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Australia’s investment banking landscape is changing. A wave of new entrants and boutiques is forming, chiefly in Sydney and more often than not by plundering UBS or CLSA. They are attracted by an established market which can be lucrative if you can get on the right deals. But is it too well-covered for boutiques to thrive?

On May 8, the New Zealand financial services group Jarden formally announced a new venture that was already the talk of the town. It had hired four of the biggest names in Australian investment banking as its bridgehead for a new business, Jarden Australia.

Robbie Vanderzeil, chief executive of the new business, was UBS’s chairman of investment banking and head of equities, and is recognized as one of the best capital markets bankers in the country. Two other UBS heavyweights were announced as fellow foundation leaders for Jarden Australia: Dane FitzGibbon, who was co-head of capital markets, and John Spencer, head of ECM syndicate.

Moving with them is Sarah Rennie, formerly head of ECM at Goldman Sachs in Australia and a member of the Australian Takeovers Panel. Rennie is probably the most senior woman in Australian capital markets and considered another elite ECM banker.

Probably the biggest structural change in investment banking globally over the last decade has been the rise of the independent firm 

 – Sarah Rennie, Jarden Australia

What are they trying to build? “The leading Australasian-focused, independent investment and advisory firm that stays true to values of being client-centric and focusing on building long-term trusted adviser relationships,” says Rennie.

The initial reaction in the industry was shock. Jarden is a strong and storied name in New Zealand; the firm been around for 60 years. But until now it’s only real incursion into Australia had been a 30-year-long partnership with Credit Suisse.

Two questions immediately arose. Why would these leading lights abandon some of the strongest investment banking operations in the country for a Kiwi-backed startup? And what does Jarden think it is going to do in an already heavily-covered market?

“I think the key differentiator that Jarden Australia provides is the entrepreneurial opportunity to play a part in building a business and driving the strategic direction of the firm,” says Rennie. Working in a fast-paced, transactional business with talented people “had always had strong appeal,” she says – that’s what they all had at Goldman and UBS. “But knowing what we achieve will have a material impact on the firm’s success has added another motivating dimension to the role.”

The market thinks there’s a more prosaic reason for going it alone. “It was purely a financial decision,” says a source close to one of the four co-founders. “If you have the opportunity to get a lot of equity in a startup, the boutique model is a good model: it’s very light on headcount, you don’t need to do too many transactions to be a profitable business and it can be very lucrative.”

Crowded field

That’s fine if it works. But Australian investment banking is already a crowded field. It certainly appeared from the early hires that Jarden Australia would be an ECM shop; as Euromoney discussed last month, that’s where the money has been lately. There’s an acceptance in the industry that there is a workable niche for a purely domestic ECM house in a way that wouldn’t be the case with debt or advisory. The pockets of capital available for equity investment domestically are enormous, anchored by the A$3 trillion ($2.1 trillion) superannuation fund industry. Still, international banks argue that they win business because of their global distribution network and their ability to source clients and transactions offshore.

“That’s why I think boutiques like Jarden will struggle,” says one investment banking head at a bulge bracket firm. “They will be fierce competitors in domestic equities I’m sure, but in the broader business that’s a very small part of it.”

Jarden’s group chief executive, James Lee, says he has been looking for an opportunity in Australia for some time, as the Australian and New Zealand capital markets have become increasingly synchronized. And by a month after the initial announcement, he had hired another five bankers, including another big UBS name, Aidan Allen, co-head of investment banking for UBS Australia. Allen, it appears, will become a fifth foundation member.

Yet more UBS figures, research analyst Kieran Chidgey and legal counsel SooJin Yoon, were hired, as well as Goldman corporate advisory banker Millie Horton and Credit Suisse equities sales trader Chris Tolj. A few weeks later came still another UBS hire – Enrico Musso. And another – Ben Gilbert. Then Stuart Archibald from Morgan Stanley.

The Aussie market was ready, in our view, and you will see more change… It is fragmenting very fast and will continue to do so over the coming years 

 – Michael Stock, Jefferies

The second round of hires was significant for two reasons. The first was that Allen and Horton are not ECM bankers – they are in corporate advisory and it is understood Allen will lead that team. That takes Jarden beyond what the industry expected them to be doing at startup and into M&A advisory. Moreover, Musso is not ECM or advisory but a debt capital markets banker. Archibald was a coverage banker to hedge funds at Morgan Stanley and Gilbert is a consumer analyst who was deputy head of research at UBS.

The other was that Jarden had poached a banker from the group with which it has, at the time of writing, a continuing partnership, namely Credit Suisse. In the May announcement, Lee had specifically referred to the firm’s “30-year strategic alliance with Credit Suisse” and said that “our two companies will continue to work collaboratively in the best interests of clients”.

Approached by Euromoney for comment, Richard Gibb, chief executive of Credit Suisse Australia, says: “We continue to enjoy a strong partnership with Jarden, having jointly completed an equity raise for SkyCity” in June. And Rennie says: “Our two companies will continue to work collaboratively in the best interests of clients,” which is exactly what Lee said back in May.

But if staff are moving – and Jarden has also attracted a Credit Suisse client, HomeCo, jointly leading a A$140 million equity raising for it alongside Goldman at the end of June – one has to wonder whether that relationship is tenable. Euromoney understands the affiliation agreement is being renegotiated.

Rise of the independent

So where’s the gap for Jarden?

“Probably the biggest structural change in investment banking globally over the last decade has been the rise of the independent firm,” says Rennie. She points to the example of Evercore, one of several firms that have built full-service offerings across corporate advisory, capital markets and equities: “With leaner but highly experienced teams. These independent firms have been very successful competing against the large global firms and we expect that trend to play out in Australia.”

Jarden – and its predecessor, First NZ Capital – has been a success story locally in New Zealand pretty much since it was founded in 1961. Rennie points out that it has worked with some of Australasia’s largest companies and institutions, but it is of course on a far smaller scale. Still, Rennie, like Lee, says that there are synergies.

“The firm has been on a growth and acquisition path over the past five years in New Zealand,” she says. “With Australia and New Zealand’s capital markets becoming increasingly synchronized, Jarden has for some time been looking at growth opportunities in the Australian market.” Now it’s taken a chance: “To take advantage of changes in the industry to establish a position of strength in Australia’s capital markets.”

It is a very competitive market. When you get a new entrant, there are already 10-plus active participants in any part of the market 

 – Anthony Sweetman, UBS

There’s no question of the quality of people Jarden has assembled; established competitors don’t doubt that for a minute, widely referring to the core founding bankers as some of the best in Australia. Instead, what they doubt is whether there’s room for a new business without any international operations to bring to bear on the distribution and research side.

“Fundamentally, success in investment banking is driven by the quality of the people and the advice they provide their corporate and securities clients,” says Rennie. “Critical to our strategy is an objective to build a team of exceptional talent across sectors and products. We are incredibly excited about the significant hires we have made to date and there are more to come.”

Is it enough to build a team of high-quality people in a lean team? Or are the international operations of the big names essential to a viable business in modern capital markets?

Jefferies’ hiring spree

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Michael Stock,
Jefferies

As Euromoney has previously reported, Jefferies hired Credit Suisse banker Michael Stock and then set about a recruitment burst that makes Jarden look cautious. In June last year the group took 30 CLSA staff in a single day, including Andrew Norman, who joined as head of Australia equities, and Brian Johnson, arguably the country’s best banking analyst. It followed with a series of hires from Deutsche Bank (including Peter Molesworth and Kyra Hannaford in ECM), Credit Suisse and JPMorgan.

“The Aussie market was ready, in our view, and you will see more change,” says Stock. “It is fragmenting very fast and will continue to do so over the coming years.” For Jefferies, the exit of Barclays from the Australian market and the sense of Deutsche pulling back created a gap for them to enter.

By July the firm had 65 people in its Sydney office across equities, fixed income and investment banking; it has a notably bigger brokerage and research priority than Jarden appears to at this stage. Neither group has expressed any interest in private banking or wealth management.

While the Jarden and Jefferies plans take shape, an enduringly popular diversion in Sydney investment banking circles is what exactly Matthew Grounds is doing.

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Matthew Grounds,
ex-UBS

Grounds was chief executive for Australasia at UBS before stepping down and handing over to Anthony Sweetman and Nick Hughes at the end of last year, having announced his retirement in July 2019. He as much as anyone had been responsible for establishing UBS’s investment banking preeminence in Australia during a 25-year stint at the bank, working on a string of the country’s most significant deals dating back to the T3 Telstra float under the Howard government. He was a close adviser to James Packer – most of the time, anyway.

Throughout the early part of this year, it had been understood that Grounds, along with former colleague Guy Fowler, was preparing to re-enter the market in a venture alongside leading home-grown fund management firm Magellan Financial Group and Barclays Capital, Barclays having completely exited Australia in recent years. Euromoney understands that discussions were advanced and that Grounds, Fowler and the staff were to own 50% of the business, Magellan 40% and Barclays 10%.

The buzz in Sydney is that Grounds approached as many as 20 people in the UBS investment banking team, and received a robust legal letter from UBS threatening to sue him, as did Magellan. Covid-19 undeniably didn’t help and by the middle of the year it was clear that Grounds was happy to sit to the side for a while and focus on his philanthropic interests. He chairs the Victor Chang Cardiac Research Institute and is endowing a new professorial chair of medical research in Sydney; Magellan founder Hamish Douglass is on the same board.

Right now, Grounds tells friends he is happily retired, living the quiet life and keeping busy with philanthropy. Most in the market don’t expect that to last, but equally they don’t expect to see anything concrete develop this year. He declined to comment, as did Barclays, and Douglass did not respond to requests for comment.

However, it was intriguing when some interesting structural preparations were unearthed by the Australian Financial Review at the end of May. The AFR found that a company called Blackwattle Group had been set up in a Sydney office leased by Magellan, which appeared to be headed by another UBS alumnus, Matthew Hanning, formerly a senior investment banker in Hong Kong. Hanning is sole director of several Blackwattle entities and Blackwattle itself is owned by John Cincotta, another stalwart of the Australian investment banking industry who was previously chief operating officer for Deutsche.

Grounds, Fowler and Douglass’s names do not appear on the corporate regulatory filings seen by the AFR, but given the Magellan connection to the lease, it is widely assumed in the industry that Blackwattle is, ultimately, the Grounds/Magellan/Barclays venture – or will be if it ever happens. Euromoney reached Hanning, but he declined to comment.

“Nobody knows if Matthew is coming back in the same way or doing the same thing,” says one banker, “but the idea of doing a big raid out of UBS doesn’t seem legally feasible.

“Whether or not Hamish Douglass it still keen is unclear, but they have a lot of shareholders saying: ‘You are a fund manager trading on 22 times PE, why would you buy a banking business? And how would you deal with the conflicts?’”

Bearing the brunt

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Anthony Sweetman,
UBS

It can’t be ignored that UBS has borne the brunt of these staff moves more than anywhere else, with possible exception of CLSA. Sweetman, chief executive for Australasia at UBS, isn’t worried. “We have a long history of new entrants coming to Australia,” he says. “It is a very competitive market. When you get a new entrant, there are already 10-plus active participants in any part of the market.

“We’ve been the market leader for a long period of time, so people have always targeted our people: not just new entrants but our established competitors too. There is nothing new in that regard.

“Last year was out best year in 10 years; year to date we are up more than 20% on last year. Things are actually going very well.”

Some agree with this. “If you know your history, the people running Goldman Sachs and Citi [in Australia] – they all worked at UBS,” says one senior figure, referring to Christian Johnston and Nick Sims at Goldman, and Tony Osmond at Citi. “At the end of the day it’s the largest investment bank talent pool and has produced a lot of good leaders.” One former employee says: “I used to joke that we trained most of the competition. UBS continues on and will continue on, and younger talent will come through.”

Some, however, sense blood in the water. “The question mark is over what happens to UBS over time,” says one rival banker. “Our own thesis is that some of their market share is going to become available. Macquarie and UBS have held the dominant position in Australia for so long, but it will slide as they lose people.”

Another rival banker at a foreign house says: “They have done an incredible job over the last three to five years to maintain their market position in Australia, because globally they just have not really focused on investment banking. But they have lost an enormous amount of talent. Guy, Matthew and Robbie are three of the best bankers we’ve ever had in Australia.”

He adds: “But they still have good people and I wouldn’t write them off.”

Macquarie and the boutique-inside-a-bank model

Macquarie tends to come out of these hiring skirmishes remarkably unscathed and it is possible that’s because Macquarie encourages the formation of quasi-boutiques within its own walls. The bank has always had a model that encourages people to start up their own specific business lines, giving risk management and balance sheet support but otherwise backing innovation. Many insiders have a story about having messed up on some daring new idea and having been forgiven, encouraged to learn from it and try again – provided they only stuff up once.

“Within Macquarie Capital we see it as a series of businesses within one business, each with quite a lot of autonomy,” says Tim Joyce, co-head of Macquarie Capital. He highlights Robert Dunlop and Kate Vidgen on the energy side, Darren Keogh on technology and Hugh Falcon in capital markets as examples of senior executives given a great deal of freedom to build their businesses.

“Overlaid on top of that is a very supportive group structure in terms of areas like risk and capital. The consequence is that growth is much easier to drive. Giving people the confidence and the scope to go and pursue business creates a powerful self-fulfilling machine.

“People have the opportunity to change direction in their career path, to seek opportunities in markets opening up or adjacent to their specialization,” he adds. “It’s one of the things that supports people being here a long time.”

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Shemara
Wikramanayake,
Macquarie

Group chief executive Shemara Wikramanayake is an example: she started in Macquarie Capital before moving around different units and ultimately building the asset management group.

“I think for a long time the philosophy or culture of the firm has been to encourage those that are closest to a particular industry or client base to be the ones that drive the solutions,” says John Pickhaver, co-head of Macquarie Capital. “We’re not trying to be everything to everyone in every market, but we’re saying: back experts and give them support from a risk tolerance perspective, in terms of providing them with balance sheet and the support of the broader institution to go out and pursue business opportunities.”

What Neal Cross did next: a contrarian bet on financial planning

Mainstream wealth management in Australia is suffering. The Royal Commission into banking misconduct came down particularly hard on the financial planning industry, prompting most of the major banks to pledge to sell out of wealth management and driving around 14,000 financial planners out of the industry as they faced a future of eroded trust, higher compliance and more exacting qualifications.

Into this gap has sailed a business called PictureWealth, with a familiar name behind it.

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PictureWealth’s Neal Cross, left, and David Pettit

Regular readers will recall Neal Cross, the shorts-wearing former DBS chief innovation officer and jungle hotel and orangutan sustainability pioneer, a man for whom contrarian positions are something of a way of life. He and David Pettit, an Australian adviser and entrepreneur, set up PictureWealth in Perth in 2018, with the aim to reinvent financial advice through a combination of technology and a more empathetic human approach than the industry has been known for.

PictureWealth started out with the tech: a platform through which clients are given a better sense of their own wealth position. Having gained that clarity and some education, clients are better placed to plan for their future and their goals.

PictureWealth has completed 15 financial planning business transactions, including the acquisition of Neo Financial Solutions, which holds an Australian financial services licence and provides licensing services to more than 80 advisers across Australia.

Through this acquired network, the plan is to use the technological advantages and to marry them with the human touch of planners who are on board with the group’s positions. “Rule number one of the company,” says Cross, “is that if you ever sell a product that’s better for PictureWealth than it is for the customer, then you’re fired.”

The exit of so many planners is part of the appeal of the business. “As others are running away from the industry, we are running in,” Cross says. Pettit says those 14,000 absent planners have left about A$900 billion of wealth orphaned and in need of advice. Correspondingly, both men, although known as innovators and disruptors, do not think what they are doing is disruption. “It’s not necessarily innovating to compete against incumbents,” says Pettit. “It’s to do things better and differently to a system that has ultimately failed the consumer.”

Similarly, although Cross is best known as a digital innovator, he is reluctant to put too much emphasis on the technological side of PictureWealth. “What a lot of people get wrong is knowing where the robots go and where the humans go,” he says. “We are using robots for what they are good at – data collection, digital scale, low-level task management – but optimizing the human element in building confidence.

“Robo is a dead end in terms of an industry that’s monetizable: the margins are shrinking and the big banks are jumping in,” he adds. “Robo is not the future of wealth any more than bitcoin is the future of banking. It’s a part of it but not the whole.” PictureWealth is pitched as a “hybrid wealth-tech platform”.

Indeed, Pettit emphasizes the human side over the technical. “The approach is not to start with the product. We start with the hopes and fears of the human. We help them find the right product – if they need one. Sometimes people need to be told to do nothing,” he says.

In practice, a PictureWealth-advised portfolio is likely to be filled with low-fee index products with a commitment to hold for the long term, Pettit says, which sounds a bit like the no-frills MySuper end of the A$3 trillion superannuation industry but with a crucial difference. MySuper is a default product for someone who doesn’t want to make a decision on their wealth and Pettit sees that constituency – worth about A$709 million – as a perfect opportunity for them: “Untouched and unadvised, because people sitting in default products have no idea if they are aligned to their goals and objectives.”

PictureWealth completed a A$12 million late-seed funding round of private equity and debt in June. As the company expands eastwards from Perth, next steps will be Series A and B rounds, possibly a C, and ultimately an IPO. The company already has A$2 billion in funds under advice from 40,000 clients and annual revenues of A$20 million. That’s still some distance short of critical mass. “But we are at 20 times where we sat 12 months ago,” says Pettit. “We can see the roadmap ahead of us.”