AMP, Ares plan private markets partnership

AMP says a proposed $2.5bn private markets JV with Ares will ‘substantially further strengthen’ the group’s capital position.

AMP CEO Francesco De Ferrari says Ares brings “significant scale to our great product”. Picture: Britta Campion

AMP has accelerated its own carve-up by agreeing to offload a controlling stake in its marquee capital division to Ares Management, a move chief Francesco De Ferrari says will turbocharge the unit’s growth as the parties look to form a $2.25bn venture.

The proposed partnership with the US group includes the most valuable parts of AMP Capital: its private markets businesses, which span infrastructure equity and debt, real estate and other minority investments. If it proceeds, the joint venture will radically and further change the shape of AMP’s business mix, after it also completed the $3bn sale of its life insurance arm last year.

The indicative terms outlined by under-pressure 172-year old AMP on Friday would see Ares acquire 60 per cent of the $2.25bn joint venture and take management control. AMP would own the remaining 40 per cent.

The transaction sees Ares buy the controlling interest in the private markets unit for $1.35bn, after earlier this month abandoning its $6bn-plus whole of company takeover of AMP but keeping negotiations alive on the capital division.

The newly proposed deal ascribes an implied value to AMP Capital’s private markets business of up to $3.15bn, given AMP is retaining about $900m of assets, across mostly seed, sponsor and related investments.

The transaction — if rolled into a binding deal — will require foreign investment sign-off, regulatory approvals and a shareholder vote, and would mark the conclusion of AMP’s portfolio review. AMP and Ares have agreed to work toward a binding deal over a 30-day exclusivity period.

AMP’s shares climbed 7.5 per cent on Friday to $1.50, bucking a 2.4 per cent drop in the S&P/ASX200.

Australian Eagle Asset Management’s Alan Kwan said he and other AMP shareholders wanted to hear about the potential for capital returns stemming from the joint venture, and more about key staff retention agreements.

“It is really hard to tell how good this partnership will be, but it gives them (AMP) some breathing space,” he added.

“There are still questions and they will have to explain the benefits.”

Mr Kwan also highlighted that the “hard part” of the AMP transformation centred on restructuring its wealth management operations.

JPMorgan analysts were positive on the proposed deal.

“The transaction appears to be a significant premium to the value implied for AMP Capital in the current share price and the value in our sum of the parts valuation,” they said.

“Presumably AMP will seek to return the proceeds of $1.55bn, less transaction costs.”

But S&P Global Ratings said the mooted venture may impact AMP’s overall creditworthiness, and it would monitor developments.

“AMP Capital contributes positively to the group’s overall credit strength, and forms the bulk of group earnings … a weakening of AMP Capital’s credit profile could therefore weigh on the overall group ratings,” the analysts said. “Factors that could contribute to a weaker group credit profile include lower overall earnings contribution, and a weaker overall business and financial risk profile from AMP Capital.”

AMP — which has flagged it will restart paying dividends and its share buyback in 2021 — wouldn’t outline on Friday definitive plans to return capital to shareholders if the joint venture is secured. But Mr De Ferrari said the deal would “substantially further strengthen” the group’s capital position.

The proposed joint venture would see $100m in surplus capital released, and also includes structured call and put options over AMP’s residual interest in the private markets division, starting in 2026.

Mr De Ferrari said the proposed transaction had been benchmarked, and favoured, by AMP’s board versus the existing private markets strategy.

“They (Ares) bring significant scale to our great product,” he added.

Mr De Ferrari shrugged off suggestions that customers, management and the board had lost faith in AMP’s ability to grow its capital division, saying the proposed tie-up with Ares allowed the pair to “turbocharge this growth”.

As at December 31, Ares had $US197bn in assets under management, inclusive of $US18.3bn in infrastructure and real estate.

AMP Capital managed $190bn in assets as at December 31, with about $59bn sitting within private markets. The broader capital division has faced some headwinds, though, and in 2020 experienced lower earnings and a 7 per cent decline in assets under management.

AMP chair Debra Hazelton and Mr De Ferrari said the partnership would accelerate the private market growth strategy and de-risk international expansion.

“The transaction will enable AMP to increase focus on the transformation of our wealth management business in Australia, drive the continued growth of AMP Bank and New Zealand wealth management and benefit from driving further efficiency,” they said in a statement.

Ares chief executive Michael Arougheti said his company could add significant value to the business through global scale and investor relationships.

“We’ve been impressed by the growth of AMP Capital’s private markets business over the past several years and our time with the team as part of the portfolio review has further cemented our view on the intrinsic value of this business under our leadership,” he added.

AMP is still assessing partnerships are other strategic options for its public markets businesses, and said that in 2020 the unit had made only a modest contribution to group net profit. The public markets business — within AMP Capital — includes equities and fixed income.

Ares had approached AMP last year about a takeover of the entire company pitched at an implied value of $1.85 per share.

The listed US asset manager has a market capitalisation of more than $US13bn and a global footprint across credit, private equity and real estate.

AMP last year endured a number of scandals, including revelations of a prior financial penalty imposed on then AMP Capital boss Boe Pahari for sexual harassment. He has since been demoted, but outrage over the conduct and the exit of AMP Australia boss Alex Wade over his behaviour, led to the departure of former chairman David Murray.

The board of the proposed joint venture would comprise six Ares nominees and four from AMP.