4th Sep 2014 09:39
LONDON (Alliance News) - River and Mercantile Group PLC Chief Executive Mike Faulkner was keen to focus on the future Thursday as the advisory and investment management business reported earnings for the first time since its initial public offering earlier this year.
River and Mercantile reported an GBP11,000 pretax profit in the six months ended June 30 on GBP20.2 million of revenue. The disparity between the two was largely due to the GBP4.1 million of expenses incurred due to the group's IPO, as well as GBP3.6 million of administrative expenses. In addition, remuneration and benefits cost GBP10.8 million.
River and Mercantile listed on the London Stock Exchange's Main Market in June following the merger of P-Solve Ltd and River and Mercantile Asset Management LLP earlier in the year. Faulkner said River and Mercantile, which is made up of four business lines - advisory, fiduciary management, derivatives, and equities - has good reason to be excited about its potential, highlighting three key trends the group is looking to tap into.
The first of those trends, seen as a move towards outcome-oriented management is the first key trend, is rooted in the idea that the investment industry has not always delivered products that clients or customers actually need.
"Clients have now realised that their outcomes may not be met by these products. They are now spending more time understanding and defining the financial outcomes they require, and then requiring investment houses to deliver on them," Faulkner said.
The CEO said the first trend has resulted in strong growth in fiduciary management and the use of derivatives for hedging purposes. He also said the industry has often found it "difficult to explain" to clients whether or not its work for them is going well.
"Many successful investment strategies work very well over a full market cycle, but clients are not able to ignore the quality of the journey on the way to long-term success. They are therefore evaluating more frequently and in more detail whether the investment strategies they are using are effective, or if there is cause for concern. They are also considering more carefully what role they want in the investment decision-making process," the CEO said.
He said the intensifying of standards by which investment buyers are governing their assets is the second key trend, which leads to the broadening of the asset management service.
"Whilst at the core of the service the need to receive and invest money remains, clients are increasingly requiring other services too. The precise nature of these services depends on the client, but they often include a variety of advisory services, analytical support, risk evaluation services, or investment views that do not relate specifically to the mandate in question," Faulkner said, as he identified the third key trend as the move by clients to require the provision of other services alongside the pure asset management service.
According to Faulkner, the trends by no means currently dominate the industry. However, he said they are likely to continue because they are " logical" and in clients' interests.
"The ability to adapt to these trends successfully will prove to be a competitive requirement," Faulkner said.
The CEO said that a successful investment house will need five skills in order to succeed:
Alpha Sources | Investment decision-making and execution skills to add value |
Defining client outcomes | Working with a client to define their financial objectives in sufficient detail to understand how to engineer a portfolio effectively |
Portfolio engineering | Engineering together a variety of investment decision-making skills to meet the financial objectives |
Governance knowledge | Engaging with the client in the context of their own governance arrangements, to deliver the investment proposition |
Additional services | Providing additional services where required alongside the mandate |
"Our business model brings together the advisory skills required for three of the above skill areas, with the investment management and engineering skills required for the other two. Our primary objective is to use them to deliver strong outcomes for clients," the CEO said.
River and Mercantile shares were Thursday quoted flat at 208.00 pence.
By Samuel Agini; [email protected]; @samuelagini
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