2019 CEO Survey: Rob Adams, Perpetual

Perpetual CEO Rob Adams

Every year The Australian’s John Durie asks some of the biggest names in Australian business five key questions about what’s coming in the year ahead.

Here, in his own words, is what Perpertual chief executive Rob Adams sees ahead in 2020.

You can read more from the CEO Survey.

How is your company affected by low-interest rates and what is needed to boost the economy?

We are not a highly leveraged company, so we aren’t directly impacted by low-interest rates. From a client perspective (and with a high proportion of them being retirees) we see this low-interest environment as a challenge and solving this investment challenge is one of the biggest issues facing our industry. The task of achieving reasonable rates of return with low levels of risk, which most retirees want, is actually very difficult from this starting point.

Extraordinarily low-interest rates have been associated with high valuations of almost every asset class and a massive build-up of debt, which makes our financial system that much more potentially brittle. Managing the downside risk of equities, particularly for retirees, is

crucial. Our conservative value approach generally performs well in those types of market environments.

For people who are approaching or already in retirement, it’s worth devising a strategy to ensure you don’t become a forced seller of equities when markets become cheap. Ideally, you want to be a buyer of equities at that point, which as an active value manager requires discipline.

In terms of stimulus for the economy, we have seen one of the weakest periods of annualised growth (2.9 per cent) since 2009. The government needs to think beyond the next election cycle, by establishing a blueprint to drive sustainable long-term growth, supported by policies to boost productivity and infrastructure projects designed to meet the needs of the ageing population and future generations.

What is the impact of government regulations on your company including those applying to the financial sector?

As a client-focused diversified financial services organisation, all three of our businesses are highly regulated. The rate and volume of regulatory change impacting the industry in recent years, and most notably following the royal commission, has reinforced the importance of governance, culture and accountability within the financial services industry.

Transparency around fee structures for investment products and the services we offer clients is fundamental within our Perpetual Investments and Perpetual Private business, as well as ensuring our financial advisers are appropriately experienced and educated in order to deliver the best possible advice for our clients.

On new investment vehicles and structures – the proposed introduction of the corporate collective investment vehicles (CCIVs) regime that will facilitate participation in the Asia

Region Funds Passport has longer-term potential to attract greater offshore investment, and which we believe presents opportunities for our Perpetual Corporate Trust business.

What percentage of company revenues are spent on research and development and how is your company using technology to improve performance?

Given the nature of our business, our R&D spend as a percentage of revenue has been relatively small, however, we strongly recognise the importance of technology as a facilitator of future growth. We are increasing technology spend across the business, adopting a cloud-first approach and investing in automation to deliver productivity gains, cybersecurity to protect our clients’ data, and digital analytics capabilities and solutions improve our clients’ digital experience. Specifically, in Perpetual Corporate Trust, we have invested in data analytics capabilities to deliver insights over $2.4 trillion of loan data to our clients in the financial services sector.

What are the three major policy issues facing the country and what should be done about them?

We would like to see the government (both sides) work to design policy to deliver long-term sustainable growth for all Australians.

● Demographics: we have an ageing population which will be an economic challenge for future generations. We need policies designed to support workers at all stages of their working life (ie re-training, re-entering, flexible arrangements) with the aim of lifting the participation rate.

● Climate change: we are on the record that we accept the science of climate change as a company. There is a need for government policy to support and incentivise sustainable businesses practices focused on reducing their environmental footprint, just as we do as a company. As an early adopter of the UN Principles for Responsible Investing, and a member of the Investor Group on Climate Change, our investment approach includes quality filters which consider how businesses manage their ESG risks.

● Education: our education system needs to be world-class so that it not only equips

the next generation with the appropriate skills but attracts students from overseas,

and partners with business to develop industry-leading research and innovation.

What are the major impediments to long-term growth facing your company and what can or is being done about them?

As noted above, the pace of regulatory change and findings from the royal commission has caused disruption in financial services. Our strategy is designed to take advantage of these changes by being bolder in what we do with our brand, having leadership positions in the markets in which we operate and by fostering a culture of innovation. Our strategic approach is to put our clients first in everything we do and earn their trust in every action, every day.

The Perpetual Private and Perpetual Corporate Trust businesses are well-positioned and are already starting to benefit from some of this dislocation. While retails flow into the wealth sector were negative post royal commission, in Perpetual Private we have had six consecutive years of positive flows and increased the number of financial advisers by more than 20 per cent in the past nine months. These advisers are attracted to our contemporary professional services model and high net worth client segmentation strategy. In our Perpetual Corporate Trust business, we have seen an increase in demand for our responsible entity business as more schemes outsource this important function to an independent entity.

As an active value manager, our Perpetual Investments business faces challenges including insourcing of asset management by industry superannuation funds and a prolonged economic cycle where growth momentum has won out over value. This has impacted performance and net flows. We have been managing client money in Australian equities for more than 50 years, and we know that this cycle, like all others, will change. When it does, we are confident that our investment style will deliver outperformance over time.

Our strategy to deliver sustained quality growth involves adding new and in-demand investment capabilities that are world-class and present opportunities both domestically and offshore. We have appointed a new Head of Distribution to ensure our distribution footprint is industry-leading and maximised.