SmartShares FUM up 33%

NZX says its Smartshares subsidiary grew funds under management (FUM) grew 32.9% to $11 billion in calendar 2023 with FUM growth excluding acquisitions rising 14%.

Friday, February 23rd 2024, 12:02PM

by Jenny Ruth

The latter reflects both funds inflow of $136 million, up 1.7%, including better-than-expected cash outflows of $120 million from Quay Street post acquisition, and positive market returns of $958 million, up 11.8%.

The stock exchange operator says Smartshares is on track to reach between $18 billion and $20 billion in FUM by the end of 2027.

“Our market analysis indicates $15 billion to $20 billion of FUM is the point when cost bases become efficient for New Zealand fund managers,” it says in its annual results release.

Smartshares contributed $18.3 million to NZX's earnings before tax, depreciation and amortisation (ebitda) of $38.9 million, but amortisation of $4.1 million, up from $2.5 million the previous year, meant the ebit contribution was $14.2 million, up 63.2%, to the group ebit of $22.1 million.

NZX's bottom line was $13.6 million, down 4.3%, reflecting that increased amortisation as well as the $6.6 million amortisation of the Wealth Technologies unit, up from $5.5 million the previus year.

Operating cash flow was $34.4 million, up 47% from the $23.4 million the previous year.

NZX held its final dividend steady at 3.1 cents per share, taking the annual payout to 6.1cps, or $19.8 million, significantly above net profit.

NZX's dividend policy is to pay out between 80% and 110% of adjusted net profit over time, “subject to maintaining a prudent level of capital to meet regulatory requirements.”

“We're conscious of where we see the future track going. We're very cash flow positive,” said chief financial officer Graham Law, adding that amortisation is the main drag on net profit and that NZX wants to maintain a stable dividend.

Chief executive Mark Peterson told analysts that Smartshares' cost base is changing as it continues to integrate the ASB Master Trust and Quay Street acquisitions as it brings customer support functions in house.

Smartshares added 18 full-time equivalent staff since acquiring Quay Street from Craigs Investment Partners in February 2023 and expects to hire more this year, as well as seven additional staff to perform ASB Master Trust services.

New products
The first new funds under the product support and distribution agreement with Craigs will be launched in the current first half year and are expected to drive significant cash flows.

“We expect earn out cash flow targets to be achieved, which would significantly increase operating earnings.”

Peterson said all three of NZX's businesses, capital markets, funds management and Wealth Technologies, are targeting larger scale and operating leverage and that NZX is starting to see the benefits to the group of the three businesses supporting each other.

The Wealth Technologies business signed up 12 new clients in the year, up from five when NZX reported its first-half results in August, including Fisher Funds which has $23 billion in FUM.

Wealth Technologies is targeting funds under administration (FUA) between $35 billion and $50 billion compared with $11.54 billion at the end of 2023, up 15.8% on 2022. Adding Fisher will take FUA to $34.5 billion.

NZX estimates the total addressable market is $180 billion, driven by increased compliance obligations the increasing cost to service clients, making the Wealth Technologies option more cost efficient.

Peterson said NZX is aiming for the Wealth Technologies business to be cash flow break even by the end of calendar 2024.
In 2023, Wealth Technologies made an ebit loss of $5 million after amortisation of $6.6 million, up from the 2022 loss of $4.1 million.
The 12 new customers the unit gained were all “higher-margin, full-service custody and operations markets, as opposed to software as a service (SaaS) and are expected to have transitioned ont the platform by the end of 2024.

Tags: NZX