Australian Ethical profit surges 68pc as investments net $1 billion performance gains

Funds under management (FUM) at Australian Ethical (ASX: AEF) have reached record levels edging close to $14 billion as the investment manager reports a 68 per cent lift in net profit after tax (NPAT) to $19.9 million for FY25, amidst a high investment performance and further fund inflows.

Profit growth outpaced revenue which was up 19 per cent at $119.4 million alongside positive investment performance of $1.05 billion.

Whilst investment performance was also built from new funds added throughout the year, the gain represents just shy of 10 per cent of the $10.4 billion in FUM at the close of FY24.

The increase in funds was boosted by the acquisition of the Altius Asset Management fixed income business completed in September, adding $1.93 billion in FUM, as well as positive organic net flows of $593 million.

Organic inflows are expected to continue on a positive course due to the compulsory Superannuation Guarantee contribution rate increase, as well as a "focus on retention and engagement of the member base".

"I’m particularly pleased that the investment performance over the period has delivered positively for our members in the Multi Asset superannuation options and for investors across a range of our funds," says Australian Ethical managing director John McMurdo.

"Momentum across our business over the last five years means we have grown more than threefold, from $4.05 billion FUM at 30 June 2020 to nearly $14 billion today, with underlying EPS (earnings per share) growing at a 20 per cent compound average growth rate over this period.

"Our continued FUM growth has underpinned a 19 per cent increase in revenue, 29 per cent increase in underlying profit after tax, and delivered a record $2.8 million donation to the Australian Ethical Foundation."

The group's foundation, a registered charity, aims to support "catalytic initiatives that protect and restore nature and build climate resilience", with beneficiaries including Food Frontier, Environmental Justice Australia, Beyond Zero Emissions, Climate Works and Accounting for Nature.

Australian Ethical's investments largely mimic standard fund manager portfolios with a stake in big banks and blue chip shares, bonds, and tech giants, including those whose activities and past actions would be a stretch to class as 'ethical', but the group provides all investors and members of the public with a transparent record of its portfolio and investment rationale.

The group restricts investments in "negative activities like fossil fuels, nuclear, tobacco" and supports "positive ones in renewables, healthcare, IT and more".

Australian Ethical forecasts a further profit uplift over FY26 with "sensible reinvestment in the business designed to prepare for the next phase of growth".

"I am proud of the growth we’ve achieved over the past five years and the work the team has done in the past year, guided by our Board, to set us up for our next phase of growth," McMurdo adds.

"We anticipate that the completion of our new superannuation and investment management operating platforms will unlock further growth across both business lines as we strengthen our member and investor experience and enhance our market position.

"We are confident that we can continue to grow both organically and periodically inorganically and also deliver further operating leverage improvements over time.

"Whilst we expect the market and economic volatility experienced in FY25 to continue, we are very well-positioned with our high-quality capability, long term investment performance, strong balance sheet, enhanced business platform, brand trust, channel breadth and our deep ethical pedigree. We believe that the medium-term market opportunity remains compelling for Australian Ethical."