities.”
The SuperLife KiwiSaver scheme picked up an extra $385 million and over 37,000 members in December after winning default provider status for its super low-priced (0.2 per cent all-in fee) balanced fund: default auto-enrolment should send about 10,000 new members its way each year, the NZX estimates
As well as chasing FUM scale, the stock exchange plans to roll-out a number of new funds under the NZX 2.0 strategy, including “large, mid and small cap” equity index products along with specialist strategies targeting the agribusiness, technology and renewables sectors.
The Smartshares exchange-traded fund suite already comprises more than 30 products, currently accounting for 8 per cent of all trades on the NZX.
Smartshares (including SuperLife) booked a record operating earnings of almost $9.2 million last year with revenue of about $18.8 million ($13.7 million in 2020) outpacing costs of close to $9.7 million, up about $1.7 million year-on-year.
Meanwhile, the NZX companion investment platform business, Wealth Technologies, washed its face for the first time last year, recording an operating surplus of $384,000 on revenue of almost $4.4 million despite missing previous funds under administration (FUA) goals.
As at the end of last year, Wealth Technologies boasted about $11 billion in FUA across 14 clients (including eight on its new platform) against earlier “aspirational targets” that projected more than double that figure by the end of last year.
However, the NZX says the platform has a “strong pipeline” of new clients for this year while the “2023 aspirational targets [of between $35 billion to $50 billion] remain valid, albeit the FUA growth trajectory to get to it has taken a different shape”.
Both Smartshares and Wealth Technologies saw significant rises in employee numbers last year with respective full-time headcounts of about 68 and 66, respectively, compared to 53 and 56 at the end of 2020.
“Building these growth opportunities requires investment, notably in elevated technology costs to ensure our core capital markets’ infrastructure meets investor and regulator expectations, and Smartshares and NZX Wealth Technologies can efficiently scale revenue growth into earnings,” the NZX annual report says. “The cost of this investment in supporting our growth escalated during 2021 and the full effect will be felt in 2022, with earnings benefits progressively delivered from 2023.”
In other planned moves this year, the NZX will resurrect the S&P/NZX20 Index Futures – a derivatives product previously abandoned due to lack of interest.
“Consultation with the market has resulted in the formation of a ‘Cornerstone Group’ of users who are willing to indicate their support for the relaunch of S&P/NZX20 Index Futures,” the report says.
The index futures reboot will set the exchange back by up to $500,000 in establishment costs.
Elsewhere, the annual report also confirms an exit strategy for both Peterson and NZX chair, James Miller, over the next couple of years.
Peterson, currently relocating from Wellington headquarters to the new NZX Auckland office, is scheduled to end a seven-year reign as CEO in April 2024 with Miller due to resign 12 months beforehand.
“… I intend to step down from my role at the Annual Shareholders’ Meeting in April 2023 to enable a new Chair to commence the CEO succession process,” Miller says in the report.
Last year Peterson earned about $1.2 million, split equally between his base pay and short-term incentives: he also has long-term incentives at play including a $250,000 share rights issue due to vest this April and an ongoing allocation with “a value equivalent to $387,100 per annum” set to activate on his proposed exit date.
Part of the CEO long-term incentive plan is based on the NZX funds business topping $5 billion by the end of 2023 (an achievement already ticked off, barring a nasty market accident) and Wealth Technologies reaching the low-end target of $35 billion in FUA at the same date.
The NZX is set to raise $44 million in a rights issue, partly to pay back debt incurred in purchasing the ASB master trust plus a further $12.5 million earmarked to fund its proposed one-third stake in the Global Dairy Trading futures platform.