Our businesses and
their performance

United Kingdom

Asset management

Serving both retail and institutional investors’ needs through a conviction-led and long-term approach to investing

People walking around Canada Water square in London

“After a period of exceptional growth M&G had a
more challenging year, with retail redemptions due
in part to continuation of a market-wide change
in investor sentiment away from fixed-income.
Our track record of innovation in institutional
business combined with asset class diversification
helped deliver capital efficient profits and cash
generation for the Group.”

Michael McLintock
Chief Executive Officer, M&G

Michael McLintock

Our strategy

Our strategy and operating principles: M&G

M&G manages the investments of individuals, institutions and the UK policyholders of Prudential funds. Its aim is to help these customers to meet their financial goals through long-term active investment management across a diversified range of asset classes.

Innovation and independence of thought are prized at M&G in the belief that these are the factors that lead to superior, sustainable returns for its clients over the longer term. A record of strong investment returns attracts clients and assets, and the resulting management fees continue to generate strong cash flows for Prudential’s shareholders.

Read more: Our strategy


Performance highlights

  • Retail external funds under management of £60.8 billion
  • 5 per cent growth in institutional business to £65 billion under management
  • 2015 profits of £442 million
  • Recognised for its investment expertise with awards across nearly all its asset categories in 2015, including Investment Manager of the Year at the European Pension Awards

Visit the M&G website

M&G external net flows £bn
 


2010: 7.4 retail, 1.7 institutional. 2011: 3.9 retail, 0.5 institutional. 2012: 7.9 retail, 9 institutional. 2012: 7.4 retail, 2.1 institutional. 2014: 6.7 retail, 0.4 institutional.

*Including £7.6 billion single mandate

M&G external funds under management £bn


TBC

Net cash remittances £m


2011 2012 2013 2014 2015
213 206 235 285 302

IFRS operating profit1 £m


2011 2012 2013 2014 2015
301 320 395 446 442

Market overview

The European asset management market is the second largest in the world with net assets of €12.6 trillion2. Demand for asset management services is expected to continue to grow as governments and employers increasingly pass the responsibility for retirement planning and other long-term savings to individuals. Asset managers with records of strong investment returns and a high level of client service are in a good position to attract flows of new money.

The UK asset management industry, M&G’s core market, is the second largest national market in the world with £870.7 billion3 of assets and is a global centre of excellence for investment management and a major source of long-term funding for the UK economy.

M&G manages money on behalf of retail and institutional investors, and Prudential UK’s funds.

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Market backdrop over the past year

The global economy in 2015 was dominated by three factors: fears of an economic slowdown in China, which led to the Chinese stock market crash in August; the continued decline in global commodity prices; and a strong US dollar. While commodity-exporting emerging markets and currencies suffered during 2015, the US dollar strengthened in anticipation of a rise in the federal funds rate, further bolstered by investors seeking a safe haven during heightened geopolitical tensions. Despite signs of economic recovery in developed countries, 2015 saw heightened market volatility across most asset classes and regions.

In Europe, investors shifted away from fixed income and equities towards mixed asset funds and cash, accompanied by a significant increase in funds flowing to exchange traded funds. Net sales of UK-domiciled mutual funds were £17.0 billion3 during 2015, with annual net outflows of £4.7 billion3 from the fixed income asset class by itself, although property and money market funds held up well.

What we do and how we do it

M&G has been managing money on behalf of third-party investors for more than 80 years. We believe our active approach to investment – selecting investments on a conviction basis rather than following a market index – produces superior returns for our customers over the longer term. We offer our customers the ability to invest in a diverse range of assets; not only equities and fixed income but also unlisted investments such as property, direct lending, infrastructure and private equity. M&G is one of the UK’s largest real estate investors, with a property portfolio of £23.4 billion at 31 December 2015, and is the third largest private debt lender in the world.

M&G operates a range of UK-domiciled retail funds which are now distributed in 15 markets across Europe and Asia. At the end of 2015 clients outside the UK account for 41 per cent of our retail assets under management.

In the institutional market, M&G provides a range of strategies that help pension funds, sovereign wealth funds and other large institutional investors match liabilities and achieve growth targets. Some of these strategies were developed originally for Prudential’s insurance funds.

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M&G’s retail market position

Retail fund markets are highly fragmented, with no single company dominating. This reflects the competitive nature of the business and the multiplicity of providers.

Retail clients favour pooled funds such as open-ended investment companies which they buy directly from M&G or more typically through an intermediary such as an independent financial adviser or discretionary fund manager. By total UK assets under management, M&G is the second largest retail fund manager with £35.7 billion of assets under management, equivalent to a market share of 6.8 per cent3. In Europe, where M&G has distributed funds since 2002, it has over £23.5 billion of assets under management and a market share of 0.4 per cent4.

M&G’s institutional market position

Institutional clients require investment strategies that help them meet future outgoings, from a pension scheme making payments to retired employees to a sovereign wealth fund that finances schools, transport and other infrastructure developments. M&G’s ability to design and commercialise investment strategies for such clients is founded on the quality of its people and their acknowledged expertise in the world’s credit and real estate markets.

M&G funds under management £bn

2011: 44 retail, 48 institutional, 109 internal. 2012: 55 retail, 57 institutional, 116 internal. 2013: 67 retail, 59 institutional, 118 internal. 2014: 74 retail, 63 institutional, 127 internal. 2015: 61 retail, 65 institutional, 120 internal.

*Invested by Prudential’s insurance funds

Many of the innovative strategies developed for today’s institutional clients are long-term, illiquid investments – from infrastructure and housing to solar parks and corporate lending. Such investments often require a client to sign up for multiple years, creating long-term stability and security in the yields received by the client and the fees received by M&G.

Our institutional fixed income clients include some of the UK’s largest pension funds, 51 UK local authority pension schemes and a number of sovereign wealth funds. M&G Real Estate is one of the world’s largest international property investors enabling clients to access a wide range of investment opportunities in real estate across all the major sectors in the UK, Europe and Asia.

People

Our investment edge is our people. We employ more than 2,000 people operating from offices across Europe, Asia and in southern Africa. We take pride in attracting, developing and retaining people of the highest calibre. In return, they are committed to working with us to meet the long-term needs of our customers.

Our investment teams are primarily based in our headquarters in London, where they benefit from the provision of high quality support staff and investment infrastructure: from analysts and dealers to operations, risk and compliance. Reflecting the need for local expertise in real estate, we also have specialist real estate teams in Paris, Frankfurt, Luxembourg, Singapore, Seoul and Tokyo in addition to those in London.

Meeting customers’ needs

A committed focus on long-term investment returns means that the interests of M&G and its customers are aligned, whether clients are individual savers, institutional investors or the funds of Prudential’s insurance operations.

M&G has a strong investment brand, built over decades and based on a reputation for honesty, innovation and a commitment to building long-term wealth for our investors. We aim to put our customers at the heart of everything we do and seek to be a trusted partner for all of our clients.

Investment expertise

M&G’s investment expertise spans all the principal asset classes – equities, fixed income, multi-asset and real estate – so that we can always offer investment solutions to our clients as market conditions and investor sentiment change.

Equities: Our fund managers have the freedom to develop their own investment approaches. Their main strength lies in stock selection, focusing on fundamental company analysis. M&G’s size and standing enables our fund managers to develop an effective dialogue with the management teams of the companies in which they invest.

Fixed income: M&G is one of Europe’s largest fixed income investors. Our fund managers benefit from one of the region’s largest and most experienced in-house credit research teams, whose knowledge covers the full range of fixed income investment, from the management of sovereign debt and public corporate bond portfolios through to private debt such as leveraged finance, real estate finance, direct lending and infrastructure. In a ranking of global private debt managers for 2015, M&G ranked third, with a book of over £20.7 billion5.

Multi-asset: M&G’s Multi-Asset team, the Macro Investment Business, is responsible for the management of a range of funds for retail investors and segregated accounts for institutional clients. The team applies a top-down ‘macro’ approach, with a strong valuation framework, which can be applied across markets and regions in many market conditions.

Real estate: M&G Real Estate is a leading global property investor and manager covering all major real estate sectors including business space, retail and leisure, residential and alternatives sectors. We actively manage our assets, drawing on our long heritage of expertise and knowledge and our extensive network of contacts. This approach enables the business to identify and capitalise on attractive investment opportunities. We also have a track record of identifying and exploiting real estate development opportunities and for the successful delivery of projects. M&G concluded 2015 with £4.2 billion of global property transactions. This included £2.6 billion of acquisitions with an average deal size of £56 million.

A history of innovation

Since launching the UK’s first open-ended fund in 1931, we have brought a succession of new investment strategies to the retail and institutional markets. In combination with this tradition of innovative investment thinking, M&G has a proven ability to convert ideas into products that meet our clients’ needs and attract significant fund flows. It is these two qualities in combination that make M&G distinctive.

M&G saw healthy inflows to its ranges of retail multi-asset funds in 2015, as investors sought flexibility and stability in times of low yields and economic and political uncertainty. During the year, M&G launched a third fund in its popular European multi-asset range, the M&G Prudent Allocation Fund.

In the institutional market, pension funds, sovereign wealth funds and other large clients require stable, long-term cash flows that help meet their liabilities. Our reputation for innovation in the institutional market continues to grow, with M&G at the forefront of a number of specialist fixed income markets, including leveraged finance and infrastructure investment. The consistency of our institutional investment returns helped earn M&G the prestigious 2015 Financial News Institutional Asset Management Awards for Infrastructure Manager of the Year for our infrastructure investment arm, Infracapital.

Diversification

M&G has pursued business diversification across:

  • Asset class: expertise across equities, fixed income, real estate and multi-asset strategies;
  • Client type: retail customers and institutional clients including pension funds, sovereign wealth funds, and Prudential’s own long-term insurance funds;
  • Investment strategy: over 60 pooled retail funds covering domestic, global and emerging market strategies, 14 of which have funds under management of over £1 billion, up from 13 in 2014. Institutional clients benefit from a wide-range of pooled and/or segregated fixed income, equity and real estate strategies; and
  • Countries.

Our customers in focus

Man using laptop

Ian retired at 55, and now has more time to spend doing what matters to him and his wife Sue, which includes managing their money.

‘My job now is to get the best possible return on our savings and investments and I like to keep up to date with the latest financial developments and look for good investment opportunities. Diversification is key to my investment strategy and the wide range of funds available from M&G allows me to achieve this.’

Like many M&G direct customers, Ian prefers to invest in ‘income’ shares of M&G mutual funds, which pay out income regularly to help support his lifestyle throughout retirement. To spread his risk across geographies, asset classes and fund strategies, Ian holds shares in the M&G Property Portfolio (which mainly invests in commercial properties in the UK) and in a broad mix of equity funds invested in the UK, Europe, North America and Asia6.

Notes

  1. Excludes Prudential Capital.
  2. Based on data as at Q4 2015. European Fund & Asset Management Association (published on 22 February 2016).
  3. Source: Investment Association, 31 December 2015.
  4. Lipper FMI FundFile, 31 December 2015, based on Europe ex. UK and International region. M&G data sourced internally.
  5. Private Debt Investor figures based on amount of capital raised over the last five years for discrete private debt strategies.
  6. Any investors should note that the value of investments, and the income from them, will fluctuate, which will cause fund prices to fall as well as rise and they may not get back the original amount they invested. The customers’ circumstances and views are specific to them and should not be taken as a recommendation, advice or forecast.

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