Australian fund firms rush to IPO market
(For more IPO news, data and diary, click on <AU/IPOMENU>)
By Denny Thomas
SYDNEY, May 21 (Reuters) - Buoyant equity markets and an upbeat outlook for Australia's pension market are luring fund managers and financial services firms to seek share market listings, and analysts say the trickle could turn into a flood.
The banking and financial services sector already accounts for roughly a third of Australia's benchmark stock index .AXJO, double the weighting of the sector in the S&P 500 Index .SPX.
It was also the most popular sector among Australian retail investors, according to a study by the country's stock exchange.
Founders of Platinum Asset Management (PTM.AX) and Wilson HTM have long resisted the temptation to go public. But with the industry looking rosier than ever before, they have decided to capitalise on some of the value they have created.
While the good times are seen continuing, a prolonged bear market and departure of key fund managers could turn the tide against a sector which is highly geared to stock markets.
"It is a propitious time to be listing your businesses. If you can't do well in such environment, you are in trouble," said Ross Barker, managing director of Australian Foundation Investment Co.
Stock broker Bell Potter Securities, Tricom Securities, James Packer-backed hedge fund Ellerston GEMS Fund, and financial planners such as Centric are also weighing the option of going public, bankers say.
Investors were left scrambling for Platinum's A$700 million
($583 million) initial public offering, which was open only to retail investors. Wilson HTM is getting itself ready for an IPO.
Platinum, which manages about A$22 billion and specialises in global equities, is expected to open at 20-25 percent premium to its A$5.00 per share offer price, when it debuts on Wednesday. The founders are selling 25 percent of their stake.
"The equity market has been fantastic and you got to believe that some of these firms are making more money than they have ever made," said Andrew Best, managing director of investment banking at JP Morgan. "And they are hoping that they can translate that into some wealth for their owners," he added.
A four-year bull run in the stock market has boosted the profits of stockbrokers and helped the performance of fund managers. For example, Macquarie Bank Ltd.'s MBL.AX brokerage and commission income surged 33 percent last year to A$949 million.
The financial sector sub-index .AXXJ has doubled since 2002, broadly in line with a rise with the wider market which has also been helped by a boom in the mining sector.
BOOMING SECTOR
Australia's $900 billion wealth management industry is forecast to grow to $2.8 trillion by 2020, according to consultants Trowbridge Deloitte, boosted by inflows from the government's compulsory superannuation pension programme.
Platinum's Kerr Neilson, with a reputation as a star stock picker, started the business in 1994. The shares were offered at a discount to make it attractive to existing fund investors with its price-to-earnings ratio of under 14, compared with 16-22 of its peers, Credit Suisse estimates.
AMP Ltd. (AMP.AX), Australia's biggest corporate and retail pensions manager, Perpetual Ltd. (PPT.AX) and Australian Wealth Management Ltd. AUW.AX are among Platinum's competitors which have already listed.
"As markets go higher and higher and as liquidity spins around you will see more of these offers coming out," said Robert Hook, a portfolio manager with S.G. Hiscock & Co. Contango Asset Management, a mid-sized fund manager, is also planning to raise A$85 million through an IPO.
MARKET FALL
Analysts say a market downturn could trigger fund outflow, putting pressure on fees earned by asset management firms.
And that could compress price-to-earnings ratios of fund management companies in a bear market.
"The price-to-earnings multiples of fund managers tend to increase during rising markets and fall during falling markets," the Credit Suisse report said.
Another key risk associated with some fund businesses is the over-reliance on an individual fund manager.
"Let's face it, Neilson is Platinum and Platinum is Neilson," said one analyst, who declined to be identified.
For now cashed-up institutions are keen to invest in new issues. "I don't think there is a lack of appetite because there is so much money coming into the system. And there is money waiting for homes to park," said Peter Vann, head of investment research at Constellation Capital Management.
($1=A$1.21)
((Editing by Jean Yoon; denny.thomas@reuters.com; Reuters Messaging: denny.thomas.reuters.com@reuters.net; +612 9373 1812)) Keywords: IPO/AUSTRALIA
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