Perpetual boss Rob Adams sees tough year ahead for active asset managers
Perpetual managing director Rob Adams says the year will be difficult for active asset managers as spooked investors pull funds.
Perpetual managing director Rob Adams says the year will be difficult for active asset managers as spooked investors pull funds.
But Mr Adams said the merger of Perpetual and Pendal – a move finalised on Monday – would give the group “day one benefits” with better global distribution.
“All of a sudden, we have doubled the distribution profile for both businesses by bringing the distribution teams together,” Mr Adams said in an interview marking the finalisation of the deal.
“Both businesses were very focused on ESG investing but as one organisation we are much more of a force in a global context. As a larger organisation, our financial wherewithal is improved because we’re driving a far greater amount of revenue and far greater profitability. We’re therefore able to invest in our businesses for growth in a stronger way.”
While Perpetual will keep the Pendal brand, the finalisation of a troubled acquisition ends the independent management of a fund manager that listed on the ASX as BT Investment Management in 2007 – majority-owned by Westpac. It changed its name to Pendal in 2018 and Westpac sold its final holding in 2020.
The acquisition is expected to save $60m in costs annually, but Mr Adams said it had “never been a transaction that was driven by those cost synergies”. He said: “This transaction is driven by the fact that bringing these two businesses together better positions each of those businesses as one to manage our asset management businesses in a more competitive way, in a way we can invest in our businesses more.”
The merger brings together a business in Pendal that managed $104bn across its own brand and overseas subsidiaries – Britain’s JO Hambro and US-based Thompson, Siegel & Walmsley – and Perpetual’s $93.7bn in assets under management through several of its own brands including Trillium and Barrow Hanley.
On Friday, Perpetual disclosed that $1.2bn had been pulled from funds under management in the December quarter, but that 98 per cent of Pendal clients by revenue had signed on to bring their funds into the combined group.
A strong performance pushed assets under management at Perpetual up 4 per cent over the prior period – the three months to the end of September – and came in at $93.7bn on December 31.
After a tumultuous year for fund managers – with significant outflows at local operators – Mr Adams said on Monday he expected conditions to continue.
“We’ve got inflationary fears, which is dominating the market’s thinking and we’re still in a cycle of interest rate increases from central banks led by the (Federal Reserve in the US),” he said. “That market uncertainty has created a backdrop of risk-off to some extent and that has been one of the largest factors that have driven outflows, in particular in the US.”
Mr Adams added: “I think the headwinds for asset management are pretty difficult for any of the active asset managers to come before. To be in a stronger position by bringing these organisations together, to be in a better position to be able to manage for those headwinds and strive for growth … its an exciting moment.”
Pendal shareholders on Monday received $1.65 for every share owned – less a 3.5c dividend paid in December – and one Perpetual share for every seven Pendal shares. A debt facility will fund the $619m in cash paid to Pendal investors.
Perpetual on Monday said it expected underlying profit after tax for the six months to December 31 to come in at between $65m and $70m. Two Pendal directors – Kathryn Matthews and Christopher Jones – will join the board.
Perpetual chair Tony D’Aloisio said: “Kathryn and Christopher bring valuable global asset management expertise and their (Pendal) knowledge will be invaluable as we integrate the businesses, while also complementing the knowledge and skills of our existing experienced directors.”
Some brokers have increased their profit expectations following Perpetual’s market update on Friday. CLSA analyst Ed Henning said he forecast underlying profits of $68.2m and said Perpetual remained “our preferred pick in the wealth management sector”. “The asset management division funds performance broadly remains positive and markets are up in January to date,” he told clients.
The plan to bring together the Perpetual and Pendal businesses almost came unstuck in November after ASX-listed Regal Partners and its private equity partner, BPEA EQT, made a $33-a-share offer in a bid to acquire Perpetual.
That sent Pendal to court in a bid to force Perpetual to complete the transaction, with the latter attempting to stall the process. At the time, UBS said the market was implying a 20 per cent change the transaction would occur.
The Perpetual and Pendal deal is one of the largest in Australian asset management in more than two decades, eclipsed only by Mitsubishi UFJ Trust and Banking’s $4bn acquisition of Colonial First State Global Asset Management, National Australia Bank’s buy of MLC and Commonwealth Bank’s initial buy of Colonial in 2000.
Perpetual closed on Monday at $26.73.
