Why Perpetual’s new boss faces the ultimate super test

The incoming Perpetual chief executive has form in bringing big lumbering organisations together. Can he also pull them apart?

Former Australian Retirement Trust boss Bernard Reilly will take charge as Perpetual’s new chief executive. Picture: Dylan Coker

Incoming Perpetual chief executive Bernard Reilly has form in bringing big lumbering organisations together.

His first task in his new job will involve pulling one apart.

Reilly is set to take charge of a very different Perpetual, as the wealth manager is about to be sliced and diced after a $2.2bn deal was inked earlier this year to sell its plum corporate trust and wealth business to private equity player KKR.

The transaction, while pushing ahead, still needs shareholder approval – and the tax treatment of the deal has left a big question over value of the complex deal.

Then later next year, the former industry funds boss even loses the storeyed Perpetual branding that has helped the funds house trade through the lowest of cycles. The more than 120-year-old name also goes across to KKR as part of the selldown.

It’s here that Reilly, the well-regarded former Australian Retirement Funds boss, will face the ultimate test.

Outgoing Perpetual boss Rob Adams signed the sale of Perpetual’s trust and wealth businesses to KKR. Picture: John Feder

He needs to convince investors there is a strong future case for a pure-play fund manager like whatever Perpetual will be named to not only survive, but thrive.

Pure-play asset managers like Perpetual, Magellan and even UK-focused Janus Henderson have had a tough time as the industry is deeply out of favour, despite the large investment mandates they command.

The name of the game is all size, and bulk is needed in the face of increasing competition from cheap index-style funds as well as big super funds taking their management teams in-house. Then there’s the structural pressures as big super starts moving into an era of drawdown phase as their members start hitting retirement in bigger numbers.

Two years ago, Perpetual’s outgoing boss, Rob Adams, bet the blue-chip house on a $2bn merger with international-focused funds rival Pendal – mostly to bulk up as Perpetual was being stalked.

There’s still some way to go on the Pendal deal but it delivered a combined $220bn in funds under management across multiple local and higher-margin global strategies. The tricky part is holding on to this cash.

Merger form

Reilly comes to Perpetual after overseeing the merger of like-sized Sunsuper and QSuper, and becoming the first boss of the $240bn industry super fund ART, which is now the nation’s second biggest industry fund.

Adams flagged his retirement in May as part of the split the business. He gave six months’ notice, and Reilly, who had retired in February after four years in industry funds, quickly moved on to the radar of Perpetual chair Tony D’Aloisio.

Reilly is a one-time State Street executive and came from the Sunsuper side. His time overseeing ART wasn’t all internal focused on the merger; he set about winning plum corporate super mandates from companies such as Commonwealth Bank and Woolworths.

Still, super is all about guaranteed fund flows and member inertia. Clients of fund managers like Perpetual demand performance or they walk.

The new Perpetual boss is travelling overseas, but will be watching the early rebuild of Magellan under new boss and former Maple-Brown Abbott chief Sophia Rahmani.

Perpetual too is finding a tough time navigating the integration of Pendal as the pace of fund outflows increase – especially from the old Pendal side.

Figures released last month show outflows of $8.9bn from its asset management arm – mostly in cash-style strategies. This follows $5.2bn out in the third quarter.

Costs are piling up with the separation expenses in the KKR sale at the same time as finalising the integration with Pendal.

Takeover target

More details on the Pendal merger and how Adams’ planned $80m in cost savings are tracking should come when the wealth manager delivers its full-year results next week. These numbers will be presented by Adams, who goes on gardening leave shortly after.

A Perpetual shareholder vote on the sale, by the way of scheme of arrangement, is expected by February.

To combat this Reilly will be looking at ways to build Perpetual’s business, and win more of the market share of funds though improved distributions. New strategies to attract inflows such as private credit will be a way to build Perpetual’s appeal.

If slimmed down Perpetual can’t find a way to make it work it could soon find itself in the takeover sights again. The bigger Soul Patts is the kingmaker here, sitting on Perpetual’s share registry with a 15 per cent stake.

Last year Adams knocked back a $3bn merger proposal from the higher priced Soul Patts, maintaining the split was the better way forward.

Depending on the tax treatment and how much cash is returned to Perpetual shareholders, the new listed entity could be worth between $1.3bn and $1.9bn, according to numbers calculated by Citi. The implied earnings multiple will trade between 10.2-times and 15.3 times which by no means is a stretch if a bigger player wants to come knocking.

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Rebuilding after Bondi tragedy

Saturday, April 13, is still raw for Elliott Rusanow and his staff when six people were killed and another 12 injured during an horrific stabbing rampage at Scentre’s flagship Sydney mall, Westfield Bondi Junction.

It’s a situation no one can imagine. As well as five customers, a Westfield security guard died in the stabbings and a nine-month-old was badly injured. The Scentre chief executive, less than two years in the role, and his team were thrust into the spotlight by the tragedy.

It was a sobering moment on Wednesday between the rush of numbers flying around the August earnings season as Rusanow opened his June half investor call with an acknowledgment about what happened as well as the ongoing impact that was still being felt.

Six people died in a stabbing attack at Scentre’s Westfield Bondi Junction mall in April.

He also thanked Westfield’s retailers and customers for coming together with the reopening of Bondi and the ongoing support from the community. He also specifically praised the response of the policy and emergency services on the day.

Scentre is providing ongoing support – both financial and non-financial – to the families of the victims who died and those who were injured, as well as many who were traumatised.

Rusanow declined to be specific about the nature but said the aim is “to reduce the levels of anxiety and provide support that tailored to the individual needs of each of those who were impacted unfortunately on that terrible day,” he tells The Australian. Scentre is doing it “because it is the right thing to do,” he adds.

More broadly, security staff now are more visible across the 42 Westfield malls, and each one has deepened ties with police at a local level. There’s also constant communication with other security agencies at both a federal and state level.

“That collaboration works very, very well,” Rusanow says. “It’s something that we are very focused on. It’s the co-operation that provides security and safety for our customers. This is fundamental for the business that we operate”.

Scentre chief executive Elliott Rusanow. Picture: Britta Campion

Even with the slowing economy and difficult retail market, it was a year of contrasts for the mall owner.

Customer visits in the six months are up 2 per cent to 320 million and are trending in a direction that could see this calendar year become Scentre’s second-busiest year after the peak year of 2019. On current trends, Scentre’s malls could hit 525 million visits for the year.

Even with a choppy retail market, Westfield’s retailers increased sales 2.4 per cent to $13.4bn in the half year to the end of June. Rusanow says the Westfield retailers are generating more sales today than in 2019 and some speciality categories including sport, technology and discount department stores the strongest.

Sales for fashion and other department store continue to be under pressure. The June quarter was noticeably stronger than the March quarter. Rusanow says by no means the sales numbers show a consumer economy that is running hot. This should put to rest talk of the need for a further cash rate hike.

“The Australian consumer has been resilient. I think that the reality is that sales are not growing at a rate that would, that should be concerning the Reserve Bank. They’re growing at rates which are more sustainable for the longer term,” he says.

The jury was out over stage-three tax cuts and whether they were being spent or saved. Rusanow believes they have simply maintained underlying spending trends.

In signs that inflation is cooling, Scentre pushed through an average rent hike of 5.5 per cent – the slowest rate since the height of the Covid-19 pandemic.

This time a year ago rent increases were running at 8.1 per cent and its February update saw 7.5 per cent. The hikes are counterintuitive with the economy slowing and retail under pressure more broadly, but occupancy rates were running back to pre-pandemic highs.

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Originally published as Why Perpetual’s new boss faces the ultimate super test