Hamish Fletcher

Hamish Fletcher is a business reporter for the NZ Herald

Gareth Morgan's multi-million dollar payday

Photo / Dean Purcell
Photo / Dean Purcell

Kiwibank's purchase of Gareth Morgan Investments - estimated to have cost between $50 million and $100 million - boosts a late advance by the state-owned bank into the KiwiSaver market.

The bank announced yesterday it would buy the business, owned by economist Gareth Morgan, which has over $1.5 billion under management.

This includes the $650 million from the 57,000 members in his KiwiSaver fund.

Morgan told the Herald he did very well from the deal, but could not disclose the sale price.

"It's not as much as Trade Me but it's a s***load of dough," he said.

Morgan was an early investor in Trade Me - the online auction website founded by his son Sam Morgan - which Fairfax Media bought in 2006 for $700 million.

While his son scooped up $200 million in the purchase, Morgan senior netted a share of $47 million, which he donated to charity.

"I'm still behind that young bugger," he said.

Morgan had been looking to sell his investment business for around a year because it had become too big.

"To have to run a business of 50 people, it's just not me ... I tried to do it by putting in management-type people and that worked to a degree, but I still find myself lying awake at night worrying about it," he said.

Morgan will stay on as a member of the investor strategy team and said it would be "business as usual" for his KiwiSaver scheme.

Kiwibank chief executive Paul Brock believed the newly acquired business would remain a stand-alone entity, but said details had not been ironed out.

Asked about the performance of Gareth Morgan Investments and if it was the most sensible fund for the bank to purchase, Brock replied: "I think at the end of the day performance is a discussion we could sit all afternoon and talk about. What we believe is the very strong fit between the businesses ... there is an ongoing debate as to how you compare performance across the industry and it's very clear that in many cases people are also working on wealth preservation not just growth."

"We believe the business has value and that value is both in its investment management capability and in the KiwiSaver business that it has built," Brock said.

The purchase of the business adds more than 57,000 KiwiSaver members to Kiwibank's scheme, which has only been running for around 12 months.

"We have about 15,000 members ... we're happy with [the scheme's] growth but from our point of view we need to broaden the capability and reach that we have and this will also give us an opportunity to have a slightly better return from the business that we're generating," Brock said.

KiwiSaver commentator and author Mary Holm said it was surprising the bank had not involved itself with the retirement-savings scheme sooner.

"They certainly lagged behind the other banks who were, to a considerable extent, quite heavily involved in KiwiSaver. ASB is a default provider and Westpac I think is the biggest non-default, it is certainly a big scheme, and OnePath is connected with ANZ," she said.

Despite this, Holm said the purchase could be a "clever move" on Kiwibank's part.

"Any KiwiSaver scheme has not been a profit-maker at the beginning because the accounts have been too small ... in some ways it might be quite a clever move because they've come in now and picked up a scheme with some reasonably big accounts in it," she said.

Massey University Centre for Financial Services and Markets director David Tripe said Kiwibank would be keen to capitalise on the Gareth Morgan brand and guessed it paid $50 million to $100 million for the business.

"What they're buying is the revenue associated with the Gareth Morgan KiwiSaver fund and other investment schemes ... $50 million might be in the order of magnitude for something like that," Tripe said.

The Kiwibank purchase follows a number of mergers and acquisitions in the KiwiSaver market which Holm believed could continue for some time.

"The number of providers has reduced a fair bit ... there were too many at the beginning. I think everyone knew from the start that not that many [providers] could make a profit [out] of it," Holm said.

SAVING UP
* Almost 1.85 million New Zealanders are enrolled in Kiwisaver.
* More than $10 billion is wrapped up in the savings scheme
* Kiwibank has around 15,000 Kiwisaver members
* It will take over 57,000 new members in the purchase and $650 million of KiwiSaver funds.

- NZ Herald

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