M&G, which incorporates insurer Prudential's UK business, is pulling some $13 billion of the British insurer's assets from Singapore-based Eastspring Investments and is understood to be handing them to M&G’s new Asian equities team to manage.
M&G redeemed $7.3 billion from Eastspring in the first half of 2020 "and we expect a further outflow of around $6 billion in the second half of this year", Mike Wells, group chief executive of Prudential PLC, said in an earnings call on August 11.
The move is part of a broader plan by M&G to repatriate more assets from both its Asian and US businesses, according to multiple sources.
AsianInvestor understands that M&G is in the process of moving most, if not all, of the Asian equity assets that had been run by Eastspring to its asset management unit, M&G Investments.
Eastspring is the fund house subsidiary of Prudential Corporation Asia (PCA), which became a separate business from M&G after the latter was spun off from Prudential PLC in October 2019 (see box below for details on the de-merger).
Both M&G and Eastspring declined to comment for this article.
STRATEGIC ASSET BUILDUP
The redemption from Eastspring is part of a concerted strategy to build up M&G Investments’ asset base, multiple well-placed sources told AsianInvestor.
“Why pay management fees [to what is now an external asset manager] when you can recreate the business internally?” one executive familiar with the situation remarked, reflecting the views of other individuals that AsianInvestor spoke to.
M&G's asset repatriation comes as another blow to Eastspring as it pushes to expand its client base beyond its in-house affiliate PCA. The latter has in turn been handing its in-country CIOs more autonomy to determine allocations and pick external managers.
Eastspring had $220 billion in assets under management as of June 30, down from $241 billion at the end of 2019. As of June 30 it had $122 billion of “internal AUM”, Wells said on the August 11 earnings call, without elaborating further. The bulk of this is understood to be assets it manages for PCA.
"Eastspring's net flow picture reflects a combination of continued steady inflows from internal insurance funds of nearly $3 billion and modest outflows in respect of our third-party institutional business," Wells added. "This was offset by more significant outflows on the third-party retail side, and outflows in relation to funds managed on behalf of M&G PLC."
RISING ASIA REDEMPTIONS
The $13 billion-odd that M&G is redeeming from Eastspring is understood to be comprised entirely, or at least largely, of Prudential UK’s Asian equity assets. For instance, the Prudential With-Profits Fund stood at £76.8 billion on March 31, with 7.8% allocated to Pacific market equities, 3.4% to Japanese equities and 2.6% to global emerging market equities. Those three portfolios account for £10.6 billion.
A well-placed source said Eastspring was managing at least $13 billion of equities for Prudential UK as of March this year. That figure is likely to have risen substantially, he suggested, given that the MSCI Asia Pacific index has gained 24% since March 31.
The plan, as communicated internally in March this year, had been to complete the repatriation of the Prudential Asian equity portfolio in September on a phased basis, the well-placed source said.
Sources familiar with the firm believe that M&G could well repatriate yet more Prudential assets that are currently outsourced to third-party managers, including potentially fixed income and alternative investments.
The group is certainly building out its investment capabilities internationally, with Asia a major focus.
M&G unveiled a new seven-strong Asia Pacific equities team in September last year, led by David Perrett and Carl Vine, both based in London. Four of the team – including a portfolio manager, a dealer and two analysts – are based across Hong Kong and Singapore.
On the fixed income side, M&G appointed Matthew O’Sullivan in December to be head of Asia Pacific origination to build a credit and alternatives origination team in Singapore. He transferred from London, where he was co-head of asset-backed securitisation credit research.
As of June 30, M&G had £339 billion of assets under management, down from £352 billion at end-2019, incorporating both Prudential and third-party client assets.
MIRRORING US DEVELOPMENTS
Just as it is repatriating Asian assets, M&G is making a similar move in the US, transferring money run by PPM America on behalf of Prudential’s UK portfolio to a new investment hub it is setting up in Chicago. That also looks to be worth a large sum: North American equities accounted for 6.5% of the £76.8 billion Prudential With-Profits Fund as of March 31.
The M&G spokeswoman declined to comment on the current size of the With-Profits Fund.
PPM Americas is the asset management arm of Prudential's US life insurer, Jackson National Life Insurance.
In anticipation of this repatriation Anthony Balestrieri joined M&G Investments Americas as chief investment officer in March from PPM America, where he had been chief investment officer on the total return team.
The group expects the Chicago operation to be up and running in the third quarter of this year, it said in its half-year results announcement last week.
This article has been updated to show that four of M&G's Asia Pacific equities team members are based in Asia and that David Perrett is co-head alongside Carl Vine.
M&G'S DE-MERGER: INTERNATIONAL IMPLICATIONS
In October 2019, the de-merger of M&G from the Prudential PLC group was finalised. M&G PLC was formed by the combination of the group’s UK life insurance business – which retains the name Prudential – with fund manager M&G Investments.
Meanwhile Prudential PLC remains the parent of Prudential Corporation Asia, which contains the group’s Asian and African life insurance operations and asset management arm Eastspring Investments, as well as US life insurer Jackson National Life Insurance and its asset management arm, PPM Americas.
However, Prudential also announced, alongside its results last week, that it plans to completely divest Jackson National Life and would be listing a minority stake in the first half of 2021, with full divestment planned over time.
"Once completed, this means the [Prudential] group will be exclusively focused on our high-growth businesses of Asia and Africa," said Mike Wells, Prudential PLC's group CEO, in an August 11 earnings call.