Sharechat Logo

Milford Funds profit tumbles 71% as regulatory costs mount, performance fees drop

Wednesday 7th September 2016

Text too small?

Milford Funds, the public issuer of Milford Asset Management's retail funds, posted a 71 percent decline in annual profit as the fund manager hired workers and incurred costs to introduce new processes in response to regulatory requirements. 

Net profit fell to $4.4 million in the year ended March 31 from $15.1 million a year earlier, the Auckland-based company's financial statements show. A 47 percent increase in the management services fees to $26.4 million for the unit's parent, Milford Asset, was the biggest drag on earnings as the fund manager added staff and introduced the Charles River-hosted trading system to meet new licensing requirements of the Financial Markets Conduct Act (FMC) and changes to a suite of other regulations including anti-money laundering and fair trading rules. 

"It's part of the regulatory environment - we needed to move and we have," acting chief executive Bryce Marsden said. "Longer term it will be good, but in the near-term, the next year or so, there will be teething problems and growing pains." 

Fund managers were the last group to go through licensing in the new regulatory regime, which introduced new disclosure obligations and stepped up governance requirements in a raft of legislative changes aimed at restoring public confidence in capital markets. 

Milford last year reached a $1.5 million settlement of a market manipulation probe related to former portfolio manager Mark Warminger, who is awaiting a hearing date. The fund manager introduced a new trading system and beefed up its processes, which it accepted lacked adequate oversight at the time of the trades following a period of rapid growth. 

Marsden said Milford's expansion has been organic with KiwiSaver the "growth product for pretty much the industry at the moment", and the fund manager now has a staff of 50 and more than $3.5 billion under management. 

Milford Funds' fees fell 14 percent in the 2016 year to $38.5 million due to the fund manager reaping a smaller performance bonus for exceeding its benchmark. Base management fees were up 22 percent to $29.6 million, while the performance component more than halved to $8.9 million. 

"The funds still performed, they got a performance fee generated so that means our clients continued to do well," Marsden said. "2015 was obviously an exceptional year for everybody."

Fund management fees are capped at between 0.65 percent and 1.35 percent of funds under management, while performance fees range from 10 percent to 15 percent of any gains above a fund's investment target.

Milford's diversified income fund generated a return after fees and before tax of 9.6 percent in the year ended March 31 compared to 17 percent in 2015, while the active growth fund, managed by executive director Brian Gaynor, posted a return of 8.5 percent in 2016, down from 12 percent a year earlier. 

Milford Funds paid a smaller dividend in the year of $7.2 million compared to $12 million in 2015, though the payment was still up from 2014. 

Marsden said now the regulatory projects have been completed Milford will start looking at its product mix and see what it can do to grow the business. 

"The main focus recently has been getting through the FMC transition and now we'll turn our attention to other things like products," he said. 

Marsden is acting as chief executive until Troy Swann takes over the reins at the end of October, replacing Anthony Quirk who retired as an executive in June. Swann has been the general manager of boutiques and joint ventures at NAB Asset Management.

BusinessDesk.co.nz



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

SML - Synlait Milk Limited - Trading Halt of Securities
AIA - Auckland Airport announces board chair changes
AIA - Auckland Airport announces board chair changes
CEN - Tauhara commissioning progress update
FPH initiates voluntary limited recall
March 28th Morning Report
KFL Celebrates 20 Years of Excellence in Investment Mgmt.
SVR - Savor FY24 Earnings Guidance & Change in Banking Partner
NZK - NZ King Salmon Investments Limited FY24 Results
March 27th Morning Report