With market instability and continued uncertainty, it’s been a tough watch for investors in the London-listed investment management company, Ninety-One Plc LON:N91, which published its results for the year ended 31st March 2023 today (17th May).
The Johannesburg Stock Exchange and FTSE250 listed company runs a range of funds from London and Cape Town, including the Ninety One Global Natural Resources (A Gr Acc USD) Fund, which The Armchair Trader reported on in January.
After a year of global economic turmoil it is little surprise that the investment manager’s assets under management (AUM) – the yardstick that is used to measure the size and success of an investment management entity – declined by 10% to GBP129.3bn, with average AUM across the period reduced by 3% to GBP134.9bn.
Ninety-one also experienced net outflows of GBP10.6bn. Hendrik du Toit, founder and chief executive officer, of the Anglo-South African investment manager said in a statement to the market: “The past year was challenging for Ninety-one. We faced significant headwinds. We nevertheless remain confident of the underlying strength of our business and the relevance and quality of our proposition to clients. Our people are united and motivated to serve our clients and unlock the compelling long-term growth potential of Ninety-one.”
Sector weakness
The fund manager highlighted that the whole financial services sector had a tough year, after a very good post-Covid 2021 with higher inflation across the globe and “the fastest rise in interest rates since we started the business.”
Uncertainty is never good for investment management, with last year being exceptional in that all asset classes fell, equity and bonds, in reaction to the insecurity caused by the war in Ukraine and its effect on global commodity and fuel prices. Heaped atop of banking sector failures and a liability-driven investment crisis in the UK, risk-aversion was paramount to most investors, which didn’t suit Ninety-one as an investment manager, given the actively-managed, concentrated, publicly-listed portfolios many of its investment strategies follow.
- Banks as crypto custodians: Could there be a downside for staking?
- DeepSeek is going to disrupt the financial services sector
- HSBC vs NatWest: Which stock should you be banking on in 2025?
Another, specific factor that led to reduced performance for Ninety-one, given its roots in South African banking conglomerate Investec [LON:INVR] (which it span out of in 1991 and demerged from in 2020), was the economic underperformance and political instability of the Rainbow Nation. De Toit said: “We have maintained our market-leading position in South Africa where growth prospects have been dampened by weak economic performance. Ninety-one is better equipped than most of its domestic competitors to deal with the recent liberalisation of exchange controls in South Africa. The outcome has not been positive for the South African industry. The growth in international allocations by domestic asset owners was shared with international competitors.”
The fund manager’s institutional channel experienced large net outflows driven by global equities mainly from Asia-Pacific clientele and from its fixed income strategies, which was most notable in the UK, where the Liz Truss budget and systematic rate rises from the Bank of England took a wrecking ball to the fixed interest market.
Ninety-One profit & EPS down
The market turmoil of last year saw adjusted operating profit for Ninety-one fall 10% to GBP206.9m which was replicated by a 10% fall in adjusted earnings per share (with a 19% decline in basic EPS). However, on the bright side, Ninety-one did managed to reduce its costs – given that 65% of its cost base was employee remuneration (and 50% of that was variable, based on AUM and financial performance) – and underperforming funds meant lower bonuses paid out to fund managers with employee remuneration decreasing by 6% to GBP275.5m.
That said, over the longer-term Ninety-one’s funds remained competitive and have since the beginning of the year started moving in the right direction. As at end-March 2023, Ninety-one’s one- and three-year outperformance stood at 57% and 71% respectively and over five- and 10-years was outperforming 76% and 81% of the market.Net revenue fell 6% over the year to GBP627.1m, with management fees down marginally by 4% to GBP607.7m, but the big hit to the company’s bottom-line was a 38% fall in performance fees to GBP19.4m.
Despite this, de Toit sounded a positive and defiant note, saying: “Ours is a battle-hardened and resilient business, adept at navigating change and finding opportunity.”
Ninety-one opened trading today at 169.3p and had fallen to 164.5p within the first two hours of trading. The company offered a -11.1% year-to-date return with a -33.2% one-year return. The fund manager’s shares ranged from 161.8p to 250.8p over a 52-week period and has a market capitalization of GBP1.1bn.
