Shortlist of buyers for Westpac’s $45.4bn superannuation unit

Parties jostling to buy Westpac’s $45.4bn superannuation unit - including KKR-CBA and Vanguard - will soon learn if they’ve made it to the auction’s next round.

Westpac, after receiving expressions of interest in mid-December, plans to inform parties of a short list for the superannuation unit late this month. Picture: NCA NewsWire / John Gass

Some of the world’s largest private equity and funds management firms are among those jostling to buy Westpac’s BT superannuation unit and will learn by the end of the month if they have made it to the auction’s next round.

Several sources close to the process said that Westpac, after receiving expressions of interest in mid-December, planned to inform parties of a short list for the superannuation unit late this month ahead of releasing more detailed sale information and then opening a dataroom. The division, which manages $45.4bn, may fetch as much as $400m, if the bank opts to wear most of the transaction costs.

The Australian revealed that first-round offers – which are not binding – for Westpac’s superannuation business were due in ­December. That came as the bank also axed as many as 50 roles in the unit to make it more efficient and gel with a broader cost-cutting drive.

Expressions of interest for the BT unit were separately lobbed by industry superannuation behemoth AustralianSuper, and private equity firm KKR with its partner Commonwealth Bank, which jointly own Colonial First State.

Private equity firms Apollo Global Management, CC Capital, The Carlyle Group and JC Flowers were also separately involved in the sale process, sources said, but they noted that some interested parties were seeking to form a bidding consortium ahead of the auction’s next round.

Investment industry giant Vanguard – which is launching a low-cost Australian superannuation fund in the second half of the year – had also submitted an expression of interest to buy the Westpac division and is also assessing whether it can pick up an investment management role.

Sources on Thursday said Westpac’s preference was to sell the superannuation business to a player with an existing licence, given a trustee board needs to ensure any deal is in members’ best interests. The bank is also assessing an alternative structure that would bring in new investment managers and trustees – then conduct a transfer of funds and members to a new owner.

A Westpac spokesman declined to comment on the sale process.

Westpac’s specialist businesses head, Jason Yetton, is overseeing the divestment of a host of the bank’s assets as it retreats to core functions. Picture: Hollie Adams

Westpac has been seeking to overhaul its superannuation division ahead of a sale, including weighing new investment managers, and last month it announced significant fee cuts for more than 470,000 MySuper and Choice superannuation members. The fee reductions – which take effect on February 1 – amount to savings of about $20m a year.

Sources said Westpac’s current sale plan centred on making a final decision on the future of the superannuation unit in April, at the earliest, given the complexity around a separation of the business and the fact that transitional service agreements would need to be put in place.

Westpac is said to be keen to agree to a sale of the superannuation business ahead of a second performance test – across returns and fees – by the prudential regulator of its basic superannuation products. The bank’s BT MySuper product failed last year’s test and a second year of underperformance would mean it would no longer be allowed to accept new members.

Westpac’s specialist businesses head, Jason Yetton, is overseeing the divestment of a host of the bank’s assets as it retreats to core functions. Morgan Stanley is advising on and running the sale for Westpac’s superannuation business, which is being conducted ahead of, and separate to, an auction for its larger investment platform division.

The super business had $45.4bn in funds as at September 30, up from $42.3bn six months earlier. Funds under administration on Westpac’s investment platforms amount to $139.3bn, with the bulk reflecting the Panorama platform.

A platform holds investments, such as managed funds and shares, in one place and is used by financial advisers and individuals for centralised reporting. Back office, tax and other services are also often provided by platform companies.

Strategic players such as AMP, Macquarie Group and Netwealth are likely to take a look at Westpac’s platform business, which is also expected to spur interest from private equity.

AMP chief executive Alexis George last month talked about the benefits of scale in the investment platform sector, which has seen pressure on margins.

AMP’s North platform recorded a rise in assets under management of $1.7bn to $58.6bn in the third quarter last year. Funds on Macquarie’s platforms – across its Wrap and ­Vision products – were $116.4bn as at September 30, up from $101.4bn six months earlier.

Westpac was the last of the big four banks to decide to exit the wealth industry, in the wake of damning revelations at the Hayne royal commission, which spurred a retreat to core operations. Westpac has already divested a string of divisions including part of its financial planning arm and has agreed to sell its life insurance unit to Japan’s Dai-ichi Life subsidiary TAL for $900m.

The nation’s $3 trillion-plus superannuation sector is experiencing a wave of change as banks exit and a spate of mergers take place among industry funds.

Colonial First State last month signalled it was increasing investment spending over four years, as it looked to rule a line under performance and compliance issues and positioned to participate in further industry consolidation.

Colonial First State late last year became a stand-alone business after CBA’s sale of a 55 per cent stake to KKR.

Insignia – formerly IOOF – last year completed a takeover of National Australia Bank’s super and wealth division MLC and also acquired ANZ’s pensions, investments and financial adviser dealer group units.