First Sentier axes investment units, AUM takes $14bn hit

First Sentier Investors (FSI) is shuttering four investment teams, seeing the exit of 30 professionals by the end of the year and the loss of about $14 billion in assets under management.

The investment manager this morning announced that its locally based Australian fixed income, global credit, equity income, and emerging companies units will close.

"We have looked across our business in Australia to ensure each of our investment capabilities has sufficient client demand to be commercially material and sustainable," FSI global head of investment management David Allen said.

As a result of this, Allen said "we have made the difficult decision" to close the business units.

Affected staff represent about 7% of FSI's Australian-based workforce while a smaller number impacted work in the UK and US.

"While these teams have delivered strong client outcomes over a long period of time, they have been unable to achieve growth that meets our ambitions. We will work closely with our clients over the coming months to support them during this transition," Allen said.

Allen also pointed to shifting industry dynamics such as client consolidation, internalisation of investment management, and ongoing margin pressures driving the decision.

The four units account for 5.8% of FSI's AUM out of its total $238 billion (as at 31 December 2023), meaning about $14 billion will leave the firm.

FSI's subsidiaries are AlbaCore Capital Group, FSSA Investment Managers, Igneo Infrastructure Partners, RQI Investors, and Stewart Investors.

Last year, FSI lost $12 billion of client money invested across several managed funds.

The First Sentier Wholesale Imputation Fund, which took the biggest hit, recorded a net return of -2.5% in the year to March 2023, while its benchmark reported -0.6%.

More recent Rainmaker data in the year to December 2023 shows that the First Sentier WS Strategic Cash Fund lost $1.3 billion in net outflows.

The First Sentier Australian Small Companies Fund lost $221 million for the period, while the Stewart Investors WS Worldwide Sustainability Fund and First Sentier Concentrated Australian Share Fund lost $163 million and $121 million respectively.

The investment manager declined to comment if substantial outflows contributed to its decision to axe the four units.

"The flows varied across strategies, but the decision was based upon our long-term view of financial materiality of these businesses," an FSI spokesperson said.

Mitsubishi UFG Financial Group acquired FSI in 2019 for $4.2 billion. It was previously known as Colonial First State Global Asset Management when it was owned by Commonwealth Bank.

In a note to investors, Colonial First State (CFS) said that it will "hand over investment management services" for the following options: First Sentier Developing Companies, First Sentier Future Leaders, First Sentier Equity Income, First Sentier Target Return Income, First Sentier Australian Bond, First Sentier Global Credit Income, First Sentier Diversified Fixed Interest, and CFS Index Australian Bond.

"CFS is actively sourcing well-credentialled replacement investment managers. The new managers will each have a strong track record in the respective asset classes and strong research house ratings," the note read.

"CFS expects to be able to announce the new managers within a month and anticipates that the portfolio transitions will commence from June 2024 onwards."

FSI chief executive Mark Steinberg: "We will continue reviewing opportunities for growth, seeking to add additional global and regional capabilities over time, which are aligned with clients' evolving needs."

Allen added that FSI "is confident in the prospects for its remaining investment teams and is committed in supporting their growth paths."