Quilter: star performer on the JSE
Old Mutual’s former wealth manager, Quilter, stole the show with a huge rally in 2019. This looks set to continue
While the antics of its former parent, Old Mutual, stole the headlines, UK wealth manager Quilter was the real star performer last year, quietly amassing a 34% gain in its share price on the JSE.
Its shares spiked again last week on the news of a big jump in investor flows, rising over 6% to top R33.
These flows grew 17% in the fourth quarter, to £3.5bn.
More significantly, clients have stopped withdrawing their funds and net client cash outflows of £1.4bn swung to a net inflow of £500m.
Prudential head of equities Johny Lambridis says the headline numbers weren’t, in fact, the main cause of the rally.
Instead, he says, "there was the relief that the migration to a new investment platform is starting on February 22".
The platform, similar to a linked investment service provider such as Glacier or Investec IMS, took three years to rebuild and cost a cool £450m.
CEO Paul Feeney promises that the migration will be finished by September.
This is important because Quilter earns an equal amount of fee revenue from its investment platforms and its other business bloc, advice and wealth management.
When Quilter, previously known as Old Mutual Wealth UK, listed in June 2018 it was priced well below its peer group of UK asset managers on a multiple of about 12 against the average of 15.
About 60% of Quilter’s shareholder base is South African.
Lambridis says there were concerns about the prospects for a pure UK business at a time when the platform debacle was still a fresh memory.
UK shares as a whole were under pressure too, as there was no progress towards Brexit, and Kagiso chief investment officer Gavin Wood says his main concern was that a Jeremy Corbyn-led Labour government could have imposed punitive wealth taxes.
"But even with a weak pound, Quilter’s assets under management still grew. The largest portion of investments is in the FTSE 100 UK large-cap equities. But the bulk of revenues and profits from these companies comes from outside the UK," says Wood.
Quilter took its name from its private client business, Quilter Cheviot.
But it could just as easily refer to the patchwork quilt of businesses which have been sewn together.
The kernel of the group was Skandia UK, one of the pioneers of investment platforms, which Old Mutual, to great fanfare, bought back in 2006.
Over the next few years Old Mutual would go on to sell Skandia’s life insurance businesses in continental Europe.
It then used the money to buy financial planning businesses — most recently Lighthouse and Charles Derby — as well as businesses which specialise in multimanager-based financial planning solutions, such as Intrinsic.
Quilter Cheviot was its first foray into the ultra-wealthy market but in mid-2018 it suffered from a walk-out by some leading private client asset managers.
Money is still leaving the shop because of this, but with £800m already out of the back door, there shouldn’t be much more damage.
Feeney says the international assets are cross-border held by UK residents and expatriates and it is not targeting citizens of the EU.
Quilter focuses on advice-led solutions, with no direct or robo advice products.
"These might appeal to millennials," says Wood, "but millennials don’t yet have the free assets Quilter is looking for, except when they have inherited them."
Unlike peers such as St James’s Place, Quilter’s platform is available to independent advisers, not just to its tied force. But it has built up a tied force (known as restricted advisers in the UK) of 2,700, and 4,000 independent advisers use its platform and investment services.
In contrast St James’s Place is a fully integrated business with 3,800 tied agents and no fair-weather independent brokers to worry about, but Wood says that St James’s Place has been accused of some aggressive sales practices which could bite back one day.
One of Quilter’s aims is to get more sales right across the value chain, from platform to advice and investment product.
The long-term savings market in the UK is large enough to give Quilter plenty of scope to grow without expanding internationally.
The total pool is £4.5-trillion, and this excludes physical property assets. Out of this, 38% is still traditional defined-benefit pension money which members are now free to take as a lump sum on retirement.
This is in contrast to SA, which is trying to make more people take annuities (compulsory monthly pensions).
Feeney says the UK’s regulations around savings and retirement continue to get more complex and he is confident that there will be a growing need for advice.
"With a move from commission to fees there are fewer clients per adviser, but they are served more actively."
Quilter’s p:e of 24 is now ahead of many of its peers, but it still lags Hargreaves Lansdown’s 33 and St James’s Place’s 29.
Investec’s Global Franchise Fund owns St James’s Place, rather than Quilter, however.
Fund manager Clyde Rossouw argues that it has a proven business model while Quilter still has to integrate its acquisitions.