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Polar Capital - AuM stable despite continued outflows

Polar Capital's Assets under Management (AuM) of £19.1m were broadly flat at the half-way point of the financial year.

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Polar Capital's Assets under Management (AuM) of £19.1bn were broadly flat at the half-way point of the financial year.

A positive investment performance of £546m was not enough to offset the £581m of outflows from and £50m returned to clients from fund closures. and clients redeeming their holdings.

Based on the showing by investment managers so far, the group would earn a performance fee of £1.3m over the full year. But this has the potential to rise or fall depending on how the investments perform in the second half.

The shares were flat following the announcement.

View the latest Polar Capital share price and how to deal

Our view

Following a 13% decrease last year, Polar Capital's funds under management, from which it derives its management fees, have held up relatively well. That's been supported by a solid performance of its funds and isn't too much of a surprise, given a good run in the technology sector, the group's largest specialism.

While investment performance can help boost the bottom line, the continuing outflows of client money remain a worry. Investment performance can wax and wane, but retaining and attracting new money is key to the business's long-term health.

It's not all bad news, with some strategies gaining momentum. Recent performance by Polar's investment teams has been impressive. But it remains to be seen if and when Polar can drive enough institutional investors in its direction to return to net inflows.

Despite the challenges noted, Polar Capital has remained profitable and cash positive at an operational level. The Group isn't standing still and has been diversifying into sustainability focused funds as well as emerging markets mandates, which have been both outperforming their benchmarks and attracting inflows. However, at under 10% these are still a small part of AuM.

We do think that Polar offers something a bit different from the more generic fund managers. That's resulted in a strong showing in a recent industry survey, where it was ranked 1st for Thematic Equity investing. It's not impossible that its specialist investment teams could attract the eye of a bigger player. The difficult market backdrop has seen an uptick in consolidation in the market. But there's no assurance that any bidders will emerge for Polar.

And for now, the combination of a potential economic downturn, and high yields on lower risk assets such as government bonds, could put pressure on some of the growth sectors favoured by Polar. Investment managers with a wider spread of strategies may be better placed to retain or win new business.

The Group's prospective dividend yield of 10.5% is of note. However, market forecasts suggest earnings don't currently cover the dividend. We don't have any immediate concerns about the balance sheet, but if earnings don't recover, there is risk that the dividend is cut or scrapped. As ever, dividends are by no means guaranteed and yields are not a reliable indicator of future income.

Despite the continued pressure on demand for Polar's funds, the price-earnings ratio remains close to the long-term average for now. If AuM remains under pressure though, then we see little reason for investor sentiment to improve.

Polar Capital key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 12th October 2023