Both NZ and Australia are offering renewed opportunities for investment platform business FNZ, according to founder, Adrian Durham, as the company reported a record profit in its country of origin.
Durham said FNZ looking to expand on the growth of KiwiSaver in NZ and a move away from bank-owned platforms in Australia post the Royal Commission (RC)
He said FNZ was on track to take on its first KiwiSaver scheme later this year with a number of promising leads in the previously hard-to-crack Australian market.
“Somewhat embarrassingly, we haven’t supported KiwiSaver until now but we will go live with our first client later this year,” Durham said.
The platform was also upgrading the background technology for NZ clients in line with FNZ’s global capability, he said.
And the Australian market, which Durham admitted has been a disappointment for FNZ to date, was finally warming to its administrative charms.
“Australia has historically been a difficult market for us as bank-owned platforms dominated,” he said. “But the Royal Commission has changed things. Over the last 12 months we’ve seen a huge surge in interest.”
It hasn’t been a bad year for FNZ in the NZ market either.
FNZ booked a record $5.75 million after tax net profit for its NZ platform business in calendar year 2018 as funds under administration (FUA) nudged the $16 billion mark.
The recently-published FNZ NZ accounts show the investment administration firm hauled in operating revenue of almost $35 million as FUA jumped $2 billion to reach $15.9 billion by December 31 last year.
Given the market rebound this year, FNZ FUA in NZ has undoubtedly bounced higher, putting the platform well ahead of its for-sale rival Aegis, which reported $15.2 billion under administration as at the end of March 2019.
Nick Sherry, FNZ chair, says in the report that the FUA increase was “in line with previous years despite volatility in global asset values”.
The NZ business paid a dividend to its Cayman Islands-domiciled parent of over $16.5 million, as part of an intra-company book rebalancing.
Sherry says FNZ continues to invest in the NZ platform technology with “some of these components scheduled for late 2019”.
“We enter 2019 with a number of promising opportunities across existing and prospective customers in New Zealand,” he says in the report. “Significantly, FNZ is spending substantial effort on broadening the applicability of our NZ proposition into KiwiSaver and market-utility services – widening the scope of our sales and ultimately diversifying the revenue line.”
The company earned $19.5 million of the total $34.75 million operating revenue in 2018 from recurring platform fees (wrap and cash management trust) with the remainder sourced from providing services to the global FNZ group.
“Despite the challenging market and regulatory conditions, and competition from other platform providers, the Group continues to grow both the [FUA] and the recurring revenues derived from them,” Sherry says.
As well as the operating revenue, FNZ earned more than $4.6 million in interest on cash held in the platform last year, down from $4.9 million in 2017.
After operating expenses of $30.3 million and tax ($3 million), the Wellington-based company turned in a $5.75 million profit, representing a year-on-year increase of about 26 per cent.
While the report says market volatility could hit recurring revenues, “only a proportion” of its FUA-based is exposed “to the equity market as [FNZ] generates fees based on foreign exchange and enhancing platforms”.
In January this year the firm also incorporated a new company – FNZ Clearing – that will operate a securities clearing business due to launch later this year.
Ultimately, Durham said FNZ Clearing would likely house its new blockchain-based fund registry and settlement system, ChainClear.
FNZ launched ChainClear in the UK last month with plans to take the service globally – although the NZ go-live date had not been finalised, he said.
Last year also marked a significant ownership change for the broader FNZ group, headquartered in Edinburgh, in a landmark deal with Canadian pension fund Caisse de Depot et Placement du Quebec (CDPQ) and the Al Gore-founded Generation Investment.
The two investors – in the first deal of a new joint partnership – paid almost $2.3 billion for the two-thirds of FNZ previously owned by private equity firms HIG Capital and General Atlantic in a deal that valued the global platform company at £1.7 billion (or NZ$3.45 billion).
Sherry says in the report that the buy-out – one of the “largest fintech transactions last year” – was in the “best interests of all our key customers and stakeholders”.
“FNZ, and its owners, have a long term and aligned view of creating a global wealth management platform that transforms wealth management service access, delivery and usability for all stakeholders, and most importantly end customers,” he says.
The platform provider launched in Wellington in 2003 as part of stock broking firm FNZC (then First NZ Capital) before parlaying a deal with Edinburgh-based investment giant Standard Life into an administration powerhouse with operations in Europe, Asia, Australia and NZ.
FNZ today employs over 1,600 people across the group with its new majority-owners likely to drive its expansion into the US market.
While FNZ hoped to stage a US beachhead sometime in the next 12 months, Durham said the main benefit of CPDQ/Generation as owners was access to patient long-term capital.
“[CPDQ/Generation] are pension funds with a long-term, multi-generational focus,” he said. “If FNZ is going to become a global platform it needs shareholders who can last that journey.”
Globally, FNZ reported about S500 billion in FUA as at the end of 2018, which Durham said was projected to hit $1 trillion by the end of 2021 based on current client migration projects and regular inflows.
The group had seen annual “top-line growth” of between 20 and 25 per cent of late, he said, requiring FNZ to add up to 200 employees each year.