So I was going to have a week off the Update, but it’s been a busy old week and so I thought I’d jot down a couple of musings on the news of the day, or yesterday when you read this. No, not a tall man slapping a slightly shorter man in the face.
Before I do, though, a quick revisit of last week’s effort. I wrote: “Most planners will say it’s the plan that matters; the regulated advice bit is boring and grungy and clients don’t care about SIPPs and funds and OCFs and that. I’m not totally sure that’s true, but let it stand for now.”
I got a note from a sort-of friendly but obviously luminous, sagacious and bodacious financial planner, which among various swear words which would get this blocked by your obscenity filters, said: “It’s absolutely not true. The regulated bit has to be spot on to appear to be not there at all…otherwise clients care about it really quite a lot.”
And as sometimes happens, my world view changed a little bit. I obviously get that problems with providers, portfolios, transfers and all the rest of it are a pain in the Jacksons. But I don’t think I had a good way of articulating that when things don’t go right with the regulated bit, part of the problem is that the curtain lifts and the client starts to see the stage machinery. And as we all know, the machinery sometimes isn’t pretty.
So anyway, I like it when you all pick me up on stuff like that. Don’t ever hesitate to write.
LIFTING THE CURTAIN
Talking of the regulated bit, and of lifting the curtain, we should have a word about the big story of the week; the sale of a majority stake in the new Nucleus Financial Platforms Group (NFPG) to private equity behemoths HPS Investment Partners by Epiris.
Before we get into it, disclosure: NFPG is a client of the lang cat; our comms business does in-trade PR for it. This particular announcement wasn’t handled by us; NFPG has another agency for this sort of thing. Epiris and HPS have their own as well. We did know it was happening, but I jealously guard my right to think the things I think and write them down here and my views are always my views whoever I’m writing about. Nonetheless, you should disregard what follows if you think I’m too compromised.
Let’s start with some basics. NFPG – basically James Hay and Nucleus together – is the fifth or sixth biggest platform business in the UK advised market. It’s got about £50bn or so under administration. For those wondering, Abrdn, Aegon, Transact and Quilter are clearly ahead; NFPG and Fidelity are very, very close to one another on any given day which is why it’s fifth or sixth.
So NFPG is a big shop now: a thing plus another thing makes a bigger thing, amirite? No surprises there. We don’t know what the price of this deal was, but the Group being valued at £700m was in the press a week or two ago (I don’t have any inside knowledge of the money stuff). That’s quite a premium on the acquisition price of the two businesses, even allowing for the cash Epiris has ploughed into JHP in the last three years or so.
The strike those who are cross make against the transaction is that it’s ‘pass the parcel’. I get that, and it’s a good line, but of course in pass the parcel the parcel gets smaller each round, whereas this time the parcel is bigger, so maybe not that great a line after all. I also get the ownership of Nucleus is emotive; particularly for those who were shareholders early on. That makes sense, but things do move on and the time to get emotional was probably at the IPO.
I haven’t spoken to Epiris, or HPS before writing this. But I have read Epiris’ website, and it says this: “We invest between £40 million and £150 million in UK-headquartered companies with an enterprise value of between £75 million and £500 million.”
So if £700m is right, NFPG was already outside Epiris’ normal investment range, and what do you do if that happens? I’m not Bobby Axelrod but I’d imagine you reduce your stake is what you do. And it seems to me that’s what’s happening here. The fact the value of the Group seems to have grown handily is, of course, what owning shares is all about, whether you do it through PE, crowdfunding, public listing or whatever. It’s also worth noting Epiris is staying in with a significant minority stake: I’m not Taylor Mason but I suspect that means something.
So there’s a new major shareholder, and it’s a biiig firm with something like $85bn to play with. Is size important? I don’t know, but I do know NFPG wants to be a ‘scale’ player, which means mixing in with the four biggies. To do that it will probably need to acquire other platforms. So far as I can see there aren’t any bargains left, so to buy anything big enough to put a dent in scale ambitions is going to need some serious funding, and for that you need serious capital. I’m not Wags but I think that’s what the Group now has on the shareholder register.
That’s not all that needs to happen. The JHP business needs to complete its transition to the new FNZ platform, and service needs to move from fourth quartile to first quartile if it’s to retain its franchise with the large adviser firms that make up its core market. And the Group needs to keep investing and developing Nucleus on its existing architecture to satisfy those firms until it’s time to move; I suspect that won’t be for a good while yet. To fail on either of those counts will hammer the franchise, and advisers will vote with their clients’ feet. As I’ve written in previous Updates, the execution risk here is considerable, and everyone is watching.
To me, the ability of the NFPG leadership to execute the strategy they’ve laid out – which mainly involves running really good platforms – is the key test here. If they can do that, I suspect memories will be short about who’s in and who’s out on the register – can you still name all the fund managers that had a stake in the early days of AJ Bell? If they can’t…well, that’s a different story.
- Long Update, short links. We’ve got a HomeGames coming up on platforms – Natalie is joined by Nathan from Plan Works, Andy Bell from you know where and Verona from 7IM. And me. Sorry. Anyway, it’s next Wednesday at 12.30pm and you should register here.
- Another tall man has the estimable Rachel Vahey talking the Spring Statement and more on his podcat this week – listen here.
- It’s that time of the quarter – lots of data being updated in Platform Analyser the noo. Check in to see what’s changed. And if you’re a Premium subscriber you’ll be getting your annual lang cat State of the Platform Nation guide soon. If you’re an adviser this is the only way you can get our famous annual guide, so come on, let’s feel the fibre of your fabric. We’ve done the work, you just have to shell out…
- And your music choice this week? Well, I’d pick a Foos song in memory of Taylor Hawkins, but that’s too sad. So instead let’s have something more life-affirming; a song about seizing the day and remembering that life is short. Enjoy Tonight, Tonight by the Splendid Pomegranates and believe in the resolute urgency of now. Great video too.
See you next week