Westpac made the announcement yesterday, saying that it would retain a majority stake in the business, but offer the rest to shareholders and senior staff in an IPO slated for later this year. The listed company would have A$40 billion in institutional assets under management, making it the seventh largest fund manager in the country.
The size of the stake that Westpac will retain is still under consideration. The IPO will have two components û a retail offer to existing Westpac shareholders and an institutional offer. The price of the shares will be determined via an institutional bookbuild. Caliburn is advising Westpac on the transaction.
At a press conference yesterday, BT Financial Group CEO, Rob Coombe, was very specific about the reason behind the spin-off. ôWe are setting up this new company so that we can give our investment management talent a stake in the business. This will allow us to retain staff and to attract new talent,ö he told analysts and journalists.
Coombe said that competition for ôhigh-alphaö managers was stiff and that, without the right incentives, the company wouldnÆt be able to hold on to staff who might be tempted to leave and set up their own boutiques. ôThe investment management industry is changing around the world. Money is moving towards index players that have global scale, or to boutique managers who can offer more alpha. Those index-trackers in the middle ground will see margins squeezed.ö
BT will structure the new entity into four ômini-boutiquesö focusing on different strategies û multi-strat, equities, macro and income. ôWestpac will enter into a profit share arrangement with the boutiques,ö said Coombe. ôEach boutique will be in charge of its own costs and will pay a certain fixed overhead for occupying our offices. Then they will share in any profit.ö
Coombe said Westpac considered alternative incentive options including a synthetic equity scheme. ôWe decided that this wouldnÆt provide us with the same type of alignment as a listed company, mainly because these schemes are usually cashed-out and donÆt work for long-term retention.ö
Westpac bought the BT Financial Group five years ago, paying A$900 million for the entire business. The institutional funds division forms just one part of the BT group, and represents 10% of its earnings û the rest comes from financial advice, insurance, private banking and retail and superannuation services. As a whole, BT contributes 12% to WestpacÆs annual income compared to about 5% when the company was first purchased. Westpac expects this income contribution to increase to about 20% in the next four years.
The new institutional funds entity will be headed by BT Financial GroupÆs current chief investment officer Dirk Morris. The board will also contain an independent chairman and a new independent director. The company will continue to carry the BT brand.
David Morgan, WestpacÆs CEO, says the proceeds from the sale of the business will be channelled back to the bank and used to enhance growth. ôIt will probably be reinvested in our wealth and business banking divisions,ö says Morgan.