Tug-of-war between investment returns and net flows in Q1-23
UK asset managers' AUM was boosted in Q1-23 by market tailwinds. But investors remained nervous and were mostly withdrawing capital, not deploying it.
In 2022, asset managers’ top-line AUMs were pummeled by the bear market, although net flow performance varied tremendously between managers (see link below).
Want to know how UK asset managers differ from each other? 2022’s bear market will show you!
In contrast, in Q1-23, top-line AUM growth has been mostly positive, driven primarily by relatively solid investment performances.
Q1-23 AUM movement, excluding acquisitions
Q1-23 Investment Performance as % of opening AUM
However, net flow performances tell a different story, and were mostly weak (with some exceptions).
Q1-23 net inflows, % of opening AUM
Although the above is not a full data set (Schroders, Foresight, Ninety-one, Abrdn and Gresham House net flow data for Q1-23 was not available at the time of writing), it is interesting to note that the median net flow rate for Q1-23 of -1.2%, is not much different to the median quarterly net flow rate for 2022, which was -1.4%, and remains substantially lower than the median quarterly net flow rate of 2021, which was +1.0%. Investors were clearly still nervous and not yet back in ‘capital deployment mode’.
But there are a few important messages when we look beyond aggregate data and into company-specific data. And in particular, the data points at the top and bottom of the last chart. Notably:
Impax Asset Management, the specialist sustainable investment manager, continued to be a star-performer when it comes to inflows. (Impax had the second-highest annual net flow rate in 2022 at +4% and the highest annual net flow rate by far in 2021 at +39%).
As I have noted in some of my recent equity research notes on Impax, written on behalf of Equity Development, it has recorded only one quarter of net outflows since 2015, and that was the April-June 2022 quarter, at the time of some of the sharpest market falls and investor nervousness during 2022.
Man Group also continued its recent net inflow strength (it had the third-highest annual net flow rate in 2022 at +2% and the fourth-highest net flow rate in 2021 at +11%). Q1-23’s net inflows were boosted mostly by flows into its absolute return strategies, following a very strong relative investment performance by these strategies during 2022 (absolute returns are designed to produce positive results in both rising and falling markets).
However, Liontrust Asset Management worryingly continued its recent trend of significant net outflows. The -6% quarterly outflow rate in Q1-23 follows a -9% annual outflow rate over 2022. This downturn in flows follows a strong 2021 when Liontrust recorded the third-highest net inflow rate of +13%. Investors will no doubt be anxiously looking for signs of turnaround in net flow sentiment.
And for Polar Capital, the net flow picture for Q1-23 is nuanced. In my recent equity research note, written on behalf of Equity Development, I wrote:
“Net flows of -£410m were recorded but these were almost all down to profit taking from the Global Insurance fund (-£373m) which has delivered significant outperformance. The net flow picture across the group is encouraging, with many strategies reporting net inflows: the European Income ex-UK, Biotechnology, Global Convertible, Global Absolute Return, Smart Energy and Emerging Market Stars funds had combined net flows of +£320m. Meanwhile, the rate of outflows from open-ended Technology funds again continued to decline (outflows of £199m).”
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Disclosure: At the time of writing, Paul Bryant was a shareholder in a number of the companies mentioned in this publication, and covered Impax Asset Management and Polar Capital as an analyst on behalf of Equity Development Limited. Read Equity Development’s research on Impax Asset Management here, and on Polar Capital here. (Please read this link for the terms and conditions of reading Equity Development’s research).