[OPINION] Who will buy KiwiWealth? And why it matters

Now the worst kept secret is out; that Kiwi Wealth is on the market, the question is who will buy the firm. But there are some other big questions too.

Friday, March 25th 2022, 6:00AM

by Philip Macalister

Kiwi Wealth is the fifth largest KiwiSaver provider with around $7 billion in funds under management and is one of the firms to retain default status last year.

The business is owned by Kiwi Group Holdings (KGH) which has NZ Post as the majority shareholder (53%). The NZ Super Fund and Accident Compensation Corporation have stakes of 25% and 22% respectively.

One of these owners apparently wants out - which one we don't know. So KGH is exploring "opportunities to position Kiwi Wealth for the future".

If the business is sold, it will be the biggest-ever KiwiSaver transaction and it raises political issues.

Kiwi Wealth, the former Gareth Morgan Investment (GMI) business, was acquired by KGH in 2012, adding to its group of wholly owned subsidiaries, which include Kiwibank and NZ Home Loans.

KGH appears to be clearing the decks, selling Hatch to FNZ, its insurance business to nib, and now Kiwi Wealth is on the block. (Will NZ Home Loans be next?)

As usual with these things, potential purchasers generally don't put up their hand in public beforehand.

So it was surprising that share broker Jarden, which owns Harbour Asset Management, publicly expressed an interest in the Kiwi Wealth.

Whether any of the incumbent KiwiSaver providers are in the running is unknown, although sources suggest they have been approached. Logically, any bank-owned or aligned business such as Fisher Funds is likely to be out as the new owner would, you'd imagine, want to try and keep distribution through Kiwibank.

Sources suggest there is significant interest from Australia and private equity firms across that ditch.

A sale along these lines is fraught with problems. Kiwi Wealth members come through four channels, with Kiwibank and default being the biggest. Kiwibank was set up as a counter to the big four Australian-owned banks. People choose to bank with Kiwibank because it is a New Zealand-owned business.

Likewise, people who join Kiwi Wealth directly are arguably attracted to its Kiwibank connections.

It stands to reason the majority of members are with Kiwi Wealth as they want to support a New Zealand-owned business rather than seeing the profits funnelled across the Tasman.

And it's here that the political dimension comes in. Kiwi Wealth, with its ownership structure, is what I would call a quasi-government business. Any sale should require approval from shareholding ministers.

The conundrum: the biggest cheque books are likely to be sitting outside of New Zealand.

With all the focus in financial services being on doing what is right for customers, it is hard to see how foreign ownership in this case fits the bill.

Instead of taking the biggest cheque, the vendors should be considering what is in the best interests of Kiwi Wealth's customers.

KGH chair Paula Rebstock seems to acknowledge this: “While there is no predetermined outcome to this process and the status quo remains an option, it is prudent to consider potential buyer interest, especially from those that are committed to building the scale and specialisation in investment management services that ultimately benefits customers.”

Selling to Australian interests in hardly likely to tick that box and selling to a private equity firms certainly does not tick the box.

Private equity firms are not long-term owners and are interested only in extracting the most profit from a business as possible before flogging it off again.

Maybe a listing on the NZX is the answer. That would keep Kiwi Wealth in New Zealand ownership.

Tags: Opinion

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