AMP confirmed the obvious last week, officially ending an almost two-year long mission to offload its ‘manage for value’ NZ wealth business.
As reported here well-advanced trade sale negotiations with a short-list of buyers understood to have included TA Associates, Mercer, KKR and Macquarie stalled in April as market volatility spiked whatever slim hopes AMP harboured of fetching a reported target price of between $400 million to $500 million for the NZ wealth arm. The trade sale push began following an abandoned IPO plan in March last year.
Nonetheless, the call to bin the NZ sale altogether must’ve been a recent one. Slides used by AMP chief, Francesco De Ferrari, in an investor presentation last Friday still list ‘divest New Zealand’ as one of the group’s 10 “strategic priorities” for “reinventing” the troubled business.
Instead, David Murray, AMP chair, told the group’s AGM last week that due to “recent economic and financial market disruption, we have ceased plans to divest the [NZ] business”.
“We will now focus on developing and growing the business in its existing market,” Murray said.
How enthusiastically AMP commits to the previously unwanted NZ wealth business remains to be seen but it has some repair work to do. The NZ wealth group (which excludes AMP Capital) has steadily been losing market share in the otherwise fast-growing KiwiSaver and retail fund sectors.
From December 2017 until March 31 this year, the AMP KiwiSaver scheme has shed about 2 per cent market share, according to Morningstar figures. During the March quarter alone, AMP NZ total funds under management (FUM) – covering KiwiSaver, superannuation master trust and retail products – fell about $1.2 billion as market volatility combined with net outflows.
Despite the constant FUM erosion, AMP NZ remains a major market player as the fourth-largest holder of retail funds, which explains the reported interest from TA Associates (part-owner of Fisher Funds) and Mercer. Both Fisher and Mercer operate KiwiSaver schemes and superannuation master trusts that could’ve absorbed – with a bit of effort – the AMP product set.
AMP NZ also owns the AdviceFirst dealer group (which houses about 30 financial advisers) and employs an in-house advice team of a similar size. Distribution networks, however, are notoriously difficult to value.
AdviceFirst was originally conceived as a co-operative venture between AMP and underlying advisory businesses, which took equity stakes in the business. AMP NZ now owns over 95 per cent of AdviceFirst with four external firms and the dealer group’s chief, Mark Ennis, holding the remainder.
In February Ennis replaced Peter Chote as AdviceFirst director. Chote was the sole financial adviser on the AdviceFirst board that also includes AMP NZ chief, Blair Vernon, and general counsel, Timothy Pritchard.
Echoing Murray’s AGM speech, Vernon said in a statement that with a sale now off the table, AMP NZ would “focus on existing plans to continue to develop and grow the business locally, including through the ongoing renovation and simplification of products, such as KiwiSaver”.
And the AMP KiwiSaver scheme is one of the more complex in the market, boasting 33 underlying investment choices including offers from rival firms such as Mercer, Nikko, ANZ and ASB. (Mercer is also investment consultant to the AMP schemes).
Regardless of the broad investment choice the bulk of the AMP KiwiSaver money sits in the group’s house-label diversified funds. During the March quarter almost all of the AMP diversified KiwiSaver funds (balanced, growth etc) suffered net loss of members. In total, the AMP KiwiSaver diversified funds saw a net 1,400 or so members exit in the first quarter of 2020.
The March quarter statistics also reveal the scale of volatility-inspired investment de-risking switches: over the period the AMP KiwiSaver cash and conservative funds added a net 974 and 500 members, respectively.
Next month the ASX-listed AMP should complete the sale of its life insurance arm to Resolution Life. Murray told the AGM that while “life insurance played an important role in our history, our business’ future growth lies in wealth management, banking and investment management”.
He said disentangling the life components from AMP Australian superannuation funds, for example, represents one of the largest transfers of its kind “in Australian history”.
In a passionate if tin-eared defence of AMP’s executive latest remuneration plan, which almost 70 per cent of shareholders voted against, Murray said the multi-million dollar pay packages (including $4 million in base salary and short-term rewards for De Ferrari last year) reflected the “scale, complexity and challenges” of transforming the beleaguered AMP. AMP cancelled dividends last year in light of the restructure and client remediation costs incurred post the Australian Royal Commission findings last year.
“Using the health analogy, AMP has suffered multiple complications requiring continuing treatment whilst preparing for major surgery – the excision of the life business,” he said. “In these circumstances in our private lives we would expect out health costs to rise substantially with specialist treatment and we would want to retain the clinicians with best knowledge of our medical history.”
AMP director fees were, however, set to reduce again in 2020 with Murray pushing for his own remuneration to drop from A$850,000 to A$660,000 as of March 1.
The AGM also approved three new AMP directors – Debra Hazelton, Rahoul Chowdry and Michael Sammells – to replace the outgoing Mike Wilkins (who left in February), Peter Varghese and Andrew Harmos.
AMP’s share price closed up about 4 per cent on Friday to A$1.42.