The past year has been one of positive momentum and progress for Pendal, despite the challenges of the continuing COVID-19 pandemic. We also celebrated a proud milestone: it has been 50 years since our long heritage was first established.1 I feel privileged and excited to have been given the opportunity to lead this outstanding team of people as we look ahead to the next 50 years. While my key focus is on the opportunities that lie ahead for Pendal, I am also acutely aware of how much value there is to be protected and nurtured within this great organisation.
We are a company that is talent-led, defined by conviction, and deeply connected with our clients. We have a spirit of entrepreneurialism that compels us to grow, to build and to seek out opportunity. It has been this spirit that has transformed us from the Australian-based company that began 50 years ago to the global, dynamic organisation we have become.
Performing through volatility has always been our strength. Over the last year we continued to adapt to new ways of doing business against the backdrop of COVID-19, while taking advantage of buoyant market conditions. Some of our achievements over this time have been highly visible, such as the acquisition of US-based Thompson, Siegel & Walmsley (TSW), completed in July. However, much of the progress we have made has been below the surface, in steadily reinforcing and building upon our foundations for future growth. Our commitment to delivering consistent performance and a superior experience for our clients has been, and will continue to be, our ongoing priority.
I would like to thank the Board for placing its trust in me and to also acknowledge the outstanding contribution of my predecessor, Emilio Gonzalez, during his 11 years of leadership. His reputation as a thoughtful and committed leader was a big factor in encouraging me to join Pendal, and he leaves with an exceptional legacy.
The Pendal difference
Even before joining the Pendal Group, two years ago now, I was well aware of its enviable reputation in the industry and among investors. Since being appointed Group CEO, I have spent time listening to our people, our clients and our shareholders. I have learned much about our company – what it means to those who know it well, and its potential.
I have heard three clear messages. Firstly, that the unique culture at Pendal, which sets us apart from our competitors and underpins our investment excellence, must be protected and nurtured. It is a culture of conviction and integrity. Our teams are united by their desire to deliver their very best in the interests of our clients, and we must continue to empower them to do so. While it does not appear as a line item in our financial statements, we clearly know the value of our culture.
Secondly, there is no doubt that our success is ultimately determined by our ability to attract, develop, and retain the very best talent. Many of our fund managers are regarded as thought leaders within our industry. We actively recruit investment talent with deep expertise and a strong sense of conviction, and we deliberately create an environment of independence and autonomy in which they can thrive. Our investment teams are supported by dedicated and highly experienced specialists across our business who share the same commitment to excellence and a “can do” mindset.
As our global footprint continues to grow at Pendal, we will maintain our talent-led philosophy across all regions.
Finally, one of the most compelling strengths of Pendal is the depth of connection and trust we have with our clients. Our client base is experienced and sophisticated – they are well-informed, engaged, and proactive. They want to feel connected to their fund managers and develop an understanding of how they think and behave, and why they make the investments decisions they do.
At Pendal, our fund managers actively foster a close relationship with our clients. They communicate regularly and with transparency, which gives our clients peace of mind. The result is long-term confidence in the strength of our stewardship across their investments. As we shape our business moving forward, delivering to their needs and further enhancing our relationship with them will continue to drive us.
FY21 financial results
During the past year, global equity markets experienced the strongest 12-month growth period in more than 30 years. Pendal was well placed to take advantage of these exceptional conditions because of our scale, our diversified global business model, and our ability to adapt in a fluctuating environment. As a result, we have achieved a significant increase in FUM, revenue, profitability and shareholder returns over this period.
Our underlying net profit after tax (UPAT) was $165.3 million, an increase of 25 per cent on the previous year, while statutory net profit after tax (NPAT) lifted 42 per cent to $164.7 million. We were also pleased to see a 17 per cent uplift in underlying earnings per share (EPS). The results included two months of contribution from TSW.
Our total fee revenue grew 23 per cent to $581.9 million, with higher average FUM levels driving an increase in base management fees that rose 14 per cent to $522.8 million. A standout for the year was the uplift in performance fees that increased to $57.5 million, from $13.4 million in pcp with notable contributions from the International Select and Global Select strategies as well as the MicroCap and Focus Australian equity strategies.
Closing FUM was up 51 per cent to $139.2 billion as at 30 September 2021. The acquisition of TSW accounted for an additional $33.1 billion in FUM, and organic growth of $16.0 billion came from strong investment performance and markets. Positive foreign currency movements also supported FUM growth.
We start the new financial year with equity markets near all-time highs. However, we see pressure on flows, particularly in the institutional channel. While this may have short-term effects, we are confident that the combination of improved investment performance and disciplined investment in our strategic initiatives will support sustainable long-term growth.
Achieving a step change in scale and diversification: the TSW acquisition
The addition of TSW to the Pendal family was a highlight of FY21. Pendal has a strong presence and history of success in the US. This acquisition resulted from a long-planned strategic decision to deepen our participation and diversify our revenue in the US market, given the opportunities for growth.
Not only does it double our addressable market in the US, but the acquisition also expands our distribution capabilities and product offering, and will facilitate our growth avenues in both the short and long term. Notably, it also resulted in a step change in FUM: more than doubling US FUM to A$63.9 billion (US$46.0 billion) and increasing total Group FUM by 51 per cent to A$139.2 billion.
The acquisition was compelling and strategic. There was much about TSW that appealed to us. It was a complementary business in terms of its independent investment philosophy and entrepreneurial culture, and it had only a minimal overlap in investment strategies. Importantly, from our clients’ perspective, TSW’s product suite broadened and balanced the portfolio we could offer via our expanded distribution network.
Given this natural alignment, integration of the business is progressing well and to plan. The acquisition is expected to be double-digit EPS accretive in its first full-year post completion.
John Reifsnider, former CEO of TSW, is leading our combined presence in the US and brings great talent and experience to Pendal. His collaboration was instrumental to the success of our acquisition of TSW, and I look forward to working closely with him as we pursue the opportunities we see in the US market.
Solid progress achieved on multi-year strategy
Our strategic investment program consists of a targeted set of initiatives that we invest in because we believe they represent the areas of our business that will best enhance our ability to deliver to our clients’ needs as well as deliver the most long-term value to our shareholders.
1. Leveraging our global distribution capability
As signalled a year ago, we believe there is significant potential for growth in Europe. To take advantage of that potential, we have steadily been building our sales presence in Europe and the UK during the year, including the appointment of a new Head of Distribution. In FY22, we will open an office in Europe and continue to expand our team, focusing on enhancing existing relationships and establishing new ones, particularly with global financial institutions in Nordic, German and French speaking areas.
In the US, we are well advanced in organising our business to take advantage of the strong market opportunities. We have expanded our institutional distribution team, reorganised our intermediary team and the JOHCM and TSW sales teams are already actively pursuing cross-sell opportunities.
To underpin these efforts, we have also been boosting our digital engagement with prospective and existing clients. Highly targeted marketing campaigns have successfully drawn more clients and prospects to Pendal in FY21. In addition, in Australia we launched a new content strategy, “The Point”, which is a weekly collection of short, sharp, relevant 200-word articles, podcasts and insights from our portfolio managers, that is highly valued by our clients.
2. Expansion and enhancement of product sets
FY21 saw a significant expansion of product offerings to our clients. Our US clients gained access to the TSW suite of products which has little overlap and complements our existing US set. We believe there is also potential to offer these products in other regions. As we expand globally as a company, the ability to offer an expanded and diversified product set provides a significant strategic advantage for our company. It not only builds deeper and closer relationships with our clients but is also a key point in attracting new fund managers.
As part of our continued commitment to the rapidly growing ESG/RI sector, this year we also launched two new products. The Regnan Global Equity Impact Solutions strategy is now available to clients in all regions and has attracted early client support. We also attracted a highly respected new Sustainable Water and Waste investment team. The team’s first product, the Regnan Sustainable Water and Waste Fund was launched in the UK in September 2021 and will be made available to European investors in FY22.
In Australia, we evolved the Pendal Horizon Fund (formerly the Pendal Ethical Share Fund) and the Pendal Sustainable Australian Share Fund, enhancing the equity strategies to better align with changing client needs. Additionally, we delivered the flagship Global Select Fund to Australian wholesale clients for the first time.
3. Streamlining our global operating platform
We are well advanced in our four-year program to create a more streamlined and scalable global operating platform which will both improve the productivity of our teams and enhance service and interaction with our clients.
After a thorough selection process, we appointed Northern Trust as our group-wide global custodian. We also established a cloud-based group-wide data warehouse and infrastructure, and we transitioned to a new Australian registry provider. Additionally, we used our scale to renegotiate a number of existing contracts with global vendors. One highlight which saw immediate results was the transitioning of our US mutual funds to a proprietary trust structure, which reduced fees and improved governance for all fund holders. These substantial initiatives will improve client service and support future growth.
Positioned for success
Our long-term strategy at Pendal has been to pursue growth through diversification – which helps us to manage through the inevitable market cycles, allowing us to deliver a range of investment strategies for our clients and less volatile returns for our shareholders.
What excites me most about the future for Pendal, is the undeniable potential held by our global footprint and strong boutique investment culture. Our investment teams can tap into different perspectives and fresh thinking on behalf of our clients, no matter which geography they are in. One of our key points of difference is that we are able to offer the benefits of both worlds to our clients: global insights and a diverse product set, together with highly-personalised service in a boutique culture.
As the world reopens following COVID-19, we are ready to take advantage of the opportunities that will arise. Our commitment to our multi-year investment program has strengthened our foundations and we believe the pieces are coming together to consolidate our position, particularly in the high growth markets of Europe and the US. Our ability to strengthen existing relationships as well as build new ones should be greatly enhanced in FY22 as restrictions ease and the mobility of our people improves.
We are a people business; our talented people and the relationships they build with our clients are central to our success. Our future strategy revolves around creating the best conditions for them to do what they do best – create outstanding value for our clients and our shareholders. I would like to acknowledge and thank our truly exceptional team of people at Pendal for their commitment, principles and hard work, especially in these challenging times.
Looking to the future, we will continue to evolve so that we are optimally positioned to respond and thrive in an increasingly competitive and dynamic environment. I am confident we will do this with the conviction, integrity and entrepreneurial spirit that has carried us through the last 50 years.
Nicholas GoodGroup CEO
1 Ord-BT established Pendal Nominees, its first nominee company, in 1971.