‘Sticky’ customer base to help wealth platforms
Wealth platforms are likely to come under pricing pressure in the future but the impact could be lessened by the “sticky” customer base they hold, according to Lakehouse Capital.
In its Small Companies fund, its largest holding was Netwealth which had returned 93% in FY21 thanks to increased funds under administration as a result of asset growth, new client wins and new assets from existing clients. This was among five holdings in the fund which had returned more than 50% during the year.
Chief investment officer, Joe Magyer, said he continued to be optimistic on the stock in the face of potential pricing pressure as it had a “sticky” client base.
“The consensus view is that Australian wealth platforms will continue to face pricing pressure in the years to come, which is true in some senses but also ignores the incredibly sticky nature of existing clients, network dynamics, and the optionality around price increases as Netwealth scales,” Magyer said.
“For example, not only does a growing client base attract a larger pool of investment managers who want to get their funds on the shelves, the pricing power that platforms have with those managers rises exponentially with scale.
“We think Netwealth has a longer growth runway ahead than the market fully appreciates. The business has gained more in net flows to its platforms than any other platform in the market for four straight years, moving from the tenth-largest platform to the sixth, and yet still only has around 5% market share. We don’t see any reason for Netwealth’s market share gains to slow down either given the increasing market preference towards independent platforms.”
A second financial that had done well for the stock was Pinnacle Investment Management which had risen 213% over the period. Magyer said he expected the firm would try to build on its successful Australian distribution model, where it acts as distributor for asset managers such as Antipodes and Hyperion, overseas in the US and the UK.
“Pinnacle has established offices in Japan, the UK, and the US in recent years, opening the door for distributing Australian investing IP and applying the Pinnacle model of backing promising boutiques in those markets as the firm recently did with a London-based emerging markets manager,” Magyer said.
“International will be a slow burn as building out distribution takes time but we think the optionality in those markets is very much real and promising.”
Share price performance of Netwealth and Pinnacle during FY21
AUTHOR
Laura Dew
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