Perpetual split mooted in board transformation campaign as Rodney Forrest launches attempt for seat
Sublime Funds Management boss Rodney Forrest is attempting to gain a seat on Perpetual’s board, warning the wealth group has a bloated catalogue of products and unsuitable incentives for executives.
Perpetual would be split into Australian and global operations under a transformation plan to unlock value proposed by a highly regarded fund manager lobbying for a seat on the debt-laden financial services giant’s board.
Rodney Forrest has also hit out at the ASX-listed group’s $2.2bn asset sale deal with private equity giant KKR in the wake of last year’s controversial takeover of rival player Pendal, which left Perpetual saddled with debt.
Mr Forrest wrote to Perpetual in July to formally nominate for a board position ahead of the company’s annual general meeting in October.
Perpetual investors are set to vote on the KKR deal in January.
Mr Forrest, who now runs his own family office, Sublime Funds Management, has worked for years in investment circles, including four years at Platinum rainmaker Kerr Neilson’s family office.
In a letter set to be sent to thousands of Perpetual shareholders and seen by The Australian, the funds management guru warns Perpetual’s board needs a “clear vision for the future” and a return to the “core principles that made it successful”. The letter outlines Mr Forrest’s case as he gathers support for his board push, noting Perpetual’s board requires transformation and new directors “to provide fresh ideas and input” in the wake of the decision to split the business after the troubled acquisition of rival Pendal.
The Pendal deal, signed off in January 2023, saw Perpetual take over Westpac’s former BT Investment Management business, which was spun out of the bank in 2007.
Perpetual paid $619m in cash and doled out millions of shares to Pendal investors.
But after facing a takeover offer from rival Soul Patts and a squeeze on borrowing costs, Perpetual agreed to sell its corporate trust and wealth management business as well as the brand name Perpetual to American asset hunter KKR in a $2.2bn deal.
The transaction would leave a rump funds management business which will have to find a new identity by December 2025.
The current group boasts almost $215bn in assets under management across seven brands.
However, the deal will leave $75m in stranded costs on the table, plus a further $50m in annual costs set to play out over 18 months.
Perpetual has also attempted to mollify shareholders, spruiking a $25m-$35m cost reduction program over two years.
Much of this is weighted to a $25m cost-out across 2026.
The Pendal deal was criticised at the time, and there were several high-profile departures from Perpetual.
Perpetual alumni have since taken aim at the KKR deal, with the group’s long-serving head of equities, Paul Skamvougeras, criticising “ill-timed, debt-fuelled and dilutive acquisitions” which led the business being sold to the “Barbarians at the Gate”.
MST Financial analyst Lafitani Sotiiou said the deal was a “joke” and should not proceed.
Mr Forrest said if he secured a board position, he would examine and improve the handling of takeover bids “with a focus on greater input of shareholders”.
Rival investment house Soul Patts made a $3.5bn takeover offer for Perpetual in December, and bought a 15 per cent holding in the company despite its overtures being snubbed.
Shares in Perpetual are down 48.8 per cent over five years, last trading at $18.74.
Mr Forrest said he would consider splitting Perpetual into two separately listed global and Australian arms listed on the ASX “to unlock value”, with shareholders scooping up positions in both entities.
“PPT must go back to go forward,” he said.
Mr Forrest said Perpetual had too many products.
Many “do not beat the index or are sub-scale”, he said.
He noted that the Australian equities business was offering $6.8m in revenue per employee versus just $1.5m for the group.
“PPT is run with circa 600 fund managers and analysts,” he said.
“Large teams in funds management promote group-think and the Sisyphus paradigm.
“PTT needs to empower with less people”.
Mr Forrest said he would also attempt to change the group’s capital allocation process to ensure it “does not adopt a ‘growth at all costs mentality’’.
He would focus on improving profits rather than funds under management.
He questions why funds under management jumped 10 times between 2017 and 2023, while profits collapsed bt 55 per cent.
Mr Forrest said he would also consider and reflect on merger and acquisition activity “noting that the latest full year had a $548m asset writedown”.
The funds management veteran also took aim at bonuses and earnings incentives, warning they should be based on net profits, not “underlying” earnings.
“Return the executive bonus framework to a KPI that is fairer, cost-effective, and aligned,” he said.
Perpetual told investors it would pay its leadership team one-off cash bonuses “to ensure the stability of the leadership team over a period of substantial uncertainty for each of the businesses” in the wake of the KKR deal.
Rob Adams, the chief executive behind the failed Pendal-Perpetual deal, was replaced by Bernard Reilly on September 2 this year.
However, the 58-year-old still collected $4.3m in total rewards for the year, after collecting $3.3m in 2023.
Soul Patts may swing the vote on Mr Forrest’s election, with chief executive Todd Barlow noting the fund manager was open to Mr Forrest running for Perpetual’s board but had not decided “how we’d exercise our vote” yet.
He said Soul Patts was concerned about the KKR transaction fees as well as stranded costs arising from the deal.
Wilson Asset Management chair Geoff Wilson said Mr Forrest would “add value and a solid independent voice” to Perpetual’s board.
“He’s a highly intelligent, skilled individual that has deep funds management experience,” he said.
“If they’re the skills the board’s looking for then I think he’s a prime candidate.”
Mr Wilson said he was sad to see the Perpetual brand being sold to KKR.
“In the funds management world, it’s one of the great brands.”
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