Funds up at Challenger, Perpetual and Platinum

Improving investment sentiment and equity market gains are boosting funds under management.

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Financial services provider Challenger (ASX: CGF) has reported an impressive 31% increase to $46.1 billion in total assets and funds under management (FUM) for the 12 months to 30 September 2013. On a quarterly basis, the September quarter rise was 3%.

Life annuity sales — which are tipped to be an important driver of future growth for Challenger — were $732 million for the September quarter, an increase of 31% of the previous corresponding period. The growth in FUM led to research house Rainmaker ranking Challenger the seventh largest Australian investment manager, up from ninth previously.

It was similarly pleasing news for shareholders at fund manager Perpetual (ASX: PPT), which updated the market earlier in the week with its FUM for the first quarter. Perpetual announced FUM as of 30 September of $27.8 billion, a rise of $2.5 billion over the quarter. As stated by CEO Geoff Lloyd, “it is pleasing to be able to report our first quarter of net inflows in more than four years.” It’s a great turnaround for Perpetual and one shareholders will be hoping management can build on going forward.

Meanwhile Platinum Asset Management (ASX: PTM), which provides a monthly update to the market, earlier reported funds under management for September of $20.735 billion. In comparison, at the end of June FUM stood at $19.764 billion which implies a rise of 5% over the quarter.

Foolish takeaway

With a number of financial services firms likely to report their FUM levels in the upcoming weeks, investors can best position themselves to benefit from FUM growth by identifying firms whose earnings should enjoy strong leverage to higher levels of FUM. While many financial service firms enjoy some leverage to higher FUM and buoyant equity markets, the lean structure of ‘pure play’ fund managers provides the greatest leverage.

Firms operating well above their fixed cost base generally have plenty of free cash flow that they can return to shareholders in the form of dividends. Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Tim McArthur owns shares in Perpetual.

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