Westpac’s decision to float 45 per cent of BT Financial Group, announced last week, reflects what the company believes is a long-term secular shortage of funds management talent.

But it will also enable the company to expand the incubator part of its business model. Rob Coombe, BT’s chief executive, said that the traditional model of paying people a salary plus bonus was increasingly difficult to maintain. “You tend to become a victim of your own success,” he said. The search for alpha-producing strategies meant that the excess demand for quality funds managers was unlikely to reduce in the future. “You may think things are excessive now, but we think there is a long-term secular demand for talent … Attracting and retaining good people now means providing equity in the business.” He said that having a separately listed vehicle would give BT the currency “to bring in new players and also bring in new businesses”. BT’s first incubated manager is Voyager Funds Management, an Australian-based Asian equities specialist. The prospectus for the float is not expected until about November. While it is tipped to raise up to $1 billion, Coombe said the valuation was not as important to Westpac as the model being adopted. Nevertheless, Westpac will have done very well from BT, for which it paid about $1 billion in 2002. The bank will retain full ownership of the four non funds management arms of BT which also report through to Coombe – the BT wrap business, the life insurance arm and financial planning arm, which were all acquired, as well as Westpac’s private bank. Coombe said that separation of manufacturing from distribution because of increasing regulatory scrutiny was not a consideration in the decision. “I have made it clear that our financial planning business is an open architecture one. We have never had embedded manufacturing in distribution.” Dirk Morris, the CIO who joined BT last year, will be managing director of the listed BT. BT Investment Management contributes about 10 per cent to BT Financial Group’s earnings and less than 1 per cent to Westpac’s overall earnings. With $40 billion under management it is Australia’s seventh largest funds manager. According to research by Putnam Lovell of the US, only about 5 per cent of the world’s major funds managers are publicly listed. The disadvantages of listing include public scrutiny of finances and possible shareholder focus on short-term profit performance.

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