Income Asset Management hits apples as third-quarter earnings rise 90% and conditions ripen for corporate bonds
Special Report: IAM reported strong quarterly revenue growth as market conditions see growing demand for corporate bonds and investment in growth begins to pay off.
Fixed income specialist and fund management company Income Asset Management Group Ltd. (ASX:IAM) reported revenue growth in Q3 FY22 up 91% from the prior corresponding period to $1.77 million.
IAM said the significant growth was primarily due to another strong contribution from investment expenses, which rose 276% on pcp to $1.1 million, the largest to date.
The jump follows the successful placement of $85 million for Moneyme (ASX:MME). The placement was a significant milestone for IAM, with 100 institutions and wholesale investors participating in the raise in volatile market conditions.
In April, another large placement of $30 million was made for Aussie fintech Earlypay (ASX:EPY).
While net operating cash outflows were around $2 million – excluding seasonality and market volatility – according to IAM, given their strong results in March, net outflows are expected to slow significantly.
Cash outflows to suppliers and employees remained relatively stable.
Market conditions drive IAM Capital Markets
With rising yields and interest rates, IAM sees growing demand from companies to issue bonds and from investors looking for quality bonds.
The firm said its capital markets team is well placed to facilitate investment demand with expertise in all debt instruments, listed, OTC and private debt in the form of a loan.
IAM said secondary market trading, although up 19% on pcp to $514,000 for the third quarter, was impacted by the seasonally slow holiday month of January as well as volatile trading conditions in due to the Russian invasion of Ukraine and an uncertain interest rate environment.
There was a marked improvement in business activity in March, and this momentum is expected to continue into the fourth quarter.
Underscoring the breadth of IAM Capital Markets’ fixed income offering, the third quarter continued IAM’s increased participation in internally sourced high yield offerings and investment grade capital markets transactions. as well as ASX-listed hybrids.
- In the third quarter, IAM led the placement of more than $100 million of unrated floating rate notes for ASX-listed companies
- IAM and its clients have participated significantly in new investment grade issues such as CBA and Liberty Financial
- Significant participant in recent ASX-listed hybrid transactions of a major bank.
IAM Capital Markets client count up 210% on pcp
New customers increased by 210% on pcp, which IAM attributes to strong marketing activities and the growth of the sales team.
The growth in the number of customers represents a major opportunity for IAM to further develop assets under administration (AUA). The firm is working with new advisors and direct clients to build already established income investment portfolios in the coming months.
To support IAM’s wide range of partnerships with new financial advisor groups, boutique and larger financial advisor groups, as well as private investors, the team now offers over 500 titles in sizes of packages of 50,000.00 USD in AUD, EUR, GBP and USD.
This diversity provides investors with increased access to the corporate bond market and a better ability to build robust and diversified fixed income portfolios.
The increased breadth of its small parcel bond offering supports the company’s efforts to provide investors with unparalleled choice in the most competitively priced fixed income market.
IAM has launched its Managed Account Service, which allows investors with larger pools of capital to work with IAM, within their investment mandates, to increase investment returns while managing their stated risk tolerance.
The service is tailor-made for individual investors and provided on a co-management or discretionary management basis.
Significant experience within the IAM group in fixed income research, portfolio/risk management, execution and reporting, provides investors with cost-effective and transparent means to generate better risk-adjusted returns.
Building blocks in place for managing IAM funds
Early results from IAM fund management show a positive outlook with the model built replicating other successful incubator fund managers such as Pinnacle Investment Management and Fidante Partners that have an annuity style.
IAM Group holds a 25% stake in Fortlake Asset Management. The funds demonstrated strong risk-adjusted returns for investors during CY 2021 across its three public offering funds, well above relevant peers and strategic targets.
The company said momentum continues to build across all investor channels, with initial support from private clients, independent financial planning groups and ongoing engagement with key consultants and research gatekeepers.
Fortlake is also well advanced in preparing to list its first retail ETF. Considerable work was done during the third quarter to deploy initiatives in distribution and operations, in order to generate commission income in the future.
IAM will generate income through dividends and distribution fees. In addition, the group will account for 25% of Fortlake’s earnings through the equity method.
Following the completion of the 25% strategic investment in fund manager Tactical Global Management Ltd (TGM), which included a payment of $3 million for the investment.
Much of the third quarter was spent developing strategic joint venture partnerships on ESG and the Sustainable Development Goals (SDGs).
Soon, the company plans to launch funds that will only invest in global stocks that are climate-friendly or in line with the Sustainable Development Goals.
Based on TGM’s rigorous framework and access to data, these strategies will be at the forefront of this area of investment and provide clients with access to innovative and market-leading capabilities.
The Group will derive revenue from TGM through distribution fees, dividends and accounting for profits up to 25% through the equity method.
IAM Cash Markets revenue drops
Cash market revenue fell $29,000 on pcp to $165,000. The decline in funds under management (FUM) and revenue reflects the seasonal decline combined with the low interest rate environment.
IAM said the segment remains a relatively small contributor to overall business.
Thanks to improvements in the products offered to customers and a more focused sales effort, the company is well positioned to grow strongly in a rising interest rate environment.
Return on investment
CEO Jon Lechte, said investments made across the business since February 2021 have added significant scale and capabilities that deliver better financial results.
“While we are still in an investment period, we are making great strides as we provide investors and portfolio managers with the most reliable and capable platform to research, execute and manage their income investing. “, said Lechte.
He said that with market expectations for higher interest rates, the company’s growing demand for corporate bond issues should continue to drive our underwriting fee performance.
“We see companies turning to the debt markets as an alternative source of funding and believe we are well placed to support these companies,” he said.
“We have a strong deal pipeline, currently with over $200 million in primary issuances scheduled to close in Q4 2022.
“Combined with our secondary trading revenue and the expected increase in cash deposits due to higher proposed cash compensation rates, we are well positioned to generate further growth in the fourth quarter.”
Difficult bond environment
Lechte said the third quarter saw the toughest conditions for fixed income markets in a generation.
“We believe debt markets are now offering returns that rival those of equities and real estate, both of which now face their own headwinds as interest rates rise.
“We are already seeing a significant flow from stockbrokers, with clients looking to invest in high quality corporate floating rate bonds at rates not seen in nearly a decade.
“We have built an investment house, focused on debt markets, and we are scaling up at precisely the right time,” he added.
About Income Asset Management Group Ltd. (IAM) (ASX:IAM)
Income Asset Management Group Ltd. (ASX:IAM), (IAM), has grown tremendously into a sophisticated income investment company. The Group offers unique cash management, treasury, bond and fund management solutions for sophisticated investors and professional investment managers. Our vision is to provide investors and portfolio managers with the most reliable and knowledgeable services to research, invest and manage their income investments.
This article was developed in conjunction with IAM, a Stockhead advertiser at the time of publication.
This article does not constitute advice on financial products. You should consider obtaining independent advice before making any financial decisions.