An Example of a Quality Compounder – Family owned and operated – Netwealth
The attached AFR article below is an example of the culture behind a quality compounder. Netwealth is 50%+ owned by the family that founded the business. This founder ownership has been reflected in its overt culture with: - Meaningful values that are consistently displayed and communicated since its inception - Long term mindset of management - Flat management structure with no egos and open mindedness - Internally promoted and long tenured staff - Engaged workforce with evidence of a team-based workplace - Unwavering focus on the customer with continual spend on “Functionality and Service” When comparing the business model of Netwealth to Hargreaves Lansdown (HL) in the UK where the platform business is more mature it is evident that scale matters. HL was founded in 1981 by Peter Hargreaves and Stephen Lansdown – both were accountants. It listed in 2007 with a ~$2BM market cap on 30x NPAT (NWL listed with a $880M market cap on 32x NPAT) since 2007 it has produced a 19% TSR CAGR and today it has a market cap of $13B. What’s interesting about the HL story and its similarity to NWL is that during this period of earnings growth (EBIT Margin expanding from 26% to 63% and ROE growing from 46% to 63%) headline platform rates have declined almost every year with Revenue/ AUM dropping from 100bps in 2007 to almost 48bps today. Scale really does matter in this business as not only functionality and service can be improved with a larger profit base but as the leader becomes more profitable it becomes a safer custodian of assets in turn reinforcing its leadership to spend more on functionality and service. It’s crucial to have a long-term vision and being founder led makes this happen. We previously had a fireside discussion with Michael Heine at our Value in the Vines conference and the family history is very insightful to how he built the culture at Netwealth, we encourage you to read about the background below.