King builds an empire
Dorchester Pacific is an unusual beast in the financial services sector in New Zealand.
by Philip Macalister
Dorchester Pacific is an unusual beast in the financial services sector in New Zealand. It’s the only company selling products and advice in New Zealand which has a primary listing on the local stock exchange (that’s if you exclude NZIJ which is a New Capital Markets company).
The business is headed up by accountant and cricket nut Brent King
King's strategy to building his team is different to that of his big balance sheet competitors.
Over the past few years King, like many professional teams has being buying in players to strengthen his line up.
The acquisitions fall into a number of categories. On the advisory side Dorchester bought Phil Briggs’s firm Equity Research (now Equity), and last year it acquired the former Reeves Moses/Harts business that is now called Stirling Portfolio Management.
In addition to that Dorchester has bought Save and Invest, a superannuation company with a significant tied agency force; niche insurer Invincible Life (best known for its reverse annuity mortgages); the fixed interest business of FRP Partners, and sharebrokers Direct.
That’s not all though. Dorchester has bought a number of mainly regional finance companies including Senate, Fountain and Civic Loan and Finance.
Normally when a financial services company buys its competitors it bungs them together under one name and roof and expects to extract benefits from greater economies of scale.
King's different. He's buying companies and leaving them as standalone enterprises while trying to add value through management.
The idea is that Dorchester owns lots of niche players which can operate successfully at a regional level.
King's view is that there are different ways of doing business in different towns and cities in New Zealand. (There’s a saying that suggests business in Auckland is all about how much money you have, in Wellington it’s who you know, in Christchurch it’s what school you went to and in Dunedin it’s based around one’s religion).
As a small financial company in the New Zealand industry Dorchester's goal is to take advantages of the niches in the market, as opposed to playing the wide game.
King says he tries to position Dorchester on the shoulder of the big companies, rather than being on the inside and being too close, or being too far out.
"We are a flea to most of these guys," he says. "They want to squash us."
Despite being just a small player in the market dominated by heavies (a George Gregan in the middle of a grid iron team) King says his bigger opponents spend quite a bit of time looking at his operation. This is made easier for them as Dorchester is listed.
King is a great reader and loves sports and management type titles. The boardroom of the company's new premises on the top of the Auckland Club building in downtown Auckland is full of sporting books and biographies of famous money people like Ron Brierley and Warren Buffet.
Besides reading he still plays cricket (he's an offspin bowler and the captain of the Dorchester team) and is a member of the Auckland Cricket Board.
Dorchester's number one objective is to "give its shareholders superior economic returns," the company's mission statement says.
It's an interesting starting point for a mission statement compared with the new-age client centric spin most of his competitors trot out when asked the question.
King is big on the getting rich theme as he reckons New Zealanders are too apathetic about making money.
His view on running the business is simple: "If you don't do it to create wealth it's not worth doing it."
Dorchester's acquisition strategy has seen the company get more heavily involved in the investment, insurance and advice side of the industry recently.
Perhaps one of the most interesting stories has been that Dorchester won the bidding war for the Harts financial planning business against stiff competition from the likes of AXA and Tower.
Why did it win?
King describes the exercise as being like a great one-day cricket game.
He says Dorchester spent months preparing and strategising for the deal and when it came to make the play the company went for the king hit.
King suspects there are two reasons the receiver sold the business to Dorchester. Firstly it was prepared to do a deal quickly, secondly it was also prepared to take on the problematic Harts Contributory Mortgage business, which other bidders weren’t too keen on, even through King is strongly opposed to contributory mortgages.
“They should be abolished,” he says. "They are an outdated system of doing business."
His biggest concern about them is that “people shouldn’t be making money out of fitting people into a concept they don’t understand.”
He was prepared to take on the problem as he felt Dorchester had the credit skills to unwind the mortgages and get the best possible deal for investors.
King says most of the mortgages will be wound up by Christmas and he hopes they will have all gone within a year.
Although playing in financial services Dorchester has moved away from offering managed funds, besides its cash account.
"We think that other people are better at managing them," King says.
Its main investment products are its secured debenture stock and subordinated unsecured notes, however it is active in the insurance market with SAI Life (formerly Invincible Life).
On the advisory side of the business Dorchester has three distinct channels.
Equity is more transaction based and sells everything including managed funds and shares, while Stirling is being rejigged to be more a private banking, full advice service which uses the Aegis wrap account.
One thing that differentiates the business is that Stirling doesn't sell Dorchester investments.
King is critical of other players in the market who "force" their products down their own distribution channels.
The third channel is Save and Invest which has a force of 60 tied agents.
Since buying the former Harts/Reeves Moses business Dorchester has been spending a considerable amount of time working through issues including staffing and the number of offices.
The business is significantly slimmer than it was with advisers leaving and the company selling some offices to the advisers who worked in them.
"We've kept all the advisers we wished to keep," King says. He goes further and says the changeover process had gone better than expected and the company had "budgeted to lose a lot more funds under management than it actually lost.
Currently Stirling is recruiting again. The most high profile person to join the business is former Equitable business development manager and BNZ adviser Keith Keitzman.
King's strategy is different, but he reckons it's a winner. He also cautions about reading too much into the short-term performance or position of the company, saying he's playing a long-term game.
"If it was a sprint race I would lose. We are going to win the game on our stamina, strength and strategy."
Why will Dorchester be successful?
"Because it's run by the founder," he says.
Clearly he has an incentive to see things go well. Currently King owns nearly a third of the company, worth about $8.3 million.
King reckons other key success factors are the company's staff, its niche strategy and the fact that it is New Zealand owned and operated.
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