M&G Investments Michael McLintock and Grant Speirs
Agenda M&G Group strategic overview Michael McLintock M&G s results and the industry Grant Speirs Business outlook and summary Michael McLintock 2
About M&G An investment-led organisation Leading international asset manager known for its long term, investment-led approach Active not passive Today we manage 242.2bn in equities, multi asset, fixed income, real estate and cash for clients across Europe and Asia We employ over 1,8 people based in 17 operations internationally Note: Data as at 3 September 213 Source: M&G management information 3
M&G Group business structure Devolved business structure with centralised support 4
M&G s investment expertise: diversified across all the principal asset classes M&G Group funds under management by client type and asset class (%) 2.5%.4% 1.4% 4.5% 21.3% 9.8% 13.% 1.6% 46.6% 3.9% 13.4% 11.6% 5.6% 8.9% 41.5% 51.1% Fixed income Equities Real Estate Cash Infrastructure Private finance lending Total internal FUM 117.9bn Note: Data as at 3 September 213 Source: M&G management information Total retail external FUM 64.5bn Total institutional external FUM 59.8bn 5
M&G s strategic priorities People Performance Sales and profits 6
M&G s recent awards Financial News Awards 213 and European Pensions Awards 213 Real Estate Manager, Fixed Income Manager and Investment Manager of the Year European Funds Trophy Grand Prix 213 Best European Asset Manager* Morningstar OBSR Honours Outstanding Investment House 21, 211 and 212 Investment Week s Fund Manager of the Year Awards 213 Outstanding Industry Contribution award Our strong investment performance and expertise has been recognised by independent authorities within the industry * In the 41 to 7 rated funds category Source: M&G management information 7
Two important qualities for which M&G is well known 1. A history of innovative investment ideas which meet client needs 2. A proven ability to convert these ideas into significant fund flows It is these qualities in combination that make M&G distinctive 8
Total return (%) (18.7.28 = 1) M&G Global Dividend Fund: dividend growth from global equity M&G Global Dividend Fund investment performance, since inception 18 July 28 3 September 213 (%) 2 175 15 125 M&G Global Dividend Fund 86.5% MSCI AC World Index 58.3% IMA Global Sector 44.8% 1 75 Consistent track record of investment outperformance Note: Fund launched 18 July 28 Source: Morningstar, Inc.UK database, 3 September 213. Figures in GBP, bid to bid, basic rate taxpayer 9
Jul-8 Aug-8 Sep-8 Oct-8 Nov-8 Dec-8 Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 Aug-9 Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Commercial success of the M&G Global Dividend Fund Column1 M&G Global Dividend FUM, July 28 September 213 ( m) 8, Total FUM 7.5bn 7, 6, 5, 4, 3, 2, 1, Exceptional asset gathering track record Note: Fund launched 18 July 28 Source: M&G management information 1
Total return (%) (8.12.26 = 1) M&G Optimal Income Fund: UK s first fully flexible global bond fund 18 16 14 12 1 M&G Optimal Income Fund investment performance, since inception 8 December 26 3 September 213 (%) M&G Optimal Income Fund 75.9% IMA High Yield Sector 48.3% IMA UK Gilts 33.2% IMA Strategic Bond Sector 31.8% IMA Corporate Bond Sector 3.4% 8 6 One of the best performing bond funds since launch Note: Fund launched 8 December 26 Source: Morningstar, Inc.UK database, 3 September 213. Figures in GBP, bid to bid, basic rate taxpayer 11
Commercial success of the M&G Optimal Income Fund Column1 M&G Optimal Income FUM, December 26 September 213 ( m) 18, 16, Total FUM 15.7bn 14, 12, 1, 8, 6, 4, 2, Exceptional asset gathering track record Note: Fund launched 8 December 26 Source: M&G management information 12
M&G Secured Property Income Fund: innovative investment approach offering long term inflation linked income from physical property assets Attractive long term returns delivered through the extensive and longstanding collaboration between our institutional Fixed Income and Real Estate investment teams Best performing and fastest growing fund in the entire AREF / IPD UK Quarterly Property Fund Index over the past 5 years 5 year total return of 9.4% p.a. and a compelling real return of 6.5% p.a. over UK RPI* * Annualised returns as at 3 September 213 Note: The Fund returns are quoted on a Net of Fees basis Source: M&G management information 13
M&G Secured Property Income Fund: record YTD 213 with completion on transactions with a value of over 6m M&G Secured Property Income Fund capital raised and invested, since inception August 27 September 213 ( m) 2,2 2, Total FUM 2.bn 1,8 1,6 1,4 1,2 1, 8 6 4 2 Q2 27 Q3 27 Q4 27 Q1 28 Q2 28 Q3 28 Q4 28 Q1 29 Q2 29 Q3 29 Invested Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Undrawn capital commitments Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Strong track record of capital raising and deployment Note: The Fund s inception date is 1 August 27 Source: M&G management information 14
How the fund management model works Maximising the long term stock of profitable funds under management The amount of money that you are successful in attracting in any single year has a very limited effect on that year s profits. It is the consistent winning of net new business over a period of years that maximises the stock of funds and therefore the business exposure to rising markets It follows from this that the retention of existing assets is just as important as gross new business flows 15
A history of successful asset accumulation M&G Group net sales, 23 213 ( m) 1, +52% retail net sales CAGR 23-212 8, 7,516 7,416 7,842 6, 5,886 4, 3,895 3,13 2,72 2, 1,345 2,95 184 417 23 24 25 26 27 28 29 21 211 212 Q3 213 Retail Institutional Note: From 212 onwards, PPMSA results are recorded on a proportional basis Source: M&G management information 16
A history of successful asset accumulation M&G Group net sales, 23 213 ( m) 18, 16, +32% total net sales CAGR 23-212 16,881 14, 13,478 12, 1, 8, 9,15 8,9 6, 4, 3,862 6,11 4,958 3,47 4,385 2, 1,353 2,4 23 24 25 26 27 28 29 21 211 212 Q3 213 Note: From 212 onwards, PPMSA results are recorded on a proportional basis Source: M&G management information Retail Institutional 17
An unprecedented 15 consecutive quarters as the no.1 fund group for UK retail net sales Number one fund group for quarterly UK retail net sales, Q2 25 Q3 213 ( m) 2, 1,6 1,2 A record 15 consecutive quarters Action taken to slow down corporate bond inflows 8 4 (4) (8) Q2 5 Q3 5 Q4 5 Q1 6 Q2 6 Q3 6 Q4 6 Q1 7 Q2 7 Q3 7 Q4 7 Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Q3 9 Q4 9 Q1 1 Q2 1 Q3 1 Q4 1 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Source: Pridham Report No.1 fund group M&G M&G as no.1 fund group 18
Jan-4 Apr-4 Jul-4 Oct-4 Jan-5 Apr-5 Jul-5 Oct-5 Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 A succession of blockbuster funds which has not been normal by industry experience Phases of growth in FUM of M&G s leading retail funds, January 24 September 213 ( m) 25, 22,5 2, 17,5 15, 7.5bn to 23.2bn Optimal Income 5.8bn to 15.7bn 12,5 1, 7,5 5, 2,5.8bn to 1.7bn 1.3bn to 2.2bn 1.3bn to 8.6bn Global Dividend 1.7bn to 7.5bn Source: M&G management information Global Basics Fund Sterling and Strategic Corporate Bond funds Recovery Fund Optimal Income and Global Dividend funds 19
UK: Retail Distribution Review An evolving environment Greater transparency places fees in the spotlight If you have: - performance - products - brand - market position behind you, you can better withstand any fee pressure Too early to draw any conclusions 2
Geographical diversification: the European growth story so far Exceptional long term asset growth track record M&G Retail European FUM, 21 213 ( bn) 25 2 +13% M&G Retail European FUM CAGR Dec 22 Sept 213 22.1 15 16.8 2.8 14.4 1 6.9 9. 8.2 5 7.1..1.4 Developing a European retail business that is now 1.3 times the size of the whole M&G Group pre the acquisition by Prudential 1.2 2.8 M&G Group 21 22 23 24 25 26 27 28 pre Prudential preacquisition Retail Institutional Assurance Prudential 29 21 211 212 Q3 213 acquisition Source: M&G management information 21 4.5 3.1 5.
M&G s market presence in Europe Coverage of all the major European markets Single UK-domiciled OEIC platform; most other fund groups operate both Luxembourg or Dublin based SICAVs plus UK onshore fund ranges Scalable and cost effective business model: locally based sales teams supported by the London hub This structure enabled M&G to protect its business and people during the downturn 22
Strong growth in assets from across a number of our leading European markets Growth of M&G Retail FUM across some of our leading European markets, Q3 27 and Q3 213 ( m) 7, 7,172 6, 5, 5,58 4, 4,354 4,3 3,731 3, 2,569 2, 1, 918 988 5 France Germany Italy Spain Switzerland* Q3 27 Q3 213 267 * Also includes assets from Luxembourg channel Source: M&G management information 23
Looking forward: Europe remains a huge opportunity Opportunities for M&G s retail business even without underlying market growth M&G s retail market share by FUM in the UK and Europe, end September 213 Total size of fund market M&G Retail market share UK 738.6bn 5.57% Europe 6, 741.9bn.39% Note: European market is defined as funds flagged as fund market Europe or International in Lipper FMI FundFile. A proportion of International FUM may be sourced outside of Europe Source: M&G management information 24
Looking forward: Europe remains a huge opportunity Factors supporting M&G s ongoing expansion into Europe Diminishing regulatory barriers and the success of UCITS as a European and global savings vehicle (UCITS are trusted) The trend towards greater use of open architecture across the continental European retail market, traditionally a bancassurance-dominated structure, is well-established Demographic and economic development trends point to the need for a higher levels of savings Positive long term prospects for the industry 25
Agenda M&G Group strategic overview Michael McLintock M&G s results and the industry Grant Speirs Business outlook and summary Michael McLintock 26
Transformation of M&G s funds under management M&G Group funds under management, 23 Q3 213 ( bn) 25 +18% external FUM CAGR +3% internal FUM CAGR 228.3 242.2 2 198.3 21.1 164.1 167.3 174.3 51.5% 15 22.1% 1 111.1 126.3 149. 141.4 5 23 24 25 26 27 28 29 21 211 212 Q3 213 Note: From 212 onwards, PPMSA results are recorded on a proportional basis Source: M&G management information Internal Retail Institutional 27
Achieving record profit levels M&G Group profits, 23 213 ( m) 35 3 +2% pre tax profit CAGR 23-212 31 32 25 228 246 2 161 23 177 24 15 1 64 16 12 131.7 8% CAGR 14.3 6% CAGR 5 23 24 25 26 27 28 29 21 211 212 H1 213 Operating profit PRFs / carried interest / investment income PPMSA associate FTAS* UCP** * YoY change in FY weighted effective average index level for the FTSE All Share total return index rebased to 23 pre tax profit of 64.m ** YoY change in FY weighted effective average index levels for the Merrill Lynch Sterling Corporate and Collateralised All Stock total return index rebased to 23 pre tax profit of 64.m Note: From 212 onwards, PPMSA results are recorded on a proportional basis. Profits from 23 onwards have been restated on the same basis for comparative purposes Source: M&G management information 28
M&G and the industry: differing asset growth experiences 7 6 5 4 +75% 57.2 Global FUM ($T) Column1 +% 56.8 57. 53. 47.3 +9% 62.4 12 1 8 +153% M&G Group external FUM ( bn) +8% 89.3 7.3 91.9 +22% 111.9 3 32.6 6 51.2 47. 2 4 1 2 2.3 22 27 28 29 21 211 212 22 27 28 29 21 211 212 Global FUM grew 9% in 212 to $62.4T M&G external FUM grew 22% in 212 to 111.9bn Source: BCG Global Asset Management Market Sizing Database 213; BCG Global Asset Management Benchmarking Database 213; M&G management information 29
M&G has consistently benefited from strong net inflows 35% Average industry net flows (% of opening FUM) Column1 35% M&G Group net flows (% of opening FUM) 3% 25% 4.1% average.3% average 3% 25% 11.3% average 28.7% 14.3% average 2% 2% 16.9% 18.4% 15% 1% 5% % 3.1% 3.2% 4.5% 5.7% 4.% (.5)% 1.% (.2)%.1% 1.2% 15% 1% 5% % 6.7% 8.3% 13.5% 11.% 6.7% 13.% 4.9% (5)% 23 24 25 26 27 28 29 21 211 212 (5)% 23 24 25 26 27 28 29 21 211 212 Industry net flows at highest level since 27 M&G: accumulating new business over the long term Source: BCG Global Asset Management Market Sizing Database 213; BCG Global Asset Management Benchmarking Database 213; M&G management information 3
The European fund management experience Evolution of key economics for European players 12 Average FUM 12 Net revenues* 12 Costs 12 Profits 1 8 1 95 +4% 99 9 11 14 1 8 1 8-16% 83 83 84 7 1 8 1 86-5% 95 84 94 95 1 8 1 72-31% 67 69 69 6 6 6 6 53 4 4 4 4 2 2 2 2 Avg Avg Avg Avg Avg Avg 7 8 9 1 11 12 * Net revenues are management fees net of distribution costs 7 8 9 1 11 12 7 8 9 1 11 12 Source: BCG Global Asset Management Market Sizing Database 213; BCG Global Asset Management Benchmarking Database 213 7 8 9 1 11 12 31
M&G s experience Evolution of key economics for M&G 25 Average FUM 18 Net revenues* 18 Costs 18 Profits 2 +112% 189 212 16 14 +57% 143 157 16 14 +34% 134 16 14 +57% 148 157 15 1 1 12 122 166 12 1 8 6 1 93 93 124 12 1 8 6 1 87 89 112 124 12 1 8 6 1 112 87 121 5 4 4 4 2 2 2 Avg 7 European peers: Avg 8 Avg 9 Avg 1 +4% Avg 11 Avg 12 * Net revenues exclude PRFs, carried interest and investment income 7 8 9 1 11 12-16% Source: BCG Global Asset Management Market Sizing Database 213; BCG Global Asset Management Benchmarking Database 213; M&G management information 32 7 8 9 1 11 12-5% 7 8 9 1 11 12-31%
M&G has favourable key metrics compared to its peers 4 3 2 29.3 Net revenues (bps) Column1 36.9 28.4 23.3 22.3 18.7 34.9 35.8 16 14 Operating profit (bps) 13.8 13.7 14.5 1 Total Inst. Inst. hybrid Mixed open Euro insurance UK M&G 211 M&G 212 12 1 1.9 8.9 1.7 3 Costs (bps) 8 6 8. 6. 2 18.4 23.1 17.7 21.2 21.3 4 1 14.4 14.3 12.7 2 Total Inst. Inst. hybrid Mixed open Euro insurance UK M&G 211 M&G 212 Source: BCG Global Asset Management Benchmarking Database 213; M&G management information Profit margin Total Inst. Inst. hybrid Mixed open Euro insurance UK 37% 38% 36% 37% 32% 38% M&G 211 M&G 212 39% 41% 33
Looking forward Past performance is not a guide to future performance M&G s results have been the exception, not the industry norm 34
Agenda M&G Group strategic overview Michael McLintock M&G s results and the industry Grant Speirs Business outlook and summary Michael McLintock 35
Summary Full impact of RDR is yet to be determined RDR and other regulatory initiatives are potentially raising the barriers to entry M&G s net sales experience in the retail market during the period 29 213 was exceptional. It is to be expected that net sales going forward will drop back to a more normal run rate Growth in size and complexity of the business brings extra costs as we must invest in people, systems and office premises to support a bigger business 36
M&G s position Very strong domestic position Well placed for continued European growth Diversified asset and client base Growth of the business over the past decade has been achieved notwithstanding a wide variety of market conditions 37
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Jan-4 Apr-4 Jul-4 Oct-4 Jan-5 Apr-5 Jul-5 Oct-5 Jan-6 Apr-6 Jul-6 Oct-6 Jan-7 Apr-7 Jul-7 Oct-7 Jan-8 Apr-8 Jul-8 Oct-8 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 M&G s strategic priorities: performance Investment performance is fundamental to success % Rolling three year retail percentile rankings weighted by number of funds, Dec 23 Sep 213 (%) 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Top decile 1st quartile 2nd quartile 3rd quartile 4th quartile Source: Morningstar Inc. (UK database) as at 3 September 213. Figures in GBP, bid to bid, net income reinvested. Quartile rankings based on ranking of the funds within their respective IMA or Morningstar sectors; M&G management information 4
M&G s strategic priorities: performance Investment performance is fundamental to success % Rolling three year retail percentile rankings weighted by total FUM Q1 24 Q3 213 (%) 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Top decile 1st quartile 2nd quartile 3rd quartile 4th quartile Source: Morningstar Inc. (UK database) as at 3 September 213. Figures in GBP, bid to bid, net income reinvested. Quartile rankings based on ranking of the funds within their respective IMA or Morningstar sectors; M&G management information. FUM data based on total FUM as at 3 September 213 41
M&G s strategic priorities: performance Investment performance is fundamental to success Excellent institutional investment performance: 1% of externally managed institutional fixed income mandates outperforming or meeting benchmark over three years M&G Real Estate has delivered an average return of.5% p.a. above benchmark for the Pru UK Life Fund since 1981 (earliest date records are available) Source: M&G management information 42
Focused approach to launch into Asia Same principles as applied to the launch of M&G into Europe Long term strategic initiative Focus on two Asian markets: Hong Kong and Singapore Leveraging off our existing global private bank clients M&G is operating on a cross-border basis only Maintaining our single UK-domiciled OEIC platform Targeting mass retail money is not part of our medium term strategy 43
BCG global asset management benchmarking survey: segmentation of peer groups based on business models Institutional FUM (% of total FUM) > 67% 35 75% Segmentation of benchmarking study participants Institutional captive Mixed captive Institutional hybrid Mixed hybrid Institutional open Mixed open M&G belongs in the institutional hybrid peer group based on its total FUM* but since it has high retail third-party revenue realisation it also benchmarked against the mixed open peer group as well < 4% Retail captive Retail hybrid Retail open > 75% 5 75% < 5% Captive FUM (% of total FUM) Two key drivers: share of institutional FUM vs. retail FUM and of captive vs. external third-party assets Source: BCG Global Asset Management Benchmarking Database 213; M&G management information excluding PPMSA FUM 44
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