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Pendal looks to ESG for growth

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Despite COVID dragging its profit and funds under management (FUM), Pendal Group is targeting a 50 per cent surge in FUM over the next five years, expecting to pull in investors with a new strategy focusing on ESG and global expansion.

The effects of COVID, ongoing trade wars and dampened client confidence and flows weighed on Pendal for the 2020 financial year, as it copped a 10 per cent drop in profit. 

The company recorded a cash net profit after tax of $146.8 million for the full year, while its average funds under management (FUM) during the period was $94.8 billion, a 4 per cent decrease from FY19. 

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Closing FUM as at 30 September was $92.4 billion, an 8 per cent decrease from the prior year, as net outflows for the year came to $6.5 billion, alongside dragged foreign currency movements of $2.3 billion as the US dollar and British pound weakened against the Australian dollar. 

Investors sought to reduce their exposure to the European region over concerns around Brexit and investment underperformance, redeeming $3.3 billion from Pendal’s European strategies.

Further, there had been outflows of $2.6 billion from the run-off of the Westpac legacy book as well as the transitioning of corporate superannuation portfolios during the year.

Operating revenue also fell by 3 per cent to $474.8 million although the group’s performance fees had more than doubled to $13.4 million, from its prior $5.9 million in FY19 – led by a strong performance in Australian equities. 

Chief executive Emilio Gonzalez said it had been a “tumultuous year by any measure”. 

“Of course, the COVID-19 global pandemic has had the most profound impact along with the escalation of the US/China trade war and continued uncertainty surrounding Brexit,” Mr Gonzalez said.

“Our diversification and robust business model, supported by our financial strength, has proven resilient in this most challenging of years.”

The company’s operating expenses of $298.5 million were 3 per cent higher, reflecting investments into the global executive team and the group’s data management and operating platform.

Cash earnings per share were down by 11 per cent to 45.5 cents per share. The board declared a final dividend of 22 cents per share, bringing the full-year payout to 37 cents, an 18 per cent plunge from the year before.  

Plans for growth

Moving past the last year, Pendal has targeted a 50 per cent in FUM during the next five years, with its strategy including a focus on ESG and impact investment, as well as boosted technology capabilities and increased global distribution. 

The company has signalled plans to grow its responsible investment business, under its Regnan brand. As at 30 September, the group had around $3 billion in FUM in dedicated responsible investment strategies.

Mr Gonzalez said the global COVID crisis has highlighted the importance of ESG factors alongside a need to broaden distribution channels and to reduce costs in the operating model. 

“Pendal has already made progress in all of these areas and recognises the need to increase the pace of investment in order to position the company to take advantage of the opportunities inherent in these trends and deliver long-term sustainable FUM growth,” he commented.

“The areas where we see the most potential are product development, particularly impact and ESG, improved data and technology capabilities and increasing our global distribution footprint. 

“Executing on this strategy will require a multi-year investment and our fixed costs for the 2021 financial year are expected to increase by 8-10 per cent, approximately $12-16 million. We believe the strategy will deliver a more cost effective model and increase FUM by around 50 per cent by FY25.”

During FY20, Pendal launched its new Regnan global equity impact team and a Regnan credit impact trust as well as enhancing its Pendal ethical share strategy.

 

Pendal looks to ESG for growth
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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