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South Africa: Coronation Starts New Funds After Profit Disappointment
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Business Day (Johannesburg)
14 May 2008
Posted to the web 14 May 2008
Regis Nyamakanga
Johannesburg
LISTED money manager Coronation Fund Managers had launched a private equity arm and a global emerging market unit to bolster its sagging profits, CEO Hugo Nelson said yesterday.
The Cape Town-based company had also launched four international funds and acquired 49% in investment firm PPS Investments to diversify its revenue streams.
Coronation's first-half profit fell 29% from R127m to R90,2m after a volatile stock market slashed performance fees 64%.
Nelson attributed this to negative global market sentiment, which extended to emerging markets, triggering an "indiscriminate sell-off" in the South African financial and industrial sector.
"Although market volatility undoubtedly will have an impact on our profitability over the next six months, we are confident that we have the right strategy, business model and investment philosophy focused on delivering long-term investment returns for our clients," he said. "Our business has a diversified revenue stream, a strong cash flow and continues to be singularly focused on fund management."
Revenue for the six months to March fell to R421m from R423m, a year earlier, while operating expenses rose 5% to R269m. Earnings per share fell 24% to 27,4c while headline earnings per share declined 23%.
The company's stock fell 1,67% on the JSE to R5,90 as analysts described the results as "satisfactory, given the turbulence in the equity markets".
Assets under management grew 11% to R136bn owing to growth in the fixed interest market, further entrenching Coronation as a manager across all asset classes, Nelson said.
"We remain singularly focused on fund management and the ongoing support of our clients is vital to our success. Our philosophy of investing with a long-term time horizon and commitment to proprietary research has, amid the volatility and indiscriminate sell-off, given us the opportunity to strengthen our positioning in high conviction calls," he said.
Coronation had taken steps to bolster revenue and profitability.
The company had hired four professionals to manage its private equity fund that enabled clients to maximise their asset allocation to alternative investments. "We will soon start fund raising and hope to have raised as much as R1bn by the end of this financial year," Nelson said.
Coronation had hired highly rated fund managers to manage its Global Emerging Markets Flexible Fund launched in December and its hedge fund Coronation Global Emerging Markets Opportunities Fund launched February, he said.
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Coronation's joint investment company with the Professional Provident Society Investments was gaining traction in the market and would soon break even, Nelson said. "Given the volatility in the market, we have decided to distribute only two-thirds of our target distribution of 75% of after-tax cash profits, which translates to 16c per share."
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