Morgan surprised Kiwibank put its hand up

Gareth Morgan says he is surprised Kiwibank put its hand up to buy his $1.5 billion fund management business.

The amount the state-owned bank paid for Gareth Morgan Investments (GMI), one of the country’s largest fund managers, was not revealed yesterday.

Dr Morgan started looking for a buyer last year to free himself from managing the growing fund manager to focus on his greater interest - investment strategy.

“I was finding a lot of the time was getting sucked up running the company and to be honest I just didn’t want to do that.”

But the economist was only going to sell to a party that adhered to the investment values by which he manages his portfolios, which he describes as personal and transparent management of clients’ money and “brutal honesty” in investment advice.

“To my surprise Kiwibank signed up to that.”

Having once stood against state-ownership of key assets, Mr Morgan courted criticism yesterday for “selling out” to the government.

But he says the fact the government wrote the cheque, for an amount speculated to be between $25 million and $70 million, was secondary to finding a buyer that bought into his investment values.

“Finding someone who signed up to those values is actually bloody hard,” he says. “I’m thrilled the buyer happens to be a New Zealand institution."

GMI's sale leaves the market with just two substantial Kiwisaver providers that are not owned by a bank or an insurance company: Fisher Funds and Milford Asset Management.

GMI manages $650 million KiwiSaver funds on behalf of more than 57,000 clients. Kiwibank’s own Kiwisaver scheme has 15,000 clients.

It is possible to operate a niche Kiwisaver fund profitably, Dr Morgan says.

“But the way to do it is to use the technology. If you have good IT platforms you can definitely become profitable without having to have massive market share.

“It’s certainly possible for someone with a good IT brand to enter the market today and be profitable.”

Dr Morgan says new wealth from GMI’s sale will be spent in a similar manner to his share of his son, Trade Me founder Sam Morgan’s $700 million windfall from the auction website’s 2007 sale to Fairfax.

Not-for-profit work, through the Morgan Foundation, includes “social investment type stuff” and educational work in areas such as climate, tax welfare, the future of Maori and non-Maori in New Zealand “and the odd football team" -- a reference to Mr Morgan's backing of the Wellington-based Phoenix.

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8 Comments & Questions

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GM is a spin Doctor.
His strategy input at GMK has been poor and his frequent attacks on anyone who poses a threat dispalys his true modus operandi.

Good on him forgetting he deal away, but it would be better that he does not try to cloak it with BS statements.

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I would think GMI are very happy Kiwi bank put their hand up,Gareth is going to be a very happy camper.

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just north of 70 million I heard - over 10% of FUM. Are you kidding Kiwibank? Well done Gareth - there's about 30 million of windfall there........ which is apparently where the next best bid was.

Other (mostly crappy) Kiwisaver businesses have been selling for around $50 per account - on that basis GMI is worth..... not that much. Kiwibank has paid about $1200 per account.......

I guess it is cheaper than Kiwibank spending 50mm on IT, I guess it is easy to overpay when you just have to phone treasury for a capital injection.

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This is an interesting deal - we all have an interest in its price and performance of this investment as tax payers we are the shareholders. Funds management businesses are very fickle beasts to run and manage (ask Macquarie bank - Brook asset management disaster). The board of Kiwi Bank include some very experienced business people (Morrison, Gribben etc) . I suppose we must at this point give them the benefit of the doubt that they have executed a sound investment decision here. Good luck guys, as a tax payer I want this to work.

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Have a small managed fund through KB and AMP, if they try to move my manager to GMI I will be pulling all money out .

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To maximise the value of Kiwibank's overpriced purchase, they need to immediately remove Morgan from their investment management team.

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I reckon he will be on his motorbike and gone by lunchtime, on the day the money goes into his account, he's never there as it is.

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Ironically GM seems to have been better at building a growing Kiwisaver business than he was at investment strategy. In the end though, you have to say congratulations to him. As said above, it is not just the funds under management that kiwibank have acquired, it is also the IT systems so they can bring it all inhouse. It is that part that other existing providers wouldn't have wanted and would actually have cost money to disestablish and transition over.

I do wonder if we will see him back again once his RoT is over (which he will fill up doing a few more bike rides - has he done asia yet?). He meantions technology as the way to have a profitable small provider. He just happens to know a few people good at technology and if he could provide a low cost, self managed super fund (ie. he has no input into investment strategy), I am sure a lot of people would move their kiwisaver balances over quickly. He could call it SaveMe.

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