Research - standalone business, or business component?
When publicly-listed Australian Wealth Investments (AWI) decided to invest in van Eyk Research in April 2013, it clearly saw the research and ratings house as a key component in the compilation of a multi-faceted financial services group.
In much the same way as Mark Carnegie's acquisition and combining of SuperRatings and Lonsec gave rise to the establishment of a multi-faceted research and investment servicing business, the AWI move to take up a 37 per cent holding in van Eyk demonstrated a desire to put investment research alongside businesses such as the formerly Fairfax Media-owned financial services portal, InvestSmart and its later acquisition of the online financial services business, YourShare.
Of course, it is now history that while AWI's 37 per cent holding in van Eyk made it the dominant shareholder, it did not secure control of the research and ratings house - something which left AWI in a parlous position when van Eyk entered voluntary administration and, ultimately, receivership.
However the manner of van Eyk's collapse was axiomatic of the problems confronting research and ratings houses and explains why companies such as AWI see them as business components rather than businesses in themselves.
Those who did due diligence in the aftermath of van Eyk entering voluntary administration soon got to the nub of the company's problems - the income it generated from its research business was comparatively modest when compared to the income it derived from its Blueprint funds management offering. Therefore, when the Blueprint funds ran into trouble, so did van Eyk.
The bottom line is that investment research is a highly skilled, labour-intensive business and research houses cannot be grown overnight. The gradual rise of relative newcomer, Zenith Investment Partners, over the past decade is proof of how long it takes for a research house to gain genuine scale.
Zenith was named Money Management Ratings House of the Year in 2014 after having progressively worked its way up the rankings over the past six years. However the company only started to gain real impetus following the departure of Standard & Poor's from the local ratings house market and the departure from van Eyk of its founder, Stephen van Eyk.
Stephen van Eyk's departure resulted in the company losing research mandates, including that of Count Financial, with both Lonsec and Zenith along with Morningstar emerging as beneficiaries.
With Lonsec Fiscal having announced in September that it is in the market for a new investor, it sent a signal to the market which was interpreted as confirming just how challenging the commercial environment can be in the research space.
The company announced that it was looking for a strategic partner to bring capital into the group to fund its next phase of growth and had appointed an independent consultant to help identify and exploit future growth opportunities, including the sale of a minority share in the group.
To date, no announcements have been made regarding who that investor might be but in the meantime Lonsec confirmed it had acquired one of van Eyk's most valuable remaining assets - its iRate tool and client base.
So the bottom line for the financial planning industry as it closes out 2014 is that in the past five years it has witnessed the departure of two major research and ratings houses - Standard & Poor's and van Eyk with a third major player looking for a new investor to help fund its future growth initiatives.
The various businesses falling under the umbrella of Lonsec Fiscal are proof that the company has diversified beyond a pure research focus and it remains to be seen whether those companies built on a pure research and ratings model can sustain and grow their their operations over the long haul.
Recommended for you
In this episode of Relative Return Unplugged, hosts Maja Garaca Djurdjevic and Keith Ford are joined by AMP chief economist Shane Oliver to take a look at what can be learned from 2024 as attention turns to what markets will do in the new year.
Join us for a special episode of Relative Return Unplugged as hosts Maja Garaca Djurdjevic and Keith Ford are joined by shadow financial services minister Luke Howarth to discuss the Coalition’s goals for financial advice.
In this special episode of Relative Return Unplugged, we are sharing a discussion between Momentum Media’s Steve Kuper, Major General (Ret’d) Marcus Thompson and AMP chief economist Shane Oliver on the latest economic data and what it means for Australia’s economy and national security.
In this episode of Relative Return Unplugged, co-hosts Maja Garaca Djurdjevic and Keith Ford break down some of the legislation that passed during the government’s last-minute guillotine motion, including the measures to restructure the Reserve Bank into a two-board system.
