alarming fall, page-17

The root of the problem is that the funds under the umbrella of Perpetual Investments continue to perform poorly and that's why institutions are turning to fund managers elsewhere. This is what needs to be addressed urgently by the company.

Take the Perpetual Wholesale Australian Share Fund as an example. This is a $1.3b managed fund that has returned a meagre 2.57% pa over the last 3 years. This represents serious underperformance of 2.65% pa compared to the benchmark return of 5.22% over this period. With 40% of this fund invested in financials, and over half of that being invested in the big 4 Australian banks, underperformance is continuing on a monthly basis courtsesy of the Royal Commission. Little wonder institutional investors are voting with their feet.

There are positives though outside of Perpetual Investments. We saw Perpetual Private (PP) and Perpetual Corporate Trust (PCT) continue to deliver excellent results in 1H2018, and now that they contribute over 40% of NPBT, they are becoming increasingly meaningful. The other positive is that PPT has the cash firepower to make an acquisition, preferably to bolster the PP or PCT divisions to shore up earnings further. It's also worth remembering that the WSP legal case has impacted this year's earnings, so cycling this in FY19 gives about $3.5m upside.