The NZX-owned funds management arm, Smartshares, saw year-on-year operating earnings fall 10 per cent in the first six months of 2020 as rising expenses outweighed top-line revenue growth of 8 per cent.
Hugh Stevens, Smartshares chief, said the-now $4 billion plus funds business has been “investing for growth” in several areas including adding 12 new exchange-traded funds (ETFs) over the last year, rearranging stock lending facilities, upgrading technology and applying for an Asia Region Funds Passport.
According to the NZX half-year results released last week, Smartshares (which includes the corporate superannuation and KiwiSaver wing, SuperLife) is also about to embark on a “brand refresh” that has soaked up further costs.
The NZX established the Smart Investment Management company this February with current legal counsel, Tim Bennett, as director.
But while Smartshares costs ballooned more than 26 per cent in the six months to June 30 to just under $4 million (about $3.2 million in the same period last year), the group’s funds under management (FUM) experienced a bumpy, though ultimately bumper, first half.
The NZX report says Smartshares total FUM slumped from a high of $4.1 billion in February to $3.2 billion at the late March trough. As at June 30, Smartshares FUM rebounded to just under $4 billion: NZX metrics show the figure was close to the February par by the end of July.
For the first half of 2020, Smartshares FUM was up across the board with strong growth in particular among external ETF investors. July 31 figures show Smartshares external FUM of almost $1.5 billion, up about 28 per cent year-on-year: the in-house SuperLife component of Smartshares was $2.2 billion at the same date, representing an 11 per cent annual increase.
While the burgeoning retail enthusiasm for ETFs (spurred by direct-to-consumer platforms such as InvestNow and Sharesies) and mandated KiwiSaver flows drove much of the NZX funds growth, the group also made some headway in the institutional market.
“During the half Smartshares was appointed investment manager for a key institutional passive mandate following a rigorous operational review by a leading global investment consultant,” the NZX report says.
As well, SuperLife clocked up three corporate super wins over the period. SuperLife is the third-largest employer super master trust (counting about $1.2 billion under management at the end of June) in a market over-shadowed by the $3.3 billion AMP NZ Retirement Trust (NZRT). AMP is currently reviewing NZRT investments with a passive pivot a possibility.
Stevens said the $20 billion plus NZ corporate super was facing rising expense pressures that could see trustees lean more to low-cost solutions.
Smartshares FUM-linked revenue rose 14.4 per cent year-on-year in the first half of 2020 to more than $5.6 million but member-charged income fell almost 19 per cent to $915 million.
“Member based revenue has decreased due to a historical pricing provision which more than offset the positive impact from the 7.8% growth in investor numbers (ETFs and SuperLife),” the report says. “Other revenue [$238 million, down from $279 million in the first half of last year] has been impacted by the decrease in OCR and the commencement of stock lending services.”
Meanwhile, the NZX’s foray into investment administration, which began in 2015 with the purchase of the Apteryx platform, gathered pace in 2020 as JB Were entered as a new client.
JB Were, the National Bank of Australia-owned wealth management business, added about $800 million in funds under administration (FUA) to the NZX Wealth Technologies platform in June. Prior to the JB Were win Wealth Technologies reported FUA of roughly $2.3 billion, about half of which came via the unit trust business of Craigs Investment Partners.
Both the $4 billion Hobson Wealth and Auckland firm, Saturn Advice, are due to shift to Wealth Technologies from the Aegis platform over the next few months.
Furthermore, the NZX has penciled in Wealth Technologies FUA rising to about $20 billion by late 2020 (probably fueled by more Craigs money) with a target of between $35 billion to $50 billion by the end of 2023.
In the interim, however, Wealth Technologies continues to run at a loss, bleeding $533,000 ($186,000 in the same period last year) on revenue of $849,000.
The NZX report shows the platform business has more than 50 full-time employees compared to just under 50 for the funds management division and 66 in corporate services.
Overall, NZX net profit after tax jumped close to 41 per cent year-on-year in the six months to June 30 to $9 million. The frenetic retail trading environment during the COVID crisis saw NZX secondary market revenue leap almost 50 per cent compared to the first half of 2019 to almost $10.5 million.