Craigs sees slowing growth in funds management

Mark Lister, head of private wealth management at Craigs Investment Partners.

Craigs Investment Partners posted a 58 per cent gain in annual profit as a swelling pot of funds under management delivered a boost to fee income, however, the broking and research house sees the pace of that growth slowing.

Net profit rose to $25.6 million in calendar 2016 from $16.2 million in the prior year as the Tauranga-based company's revenue climbed 18 per cent to $145.4m. Of that, income from fees jumped 30 per cent to $84.8m.

Chairman Neil Craig said the firm - which has 17 offices across the country - has seen "steady straight line growth between 2014 and 2016" with about $13 billion of funds under management, up from about $10b in 2014 when it generated fees of about $61m. In 2013, Craigs' funds under management were about $8.5b, helping generate fees of $54m.

"We had a strong year across the board," Craig told BusinessDesk. "It has grown very steadily, but last year it grew from three things: growth in funds under management, growth in the market and the re-investment of income into funds under management."

While Craig said he expects funds under management will continue to show steady growth, the market was generally softer and "we think the rate of growth will slow down".

The latest data from the Reserve Bank of New Zealand shows that total funds under management in New Zealand increased to $140.6b in the December 2016 quarter versus $116.1b in the December 2014 quarter. In June 2007, just before KiwiSaver was launched and gave funds management a fresh impetus, New Zealand firms managed about $73.2b.

Craig said a strong year in the investment banking side of the business also contributed to the higher fees in 2016. That included a review of wood mouldings maker Tenon, bond offers by Air New Zealand and Kiwi Property Group, the initial public offering of Tegel Group and advising Tainui Holdings on the partial sale of the Base retail site. Commission income rose to $12.8m from $11.9m in the prior 12 months.

The firm's operating expenses rose 15 per cent to $116.9m in a year when the final tranche of the Financial Markets Conduct Act came into effect, requiring fund managers to be licensed from December.

Craigs beefed up its spending on software through 2016, value the intangible asset at $22.8m as at December 31 after $3.7 million of additions through the year. It had $1.4m of software under construction at the balance date, having transferred $554,000 through the year. In 2015 Craigs was censured and fined by NZX for failing to correctly record retail client orders in the stock market's trading system for almost two years. As part of a settlement, Craigs agreed to implement new software to allow common shareholder numbers to be automatically applied during the trading process.

The firm paid $16m in ordinary dividends or $19.99 per ordinary share versus $11.4m in the prior year, or $14.24 per share. It also paid a $7.30 non pro-rata special dividend per ordinary share, or $2.92m, to CIP Holdings, which owns a controlling 50.1 per cent stake on behalf of key Craigs' managers. Deutsche Bank acquired a 49.9 per cent stake in 2010.