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Our businesses and
their performance

Asset management:
optimise

People walking around Canada Water square in London

“M&G’s objective is to produce superior
long-term investment returns for its clients –
individual and institutional investors – and
its shareholders. We continue to diversify our
business by geography and asset class, while
providing capital efficient profits and cash
generation for the Group.”

Michael McLintock
Chief Executive Officer
M&G

Michael McLintock

Performance highlights:

  • Record external funds under management of £137 billion
  • 34 per cent growth in European retail funds to £31.8 billion under management
  • Record 2014 profits of £446 million
  • Recognised for its investment performance with numerous awards, including Real Estate Manager and Fixed Income Manager of the Year at the Financial News Awards 2014 for the second consecutive year

Visit the M&G website

M&G external net flows £bn

2010: 7.4 retail, 1.7 institutional. 2.11: 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 mandate

M&G European retail funds under management £bn

2010 2011 2012 2013 2014
9.0 8.2 14.4 23.7 31.8

Net cash remittances £m

2010 2011 2012 2013 2014
150 213 206 235 285

IFRS operating profit1 £m

2010 2011 2012 2013 2014
246 301 320 395 446

Our strategy and operating principles

Our strategy and operating principles: M&G

Prudential believes the value of M&G’s asset management capabilities is allowing the business to focus on the generation of superior long-term returns for investors.

Through its proven ability to convert investment performance into significant fund flows, M&G is able to increase its exposure to markets and so maximise revenue from the long-term stock of funds under management.

The pillars of M&G’s business that support this approach are:

  • People – an environment that attracts, fosters and retains talented individuals;
  • Performance – an investment-led business focused on the delivery of long-term returns through active investment management;
  • Innovative investment ideas which meet client needs and a proven ability to convert these ideas into significant fund flows; and
  • Diversification by asset class, client type, fund and investment strategy and country.

Read more: Our strategy and operating principles

Market overview

The European asset management market is the second largest region in the world with total assets of £6.2 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 performance and well-regarded brands 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 £835 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.

Across its chosen markets, M&G serves the needs of both retail and institutional investors.

Market backdrop over the past year

The global economy appeared to lose momentum towards the end of 2014. While the US showed signs of improving economics, the Eurozone and Japan struggled to generate positive growth with the Chinese economy softening. Concerns about slower economic activity fuelled an upsurge in market volatility, as investors worried whether central banks would be able to navigate the slowdown and whether ongoing geopolitical tensions would disrupt the recovery.

European investors continue to favour fixed-income and mixed asset funds, while in the UK the bond sector saw several periods of net redemptions as savers moved more of their money into equities.

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 have long believed that our active approach to investment – selecting investments on a conviction basis rather than following a market index – produces superior returns over the longer term.

In the retail market M&G operates a range of UK-domiciled funds which are now distributed across Europe and Asia. Today, clients outside the UK account for more than 45 per cent of M&G’s 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 investors match liabilities and achieve growth targets. Some of these strategies were developed originally for Prudential’s insurance funds.

Today M&G is an international asset manager with a physical presence in 17 countries and retail products which are distributed in 22 jurisdictions.


£264bn funds under management


Our success is evident in the fact that we have achieved positive net inflows from external clients for 12 consecutive years, reflecting the attractiveness of our diverse fund range and strong investment returns. M&G recorded net fund inflows of £7.1 billion in 2014, compared with £9.5 billion during 2013. While these levels are lower, we expected new business to return to more normal levels following an exceptionally strong period since 2009. It is the consistency with which we generate net sales that drives our business growth and profitability. During the last five years, we have produced average annual net sales of £9.4 billion with external funds under management growing at a compound rate of 14 per cent per annum over the same period. Our ability to maintain a strong sales performance over such a time period demonstrates M&G’s ongoing strength in depth across all the principal asset classes and distribution channels. In 2014, no fewer than seven of M&G’s retail funds, representing all of the main asset classes, achieved net sales in excess of £250 million over the full year.

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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 £40.7 billion of assets under management, equivalent to a market share of 7.7 per cent4. In Europe, where M&G has distributed funds since 2002, it has over £31.8 billion of assets under management and a market share of 0.59 per cent5.

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

2010: 42 retail, 47 institutional, 109 internal. 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.

*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 63 per cent of the UK’s 44 largest pension funds, 38 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 1,900 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 deliver high performance in serving 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 London.

Meeting customers’ needs

A committed focus on long-term investment returns means that the interests of M&G and its customers are always 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 our clients.

Investment expertise

M&G’s investment expertise spans all the principal asset classes – equities, fixed income 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 2014, M&G ranked fifth6 and was the only European firm in the top 105.

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. 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 for identifying and exploiting real-estate development opportunities and for the successful delivery of projects. M&G concluded 2014 with circa £4 billion of global transactions. This included £3.2 billion of acquisitions with an average deal size of £50 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 significant fund flows. It is these two qualities that make M&G distinctive.

M&G has become a pioneer in fixed-income investing over the last two decades with the backing of one of the most experienced and well-resourced teams in the UK. Since the launch of the group’s first retail corporate bond fund in 1994, the Company has created a suite of fixed-income products designed to suit the varying needs of investors.

Our latest offering, the M&G Global Floating Rate High Yield Bond Fund, was successfully launched in September 2014 and registered in the UK and across Continental Europe. We believe that this is the first time that retail investors have been given access to the high yield floating rate note market through a collective fund. For bond investors concerned about the risk of an increase in interest rates, this fund offers a means not only to protect their savings but also to benefit from rising yields.

In the institutional market, pension funds, sovereign wealth funds and other large clients require stable, longer-term cash flows that help meet their liabilities.

Over the last few years, M&G has met this need by building a comprehensive range of fixed-income credit funds designed to provide returns above either inflation or an interest rate. The range includes a public corporate bond fund for clients with daily dealing requirements, funds that allocate to private and illiquid credit (such as corporate and social housing loans) and a fund with the flexibility to seek the best investment opportunities across public and private debt markets.

Diversification

M&G has pursued business diversification across:

  • Asset class: expertise across equities, fixed-income, real estate and mixed-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, 13 of which have funds under management of over £1 billion. Institutional clients benefit from a wide-range of pooled and/or segregated fixed-income, equity and real estate strategies; and
  • Country.

M&G in Italy

M&G in Italy.

Since establishing the business in 2012, Italy is now the biggest market for M&G outside the UK with just under £10 billion of retail funds under management at the end of 2014.

These assets represent a 7 per cent4 share of the Italian cross-border market and have been sourced through organic business development. Business growth has been especially strong in the past few years as Italian savers have embraced our market-leading fixed-income and multi-asset products as alternatives to government bonds. M&G is the number-one4 cross-border choice for fixed-income funds as at the end of December 2014.

£10bn funds under management in Italy

New relationships with private banks and ‘promotori’, Italy’s financial advisers, have been accompanied by substantial investment in the M&G brand. Last year we staged prominent brand advertisements in seven Italian ski resorts and sponsored four ski schools, as well as running product advertisements on the side of trams in Milan. M&G also sponsored the Marc Chagall exhibition in Milan.

Visit the M&G Italy website

Notes

  1. Excludes Prudential Capital.
  2. Based on data as at Q3 2014. European Fund & Asset Management Association (published on 8 January 2015).
  3. Source: Investment Association, 31 December 2014.
  4. Source: Assogestioni as of 31 December 2014. Cross-border market is based on assets and flows of funds domiciled outside Italy and managed by foreign groups only.
  5. Lipper FMI FundFile, 31 December 2014, based on Europe excluding UK and International region. M&G data sourced internally.
  6. Private Debt Investor figures based on amount of capital raised over the last five years for discrete private debt strategies.

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