Westpac, Mercer in $225m super and asset management deal

The bank will sell its Advance business and transfer billions in funds under administration to Mercer as the global asset manager looks to expand further.

Westpac has an ambitious cost cutting target and is streamlining its operations under chief executive Peter King. Picture: John Gass

Westpac has sold its Advance Asset Management business to Mercer Australia, for an after tax gain of $225m, and will also transfer $37.8bn in funds under administration from BT’s personal and corporate superannuation funds into Mercer Super Trust.

The move is the latest by Australia’s oldest bank to simplify the way it does business and exit non-core activities following a major money laundering scandal in 2019 and its grilling by the financial services royal commission

The deal does not include the much larger mooted sale of Westpac’s BT Panorama and Asgard platforms, used by financial advisers to trade and manage client assets, which is expected to garner bids in the order of $1.2bn.

For Westpac, these asset sales are part of chief executive Peter King’s move to become a pure bank.

For Mercer, this acquisition is part of a drive for growth in Australia, already one of the fund manager’s biggest markets outside of the US.

“We see this as a statement of intent from Mercer,” Mercer president Pacific Region David Bryant told The Australian. “We are here to grow and compete strongly. We want scale and are considering organic and inorganic options.”

The deal makes Mercer about the 10th largest super firm in Australia in terms of FUM and Mr Bryant said its fees for default members are the second lowest in the country.

“We have real scale, more than 1000 investment professionals, and deep investment in local markets,” he said. “Mercer now has the benefit of global and local scale.”

Mercer manages $500bn globally and after the BT transaction will manage $65bn in Australia, with about 850,000 members. The company is expecting to retain the roughly 400 BT staff as part of the arrangement.

Fees for some BT members will drop by as much as 25 per cent as a result of the takeover, with most members of Mercer also expected to enjoy a cut in fees.

The super industry is consolidating as players grapple with the prudential regulator’s new regulations around under-performance; as well as “stapling” reforms, which mean an employee’s superannuation follows them when they change jobs, to prevent them incurring multiple fees with multiple funds.

On top of this, after years of accumulation of funds into superannuation, the industry is likely to find itself in a “deaccumulation” phase in the next few years as the population ages and the pool of money being paid out in pensions starts to outstrip funds coming in.

Westpac would not give an exact price for the sales of its Advance superannuation unit, but even the wording it used of a $225m after tax gain the figure is below the $400m figure first mooted when the business was put on the market.

The Australian’s DataRoom column reported on Tuesday that Mercer was poised to announce the acquisition – including the purchase of Advance Asset Management.

Last year Westpac failed the prudential regulator’s performance test on its basic super products and may have wanted to announce the sale of the business before the next performance test later this year.

Earlier this month, Westpac reported funds under administration of $105bn on the Panorama platform – indicating net inflows of $1.5bn for the half.

Bidders for the platform asset are said to include private equity giant KKR and partner Commonwealth Bank, which own wealth player Colonial First State, as well as Macquarie, AMP and HUB24.

Apart from getting rid of non-core assets, Mr King has an ambitious annualised cost cutting target of $8bn within two years. Over the past year he has already cut 4000 jobs and is refocusing the bank on expanding its digital strategy.

The digital shift is already underway, with the bank reporting a jump in online sales to 45 per cent from 37 per cent.

Meantime branch numbers dropped by 150 during that time and the ATM fleet has also halved over two years to 1100 as more people use cashless payments.