Gilbert says AssetCo ‘behind target’ in tough market
Martin Gilbert, chairman of wealth management business AssetCo, said the business is “behind where we want it to be” after a half-year of “unrelenting market pressure”.
The group, which has acquired a number of Scottish firms including Colin McLean’s SVM and Saracen Fund Managers, suffered outflows over the period, when inflows had been the expectation, said the chairman.
Revenue for the six months to the end of March came in at £8.3m from £1.3m in the same period last year, but saw the loss before tax rise to £13.8m from £2.6m.
Mr Gilbert noted that acquisitions brought an additional £11.7m of administrative expenses into account for the latest period, compared to the six months ending 31 March 2022. Some £3m of expenses in the latest period were one-off costs, almost half relating to re-structuring.
Despite industry outflows there were improvements in assets under management (AuM) and operating margins for the active equities businesses. AuM as at 31 March 2023 were £13.8 bn from £9.9bn.
“The six months ended 31 March 2023 saw a period of unrelenting market pressure,” said Mr Gilbert in the half-year statement. “Although most stock markets saw some uplift in value, investor sentiment was weak and the collapse of Silicon Valley Bank, followed swiftly by the rescue of Credit Suisse, did nothing to calm the nerves of investors.
“Fund flows across the industry were consistently negative for the period, with outflows from UK Equity funds (currently AssetCo’s largest exposure) actually increasing in Q1 2023 from what were already record levels in 2022. With overall industry figures negative, the only respite from the gloom was in Global Equity funds where inflows turned tentatively positive in Q1 2023.”
He admitted that the AssetCo Group of companies was “sadly not immune from these pressures” and the Group “generally suffered outflows over the period, when inflows had been the expectation”.
He added: “The general rise in markets has cushioned the effect to some extent, but it is fair to say that we remain behind where we want to be in terms of asset growth.
“Thankfully the Global Equity asset class is one where we have been bucking the trend for some time with the Saracen Global Income and Growth Fund and the more supportive environment was welcome.”
He said progress has been made in delivering cost savings “and the revenue pressures have moved us to go further in this regard”.
Savings of over £1m have been identified on top of those already targeted and being actioned at year end.
Agreement has been reached to sell River and Mercantile’s loss-making US business earlier this year. The deal completed at the end of May and will result in a modest revenue share benefit.
“We intend to roll the Saracen business into SVM in the near future and the ground is being laid for the full-scale integration of all of our active equities businesses under the River and Mercantile brand” said Mr Gilbert.
“In the meantime, cost savings at SVM aim to move that business (considered as a stand-alone) to profitability on a run rate basis around financial year end, while Saracen is expected to generate good revenues this year as its flagship Global Income and Growth Fund continues to gather assets.”
He said it has been encouraging to see net inflows into the Rize ETF business over the period, which bucks the general trend in conventional fund markets and points to the on-going potential for this product set.
“That said, the business remains materially behind plan, its thematic focus having been set back by the advent of war in Ukraine and subsequent market jitters.
“We have therefore decided to take the prudent approach of writing down the holding value in our balance sheet by c.£5m to £12m. We continue to see real potential in this business, but it is emerging later and slower than we had hoped.”
The market for infrastructure funds has been “particularly challenging” against a backdrop of rising rates and a crisis for UK pension funds and insurers in the Liability Driven Investment (LDI) market.
“This has proven particularly unhelpful for River and Mercantile’s own infrastructure fund as a UK only income vehicle and new commitments have not been forthcoming as hoped, although a pipeline of potential commitments is being actively developed.
“Recognising this slower and later business development and taking a conservative position, we have elected to make a provision of £1.7m against assets held on the balance sheet for our infrastructure business which have been advanced in expectation of future profits.
“While market conditions remain challenging, we remain on track to deliver significant cost savings from the Group by year-end.
“This, combined with the strong performance of many of our funds, our robust balance sheet and the fact that we continue to see numerous avenues for profitable growth, give us continuing confidence in the future of the business.”