M&G profits slump after retail investors flee in market sell-off
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M&G suffered a 57 per cent fall in pre-tax profits in the first half of the year after spooked retail investors pulled money from its funds during the coronavirus market sell-off.
The FTSE 100-listed asset manager and insurer reported adjusted pre-tax profit of £309m for the six months to June — well below the £714m posted for the same period last year — after heavy net client outflows from its retail asset management business caused fee revenues to drop by nearly 9 per cent.
The retail unit haemorrhaged a net £7.7bn as the market volatility and economic uncertainty unleashed by the pandemic sent investors fleeing.
This loss was partially offset by positive flows into the group’s institutional asset management unit and PruFund, M&G’s flagship with-profits fund, which reduced overall group redemptions to £4.1bn. However, total assets under management and administration declined from £352bn to £339bn over the period.
The wild market swings in the first half of 2020 also hit the company’s balance sheet and sent capital generation, a key objective for M&G, negative. As a result, the company’s shareholder Solvency II coverage ratio — a yardstick of balance sheet strength — stood at 164 per cent at the end of June, down from 176 per cent at the end of last year and below analyst expectations of 170 per cent.
M&G’s results cap a turbulent time for the group as it approaches its first anniversary as an independent, listed company. It was originally part of Prudential, but was spun off last year as part of a demerger of the group’s UK insurance and investment business.
“Obviously, this is not the backdrop we would have wished as a newly independent company,” said chief executive John Foley. Despite the difficult conditions, Mr Foley described M&G’s results as “resilient”. Its shares, which have fallen almost a fifth since its stock market listing last October, were up 3.7 per cent in morning trading.
The company committed to an interim dividend of 6p and maintained its three-year capital generation target of £2.2bn, subject to market conditions returning to a more normal level.
Excluding the market volatility caused by Covid-19 and £157m of costs linked to the demerger, M&G said its adjusted operating profits, which strip out short-term investment fluctuations, were largely stable. M&G’s IFRS post-tax profit stood at £826m for the period, compared with £795m a year earlier.
Mr Foley said he expected further volatility in financial markets, noting that “the impacts [of this crisis] are going to be with us for a long time”.
Although M&G scrapped plans to reduce staff costs by 10 per cent this year due to the pandemic, it said it hoped to make future savings by extending remote-working beyond the duration of the crisis with staff expected to come to the office no more than two or three days per week. Mr Foley said this would have an impact on M&G’s office footprint but did not quantify this.