Coronation Fund Managers, one of SA’s largest asset managers, says its first-half profits fell more than a fifth after it was forced to write down its Russian investments amid continued local client outflows, which it warns are likely to continue.
The Cape Town-based asset manager, which was founded in 1993, said its closing assets under management (AUM) fell 1% to R625bn in the year to end-March as it suffered net outflows from both institutional and retail investors in SA. Coronation’s total net outflows for the period were about 1.6% of its average AUM of R646bn, which equates to about R10.34bn.
CEO Anton Pillay warned that the group expects outflows from its funds to continue as the weak domestic economy continues to put pressure on SA savers. Recent changes to regulation 28 of the Pension Funds Act, which now allows fund managers to allocate up to 45% to offshore assets, could cause further net outflows from domestic assets into offshore investments.
“All our Russian holdings have been written down to zero. We await the opening of [Russian] markets to allow for trading,” said Pillay, adding that Coronation would not necessarily automatically sell those holdings. “The SA environment still has its challenges and we expect our flows to reflect the broader industry experience based on the prevailing economic conditions. The macro environment continues to remain uncertain and unpredictable.”
Russia’s invasion of Ukraine in February has roiled financial markets worldwide, pushing up energy and food costs and forcing global central banks to act more aggressively to rein in inflation.
Coronation reported a 22% fall in profit to R697m and trimmed its interim dividend by 12% to 214c, representing a R749m payout. On a per share basis, earnings fell 22% to 199.1c, down from 255.8c in the corresponding period the previous year.
Coronation’s global AUM declined from R74bn to R56bn, partly due to its Russian writedowns as well as the volatility the Ukraine crisis has caused in international markets. Nevertheless, it said it is planning to expand its offshore operations given that roughly 15% of its clients are based outside SA.
Though Coronation has been building an international franchise since 2010 it largely consists of offices in Dublin and London, which service its mostly institutional client base offshore. Pillay said while the group wants to grow its international business it does not plan to expand its physical offshore presence beyond Dublin and London.
“We are starting to understand these markets better and we are starting to get better reach, not only with the consultants but also the underlying clients,” he said. “But our investment team predominantly sits in SA although we do have some investment professionals in London. Then we distribute from the Irish office and the SA office. But we’re not building offices in different parts of the world.”
Coronation used its results presentation to tout its strong progress on transformation as evidenced by its status as a level 1 broad-based BEE contributor. It said that R279bn of its AUM is now managed by black investment professionals.
Coronation pointed out that 61% of its employees are black, of whom 58% are women, while 83% of new hires during the reporting period were black. Its board members are now 80% black while 50% of the board is female.
Several of its key leadership positions such as CEO, CFO and COO are occupied by black individuals along with its heads of fixed interest and institutional business. Coronation is 29% black-owned as per the financial sector code.
Asked about his feelings on structural reforms as a necessity for SA, Pillay said the country needs to take more proactive steps to boost economic growth. “Until we get growth we are going to have limited savings in the country and we’re already in quite a low savings environment.”
Coronation’s shares ended Tuesday 1.16% higher at R37.57.
Update: May 24 2022
This article has been updated with new information throughout.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.