Despite being considered by many as a "blue chip" company, the $16 billion wealth manager AMP Limited (ASX: AMP) has been a serial underperformer.
Over the past 1, 5 and 10-year periods, AMP has underperformed the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
AMP's 10-year return is particularly stark. While the index has gained 6.5%, AMP is down nearly 40%. (source: Google Finance)
While there are a multitude of factors which have played their part in AMP's weak performance over the past decade, importantly there is one reason to be positive about AMP's potential.
Interestingly, my reason for positivity isn't AMP's exposure to the tailwind of Australia's growing superannuation system. While this factor is often touted as a positive, in reality there may not be a lot of growth potential from this thematic.
There are a couple of reasons why I don't see Australia's growing superannuation industry as being a driving force of growth for AMP.
Firstly, the space is very competitive. This means AMP needs to fight hard and spend plenty of money on marketing and advisors to win its share of superannuation fund flows.
Secondly, competition and regulation are driving down fee income. This means that although the pie may be growing, the earnings potential of that pie could ultimately shrink.
Enter China
While significant domestic financial advice and funds management growth may be hard for AMP to achieve, there is one area of AMP's business which I am excited about and see plenty of potential for solid growth rates.
AMP Capital holds a 15% stake in a joint venture with China Life called China Life AMP Asset Management (CLAMP).
At the group's recent half-year results management noted that average assets under management (AUM) growth for CLAMP was an outstanding 106% year on year to nearly $16 billion.
Helping to drive growth in the six-months to June 30 for CLAMP was the launch of 19 new mutual funds, including separately managed accounts, equity and fixed income funds. AMP reported that the business is profitable and continues to perform ahead of expectations.
While CLAMP, is certainly an exciting opportunity for AMP shareholders to gain exposure to the Chinese funds management industry, arguably the bigger opportunity lies within AMP's partnership with China Life Pension Company (CLPC).
CLPC undertakes investment management of Chinese pensions and experienced growth in AUM of 25% to $69 billion.
As the number one trustee services business in China with a commanding 29% market share and the number two investment manager in China with a 12% market share by AUM, having exposure to this partnership looks particularly appealing.
Outlook
While AMP's Chinese business interests don't currently contribute a meaningful share of group profits, that could change quickly if these growth rates can be sustained for a few years.
According to a recent article in the Australian Financial Review, AMP's CEO recently stated that he's "confident that in a few years time it's going to be a very material contributor to the group's result."
In my opinion, the future is starting to look brighter for AMP and the group offers an enticing exposure to the Chinese financial services sector.
