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AMP buys back MUFB stake and makes culture change ‘top priority’

The Australian company will pay A$460m to re-acquire a 15% stake in AMP Capital from the Japanese bank and is addressing company culture issues its CEO says.

AMP Ltd will buy back the 15 percent stake in AMP Capital it sold to Japanese bank Mitsubishi UFJ Trust and Banking Corporation (MUTB) in 2011, as it announced a fall in fee revenue due to the coronavirus downturn.

Announcing its half-year results, the firm said AMP Capital’s operating earnings for H1 2020 fell to A$72 million ($52 million; €44 million) from A$120 million in the same period in 2019, driven by a 39 per cent decline in performance and transaction fees due to a slowdown in transaction activity during the covid-19 pandemic.

AMP Capital’s parent, which is listed on the Australian Securities Exchange, will pay A$460 million in cash for MUTB’s stake, comprising A$451 million as the agreed market value of the stake and A$9 million for MUTB’s 15 percent share of an AMP Capital dividend for the six months ended 30 June 2020.

The deal will be funded via existing capital reserves, including A$400 million gained from the sale of AMP Life, the group’s life insurance business, and is expected to close in Q3 2020.

The firm sold the stake in AMP Capital to MUFB for A$425 million nine years ago to help accelerate its growth in the Asia-Pacific region, with the deal also seeing the Japanese bank distribute AMP Capital’s products to its institutional and retail investors.

AMP said the two businesses “will continue to co-operate strategically, building on their mutually beneficial business relationship in Japan, with AMP Capital continuing to deliver its investment products through MUTB’s network”, but that the formal business and capital alliances will come to an end.

In a conference call with media, AMP Ltd chief executive officer Francesco de Ferrari acknowledged that MUTB’s 2018 purchase of rival Australian asset manager Colonial First State Global Asset Management, since rebranded as First Sentier Investors, was a factor in the buyback.

“MUTB has bought a key competitor of ours here in the market and we needed to resolve that strategic dilemma. So we parted as good partners, each driving their own strategy,” de Ferrari said.

He added that the end of the relationship with MUTB was “absolutely not” a sign of a shift in focus away from Asia, pointing to AMP Capital’s recent successful fundraising efforts with Asian investors. This year, the asset manager launched its first debt fund exclusively targeting Asia-Pacific.

AMP Capital saw external net cashflows increase from A$818 million in H1 2019 to A$2.6 billion this year, as committed capital was deployed amid “continued momentum in real assets” including infrastructure and real estate.

The firm also launched a new strategy that will see it expand in international growth markets, develop its client base in existing markets and grow the business through new opportunities in “adjacent private markets” to its existing success in global infrastructure and Australian real estate.

It said in its results presentation that it saw a “significant opportunity” in private markets thanks to the ongoing low interest rate environment and signs that alternative investments have firmly entered the mainstream thanks to increased allocations to these types of assets from institutional investors.

In infrastructure, growth will be targeted by scaling its Global Infrastructure Fund and Infrastructure Debt Fund strategies through “larger successor funds”, while it would seek to enter new markets such as Asia, and the asset manager as a whole is also working on developing a management equity scheme to create greater alignment with clients.

Cultural change

De Ferrari also faced repeated questions from media about AMP’s culture, following the revelation by the Australian Financial Review that AMP Capital’s newly appointed chief executive Boe Pahari had been appointed by AMP Ltd’s board despite knowing he had been financially penalised in 2018 following the settlement of a sexual harassment claim brought against him by a female subordinate.

In addition, AMP Australia chief executive Alex Wade resigned suddenly last week over an unidentified “internal matter”, with it subsequently emerging that this related to internal complaints over his conduct.

De Ferrari declined to comment further on individual employees beyond previous statements issued by AMP, but outlined steps the firm is taking more broadly.

“We’ve set up a working group in the board, [and] we have an inclusion task force that is taking a number of initiatives to make sure we progress on inclusion and diversity,” he said.

“Driving cultural change is key to unlocking AMP’s potential and driving shareholder value. We announced in August 2019 a number of commitments to strengthen accountability … but we know we have more to do, including improving diversity and inclusion. The transformation of culture is now my top priority.

“To accelerate change, we’ve implemented a number of immediate actions including a board culture working group and an employee-led inclusion task force. We’re in the process of appointing an external expert to help us drive inclusive leadership across our whole organisation.

“The inclusion task force which I chair includes a diverse group of employees from all areas and levels of the business. We have already held two meetings and I feel confident that this group will help us accelerate actions on this important topic.”