M&G, a UK-based asset management and insurance firm that serves the European market from Luxembourg, posted lower first-half 2024 results on Wednesday, revealing a mixed financial performance and significant net client outflows. Despite efforts to streamline operations and cut costs, M&G continues to face challenges in adapting to a shifting market environment and evolving client preferences.
For the first half of 2024, M&G posted an adjusted operating profit of 375 million pounds (445 million euro), slightly down from 390 million pounds in the same period last year. The company also reported an IFRS loss after tax of 56 million pounds, compared to a 75 million pound profit in the first half of 2023. This loss, it said, stemmed largely from short-term fluctuations in investment returns and mismatches related to the adoption of new IFRS 17 accounting standards.
M&G’s chief executive Andrea Rossi (photo) highlighted the company’s robust financial position, including an improved Solvency II coverage ratio of 210 percent, up from 203 percent at the end of 2023 as debt was reduced. However, significant net client outflows present a challenge in maintaining asset growth amid a volatile economic environment. Rossi spoke about “a challenging market environment.”
Assets under management in essence remained flat at 346 billion pounds, compared to 344 billion for the same period a year earlier, as a small increase in wealth management assets was offset by a decline in life insurance assets.
Net client outflows: a key challenge
M&G experienced net client outflows of 4.7 billion pounds across its Life, Wealth, and Asset Management segments in the first half of 2024, driven by shifts in client preferences towards safer investments due to high interest rates.
The Life business reported total net outflows of 3.3 billion pounds, up from 3.0 billion pounds a year earlier. This increase was primarily due to the runoff of M&G’s legacy with-profits business and clients’ preference for cash investments amid rising interest rates.
In Europe, M&G saw net client outflows of 100 million pounds, a reversal from 200 million pounds in net inflows in the same period last year. The higher interest rate environment led many clients to move towards cash and other liquid investments, making M&G’s traditional investment products like PruFund less attractive.
The Wealth division also saw net outflows of 900 million pounds, a stark contrast to the 600 million pound inflows in the first half of 2023. PruFund UK, a key offering, suffered as clients opted for safer cash products, resulting in 500 million pounds of net outflows.
The Asset Management segment recorded net outflows of 500 million pounds in Institutional Asset Management, mainly due to expected redemptions in South Africa and weaker real estate fund performance. Meanwhile, Wholesale Asset Management saw flat net flows, down from 1.3 billion pounds in net inflows a year ago, as clients across Europe adjusted their strategies in response to global economic uncertainties.
Cost savings target increased
To address these challenges, M&G has implemented a series of strategic initiatives aimed at simplifying its operations and reducing costs. The company has achieved 121 million pounds in cost savings since early 2023 and has increased its cost savings target by 10 percent to 220 million pounds by 2025. M&G is also consolidating its Life and Wealth operations to enhance its focus on the European retail market, where it identifies substantial growth opportunities.
However, reversing the trend of client outflows remains a critical challenge. M&G is actively redesigning its product offerings to better align with client needs and is set to launch a PruFund-like guaranteed product in the Middle East, aiming to diversify its client base and mitigate the impact of outflows.
European market uncertainty
Looking ahead, M&G faces a challenging environment. Stabilising its asset base and demonstrating the effectiveness of its strategic initiatives are crucial for future growth. The company’s diversified business model and strong European presence offer a buffer against economic instability, but success will depend on its ability to respond to the changing preferences of European investors.
“Our diversified model and strong footprint in Europe provide a solid foundation to navigate current market challenges,” Rossi stated. “However, our focus must remain on delivering excellent outcomes for clients and shareholders in this evolving landscape.”