Manager Research

We recently met with Prudential to discuss a range of changes within their business. We outline the changes in three specific parts below.

1. Team Changes

Prudential’s investment team continues to evolve over time as the business adds resources. The investment team has grown from 23 to 38 people over the past 5 years. There have been a range of changes in roles and personnel announced:

Equities

We show the key changes to the equity team below:

The changes outlined above effectively free Chris Wood up to focus on equity research and portfolio management while rotating the head of equity role to Johny Lambridis, who will report directly to David Knee (CIO). Johny and Chris have worked together for a number of years and we don’t see this change as an issue. The ‘Head of Equity Research role’ is a new role created for Rehana to manage the team of equity analysts at Prudential. This is in response to the growth in the number of analysts over the last 5 years. Rehana has effectively been fulfilling this role since mid-2017 so this change is merely adding the title to her role. The effect of this role is to free the Head of Equity to focus exclusively on the investment side of the business while the Head of Equity Research will focus on the people management within the equity team.

These changes will not impact on any portfolio management responsibilities i.e.

• The Prudential Core Value Fund and Prudential Dividend Maximiser Funds will continue to be managed by Craig Butters, Rehana Khan and Ross Biggs
• The Prudential Equity Fund will continue to be managed by Chris Wood, Johny Lambridis and Simon Kendall

In addition to these senior team changes, Prudential are losing Aadil Omar, one of their equity portfolio managers. Aadil is moving to London to pursue other opportunities in the asset management industry. We believe that there is sufficient depth in the team to cover the departure.

We view these changes to the structure of the Prudential Equity team as net positive with a clearer division between investment management and people management being implemented, while the same key team members remain with the business. We therefore retain our Tier 1 ratings on both Prudential Equity Fund and Prudential Dividend Maximiser.

Fixed Income & Property

We show the key changes to the FI and Property team below:

David Knee has been fulfilling the dual role of Head of Fixed Income and CIO since Marc Beckenstrater moved to M&G in 2017. The promotion of Gareth Bern to Head of Fixed Income allows David to focus entirely on the CIO role. Gareth has been with Prudential for 14 years as a member of their Fixed Income Team.

Duncan Schwulst steps down as head of listed property and Jeanne-Marie Snalam is promoted from being a property analyst to a property portfolio manager. The move has resulted from Duncan’s desire to move back into Fixed Income, where he worked prior to taking on the property role, and where his skills will be focussed on credit analysis. Jeanne-Marie has been in the industry for 9 years and with Prudential for 2 of those years. Prudential are recruiting an additional person into the property team as they attempt to fill the gap left by Duncan.

The delineation of the Head of Fixed Income and CIO role is positive for Prudential as both roles will now have increased focus by their dedicated individual, without any loss of David’s input into the Fixed Income process. We thus retain our Tier 1 ratings on the Inflation Plus and Enhanced Income Funds.

The Prudential Enhanced SA Property Tracker is currently rated Tier 2. We are concerned about the depth and focus in the team. We are meeting with Prudential for the annual review of their funds in August, and will reassess the fund then.

2. Offshore Changes

Prudential announced major changes to their global offering in May 2017. These changes included the launch of a range of direct offshore funds as well as a range of associated feeder funds. These global funds are being used as building blocks for the offshore portion of local Prudential funds. The existing Prudential FoF’s will fall away now that these funds have been launched.

Further to the global fund changes announced in 2017, Marc Beckenstrater, the ex-Prudential SA CIO, moved to the UK to join the broader M&G asset allocation team and has effectively assumed the offshore aspect of his previous role as head of global portfolios in London, although within a much larger team.  

The changes have now been completed and have resulted in the following range of funds being available:

The result is a range of 4 global funds domiciled in Ireland and 4 new feeder funds into these global funds. We wrote the following regarding the proposed offshore changes in May 2017: “In our opinion, the changes are positive for Prudential and their clients. We have always raised concerns around their offshore implementation, with the view that while their asset allocation and regional calls were sound, the implementation through the broad range of funds and ETF was less than optimal.  They were hamstrung by the FSB’s requirements on the offshore funds that could be included in local unit trust funds, but this is no longer an issue with the creation of a specific range of global funds.  In addition, we rate Marc highly and his knowledge of the SA team and the funds will ensure a consistent implementation of their investment philosophy.  Therefore, we have retained the Tier 1 ratings on the funds affected, namely the Prudential Balanced Fund and the Prudential Inflation Plus fund.”

We still believe that the comments made in May 2017 remain true and that these changes are positive for Prudential. Our UK team have started the process to carry out a full due diligence of these offshore funds and we will publish the findings once the ratings are finalised.

3. Shareholder Changes

UK-listed Prudential plc currently holds 49.99% of the shares in Prudential South Africa. The company has announced that there will be a demerger from the current structure to form two separate UK-listed businesses; namely, Prudential plc and M&G Prudential.

Prudential South Africa will sit within the M&G Prudential business. We expect this to have a negligible effect on Prudential SA with all key stakeholders remaining consistent through the change.