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Coronation finds opportunity in weak global equity markets

Coronation finds opportunity in weak global equity markets

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Coronation Fund Managers, one of the biggest asset management companies in South Africa, said its fund management earnings fell 18% to 387 cents per share in the year to September 30 after being impacted by this year’s downturn in global equity markets.

Reflecting the extreme volatility currently in global markets, its assets under management (AUM) as at November 15 at Coronation had recovered to R610 billion, from R574bn at September 30, which in turn was 9% lower than at the same time last year. Average AUM was R621bn for the year, slightly higher than the previous year.

Coronation’s directors said global equity markets collapsed in 2022 following the very strong recovery from Covid pandemic lows in early 2020.

“Most asset classes declined precipitously as markets digested an unrelenting series of negative developments. Our financial results reflect the sharp declines seen across all asset classes globally,” they said.

“Inflation, which soared to levels not seen in recent decades, and a dramatic increase in interest rates to curb it are likely to cause significant economic damage in the years to come,” the group’s directors said.

Fund management companies are cyclical businesses that are heavily impacted by market movements.

Coronation also experienced net outflows, representing 6% of average assets under management, which directors said was in line with their expectations, “and reflects the realities of a shrinking domestic savings pool”.

“As a large domestic manager, we expect Coronation’s flows to broadly reflect that of the South African savings pool and the economic reality within which it operates. Recent changes to Regulation 28 will further shrink the available pool of domestically managed assets,” they said.

Coronation’s headline earnings per share fell 25% to 366.3c. Revenue fell 12% to R3.74bn. Fund management earnings are used by Coronation’s management to measure operating financial performance – it excludes the impact of fair value gains and losses and related foreign exchange movements on investment securities held for seeding products.

Total dividends decreased 18% to 386c per share, from 470c in the prior corresponding period.

This was after a final dividend 172c was declared compared with 226c per share at the end of the 2021 financial year.

Expenses were down 12%, significant considering the inflation environment. Directors said this was the result of managing fixed expenses, which were marginally up by 2%, and the variable expenditure model that shields shareholders from the extreme cost pressures that businesses around the world are experiencing.

The directors said they were deeply concerned by the challenges that economies and societies around the world will need to navigate in the years ahead and the consequent impact on people’s ability to save. However, ”the steep, and often indiscriminate, sell-off in markets“ had created opportunities for patient long-term investors.

“We have taken full advantage of these opportunities and are very optimistic about the long-term prospects for our client portfolios. As an investment-led business, our primary focus remains growing the value of the client assets entrusted to us over the long term, rather than simply looking to grow the pool of assets under our management,” they said.


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