ANNUAL REPORT 2001 - Prudential plc

BUSINESS REVIEW
CONTINUED
UNITED KINGDOM
& EUROPE CONTINUED
M&G
M&G is Prudential’s UK and European
fund management business and has over
£120 billion of funds under management.
These funds are invested in a wide range
of assets, including UK and international
equities, fixed interest, property and private
equity. M&G is the UK’s second largest
retail fund manager in terms of funds
under management.
Underlying profit from the core retail
and wholesale businesses was £56 million,
an increase of £4 million from 2000. In
addition, M&G earned a performance
fee of £19 million (£14 million in 2000)
reflecting its outperformance in managing
the Prudential life fund. M&G’s profits
of £75 million compare to £125 million in
2000. This decline was primarily due to the
transfer of the life and pensions business to
Scottish Amicable in 2000, which contributed
£35 million of operating profit in 2000.
M&G’s strategy of refocusing its institutional
business on core areas of strength in fixed
interest, defined contribution and pooled
pensions is increasingly bearing fruit as the
move away from defined benefit schemes
gathers momentum. A further £700 million
of institutional specialist fixed income
mandates were won during the year, with
M&G’s market leadership in liability and
cash flow matching being a particular factor
behind these wins. During 2001, M&G
continued to develop its pooled fund
business and increased the number of
defined contribution clients.
For the second consecutive year,
M&G generated exceptional investment
performance across the internal funds
for which it was responsible, including
the £80 billion managed on behalf of
the Prudential Assurance Company’s
and Scottish Amicable’s long-term funds.
Against a backdrop of difficult market
conditions, these funds beat their
competitor and strategic benchmarks
by more than two per cent in 2001.
2001 proved a challenging year for the
retail fund management industry with gross
industry retail sales falling 22 per cent, net
retail sales falling 48 per cent and net
Individual Savings Account (ISA) sales falling
39 per cent (Association of Unit Trusts and
Investment Funds figures to December
2001). Excluding an exceptional loan note
rollover in 2000, relating to the original
acquisition of M&G by Prudential, M&G
saw a decrease in gross sales of only five
per cent and achieved a significant increase
in net retail sales over the year. M&G was
able to leverage its leading fixed income
position and reduce redemptions, in addition
to benefiting from an increasing recognition
among Independent Financial Advisers (IFA)
of the good performance of a number
of its equity funds. M&G also significantly
increased its market share in the IFA
channel, winning more than a six per cent
share of all ISA and Personal Equity Plan
transfer business sold via intermediaries
during 2001.
M&G’s property and private equity arms,
which primarily invest on behalf of the
Prudential Assurance Company, also
enjoyed a successful year. The managed
property portfolio delivered another
impressive performance, beating its market
benchmark by a considerable margin, its
tenth consecutive year of outperformance.
While market conditions for private equity
remain challenging, we continued to diversify
the portfolio with new investments across
Europe and Asia.
M&G has also taken significant steps to
build its distribution capability in other
parts of the world. In 2001, M&G won unitholder
approval to convert 38 of its unit trust
funds to an OEIC (Open Ended Investment
Company) structure. This conversion is part
of M&G’s plans to distribute its product
range into European markets.
During the year, M&G established its Berlinbased
sales and marketing operation and
has now opened for business in both
Germany and Austria. A co-operative
product strategy has also been agreed with
Prudential Corporation Asia through which
assets collected within PCA’s offshore fund
range will flow into M&G’s UK OEIC funds.
Cofunds, the fund supermarket for
intermediaries which was founded as a joint
venture between M&G, Threadneedle, Jupiter
and Gartmore, achieved over £200 million
of PEP and ISA sales during the year, with
over 40 providers offering nearly 500 funds
and over 2,000 IFA firms now signed up.
Cofunds gained nearly a five per cent share
of IFA ISA sales and over three per cent of
PEP transfers during 2001.
M&G'S POSITION OUT OF
TOP 40 FUND MANAGERS
0
5
10
15
20
25
30
35
40
Sep
1999
Dec Mar Jun Sep Dec Mar Jun Sep Dec
1999 2000 2000 2000 2000 2001 2001 2001 2001
Rolling 1 year
Rolling 2 years
Source: The Research Department – Group weighted
performance over rolling 1 year periods (M&G unit trusts).
08 Prudential plc Annual Report 2001