AJ BellApr 6 2022

Andy Bell: PE ownership ‘difficult route to justify’ to advisers

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Andy Bell: PE ownership ‘difficult route to justify’ to advisers
Andy Bell [Photo/Jon Super]

Private equity ownership in the advised platform market is a tricky route to justify to advisers and their clients, according to Andy Bell.

The founder and chief executive of online investment platform service AJ Bell, said he has no plans to follow the likes of Nucleus and Novia, which are now owned by HPS and Anacap respectively.

“I look at the advised space, which is where the rest of private equity is focused [alongside the direct-to-consumer (D2C) market] and I've looked at lots of those deals and I just find it very difficult to justify going down that route,” Bell said in a HomeGames session hosted by the Lang Cat today (April 6).

“We're not thinking like private equity. We see some of the challenges when you say to advisers ‘look, you've got these two platforms, these two IT systems, these two charging structures, these two cultures, we're just going to smash them together, and then it's going to be fine’.

“I don't have any particular views on private equity in the sense of are they a good owner or a bad owner. But if you believe the stability of ownership is important, then clearly it would be a negative.”

Last week, Nucleus was sold to a new private equity firm, changing hands from Epiris to HPS. Advisers have since raised concerns over the quick change of hands, with Nucleus only being bought by private equity-backed James Hay less than a year earlier.

Private equity goes where the sex and violence is…The platform market is where it's at.Andy Bell

Nucleus’ chief executive Richard Rowney has since said fears advisers have around the private equity ownership of the platform are based on “a bit of ignorance”, adding that “all businesses are owned by someone”.

Rowney reckoned the change in ownership and consequent cash injection will only help Nucleus further improve its service levels, countering adviser fears that such scale could translate to a potential dip in service levels and that the owners will prioritise margins above all else.

Bell agreed with advisers, in that private equity owners’ main priority is naturally making a bigger profit. “Those guys [private equity firms] are in there to make money,” he said. “And if they do their job right, they will make money, there's no doubt about it.”

The platform boss also highlighted how the margins of advised platforms are not “quite as high as often as perceived” by outsiders looking in.

“There’s a lot of grunt work which goes on in platforms. The bigger you get, you start dealing with cash regulation, cybersecurity, all of these things don't just look after themselves…It's a tough industry.”

AJ Bell’s assets under management sit at £70bn. For the year to September 30, 2021, AJ Bell’s net inflows for its advised business climbed 36 per cent to £3.8bn, and its advised customer base increased by 17 per cent to 126,920.

D2C a different story

Despite dubbing private equity “difficult to justify”, Bell also had some positive takeaways from private equity interest in the platform space - both advised and D2C.

“Private equity goes where the sex and violence is. That's what we're seeing here. The platform market is where it's at. So I take that as ‘great, we're in the right spot’,” he said.

On it being a tough industry, Bell asked out of all the platforms available in the UK market, how many are making money? “Not many,” was his conclusion.

According to the Lang Cat's State of the Nation report, 20 of the UK's advised platforms it analysed saw turnover collectively increase by 5.5 per cent between 2020 and 2021. Meanwhile the yield on assets was practically static, up ever so slightly from 0.323 to 0.328 per cent.

“Private equity might actually bring in some good disciplines to platforms where actually making money is not seen as a bad thing or a bit old fashioned, actually it’s seen as a reason why we get out of bed in the morning.”

In the D2C market, Bell said Interactive Investor is a good example of how private equity has created good value beyond simply a profit.

The consumer platform was sold to Abrdn for £1.5bn in December. Previously, private equity firm JC Flowers & Co held a majority stake in Interactive Investor.

“You've got to look at the platform space in both sectors,” said Bell. “On D2C, I think JC Flowers has done a fantastic job through Interactive [Investor] of consolidating that market.”

He added: “[There’s] not been a murmur on admin. If you’re looking into how to do migrations, then Richard [Wilson, Interactive Investor’s chief executive] and the team have done a fantastic job and created real value, significant value.”

ruby.hinchliffe@ft.com