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M&G posts record profit as Europe sale boom offsets weak UK

M&G posts record profit as Europe sale boom offsets weak UK

M&G Investments delivered a record profit of £395 million in 2013 as its strength in Europe offset the continued slowdown in its UK business.

The 23% increase on 2012's profits was fuelled by net retail sales of £7.3 billion with its M&G Optimal Income and Global Dividend funds continuing to be among the best sellers. It was the fourth time in five years flows breached the £7 billion mark.

Meanwhile its institutional business registered an inflow of £2.1 billion, mainly thanks to increased sales of alternative credit and leveraged loan products. This is a significant fall from the £9 billion 2012 inflow, which was inflated by a single 'low-margin' mandate worth £7.6 billion.

The firm highlighted that in the three years to 31 December, 21 retail funds, representing approximately 69% of this segment's funds under management delivered either first or second quartile performance.

Funds sales combined with a rises of 15% and 8% in equity and bond markets respectively, drove funds under management 7% higher to £244 billion.

UK slowdown, Europe booms

M&G's UK arm overshadowed this growth after outflows of £0.7 billion. The group said this 'largely' reflects the decision to stem flows into its two leading corporate bonds funds, managed by Richard Woolnough, in 2012 to protect performance.

This was offset by popularity in Europe, where net retail inflows hit a record £7.6 billion, a 46% improvement on the previous year.

European retail funds under management now total £23.7 billion - a gain of 64%, and accounted for 35% of total funds under management at the end of 2013 versus 26% at the end of 2012.

The global distribution push at the firm in recent years has seen its retail funds registered for sale in 20 jurisdictions, with the firm operating in 18 countries.

Fund pricing

At the end of last year, M&G boss Michael McLintock (pictured) described fund price wars as 'a road to hell' saying M&G could withstand the pressure platforms to drive down fees.

It has since emerged the firm is represented on Hargreaves Wealth + list of 27 discounted funds through Tom Dobell's M&G Recovery fund, which has cut its standard annual charge from 0.75% to 0.65% to be on the platform.

However, in today's results, M&G indicated it is unlikely to make sweeping changes to its pricing structures.

'It is still too early to offer a definitive assessment of the impact of the retail distribution review, although we do expect more focus in the market on price. In the past few weeks, platforms have begun to disclose their own service pricing and any special fund fees agreed with asset managers,' the firm told the market.

'Those managers with strong brands and a reputation for investment performance will be expected to better withstand any such pressures on asset management fees.'

Outlook

After a period of strong sales M&G said it expects business to return to 'less elevated' levels in 2014.

Yet it still confident it can build 2013's record-breaking profit.

'The business remains focused on delivering excellent investment performance and service to its clients while continuing to seek diversification by both asset class and geography,' it said.

'It is the commercialisation of this investment performance through the acquisition of new fund flows that produces attractive profits and cash flow for the group.'

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