Pendal to catch responsible investing wave, profit slumps

Pendal, formerly BT, flags a shift in strategy after a 25pc slump in profit and an 8pc drop in funds under management.

Emilio Gonzalez, Group Chief Executive Officer of Pendal Group, formerly BT Investment Management. Picture: Hollie Adams

Pendal shares were battered in Wednesday’s session after the wealth manager posted a 25 per cent slump in full-year profit and flagged that costs are set to rise 10 per cent this year as it pursues a strategy to expand its responsible investment capabilities.

For the 12 months through September, Pendal’s net profit fell to $116.4m, down from $154.5m. The steep decline was driven by mark-to-market movements in its seed investments, or new funds, and was well below the $130m analysts expected.

Funds under management dropped to $92.4bn, from $100.4bn the previous year, as investors yanked $3.3bn from European investments and outflows from Westpac’s book topped $2.6bn.

Unfavourable foreign currency movements of $2.3bn contributed to the drop in funds under management, as the US dollar and British pound weakened against the Aussie dollar.

Operating revenue fell 3 per cent to $474.8m, while expenses rose 3 per cent to $298.5m. Base management fees fell 5 per cent to $458.1m, while performance fees more than doubled to $13.4m.

As the wealth manager scrambles to arrest the decline in funds under management and improve its investment performance, it is pursuing a strategy to take advantage of the shift toward responsible investing.

“I‘ve been in markets for 30 years, and one thing I’ve learned is that if you’re in a strong position, you’ve got no debt, a strong balance sheet, good cash flow, and the opportunity to position yourself in a period of volatility and uncertainty, don’t miss it. Don’t waste a crisis,” Pendal chief executive Emilio Gonzalez said.

“What we’re doing here during this period is investing in new teams, new products, upskilling our operating system to create efficiencies down the track.

“So as things improve, we’re already on the right momentum. The investments we’re making will ensure that we come out of this somewhere down the track, in a much stronger position. And so we’re prepared to invest now, despite the uncertainty.”

Pendal’s multi-year strategy will see it expand its environmental, social, and corporate governance product line, improve its technology and increase its global distribution footprint in a move that will push its fixed costs 8-10 per cent higher this year.

“We believe this strategy will deliver a more cost effective model and increase funds under management by around 50 per cent by fiscal 2025,” it said.

Looking further ahead, Mr Gonzalez said fixed costs would only rise in subsequent years if it added to the already planned investments.

The COVID-19 pandemic had accelerated a number of secular trends in the global asset management industry and highlighted the importance of environmental, social, and corporate governance (ESG) factors affecting the sustainability of businesses, he said.

“Pendal has already made progress in all of these areas and recognises the need to increase the pace of investment in order to position the company to take advantage of the opportunities inherent in these trends and deliver long-term sustainable funds under management growth.

“The areas where we see the most potential are product development, particularly impact and ESG, improved data and technology capabilities and increasing our global distribution footprint.”

As at September 30, $3bn of its funds under management were in responsible investments.

Morningstar analyst Shaun Ler said Pendal’s result was positive overall.

“Despite having to incur some expenses in the near term, these are necessary to drive growth. Importantly, the business is showing clear signs of recovery. Flows are improving and more of its funds are sitting on top quartile performances,” Mr Ler said.

Pendal declared a 22c a share final dividend, 10 per cent franked, for a full-year payout of 37c.

Pendal shares dropped 8 per cent to $6.34.