Asset management
M&G
M&G comprises the M&G asset management business and Prudential Capital.
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| CER | RER | ||||
|---|---|---|---|---|---|
| M&G | Half year 2008 £m |
Half year 2007 £m |
Change % |
Half year 2007 £m |
Change % |
| Net investment flows | 2,437 | 3,367 | (28) | 3,367 | (28) |
| Revenue | 235 | 225 | 4 | 225 | 4 |
| Other income | 12 | 14 | (14) | 14 | (14) |
| Staff costs | (101) | (110) | 8 | (110) | 8 |
| Other costs | (42) | (33) | (27) | (33) | (27) |
| Underlying profit before performance-related fees | 104 | 96 | 8 | 96 | 8 |
| Performance-related fees | 9 | 12 | (25) | 12 | (25) |
| Operating profit from M&G asset management operations | 113 | 108 | 4 | 108 | 4 |
| Operating profit from Prudential Capital | 33 | 32 | 3 | 32 | 3 |
| Total IFRS operating profit | 146 | 140 | 4 | 140 | 4 |
M&G asset management
Introduction
M&G is Prudential's UK and European asset management business. It manages £159 billion of assets, of which £108 billion relate to Prudential's long-term funds, £30 billion to wholesale and £21 billion to retail clients. M&G aims to maximise profitable growth by operating in areas of the retail and wholesale markets where it has a leading position and competitive advantage.
M&G's core strategy is to focus on the delivery of superior investment performance in all classes in which it invests and thereby offer attractive products in a variety of macro-economic environments. As one of the largest active managers in the UK, M&G has expertise in all major asset classes and also has a leading position in a number of specialist areas such as leveraged loans, structured credit, infrastructure and macro investment.
M&G funds under management by client type £bn
M&G diversity by asset type
M&G has a strong and well-established presence in its home UK market. However, a growing proportion of its business is sourced from Europe, South Africa and Asia (distributed by Prudential Corporation Asia).
M&G's diversity by client type, asset class and geography is central to the sustainability of its earnings in the current challenging environment. Stability is derived from the internal client and M&G's long-established direct retail business, while growth opportunities are provided by geographic expansion, diversification into specialist investment areas and leadership in developing newer distribution opportunities such as third party on-line platforms.
M&G's retail business aims to obtain maximum value from a single manufacturing function through a multi-channel, multi-geography distribution approach. Its wholesale business centres on leveraging the skills developed primarily for internal funds to create higher-margin products for external clients.
Financial performance
The markets in which M&G operates have endured a difficult period since the onset of problems in the credit market in the second half of 2007. Declines in underlying value across asset classes have impacted funds under management, and hence revenue.
Against this challenging backdrop, M&G has delivered a strong first half performance, with an overall underlying profit result of £104 million, compared to £96 million in 2007.
In addition, M&G earned £9 million in performance related fees (2007: £12 million).
This profit performance was driven, in part, by the full year effect of new business won in 2007 as well as positive net sales of £2.4 billion received in the first half of 2008 (2007: £3.4 billion). This is a strong net positive result in market conditions that are dramatically different to those experienced in the first half of 2007.
Net retail fund inflows were £881 million (2007: £1.7 billion), a good result in a period where both the UK and European asset management industries saw a much more significant fall in net flows. M&G's wholesale net fund inflows also proved very resilient in the first half of 2008, with inflows of £1.6 billion (2007: £1.6 billion).
M&G believes that this success in winning and keeping business is primarily the result of strong investment performance. Over the three years to end June 2008, 71 per cent of M&G's retail funds produced top or second quartile performance, representing 92 per cent of funds under management. M&G's excellent performance is further underlined by a number of awards won in the first half of the year, including being named Best Global Group by Investment Week and Best Larger Equity Fund House by Morningstar. In addition the M&G Recovery and Global Basics funds have received Lipper awards in Switzerland, Austria, France, Germany, Italy and Spain.
Movements in key market indices
M&G UK net retail sales £m
Prudential Capital
Prudential Capital manages Prudential's balance sheet for profit through leveraging Prudential's market position. The business has three strategic objectives: to operate a first class wholesale and capital markets interface; to realise profitable proprietary opportunities within a tightly controlled risk framework; and to provide professional treasury services to Prudential. Prudential Capital generates revenue by structuring transactions, providing bridging finance, and operating a securities lending and cash management business for Prudential and its clients.
Driven by strong securities lending performance, operating profit at the half year of £33 million was three per cent up against the same period in 2007. Dividends of £14 million were remitted to the holding company.
