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NZ equity management: Will the tight-five continue to dominate play?

A recent article in Good Returns highlighted that a handful of broking firms account for the bulk of New Zealand equity trades. How about the "buy-side" of our market – does it paint a similar picture?David Scobie, a senior consultant at Mercer Investments, takes a look at the evidence.

Saturday, June 18th 2016, 2:42PM

Mercer monitors the scale of equity assets held by New Zealand managers over time. Firms surveyed (currently 11) include those who are based in this country and manage funds for institutional and retail clients. Collectively these entities now manage $8.4 billion in New Zealand shares, representing a 29% increase on three years ago.

If we were to add in holdings of Australian stocks, the amount totals $10.9 billion, representing a 35% increase over the same period.

The breakdown

The chart below illustrates, by dollar value, the proportion of NZ equity assets held by the firms surveyed (excludes Australian equity assets). 

NB. The data includes actively managed funds from both broad-market and listed property/infrastructure mandates (excludes advisory-only).  The survey does not include providers focused on discretionary retail mandates such as share broking firms. 

Our analysis highlights several points of note:

  • While a bank leads the pack in terms of size, no other banks feature in the list (although Fisher Funds has a bank as a major shareholder).  Westpac and BNZ both left the field in past seasons.
  • Nine of the 11 firms feature some form of ownership by key staff,which is one characteristic of boutiques.  This represents a notable change if we consider that, in 2008, the five largest operators were all in full corporate ownership.
  • There is a "tight five" of firms who each rest above the $1 billion mark in NZ equity holdings, and who collectively manage just over three-quarters of assets surveyed.In that regard, the market demonstrates a high degree of concentration by international standards. 
  • There are two new entrants in recent years- Salt and Castle Point - and four departures – AMP Capital, BT, Brook and Tower (the latter having been acquired by Fisher).
  • Salt has appeared from "nowhere" (more precisely via a rebirth of BT Funds Management in 2013) to be amongst the largest players now, bolstered by two large client mandates.
  • Rankings have otherwise changed only moderately on three years ago.  As measured by NZ equity holdings, the biggest climbers are PIE Funds and Mint.  Milford dropped the furthest, although that firm maintains an elevated position when factoring in Australian holdings. ANZ and Nikko share the prize for stability, in terms of experiencing no change in ranking.
  • Local fund managers continue to allocate significant money across the Tasman. While perceived by some as "screwing the scrum" to a degree, this theme continues to gain prominence as a means of bolstering portfolio liquidity and sector diversification.  Australia is now the destination for nearly a quarter of Trans-Tasman equity assets.

Game conditions

The funds management industry has experienced considerable change over the last decade, with many firms having come and gone.

The development of KiwiSaver has provided a notable tailwind to participants, as have the PIE vehicle structure and mostly-buoyant market conditions post the Global Financial Crisis. Notwithstanding, it is interesting to observe that there has been a remarkably steady equilibrium number of around a dozen managers operating in the industry.

For existing firms which have grown their asset bases - to heady levels in some cases, amid a local sharemarket which offers limited liquidity for larger trade parcels - the challenge exists to not let size impede performance outcomes.  The scope for the emergence of new and agile managers appears strong, at least in theory.

For those who are prepared to navigate a regulatory environment more stringent than in the past, opportunities exist for skilled and well-structured entrants to claim their stake of funds under management. Will there be parties up for the test? Few newcomers appear to be jostling for position. 

In their absence, the cry from the sidelines may be: "feed the backs"!

Earlier Article: Trades concentrated with top 5 brokers

David Scobie is a Principal in Mercer's Investments business, based in Auckland.

Tags: Mercer

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Institution Rate 33% 39%
ANZ 0.10    0.10    0.11
ASB Bank 0.05    0.41    0.42
ASB Bank 0.05    0.59    0.56
ASB Bank 0.05    0.61    0.64
ASB Bank 0.08    0.66    0.69
ASB Bank 0.08    0.72    0.75
BNZ 0.10    0.10    0.10
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Kiwibank 0.50    -    -
Nelson Building Society -    -    -
SBS Bank -    -    -
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Westpac 0.35    0.36    0.38
Westpac 0.05    0.10    0.11
Westpac 0.50    2.16    2.26

Term Funds

Institution Rate 33% 39%
ANZ Term Fund - 90 days 0.75    0.77    0.80
ANZ Term fund - 12 months 1.50    1.54    1.61
ANZ Term Fund - 120 days 0.95    -    -
ANZ Term fund - 6 months 1.50    1.54    1.61
ANZ Term Fund - 150 days 1.15    -    -
ANZ Term Fund - 9 months 1.60    1.64    1.71
ANZ Term Fund - 18 months 1.50    1.54    1.61
ANZ Term Fund - 2 years 1.50    1.54    1.61
ANZ Term Fund - 5 years 1.60    1.64    1.71
ASB Bank Term Fund - 90 days 0.65    0.65    0.68
ASB Bank Term Fund - 6 months 1.40    1.44    1.50
ASB Bank Term Fund - 12 months 1.40    1.44    1.50
ASB Bank Term Fund - 18 months 1.40    1.44    1.50
ASB Bank Term Fund - 2 years 1.40    1.44    1.50
ASB Bank Term Fund - 5 years 1.50    1.55    1.62
ASB Bank Term Fund - 9 months 1.40    1.44    1.50
BNZ Term PIE - 120 days 0.90    -    -
BNZ Term PIE - 150 days 1.00    1.02    1.07
BNZ Term PIE - 5 years 1.65    1.70    1.78
BNZ Term PIE - 2 years 1.60    1.65    1.73
BNZ Term PIE - 18 months 1.65    1.70    1.78
BNZ Term PIE - 12 months 1.50    1.55    1.62
BNZ Term PIE - 9 months 1.50    1.55    1.62
BNZ Term PIE - 6 months 1.50    1.55    1.62
BNZ Term PIE - 90 days 0.65    0.65    0.68
Co-operative Bank PIE Term Fund - 6 months -    -    -
Heartland Bank Term Deposit PIE - 12 months 1.65    1.70    1.78
Heartland Bank Term Deposit PIE - 6 months 1.60    1.64    1.71
Heartland Bank Term Deposit PIE - 9 months 1.60    1.64    1.71
Heartland Bank Term Deposit PIE - 18 months 1.70    1.75    1.83
Heartland Bank Term Deposit PIE - 2 years 2.00    2.06    2.16
Heartland Bank Term Deposit PIE - 5 years 1.80    1.86    1.94
Kiwibank Term Deposit Fund - 90 days 0.85    0.86    0.90
Kiwibank Term Deposit Fund - 6 months 1.60    1.64    1.71
Kiwibank Term Deposit Fund - 12 months 1.65    1.69    1.77
Kiwibank Term Deposit Fund - 150 days 1.15    1.18    1.23
Kiwibank Term Deposit Fund - 120 days 1.05    1.08    1.15
Kiwibank Term Deposit Fund - 9 months 1.70    1.73    1.81
Westpac Term PIE Fund - 150 days 1.00    1.02    1.07
Westpac Term PIE Fund - 120 days 0.95    0.97    1.02
Westpac Term PIE Fund - 18 months 1.55    1.59    1.66
Westpac Term PIE Fund - 12 months 1.50    1.53    1.60
Westpac Term PIE Fund - 6 months 1.50    1.53    1.60
Westpac Term PIE Fund - 9 months 1.50    1.53    1.60
Westpac Term PIE Fund - 90 days 0.75    0.77    0.80
Westpac Term PIE Fund - 2 years 1.60    1.64    1.71
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