‘Constructive dialogue’ with AMP, says Ares chief Michael Arougheti

Ares has highlighted Australia as a good growth market, confirming ‘constructive dialogue’ with AMP on a potential purchase of its $3.1bn capital division.

Ares says it is engaged in ‘constructive dialogue’ with AMP. Picture: Hollie Adams

US firm Ares Management has highlighted Australia as a good growth market, as it confirmed “constructive dialogue” with AMP on a potential purchase of the latter’s $3.1bn capital division.

The comments from Ares’ chief executive and president Michael Arougheti, came on an investor call overnight on Thursday, about 24 hours after it abandoned a $6bn-plus whole-of company bid for AMP.

The dumping of the bid sparked a fierce investor reaction with AMP shares losing almost 15 per cent over Thursday and Friday, to finish the week at $1.32.

“I can‘t comment in great detail... Obviously, we have a very well developed corporate strategy team that is opportunistically looking for areas of expansion inorganically and organically and we react to what the market shows us,” Mr Arougheti said in response to questions on negotiations with AMP regarding its infrastructure, real estate and equities division.

“This is unique situation because obviously AMP Capital has a strong global footprint in the private markets... the comments from AMP accurately reflect where we are which is that there is no transaction on the table for the entire company and that we are having some constructive dialogue with them about transaction structures and partnership opportunities around their asset management business.”

The Debra Hazelton-led AMP board disclosed Ares’ indicative bid withdrawal as the group also ended its strategic sale review of other divisions, including wealth management, the bank and New Zealand wealth. It believes its three-year transformation plan is the “optimal outcome” for shareholders across those businesses.

The AMP update coincided with the release of its full-year earnings, which came in lower than expectations. The 172-year-old company reported a 32.8 per cent slide in 2020 underlying profit to $295m, while statutory profit printed at $177m for the year ended December 31, compared to a bulging $2.5bn loss in 2019.

The results were marred by fund outflows with both the wealth and capital divisions being hit by sharp declines in assets under management.

AMP’s chief executive Francesco De Ferrari on Thursday said AMP remained open to all options for the capital division, including a spin-off, partnerships or a sale, and he was keen to bring the process to a head soon.

Mr Arougheti also told his investors Australia is viewed by Ares as a “good growth market”.

“We‘ve been adding people and capital on the primary investment side. Obviously, it’s a developed market and so some of the traditional private credit and private equity oriented strategies that we have are very relevant in the Australia and New Zealand market,” he said. “Some of the earlier questions around our potential acquisition and partnership activity there is probably a good indicator of our views of the opportunity there.”

In 2019, Ares formed a venture with ASX-listed Challenger for the marketing and investment management of investor capital across Ares’ strategies.

Mr Arougheti said that venture was tracking as he had hoped.

“We‘ve launched our first product into the market. Early signs are, it’s being well-received and we’re continuing to work on product development through that joint venture with a fair amount of success. So it’s still early but (we’re) cautiously optimistic based on the early returns,” he added.

After AMP missed earnings expectations, UBS analysts cut their earnings estimates as well as their AMP price target to $1.45 from $1.80 on Friday.

“With earnings risk remaining to the downside and AMP still in discussions around a potential break-up, we maintain our neutral rating” they said.

“Guidance comments suggested an ongoing rebase of AMP Capital earnings with downside risk from outflows, although AMP management is confident that outflow risk is minimal.”

Bell Potter analysts also lowered their price target, albeit from a higher starting point. Their price target now sits at $2.25 from $2.65.

Macquarie analysts on Friday said AMP’s management was starting to get traction on their turnaround plan.

“Although the operational outlook remains challenging, management are beginning to get runs on the board,” they told clients.

Macquarie raised its earnings-per-share estimate for AMP for 2021 and next year, and also upgraded its recommendation to “neutral” from ”underperform”.