The NZX-owned Smartshares has signalled a further foray into the fund-hosting game after striking a deal with Craigs Investment Partners.
According to a NZX spokesperson, Smartshares is “providing Craigs with investment services and fund manufacturing for two funds they wanted in a portfolio investment entity (PIE) product for their client network”.
“These services are an area of the business Smartshares sees as beneficial in terms of leveraging our infrastructure but also servicing an expanding area of the market.”
Offered by Smartshares via the former Craigs-owned QuayStreet, the new PIEs bundle up two of the advisory group’s NZ equities portfolios – core and yield – into tax-effective wrappers.
Smartshares already plays fund host to the recently renamed JMI Wealth KiwiSaver in a business line the group “wants to do more of”, the NZX spokesperson said.
Fund-hosts provide the legal and administrative architecture for investment managers that are not licensed to issue products under their own steam.
The NZ fund-hosting market is dominated by Apex Group subsidiary, FundRock NZ (previously known as Implemented Investment Solutions), which has more than 20 – mainly Australia-domiciled – managers in its stable.
However, a number of other managers have ad hoc hosting arrangement such as Clarity Funds, which offers global equity strategies from US firms MFS and Capital, and a Harbour-hosted T Rowe Price fund.
Meanwhile, Smartshares “has also launched two new funds under the QuayStreet brand (international equity hedged and high growth) to meet client demand”, the NZX spokesperson said.
“We are also looking at expanding our range of market tracking funds to meet market demand.”
Funds management continues to be the main revenue-driver for the NZX, according to March quarter figures released last week, with the division reporting year-on-year growth of almost 40 per cent.
The funds business delivered income of almost $10.7 million over the first three months of 2024 compared to about $9.6 million for traditional stock exchange services over the same period.
Wealth Technologies, the NZX investment platform, also saw strong year-on-year income growth of close to a third, albeit from a lower base of $1.4 million in the March 2023 quarter to just under $2 million during the same period this year.
As at the end of March, Smartshares reported total funds under management of $11.7 billion while Wealth Technologies logged $13.8 billion of assets under administration.
NZX fund revenue has soared over the last couple of years on the back of the QuayStreet and earlier ASB master trust buyouts for respective price-tags of $31.25 million and $25 million.
But the NZX could ultimately make further multimillion payments to Craigs for QuayStreet under fund flow targets set for products sold through the network.
Mark Peterson, NZX chief, told shareholders last month that “the distribution opportunity with Craigs Investment Partners is beginning to bear fruit”.
In its 2023 accounts released last week, Craigs notes that the “sale of management rights of QuayStreet funds from CIP Investment Management Limited includes potential earn-out consideration of up to $18.75 million, based on net funds under management inflows from the Craigs network over a three-year period”.
“No provision has been made for this earn-out in the financial statements,” the accounts state.
Craigs booked an almost $31 million gain on the QuayStreet sale, settled in cash and NZX scrip: the accounts show the $8.75 million share component – subject to escrow – was written down to $7.16 million as at the end of 2023.