Pendal Group CEO Nick Good sees better times ahead for active fund managers

Pendal Group CEO Nick Good sees a better operating environment for active fund managers, as shrinking central bank liquidity has removed a pillar of support for passive funds.

Pendal CEO Nick Good: ‘Unfortunately, active managers have had a pretty torrid time this year.’ Picture: Britta Campion

Pendal Group chief executive Nick Good sees a better operating environment for active fund managers, as shrinking central bank liquidity has removed a pillar of support for passive funds.

“Unfortunately, active managers have had a pretty torrid time this year,” he said.

“Our performance hasn’t been as high as it has been in most years, but it’s still been good, and our relative performance has been very good and our long-term performance remains excellent.

“You would think this is when active management would outperform, but it has not been easy.”

It came as Pendal Group reported a 13.5 per cent fall in net profit after tax to due to the impact of seed investment gains in 2021 reversing in the current year as global equity markets declined.

Underlying net profit after tax rose 17.5 per cent to $194.2, about 3 per cent above estimates.

Operating profit of $226.5m was slightly better than expected, with stronger-than-expected revenue and lower-than-expected costs a “good result given revenue pressures” in the industry, UBS said. Earnings per share for the year increased 5 per cent to 50.7c a share from 48.2c in the year prior.

Funds under management fell 25 per cent to $104.5bn, down from $139.2bn in 2021, impacted by a weaker market environment and net outflows of $14bn, with all regions adversely affected.

The group’s operating profit margin increased 1 per cent to 36 per cent, supported by its acquisition of US-based value oriented investment manager Thompson, Siegel and Walmsley in 2021, as well as tighter cost management in response to difficult trading conditions. “This year has been tough for markets and global investor confidence alike,” Mr Good said. “Against this backdrop, however, Pendal produced a solid 2022 financial result.”

A fully-franked final dividend of 3.5c per share was declared, paid on December 15.

The fund manager said it was a solid result in a “challenging market environment”.

Pendal said it is focused on “managing costs and optimising short-term results while ensuring we remain ready to take advantage of a market upturn”.

A proposed $2.7bn acquisition by Perpetual remained on track for completion in January 2023, with the board recommending shareholders vote in favour of the scheme.

“We’ve predominantly just been prudent,” Mr Good said.

“We haven’t slashed and burned. We’ve continued to invest in some key initiatives – the migration of Northern Trust, the exit of Westpac, the build-out in Continental Europe and upgrading our marketing team. But then we’ve been thoughtful about where we can trim back.

“We had planned to overhaul and consolidate our CRM (customer relationship management) systems through the year, but we decided we could make a lot of tactical adjustments to improve the quality of our CRM and we could push that whole thing off a little bit. It wasn’t critical.”

Amid heightened turnover in the industry, Mr Good said Pendal’s fund manager headcount rose slightly. On the market outlook, he pointed to research showing the cash level among fund managers was at its highest point in decades, and expectations of global recession were at the highest on record.

“Broad investor sentiment has been very cautious,” he said. “We’ve been very much focused on trying to engage with our clients to make sure they understand how funds perform and what they can expect during this period.”

Regal Partners and Baring Private Equity Asia this week launched a $1.7bn bid for Perpetual.

Pendal shares closed down 0.2 per cent at $4.51.