SYDNEY, Australia -- The sale of Bankers Trust's Australian operations is attracting potential purchasers worldwide, but it is posing some short-term questions both for BT's staff and the group's mainly Australian customers.
BT Funds Management in Sydney has about A$41 billion (U.S.$26 billion) of assets under management, split almost in half between wholesale (institutional) business and retail funds.
It is the country's second-largest investment manager, with more than 8% of the booming Australian market, which by 2005 is expected to be the sixth-largest funds management market in the world. It ranks No. 2 in wholesale assets under management.
Deutsche Bank AG would like to sell BT Funds Management as a package with BT Portfolio Services and BT Margin Lending, the administration and lending arms. The less desirable BT Investment Bank is likely to be offered separately.
In 1998, BT suffered a A$1.8 billion net outflow of funds from its wholesale products, largely offset by a A$1.4 billion net inflow of funds from retail clients.
While BT's position in the retail market is strong, in the past five years its investment performance figures for wholesale funds have lagged. There has been a recent recovery, with fixed-income returns back to top quartile and its flagship balanced Retirement Fund's return back to just above median.
For the fixed-income returns, BT Funds Management ranked No. 1 with an 11.6% annualized return in the five years ended Dec. 31, compared with a median return of 9.3%. For the year ended Dec. 31, it returned 10.3%, against the median of 9.8%.
The BT Retirement Fund, a wholesale pooled fund returned an annualized 8.2% for the five-year period, compared with the median of 8.8%. For the quarter, the fund returned 7.2%, compared with a median of 6.5%.
The BT Retirement Fund has fallen to around A$2 billion at the end of February from around A$4 billion at the end of 1997, reflecting its sliding performance. It also has been hit by an exodus of small and midsize plans that have been rolling into other larger plans or switching their investment approach to specialist managers from balanced funds.
What am I bid
There has been widespread speculation about the likely BT buyer and the price since the March 18 announcement that Deutsche Bank, which announced the purchase of Bankers Trust Co., New York, in November, was off-loading the Australian operation to help pay for its main purchase.
It is the first sale of a funds manager with international operations for some years, and comes after the Australia and New Zealand arm of London-based Legal & General Group PLC, was bought by Colonial Ltd., Melbourne, for more than A$1 billion last year.
BT ranks second only to the giant AMP in total Australian funds under management. AMP manages A$60 billion, or about 11.5% of the market. Of that, A$8 billion is institutional. The quick arithmetic is virtually any of the other managers in the top 10 in Australia could become No. 1 by buying BT.
AMP, even if it were not likely to run into problems with competition regulators, might not be ready for another major acquisition. It now is more focused on overseas operations and AMP's total global funds under management are about A$180 billion, of which about two-thirds is now in the United Kingdom after the purchase of Henderson Administration Group PLC, London.
The more likely Australian buyers of BT are the major banks, all of which have been concentrating on expanding their investment funds under management, industry sources say. National Australia Bank Ltd., Melbourne, is the largest and most aggressive. It is keen to expand in investment products and lost out to Deutsche Bank in a bid for Axiom Funds Management, Sydney, in early 1997.
But Westpac Banking Corp., Sydney, under new Managing Director David Morgan, also might be interested, and Commonwealth Bank of Australia, Sydney, which like Westpac has dominated recent sales of retail investment products, cannot be ruled out.
A successful local bidder for BT among the banks also could establish what could be a significant lead in investment assets, especially since the Australian Commonwealth government bans any merger among the four largest banks.
Overseas interest
Sources at BT also expect strong interest from overseas groups, given that BT Funds Management is both a "manufacturer" of global investment products and a dominant player in Australia.
Players without major Australian presences, such as Chase Manhattan Corp., New York, and those looking to expand further, such as Merrill Lynch & Co., New York, have featured in Australian speculation.
Information was issued to interested buyers the week of April 5 by Deutsche, acting jointly with Goldman Sachs & Co. The sellers have retained the right to accept offers for either or both BT arms.
A short-list of bidders will be allowed three weeks' due diligence before the winning bid is announced in mid-June.
The timetable is tight to fit in with Deutsche's settlement for Bankers Trust and to minimize the erosion of investment funds.
As Rob Coombe, a BT Funds Management executive vice president, said: "all the money with us is on call." While there may not have been any notable withdrawals, both retail and wholesale investors have been delaying new investment with BT.
Consultants such as William M. Mercer, Melbourne, normally issue an alert to clients in the event of a potential change of ownership, although a Mercer spokesman refused to comment on specific advice on BT.
However, Ray King, the head of wholesale business at Industry Funds Service, Melbourne, a consultant specializing in multiemployer industry funds, said IFS was comfortable with client cash continuing to go to BT.
"We would like to see it (BT) retain the foundation of its investment management capability and I'm reasonably optimistic that will be the case," he said.
People in the funds management industry believe the sale could involve prices anywhere from A$1 billion to A$3 billion, depending on valuations. Any purchaser would be almost certain to want to keep intact the BT management team to maximize the future value from the purchase.
