In July, National Australia Bank (NAB) agreed to sell 55% of its asset consulting business, Jana, to Jana’s senior management team. It is a move that fits two themes: Australian banks simplifying what they do as return on equity gets harder to achieve and the continuing evolution of one of the world’s largest pension sectors.
Jana is an asset consulting firm with A$350 billion ($280 billion) under advice, most of it for members of Australia’s vast superannuation (pension) fund sector, which was worth A$2.26 trillion on March 31 and is growing by about A$620 million a day.
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| Jim Lamborn, Jana |
An advisory investment service for the first 15 years of its existence, in 2002 it launched an implemented consulting operation, which means institutional clients investing through Jana’s internally administered platform. That bit of the business accounts for about A$32 billion under management, making it the largest implemented consulting business in Australia. Since 2014, Jana has also included MLC Investment Management, which was a portfolio management team responsible for managing funds and platforms at MLC Retail, the wealth management arm of NAB.
Jana is interesting because it is at the heart of the superannuation sector. Apart from its sheer size – one of the biggest asset pools in the world, despite serving a national population of just 23 million – the sector is exceptionally intermediated.
Investment consultants such as Jana, Mercer, Frontier and Willis Towers Watson are the gatekeepers through which most fund managers must pass in order to secure mandates at the big funds – the largest of which, Australian Super, on its own now has A$120 billion under management.
One problem has been that the consultants keep losing their best staff to the ever more powerful super funds.
Jim Lamborn, CEO of Jana, stepped up to the top job after his predecessor Ian Patrick left to become chief investment officer of SunSuper; and each of the big four consultants have suffered the same problem.
“There’s been a contest for the best talent in the industry,” says Lamborn in Sydney. “Part of the reason for this deal is to retain and attract the best talent.”
Lamborn is one of about 25 staff who will become shareholders through this deal.
“All industry consultants have lost senior people to managers or funds – our clients,” he says. “We needed to respond to that.”
Independence
There is a suggestion, too, that it was healthy for NAB to sell.
“I’m a big believer in breaking up vertical integration as much as possible,” says one former NAB staffer. “I find it uncomfortable that banks are product houses and sales forces, investment advisers and wealth managers, all at once. Nothing untoward ever went on. But transparency and separation are, as a general principle, a good thing.”
This is a point of view apparently shared by government and regulators, as seen in the transition from trail fees to fees-for-service in the powerful financial planning industry over the last 10 years.
Lamborn says Jana’s independence has never been in question: “Jana’s DNA is independent advice, and our business would dry up overnight if we compromised those standards.”
But, he adds: “I can’t say this [sale] is driven by independence, but perceptions are important in the marketplace and if clients perceive there is a greater level of independence, that can be a good thing.”
From NAB’s point of view, exiting businesses that are not absolutely core to banking – or at least reducing ownership in them – represents the continuation of an industry-wide theme.
Also in July, it was reported that Commonwealth Bank of Australia had appointed JPMorgan to sell its troublesome life insurance business; ANZ’s wealth management business, as well as all its stakes in banks in Asia, are on the block for sale; NAB sold an 80% stake in its life insurance arm to Nippon Life Insurance in October 2016; and Macquarie Group sold its life insurance unit to Zurich Australia in March last year.
Right time
Whatever the sale price of Jana is, it won’t be material to NAB’s balance sheet. New guidelines from the Australian Prudential Regulation Authority will require it and the other big four lenders to get to a common equity tier-1 ratio of 10.5% by 2020 (it stood at 10.1% at NAB as of March 31). But streamlining is welcomed by shareholders.
NAB itself presents the sale as an evolution.
Garry Mulcahy, NAB Asset Management executive general manager, says: “As both businesses enter their next phases of growth, we believe the time is right for a new way forward to focus on our respective competitive strengths – NAB Asset Management as a global asset management business and Jana as an industry-leading asset consulting firm.”
Jana advises some of the best-performing super funds in the industry, among them Australian Super, SunSuper and Host. A typical Jana-advised fund will have a heavy allocation towards unlisted markets, both property and infrastructure, as well as private equity and venture capital.
Lamborn plays down the power of consultants like Jana: “We always say we don’t own the relationship with a fund. We have a rock-solid relationship with our clients and we think managers should have the ability to go directly to those clients. But it’s more than likely the client will say: ‘Go and see the Jana guys first.’”
As the superannuation sector has evolved, so too have the demands on investment consultants. Lamborn says some clients want deeper insights into areas of the market such as infrastructure and venture capital, others want to broaden their horizons to include, for example, specialist areas of credit. Some, notably Australian Super, are taking investment expertise in-house. All of them must invest more overseas because of their size.
