Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Westpac ends an era as Pendal starts a new one. Long live Pendal.
Westpac Bank has sold its final 9.5 per cent holding in Pendal Group, after the market closed on June 18, sweeping clean its stake in the business. It will continue to withdraw from the $14 billion in assets that Pendal currently manages for Westpac. The Pendal story would make a good book – and, in fact, it did.
The block trade last week, handled by UBS, was priced at $5.98 a share (a 4 per cent discount on the previous day’s closing price). The sum totalled about $184 million. Westpac started to sell down its stake in BT Investment Management (as it was called prior to the 2018 rebrand to Pendal Group) in 2015. Westpac has also been slowly withdrawing assets managed by Pendal, as the global fund manager continues to separate its operations from the bank.
The deal will add about two basis points to Westpac’s common equity ‘tier 1’ capital. The sale rids Westpac of its final share in Pendal and comes at a time when Westpac is also doing a strategic review of its BT Wealth operations. “The success of the offer has delivered a good result for Westpac and is aligned with our strategy of simplifying our operations and focusing on banking in Australia and New Zealand,” Westpac acting chief officer Gary Thursby said in a prepared statement.
Westpac said it would continue to withdraw funds managed by Pendal, with a $1 billion tranche expected later this calendar year and a second tranche and then a smaller amount late next calendar year. The strategic review of BT Wealth, announced on May 4, may see further Pendal-managed funds withdrawn by Westpac but the bank said it was too early to assign a number to this. James Evans, the Pendal chair, said: “While this marks the end of an era of ownership in Pendal by Westpac, Pendal has continued to build on the strong foundations of the business since it was floated as BT Investment Management on the ASX in 2007.”
But the Pendal story goes way back before Westpac got involved. No company has had as much of an impact on the Australian funds management industry as the old Bankers Trust did. No company has such an illustrious alumni. No company wore a halo for as long as Bankers Trust did after it picked the 1987 stock market crash. BT was Australia’s first truly global fund manager. BT knocked over the big life offices which had dominated the investment industry, mainly AMP and National Mutual, and set the foundation for a new world of funds management ready for our new world of superannuation, which started with ‘Award Super’ in 1986.
Ben Phillips, a former journalist who is now a director of Deloitte subsidiary Casey Quirk in New York, broke the story that BT Australia was for sale, for the first time, in about 1995. BT Australia was the jewel in the parent’s crown, already taking charge of its international investments. Mike Crivelli, the head of sales and marketing at the time, likes to tell the story of a meeting he had with Paul Keating, then Prime Minister, during the first sale process. Keating said to Crivelli words to the effect: “Don’t worry, we are not going to make you have an Australian shareholding.” Crivelli and his co-directors, including joint managing directors of the whole company, Rob Ferguson and Bruce Hogan, after Chris Corrigan had left a couple of years earlier, were disappointed. As was Ian Martin, who ran the funds management division with Crivelli. They wanted to have some ownership in the business. It wasn’t until after Westpac bought BT that the management got the chance to do so.
Gideon Haigh, a respected journalist and author, wrote the book, ‘One of a Kind: the story of Bankers Trust Australia, 1969-1999’ which was published in 1999, when the funds management firm was bought by Principal Financial Group, based in Des Moines, Idaho. The whole of Bankers Trust was bought by Deutsche Bank the previous year. Principal paid an estimated US$2 billion for BT’s Australian funds management business. The sale was a failure, partly because of the feistiness of the BT Funds Management’s management. No-one wanted to deal with Des Moines, Idaho. “Why would you?” Crivelli was heard to say more than once. Principal sold the firm to Westpac for what seemed like a bargain price of A$900 million in 2002.
Westpac had already purchased the much smaller Rothschild Australia Asset management, which it re-branded ‘Sagitta’ (of Latin derivation from the word ‘arrow’, after the manager’s ‘Five Arrows’ range of funds) and set about to amalgamate the business with its own Westpac Investment Management and wealth management operation. It was a time when the banks were trying to play catch-up in the funds management space.
As an aside, the name ‘Westpac’ was invented by Pieter Huveneers in 1983. He was a marketing person given a rumoured $1 million to come up with a new name by the former Bank of New South Wales, a bank which is so old it had to have its own NSW Act of Parliament, prior to federation, for its establishment in the early 19th Century. ‘Westpac’ stood for ‘Western Pacific’, which was the area the bank wanted to expand into. Sights set rather low, you’d have to think. Huveneers had previously renamed the ‘Post Master General’ as ‘Australia Post’ and ‘Telecom’ as ‘Telstra’. He died, aged 92, from Alzeimers, in 2017, in his new home of Tasmania, alongside life-long partner Tanis. Not a bad way to go.
Whether or not Westpac did well, financially, out of BT is open to conjecture. The bank was certainly a good steward of the capital, though. Pendal has become, once more, a top-notch global fund manager. One hopes Westpac did well out of the deal, given its good stewardship. For once, a big bank was a good employer and good to its clients. From public sources, the investment side of the business and history could be summarised as:
- Westpac bought Rothschild in April 2002 for $323 million
- Westpac then bought BT in August 2002 for $900 million. This included the BT wrap platform, which had about $6 billion under administration at the time, the big investment management business and the BT New Zealand business.
- Westpac brought about $20 billion of funds under management into the fold with that deal. There was the accumulation (platform business and corporate super, some of which came through the takeover of St George Bank and its Asgard business), investment management (the old Rothschild, BT Investment and Westpac Investment Management teams), life insurance and BT New Zealand.
- BT Investment Management floated in 2007 and Westpac raised $233 million (for the 40 per cent it sold to the market)
- It later sold another 30 per cent, reducing its holding to 30 per cent, in 2015, and raised a further $451mlllion
- It sold a further 20 per cent, reducing its holding to 10 per cent, in 2017, raising a further $645 million – clearly BT Investment Management was going very well – and, now
- Westpac has sold the remainder of its stake and raised another $185 million.
It looks like, from publicly available data, that Westpac has been returned at least $1.5 billion from the investment division alone, before the various other businesses were involved, that came to make up BT Financial Group, which it retains as the anchor for its wealth management operations. It looks like the bank has done very well. As did the charming Dutchman, Pieter Huveneers, by the way.
– G.B.
