Pendal shares rise after smaller than expected outflows in September quarter

Investors pile into Pendal, which is in the middle of a $2.5bn takeover from Perpetual, after booking a smaller than expected outflow in funds.

Takeover target Pendal rose more than 5 per cent as the company reported a smaller than expected outflow in funds under management for the September quarter to $104.5bn from $111bn in the June quarter.

Fund managers are exposed to falling markets and reduced confidence, and some had expected bigger outflows from Pendal.

The company is the fourth-largest by market capitalisation listed on the Australian Stock Exchange and is currently subject to a $2.5bn takeover offer by rival Perpetual.

Pendal chief executive Nick Good said the UK and Europe markets saw inflows and the company had benefited from the strong US dollar, but this was offset by outflows in the US and falling asset prices.

“The September quarter saw a continuation of strong market volatility, with rising energy prices and concerns about potential inflation induced recessions in major economies dominating investor sentiment,” Mr Good said in a statement. “In addition, ongoing geopolitical uncertainty led to the lowering of global growth expectations.”

The MSCI All Countries World Index (local currency) fell about five per cent during the September quarter.

In Australia, Pendal had outflows of $0.3bn (ex-cash) during the quarter, which included the sale of Westpac’s life insurance business in August 2022. The Europe and UK market had net inflows of $1.4bn due mostly to an investment from a UK institutional client in the Global Opportunities strategy, while in the US, there were outflows of $2.1bn.

Lonsec published reports on three Pendal funds last week, which rated the Pendal Short Term Income Security Fund as “Highly Recommended”, the Pendal Smaller Companies Fund as “Recommended” and the Pendal MicroCap Opportunities Fund as “Investment Grade.”

Pendal boss Nick Good said the UK and Europe markets saw inflows and the company benefited from the strong US dollar, but this was offset by outflows in the US and falling asset prices. Picture: Britta Campion/The Australian

Pendal shares rose as much as 6.4 per cent on Wednesday before closing up 5.5 per cent at $4.95. However they were still trading below the implied takeover offer price from Perpetual.

On Wednesday, Mr Good said the company is still on track to provide shareholders a Scheme Booklet for the takeover next month with a special meeting to vote on the transaction planned for December.

Historically mergers between fund managers have been fraught with risks and often end up with the some of two parts – in a funds under management sense – being half what they would have been had the companies remained separate.

Earlier this month IBISWorld industry analyst, Disha Jeswanth pointed out that when Perpetual and Pendal took over US fund managers Barrow Hanley, and TSW respectively there was outflows of 15 and 8 per cent respectively.

“In the past, asset manager mergers and acquisitions activity that banked on scale alone have lost revenue,” Ms Jeswanth said.

For existing Pendal shareholders, they will need to decide if they think the company’s prospects will be better as part of a combined business. Others considering a purchase of Pendal shares would need to consider both the stand-alone and combined prospects of the business, as well as the potential for an arbitrage opportunity.

Perpetual has offered $1.976 cash plus one share for every 7.5 Pendal shares as part of its takeover offer that has been agreed by both boards.