Perpetual’s transformation is on track

Since dumping former chief executive Chris Ryan in February 2012, Perpetual  (ASX: PPT) has embarked on a radical transformation plan, slashing costs and outsourcing its IT function as part of a strategic review aimed for completion in 2015.

For the three months ended 30 June 2013, total FUM decreased 2.7% from $26 billion to $25.3 billion. Net fund outflows were $0.5 billion on top of a $0.2 billion decrease that the group attributed to a lower domestic equity market. Year-on-year though, FUM was up 11.9% or $2.7 billion from $22.6 billion.

The share price has rallied over 100% from the lows of the previous CEO’s tenure, reflecting improved market conditions, sentiment, and some strong fund performance. The group is also placing much emphasis on the results of its transformation plan.

However, one fact neatly illustrates the recent erosion of the group’s reputational advantage. This July, rival asset manager Magellan Financial Group  (ASX: MFG) overtook Perpetual in terms of size by market capitalization.

Foolish takeaway

Perpetual’s core business is asset management and its success remains closely aligned to equity markets. Over recent years, its Achilles’ heel has been net fund outflows. Turning this around will depend on fund performance and market sentiment – positive alignments here should support the recent revival.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.

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