January 30, 2013 8:17 pm

F&C hit by outflows of cash

Assets under management contract despite the equity rally, writes David Oakley

It is clear that Edward Bramson, the activist investor, has more work to do at F&C Asset Management after the company he chairs reported net outflows for the last quarter of 2012.

Despite speculation this week that the turnround specialist wants to move on to fresh challenges, Wednesday’s trading update from the FTSE 250 listed group suggests he may be staying at the asset manager for a while longer.

Some investors and strategists say the executive chairman, who will drop his executive position in March as new chief executive Richard Wilson takes a more active role, is keen to sell his more than 20 per cent stake in the company through his investment vehicle Sherborne Investors.

Speculation of a Bramson exit was certainly heightened after 3i, the private equity group, revealed the F&C chairman was buying its shares on Tuesday through Sherborne and its stockbroker Jefferies.

However, a growing number of investors think Mr Bramson will find it difficult to attract buyers for his F&C stake at the current share price.

F&C shares have jumped about 25 per cent since Mr Bramson ousted the former chairman in February 2011. Further big share price gains are unlikely in the coming months, some investors say.

Significantly, F&C recorded net outflows in the three months to December, with assets under management contracting. This was considered disappointing by some considering the equity rally and the performance of rivals. Aberdeen, Ashmore and Jupiter Asset Management have all recorded net inflows recently.

Peter Lenardos, director of diversified financials at RBC Capital Markets, says: “Where is the good news in F&C’s results?”

He pointed to the contraction of assets under management to £95.2bn at December 31 compared with £96.8bn at the end of the previous quarter and net outflows of £4.9bn.

He added: “I think there is confusion about the brand given the recent restructuring. Plus there is a share overhang as Mr Bramson steps back from F&C. I think he would love to sell his stake at the current share price.”

However, F&C’s Mr Wilson stressed that revenue yields on inflows exceeded outflows, adding that performance in the quarter was good in most asset categories.

Other investors and strategists were more upbeat about F&C’s results, stressing that the outflows were largely structural because of redemptions that are out of control of the asset manager, while inflows are returning into key parts of the business such as liability driven solutions and third party business.

The outflows also included Friends Life’s previously stated intention of insourcing its fixed income assets.

Friends Life withdrew £2.4bn as it took its fixed income assets in house.

The wholesale business also experienced a £340m net outflow over the three month period, mostly from the Thames River Global Credit funds following a period of weak investment performance.

F&C highlighted third party gross institutional inflows, which rose £0.8bn in the quarter, taking the total to £2.9bn. It also stressed consumer and institutional investment performance of £1bn.

Other investors pointed out that there were no calls to sell the stock from the main analysts, while shares were relatively steady on Wednesday, falling 0.75 per cent to 106.20p.

One top 20 investor in the company said: “Markets are not unhappy with these results. We knew that there were likely to be outflows from Friends Life and we knew there were likely to be structural outflows.”

However, he was quick to add that Mr Bramson has unfinished business at F&C.

The executive chairman has impressively cut costs, but now he needs to bring about higher growth to the underlying business, the investor said.

Until he has achieved that, Mr Bramson is likely to stay put, he added.

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