Financial Services: Fund managers - mark to market

About the author:

Scott Murdoch
Author name:
By Scott Murdoch
Job title:
Date posted:
09 July 2020, 9:50 AM
Sectors Covered:
Contractors/Developers, Diversified Financials

  • We mark-to-market forecasts for MFG, PDL and PNI.
  • Market moves in 4QFY20 include: MSCI World up 17.7%; US S&P500 up 20%; UK FTSE100 up 8.8%; EU Stoxx50 up 9%; and the ASX200 index up 16.2%.
  • We have a Hold recommendation on Magellan (ASX:MFG) (based on valuation) and Pendal (ASX:PDL) (based on investment performance / flows outlook). We retain an Add recommendation on Pinnacle Investment (ASX:PNI) as we view the business as having solid structural growth over the next five years, driven by the maturing profile of existing affiliates and funds.

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4QFY20 market recovery

Major market performance in 4QFY20 (June-20) includes:MSCI World up 17.7%; US S&P500 up 20%; UK FTSE100 up 8.8%; and the ASX200 index up 16.2%.

Against currencies, the AUD strengthened ~12.5% vs USD; ~12.5% vs GBP and ~10.5% vs Euro.

Magellan (MFG): Hold

MFG ended FY20 with A$97.18bn FUM: down 1.3% for the month; flat for the six months; and up 12% for the year.

FY20 average FUM was A$95.5bn, up 26% on average FY19. MFG starts FY21 with ~1.8% higher FUM versus FY20 average.

Net flows over 2H20 comprised: Retail: 3Q outflow A$87m, 4Q inflow A$576m; and Institutional: 3Q inflow A$1.4bn and 4Q inflow A$378m.

MFG expects to book a FY20 performance fee of A$81m, being 1H20 A$41.6m and 2H20 ~A$39.5m.

We view MFG as fair value (~26x FY21F PE and ~3.5% yield), but view the company and earnings profile as high quality.

Market direction is the largest swing factor to near-term forecasts, but we expect MFG to provide more detail on its Retirement Income product and potential unlisted/investment banking opportunity with the FY20 result (12 August).

Pendal (PDL): Hold

We estimate PDL's June-20 FUM at A$92.5bn, up ~7.6% for the quarter.

Drivers include:

  1. Australian equities up ~14% for the quarter
  2. JOHCM fund movements, broadly being: Global ~23%, UK ~11%, EU ~20%
  3. A negative currency offset with the AUD strengthening ~12.5%. JOHCM flows will be a focus given the volatile conditions and investment underperformance of several larger UK/EU funds over the past 12 months (we expect to see net outflows of ~A$1bn).

Whilst PDL's valuation is undemanding, we are looking for an improvement in investment performance in key UK/EU funds which will improve the outlook for flows.

We maintain our Hold recommendation.

Pinnacle Investment (PNI): Add

PNI reported group FUM at A$57bn as at May-20, up ~8.3% for the quarter (from A$52.6bn as at Mar-20) and down 7.5% for the half (A$61.6bn as at Dec-19).

We expect June-20 FUM to close slightly higher (equity markets up~2.5% for the month).

Recent commentary from PNI has included:

  1. Net flows have been modest in both retail and institutional channels over 2H20;
  2. PNI's typical significant 2H earnings skew is not expected due to Covid FUM impacts, a lower Palisade performance fee and performance based distribution revenue “restrained”.

PNI has also announced its gross performance fee (group level) at A$25.8m, with a A$6.7m contribution to PNI. Performance fee contribution came from Hyperion, MCP, Palisades, Firetrail and Coolabah.

The standout investment performance was delivered by Hyperion (across all funds), with Hyperion Global delivering ~16.5% outperformance for the six months (which we estimate contributed ~A$10m of the performance fee).

We maintain an Add recommendation.

More information

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.


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