NZ Fund Managers

[Snoopy]

$23.3m & $16.6m in performance fees paid across FY21 and FY20, respectively. Big sums. Note 1 page 28.
https://app.companiesoffice.govt.nz/...9381175A8E7B22

might have to go for a few years without any performance fees thanks to their high watermark. poor fellas and gals.

I take note of the way Fishers disclose their 'comparative information'.

As an example I look at their international growth fund
https://fisherfunds.co.nz/unit-price...onalGrowthFund

The above 'linked to' comparative graph shows the actual performance of their 'International Growth Fund' to the comparative 'International Equity Composite Index'. As it happens, their international growth fund shows a nice premium to their comparative reference index over time. However, my reading of the investor documentation is that 'bonus' payments to Fishers are not related to this difference. Instead the 'performance hurdle' for all Fisher funds is 'OCR + 5%'. (NZ weighted OCR over comparative period: = 0.25% => OCR + 5% = 5.25%)

The Fishers benchmark policy for international shares is to hedge 50% to the NZD (Refer Paragraph 3.3.6, Fisher Funds Investment Series, Statement of Investment Policy and Objectives, 25th March 2022).

Let's take the example of the year 1st April 2020 (NZD1 = USD0.6054) to 31st March 2021 (NZD1=USD0.7133) to see how the numbers work out.

If the 'International Equity Composite Index' is actually the MCSI world index
https://www.msci.com/our-solutions/indexes/acwi
then that index rose from 442.35 to 680.47 in USD terms over the year ending 31st March 2021.

The base annual fund fee is 1.42% of the asset value (refer https://fisherfunds.co.nz/assets/fac...Fact-Sheet.pdf)

Putting all this information together:

Year 01-04-2020 to 31-03-2021	Starting Position	Ending Position	Gain
Unhedged Gain 'MSCI World Index'	442.35/0.6054	680.47/0.7133	+30.6%
Hedged Gain 'MSCI World Index'	442.35	680.47	+53.8%
Composite Reference Gain 'MSCI World Index' (50% Hedged, 50% Unhedged)			+42.2%
Comparative OCR Fisher Fund Reference Mark			+5.25%
Fisher Growth Fund after fees (Cumulative value $10k invested from 3 year chart)	$10,165	$15,417	+51.7%

Table Notes
1/ Fund performance figures are after deductions for charges but before tax.
2/ Average value of funds under management over period = ($10,165m+$15,417m)/2= $12,791

---------------------------

The above performance table is all very well. But what we want to know is the growth in the 'International Growth Fund' before fees, so we can get a real handle on what the fees are. This figure is not given. However, if we declare 'F' as the unknown base fee and 'B' as the unknown bonus fee (both measured in the same 'dollar units' as displayed on the fund performance chart), then there is enough information given to allow us to solve this problem. It becomes an exercise in algebra and solving two simultaneous equations.

Base Fee = F = 0.0142x(15,417+F+B) <=> 70.4F=15,417+F+B <=> 69.4F = 15,417 + B <=> B=69.4F-15,417 (i)
Bonus Fee = B = 0.1x( (15,417+F+B)-(1.0525x10,165) ) <=> 10B = 15,417+F+B - 10,699 <=> 9B = 4,718 +F (ii)

Substituting the expression for B from equation (i) into equation (ii) we get:

9x(69.4F-15,417) = 4,718 +F => (625-1)F = (138,753+4,718) => F=230

Putting this value for F back into equation (i) we can now calculate B

B=69.4x(230) - 15,417 = 545

Double Check

Base Fee = 230 / (15,417+230+545) = 1.42% (Check as correct)
Bonus Fee = 545 / (15,417+230+545) = 3.37% (Ouch! No wonder Fisher Funds did not want to disclose this!)

I do note though, that in recent years, Fishers have revised their bonus policy, so that the bonus fee never comes out as more than 2% of the gross value of the fund. That means the total fund fee for the period under consideration was 'only' 1.42%+2%=3.42%. That does sound high, even though we were dealing with an unusual period which started from the 'near the post Covid-19 shock low' and ended with a substantial market recovery.

The total value of the 'International Growth Fund' stood at $98.8m as at 31-03-2021. So this implies 'management' plus 'bonus' fees of
($98.8m x 0.0142=) $1.4m and ($98.8m x 0.02=) $2.0m respectively.

The performance fee figure quoted by FM of $23.3m was across all funds managed by Fisher Funds. The particular fund example that I have looked at is likely one of the worst affected by performance fees. Was that excessive over such an exceptional year? Fisher Funds have not been reappointed as a default provider for Kiwisaver funds at the latest reset which took effect from December 1st 2021. Perhaps therein lies the answer?

SNOOPY

[Muse]

The performance fee figure quoted by FM of $23.3m was across all funds managed by Fisher Funds. The particular fund example that I have looked at is likely one of the worst affected by performance fees. Was that excessive over such an exceptional year? Fisher Funds have not been reappointed as a default provider for Kiwisaver funds at the latest reset which took effect from December 1st 2021. Perhaps therein lies the answer?

SNOOPY

nice work.

as an aside - check out those margins...npat as a % of revenue - 40% across both years (more or less). Not gross profit margin, EBITDA, not EBIT, not PBT margin....but good old fashioned statutory npat as a % of revenue.

don't think i've ever seen a business with such high margins.

bugger all capex, bugger all working capital....the perfect cashflow business. all npat paid out as dividends.

losing kiwisaver default will hurt - will be interesting to see how much default FUM transfers out

[Snoopy]

Check out those margins...npat as a % of revenue - 40% across both years (more or less). Not gross profit margin, EBITDA, not EBIT, not PBT margin....but good old fashioned statutory npat as a % of revenue.

don't think i've ever seen a business with such high margins.

bugger all capex, bugger all working capital....the perfect cashflow business. all npat paid out as dividends.

losing kiwisaver default will hurt - will be interesting to see how much default FUM transfers out.

Yes the 'Net Profit Margin' at Fisher Funds is certainly eye-watering. But in any industry where you use other peoples money 'off the books' to generate your income, your 'net profit margin' is going to look impressive. Whether it is out of line with other market players is something I am trying to determine.

Kiwi Wealth is publicly owned, for now. I have found the annual report from the point of view of the individual funds, but not from the point of view parent management company. If anyone can find where that 'public' management firm information might be, I would love to fill in the gaps in the table below. (Edit: Thanks to Haumi, post 17, who tracked down the missing information!)

FY2021 Comparison	Fisher Funds	Kiwi Wealth	Milford Funds Limited
NPAT {A}	$49.778m	$11.961m	$11.726m
Fee Income (B}	$125.906m	$51.908m	$162.710m
Net Profit Margin {A}/{B}	39.5%	23.0%	7.21%

References

1/ Kiwi Wealth https://www.kiwiwealth.co.nz/assets/...ments-2021.pdf, https://www.fma.govt.nz/assets/Repor...er-AR-2021.pdf, https://app.companiesoffice.govt.nz/...4E226E1FFDC7AA
2/ Fisher Funds https://app.companiesoffice.govt.nz/...9381175A8E7B22
3/ Milford Funds Limited https://app.companiesoffice.govt.nz/...49ACF3BF8AD107

SNOOPY

[Muse]

Yes the 'Net Profit Margin' at Fisher Funds is certainly eye-watering. But in any industry where you use other peoples money 'off the books' to generate your income, your 'net profit margin' is going to look impressive. Whether it is out of line with other market players is something I am trying to determine.

Kiwi Wealth is publicly owned, for now. I have found the annual report from the point of view of the individual funds, but not from the point of view parent management company. If anyone can find where that 'public' management firm information might be, I would love to fill in the gaps in the table below.

FY2021 Comparison	Fisher Funds	Kiwi Wealth
NPAT {A}	$40.778m	?
Fee Income (B}	$125.906m	$659.227m
Net Profit Margin {A}/{B}	32.4%	?

References

1/ Kiwi Wealth https://www.kiwiwealth.co.nz/assets/...ments-2021.pdf
2/ Fisher Funds https://app.companiesoffice.govt.nz/...9381175A8E7B22

SNOOPY

Isn't fishers' NPAT 49.9778? and margin ~39.7% - page 23?

Milford Funds Limited financial accounts are below, but with a big caveat
https://app.companiesoffice.govt.nz/...49ACF3BF8AD107

Milford Funds pays a substantial management fee to its parent company Milford Asset Management. The later does not have to disclose its financials. So you can't work out what the true underlying profitability is without taking a pretty meaty guess. I'm also not au fait with if MFL is the management company for all funds (it appears to do most according to the notes) or if its parent company also undertakes some services and receives income and has its own expenses - hard to know what what group consolidated revenues and earnings are.

You could just assume those costs are pure intercompany and ignore them - gives you probably a decent picture of the true underlying revenue of milford.

Those are the only two i've ever bothered to 'snoop' on in NZ. Possible others disclose.

But Fishers is off the charts more profitable compared to its aussie peers. You can segment those into retail focued and wholesale focued. Retail are valued much more highly as margins are higher and FUM is more sticky, and have less shocks of sudden contract terminations. Some retailers are platinum, perpetual, magellan. Wholesale IOOF, BT, etc. Whole industry is in a state of flux after the hayne royal commission.

industry structure there is much different with self managed super schemes quite large. and post hayne there is been a shift in FUM from traditional asset managers to SMSF and indepedent advisors.

I've had happy hunting capitalising on that shift. Invested into Hub24 which is one of the leading independent platform providers over there. Hasn't been a pleasant 6 months but I'm still up 4.5x

Back to the point. Kiwisaver fees should be much cheaper because of the the magnitude of compounding forces driving up revenue off a scalable fixed cost base.

Members contribute regularly from their paycheck. Their pay tends to go up over the long term with inflation. Employers contribute on similar basis. Markets over the long term tend to go up. and you also get the occasional new member to kiwisaver, though the majority of that is done. Those things compound and compound and compound over the long term into huge increases in FUM from which revenue is ultimately derived. You don't need proportionately more staff to service growth in fum when that is coming from monthly contributions and market returns.

Of course you always get the corrections, like we are in now, or worse. And if you are don't play ball on fees when it comes for default scheme reappointments, you can get your mandate pulled.

but over the long term - its huge. there are graphs of the growth of kiwisaver under management you could easily find somewhere

[Snoopy]

Isn't fishers' NPAT 49.778? and margin ~39.7% - page 23?

Yes I made a typo on the net profit figure. Now corrected.

Milford Funds Limited financial accounts are below, but with a big caveat
https://app.companiesoffice.govt.nz/...49ACF3BF8AD107

Milford Funds pays a substantial management fee to its parent company Milford Asset Management. The later does not have to disclose its financials. So you can't work out what the true underlying profitability is without taking a pretty meaty guess. I'm also not au fait with if MFL is the management company for all funds or if its parent company also undertakes some services

Those are the only two I've ever bothered to 'snoop' on in NZ. Possible others disclose.

I have added Milford to my comparison table as well. I see in the 'Milford Limited' accounts, in the income statement, that there was a fee of $136.594m paid to the parent Milford Asset Management company (the fee you pointed out FM). You would have to assume that all the cost allocations are done in accord with the parent company's wishes. So if the parent were to decrease the fee required to be paid (and I do note this management services fee jumped an astonishing by $59.010m from FY2020 to FY2021), then the declared profit of 'Milford Limited' can be whatever Milford management want it be (within reason). I guess a net profit margin of 7.21% is there to appease the kiwisaver scheme overseers, so Milford don't look too greedy?

Note 8 in the Milford Limited accounts lists all the Milford funds that Milford Limited manages. This covers all the funds listed in the current Milford fund prospectus,

https://milfordasset.com/if-pds

less the AON branded fund, the kiwisaver fund and the wholesale funds. So it looks to me as though the company 'Milford Limited' does indeed manage all of the Milford funds (listed and unlisted).

SNOOPY

[Muse]

Yes I made a typo on the net profit figure. Now corrected.



I have added Milford to my comparison table as well. I see in the 'Milford Limited' accounts, in the income statement, that there was a fee of $136.594m paid to the parent Milford Asset Management company (the fee you pointed out FM). You would have to assume that all the cost allocations are done in accord with the parent company's wishes. So if the parent were to decrease the fee required to be paid (and I do note this management services fee jumped an astonishing by $59.010m from FY2020 to FY2021), then the declared profit of 'Milford Limited' can be whatever Milford management want it be (within reason). I guess net net profit margin of 7.21% is there to appease the kiwisaver scheme overseers, so Milford don't look too greedy?

SNOOPY

aye

Milford Asset Management Ltd - topco - is the equivalent to Fisher Funds Management Limited - they are both the top entity and reflect the full consolidated view. Ideally we'd be comparing like for like. We have topco financials for fisher, not for milford, the later we just have a subsidiary. A subsidiary that probably generates the vast majority of its income. and probably its expenses. but we don't know what in milford topco. its possible the charges are just for IP and all the bums on seats and technology is in MFL, and the management fee is a simple profit minimisation tool for PR purposes (thats what I expect). possible the consolidated group looks a whole like MFL npat adding back the after tax intercompany fees. but just speculation.

what do the npat figures % of revenue for milford funds ltd look like if you do that? probably look weird

[Snoopy]

Milford Asset Management Ltd - topco - is the equivalent to Fisher Funds Management Limited - they are both the top entity and reflect the full consolidated view. Ideally we'd be comparing like for like. We have topco financials for fisher, not for milford, the later we just have a subsidiary. A subsidiary that probably generates the vast majority of its income. and probably its expenses. but we don't know what in milford topco. its possible the charges are just for IP and all the bums on seats and technology is in MFL,

According to this link https://www.dnb.com/business-directo...185d55a1e.html, Milford Funds Limited has 13 employees and generates $US119.39m in sales whereas Milford Asset Management Limited https://www.dnb.com/business-directo...9eda2ee61.html has 210 employees and generates $US11.59m in sales.

Since I have already figured out Milford's 'investment team' contains 33 people (post 2 in this thread), it would be odd to have close to half of that investment management team inside 'Milford Funds Limited' with the others inside 'Milford Asset Management Limited'. So I would guess that those 13 'Milford Funds Limited' employees are more likely clerical positions 'booking sales' by keeping note of investment funds as they roll in, while all the actual investing expertise is outsourced to the parent 'Milford Asset Management'.

and the management fee is a simple profit minimisation tool for PR purposes (thats what I expect). possible the consolidated group looks a whole like MFL npat adding back the after tax intercompany fees. but just speculation.

what do the npat figures % of revenue for milford funds ltd look like if you do that? probably look weird

Putting some numbers on your speculation:

1/ The 'Management Services Fee' for 'Milford Funds Limited' amounted to $136.594m.
2/ If MFL had not paid this fee and booked this cashflow as profit, then they would have had to pay tax on it, leaving the amount to be added to profit as: 0.72( $136.594) = $98.348m.
3/ This would have increased MFL NPAT to $11.725m + $98.348m = $110.073m.
4/ This implies a 'net profit margin' of $110.073m/$162.710m = 68% (!)

That figure makes the net profit margin salted away by the Fisher team sound 'fundholder friendly'. However, given the future profitability of MAL is not determined by clerical staff and cleaners, I am picking this 68% figure overstates the true profitability of Milford managed funds, as an operation.

SNOOPY