Australian Ethical loses ground as key client redeems funds

Investment manager Australian Ethical (ASX: AEF) has revealed an institutional client will be redeeming funds equivalent to five per cent of the group’s funds under management (FUM), adding salt to the wound of a share price that has fallen by almost 68 per cent since the start of 2022. 

The client, which is currently undergoing a successor fund transfer (SFT) into another fund, has notified it will be redeeming $340 million before November 2022 from its balanced fund. 

This represents 1.7 per cent of Australian Ethical’s annual revenue and is incidentally the exact figure the group reported for its negative investment performance across April and May. 

With its FUM down three per cent at $6.64 billion by the end of last month, Australia’s largest ethical investment manager has forecast a nine per cent rise in underlying profit after tax (UPAT) to between $9.8 million and $10.2 million for FY22. 

The company has also provided an update on its proposed merger with not-for-profit industry fund Christian Super, confirming the due diligence process is substantially completed and expected to be concluded by mid-July. 

In April the parties signed an exclusive Memorandum of Understanding (MoU) to explore a potential merger, as part of a consolidation trend in the superannuation space that was seen with QSuper and Sunsuper in February and HESTA and Mercy Super earlier this week. 

The two superannuation funds entered a non-binding period of due diligence and transition planning, which, if successful, would lead to Christian Super’s 30,000 members and $2 billion under management being absorbed by Australian Ethical Super through an SFT in late 2022 or early 2023. 

“We’re delighted to be exploring this opportunity with Christian Super. It is a meaningful endorsement of our purpose and investment philosophy, which remain unchanged and only strengthened by this opportunity,” confirmed Australian Ethical chair Steve Gibbs, back in April. 

Sydney-based Christian Super was forced to explore merger opportunities after the Australian Prudential Regulation Authority (APRA), the regulator of super funds in Australia, imposed additional license conditions in December 2021 following an investigation into Christian Super’s investment oversight, governance and strategic decision-making. 

Australian Ethical expects to grow its FUM during FY23 following continued investment in product and channel development, as it looks to benefit from an arising demand for authentic ethical investing. 

Founded in 1986, Australian Ethical seeks to provide investors with wealth management products that align with their values by being a powerful proof-point for ethical investing. It says it rigorously screens its entire range of funds on ethical and investment merits, which goes beyond environmental, social and governance (ESG) criteria. 

Each year, the Sydney-based super fund donates 10 per cent of profits (after tax and before bonus) to the Australian Ethical Foundation to unearth and fund the most effective charities and solutions addressing climate change. 

Donating more than $6 million since 2000, the foundation aims to drive positive outcomes for people, animals and the planet in Australia and overseas. 

In the face of growing scepticism around ‘greenwashing’, which recently led to the Australian Securities and Investment Commission (ASIC) publishing guidance on the issue, the foundation looked to press home its bona fide green credentials by launching a new visionary grants program early this year to fund innovative climate solutions.

The program looks at stopping sources of carbon pollution, supporting carbon sinks and empowering women and girls, and received more than 200 applications by the end of 2021.

Shares in Australian Ethical (ASX: AEF) were down 1.76 per cent to $4.46 at 3.13 pm AEST – a level that is not only down on the start of the year but is also below pre-pandemic levels of $4.90.