Worst quarter for active funds in 15 years, Perpetual says amid $4.3bn client funds exit

Perpetual chief executive Rob Adams has revealed a net $4.3bn in customer funds exited the business during a torrid quarter.

Perpetual chief executive Rob Adams said the December quarter was the worst for active asset managers globally in 15 years.

The December quarter was the “worst” for active managers globally in 15 years, Perpetual chief executive Rob Adams said as the listed fund manager revealed a net $4.3bn in customer funds exited its business in the last trimester of 2023.

Active fund managers are facing relentless competition from low-cost exchange-traded funds globally, and in Australia also from their former clients, superannuation funds, squeezing their fees and profitability at a time of rising costs.

“The December quarter was a difficult period for active asset managers globally, being the worst quarter in 15 years for active equity fund flows,” Mr Adams said.

The fund manager’s exposure to global equities saved the day, with market gains offsetting the withdrawals as well as a $7bn hit from adverse currency movements, and resulting in a modest one per cent increase in assets under management to $213.9bn.

That was a record for the company, reflecting the $110bn in assets under management of Pendal Group, which Perpetual acquired for $2.5bn in late 2022.

Shares in Perpetual, which in December rejected a $3bn takeover offer from Washington H Soul Pattinson, fell as much as 3.3 per cent following the update, before closing 2.1 per cent lower at $25.66.

In the update ahead of its interim results due on February 28, Perpetual also said it expected costs to grow “at the upper end” of its earlier guidance of between 27 per cent and 31 per cent in the 2024 financial year.

Expenses classified as significant items will total between $60m and $65m in the first half. Those were related to transaction and integration costs from its 2020 acquisition of former rival Pendal, as well as amortisation of acquired intangibles.

It had achieved more than 50 per cent of the $80m in annual synergies it is targeting by January 2025.

“The integration of Pendal Group has progressed well, with synergies tracking ahead of plan,” the company said.

In December, just hours before revealing its biggest shareholder Soul Pattinson had tabled a bid that included a spin out of its asset management arm from its corporate trust and wealth management business, Perpetual said it was, itself, assessing whether to split the businesses.

A progress update on that review will be provided when it announces its results next month, it said.

The outflows came despite 78 per cent of Perpetual’s investment strategies outperforming their benchmarks over the three-year time horizon, it said. Average AUM during the quarter was $210bn, down from $216bn in the September quarter, when the company saw $100m in inflows.

Among its various brands, only Barrow Hanley, 75 per cent of which it bought in 2020, booked $300m in net inflows. Exits dwarfed inflows during the quarter in all its other brands – J O Hambro, Pendal, Perpetual, Trillium and TSW.

J O Hambro, TSW and Pendal saw the largest flows with $1.7bn, $1.6bn, and $900m in net outflows, respectively. Perpetual and Trillium had $300m and $100m in net outflows respectively, which were offset by higher markets.

“Whilst the net outflows of $4.3bn in our asset management business was disappointing, it was pleasing to see our total AUM rise slightly to $213.9bn, highlighting the benefit of our exposure to global markets, as well as the resilience the business has through its exposure to various markets, currencies, and client types,” Mr Adams said.