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The chief executive of investment group M&G has said he wants to take advantage of under-developed private credit markets in Europe and expand the business’s investments in private assets, amid warnings of the impact of higher interest rates on the asset class.
Andrea Rossi told the Financial Times he wanted M&G to be a “European leader in private assets” as he unveiled strong full-year results for the FTSE 100 asset manager.
“We want to increase our origination efforts in continental Europe, in particular on the private credit side,” he said. “Europe is behind the private credit markets versus the US, and this market is going to grow [by] double digits in the coming years.”
M&G currently has £73bn in private assets under management across fixed income, alternatives, real estate and infrastructure, a small slice of overall private capital markets which hit $13tn in 2022 according to the International Organization of Securities Commissions.
The private credit sector has surged over the past decade as funds stepped in to fill a gap left by banks that were forced to scale back lending because of post-financial crisis regulations. When interest rates hit record low levels, investors in search of yield contributed billions of dollars to such funds.
However, some pension funds and other investors in the US are now reducing the amount they allocate to the asset class, as they become concerned about the impact of higher interest rates on the sector, following steep rises in borrowing costs over the past two years.
In its full-year results on Thursday, M&G reported a 28 per cent rise in pre-tax adjusted operating profit in 2023, to £797mn, beating analysts’ expectations. The group is split into an active asset management arm, a life insurance and pensions business and a financial advice business.
M&G’s share price rose by about 2 per cent in morning trading.
Net client flows across its wealth and wholesale asset management arms rose to £1.1bn, from £200mn the previous year, however £6.2bn was redeemed from its UK institutional asset management division, which it attributed to the government’s disastrous “mini” Budget in 2022 and the de-risking of defined benefit pension funds.
Rossi, who became chief executive in late 2022, highlighted the group’s investment performance across its funds and the contribution from the life insurance business as the reasons behind the company’s recent success.
“We have a stellar investment performance across strategies people are looking to invest in . . . these investment strategies have been built thanks to the permanent and seed capital we have received from the life insurance balance sheet,” he said.
The group’s wholesale funds offering boosted performance, with 69 per cent of assets under management beating benchmarks over a five-year period, up from 60 per cent in 2022, however, on a one-year basis this dropped from 68 per cent to 51 per cent.
