Pendal blames volatility, subdued confidence, for profit slump

Shares in Pendal dived after the funds manager blamed market volatility for a plunge in profit.

Pendal chief executive Emilio Gonzalez. Pic: Hollie Adams

Shares in Pendal Group plunged 13 per cent on Thursday after the fund manager reported a tumble in first half net profit, blaming lower performance fees, market volatility and subdued investor confidence for the slump.

Pendal, formerly BT Investment Management, unveiled a net profit after tax of $69.6 million for the first half through to March, down 37 per cent on the prior comparative period.

Performance fee revenue plunged 90.8 per cent.

In an investor presentation, chief executive Emilio Gonzalez said current investor sentiment was strongly risk averse and that conditions in Europe and the UK were the worst since the global financial crisis.

“2018 was actually quite a tough year from an industry perspective and although markets rebounded in the March quarter there’s no indication that industry flows are returning,” Mr Gonzalez said.

“It’s only been in the last few weeks that we’ve seen some confidence return.”

Still, he said the company’s solid balance sheet put Pendal in a strong position.

“Despite the more difficult trading conditions, our strong balance sheet with no debt and good cash flow means the company is in a firm position to take advantage of opportunities to expand our capabilities and global presence, in line with our focused strategy around growth and diversification,” he said.

“We remain focused on expanding our investment and distribution capabilities, maintaining a disciplined approach to managing capacity and providing ongoing support to our investment talent through our investment-led culture and business model.”

For the second-half, funds under management opened higher than the average funds under management for the first-half, which slipped 1 per cent for the period to $97.4bn.

The company declared an interim dividend of 20 cents per share, 10 per cent franked, down from 22 cents last year.

Pendal said a volatile market, particularly in the December quarter, had hurt its first-half result, while industry flows had been negatively impacted by subdued investor confidence.

The company’s closing funds under management was at $100.9 billion at March 31, up 2 per cent on the first-half last year.

“Although the start of our financial year coincided with one of the most difficult periods for markets since the global financial crisis, our business attracted strong institutional flows into our Australian equities, cash and fixed interest strategies,” Mr Gonzalez said.

“This helped maintain our funds under management during this period where we saw outflows in our European and Asian equities.”

During the first half, Pendal established a presence on the United States west coast.

In March, the company moved to full ownership of Regnan, a ESG stewardship research adviser based in Australia.

“Regnan’s recognised expertise along with Pendal’s heritage in the ESG space, positions us well to expand in this growing segment of the market as leading stewards of capital and offers the opportunity to leverage this capability globally,” Mr Gonzalez said.