Perpetual profit falls but wealth manager eyes more takeovers

Cheap money and cashed-up investors will drive a rush of asset management M&A, says Perpetual’s Rob Adams.

Perpetual CEO Rob Adams. Picture: Supplied

A combination of cheap money and cashed-up investors looking for decent returns will prompt a rush in M&A activity in the asset management sector, according to Perpetual CEO and managing director Rob Adams.

Speaking to The Australian, Mr Adams said Perpetual remained acquisitive even after completing two major transactions in the past year, and is lined up to benefit from both a shift back to value investing and the ongoing ESG boom.

“I’m very keen (on further acquisitions). While I do want us to be very focused on bedding down both Trillium and Barrow Hanley, we’re not going to stop there.”

Perpetual announced the $54m acquisition of Boston-based ESG manager Trillium in January 2020 and completed the deal mid year.

In July it announced a move to buy 75 per cent of US-based asset manager Barrow Hanley, boosting its funds under management and adding 21 new strategies across asset classes and regions including the US, Europe and Asia. It completed the deal in November.

“The cost of money is cheap right now and we have investors who are cashed up. In particular, private equity has substantial cash positions and they need to deploy that capital,” Mr Adams said.

“I also think that the search for returns means people are going to extend themselves in different ways. And we‘ve seen that with some pension funds here in Australia, Canada, in particular, looking to buy not just public assets, but private assets as well.

“So I think it’s very likely that we’re in a heightened season of acquisition opportunities globally in asset management.”

While COVID-19 has made it harder to progress with acquisitions by eliminating the ability to travel, it hasn’t stopped the wealth manager from pursuing opportunities, he said.

As Perpetual pins its future on driving growth in its international asset management division, outflows are still plaguing its Australian business, pushing its assets under management down 16 per cent over the six months through December.

The wealth manager is in the process of “resetting the foundations” for its local asset management business but acknowledged the headwinds facing the sector, Mr Adams said.

“It’s a super tough sector: A lot of the super funds are insourcing core Australian equities right now; there’s been some movement towards passive management. It’s a super competitive environment; it’s a sector that has headwinds. And our relative investment performance in recent years as a value manager has been poor,” he admitted.

Australian equities would continue to be important for the asset manager, he said.

For its Australian business, Perpetual average assets under management in Australian equities fell 25 per cent on the prior corresponding period to $12.3bn in the first half, while global equities dropped 16 per cent to $1.1bn. But cash and fixed income rose 20 per cent to $9.2bn.

Handing down Perpetual’s first-half numbers on Thursday, Mr Adams said the wealth manager was staying true-to-label and making progress in executing its growth strategy.

For the six months through December, Perpetual posted a 43 per cent plunge in net profit on the prior corresponding period, to $29.2m, due to the outflows from its Australian business and costs associated with its acquisitions of Trillium and a 75 per cent interest in Barrow Hanley.

Perpetual shares fell on the news, closing down 6.2 per cent at $31.40.

Its underlying profit after tax, Perpetual’s preferred measure, was down 11 per cent to $52.6m as the Australian outflows and the impact of prior period distributions were partially offset by its international business and higher performance fees.

Operating revenue rose 10 per cent on the prior corresponding period to $280.6m, primarily driven by the newly formed international asset management division and the completed acquisitions.

But costs also rose, jumping 22 per cent, or $38m, to $208.5m as a result of the Trillium and Barrow Hanley transactions as well as higher variable remuneration.

Perpetual will pay a fully franked interim dividend of 84c per share, down from the $1.05 it paid out in the prior corresponding period. The dividend represents a payout ratio of 90 per cent.