River & Mercantile chief executive Mike Faulkner says the firm is “well-placed” to respond to the FCA’s concerns on the role of fiduciary management businesses and fund costs as the firm reports strong half-yearly results.
In a specific remark on regulations, published alongside R&M’s financial results, Faulkner acknowledged the importance of the FCA’s recent interim report into the asset management sector and the concerns of potential conflict of interests in investment advisory firms that also operate fiduciary management businesses.
He says: “We offer highly active and successful strategies that have higher fees, but also passive and lower cost alternatives through our derivatives business. We strive to ensure that we never abuse our client relationships – or indeed our clients’ intelligence – by suggesting our impartial view as an adviser is they should use us as fiduciary manager.
“Indeed, the vast majority of fiduciary business is now intermediated by independent parties and the conflict is addressed in that way. Similarly, we are always advocates for transparency in what we do and make negotiated house deals with investment managers available to all clients, regardless of size.”
In regard to the results, Faulkner says the firm experienced outflows following the EU referendum time but this was offset by a growing appetite for value strategies among wholesale investors.
In July, River & Mercantile said it saw only “minimal” net outflows in the days following the EU referendum.
Net inflows in the period were £2bn with all divisions having net positive flows, the firm reported. In particular, the Dynamic Asset Allocation fund at the firm experienced positive inflows and could pass £100m assets this month. Fee-earning assets under management increased by 13 per cent to £28.7bn in the last six months of the year.
Faulkner says: “I am very pleased to say a Trump victory did not lead to market calamity during the period and the wholesale market has now turned its attention to the benefits of value strategies. This is positive for us and is testament obviously to the hard work over a long period of time from Hugh Sergeant and his team in portfolio management.
“But I particularly want to single out Mark Thomas and his distribution team for their tireless work in getting the value message out to the market over the last two years. This now seems finally to have paid off and the flows during the December quarter have been substantial as a result.”
Meanwhile, adjusted profit after tax was £7.6m, compared to £4.9m for the six months ended 31 December 2015.
Statutory net profit after tax jumped to £6.1m, compared to £2.7m for the second half of 2015, which were attributed to growth in performance and management fees.
Performance fees went from £300,000 in the first six months of the year to £4.7m in the second half of 2016. Net management fees increased by 13 per cent to £21.4m compared to the previous six months.
Interim chairman Peter Warry says: “I am pleased to report a strong set of results for the first half of our 2017 financial year, with all of our key income statement and AuM metrics up at least 20 per cent compared to the same period in the prior year.
“In particular, adjusted underlying profit before tax at £7.1m is up 28 per cent on the same half last year and this is matched by the growth in assets. The growth in performance fees (300 per cent) shows that not only has the group done well, but we have also done well for our clients.”