m&g overview & performance -...

M&G Overview & PerformanceM&G Overview & PerformanceMichael McLintock, Will Nott, Simon Pilcher and Grant Speirs

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M&G Agendag

M&G Group overview Michael McLintockM&G Group overview Michael McLintock

M&G Retail Will Nott

M&G Fixed Income Simon Pilcher

M&G Group Financials Grant Speirs

2

M&G’s strategic priorities

People Performance Sales & profits

3

M&G Group overview

• £191bn FUM invested in equities, fixed income and property*

– £83bn external funds

• Manage global assets predominantly on behalf of UK and g g p yEuropean investors

• Pre tax profit of £177m (2009 results)• Pre-tax profit of £177m (2009 results)

– £122m (H1 2010)

4

*as at 30 September 2010

M&G GroupDevolved business structure with centralised support

M&G Investments

FixedRetail£102m PBT Equities PruPIM* PPM**

South AfricaFixed

Income£43m PBT

Will Nott Simon Pilcher

Shared servicesincluding

Will Nott Simon Pilcher

*Prudential Property Investment Management

includingRisk, Compliance, Operations…

5

y g**Prudential Portfolio Managers South Africa

Our market-leading positionNet UK retail sales

O S S O S S

2nd quarter 2007 2nd quarter 2008 4th quarter 2008 3rd quarter 2010

TOP TEN NET RETAIL SALESFourth Quarter 2008 (£m)M&G 1,003.9 Invesco Perpetual 765.2 J it 468 7

TOP TEN NET RETAIL SALESSecond Quarter 2007 (£m)Invesco Perpetual 1,143.6 Schroder 779.4 N St 657 1

TOP TEN NET RETAIL SALESSecond Quarter 2008 (£m)BlackRock 879.2 Invesco Perpetual 813.9 SWIP 571 3

TOP TEN NET RETAIL SALESThird Quarter 2010 (£m)M&G 1,282.5 BlackRock 1,032.3 St d d Lif I 760 0 Jupiter 468.7

SWIP 458.5 BNY Mellon 356.9 BlackRock 301.9 Cazenove 171 3

New Star 657.1 SWIP 547.0 Artemis 365.3 Jupiter 357.1 Bl kR k 342 3

SWIP 571.3 M&G 410.9 Jupiter 256.9 Mellon 240.5 First State 226 4

Standard Life Inv 760.0 BNY Mellon 567.2 First State 520.3 Invesco Perpetual 357.8 Schroder 291 5 Cazenove 171.3

Neptune 166.6 Schroder 130.2 First State 128.3

BlackRock 342.3 Standard Life 250.7 M&G 247.8 Investec 224.4

First State 226.4 Halifax 156.8 Threadneedle 141.1 Martin Currie 133.0

Schroder 291.5 SWIP 260.2 HSBC 250.5 AXA 245.4

8 consecutive quarters at number 1 for gross and net UK Retail sales

6Source: Pridham Report

2nd largest UK retail fund manager

40 UK retail FUM £bn Jan 200836.0

3540

UK retail FUM £bn end September 2010

26.5

19.420253035

21.617 4 17 2

25.6

20253035

13.2 11.8 10.3 107.7 6.9 6.8

11.7

5101520 17.4 16.3 14.5 14.5 13.0 12.2

17.2

5101520

05

Perpetu

alFide

lityJu

piter

h Widows

M&Gea

dnee

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Financ

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L&G

lackR

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05

Perpetu

alM&G

Fidelity

Jupit

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dnee

dleh Wido

ws

L&G

es' P

lace

Schrod

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kRoc

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Invesc

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Scottis

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Capita F

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119% growth in FUM in under 3 years

7

Source: IMA

How have we achieved this position?Strength across key asset classes in the UK

907.8900

1,000

g y

Est. net sales year ending Sept 10 (£m)

712.9

600700800900

415.7 382.7

192.0 172.3 162.7 125.1 119.1 107.4200300400500

107.4

0100

M&G RecoveryFund

SWIP UKEnhanced Equity

BlackRockCollective

SWIP FoundationGrowth

Prudential UKGrowth

L&G (N) T rackerUK Tracker T rust

AXA FramlingtonUK Select

BlackRock UKSpecial Situations

JOHCM UKOpportunities Fund

Newton IncomeFund

Number 1 money taker in UK equities

Investment Funds -UK Equity Tracker

Opportunities Fund

Source: Lipper FMI - Lipper FundFile as at end-September 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only

8

pp pp p g y y(excluding internal flows).


443.7396 6450

500

g y

Est. net sales year ending Sept 10 (£m)

396.6

330.5294.4

251.3250300350400

208.3 207.1160.2 148.4

107.7100150200250

050

Newton GlobalHigher Income

Aberdeen WorldEquity

M&G Global BasicsFund

St James's PlaceWorldwide

M&G GlobalDividend Fund

Sarasin EquiSarGlobal Thematic

Vanguard FTSEDeveloped World

Schroder QEPGlobal Active Value

Neptune GlobalEquity Fund

Jupiter MerlinWorldwide Portfolio

Opportunties UnitTrust

ex-U.K. Equity IndexFund

Number 1 money taker in global equitiesSource: Lipper FMI - Lipper FundFile as at end-September 2010 Figures in GBP M&G data sourced internally and based on UK retail sales only

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Source: Lipper FMI Lipper FundFile as at end September 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only(excluding internal flows).


1061.1 1007.71,1001,200

g yEst. net sales year ending Sept 10 (£m)

783.1

700800900

1,000

390.9 380.8 371.3 344.6281.8 267.1 266.6 243.5 229.1 226.7 223.4 215.8

200300400500600

0100200

M&G StrategicCorporate

M&G OptimalIncome Fund

L&G DynamicBond

Henderson AllStocks Credit

SantanderSterling

AvivaInvestors

SWIP SterlingCredit

L&G HighIncome

IP TacticalBond Fund

HendersonStrategic Bond

FidelityStrategic Bond

Standard LifeSelect Income

HendersonLong Dated

FidelityMoneybuild

CazenoveStrategic Bond

Bond CorporateBond

CorporateBond

Advantage Credit Income

Number 1 money taker in Fixed InterestSource: Lipper FMI - Lipper FundFile as at end-September 2010 Figures in GBP *UK IMA fixed income sectors consists of the IMA £ Corporate Bond

Please note that LV= Short Dated Corporate Bond and LV= Medium and Long Dated Corporate Bond have been removed from the top selling fund listas the majority of the funds’ estimated net sales over the latest year are sourced from internal seed capital.

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Source: Lipper FMI - Lipper FundFile as at end-September 2010. Figures in GBP. UK IMA fixed income sectors consists of the IMA £ Corporate Bond,IMA £ Strategic Bond, IMA £ High Yield and IMA UK Gilts sectors. M&G data sourced internally and based on UK retail sales only (excluding internal flows).


755.3 722.7700

800

g yEst. net sales year ending Sept 10 (£m)

400

500

600

700

223.0 219.4 214.3 188.2109.4 107.9 97.9 88.9

100

200

300

400

0

100

M&G PropertyPortfolio

SWIP PropertyTrust

ThreadneedleUK Property

Ignis UKProperty Fund

L&G UKProperty T rust

Aviva InvestorsProperty

SchroderGlobal Property

SkandiaProperty Fund

ClericalMedical UK

Aviva InvestorsAsia PacificPortfolio Trust UK Property

TrustProperty Fund Property T rust Property Global Property

SecuritiesFund

Property Fund Medical UKProperty

Asia PacificProperty

Source: Lipper FMI - Lipper FundFile as at end-September 2010 Figures in GBP M&G data sourced internally and based on UK retail sales only

Number 1 money taker in Property

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Source: Lipper FMI Lipper FundFile as at end September 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only(excluding internal flows).

M&G Fixed Income

• One of the largest fixed income investors in Europe

–2006: 15% of top 40 UK pension funds

–2009: 70% of top 40 UK pension fundsp p

• Dynamic and innovative investment approach

–Pioneer new investment products and thinking

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How have we achieved this position?

• Investment-led

• Stable team with low turnover

• Strong identity around culture and brand

• Single fund management centreSingle fund management centre

• Focus on organic growth

13

M&G GroupRecognition for our investment leading propositiong g p p

Outstanding Investment House (UK)

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M&G RetailM&G RetailWill Nott, CEO M&G Securities

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M&G Retail fund performanceLong term performance remains strong

• 62% retail funds above median

g p g

Rolling 3 year Retail fund performance 100% 62% retail funds above median

over 3 years

• 60% equity funds above median60%

70%

80%

90%Top quartile

60% equity funds above median over 3 years

• 67% retail fixed income funds20%

30%

40%

50% Upper quartile

Lower quartile • 67% retail fixed income funds above median over 3 years0%

10%

S-08O-08N-08D-08J-09

F-09M-09A-09M-09J-09

J-09

A-09S-09O-09N-09D-09J-10

F-10M-10A-10M-10J-10

J-10

A-10S-10

Lower quartile

Bottom quartile

Investment performance is fundamental to success

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Source: M&G management information

M&G Retail todayTransformation of the Retail business since 2000

M&G Retail net sales 2000 – end Sept 2010 (£bn)( )7.3

6

7

8

5.1

4

5

ales

£bn

0 6

1.7

2.42.1 1.8

1

2

3

Sa

YTD 2010

0.1 0.2 0.3 0.20.6

0

1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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Transformation of M&G Retail’s asset baseStrong growth despite a challenging external environmentg g p g g

40Growth of M&G Retail external FUM 2001 – end Sept 2010 (£bn)

£35.9bn

30

FUM

£bn

£35.9bn FUM

Sep -10£19.9bn

FUMNov-07

20

tail

exte

rnal

Nov-07

0

10

M&

G R

e

0Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

18


Improving the diversification of the business By countryy y

FUM UK vs. International 2001 FUM UK vs. International 2005 FUM UK vs. International to 30/9/10

INTERNATIONAL

UK

INTERNATIONAL

UK UK

Total FUM£11.5bn

Total FUM£13.9bn

Total FUM£35.9bn

Expansion into Europe diversifying the asset base

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Source: M&G management information 2001 and 2005 data as at end Dec

Improving the diversification of the business By asset classy

FUM by asset class 2001 FUM by asset class 2005

Multi AssetProperty

FUM by asset class 2010 to 30/9/10

Multi Asset t ertyMulti Asset

PropertyMulti Asset

EquityBond EquityBond EquityBond

Total FUM£11.5bn

Total FUM£13.9bn

Total FUM£35.9bn

Strong growth in fixed income assets

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Source: M&G management information 2001 and 2005 data as at end Dec

Looking aheadSignificant prospects for future growthg p p g

M&G Retail Market shareSize of Fund market(FUM at end 2009)

UK £481bn 4.9%

Europe £4,118bn 0.1%

Opportunities for M&G Retail even without underlying market growth

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Source: IMA, EFAMA

Opportunities for asset managersEuropean distribution is opening upp p g p

We have to work together to identify ways in which we canWe have to work together to identify ways in which we can … raise standards and transparency across Europe Financial Secretary to the Treasury, Nov 2010

The issue of restoring trust… will be dependent on creating more transparency in the industry

Transparency and being open and honest with clients is a crucial differentiator for asset managers

transparency in the industry FT January 2010

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differentiator for asset managers

M&G Fixed Income M&G Fixed Income Simon Pilcher, CEO Fixed Income

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M&G Fixed Income Using management of internal assets as a platform for external growthg g p g

Utilise skills developed Deliver outstanding

Internal Institutional

pprimarily for internal client to build new

business streams and di if

ginvestment returns to

in-house capital throughinvestment in innovative

d tt ti f th diversify revenues and attractive areas of the capital markets

Active fund management, particularly credit

24

M&G Fixed IncomeA broad and growing client baseg g

• 256 mandates

• 224 clients– 22 have two mandates– 6 have three mandates or more

• Other clients from 26 countries - sovereign wealth gfunds, insurance companies and local governments

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M&G Fixed IncomePerformance is a key component of success

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20Institutional All Stocks Corporate Bond Fund

y p

100

Rolling 3 year return and tracking error (to 30 June 2010)June 2010

High

10

12

14

16

18

60

70

80

90

The roller coasterJune 2007

2010

2

4

6

8

10

30

40

50

60

All the benefits of passive

Getting the risk/return blend rightReturn

0

2

1 year 2 years 3 years 5 years

Fund Benchmark 0

10

20

0 10 20 30 40 50 60 70 80 90 100

pmanagement, but with active fees Low returns / high volatility

Low Risk High1.7% p.a. 1.7% p.a.2.0% p.a. 1.1% p.a.

100% of mandates ahead of benchmark in 3 years to Sept 2010

Risk High

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Sources: M&G, Mercer MPA, 30 June 2010

M&G Fixed IncomeNet sales historyy

7,000M&G Fixed Income net sales 2003 – end Sept 2010 (£bn)

5,000

6,000

3,000

4,000

1,000

2,000

02003 2004 2005 2006 2007 2008 2009 Ytd Q3 2009 Ytd Q3 2010

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Sources: M&G, management information

M&G Fixed IncomeGrowth in external revenues

120M&G Fixed Income revenues 2006 – 2009 £m

80

100

120

venu

es £

m

40

60

80

d In

com

e re

v

20

40

M&

G F

ixe

02006 2007 2008 2009

Internal External

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M&G Fixed IncomeInnovation enhances reputation, builds trust and helps to grow client basep , p g

• Social Housing

• Real Estate Debt Fund• Real Estate Debt Fund

• Secured Property Income FundSecured Property Income Fund

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Secured Property Income FundWhat makes long lease property so attractive?

• Pension schemes need inflation-linked income

L d t d b d t l i t t b t

g p p y

• Long dated bonds are natural investments but:

– index-linked Government bonds are very expensiveincreased supply of Government bonds may impact returns– increased supply of Government bonds may impact returns

– conventional corporate bonds offer no direct inflation protection

• Long lease property can offer:

– predictable cash flows– long duration

f– increasing inflation-linked income – security of owning the underlying real estate– potential for capital gain

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Secured Property Income FundExample of long term bond-like income from propertyp g p p y

• Let to Tesco Property Nominees Ltd with guarantee from Tesco Plc, rated A-

• 25 year lease with Tesco responsible for insurance and all repairs

R t i ll li k d t RPI ith fl f 2% d• Rent increases annually linked to RPI with a floor of 2% and cap of 5% for first 5 years and 0% to 5% thereafter

• Adjoins larger retail park with 26 leading retailers• Adjoins larger retail park with 26 leading retailers

• Tesco pay £20.50 per sq.ft but rents next door are£40-42.00 per sq.ft.

• Tesco planning consent is open A1 with food but nextdoor is open A1 non food

p q

31

M&G Group Financials M&G Group Financials Grant Speirs, Group Finance Director

32

M&G GroupConsistently strong net flows; exceptional in 2009 and 2010

16000

y g ; p

M&G Group net sales 2003 – end Sept 2010 (£bn)

5,96210000

12000

14000

2 998

5,400

1,0936000

8000

184 416 1,3453,104 2,720 2,095

7,5175,700 5,117

1,169 1,587

2,517

2,9982,238

1,312

0

2000

4000

02003 2004 2005 2006 2007 2008 2009 Ytd Q3 2009 Ytd Q3 2010

Retail Institutional

33Sources: M&G, management information

M&G GroupRecord FUM levels

160 000

180,000

200,000

June 2007 i d

September 2010

100,000

120,000

140,000

160,000 previous record -£168bn

new record –£191bn

20 000

40,000

60,000

80,000

0

20,000

Dec-03

Mar-04

Jun-0

4Sep

-04Dec-0

4Mar-

05Ju

n-05

Sep-05

Dec-05

Mar-06

Jun-0

6Sep

-06Dec-0

6Mar-

07Ju

n-07

Sep-07

Dec-07

Mar-08

Jun-0

8Sep

-08Dec-0

8Mar-

09Ju

n-09

Sep-09

Dec-09

Mar-10

Jun-1

0Sep

-10

Despite FTSE All Share level being 16% lower

Internal External Institutional External Retail

34


M&G GroupFocus on growing higher margin external FUMg g g g

FUM Average net fee rates

External Retail*

g

£46bn 87 bpsExternal

External Retail

External

£46bn

£37bn

87 bps

36 bpsInstitutional £37bn 36 bps

Internal £108bn 11 bps

* Retail fees are gross annual management charges less rebates and commission payments

35


M&G GroupStrong growth in profits: outperforming marketsg g p p g

250M&G Group profit history 2003 – end Jun 2010 (£m)

2843

12

200

175 185165

2624

27

3

100

150

5180

96134

75

11913

0

50

02003 2004 2005 2006 2007 2008 2009 H1 2009 H1 2010

Underlying profit Performance Related Fees/Carried Interest FTAS* UCP**

* Full year average FTAS index rebased to 2003 (closing price adjusted for dividends and splits)** Average Sterling Corporate & Collateralised All Stocks TR Index (UCP0) Index rebased to 2003

36

Sources: M&G, management information; Bloomberg Average Sterling Corporate & Collateralised All Stocks TR Index (UCP0) Index rebased to 2003

Cost: Income ratioGood cost discipline through the cycles

90

100Cost to income ratio 2005 – end June 2010 • Excellent profit margins in

comparison to our peers

p g y

7570

65 62 65 63 6070

80

90 comparison to our peers– M&G 36.7%

– Schroders 25.0%

40

50

60 – Aberdeen 22.7%

– Henderson 27.6%

– F&C 27.0%

10

20

30 – Gartmore 24.5%

• 36% of current cost basei i bl0

2005 2006 2007 2008 2009 H1 2009 H1 2010is variable

Scaleable business operating platform generates operational efficiencies

37

Sources: M&G, management information, full year 2009 competitor data Morgan Stanley research

2nd largest UK retail fund manager

40 UK retail FUM £bn Jan 200836.0

3540

UK retail FUM £bn end September 2010

26.5

19.420253035

21.617 4 17 2

25.6

20253035

13.2 11.8 10.3 10.07.7 6.9 6.8

11.7

5101520 17.4 16.3 14.5 14.5 13.0 12.2

17.2

5101520

05

Perpetu

alFide

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h Widows

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dnee

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L&G

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Perpetu

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Fidelity

Jupit

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dnee

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L&G

es' P

lace

Schrod

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Invesc

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Scottis

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Capita F

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Invesc

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St. Jam

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119% growth in FUM in under 3 yearsSource: IMA

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m&g overview & performance -...

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