UNIQUE HEDGE

Investors will soon get the option to invest in another Old Mutual. As part of the managed separation, shares in Old Mutual Wealth UK will be distributed to shareholders in the disbanding Old Mutual Plc. This will be listed in both London and Johannesburg so local shareholders will be able to hold a business unlike any other on the JSE. It offers advisory, investment management and administrative platform services. It has similarities with PSG Konsult on the local board, but operates almost exclusively in the British market.

To avoid confusion, Old Mutual Wealth plans to change its name to Quilter Plc — reflecting its most exclusive business unit, Quilter Cheviot. It will give it a chance to clear out the toy box full of inherited brand names such as Intrinsic and Cirilium.

Old Mutual Wealth’s closest peer is the wellregarded St James’s Place, which trades on a superior multiple of 30 times its earnings. St James’s Place has more than 3,300 affiliated advisers. Old Mutual Wealth is second with more than 2,000. It has almost 1,600 restricted advisers, who can sell only what head office permits them to sell.

Quilter Chevior is the fifth-largest discretionary wealth manager in the UK. Its adviser platform, what we call a linked investment service provider, is neck and neck with Standard Life and ahead of Aegon (even after it merged with industry giant Cofunds) and Fidelity.

Wealth management has had a boost over the past two years due to a key legislative change. In a move that it is exactly the opposite of SA treasury’s reform, it is no longer compulsory in the UK to buy an annuity on retirement.

These annuities had to be bought through a life insurer, while now retirees are free to invest their capital through investment houses such as Old

Mutual Wealth. Its pension drawdown product (which we would call a living annuity) accounts for 86% of flows onto the Wealth platform. Even though they have wafer-thin margins, platforms can

give strong returns if there is enough scale.

Based on the half-year results Old Mutual Wealth is growing nicely, far more than the SA business. It had operating profit of £134m, up

29%, and funds under management increased by 10% to £127,3bn. Net inflows were 11% of opening funds under management, ahead of the 5% target. CEO Paul Feeney says one of his main aims is to push for integration: there was a 59% increase in platform assets managed by the in-house asset manager Old Mutual Global Investors to £8.1bn. Unlike Old Mutual in SA, Old Mutual Wealth owns a genuinely exclusive brand in Quilter Cheviot, the private wealth manager it bought in 2015. And in the mass affluent market it owns the Intrinsic broker network. Intrinsic now generates 16% of the sales on the Old Mutual platform. As an integrated retail business, the single strategy, or direct, asset manager Old Mutual Global Investors is an anomaly, and its future is being negotiated. Its institutional focus doesn’t fit into Quilter’s cradle-to-grave retail vision.

In the rest of the Old Mutual Wealth value chain, repeatable consistent systems matter more than star managers. Feeney talks of a diversified, resilient business model which can deliver sustainable returns to customers and shareholders.

Tracy Brodziak, head of research at Old Mutual Equities, says that after managed separation the UK operations will no longer be able to milk the SA cash cow. They will need to learn to be more disciplined in capital allocations. Dave Macready, the head of Wealth & Investments in Cape Town, clearly has a mandate to build a vertically integrated wealth business in SA. It won’t be a clone of Feeney’s. It is unlikely Old Mutual SA will part company with its direct asset manager, Old Mutual Investment Group. It will also remain more dependent on lifewrapped products, particularly as the SA government wants more, not less use of annuities. But for investors, Quilter

Plc will be a rand hedge like no other on the JSE.