The Pendal Group Ltd (ASX: PDL) share price came under pressure this morning following the release of its full year result.
In early trade the fund manager's shares fell almost 4% to $7.21. They have since recovered and are now trading slightly higher.
How did Pendal perform in FY 2019?
It certainly was a year to forget for this fund manager.
During the 12 months ended September 30, Pendal posted a statutory net profit after tax of $154.5 million. This was down 24% on the same period last year.
Pendal's cash net profit after tax and cash earnings per share fell by 19% to $163.5 million and 51.3 cents per share, respectively.
The key driver of its underperformance in FY 2019 was its significantly lower performance fees. They fell by a massive 89% from $54.5 million to just $5.9 million. Excluding performance fees, which the company notes can be volatile, operating profit would have been down 8% to $198.5 million.
In light of this poor performance, Pendal declared a final dividend of 25 cents per share. This brings its total dividends for the year to 45 cents per share, which is down 13% year on year.
Why did Pendal underperform?
The release explains that the 2019 financial year was a particularly difficult one for active management. With official interest rates in decline and global bond yields falling sharply, there was a surge in the outstanding amount of negative yielding debt.
"In turn, this turbo-charged asset markets in a way that distorted them, with growth outperforming value, large cap outperforming small caps, and a substantial outperformance of bond proxies creating a narrow market. This confluence of factors negatively affected a number of Pendal Group funds, which underperformed during the year," the company advised.
However, Pendal's CEO, Emilio Gonzalez, appears confident on its outlook.
He said: "Despite a more difficult year influenced by global trade tensions and continued uncertainty around Brexit, our financial strength and strong cash flow, positions us well to invest for growth and take advantage of opportunities."
"We look to the future with confidence based on a strategy focused on attracting, retaining and developing superior investment talent, and expanding our distribution and investment capabilities to meet our clients' needs," he concluded
While Pendal looks reasonably attractive at these levels, I think it is too soon to invest. As such, I would sooner buy Magellan Financial Group Ltd (ASX: MFG) or Macquarie Group Ltd (ASX: MQG) instead.
