UBS mulls post-merger AM overhaul in Australia
UBS Global Asset Management's purchase of ING Investment Management's Australian arm, announced last week, will further strengthen the Swiss firm's Asia-Pacific business. It will also bring ING another step closer to the planned IPO of its European and Asian insurance units.
If the deal closes in October as planned, it will more than double UBS Global AM Australia's assets under management to A$62 billion ($67 billion), from A$28 billion, and help the firm bounce back from an underwhelming past few years.
However, the Australian funds market has a lot of boutique providers, and large firms don't tend to be set up like that, say market participants. As a result, UBS may be planning to restructure its business as a multi-boutique set-up, reflecting a trend towards "boutique-ising" in the country, says one fund executive who asked not to be named.
“This is something we could consider, specifically for the Australian market, but [there is] nothing to announce at this stage,” says Ben Heap, head of UBS Global AM for Australia and New Zealand.
UBS has long had a strong asset-management business across Asia-Pacific, but the Australian arm has slipped down the AUM rankings over the past few years. The ING IM acquisition should help remedy that, says Heap, and will help to strengthen the Swiss firm's business outside of Australia by allowing it to provide more Australian exposure.
Moreover, the deal gives UBS added scale, a strong distribution partner in ANZ (see below) and stronger equity, fixed-income, real estate and multi-manager capabilities. ING IM's local property team manages A$2 billion in assets, and it has a global property relationship with US real-estate asset manager Clarion. The firm also has a $10 billion multi-manager business, OptiMix, says Heap.
There was a bidding process involving several parties, with most of the interest coming from foreign groups, says Grant Bailey, ING IM's Hong Kong-based regional head, who ran the Australian unit from 2003 to 2007.
Historically the vast majority of UBS's Australian AUM has been in domestic equity and fixed income, says Heap, whereas in other markets the manager has had most of its success selling its international capabilities. Hence the deal will increase the breadth of its offering, he notes.
After the purchase, UBS will retain its focus on both the institutional and retail markets – it views the ANZ business as part of the institutional side. The current institutional/wholesale-to-retail ratio is close to 50/50, says Heap, “and that’s a mix that works well for us.”
He expects the integration of ING IM to take 12 months to complete once it closes and says no further acquisitions are planned at present.
Presumably there will be lay-offs as part of the merger? “We need to understand and look at how the teams and individuals fit into what we do,” says Heap. “There will inevitably be some overlap, but it’s hard to make any decisions on that until we've spent time [integrating the firms].” (ING IM Australia has around 12 equity and eight fixed-income investment staff.)
From ING's perspective, the motivation for selling came down not only to its need to dispose of assets, but also to its distribution partnership with ANZ, which made the fund house very reliant on the bank. That tie-up ended in November 2009, and the Dutch firm sought to follow a more 'open-architecture' strategy. But most of ING IM Australia's assets are still managed on behalf of ANZ's wealth-management business, OnePath.
This does not unduly worry UBS. “Our new arrangements with ANZ, and our far broader client base, will address these concerns,” says Heap.
One reason why ING IM has struggled to grow its institutional AUM in Australia is that it has tended to be viewed in the country as an equity specialist, say some market participants. But Heap disagrees. “I haven't heard that to be honest,” he says. “I think the challenge for ING IM has been its historic 'captive model' – i.e. its ties to ANZ.”
What does the sale of the Australian business mean for ING IM's overall Asia-Pacific business – are there more divestments to come in the region?
“Some people could read into this [deal] that we're retreating from Asia, but that’s not the case at all,” says Bailey, adding that there are no overarching plans to cut back in the region.
The sale is all part of the group's announced plan to divest its insurance and investment-management operations by the end of 2013 through two IPOs: a European-led offering, including the European and Asian insurance and investment management businesses, and a US-focused IPO. These are most likely to take place in 2012, but may happen as early as the fourth quarter of this year.
ING will in future sell products through several distributors in Australia – including its own commercial bank network there – and it's always possible it will return to the market, he adds. Yet in deals like this one, there is usually a 'restraint period' whereby fund managers can still sell products, but less aggressively, by responding to client requests. Bailey declined to comment on whether that is the case this time.
The latest acquisition comes just a few months after the March 30 completion of Manila-based BPI Asset Management’s purchase of ING IM’s Philippine business. That deal was simply about offloading the trust licences part of the bank, which would have been hard to do had ING had to set up a new fund-management company, says Bailey.
“It would have been tough to do that in the time we had available [until the IPO],” he explains, “so it was easier to sell the business as a whole to a local buyer.”
The Australian sale involved a “more textured decision” than that in the Philippines, says Bailey.
From a regional perspective, the ING-UBS deal reflects a trend towards a closer relationship between the Asian and Australian markets, agree Bailey and Heap. They also concur that more local boutique firms are likely to be bought by foreign players in future, with another recent example being Tokyo-based Nikko Asset Management's purchase of Tyndall Investments.
The planned, Australia-backed Asia-Pacific funds-passporting scheme would further drive greater integration between markets in the region. “We're strong supporters [of the plan]. It would be a very important innovation,” says Heap, who sits on Australia's Financial Services Council, which is firmly behind creating a passporting scheme.