Australia | Jan 15 2020
Brokers suspect fund managers will endure another lacklustre performance over 2020 with Pendal Group indicating only marginal gains in FUM in the first quarter amid subdued performance fees.
-JO Hambro reports its ninth consecutive quarter of outflows
-Improved sentiment surrounding Brexit offset outflows from Europe
-Investment performance and flows need to improve for earnings leverage to emerge at Pendal Group
By Eva Brocklehurst
The soft performance of many asset managers in Australia is reflected in the first quarter update by Pendal Group ((PDL)), where only marginal gains were made in funds under management (FUM) and performance fees remain subdued.
The outcome was below Credit Suisse estimates and the broker expects the lacklustre performance across the sector will continue in 2020. Pendal Group reported funds under management of $101.4bn as of the end of December 2019, up 1% on the prior quarter.
Ord Minnett assesses the near-term outlook is relatively benign and believes the current share price presents an attractive risk/reward balance relative to the other ASX-listed asset managers. The Australian business procured net outflows of -$500m in the quarter, with outflows in equity strategies unable to be offset by net inflows in cash and fixed income strategies.
Net fund flows were the key area of disappointment for UBS, with -$1.3bn in net outflows spread across both PDL Australia and its higher margin JO Hambro business. Historically, the JO Hambro division has been the driver of funds flows for the company but reported its ninth consecutive quarter of outflows, largely affected by macro economic factors and a weakening underlying fund performance.
JO Hambro ended the period with $53.1bn in funds under management, up 9.7%, with a positive performance being offset by a negative FX impact and net outflows of -$800m. Despite this there were benefits from inflows into UK equity products as sentiment surrounding Brexit appeared to improve, offsetting ongoing outflows from European equivalents.
Citi cautions against extrapolating this UK improvement in the first quarter, as industry data have indicated a tough start to the second quarter. Moreover, the JO Hambro UK Equity Income fund has suffered outflows of -US$700m in January to date.
The rotation away from European equities is continuing unabated and the broker was disappointed that the traditional channel for inflows, US pooled funds, posted the second quarterly outflow in four years.