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Managed funds and superannuation company Australian Ethical (ASX: AEF) saw its funds under management (FUM) rise by almost half in FY23, in large part due to its merger with Christian Super, but profit fell to its lowest levels since FY19.
A 30 per cent decline in net profit after tax (NPAT) to $6.6 million marks Australian Ethical's second consecutive annual decline in profit, but the group's size has skyrocketed since it last recorded a similar result in FY19 with FUM and customer numbers almost tripling over the past four years.
Australian Ethical's FUM grew by $3 billion to reach $9.2 billion by the end of FY23, of which $1.93 billion came from the 28,000 superannuation members whose funds were transferred as part of the Christian Super merger.
A spokesperson told Business News Australia that approximately $470 million of FUM growth came from organic net inflows and $610 million was driven by investment performance.
The group now has 127,000 funded customer members, representing a 54 per cent year-on-year lift with average super member balance maintained.
"This is a really strong result for Australian Ethical, with a substantial increase in both FUM and customer numbers, and an uplift in UPAT (underlying profit after tax)," says chief executive officer John McMurdo.
"I'm proud of the investment team's strong performance over the past year despite 2023 remaining a challenging market for investment managers amid broader macroeconomic uncertainty. We see this result as a testament to the resilience of our unique investment approach, and our deep expertise in ethical investing garnered over three decades.
"Pleasingly, our growth strategy is bearing fruit while we continue to scale our business to take advantage of the move towards responsible investing."
He says the integration with Christian Super was seamless, allowing the company to pass on fee reductions to all superannuation members.
"We have continued to enjoy organic net flows into our funds resulting in strong revenue growth - despite further fee reductions, our second half FY23 revenue was up 22 per cent compared to the first half as the post-SFT (Successor Fund Transfer) scale becomes evident, indicating that our strategy is succeeding, and causing us to feel optimistic about the year ahead."
Australian Ethical is targeting $100 million in annualised revenue by the end of FY24.
"With this increased scale, we believe we can invest judiciously to capture future growth opportunities, whilst also delivering further operating leverage as we target a lower cost to income ratio, and look ahead to solid profit growth in FY24," explains the CEO.
"A key focus of FY24 and FY25 will be continuing to build investment capability across all asset classes, under the guidance of our new chief investment officer, Ludovic Theau, in order to maintain our lead as an ethical investment manager.
"We'll also continue to invest prudently in technology, brand, distribution, new products and customer experience in line with our growth strategy."
The group provisioned $1.1 million for the Australian Ethical Foundation, compared to $1.5 million in the previous financial year, as part of a pledge to donate 10 per cent of all profits (after tax and before bonuses) to unearth and fund high-impact charities driving solutions to address climate change.
In 2022 the foundation's strategic grants were given to a wide range of organisations including plant protein thinktank Food Frontier, the Australian Conservation and Biodiversity Foundation, Human Rights Watch, and more.
In March, Australian Ethical announced it had divested shares in developer Lendlease (ASX: LLC) after four years of advocacy on the Mt Gilead project in NSW had stalled.
"If the development goes ahead as currently proposed, we won’t know if the koalas will be adequately protected," the company stated on its Facebook page.
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