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Kiwibank buying Gareth Morgan Investments, including the Gareth Morgan KiwiSaver Scheme with Morgan remaining a director
By Gareth Vaughan and Alex Tarrant
Kiwibank says it's buying Gareth Morgan Investments (GMI), including the Gareth Morgan KiwiSaver Scheme, as the state owned bank moves to expand its wealth and KiwiSaver operations.
No price for the deal, which sees Kiwibank's KiwiSaver funds under management jump by NZ$650 million to more than NZ$700 million, has been disclosed. Kiwibank CEO Paul Brock would not give a ballpark figure on the purchase, which he said Kiwibank would fund through "internal facilities" and would have a positive impact on earnings from day one.
The purchase would boost Kiwibank to being the country's sixth biggest KiwiSaver provider, Brock said.
Gareth Morgan himself will remain as a major client of GMI and a member of the investment strategy team. Morgan and fellow director Andrew Gawith will remain GMI directors alongside two Kiwibank-appointed directors.
GMI, which manages about NZ$1.5 billion of which NZ$650 million is KiwiSaver related on behalf of around 57,000 clients, will operate as a stand-alone entity from within Kiwibank's wealth and insurance unit. Brock said it was yet to be "worked through" as to whether GMI would keep its own branding.
The Kiwibank CEO said the acquisition was a unique opportunity to rapidly grow the bank's wealth and KiwiSaver operations.
“GMI’s core values of trust and honesty; transparency; respect for clients’ interests; and the continual pursuit of excellence mirror Kiwibank’s values of doing what’s right; making it easy; and raising the bar,” Brock said.
Kiwibank's own KiwiSaver Scheme started accepting members and subscriptions on July 1, 2010 and has 15,000 customers. The bank's KiwiSaver funds, aside from the Cash Fund which is managed by Kiwibank Treasury, managed by AMP Capital. As of September 30, 2011 Kiwibank's KiwiSaver funds under management stood at NZ$56.3 million, up from NZ$8.3 million a year earlier. See details of all KiwiSaver schemes here.
“We started our own KiwiSaver scheme just over a year ago and while the growth has been impressive we were aware of the need to extend our investment management capability. Our plan to do this looked very much like what GMI has developed," added Brock.
The "aligned values" of the two businesses reinforced the decision to buy rather than build. Both Kiwibank and GMI will continue to challenge the status quo, Brock added.
Kiwibank's chairman is Rob Morrison who last year teamed up with Morgan and other investors to buy the Wellington Phoenix football club from Terry Serepisos.
Morgan said he had initiated the sales process due to GMI's strong growth.
"It's quite a big company, we've got 50 people," Morgan said.
"I don't want to have to run 50 people, that's too many," Morgan added. "My passion in this space is investment portfolio strategy. GMI was started to look after my own money and just sort of grew."
Morgan said the decision to sell was driven by the need for credible succession plan for GMI.
“I intend to remain very closely involved with the business, being both a director and a core member of the investment strategy team,” Morgan said.
“However, to future-proof the care of clients’ portfolios I have to be responsible and make sure the firm is well-positioned for life after me.”
“This change will give me more time to focus on investment strategy and innovation, roles that really are of foremost importance to me and the business.”
Morgan said he and other GMI directors liked the way Kiwibank worked.
“If we were selling it needed to be to a party that understood, accepted and was capable of reinforcing the core values of our business: trust and honesty; transparency; respect for clients’ interest; and the continual pursuit of excellence," he said.
“While the ownership of this business is changing, my wealth, and that of a number of other founders of GMI, will be staying right where it is because a key element of the deal is that the business’s values and approach to managing peoples’ savings will remain the same.”
Morgan said he started GMI because he couldn’t find anyone to look after his savings with the degree of reporting and accountability that he needed.
“There was, to be honest, a major gap in the market on these factors which led to erosion of trust in the industry and consequent attention from regulators.”
Standard and Poor's said the acquisition would not affect Kiwibank's AA- credit rating.
It said the deal would have an insignificant impact on Kiwibank’s capital position.
"We continue to expect that Kiwibank’s capital position would be managed at about 10.1%–10.5% over the next 12-24 months," S&P said.
"We also anticipate that the acquisition would accelerate Kiwigroup’s wealth strategy, and contribute to the diversification of the earnings of Kiwigroup and NZ Post."
(Updates with Brock not giving ballpark figure on sale price, details on Phoenix link; comments from Gareth Morgan, Kiwibank to be sixth biggest KS provider, video of press conference, Morgan on fees; S&P comments)
Morgan on fees