Smartshares has increased its share of the NZX revenue pie by about 5 per cent year-on-year over the first half of 2022 relative to the group’s overall income as a new master trust acquisition and default KiwiSaver status came online.
According to the latest NZX interim report for the six months to June 30, the funds management operations garnered almost $11.5 million in top-line revenue or about a quarter of total group income of just under $46.2 million.
For the same period in 2021, Smartshares delivered almost $9 million of income, representing roughly 20 per cent of NZX group revenue.
Funds management profit also grew significantly as measured against the stock exchange’s traditional capital markets business, adding some $4.6 million to the bottom-line in the first half of 2022 against almost $19 million for trading and other related activities: during the June 2021 half, Smartshares delivered an operating profit before interest and tax of $3.2 million while the capital markets result stood at $19.2 million.
The recently purchased ASB superannuation master trust contributed about a third of the Smartshares half-year operating earnings (before depreciation, interest and tax) of close to $6 million, the NZX said in a statement. Following the $25 million acquisition of the ASB master trust last year, Smartshares added $1.8 billion to funds under management, receiving a further $380 million or so fillip in December as one of the newly appointed default KiwiSaver providers.
The ASB money is slated for full transition to NZX investment and administration systems by the third quarter of next year, according to the six-monthly report.
“Smartshares enjoyed positive net cash inflows of $180 million for the period. However, after including market movements, funds under management was down 9.4% compared to 31 December 2021,” the NZX release says. “The business growth remains strong with a compound annual growth rate of 21.2% since NZX set its five-year strategic goals in 2018.”
Aside from the default and ASB master trust top-ups, Smartshares has seen organic growth across its KiwiSaver and external exchange-traded fund (ETF) product lines as total assets under management fluctuate around $8 billion in choppy market conditions.
The manager is also tilting at offshore markets as the first holder of an Asia-Pacific Funds Passport (talks with offshore partners are ongoing) and by registering Smartshares products under the trans-Tasman Mutual Recognition Agreement (TTMR) in Australia for the first time.
Few, if any, NZ investment managers have found much success across the Tasman through the TTMR channel while about 800 of the 1,000 or so open managed fund products registered on Disclose are Australia-domiciled.
But the ASB and KiwiSaver wins have also come with some costs as both integration expenses and IT spends (to meet new default regulatory obligations) hit home.
Year-on-year Smartshares operating expenses leapt from $4.2 million over the first half of 2021 to almost $5.5 million for the corresponding period in 2022.
Meanwhile, the other piece of the NZX fund play, the Wealth Technologies investment platform, reported a half-year loss of $2.1 million, adding to a similar loss in the previous half and up from the $1.6 million deficit recorded in the first six months of 2021.
Wealth Technologies six-monthly staff bill soared above $5 million in the June half from about $4.2 million in the same period last year: full-time employee numbers jumped from 50 as at June 30, 2021, to almost 70 a year later (by contrast Smartshares counted 65 or so staff on the books at the same time).
“NZX Wealth Technologies operating earnings were $0.5 million for H1 2022, compared to $0.1 million in H1 2021,” the report says.
The investment platform last reported funds under administration of about $10 billion (again, buffeted by the extreme market volatility this year) held on behalf of 16 clients – including nine on the modern technology system that will eventually hold all customers.
“There is a strong pipeline of future business, including a significant client and expected increase in funds under administration (FUA),” the NZX report says.
Previously, the NZX had projected Wealth Technologies to hit $20 billion in FUA by 2020, rising to a ‘high track’ forecast of $50 billion by next year. Despite missing those earlier targets, the NZX report still plots platform FUA to reach $35 billion in 2023 as a low-end estimate.
Mark Peterson, NZX chief, says in the report: “Wealth Technologies remains confident it has the customer relationships to deliver $35-$50 billion FUA.
“There is strong determination and drive to be cash flow positive and we remain excited by the future growth prospects of this business.”