Jake Elmhirst from Coller Capital speaks to James Dunn from The Inside Network on what private equity secondaries are. The Inside Adviser
As the biggest ETF provider in Australia, Vanguard has the right to crow about another knockout performance over active equity. But invective commentary is a red flag, especially when it’s based on something as changeable as recent market performance.
Iress’ big loss on OneVue deal caps five years of platform bloodletting
Five years ago, I asked the head of advice at one of the institutional providers what they thought the biggest trend in the investment platform space would be over the next five years.
“Consolidation,” was the response. “There’s too many players in a crowded market space, and the ones on the edge will get eaten up.”
The two most vulnerable entities in the market were Powerwrap and OneVue. At the end of 2019 the former had $9 billion under management while the latter had $5.4 billion. This was compared to $31.5 billion for the surging Netwealth and around $150 billion for established incumbents like BT Panorama and AMP North.
Within a year, Praemium announced a $55.6 million takeover of Powerwrap and OneVue was acquired by Iress for $115.2 million.
This morning it was announced that Iress was unloading OneVue to Praemium for $1 million, with an additional $20 million on the table, depending on how much funds under management (FUM) it retains in the next 18 months.
It’s a spectacular transaction and a marker for how far Iress has fallen, despite owning the advice industry’s premier customer relationship management tool in Xplan. In short, Iress let an expansionary mindset drag it into an unfamiliar market; when the sector was going into a contractionary phase, they paid overs for a minnow that was never going to compete with established players. Iress is a well capitalised, successful fintech, but technology isn’t analogous and they didn’t have the nous to turn OneVue into something it wasn’t.
Despite making a loss on the OneVue deal, Iress deserves credit for knowing when to cut those losses. The group’s CEO, Marcus Price, has made clear his intention to pull the company back to its roots, which he characterised today as “wealth, trading and market data and superannuation”.
Praemium, of course, comes out of this with a gold star. Just after it bought PowerWrap, Praemium had to fend off its own buyout offer from Netwealth. Now it picks up $4 billion in FUM from the OneVue client base (even minnows have eye-watering numbers sloshing around), and eliminates yet another competitor in the smaller end of the pool.
The head of advice that predicted this turn in the market was no sage – despite tremendous growth in the investment platform sector, the spend required to put these products to market and keep them going is enormous. There’s only so much revenue to go around. A consolidation of providers was inevitable.
This may well mark an end to the investment platform sector’s contractionary period, however. The lower-tier platforms that the larger players would be interested in acquiring are now largely gone, and the middle tier entities (including Praemium) are robust enough to stand alone. Praemium will climb to $26 billion in FUM after the OneVue deal.
It’s been a wild ride for the sector, but we should expect a period of stability on the M&A front for investment platforms. The froth is gone.
