Survival Means Having Cash For Investors

Sydney Morning Herald

Wednesday October 29, 2008

Danny John

ONLY those fund managers with the financial depth to meet the pressing cash needs of investors will survive the current economic meltdown in a better shape than their rivals, a leading investment firm has warned.

The chief executive of the wealth manager BT Investment Management, Dirk Morris, said that with equity markets gripped by volatility, investors would remember those operators who did not have enough liquidity if faced with demands for withdrawals from their funds as the financial pain spreads.

"It is about survival," he said. "Clients only want their money with fund managers who are going to be there in a year [after the current events]."

And in a situation which had been exacerbated by the growing freeze on redemptions by mortgage funds, investment managers also needed to recognise that liquidity played a critical part in maintaining the reputation of their businesses.

"Investors in our funds do have long memories," Mr Morris said. "When I worked at BT in the 1990s we were the dominant player in funds management by a long way. One of the challenges that damaged our brand was the lack of liquidity we had in a number of our funds in the late 1990s. That is a lesson we learned, along with Westpac, very, very well."

Mr Morris underlined how much of that experience had shaped BTIM's first year as a publicly listed entity by revealing it had decided to hold onto a large chunk of its cash earnings of $40 million instead of paying out between 80 and 90 per cent to shareholders as planned. The company cited the "uncertain" market conditions as the reason for the decision. The proposed capital management initiatives such as a buy-back had also been delayed until the company was confident the crisis had eased.

Nonetheless, the firm of top line managers remains debt free and has put aside $13.4 million in cash to snap up new investment talent to make the most of the recovery when it comes.

Mr Morris said domestic market stability could emerge by December in the wake of the Rudd Government's spending package and cuts in interest rates.

His comments came as BTIM, which was part-floated by its parent bank, Westpac, in December to give its staff more freedom as a boutique-style fund manager, disclosed that it just hit its revised annual profit forecast.

That was after an announcement in February that it would miss the $45.7 million target in its prospectus by 10 to 15 per cent.

Overall net profits after tax were $16.4 million, with earnings per share of 10.2c.

Shareholders - including Westpac - will receive a final dividend of 5.4c a share, for a total payout of 8.9c for the 2008 financial year.

BTIM said funds under management had dropped from $41.9 billion to $35.3 billion, with almost all the decline down to the financial turmoil. Its shares closed 4c down yesterday at $2.54.

© 2008 Sydney Morning Herald

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