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M&G Overview & PerformanceM&G Overview & PerformanceMichael McLintock, Will Nott, Simon Pilcher and Grant Speirs
1
M&G Agendag
M&G Group overview Michael McLintockM&G Group overview Michael McLintock
M&G Retail Will Nott
M&G Fixed Income Simon Pilcher
M&G Group Financials Grant Speirs
2
M&G Group overview
• £191bn FUM invested in equities, fixed income and property*
– £83bn external funds
• Manage global assets predominantly on behalf of UK and g g p yEuropean investors
• Pre tax profit of £177m (2009 results)• Pre-tax profit of £177m (2009 results)
– £122m (H1 2010)
4
*as at 30 September 2010
M&G GroupDevolved business structure with centralised support
M&G Investments
FixedRetail£102m PBT Equities PruPIM* PPM**
South AfricaFixed
Income£43m PBT
Will Nott Simon Pilcher
Shared servicesincluding
Will Nott Simon Pilcher
*Prudential Property Investment Management
includingRisk, Compliance, Operations…
5
y g**Prudential Portfolio Managers South Africa
Our market-leading positionNet UK retail sales
O S S O S S
2nd quarter 2007 2nd quarter 2008 4th quarter 2008 3rd quarter 2010
TOP TEN NET RETAIL SALESFourth Quarter 2008 (£m)M&G 1,003.9 Invesco Perpetual 765.2 J it 468 7
TOP TEN NET RETAIL SALESSecond Quarter 2007 (£m)Invesco Perpetual 1,143.6 Schroder 779.4 N St 657 1
TOP TEN NET RETAIL SALESSecond Quarter 2008 (£m)BlackRock 879.2 Invesco Perpetual 813.9 SWIP 571 3
TOP TEN NET RETAIL SALESThird Quarter 2010 (£m)M&G 1,282.5 BlackRock 1,032.3 St d d Lif I 760 0 Jupiter 468.7
SWIP 458.5 BNY Mellon 356.9 BlackRock 301.9 Cazenove 171 3
New Star 657.1 SWIP 547.0 Artemis 365.3 Jupiter 357.1 Bl kR k 342 3
SWIP 571.3 M&G 410.9 Jupiter 256.9 Mellon 240.5 First State 226 4
Standard Life Inv 760.0 BNY Mellon 567.2 First State 520.3 Invesco Perpetual 357.8 Schroder 291 5 Cazenove 171.3
Neptune 166.6 Schroder 130.2 First State 128.3
BlackRock 342.3 Standard Life 250.7 M&G 247.8 Investec 224.4
First State 226.4 Halifax 156.8 Threadneedle 141.1 Martin Currie 133.0
Schroder 291.5 SWIP 260.2 HSBC 250.5 AXA 245.4
8 consecutive quarters at number 1 for gross and net UK Retail sales
6Source: Pridham Report
2nd largest UK retail fund manager
40 UK retail FUM £bn Jan 200836.0
3540
UK retail FUM £bn end September 2010
26.5
19.420253035
21.617 4 17 2
25.6
20253035
13.2 11.8 10.3 107.7 6.9 6.8
11.7
5101520 17.4 16.3 14.5 14.5 13.0 12.2
17.2
5101520
05
Perpetu
alFide
lityJu
piter
h Widows
M&Gea
dnee
dleSch
roders
Financ
e
L&G
lackR
ock
05
Perpetu
alM&G
Fidelity
Jupit
erea
dnee
dleh Wido
ws
L&G
es' P
lace
Schrod
erslac
kRoc
k
Invesc
o Pe
Scottis
h W
Threa Sc
Capita F
Blac
Invesc
o Pe
Threa
Scottis
h W
St. Jam
es Sc
Bla
119% growth in FUM in under 3 years
7
Source: IMA
How have we achieved this position?Strength across key asset classes in the UK
907.8900
1,000
g y
Est. net sales year ending Sept 10 (£m)
712.9
600700800900
415.7 382.7
192.0 172.3 162.7 125.1 119.1 107.4200300400500
107.4
0100
M&G RecoveryFund
SWIP UKEnhanced Equity
BlackRockCollective
SWIP FoundationGrowth
Prudential UKGrowth
L&G (N) T rackerUK Tracker T rust
AXA FramlingtonUK Select
BlackRock UKSpecial Situations
JOHCM UKOpportunities Fund
Newton IncomeFund
Number 1 money taker in UK equities
Investment Funds -UK Equity Tracker
Opportunities Fund
Source: Lipper FMI - Lipper FundFile as at end-September 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only
8
pp pp p g y y(excluding internal flows).
How have we achieved this position?Strength across key asset classes in the UK
443.7396 6450
500
g y
Est. net sales year ending Sept 10 (£m)
396.6
330.5294.4
251.3250300350400
208.3 207.1160.2 148.4
107.7100150200250
050
Newton GlobalHigher Income
Aberdeen WorldEquity
M&G Global BasicsFund
St James's PlaceWorldwide
M&G GlobalDividend Fund
Sarasin EquiSarGlobal Thematic
Vanguard FTSEDeveloped World
Schroder QEPGlobal Active Value
Neptune GlobalEquity Fund
Jupiter MerlinWorldwide Portfolio
Opportunties UnitTrust
ex-U.K. Equity IndexFund
Number 1 money taker in global equitiesSource: Lipper FMI - Lipper FundFile as at end-September 2010 Figures in GBP M&G data sourced internally and based on UK retail sales only
9
Source: Lipper FMI Lipper FundFile as at end September 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only(excluding internal flows).
How have we achieved this position?Strength across key asset classes in the UK
1061.1 1007.71,1001,200
g yEst. net sales year ending Sept 10 (£m)
783.1
700800900
1,000
390.9 380.8 371.3 344.6281.8 267.1 266.6 243.5 229.1 226.7 223.4 215.8
200300400500600
0100200
M&G StrategicCorporate
M&G OptimalIncome Fund
L&G DynamicBond
Henderson AllStocks Credit
SantanderSterling
AvivaInvestors
SWIP SterlingCredit
L&G HighIncome
IP TacticalBond Fund
HendersonStrategic Bond
FidelityStrategic Bond
Standard LifeSelect Income
HendersonLong Dated
FidelityMoneybuild
CazenoveStrategic Bond
Bond CorporateBond
CorporateBond
Advantage Credit Income
Number 1 money taker in Fixed InterestSource: Lipper FMI - Lipper FundFile as at end-September 2010 Figures in GBP *UK IMA fixed income sectors consists of the IMA £ Corporate Bond
Please note that LV= Short Dated Corporate Bond and LV= Medium and Long Dated Corporate Bond have been removed from the top selling fund listas the majority of the funds’ estimated net sales over the latest year are sourced from internal seed capital.
10
Source: Lipper FMI - Lipper FundFile as at end-September 2010. Figures in GBP. UK IMA fixed income sectors consists of the IMA £ Corporate Bond,IMA £ Strategic Bond, IMA £ High Yield and IMA UK Gilts sectors. M&G data sourced internally and based on UK retail sales only (excluding internal flows).
How have we achieved this position?Strength across key asset classes in the UK
755.3 722.7700
800
g yEst. net sales year ending Sept 10 (£m)
400
500
600
700
223.0 219.4 214.3 188.2109.4 107.9 97.9 88.9
100
200
300
400
0
100
M&G PropertyPortfolio
SWIP PropertyTrust
ThreadneedleUK Property
Ignis UKProperty Fund
L&G UKProperty T rust
Aviva InvestorsProperty
SchroderGlobal Property
SkandiaProperty Fund
ClericalMedical UK
Aviva InvestorsAsia PacificPortfolio Trust UK Property
TrustProperty Fund Property T rust Property Global Property
SecuritiesFund
Property Fund Medical UKProperty
Asia PacificProperty
Source: Lipper FMI - Lipper FundFile as at end-September 2010 Figures in GBP M&G data sourced internally and based on UK retail sales only
Number 1 money taker in Property
11
Source: Lipper FMI Lipper FundFile as at end September 2010. Figures in GBP. M&G data sourced internally and based on UK retail sales only(excluding internal flows).
M&G Fixed Income
• One of the largest fixed income investors in Europe
–2006: 15% of top 40 UK pension funds
–2009: 70% of top 40 UK pension fundsp p
• Dynamic and innovative investment approach
–Pioneer new investment products and thinking
12
How have we achieved this position?
• Investment-led
• Stable team with low turnover
• Strong identity around culture and brand
• Single fund management centreSingle fund management centre
• Focus on organic growth
13
M&G GroupRecognition for our investment leading propositiong g p p
Outstanding Investment House (UK)
14
M&G Retail fund performanceLong term performance remains strong
• 62% retail funds above median
g p g
Rolling 3 year Retail fund performance 100% 62% retail funds above median
over 3 years
• 60% equity funds above median60%
70%
80%
90%Top quartile
60% equity funds above median over 3 years
• 67% retail fixed income funds20%
30%
40%
50% Upper quartile
Lower quartile • 67% retail fixed income funds above median over 3 years0%
10%
S-08O-08N-08D-08J-09
F-09M-09A-09M-09J-09
J-09
A-09S-09O-09N-09D-09J-10
F-10M-10A-10M-10J-10
J-10
A-10S-10
Lower quartile
Bottom quartile
Investment performance is fundamental to success
16
Source: M&G management information
M&G Retail todayTransformation of the Retail business since 2000
M&G Retail net sales 2000 – end Sept 2010 (£bn)( )7.3
6
7
8
5.1
4
5
ales
£bn
0 6
1.7
2.42.1 1.8
1
2
3
Sa
YTD 2010
0.1 0.2 0.3 0.20.6
0
1
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
17
Source: M&G management information
Transformation of M&G Retail’s asset baseStrong growth despite a challenging external environmentg g p g g
40Growth of M&G Retail external FUM 2001 – end Sept 2010 (£bn)
£35.9bn
30
FUM
£bn
£35.9bn FUM
Sep -10£19.9bn
FUMNov-07
20
tail
exte
rnal
Nov-07
0
10
M&
G R
e
0Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
18
Source: M&G management information
Improving the diversification of the business By countryy y
FUM UK vs. International 2001 FUM UK vs. International 2005 FUM UK vs. International to 30/9/10
INTERNATIONAL
UK
INTERNATIONAL
UK UK
Total FUM£11.5bn
Total FUM£13.9bn
Total FUM£35.9bn
Expansion into Europe diversifying the asset base
19
Source: M&G management information 2001 and 2005 data as at end Dec
Improving the diversification of the business By asset classy
FUM by asset class 2001 FUM by asset class 2005
Multi AssetProperty
FUM by asset class 2010 to 30/9/10
Multi Asset t ertyMulti Asset
PropertyMulti Asset
EquityBond EquityBond EquityBond
Total FUM£11.5bn
Total FUM£13.9bn
Total FUM£35.9bn
Strong growth in fixed income assets
20
Source: M&G management information 2001 and 2005 data as at end Dec
Looking aheadSignificant prospects for future growthg p p g
M&G Retail Market shareSize of Fund market(FUM at end 2009)
UK £481bn 4.9%
Europe £4,118bn 0.1%
Opportunities for M&G Retail even without underlying market growth
21
Source: IMA, EFAMA
Opportunities for asset managersEuropean distribution is opening upp p g p
We have to work together to identify ways in which we canWe have to work together to identify ways in which we can … raise standards and transparency across Europe Financial Secretary to the Treasury, Nov 2010
The issue of restoring trust… will be dependent on creating more transparency in the industry
Transparency and being open and honest with clients is a crucial differentiator for asset managers
transparency in the industry FT January 2010
22
differentiator for asset managers
M&G Fixed Income Using management of internal assets as a platform for external growthg g p g
Utilise skills developed Deliver outstanding
Internal Institutional
pprimarily for internal client to build new
business streams and di if
ginvestment returns to
in-house capital throughinvestment in innovative
d tt ti f th diversify revenues and attractive areas of the capital markets
Active fund management, particularly credit
24
M&G Fixed IncomeA broad and growing client baseg g
• 256 mandates
• 224 clients– 22 have two mandates– 6 have three mandates or more
• Other clients from 26 countries - sovereign wealth gfunds, insurance companies and local governments
25
M&G Fixed IncomePerformance is a key component of success
18
20Institutional All Stocks Corporate Bond Fund
y p
100
Rolling 3 year return and tracking error (to 30 June 2010)June 2010
High
10
12
14
16
18
60
70
80
90
The roller coasterJune 2007
2010
2
4
6
8
10
30
40
50
60
All the benefits of passive
Getting the risk/return blend rightReturn
0
2
1 year 2 years 3 years 5 years
Fund Benchmark 0
10
20
0 10 20 30 40 50 60 70 80 90 100
pmanagement, but with active fees Low returns / high volatility
Low Risk High1.7% p.a. 1.7% p.a.2.0% p.a. 1.1% p.a.
100% of mandates ahead of benchmark in 3 years to Sept 2010
Risk High
26
Sources: M&G, Mercer MPA, 30 June 2010
M&G Fixed IncomeNet sales historyy
7,000M&G Fixed Income net sales 2003 – end Sept 2010 (£bn)
5,000
6,000
3,000
4,000
1,000
2,000
02003 2004 2005 2006 2007 2008 2009 Ytd Q3 2009 Ytd Q3 2010
27
Sources: M&G, management information
M&G Fixed IncomeGrowth in external revenues
120M&G Fixed Income revenues 2006 – 2009 £m
80
100
120
venu
es £
m
40
60
80
d In
com
e re
v
20
40
M&
G F
ixe
02006 2007 2008 2009
Internal External
28
Sources: M&G, management information
M&G Fixed IncomeInnovation enhances reputation, builds trust and helps to grow client basep , p g
• Social Housing
• Real Estate Debt Fund• Real Estate Debt Fund
• Secured Property Income FundSecured Property Income Fund
29
Secured Property Income FundWhat makes long lease property so attractive?
• Pension schemes need inflation-linked income
L d t d b d t l i t t b t
g p p y
• Long dated bonds are natural investments but:
– index-linked Government bonds are very expensiveincreased supply of Government bonds may impact returns– increased supply of Government bonds may impact returns
– conventional corporate bonds offer no direct inflation protection
• Long lease property can offer:
– predictable cash flows– long duration
f– increasing inflation-linked income – security of owning the underlying real estate– potential for capital gain
30
Secured Property Income FundExample of long term bond-like income from propertyp g p p y
• Let to Tesco Property Nominees Ltd with guarantee from Tesco Plc, rated A-
• 25 year lease with Tesco responsible for insurance and all repairs
R t i ll li k d t RPI ith fl f 2% d• Rent increases annually linked to RPI with a floor of 2% and cap of 5% for first 5 years and 0% to 5% thereafter
• Adjoins larger retail park with 26 leading retailers• Adjoins larger retail park with 26 leading retailers
• Tesco pay £20.50 per sq.ft but rents next door are£40-42.00 per sq.ft.
• Tesco planning consent is open A1 with food but nextdoor is open A1 non food
p q
31
M&G GroupConsistently strong net flows; exceptional in 2009 and 2010
16000
y g ; p
M&G Group net sales 2003 – end Sept 2010 (£bn)
5,96210000
12000
14000
2 998
5,400
1,0936000
8000
184 416 1,3453,104 2,720 2,095
7,5175,700 5,117
1,169 1,587
2,517
2,9982,238
1,312
0
2000
4000
02003 2004 2005 2006 2007 2008 2009 Ytd Q3 2009 Ytd Q3 2010
Retail Institutional
33Sources: M&G, management information
M&G GroupRecord FUM levels
160 000
180,000
200,000
June 2007 i d
September 2010
100,000
120,000
140,000
160,000 previous record -£168bn
new record –£191bn
20 000
40,000
60,000
80,000
0
20,000
Dec-03
Mar-04
Jun-0
4Sep
-04Dec-0
4Mar-
05Ju
n-05
Sep-05
Dec-05
Mar-06
Jun-0
6Sep
-06Dec-0
6Mar-
07Ju
n-07
Sep-07
Dec-07
Mar-08
Jun-0
8Sep
-08Dec-0
8Mar-
09Ju
n-09
Sep-09
Dec-09
Mar-10
Jun-1
0Sep
-10
Despite FTSE All Share level being 16% lower
Internal External Institutional External Retail
34
Sources: M&G, management information
M&G GroupFocus on growing higher margin external FUMg g g g
FUM Average net fee rates
External Retail*
g
£46bn 87 bpsExternal
External Retail
External
£46bn
£37bn
87 bps
36 bpsInstitutional £37bn 36 bps
Internal £108bn 11 bps
* Retail fees are gross annual management charges less rebates and commission payments
35
Sources: M&G, management information
M&G GroupStrong growth in profits: outperforming marketsg g p p g
250M&G Group profit history 2003 – end Jun 2010 (£m)
2843
12
200
175 185165
2624
27
3
100
150
5180
96134
75
11913
0
50
02003 2004 2005 2006 2007 2008 2009 H1 2009 H1 2010
Underlying profit Performance Related Fees/Carried Interest FTAS* UCP**
* Full year average FTAS index rebased to 2003 (closing price adjusted for dividends and splits)** Average Sterling Corporate & Collateralised All Stocks TR Index (UCP0) Index rebased to 2003
36
Sources: M&G, management information; Bloomberg Average Sterling Corporate & Collateralised All Stocks TR Index (UCP0) Index rebased to 2003
Cost: Income ratioGood cost discipline through the cycles
90
100Cost to income ratio 2005 – end June 2010 • Excellent profit margins in
comparison to our peers
p g y
7570
65 62 65 63 6070
80
90 comparison to our peers– M&G 36.7%
– Schroders 25.0%
40
50
60 – Aberdeen 22.7%
– Henderson 27.6%
– F&C 27.0%
10
20
30 – Gartmore 24.5%
• 36% of current cost basei i bl0
2005 2006 2007 2008 2009 H1 2009 H1 2010is variable
Scaleable business operating platform generates operational efficiencies
37
Sources: M&G, management information, full year 2009 competitor data Morgan Stanley research
2nd largest UK retail fund manager
40 UK retail FUM £bn Jan 200836.0
3540
UK retail FUM £bn end September 2010
26.5
19.420253035
21.617 4 17 2
25.6
20253035
13.2 11.8 10.3 10.07.7 6.9 6.8
11.7
5101520 17.4 16.3 14.5 14.5 13.0 12.2
17.2
5101520
05
Perpetu
alFide
lityJu
piter
h Widows
M&Gea
dnee
dleSch
roders
Financ
e
L&G
lackR
ock
05
Perpetu
alM&G
Fidelity
Jupit
erea
dnee
dleh Wido
ws
L&G
es' P
lace
Schrod
erslac
kRoc
k
Invesc
o Pe
Scottis
h W
Threa Sc
Capita F
Blac
Invesc
o Pe
Threa
Scottis
h W
St. Jam
es Sc
Bla
119% growth in FUM in under 3 yearsSource: IMA
7
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