Perpetual takes a $547m hit after massive $12b in fund outflows from Pendal subsidiaries

Investment manager Perpetual (ASX: PPT) is taking a $547 million hit to its bottom line following a significant net outflow of funds due to the troubled investment strategies of two offshore subsidiaries inherited from the group's $2.5 billion takeover of Pendal completed last year.

Perpetual first alluded to challenges with its $200 billion asset management business last month when it revealed a difficult quarter that was impacted by net outflows, markets and currency movements.

Today, the group has announced the extent of those issues by revealing that Pendal businesses J O Hambro and TSW had experienced net outflows of $8 billion and $4 billion respectively in FY24.

Impairment testing following these outflows has led Perpetual to announce a non-cash impairment charge of about $547 million before tax in its latest financial results, which are due for release later this week.

Perpetual blames “some key strategies” by J O Hambro and TSW for the businesses experiencing outflows at a rate that was more than expected, especially over the second half of the financial year.

“Based on the projected earnings impact of these outflows and a resulting moderation of expectations for future flows, compared to the assumptions made at the time of the Pendal Group acquisition, a non-cash impairment charge of $417 million will be recognised against the carrying value of goodwill for J O Hambro, and $130 million for TSW,” says Perpetual, adding that this will hit the group’s statutory results for the year.

The Sydney-based Perpetual inherited UK-based J O Hambrow and US-based TSW (Thompson, Siegel & Walmsley) following its takeover of former listed rival Pendal in January last year.

When it first announced its takeover of Pendal in August 2022, Perpetual touted the deal as the merger of two major Australian financial services firms to create “Australia’s pre-eminent global asset manager”.

However, a strategic review of the business announced in May will see Perpetual sell its Wealth Management and Corporate Trust businesses to private equity group Kohlberg Kravis Roberts (KKR) for $2.175 billion, while retaining Asset Management as a standalone business.

The five-month review of the group’s operations triggered the resignation of CEO Rob Adams who has been with Perpetual since 2018.

Adams will announce his final earnings result for Perpetual as CEO this Thursday, 29 August 2024, ahead of his replacement Bernard Reilly assuming the top job on 2 September.

Perpetual revealed late last month a mixed performance by the group with a steady result by the Corporate Trust and Wealth Management businesses being offset by a difficult quarter for its Asset Management business.

“Our Asset Management business was impacted by the timing of several institutional client redemptions and short-term delays in expected new institutional inflows in specific strategies, as well as softer equity markets in Australian and global indices,” Adams said at the time.

“J O Hambro, TSW and Trillium boutiques saw net outflows in global and international strategies over the period. In Australia, Pendal had a challenging quarter with outflows in cash (cyclical, low margin) and Australian equities, driven by manager rationalisation following a super fund merger and outflows from lower margin former Westpac AUM (assets under management.”

Adams also revealed at the time that the group’s distribution team was focusing “heavily on client retention, as well as new client growth”. This had led to a solid start for the September quarter with new institutional client wins of more than $3 billion.