Specialised Capital Group ( SCG ) Phil Coffey, Group Executive Westpac Institutional Bank 8 March 2005 SCG adding value and enhancing growth An alternative investment fund manager and asset arranger A clear strategy Enhancing growth profile while further utilising existing capabilities Established capability and track record Clear risk management principles and differentiated governance model A growing market delivering sustainable returns 2
Agenda Phil Coffey, Group Executive, Westpac Institutional Bank (WIB) - Overview Sean McElduff, General Manager, Specialised Capital Group, WIB - The Business Tim Poole, Managing Director-elect, Hastings Funds Management - Hastings Angela Mentis, Global Head of Structured Investments, WIB - Distribution Morning tea Phil Coffey, Group Executive, WIB - Summary and questions 3 SCG complements Westpac wealth creation strategy Combination of BT Financial Group (BTFG) and SCG provides Westpac investors with full spectrum of investment product Westpac Institutional Bank (WIB) BTFG Traditional fund manager SCG HFML, WFML & WPEL Alternative fund managers BTFG wholesale distribution BTFG retail distribution WIB retail distribution Westpac customer channels Private Bank, Relationship Managed Segments, Consumer, FPS WIB and HFML wholesale distribution Wholesale investors Retail investors and High Net Worth investors (HNW) Wholesale investors 4
A good fit for WIB Natural competitive advantages Established product expertise and asset management expertise Corporate relationships enhances access to assets Westpac brand and distribution capacity to investors Strong governance framework Balance sheet capacity 5 SCG the evolution Inception 2002 Expansion 2003- today Set for growth 2005 WIB Transformation project Clarified opportunity in alternative investments Identified skills, strengths and weaknesses Created SCG Hastings acquisition Acquired 51% of Hastings with plan to move to 100% in 2005 Boosted capability in funds and asset management Access to wholesale investors Expansion Employees increased from 57 to 85 Number of openended funds rose from 8 to 12 Operations Asset origination structured into four key streams Fund management operations expanded Hastings final acquisition Acquire remaining 49% in July 2005; completion expected by Sept 2005 Expansion Further build capability - increase employees 100 Target growth in open ended funds for property and other assets Selected offshore (principally OECD) expansion Operations Establish independent board for Responsible Entities ( RE ) London team 6
SCG successfully growing funds under management Inception 2002 FUM Expansion 2003 FUM Expansion YTD FUM Planned growth 2005/07 $2,049m WPEL $214m WFML $35m HFML $1,800m Westpac Office Trust Moorebank Property Trust Hastings Income Trust Australian Infrastructure Fund $2,860m WPEL $165m WFML $595m HFML $2,100m Australian Onshore Energy Fund FAL Property Trust HFM Private Equity II Hastings Diversified Utilities Trust Hastings High Yield Fund Hastings Infrastructure Fund $4,635m WPEL $140m WFML $895m HFML $3,600m WPEL WFML HFML 7 A natural extension of intermediation activity Capital Providers Specialised Capital Group Originate transaction Capital Consumers $ Retail High Net Worth Institutions Superannuation funds Corporate debt securities, syndicated loans ABS, CMBS, CDO s, Hybrids Manufacture product Manage investments Coordinate other WIB services Distribution Understand investor needs Manage distribution channels Coordinate distribution Corporates Governments New Projects Assets 8
The Business Sean McElduff, General Manager Specialised Capital Group Westpac Institutional Bank A clear identity in alternative investments An alternative investment fund manager and asset arranger specialising in: Infrastructure Alternative property Commodities Private equity High yield Risk/Return frontier Return High yield funds Infrastructure Alternative property Direct property Australian equities Listed property ILLUSTRATIVE ONLY Commodities International equities Private equity Fixed interest Cash Risk SCG 10
The alternative investment market set for growth Global investor acceptance Asset consultant research and support Opportunity in Australasia Growth rate > 20% achievable Portfolio allocation Today Portfolio allocation Growth will exceed 20% supported by: US Endowments US Pension Funds US high net worth individuals Aust. super fund, high net worth individuals and retail Growth in super funds of approx. 10% pa. -5yrs <10% 9% 22% -10yrs Today 10% Today Future 10%+ Increasing allocations to alternatives from 5% to 20% <5% <5% 5% Source: Mercer survey, Russell-Goldman survey, Merrill survey, Rice Walker 11 Four key ingredients for success... Asset supply and origination capability Scale to seed/ underwrite and skills to structure Ability to raise capital from all investor segments Fund management capability Attractive returns for Investors Sustainable profits for WIB 12
Competitive advantage Asset supply and origination capability Scale to seed/ underwrite and skills to structure Ability to raise capital from all investor segments Fund management capability Visibility of corporate assets through strong penetration of corporate Australia Relationship model can be extended to operators of key assets and other partners in bidding consortia Sizeable equity underwriting capability Ability to leverage debt capacity of Westpac balance sheet Broader focus than high performance fee listed vehicles Take advantage of gap in unlisted institutional space (non-property) and further develop unlisted retail offerings Aim to have widest coverage of all potential investor types Leverage the Hastings brand > 10 years experience Opportunity to build funds with a more balanced fee structure for investors 13 Customer and product diversity within market Asset Class Examples Listed Unlisted Wholesale HNW Retail Infrastructure UTA AIF, HDUF Property WOT RUPT Energy/ Commodities AOEF HHIT High Yield HHYF HIT Private Equity HPEF Quadrant 14
Substantial existing presence Hastings Funds Management Limited Infrastructure Australian Infrastructure Fund Hastings Diversified Utilities Trust Hastings Infrastructure Fund Utilities Trust of Australia Queensland Infrastructure Fund High Yield High Yield Fund Hastings High Yield Fund Hastings Income Trust Australian Fixed Interest Fund Timberland Hastings Hancock International Timber Fund Private Equity Hastings PE I Hastings PE II Westpac Funds Management Limited Property Westpac Office Trust Moorebank Property Trust Westpac Family Restaurants Property Trust Westpac Family Restaurants Property Trust No 2 Village Life Property Trust FAL Property Trust Energy/ Commodities Australian Onshore Energy Fund Westpac Private Equity Limited Private Equity Quadrant PE I Quadrant PE II Quadrant PE III 15 Extensive experience - average 15 years+ The Key People Phil Coffey WIB Executive Sean McEduff General Manager SCG Asset Origination Infrastructure Michael Kerslake Ludovic Theau Tony Schultz PA&I Emil Pahljina Natasha Nankivell Dario Mofardin PPP Steve Rankine Khalil Khiran Property Grant Hodgetts Steve Bulloch Richard Ash Equity & Debt Capital Markets Equity arranger Ralph Kelly Debt arranger Lance Vassarotti Funds Management Hastings Tim Poole +7 Directors WFML David Westaway Pedro Milhao Michael Page Keith Grayson WPEL Chris Hadley George Penklis Distribution Angela Mentis Martin Hoffman Felicity Menzies Michael Warrington Libby McPhee +9 Directors 16
Governance model Westpac Banking Corporation Westpac Institutional Holdings Pty Limited (comprises Westpac employees) Westpac Funds Management Limited (Responsible Entity) (Westpac Employees) Hastings Funds Management Ltd (Responsible Entity) (3 Independents 3 Westpac Employees) Independent responsible entity boards Managed Investment Compliance Committee (MICC) (No Westpac Employees) Compliance Committee (2 Independents 1 Westpac Employee) Independent compliance committees Audit Committee (reports to Westpac Board Audit Committee) Audit Committee (2 Independents 1 Westpac Employee) Independent audit committees Each Board has a charter, code of conduct and independent process to review related party transactions Performance of Boards appraised annually Governance principles of Westpac Board charter and code of conduct embodied throughout 17 Risk management Acquisition risk Utilise well defined due diligence processes Internal oversight of financial models to ensure consistent quality Independent experts utilised to verify models and assess key asset risks Sell down risk WIB distribution involved at deal inception Hastings distribution involved at deal inception for infrastructure/high yield capital raisings For larger capital raisings i.e. greater than $100m, involvement of third party distribution teams Regulatory risk External legal engaged to review obligations under FSR for every new product Numerous layers of compliance internal WIB compliance and then independent compliance reviews at respective Boards Reputation risk Three filter approval process for investment decisions Investment/Deal committee for fund vehicle, Westpac Credit for underwrite, HFML/WFML board 18
Efficient use of capital Use capital to acquire assets to seed funds Capital usage will not grow proportionately with FUM - should remain constant Example: seeding and development of Hastings Diversified Utilities Fund Fund seeding period Fund self sufficiency period Westpac warehouse EPIC Rest 150 days Create HDF and raise capital on ASX SCG Infrastructure/ HDF originate Mid Kent asset HDF arranges underwriting and other finance HDF secure capital raising Reg capital $300m Reg capital $0m Multiple potential roles for WIB 19 Value proposition Actual 2004 Plan 2005 Plan 2006 Plan 2007 Variable revenue Asset arranging fees Underwriting fees Performance fees 58% variable 54% variable 50% variable Annuity revenue Fund and asset management fees 65% variable 35% annuity 42% annuity 46% annuity 50% annuity 20
Hastings Funds Management Ltd ( Hastings ) Tim Poole, Managing Director Hastings a leading alternative asset manager Infrastructure High yield securities Private equity Timber AIF HDF HIF QIF UTA HHY HYF HIT HPEFI HPEFII HHIT Note: In addition to managing the funds above, Hastings also has several third party investment mandates Early entrant into alternative asset market Specialist funds management company Track record of successfully raising capital - strong wholesale distribution - developing ASX listed/retail franchise 22
A good fit with Westpac Hastings perspective - Underwriting capability - Access to retail distribution - Source of assets - International credibility SCG s perspective - Asset management capabilities and expertise - Business model and governance framework - Access to wholesale distribution 23 Experienced board and management Board Sean McElduff (Chairman) Jim Tate Ray Wilson (independent) Guy Strapp Mike Fitzpatrick (Tim Poole) Mike Hutchinson (independent) Senior Management Team Tim Poole Managing Director Infrastructure Mitchell King David Bartholomew Peter Taylor Jim Hallam Private Equity Dominic Leary David Dawson High Yield Debt David Ridley CFO and Co. Sec Victoria Duthy Kim Rowe 24
Hastings performing well in partnership with Westpac Delivering investor returns Strong FUM growth - October 2002 FUM was $1.8 billion - March/April 2005 FUM will exceed $3.6 billion Completion of fund development strategy - ASX listed diversified utilities fund (HDF) - ASX listed high yield fund (HHY) - Unlisted retail funds (HIF, HIT) Revised investment strategy - Prepared to wholly own assets on behalf of investors - Commenced international expansion Delivering tangible and intangible synergies 25 WBC moving to 100% ownership in July 2005 HFM separate brand, identity, premises and operating environment to continue Staff retention - senior team contracted to June 2006 - essential to maintain culture Mike Fitzpatrick to be retained as an adviser for two years HFM already benefiting from WBC infrastructure (e.g. HR, offshore expansion) 26
Hastings Diversified Utility Fund case study Time June 2004 Issue EPIC Rest assets acquired - WBC jointed sourced and advised on acquisition - WBC equity bridge - WBC senior debt underwrite Outcome EPIC Rest assets acquired - Asset successfully acquired - Transaction sponsored by SCG - Transaction sourced for WIB debt group December 2004 February 2005 IPO of EPIC Rest asset - HDF established - WBC co-lead of IPO Acquisition of 50% of Mid-Kent Water - WBC jointly sourced/established credibility - WBC equity bridge - WBC co-manager of hybrid issue IPO of EPIC Rest asset - Value of HFML enhanced - Attractive/scarce asset provided to retail clients Acquisition of 50% of Mid-Kent Water - Asset successfully acquired - Transaction sponsored by SCG - Attractive/scarce asset will be provided to retail clients 27 Structured and Alternative Distribution Angela Mentis, Global Head Structured Investments Westpac Institutional Bank
Four key ingredients for success... Asset supply and origination capability Scale to seed/ underwrite and skills to structure Ability to raise capital from all investor segments Fund management capability Attractive returns for investors Sustainable profit for Westpac Origination & Execution Training, Accreditation & Strategies Distribution Australia, NZ and Asia 29 Structured from a retail investor perspective WIB and Third Party Product Manufacturers WIB Structured Investments Westpac Eg: Westpac FIRsTS Westpac internal channels WIB s corporate customers eg: IAG, Wide Bay Specialised Capital Group eg: AOEF, Hastings Income Trust, Stockland Distribution Footprint External channels Financial Markets Group eg: Halcyon Notes, Bluewater Third Party Best of Breed eg: OMIP, Multiplex, Macq Priv Cap Group, Deutsche ChinaOpp Notes NZ and Asia Westpac internal and external channels 30
Distribution: starting from a solid base 25,000 Investor Numbers Products across a variety of asset classes 20,000 Equity 12% 15,000 Infrastructure 27% 10,000 5,000-2002 2003 2004 2005 Fixed Interest 10% Property 51% Australia Offshore 31 Coffee Break
Summary Phil Coffey, Group Executive Westpac Institutional Bank 8 March 2005 SCG snapshot Since late 2002 Funds under management increased from $1.8b to $4.5b Established nine new funds Created a sustainable and growing annuity income stream Achieved 20%+ earnings growth 34
Summary High growth business Business is an extension of existing capabilities and enhanced by Hastings acquisition Opportunity to entrench presence, with a differentiated model, in an under-competed market Leveraging strategic strengths of the broader bank customer base, distribution capability Compelling value proposition 35 Questions
Definitions AIF AOEF BCB BDM BTFG CDO CMBS EFA FP&A FUM HDF HFML HHIT HHYF HIT HNW HPEF Australian Infrastructure Fund (ASX: AIX) Australian Onshore Energy Fund (ASX:AEYG) Business and Consumer Banking Business Development Manager BT Financial Group Collateralised Debt Obligation Commercial Mortgage Backed Securities External Financial Advisers Financial Planners and Advisers Funds Under Management Hastings Diversified Utilities Fund (ASX: HDF) Hastings Funds Management Limited Hastings Hancock International Timber Fund Hastings High Yield Fund Hastings Income Trust High Net Worth Hastings Private Equity Fund PA&I Principal Acquisitions & Investments PID Private Investment Division PPP Public Private Partnerships RUPT Retail Unlisted Property Trust SCG Specialised Capital group SCS Specialist Client Services Westpac Westpac Banking Corporation WFML Westpac Funds Management Limited WIB Westpac Institutional Bank WOT Westpac Office Trust (ASX: WOTCA) WPEL Westpac Private Equity Limited UTA Utilities Trust of Australia 37