Perpetual's transformation is on track

Despite a quarterly decline, year-on-year funds under management are up for one of Australia's oldest financial institutions.

Tom Richardson

Tom is a holder of the CFA Society of the UK administered Investment Management Certificate (IMC) and has more than a decade's professional experience in the investment management industry in Australia and the UK. Tom now works as a writer and editor for TMF Australia and has two easy to remember rules of investing he likes to follow. Avoid overpaying for growth stocks and avoid paying at all for stocks that are cheap for a reason. Tom prefers growth investing over value investing and says it's not rocket science, just avoid overpaying for the best returns.

Published July 30, 2013 6:24 am AEST

Since dumping former chief executive Chris Ryan in February 2012, Perpetual (ASX: PPT) has embarked on a radical transformation plan, slashing costs and outsourcing its IT function as part of a strategic review aimed for completion in 2015.

For the three months ended 30 June 2013, total FUM decreased 2.7% from $26 billion to $25.3 billion. Net fund outflows were $0.5 billion on top of a $0.2 billion decrease that the group attributed to a lower domestic equity market. Year-on-year though, FUM was up 11.9% or $2.7 billion from $22.6 billion.

The share price has rallied over 100% from the lows of the previous CEO's tenure, reflecting improved market conditions, sentiment, and some strong fund performance. The group is also placing much emphasis on the results of its transformation plan.

However, one fact neatly illustrates the recent erosion of the group's reputational advantage. This July, rival asset manager Magellan Financial Group (ASX: MFG) overtook Perpetual in terms of size by market capitalization.

Foolish takeaway

Perpetual's core business is asset management and its success remains closely aligned to equity markets. Over recent years, its Achilles' heel has been net fund outflows. Turning this around will depend on fund performance and market sentiment – positive alignments here should support the recent revival.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.

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