Funds management held top spot in the NZX revenue rankings over the March quarter as the QuayStreet-enhanced Smartshares delivered almost $8 million to the business.
The $7.97 million quarterly Smartshares income, which includes contributions from recent acquisitions ASB superannuation master trust and QuayStreet (from February), represents a year-on-year increase of more than 45 per cent and continues the recent outperformance of the funds management division relative to other NZX operations.
By contrast, NZX securities trading revenue held steady at just over $6.4 million in the March quarter compared to slightly under $6.4 million for the same period last year when Smartshares booked income of almost $5.5 million.
NZX information services and capital markets-listings rose about 13 and 12 per cent, respectively, year-on-year in the first quarter of 2023, equating to $4.9 million and $3.9 million.
James Miller, the temporarily not outgoing NZX chair, told shareholders last week that Smartshares was on track to double assets under management based on global index-investing trends.
Miller said passive equity allocations offshore average about 20 per cent, suggesting Smartshares “has a clear path to grow to $20 billion without factoring in industry growth factors” given the KiwiSaver market alone is closing in on $100 billion.
“[Smartshares] Funds under Management that were circa $1.7 billion when I became Chair are now $10.3 billion,” he said. “In my view, Smartshares will lead the passive market in New Zealand in the years to come.”
Currently, the KiwiSaver passive exposure is dominated by offshore players, particularly BlackRock, which has mandates with both ASB and AMP that manage about $14 billion and $5.5 billion, respectively, in the sector.
Other index-style managers including Simplicity (which, at the moment, invests mainly in Australian-domiciled Vanguard products) and Kernel also compete in the Smartshares passive space. Australian exchange-traded fund (ETF) specialist, BetaShares, is also poised to enter the NZ market directly soon.
Smartshares funds under management grew almost 27 per cent year-on-year, largely due to the $1.6 billion active management business, QuayStreet, formally entering NZX accounts this February. QuayStreet will eventually add an “enhanced passive” product suite to its active range, the NZX said in February.
Total external client funds under management for the Smartshares ETF products remained flat year-on-year at just over $2.3 billion (or up 0.4 per cent compared to March 31, 2022).
Due to retire this month, Miller extended his stay until a successor is appointed after the company withdrew support for chair-elect, Rob Hamilton, earlier this year. Former Kiwi Group Holdings (KGH) chair, Paula Rebstock, also joined the NZX board in February.
The NZX chair told shareholders the group’s fund business should be valued on a par with the ex KGH firm, Kiwi Wealth, that sold to Fisher Funds for $310 million last year, triggering calls for the group to sell or spin-off Smartshares in a separate listing.
At the same time, Smartshares is close to appointing a replacement for chief executive, Hugh Stevens, who left the business last month with NZX chief financial officer, Graham Law, taking the reins in the interim.
“NZX commenced a search process following Hugh Stevens resignation, that process is well advanced but not complete,” a spokesperson for the group said.
Meanwhile, the NZX investment platform, Wealth Technologies, has confirmed a May arrival date for a ‘large contracted client’ that has been waiting in the wings for some time.
NZX chief, Mark Peterson, told the AGM last week: “We would have liked to have transitioned our substantial new client onto the Wealth Technologies platform last year. However, some parties critical to the transition last year were not ready to deliver the service the end investor would expect, and the transition is now scheduled for the beginning of May.”
As at the end of March, Wealth Technologies, reported $10.3 billion under administration (coincidentally, almost exactly the same as the Smartshares FUM) and almost $1.5 million in revenue over the quarter.