Is NZ Funds Management for sale?

The note talks about “share-based payments” and “the long-term incentive (LTI) reward” and says that the entitlement will kick in if between Oct 1, 2023 and Sept 30, 2026 if there is a sale of either the company's shares, or its business assets, or the parent's voting shares.

The executive who would benefit isn't named.

The parent is Investment Group Holdings Limited and two of NZ Funds' directors, chief executive Michael Lang and Russell Tills, are also directors of the parent.

Good Returns has sought clarification both from Lang and NZ Funds' chair John Cobb but received no response from either.

A sale “may occur between the existing shareholders of the parent or to an external third party,” the note says.

It says the fair value of the award will be 20% of the group's value implied by any such transaction, but that it won't exceed $7 million. Fair value of the award was set by an external valuer at $338,000 using a Monte Carlo simulation approach “due to the number of variables and potential realisation events.”

Further, the expense arising from the LTI was booked at $42,250 on March 31, the same amount as a year earlier.

If the business isn't for sale, why would such a provision be necessary?

It does look like the owners – Gerald Siddall, a director of Investment Group Holdings, and Lang each own 36.7% of the parent company and two other executives own the rest – have been trying to extract value from NZ Funds.

There has also been market talk that a management buy out maybe in the works.

As Good Returns has already reported, NZ Funds Management managed to squeeze out a 63% jump in annual net profit to $1.2 million, but only thanks to a tax benefit that accounted for almost all of that.

Extracting value

Its pre-tax result was just $90,000, down from $904,000 the previous year while revenue fell 3% to $32.7 million and expenses were flat.

Nevertheless, NZ Funds' owners paid themselves $2.8 million in dividends, although that was down on the $8.1 million payout last year.

The company's fees for investment management fell 4.4% to $29.4 million while fees for financial advice jumped 13.5% to $2.5 million, net of rebates.

Its performance fees fell to $500,000 from $1.3 million the previous year while the amounts paid to key management personal and directors, including retired principals of the group, rose 16.4% to $9.3 million.

NZ Funds was founded in 1988 originally to manage brewer Lion Nathan's employee superannuation scheme.

Its potential sales comes at a time of upheaval in ownership for the funds management industry. Devon Funds Management's parent is conducting a “strategic review” which may lead to it being sold, and Perpetual Guardian bought Castle Point after it lost its biggest client, BNZ's Australasian equities mandate, to Harbour Asset Management.

Harbour itself was part of the amalgamation late last year of the Jarden and JB Were NZ advisory networks into FirstCape which brought in Australian private equity firm Pacific Equity Partners as a 35% shareholder.

Forysth Barr bought Hobson Wealth, also in late 2023, while Fisher Funds Management bought Kiwi Wealth in late 2022.