Morgan surprised Kiwibank put its hand up

Gareth Morgan says he is surprised Kiwibank put its hand up to buy his $1.5 billion fund management business.

The amount the state-owned bank paid for Gareth Morgan Investments (GMI), one of the country’s largest fund managers, was not revealed yesterday.

Dr Morgan started looking for a buyer last year to free himself from managing the growing fund manager to focus on his greater interest - investment strategy.

“I was finding a lot of the time was getting sucked up running the company and to be honest I just didn’t want to do that.”

But the economist was only going to sell to a party that adhered to the investment values by which he manages his portfolios, which he describes as personal and transparent management of clients’ money and “brutal honesty” in investment advice.

“To my surprise Kiwibank signed up to that.”

Having once stood against state-ownership of key assets, Mr Morgan courted criticism yesterday for “selling out” to the government.

But he says the fact the government wrote the cheque, for an amount speculated to be between $25 million and $70 million, was secondary to finding a buyer that bought into his investment values.

“Finding someone who signed up to those values is actually bloody hard,” he says. “I’m thrilled the buyer happens to be a New Zealand institution."

GMI's sale leaves the market with just two substantial Kiwisaver providers that are not owned by a bank or an insurance company: Fisher Funds and Milford Asset Management.

GMI manages $650 million KiwiSaver funds on behalf of more than 57,000 clients. Kiwibank’s own Kiwisaver scheme has 15,000 clients.

It is possible to operate a niche Kiwisaver fund profitably, Dr Morgan says.

“But the way to do it is to use the technology. If you have good IT platforms you can definitely become profitable without having to have massive market share.

“It’s certainly possible for someone with a good IT brand to enter the market today and be profitable.”

Dr Morgan says new wealth from GMI’s sale will be spent in a similar manner to his share of his son, Trade Me founder Sam Morgan’s $700 million windfall from the auction website’s 2007 sale to Fairfax.

Not-for-profit work, through the Morgan Foundation, includes “social investment type stuff” and educational work in areas such as climate, tax welfare, the future of Maori and non-Maori in New Zealand “and the odd football team" -- a reference to Mr Morgan's backing of the Wellington-based Phoenix.