The Perpetual Ltd (ASX: PPT) share price is down 2.4% to $34.60 this morning after the equities and financial advice business reported $1.8 billion in net outflows over the quarter to September 30, 2019. The loss was offset by $700 million in market appreciation to take net FUM $1.1 billion lower.
These kind of quarterly outflows are no joke for a funds management business with just $26.6 billion of FUM as at September quarter end. By comparison at the same time 10 years ago Perpetual’s funds under management was $29.3 billion.
September 2009 was not long after the bottom of the GFC and since then we’ve seen 10 relatively strong years of equity market appreciation, which make Perpetual’s performance all the more embarrassing.
Its latest CEO is taking a leaf out of the prior CEO’s playbook by looking to cut costs via redundancies, while also reportedly being actively looking at acquisitions to build out capacity in the international equities space.
Perpetual has reportedly lost FUM as industry super funds yank big mandates back in house on the basis this is more cost effective.
Moreover, the mediocre returns and widespread underperformance delivered on FUM by Perpetual will also be encouraging institutional investors to find another place for their huge pools of capital.
Historically average performance has not stopped mediocre fund managers from building successful businesses, although the tide may be turning with the rise of ultra-low fee index funds and as more pension fund, charity, or university endowment money is now run in house.
Acquiring FUM is an option for Perpetual, but not likely to generate a great return on investment, with organic growth remaining the key to better returns going forward.
The stock is down around 10% over the past 10 years, which leaves it looking like one for the hardcore value investors.
In the asset management space other bets that have offered better long-term returns include Magellan Financial Group Ltd (ASX: MFG) and Macquarie Group Ltd (ASX: MQG). Notably, Macquarie has commonly traded on a cheaper valuation than Perpetual over the past 10 years.
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The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.