River and Mercantile Group PLC Trading Statement (6931L)

TIDMRIV

RNS Number : 6931L

River and Mercantile Group PLC

23 April 2018

23 April 2018

River and Mercantile Group PLC

Third quarter trading update

31 March 2018

River and Mercantile Group PLC (R&M), the investment solutions business today provides a trading update for the three and nine months ended 31 March 2018.

Highlights for the three months ended 31 March 2018:

   --     Fee earning AUM/NUM increased by 1% to GBP33.0bn. 

-- Sales for the period were GBP2.0bn which included a GBP1.2bn structured equity mandate for a Local Government Pension Scheme.

-- Redemptions in the quarter were GBP1.2bn, including GBP0.3bn of maturing structured equity transactions, and GBP165m and GBP158m from the UK Smaller Companies Fund and the UK Dynamic Fund, respectively.

   --     Net inflows for the quarter were GBP0.8bn, equivalent to 2.4% of opening AUM/NUM. 
   --     Investment performance was negative GBP0.4bn, primarily from allocations to equities. 

Highlights for the nine months ended 31 March 2018:

   --     Fee earning AUM/NUM increased by 6% to GBP33.0bn. 

-- Sales for the period were GBP4.6bn, including GBP1.1bn from Equity Solutions and GBP3.1bn from Derivative Solutions.

-- Redemptions in the period were GBP4.0bn, including GBP1.5bn of maturing structured equity transactions from a single client which had met its objectives.

   --     Net inflows for the nine months were GBP1.5bn, equivalent to 5% of opening AUM/NUM. 
   --     Investment performance generated GBP0.4bn and was positive across all divisions. 

-- Performance fees earned in the nine months ended 31 March 2018 are estimated to be GBP7.8m, of which GBP5.4m relates to the Fiduciary Management division with the balance from Equity Solutions.

-- Net advisory fees earned for the nine months ended 31 March 2018 are estimated to be GBP7.4m.

Mike Faulkner, CEO of River and Mercantile, said:

"Over the period we have seen weakness in equity markets and a consequent rise in volatility. We believe this is consistent with what we would consider to be an apprehension phase in the market cycle. As expected, our AUM has been negatively affected by the investment return in our equities business, but the effect was more muted in Fiduciary Management due to our defensive positioning.

Derivative Solutions is not directly exposed to market movements. As a result, the impact of negative equity market returns has been significantly reduced at a total firm level by the diversified nature of our business.

We had previously guided that in these conditions we generally expect to see strong interest for our equity and structured equity mandates, and indeed this is what we have seen during the quarter, with strong flows in particular coming in Derivatives.

It is worth specifically highlighting that we executed a significant structured equity mandate for a UK local authority. Local authorities are an exciting new client base for our outcome-led approach to investing. We continue to see institutional demand for our global and international equity offerings across all regions. In Australia and the US we are expanding our fund offerings in order to target pension, endowment and family offices where we see opportunity to deliver strong outperformance for clients.

Our view is that, in the near term, we may be moving into a more challenging phase of the market cycle. We have therefore been helping clients to prepare to defend market weakness. Consistent with this view, in February we launched and seeded the River and Mercantile Global Macro Fund, which combines our strong intellectual thinking in macro asset allocation with our derivatives trading expertise. We believe that this strategy will deliver significant returns over a full cycle, whilst being designed to defend a downturn effectively.

Overall, our level of intellectual research and development has continued to expand and as a result we are well positioned to continue our growth by assisting our clients in what could be difficult market conditions in the near term."

Assets Under Management (AUM) and Notional Under Management (NUM)

AUM/NUM for the three months ended 31 March 2018.

 
                                 Assets Under Management (AUM) and Notional Under Management (NUM) 
 
                                                                   Equity Solutions 
                                                          ---------------------------------- 
                             Fiduciary        Derivative 
 GBP'm                      Management         Solutions   Wholesale   Institutional   Total   Total AUM/NUM 
                       ---------------  ----------------  ----------  --------------  ------  -------------- 
                                 (AUM)             (NUM)       (AUM)           (AUM)   (AUM) 
 Opening fee earning 
  AUM/NUM                       10,953            16,703       2,285           2,640   4,925          32,581 
 Sales                             101             1,672         183              36     219           1,992 
 Redemptions                      (97)             (680)       (378)            (79)   (457)         (1,234) 
                                                                                              -------------- 
                                     4               992       (195)            (43)   (238)             758 
 Net rebalance and 
  transfers                      (109)               133           -               -       -              24 
 
 Net flow                        (105)             1,125       (195)            (43)   (238)             782 
 
 Investment 
  performance                    (162)                 -       (157)            (93)   (250)           (412) 
 Fee earning AUM/NUM            10,686            17,828       1,933           2,504   4,437          32,951 
 
 Mandates in 
  transition 
  (31 March 2018)                    -               190           -               -       -             190 
 
 Redemptions in                      -                 -           -               -       -               - 
 transition (31 March 
 2018) 
 Mandated AUM/NUM               10,686            18,018       1,933           2,504   4,437          33,141 
                       ===============  ================  ==========  ==============  ======  ============== 
 
 Increase/(decrease) 
  in fee earning 
  assets                          (2%)                7%       (15%)            (5%)   (10%)              1% 
                       ---------------  ----------------  ----------  --------------  ------  -------------- 
 Increase/(decrease) 
  in mandated assets              (2%)               12%       (15%)            (5%)   (10%)              4% 
                       ---------------  ----------------  ----------  --------------  ------  -------------- 
 

At 13 April 2018, AUM was GBP0.7bn for the UK Smaller Companies Fund and GBP0.2bn for the UK Dynamic Fund.

AUM/NUM for the nine months ended 31 March 2018.

 
                                   Assets Under Management (AUM) and Notional Under Management (NUM) 
 
                                                                   Equity Solutions 
                                                          ---------------------------------- 
                               Fiduciary      Derivative 
 GBP'm                        Management       Solutions   Wholesale   Institutional   Total   Total AUM/NUM 
                           -------------  --------------  ----------  --------------  ------  -------------- 
                               (AUM)           (NUM)         (AUM)         (AUM)       (AUM) 
 Opening fee earning 
  AUM/NUM                         10,528          16,888       1,821           1,812   3,633          31,049 
 Sales                               457           3,069         628             464   1,092           4,618 
 Redemptions                       (327)         (2,993)       (572)           (148)   (720)         (4,040) 
                                                                                              -------------- 
                                     130              76          56             316     372             578 
 Net rebalance and 
  transfers                        (182)             864           -             280     280             962 
 
 Net flow                           (52)             940          56             596     652           1,540 
 
 Investment performance              210               -          56              96     152             362 
 Fee earning AUM/NUM              10,686          17,828       1,933           2,504   4,437          32,951 
 
 Mandates in transition 
  (30 June 2017)                       -               -           -               -       -               - 
 Transitions/adjustments               -             190           -               -       -             190 
                                                                                              -------------- 
 Mandates in transition 
  (31 March 2018)                      -             190           -               -       -             190 
 
 Redemptions in 
  transition 
  (30 June 2017)                     (2)           (572)           -               -       -           (574) 
 Transitions                           2             572           -               -       -             574 
                                                                                              -------------- 
 Redemptions in                        -               -           -               -       -               - 
 transition 
 (31 March 2018) 
                           ------------- 
 Mandated AUM/NUM                 10,686          18,018       1,933           2,504   4,437          33,141 
                           =============  ==============  ==========  ==============  ======  ============== 
 
 Increase/(decrease) in 

  fee earning assets                  2%              6%          6%             38%     22%            6.1% 
                           -------------  --------------  ----------  --------------  ------  -------------- 
 Increase/(decrease) in 
  mandated assets                     2%             10%          6%             38%     22%            8.7% 
                           -------------  --------------  ----------  --------------  ------  -------------- 
 

Performance fees

Performance fees earned in the nine months ended 31 March 2018 are estimated to be GBP7.8m, of which GBP5.4m relates to the Fiduciary Management division with the balance from Equity Solutions.

Based on the current performance of Fiduciary Management, we do not anticipate recognising any further performance fees in the fourth quarter. At 0% outperformance against benchmark, performance fees from Fiduciary Management for the year ended June 2019 are estimated to be GBP10m.

Notes to editors:

River and Mercantile Group PLC (R&M) is an investment solutions business with a broad range of services, from consulting and advisory, to fully delegated fiduciary management and asset management.

R&M is focussed on creating investment solutions for institutional pension schemes, insurance and financial intermediaries and operates through four divisions: Investment Solutions encompassing both advisory and fiduciary management, Derivatives Solutions providing structured equity and Liability Driven Investing (LDI), Equity Solutions providing UK and global equity strategies and Multi Asset Solutions, providing dynamic asset allocation and other multi asset based solutions.

For further information please contact:

River & Mercantile Group PLC [phone]

Chris Rutt, Deputy Chief Financial Officer and Investor Relations

Forward-looking statements

This announcement contains forward-looking statements with respect to the financial conditions, results and business of the Group. By their nature, forward looking statements involve risk and uncertainty because they relate to events, and depend on circumstances that will occur in the future. River and Mercantile Group's actual results may differ materially from the results expressed or implied in these forward looking statements. Nothing in this announcement should be construed as a profit forecast.

Notes:

Assets Under Management (AUM) represents the assets over which we act either as a discretionary investment manager on a partial or fully delegated basis in accordance with an investment management agreement.

Notional Under Management (NUM) represents the aggregate billing notional of derivative contracts and is the basis on which management fees are charged.

Net rebalance and transfers represents the net change in billing notional values of Derivatives (including Gilts) from existing client mandates and can increase or decrease based on changes in the underlying hedging strategies.

The category also represents transfers of client assets between divisions. The different billing structures between divisions, including the use of AUM or NUM, means that transfers will not net to zero. The acquisition of AUM as part of the Credit Suisse ILC Co-operation agreement has also been recognised on this line.

Fee earning AUM/NUM represents amounts on which management fees and performance fees are charged.

Mandates in transition represent the AUM/NUM of mandates which have been awarded by clients at the period-end date and will transition into fee earning assets. The timing, and ultimate amount transitioned is determined by the client. We report an estimated AUM/NUM for those mandates where there is a high likelihood of the amount being transitioned within the next three months.

Redemptions in transition are redemptions which have been notified by the client at the period-end date, but where the AUM/NUM is included in fee earning assets at period end. We report an estimated AUM/NUM for those mandates where there is a high likelihood of the amount being redeemed within the next three months.

This information is provided by RNS

The company news service from the London Stock Exchange

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April 23, 2018 02:00 ET (06:00 GMT)