In its full year result, listed fund manager Australian Ethical has reported an underlying profit of $5 million (up 18 per cent on the prior year) and group funds under management of $2.82 billion (up 31 per cent) as at 30 June 2018.
Net inflows for the fund manager were $519 million, up 14 per cent on the prior year. Overall revenues for the group were $36 million (up 27 per cent).
The healthy result is largely down to Australian Ethical’s superannuation membership growth, which was up 17 per cent to 41,518 to 30 June 2018 – much of which is attributable to the firm’s successful social media strategy.
However, the firm also saw its operating expenses rise in line with revenues. Operating expenses were up 28 per cent year-on-year to $28.6 million.
Commenting on the result, Australian Ethical chief financial officer Mark Simons said the increased expenses reflected increased headcount over the past two years along with a “strategic investment in marketing”.
Mr Simons said the fund manager – which was founded in 1986 but has seen its share price more than triple in the past five years – is still in its “growth phase” and is developing scale.
Australian Ethical chief executive Phil Vernon said the company’s growth is likely to level out in coming years.
“Over the past three years we’ve had a quite extraordinary increase in our rate of growth. It will plateau – it’s not going to continue at the same rate of growth,” he said.
The fund manager has also been working on reducing its fees. Mr Vernon told the Australian Ethical AGM in October 2017 that his aim was to be in the 75th percentile of the super fund’s MySuper peer group within the “medium term”.
“We have done a lot of heavy lifting on the super fund [fee] and we’re happy with where the super fund is now. It’s overshot it a little bit – it’s a little bit less than the 76th percentile,” he said.
“Moving forward, though, we’re probably turning our attention to our managed fund [fees] now,” Mr Vernon said – although reductions for some options in the super fund are planned.
Mr Simons said Australian Ethical would be announcing reductions in some of its managed fund fees in upcoming PDSs in 2018–19.
The growth in the fund manager’s wholesale fund is also reducing the overall group’s fee level, said Mr Vernon.
“A lot of the growth in our managed funds is actually coming from our wholesale products, so the actual product mix over time is effecting a gradual reduction in the average margin itself,” he said.
Mr Vernon noted that an “increasing awareness of sustainability concerns among consumers and investors” has brought with it greater competition in the responsible investment sector.
“We welcome this as it is core to our beliefs that all funds consider their social and environmental impact,” he said.
“However, we remain confident of the uniqueness of our offering, particularly against the backdrop of the royal commission into financial services,” Mr Vernon said.
