Perpetual in talks with KKR on wealth, corporate trust sale

The wealth manager has confirmed it is in talks with KKR on the sale of its wealth and corporate trust businesses.

Perpetual chief executive Rob Adams. Picture: Nikki Short

Perpetual is in exclusive talks with Kohlberg Kravis Roberts & Co on the sale of its corporate trust and wealth management businesses, with the global private equity giant a preferred bidder over a joint tilt from TA Associates and EQT.

The Australian’s DataRoom column first revealed that KKR was in talks for the Perpetual assets in December, with the private equity giant firming up as the favourite in recent weeks.

Perpetual’s shares jumped more than 3 per cent on Monday, closing at $24.02.

Perpetual has been running the sale process on its corporate trust and wealth management divisions for a number of months after it received a $3bn bid from Soul Patts last year. Soul Patts is Perpetual’s largest shareholder with about 12 per cent. Perpetual’s response to that proposal was that it undervalued its business.

A strategic review of its operations, announced by Perpetual in December as it fobbed off Soul Patts’ advances, was aimed at unlocking value from its corporate trust and wealth divisions following its $2.5bn acquisition of rival Pendal Group earlier in 2023.

Offloading the corporate trust and wealth arms would see Perpetual become a pure-play asset management offering. The wealth manager has beefed up this side of the business in recent years, including through bolt-on acquisitions Trillium and Barrow Hanley.

But the asset management operation has endured its own challenges amid the flight to passive investing. In a quarterly update last week, Perpetual said it had suffered $5.2bn in net outflows in the March quarter, with $2.2bn flowing out from a single strategy.

The bulk of the outflows – $3.5bn – were pulled from boutique J O Hambro Capital Management, with its UK Dynamic strategy losing $2.2bn over the three months after portfolio manager Alex Savvides left the group.

There is no certainty of reaching a binding agreement with KKR, or that any transaction would proceed, Perpetual said, adding that any transaction would be subject to conditions including regulatory approvals. Exclusivity runs out on May 7, with Perpetual expected to provide an update by the following day.

Luminis Partners, Bank of America and Goldman Sachs are advising Perpetual on the strategic review and sale process. KKR is advised by Jefferies.

Both the corporate trust and wealth operations provide a degree of protection against the more competitive asset management industry, Morningstar analyst Shaun Ler said. “Ultimately, we think both the private wealth and corporate trust segments can better withstand the threat of competition, are subject to less fee pressure, and can generate more predictable earnings growth relative to its funds management operations,” Mr Ler told clients.

But Perpetual may be pressured to take action, he added.

“With reports of multiple suitors and a recent, rejected $27 per share indicative offer from Washington H Soul Pattinson, some shareholders may prefer to expedite a capital return rather than await a potential turnaround in flows and earnings recovery.”

Perpetual also warned last week that full-year total expense growth would be higher than expected. The wealth manager now sees expense growth in the range of 32 to 34 per cent, up from the 27 to 31 per cent in previous guidance.

Perpetual had approaches for the corporate trust business in 2022 from Partners Group and BPEA EQT.

Corporate Trust is the largest provider of corporate trustee services and transaction support in Australia.

The corporate trust unit grew revenue by 3 per cent and earnings before interest, tax, depreciation and amortisation were down 1 per cent to $46.5m for the six months to December.