Going for gold: Is GDG the next HUB24?

The success of HUB24 (ASX: HUB), Netwealth (ASX: NWL) and Pinnacle (ASX: PNI) has demonstrated that financial services firms in structural growth markets can sustain long periods of high growth. We believe Generation Development Group (ASX: GDG) exhibits many of the same characteristics and is on a trajectory to earn a place amongst Australia’s most successful financial platforms.

Under the leadership of Executive Chair, Rob Coome; three-time Olympic champion, CEO Grant Hackett; and CFO Terrence Wong, GDG has transformed into a diversified product and distribution platform across specialised, but fast-growing markets.

The company is now positioned to capitalise on multiple growth drivers, including potential favourable legislative changes in investment bonds, the increasing structural shift toward managed accounts and demographic trends supporting demand for retirement income solutions.

A changing superannuation landscape

Changes in legislation and demographics have historically created opportunities for agile financial players with an edge in product design and distribution. ‘Old technologies’ like investment bonds, eclipsed in recent decades by superannuation and managed investment schemes, are now undergoing a quiet renaissance.

Investment bonds combine features of an investment product and life insurance policy, providing both investment flexibility alongside tax and estate planning advantages. Investment bonds are taxed internally at the corporate tax rate of 30% and are personal tax-free on withdrawal if held for longer than 10 years, in addition to being considered non-estate assets for estate planning purposes.

The proposed Division 296 reforms, which seek to tax unrealised gains on superannuation balances above $3m, are prompting a reassessment of tax effective wealth management strategies. Within this context, investment bonds are increasingly recognised as a complementary wealth management vehicle to superannuation, offering tax advantages and flexibility for estate planning and intergenerational wealth transfer.

We believe the opportunity is significant. An estimated $224bn sits in superannuation balances above the proposed unindexed cap of $3m(1), in addition to the billions in member-directed superannuation contributions each year. Even low-single-digit migration presents a material growth opportunity to the $4bn in investment bonds GDG manages already.

The momentum is already evident, with gross inflows up 52% year-to-date, and record inflows recorded in the June, September, and December 2024 quarters. GDG is effectively facilitating market expansion as it grows, capturing 58% of industry inflows over the last 12-months with only 33% market share (Figure 1).

We anticipate momentum to increase further should the proposed tax changes be enacted, as capital from additional superannuation contributions may be redirected to alternative vehicles, including investment bonds.

Figure 1: GDG leads on market share and inflows

Beyond proposed tax reforms, the Retirement Income Covenant is set to further reshape superannuation, placing new obligations on trustees to develop and implement strategies aimed at maximising expected retirement income for members. This will necessitate greater product and service innovation in a system that is well designed for asset accumulation but relatively underdeveloped for de-accumulation.

For instance, despite longevity risk ranking as a retiree's biggest concern, lifetime income solutions represent only 1% of retirement assets today. Assets in the pension phase are also expected to grow to more than $3 trillion by 2041(2).

To capitalise on the opportunity, GDG has formed a strategic alliance with BlackRock, one of the largest managers of assets globally, to co-develop retirement income solutions in Australia. 

BlackRock has also acquired a minority equity interest in the company, reflecting confidence in the company and its strategy.

Taking managed accounts mainstream

Managed accounts, a solution for advisers to implement portfolios at scale, have rapidly emerged as a core mechanism of delivering wealth advice. The IMAP Millman Census report anticipates managed accounts to double to over $470bn by 2030, following a tripling of adviser adoption to ~60% over the last decade.

GDG’s acquisition of Evidentia and Lonsec, two leading managed account brands, offers a broad service proposition to licensees, practices and advisers across customised and ready-made solutions.

GDG now commands an industry leading position in managed accounts that is approximately 3-4x the size of their nearest competitors. While barriers to entry are low, barriers to achieving scale are high. Market leadership provides the scale to reinvest in product development, practice management, adviser engagement and data analytics ahead of competitors.

Managed account funds under management (FUM) growth across Evidentia and Lonsec over the past year has grown approximately double the industry’s 23% CAGR. 

There is considerable room for future growth given that the market is highly fragmented, with the Top 5players accounting for ~20% share(3).

While we do not expect growth to be linear, as the timing of flows can be lumpy, HUB24 has demonstrated that a compelling value proposition and scale advantages compound over time.

Figure 2: HUB24 models the potential for GDG in new inflows

The outlook for GDG

Tailwinds across GDG’s product verticals continue to strengthen. Over the medium-term, we believe FUM growth can compound at around a 20% and +30% CAGR in investment bonds and managed accounts, respectively. This growth is underpinned by net inflows that are top-quartile relative to listed peers (figure 3).

Recent performance and a strong 1H25 result ahead of consensus expectations have driven a significant re-rating. GDG’s forward 12-month P/E has expanded from ~30x to 50x over the past year, implying a 1.1x PEG ratio (price to earnings growth) on consensus 3-year EPS growth. This is before including potential synergies following the Evidentia acquisition and assigning little to no value to the emerging lifetime income segment.

Figure 3: Value follows flows

For comparison, specialist platforms like HUB24 and Netwealth trade on PEG ratios of around +2.3x.

The past 12 months have been transformational for GDG, and there are multiple organic growth opportunities positioning the business to outperform expectations.

For a capital-light business with platform unit economics and a highly motivated management team, we believe GDG is on the cusp of a multi-year earnings growth cycle that has the company challenging for gold.

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