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Coronation’s profit hit by asset outflows

Inflows into retail market decline, alongside outflows from the long-term fund manager category.

NOMPU SIZIBA: Coronation Fund Managers were out with their interim results today [Tuesday]. The results reveal that the financial markets are a bristly place to be playing in right now. They reported that in the six months ended March 2019 revenue declined by 22% to R1.6 billion, compared to the same time last year, while assets under management declined by 8% compared to the prior year. Shareholders are set to be given an interim dividend of 165 cents/share.

To give us a sense of these numbers I’m joined on the line by Anton Pillay, the CEO of Coronation Fund Managers. Thanks very much for joining us, Anton. Your results are quite sobering. Financial markets have been quite a tough place to play in, especially last year.

ANTON PILLAY: Yes, if you look at the reporting period over the last six months in terms of performance, it’s certainly a tale of two halves, with the quarter ending December 2018 seeing a huge selloff across the globe, and that then reversed in the quarter ending March 2019. But the return for the last six months certainly has been very muted across most of the market.

NOMPU SIZIBA: Anton, to what do you attribute the 22% decline in revenue?

ANTON PILLAY: If you look at our average AUM [assets under management] over the six-month period ended March 2019 versus the same period ended March 2018, our average AUM declined by 8%, and that clearly impacted the revenue that we earned over the six-month period.

NOMPU SIZIBA: In terms of client behaviour, what were your observations around clients cashing out, especially due to fears around volatile markets? And conversely, what did you see by way of capital inflows?

ANTON PILLAY: In terms of clients’ response to returns across the market, what we certainly have seen – and I refer specifically to the retail market – over the last few years, from 2017, a decline of inflows into the retail market.

In what we term the long-term fund manager category, which is really the market excluding the money market, we’ve seen outflows from that sector; and that’s really driven by the fact that what we call our multi-asset kind of medium to mid-equities portfolios, across the industry, the returns that they’ve been generating have not been in line with our clients’ expectations. That’s especially given that the clients who invest in these portfolios are retirees, and have better returns from cash and fixed-income. When one looks at the returns from cash and fixed-income over six months, one year and five years, these have exceeded the JSE. So clients have been withdrawing their money from those portfolios and investing into the fixed-income and cash category.

NOMPU SIZIBA: What’s been happening in the area of the fees you are able to achieve, especially in a time when a debate rages on about whether people should be invested with active managers or in passive investments?

ANTON PILLAY: In 2013 we carried out a review, and we made certain changes in 2016 and 2017. Some of those changes were then implemented and the last few changes that took place were at the beginning of last year around our international products. And we did a few changes that we put in place to ensure that they provide for greater simplification and classification of the products that we provide to the client.

In terms of the passive versus active, it’s a relatively small market in the South African environment, and we believe that our fees should be linked with the experience the client has – like out of 20 funds, for example, we charge a fee to the extent we outperform the benchmark; we charge performance fees to the extent we don’t outperform the benchmark – we will basically halve the fixed fee on that product. So basically we are creating symmetry with the client experience.

NOMPU SIZIBA: Just touching on this new fund administration model that you’ve spoken about, in basic terms what has it essentially done or meant for your business? Has it created greater efficiencies?

ANTON PILLAY: It allowed us to make two changes last year. The one was on the asset administration services; those are outsourced to JP Morgan. Then we supported the creation of a business called Intembeko, and that’s the business that basically maintains the register of all our unit holders.

The changes in the system have really allowed us to provide a better service to our clients in terms of how we engage with them, interaction, and also from the risk-management point of view as well, just given that the systems that we now run are really world-class systems that support our world-class players.

NOMPU SIZIBA: Is there a ratio that you can tell us in terms of your investment in South African equities vis-à-vis the rest of the world, and how did you see South African investments fare vis-à-vis the rest of the world?

ANTON PILLAY: The best example – the way I can explain our investments versus the globe, is to talk to the R586 billion we manage. Roughly about R170 billion of that is invested elsewhere in the world.

If you look at the performance of the markets more recently, I think they are fairly similar in that you saw a huge selloff in the quarter ended December, and then an improvement in the first quarter of this year. So fairly similar responses in terms of the market performance.

NOMPU SIZIBA: Anton, with the elections now past and a new government about to be constituted, and the president’s talk of urgency to deal with the country’s economic constraints, how does that feed into your life? Is there some optimism about how this will affect markets in South Africa and even maybe globally, and ultimately how it’s going to affect your business?

ANTON PILLAY: We are positive with the outcome in terms of the elections. However, I think there is still a lot of work that needs to be done, mainly around creating policy certainty. We also need – just given the level of confidence both from a business and a consumer point of view in the country – to ensure that we start changing the sentiment, because once the sentiments starts to change your confidence improves, people start to spend, they start to invest and that ultimately leads to growth, not only at a corporate kind of level, but also from a country perspective. I think that ultimately will then allow us to start attracting the much-needed investment into the country.

NOMPU SIZIBA: Many thanks, Anton, for your time today.

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Anton u need to starting thinking bigger – and R 170 billion = 11.8 billion dollars. Too small for New York, London, Hong Kong and other EM.

Just gather them assets and pay them staff the divis, I say.

End of comments.

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