Australia’s leading banks are falling over themselves in their rush to expand their fund management businesses. ANZ is forming a joint venture with ING’s Australian fund management business and Westpac is buying Rothschild Australia Asset Management.
Australian banks have been under pressure to grow their investment businesses. “The reason is that in Australia we’ve got legislated growth in superannuation which means it grows very quickly,” says Brian Johnson, banking analyst at JPMorgan. Banks not making moves in wealth management face the risk that their retail deposit bases will be cannibalized as people increasingly invest their savings in mutual funds.
ANZ’s deal with ING will create Australia’s fourth-largest retail fund manager and New Zealand’s largest with a total A$38.4 billion (US$20.9 billion) of funds under management. The new entity will be called ING Australia and will include ANZ Investments and ING’s Australian and New Zealand fund management and life insurance businesses.
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ANZ will contribute its equity owned adviser networks to the joint venture, and ING will add its product manufacturing and administration platforms. ANZ is selling 51% of its wealth management business to ING and acquiring 49% of ING Australia. Fund management manufacturing will be outsourced to ING and the branch distribution business will be retained by ANZ.
Historically, ANZ has had good asset management capabilities but has had difficulty in the distribution of products through its branch network. Mike Macrow, banking analyst at Salomon Smith Barney, says: “The most successful form of selling funds management products is through IFAs. Neither ANZ nor Westpac had access to that part of the distribution system but they’re gaining access through these deals.”
JPMorgan’s Johnson disagrees. “The ANZ/ING joint venture doesn’t really do anything to solve this problem,” he says.
Buying RAAM for A$323 million increases Westpac’s funds under management from A$14.5 billion to A$17.2 billion. It gains scale as well as rated products that can be sold through IFAs.
Despite a growing market, Rothschild has sold off its Australian investment arm, while ING has chosen to join up with a local player. So, are Australian banks better placed than international players to win in this market? Paul Manduca, chief executive at Rothschild Asset Management, says: “They’re well placed provided they have good manufacturing capability.” Which is exactly what ANZ and Westpac are aiming to achieve.
