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Our businesses and their performance

United Kingdom and Europe
Asset management

Serving retail and institutional investors through a conviction-led and long-term approach

Patrick’s story
M&G

‘I’ve enjoyed a long and very varied working life, adapting my skills to several industries including the Civil Service, banking and even managing funeral homes in my later career, all while working for 40 years as a minister with my local Congregational church.

‘My savings and investments have given me the security to manage life’s ups and downs, pressures and expenditures. You never know what challenges life may bring you. The job you have today may not be there tomorrow and, even in retirement, you don’t always know how long you’ll have to support yourself and your family. Saving for the future is part of my DNA, which is why investing with a company like M&G is important to me. I know that looking after customers’ money is part of their DNA too.’

2016 performance highlights

  • External funds under management up 8 per cent to £137 billion
  • 2016 IFRS operating profit of £425 million
  • Institutional external funds under management growth of 11 per cent
  • New SICAV platform to offer Luxembourg-domiciled funds
  • Implementation of new global risk and portfolio management platform underway

2016 was a year of political and economic turmoil which prompted many of our customers to reassess their investment portfolios. As performance of our open-ended funds recovered in the second half of the year, we saw a much improved trend in flows in the fourth quarter, while appetite remained strong from institutional customers for our alternative investment strategies. Overall, the diversity of our asset classes, strategies and client base has allowed us once more to deliver value for money for our customers and a sizeable cash contribution to the Group.

Anne Richards
Chief Executive Officer,
M&G

Anne Richards

Understanding our markets

The world’s population is ageing: by 2020, there will be more people aged 65 and above than children under five, according to the US Census Bureau. The United Nations estimates that this trend will continue, with over 15 per cent of the global population being aged over 65 by 2050. This demographic shift coincides with changes in retirement planning as governments and employers shift more responsibility to individuals, resulting in growing demand for asset management services.

The European asset management market is already the second-largest in the world, with net assets of £8.2 trillion, while the UK – M&G’s core market – is the second-largest national market, with £1.2 trillion, and is a global centre of excellence for investment management.

As the appetite for long-term savings products grows, demand for alternative investment strategies and solutions, such as direct lending and long-term investment in infrastructure equity, is expected to grow. M&G is well placed to benefit from this trend, given its expertise across a diverse range of assets, a record of innovation and strong distribution relationships.

Market backdrop in 20161

Economic pessimism, political risk and central bank quantitative easing saw many government bonds offering negative real yields in the first half of 2016. There was a significant shift mid-year in investor sentiment, as assets flowed away from bonds and bond proxies back towards equities, particularly financial, energy and materials stocks. This trend accelerated following the US election, and the possibility of looser US fiscal policy boosting economic growth in 2017: over €22 billion was withdrawn from fixed income funds by European investors in November alone. An exception was the inflation-linked bond sector, which attracted net flows of over €10 billion in 2016 as investors sought protection from the inflationary impact of higher growth expectations in 2017.

Funds, excluding money market funds, in the UK ended 2016 strongly, with net inflows double those of the next-largest European market during the last two months of 2016. Total net sales of Investment Association-registered UK mutual funds were £13 billion during 2016, down from £22 billion in the previous year. In Europe, net sales were €213 billion, down from €498 billion in the previous year.

Driving our business

Customers

We believe our active approach to investment – selecting investments on a conviction basis rather than following a market index – produces superior returns for our customers over the longer term. We offer our customers the ability to invest in a diverse range of assets: not only equities and fixed income but also unlisted investments such as property and private equity.

£64.2 billion retail funds under management

£264.9 billion total funds under management

Products

M&G operates a range of UK-domiciled retail funds, which are now distributed in 23 jurisdictions across Europe and Asia. In the institutional market, M&G provides a range of strategies that help pension funds, sovereign wealth funds and other large institutional investors match liabilities and achieve growth targets.

One of Europe’s largest fixed-income investors

Range of 59 open-ended funds across diverse geographies, asset classes and investment strategies

14 funds have assets under management of>£1billion

Distribution

M&G provides market insights to clients, intermediaries and others through a number of channels, including a programme of roadshows and events. The M&G Client Council offers customers who invest directly with M&G an opportunity to help shape our products and services, in line with their needs.

58 billion held in equity investments

138 roadshows in 2016 from our retail fund managers reaching 42,000 clients in 16 countries

Investment for growth

M&G is making significant investment in technology, operating model and portfolio management platforms to advance our operational efficiencies and data capabilities.

Implementation of new portfolio management platform (Aladdin)

New SICAV platform in Luxembourg

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Customers

Throughout our 85-year history, M&G has maintained its purpose: to help our customers prosper by putting their long-term savings to work. Our customers have always been at the heart of what we do.

Today we manage the savings of millions of people in the UK, Europe and the rest of the world. These include direct or intermediated investors in our open-ended investment funds, members of pension schemes or other long-term savings schemes who invest through financial institutions, and Jackson and Prudential policyholders, including the Prudential UK with-profits fund.

All our customers benefit from our conviction-led, long-term approach to asset management, applied across the full range of asset types: cash, equities, bonds, property and alternatives. We are constantly developing our capabilities to offer our customers strategies that meet their needs, whatever the market conditions.

Products

M&G has a range of 59 open-ended funds domiciled in the UK and is developing a similar range of funds domiciled in Luxembourg. We aim to offer customers attractive long-term investment returns from a broad choice of products across diverse geographies, asset classes and strategies. Some of our products offer solutions to very specific investor needs. The M&G Episode Income Fund, for example, aims to deliver high and rising levels of income from a diverse range of different assets, which is important to many investors at a time of historically low interest rates and negative bond yields. We also manage segregated mandates on behalf of pension schemes, wealth funds and other institutional investors, as well as a number of alternative investment strategies.

Equities: throughout our long history, we have favoured a stock selection approach, building portfolios from the bottom up. We are known for our long-term investment views, which give us credibility and influence when representing the views and interests of our end investors to company management.

Fixed income: M&G is one of Europe’s largest fixed income investors, with one of the biggest, most experienced in-house credit research teams. Our end investors benefit from our expertise in the full range of fixed income investments, ranging from sovereign debt to private loans. Among our best-known and most successful strategies are the M&G Optimal Income Fund, which celebrated the 10th anniversary of its UK launch in 2016, and the M&G Alpha Opportunities Fund.

Multi-asset: M&G’s range of multi-asset funds, designed for investors seeking to spread risk across a mix of assets, has again proven popular with customers in 2016. The M&G Prudent Allocation Fund, launched in 2015 to cater specifically for European investors with a lower appetite for risk, was one of our bestselling funds in 2016. In December, we launched the M&G Global Target Return Fund, a new multi-asset fund aimed at investors seeking reasonable returns with managed volatility.

Real estate: M&G invests in, and manages, property around the globe. Our £26 billion portfolio covers the three commercial sectors of retail, office and industrial. We have a growing franchise in UK Residential Property. M&G Real Estate’s core Asia property fund celebrated its 10th anniversary in 2016 and is one of the largest and most diversified Asia property portfolios. There are now investments of more than US$1.7 billion in the Asia Property Fund.

Alternative assets: M&G is a leading investor in a diverse range of private and illiquid assets such as commercial real estate debt, infrastructure debt and equity and direct lending, collectively known as alternatives. These are attractive options for institutional investors looking to match long-term liabilities with long-term returns, either at fixed or floating rates. They are also a key source of funding for public and private infrastructure projects and businesses that might otherwise struggle to access competitive financing.

Distribution

With offices in 16 countries2, M&G is able to stay close to our customers and the intermediaries who distribute our products. Our open-ended retail funds are registered for distribution in 23 jurisdictions3 in Europe and Asia, while our institutional investment strategies are available to investors in many markets around the world, including North America.

We are also investing in online distribution in the UK, building on the insights we gain from the Client Council, a group of 500 customers who invest directly with us and who help us develop our products, services and investor communications.

Investment for growth

M&G is investing in technology and operational infrastructure so we can take full advantage of the opportunities in the fast-evolving distribution and regulatory landscape in which we operate. In 2016, we began implementation of Aladdin, a new global risk and portfolio management platform, which is being adopted across the Prudential Group’s asset management businesses. This will significantly advance our data capabilities and operational efficiency.

We also opened a new investment platform in Luxembourg, which gives us new capacity to distribute our funds to European customers based outside the UK.

Graham and Gemma’s story
M&G and Prudential UK

Alder Hey in the Park Children’s Hospital in Liverpool, officially opened by HM The Queen in June 2016, was built using finance arranged by the M&G infrastructure debt team, working in partnership with Prudential as lead debt investor.

Consultant paediatric surgeon Graham Lamont says the new building is transforming both patient experience and the way his team works. ‘Building the new Alder Hey from scratch has allowed us to redesign the way our day-patients flow through the building. Now we have no complaints about waiting times, and we’ll be able to increase the number of patients we’re able to treat from about 7,000 day-cases a year to about 8,000.’

Gemma, mother of one-year-old Harry, who has been treated for craniosynostosis at Alder Hey, agrees: ‘There’s so much clever design and technology at the hospital to make patients feel comfortable, from barcode scanners that check you in for appointments, to special lighting in the children’s rooms – it really is a hospital of the future!’

Notes

  1. Source: Broadridge FundFile as at 31 December 2016 in GBP and EUR. Where referenced, the European asset management market refers to both cross border and domestic markets and net sales data is based on estimated net sales data, All UK data is sourced from the Investment Association as at 31 December 2016 and based on the UK onshore and offshore data.
  2. Includes the UK head office and PPM South Africa.
  3. Europe includes the UK. Restricted distribution in Singapore.

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