Few could have predicted that after the unbundling of Quilter from Old Mutual, the child would outshine the parent as much as it has. And anyone looking for a Covid-proof portfolio would have to give a high allocation to Quilter.
As a UK wealth manager it has a well-heeled clientele in the fifth-largest wealth market in the world. It has a steady flow of annuity income from its £107bn client base, yet it has very little need for capital.
Perhaps Old Mutual should consider a similar strategy to Quilter, selling its legacy life insurance book and its institutional asset manager, the Old Mutual Investment Group.
Initially, the plan was that Quilter would drop its secondary listing on the JSE after about two years, once the shareholding was realigned. In theory, SA investors would want to accumulate Old Mutual and sell Quilter, and UK investors would want to dump their Mutual shares. I have no doubt that the UK shareholders have followed the script, but SA institutions are holding on to their Quilter shares for dear life.
Luckily, after three years on the JSE, Quilter CEO Paul Feeney says the company is here to stay.
This is a pure rand hedge which is neither dependent on commodity prices, as are BHP and Anglo American, nor on the capricious behaviour of the Chinese government, as is Naspers. Feeney probably wouldn’t mind if I said that compared to that cohort, Quilter is a bit boring.
The main variable which affects profit is net client cash flow. And in the six months to June 2021 this increased by a welcome 133%, to £2.1bn.
Its core business is a low-margin investment platform, very similar to the linked investment service providers in SA offered by groups such as Momentum and Sanlam’s Glacier. In the six months to June 2021, the Quilter platform increased profit by 9% to £25m. On top of the platform, the business offers a range of advice and wealth management services, and their profit was up 10% to £45m. About half under management is in Quilter Cheviot, which offers bespoke portfolios for the rich. Its investment performance has been competitive, marginally ahead of the average private client manager over five and 10 years. Feeney says there was some adjustment during Covid as the high-touch model had to go virtual. But he says the team adjusted well and clearly the strong inflows bear him out.
The other half of the business is in funds of funds for the mass affluent, many of whom would qualify as rich in SA. Here, performance has mostly been above average. And that’s all this kind of business needs. Nobody expects Quilter to shoot the lights out, just to provide a reliable, if dull, glide path into retirement.
Quilter has sold its international business to another platform, Utmost. There is little benefit from owning an offshore unit in the UK, where there are no exchange controls. And unlike SA there is little latent demand to externalise wealth. In the meantime, the part of Old Mutual International that remains with Old Mutual SA is flourishing — its hands are full with the stampede of SA money offshore.
And it looks as though Quilter has migrated successfully to a new IT platform, which can now offer more modern products such as exchange traded funds and self-invested pensions. Quilter has been a major beneficiary of the change in legislation as UK retirees no longer have to buy an annuity but can keep the capital and draw it down in their own time, if at all. Quilter’s unsexy portfolio of products meets these requirements to a tee.
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