PruPIM - REAL ESTATE INVESTMENT · PDF filePruPIM Real Estate Investment Management •...
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PruPIM - REAL ESTATE INVESTMENT MANAGEMENTMartin Moore, Managing Director, PruPIM
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PruPIMReal Estate Investment Management
• Market context
• Business dynamics
• Recent achievements
• Tomorrow’s opportunities
AGENDA
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Source: DTZ
MARKET CONTEXTDiverse range of investors with activity at record levels
UK REAL ESTATE PURCHASING ACTIVITY
0
10
20
30
40
50
60
1997 1998 1999 2000 2001 2002 2003 2004 2005
Other / Unknown Quoted property vehicles Other listed vehicles Institutions Private property vehicles Private property co's Other private investor
£bn
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Period to 31/3/2006. Source IPD
MARKET CONTEXTStrong performance across all sectors of the UK marketUK DIRECT PROPERTY TOTAL RETURNS TO 31 MARCH 2006
10
12
14
16
18
20
22
24
1 Yr 5 Yrs 10 Yrs
All Property Shops Sh Centres Ret Warehouse Office Ind
%
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BUSINESS DYNAMICSBroad skills base supports the creation & operation of real estate portfolios
ASSETS UNDER MANAGEMENT
0
5
10
15
20
25
30
£7.1bn£8.3bn
£10.4bn£11.5bn
£14.5bn
£17.2bn
£23.0bn
£bn • One of the UK’s largest real estate investment managers.
• Widely respected research team.
• Proven fund, investment and asset management capability.
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BUSINESS DYNAMICSBroad skills base supports the creation & operation of real estate portfolios
• One of the UK’s largest real estate investment managers.
• Widely respected research team.
• Proven fund, investment and asset management capability.
• Successful development team.
ASSETS UNDER DEVELOPMENT
The Hub, BirminghamThe Hub, Birmingham
Manchester
Finsbury Circus
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BUSINESS DYNAMICSBroad skills base supports the creation & operation of real estate portfolios
Industrial Shops
OthersOverseas
Office
RetailWarehouse
Sh Centres
SECTOR BREAKDOWN AT 31.12.2005
• Sector Specialists.
• One of the UK’s largest real estate investment managers.
• Widely respected research team.
• Proven fund, investment and asset management capability.
• Successful development team.
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BUSINESS DYNAMICSBroad skills base supports the creation & operation of real estate portfolios
ASSETS UNDER MANAGEMENT BY BUSINESS STREAM
Institutional Annuities Retail
InternationalLife • Business stream overlay.
• Sector Specialists.
• One of the UK’s largest real estate investment managers.
• Widely respected research team.
• Proven fund, investment and asset management capability.
• Successful development team.
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BUSINESS DYNAMICSBroad skills base supports the creation & operation of real estate portfolios
• Business stream overlay
• Sector Specialists
• One of the UK’s largest real estate investment managers
• Widely respected research team
• Proven fund, investment and asset management capability
• Successful development team
• A fully integrated model
£m
5
10
15
20
25
2000 2001 2002 2003 2004 2005
PruPIM UNDERLYING PROFITS
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BUSINESS DYNAMICSBroad skills base supports the creation & operation of real estate portfolios
PruPIM UNDERLYING PROFITS
£m
5
10
15
20
25
2000 2001 2002 2003 2004 2005
ASSETS UNDER MANAGEMENT BY BUSINESS STREAM
Institutional Annuities Retail
InternationalLife
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Period to 31/12/2005. Source IPD
ACHIEVEMENTS & OPPORTUNITIESAn outstanding performance record
• Large but mature funds
• Continued focus on performance delivery
• Potential benefits through pursuit of new markets…
• …and through taking on more long term development projects
• Firm foundations and scaleable infrastructure
PRUDENTIAL
SCOTTISH AMICABLE
LIFE FUNDS
0
5
10
15
20
25
SAIF Fund 21.5 17.8 13.4Benchmark 20.1 16.0 12.8Relative 1.4 1.8 0.6
1 Yr 3 Yrs 5 Yrs
Period to 31/12/2005. Source IPD
%
0
5
10
15
20
25
Life Fund 20.1 16.7 13.2 14.1Benchmark 19.7 15.9 12.7 12.7Relative 0.4 0.8 0.5 1.4
1 Yr 3 Yrs 5 Yrs 10 Yrs
%
£11.1bn
£1.9bn
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Period to 31/12/2005. Source IPD
ACHIEVEMENTS & OPPORTUNITIESA growing area of our business
• Maintaining consistent outperformance is key
• Experiencing strong organic growth
PRUDENTIAL STAFF PENSION SCHEME
PRUDENTIAL PENSIONS LIMITED
0
5
10
15
20
25
PSPS Fund 21.1 17.7 13.6Benchmark 20.2 16.6 13.1Relative 0.9 1.1 0.5
1 Yr 3 Yrs 5 Yrs
0
5
10
15
20
25
PPL Fund 20.1 17.5 14.0Benchmark 18.5 16.0 13.0Relative 1.6 1.5 1.0
1 Yr 3 Yrs 5 Yrs
INSTITUTIONAL%
%
£540m
£530m
• Use skills to generate new opportunities…
• …and to build new strategic partnerships
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ACHIEVEMENTS & OPPORTUNITIESA growing area of our business
INSTITUTIONALASSETS UNDER MANAGEMENT
0
500
1,000
1,500
2,000
2,500
3,000
2003 2004 2005
£m • Maintaining consistent outperformance is key
• Experiencing strong organic growth
• Use skills to generate new opportunities…
• …and to build new strategic partnerships
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ACHIEVEMENTS & OPPORTUNITIESRelentless pursuit of “collaboration dividends”
ASSETS UNDER MANAGEMENT
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004 2005 Q1 2006
£m • Property assets with “bond like”characteristics continue to present interesting opportunities
• Significant further potential, capitalising on synergies with the M&G FI team
• Creative sourcing gives us a real edge
• Ambition to work with the FI team to leverage our experience in this area…
• …and to jointly develop skills and products in new areas too
ANNUITIES
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ACHIEVEMENTS & OPPORTUNITIESWorking in partnership with M&G Retail
FUND SIZE SINCE LAUNCH
0
100
200
300
400
500
600
Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06
£m
• Launch of M&G Property Fund in March 2004 – with growth exceeding initial expectations
RETAIL
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ACHIEVEMENTS & OPPORTUNITIESWorking in partnership with M&G Retail
RETAIL
• Building on that success, launched the M&G Property Portfolio in November 2005
• Creative sourcing and enviable market network gives us a real edge
• Significant future opportunity pipeline– Charities– Fund of Funds– REITS – track record, expertise, brand,
investment philosophy, customer base and distribution channels, “no baggage”
400
450
500
550
Nov-05 Dec-05 Jan-06 Feb-06 Mar-06
Fund size(£m) • Launch of M&G Property Fund in
March 2004 – with growth exceeding initial expectations
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ACHIEVEMENTS & OPPORTUNITIESBuilding a global platform
INTERNATIONAL
• Extensive initial research programme
Garden State Plaza, New Jersey - Retail
North Michigan AveChicago, Illinois
Holland Cross, Ottawa Canada – Retail
Sherman Oaks, California – Retail
Plessis-Belleville,Suburban Paris
135-139 Rue de Rennes,Paris – Retail
Michelin Warehouses –Ennery-Metz
90-94 Rue D’Antibes,Cannes – Retail
3-5 Boulevard de la Madeleine, Paris,
Grand Bazar de Lyon, Lyon - Retail
ING France/Belgium Retail Property Fund
Nara Building,Seoul - Offices
Northgate Building,Seoul - Offices
LiFung Distribution Hong Kong - Offices
Compass Point Singapore - Retail
400 George St, Sydney – Offices
• Investment momentum gathering pace
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ACHIEVEMENTS & OPPORTUNITIESBuilding a global platform
INTERNATIONALASSETS UNDER MANAGEMENT
0
200
400
600
800
1,000
1,200
1,400
2001 2002 2003 2004 2005
£m• Extensive initial research programme
• Investment momentum gathering pace
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ACHIEVEMENTS & OPPORTUNITIESBuilding a global platform
INTERNATIONAL
15.8%
27.7%
26.0%
36.7%
15.0%
3 Yrs
19.4%17.6%10.6%IPD Universe
32.4%
29.3%
43.6%
18.4%
2005
25.6%
16.3%
53.4%
8.2%
2004
25.2%
33.0%
16.0%
18.7%
2003
Overseas Total
Asia
North America
Europe (excl UK)
All returns are in UK Currency
INVESTMENT RETURNS
• Extensive initial research programme
• Investment momentum gathering pace
• Early results very encouraging
• Now intend to leverage this experience– Announced JV with Prudential Corporation
Asia– Potential for a global range of funds
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PruPIMReal Estate Investment Management
• Efficient, well integrated, business
• Broad skills base
• Impressive track record
• Determined to exploit “collaboration dividends”
• Strong historic profits growth
CONCLUSION
• Exciting potential
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M&G RETAIL
Gary Shaughnessy, Chief Executive, UK Retail, M&GWill Nott, Chief Executive, M&G International
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WINNING IN RETAIL ASSET MANAGEMENTGary Shaughnessy, Chief Executive UK Retail, M&G
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EUROPEAN RETAIL ASSET GROWTH1995 to 2010
WINNING IN RETAIL ASSET MANAGEMENTRetail asset management is a growth market
Realistic CAGR 8.4%
CAGR 9.1%
Aggressive CAGR 11.6%
0
1
2
3
4
5
6
7
8
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2010 2010
€ tri
llion
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WINNING IN RETAIL ASSET MANAGEMENTBut it is extremely competitive
• 25,000 funds registered in Europe
• 47 M&G funds
• More funds than investible equities
• How is M&G succeeding in this marketplace?
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WINNING IN RETAIL ASSET MANAGEMENTWhat do you need to win in retail asset management?
• Exceptional investment performance
• An attractive and scalable product range
• Breadth of access to distribution
• An ability to retain customers
• Market recognition
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Source: Standard & Poor’s as at 28 April 2006, bid to bid with net income reinvested. * S&P Global Equity sector
Fund Fund 1 year 3 year Quartile sinceManager quartile quartile took over fund
M&G American Aled Smith Top decile Top decile Top decile
M&G Corporate Bond Richard Woolnough 1 1 1
M&G Fund of Inv Trust Shares Alex Odd 1 Top decile 1
M&G Global Basics* Graham French Top decile Top decile Top decile
M&G Global Leaders Aled Smith Top decile Top decile Top decile
M&G Global Technology Aled Smith & Cyrille Filott 1 2 1
M&G High Interest Jim Leaviss 1 Top decile 1
M&G International Growth Graham French 1 Top decile 1
M&G Managed David Jane Top decile Top decile 1
M&G Managed Growth Graham French Top decile 1 1
M&G Pan European Giles Worthington Top decile Top decile Top decile
M&G Recovery Tom Dobell 1 1 Top decile
M&G Smaller Companies Simon Bailey Top decile 1 1
M&G UK Growth Simon Murphy Top decile 1 Top decile
M&G UK Select Mike Felton 1 2 Top decile
WINNING IN RETAIL ASSET MANAGEMENTDelivering exceptional investment performance across the board
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Source: S&P as at 30 December 2005
WINNING IN RETAIL ASSET MANAGEMENTExceptional performance - strong in our core market of UK equities
Position inPerformance in 2005 IMA sector
M&G Recovery Fund
M&G UK Select Fund
M&G UK Growth Fund
M&G Smaller Companies Fund
Tom Dobell
Mike Felton
Simon Murphy
Simon Bailey
Top decile
Top decile
Top decile
Top decile
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M&G RETAIL NET SALES
Net sales Q1 2006 breakdown by launch date
75.4%
24.6%
Launched 2000 onwards Launched pre 2000
1.3
1.1
1.6
0.6
0.4
0.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1st Qtr
£ bi
llions
M&G Corporate Bond M&G High Yield Corporate BondM&G Global Basics M&G Property PortfolioM&G Leveraged Loans funds M&G Property Fund
WINNING IN RETAIL ASSET MANAGEMENTAn attractive and scalable product range
Cumulative assets under management in products launched since 1996
A STRONG TRACK RECORD IN PRODUCT INNOVATION
Launch of M&G Leveraged Loans
funds August 2005
Launch of M&G Property Fund
November 2005
Launch of M&G High Yield Corporate Bond October 1998
Launch of M&G Property Portfolio March 2004
Launch of M&G Corporate Bond January 1996
Launch of M&G Global Basics
November 2000
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48.1%
13.0%
25.4%
12.7%0.8%
Direct Discretionary IFA Europe Asia
WINNING IN RETAIL ASSET MANAGEMENTBreadth of access to distribution has diversification benefits
FUNDS UNDER MANAGEMENT Q1 2006By channel
11%
19%
19%
47%
4%
Direct Discretionary IFA Europe Asia
NET SALES Q1 2006By channel
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WINNING IN RETAIL ASSET MANAGEMENTAn ability to retain direct customers
0
2
4
6
8
10
12
Q100
Q300
Q101
Q301
Q102
Q302
Q103
Q303
Q104
Q304
Q105
Q305
• Biggest single reason for redemption is death– 21% of direct redemptions
• Value of the significant direct book impacted by actuarial assumptions –demographics working in our favour
MARKET SHARE OF DIRECT RETAIL REDEMPTIONSQuarterly average
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WINNING IN RETAIL ASSET MANAGEMENTSuccessfully implementing a multi-regional distribution strategy
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
Apr
-02
Jul-0
2
Oct
-02
Jan-
03
Apr
-03
Jul-0
3
Oct
-03
Jan-
04
Apr
-04
Jul-0
4
Oct
-04
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
€m
• Spreading competitive strengths and diversifying risks across a range of (largely uncorrelated) markets
• Exponential growth and accelerating
• Cost effective approach with product range using UK OEIC
• Recently launched into Asia – Gross sales £51m in Q1 2006
M&G INTERNATIONAL ASSETS UNDER MANAGEMENTFrom launch to end March 2006
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UK:DirectIFALife and Pensions PlatformsDiscretionary
AsiaDistribution via PCA
Middle East
WINNING IN RETAIL ASSET MANAGEMENTSelective profitable international expansion
DISTRIBUTION OF M&G FUNDSTaking the existing model for manufacturing and distribution and expanding to new geographies
Europe:GermanyItalyAustriaSpainSwitzerlandLuxembourg
South Africa
Latin America
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Source: TNS
WINNING IN RETAIL ASSET MANAGEMENTStrong Brand
0% 20% 40% 60% 80% 100%
M&G
Merrill Lynch
Schroders
Fidelity
Jupiter
Gartmore
Invesco
Artemis
New Star
Total Spontaneous AwarenessTotal Prompted Awareness
TOTAL BRAND AWARENESS April 2006
AWARD WINNING ADVERTISING
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Luxembourg
AustriaGermanySpain
UK
• Ratings
• Best Fund Group over 3 years in
WINNING IN RETAIL ASSET MANAGEMENTIndependent recognition of this success
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WINNING IN RETAIL ASSET MANAGEMENTIndependent recognition of this success
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WINNING IN RETAIL ASSET MANAGEMENTWhat do you need to win in retail asset management?
• Exceptional investment performance
• Breadth of product
• Distribution strength
• Retaining customers
• Market recognition
• Plus…
• Strong business management
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0
5
10
15
20
25
30
2002 2003 2004 2005
£m
WINNING IN RETAIL ASSET MANAGEMENTUsing scale and controlling costs
• Focusing on the core competencies of an asset management business
• Improving capital efficiency and operational gearing
• Outsourcing of transfer agency
• Rationalisation of funds
ADMINISTRATION COSTS2002 to 2005
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WINNING IN RETAIL ASSET MANAGEMENTEnsuring a competitive pricing strategy
• Brought charges to market levels– AMC on 19 active equity funds increasing to 1.5%
• £12m per annum positive impact on profits
• Impact accelerated by asset growth and net sales
• Far from slowing down sales, it has ‘unblocked’ them
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WINNING IN RETAIL ASSET MANAGEMENTForging strong links across the Group
• Financial backing of a strong parent– European distribution launch– Seeding of new product launches
• Investment Management expertise in local centres (PPM America, Asia)
• £100m p.a. of sales via Prudential linked products
• Looking to develop these links further
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WINNING IN RETAIL ASSET MANAGEMENTM&G Retail has everything needed to win in retail asset management
• Exceptional investment performance
• Breadth of product
• Distribution strength
• Retaining customers
• Market recognition
• Strong business management
• What are the benefits?– Strong growth in sales– Strong profit growth
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GROSS SALES BY CHANNEL
0
200
400
600
800
1000
1200
Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06
£000
s
UK Europe Asia
WINNING IN RETAIL ASSET MANAGEMENTStrong sales growth across each channel
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WINNING IN RETAIL ASSET MANAGEMENTStrong profit growth
RETAIL PROFITS
-10
-5
0
5
10
15
20
25
30
35
40
2002 2003 2004 2005
• Impact of
– Net sales
– Cost savings
– Outsourcing
– Market appreciation
– Pricing changes
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BUILDING ON THIS MOMENTUMWill Nott
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BUILDING ON THIS MOMENTUMContinuing to win in retail asset management
• Exceptional investment performance
• Delivering attractive and scalable products
• The right pricing
• Taking advantage of industry trends: open architecture
• First class client service
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• Looking ahead there are two key questions for M&G
– How has this performance success been achieved?
– Is it sustainable?
BUILDING ON THIS MOMENTUMWinners all have exceptional investment performance
Luxembourg AustriaGermanySpainUK
• Best Fund Group over 3 years in
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BUILDING ON THIS MOMENTUMHow has this performance success been achieved?
• A boutique culture
• Talented individuals
• Unconstrained from benchmarks
• First class investment infrastructure
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BUILDING ON THIS MOMENTUMIs this performance sustainable?
• Future performance depends on retaining, attracting, developing and empowering the best people
– Fund manager turnover incredibly low– Ability to recruit talented managers– Strong history of developing in house talent
• Compensation linked to performance and profits
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BUILDING ON THIS MOMENTUMIs this performance sustainable?
• Building distinct investment franchises
• Supporting the fund managers with a rigorous, robust and relevant infrastructure
Research analysts
Embedded into the investment
franchises
Portfolio Strategy &
Risk
Supporting portfolio
construction and actively managing
investment risk
Portfolio analysts
Supporting the fund managers in
marketing and client servicing
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BUILDING ON THIS MOMENTUMThe global equity franchise
• 2 AAA Citywire managers
• Set up in 2000
• A distinct investment proposition, being recognised by the market
Graham French Aled Smith
Embedded analysts
Portfolio Strategy & Risk
Portfolio analysts
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Launched November 2000
BUILDING ON THIS MOMENTUMWe have experienced great success with M&G Global Basics
GROSS SALES IN M&G GLOBAL BASICS
1 year 3 years Sincep.a. launch p.a.
M&G Global Basics 47.1% 41.1% 17.2%
S&P Global equity sector 31.8% 21.2% 0.0%
Index 31.7% 24.0% 6.0%
DECILE RANKING 1 1 1
M&G GLOBAL BASICS PERFORMANCE
0
100
200
300
400
500
600
700
800
2000
2001
2002
2003
2004
2005
YTD Mar
06
£m
From launch to end March 2006 As at end March 2006
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Managed by Aled Smith since September 2002
BUILDING ON THIS MOMENTUMM&G Global Leaders is going the same way – and could go further
1 year 3 years Sincep.a. tenure p.a.
M&G Global Leaders 49.6% 34.5% 28.8%
S&P Global equity sector 31.8% 22.5% 18.5%
Index 30.9% 21.1% 18.5%
DECILE RANKING 1 1 1
M&G GLOBAL LEADERS PERFORMANCE
300
320
340
360
380
400
420
440
460
480
500
Feb-06 Mar-06 Apr-06
£ m
M&G GLOBAL LEADERSFunds under management
Citywire Fund Manager International, April 2006
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BUILDING ON THIS MOMENTUMFixed Income – maintaining our track record for innovation
• Leveraging internal investment capabilities for the Life Fund
• Significant demand for income
• Continue to look at further Fixed Income opportunities
80
100
120
140
160
180
200
Aug-05
Sep-05
Oct-05
Nov-05
Dec-05
Jan-0
6Feb-0
6Mar-0
6Apr-0
6
£ m
M&G LEVERAGED LOANS FUNDSFunds under management since launch
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BUILDING ON THIS MOMENTUMProperty – growing fast with more to come
• Strong investment capability has enabled M&G to keep these funds open where others have had to close
• Continue to look at opportunities in this asset class
0
200
400
600
800
1,000
1,200
1,400
Mar-04
Jun-0
4Sep-0
4Dec-0
4Mar-0
5Ju
n-05
Sep-05
Dec-05
Mar-06
£ m
M&G PROPERTY FUNDSFunds under management since launch
Launch of onshore fund
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BUILDING ON THIS MOMENTUMEnsuring we convert performance into profits
• Sustainable, durable and proven alpha will become more valuable
• As an investment led organisation, understanding the right price for this alpha is crucial
• We are striving for profitable sales growth
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CONTINUING THIS SUCCESSThis performance sets M&G up to take advantage of industry trends
• The distribution landscape is changing– Growth in open architecture
– UK– Banks– Life and Pensions links
– Europe– Banks
– Asia
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BUILDING ON THIS MOMENTUMOpen architecture presents both opportunities and challenges
• Significant opportunities– The rise of the professional retail buyer/gatekeeper – Large volumes
• Significant challenges– Client loyalty diminishes– Fund manager stability– Asset allocation changes
• Greater volatility of fund flows
• Diversify sales by country, channel and asset class
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Source: FERI FMI
BUILDING ON THIS MOMENTUMThe importance of fund manager stability
-800
-600
-400
-200
0
200
400
600
2004 2005
NET SALES OF ‘A EUROPEAN EQUITY’ FUND FOLLOWING MANAGER DEPARTURE
€m
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Source: FERI FMI/CSAM Fund Buyer Survey 2005
WHAT ARE THE MOST IMPORTANT CRITERIA IN FUND SELECTION?Responses of fund buyers placing > €1bn in 2005
BUILDING ON THIS MOMENTUMM&G is ticking the boxes for professional buyers
0
5
10
15
20
25
Fundmanager
experienceand style
Fundperformanceover 5 years
Fundperformanceover 3 years
Fund ratings Reputationand brand
New fund/newstory
Fundperformanceover 1 year
Commissionspaid
Marketingsupport
Nationality ofgroup
Brandinvestment
%
What does ‘brand’mean in an institutional
world?
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BUILDING ON THIS MOMENTUMDeveloping a ‘brand’ in this environment is all about client service
• Delivering first class institutional servicing to the retail market
• Requires increased focus on marketing and client services and articulation of investment processes
• “My thanks for the half yearly report which is really exemplary and strengthens me in my decision to add the fund to our range.”
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Source: FERI FMI
EUROPEAN RETAIL ASSET GROWTH1995 to 2010
BUILDING ON THIS MOMENTUMThe opportunity is considerable
0
1
2
3
4
5
6
7
8
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2010 2010
€ tri
llion
Agg
ress
ive
Rea
listic
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M&G RETAILBuilding on this momentum…