Morningstar has warned that the reputational damage done to both advisers and dealer groups as a result of the royal commission will reduce fund flows to Pendal Group.
ASX-listed Pendal posted a 26.6 per cent decline in its net profit after tax (NPAT) for the first half of fiscal 2019. In an analyst report into the stock, published this week, Morningstar said the disappointing average FUM decline, lower base management and performance fees, have led the research house to reduce its EPS forecast for fiscal 2019 from $0.61 to $0.53.
“The major fall in global equity markets in the first quarter of fiscal 2019 prompted investors to exit risky assets, leading to net outflows, especially in its European equity strategies,” Morningstar said.
The researcher also expects fund inflows into Australian strategies will continue to suffer from ongoing structural change in Australia’s financial advice industry following the Hayne royal commission.
“The reputational damage done to Australian financial advisers generally and major Australian adviser dealer groups focusing on retaining and remediating customers as opposed to writing new business is likely to reduce the fund flows from this channel,” Morningstar said.
Pendal Group has copped a hit to its profit for the half year ending 31 March, with its NPAT coming to $84.5 million, down 26 per cent from the prior corresponding period (PCP).
The company cited “significantly lower performance fees” in a volatile global market for the fall in profit. Performance fees were 91 per cent lower at $4.4 million, compared with $47.6 million in the PCP.
The volatility, “combined with Brexit uncertainty resulted in cautious investor sentiment, particularly on Europe and subdued industry flows in the region”, Pendal said.
It also looked to US rate policy, tightening financial conditions and a deepening concern regarding economic growth as causes of pressure on equity markets, although Pendal noted the market has somewhat recovered during the March quarter.
Funds under management (FUM) closed at $100.9 billion, down $0.7 billion for the half, which Pendal said was led by lower market levels and partially offset by the lower Australian dollar and strong inflows into cash and fixed income strategies.
Average FUM fell by 1 per cent from the PCP to $97.4 billion.
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