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Australian Ethical (ASX:AEF) share price on watch with Christian Super merger

The Australian Ethical Investment Ltd (ASX: AEF) share price is on watch after announcing its funds under management (FUM) and a merger with Christian Super.

Australian Ethical is a fund manager that aims to provide investors with investment management products that align with their values and provide competitive returns.

FUM and earnings update

Seeing as the last quarter of the 2022 financial year has finished, Australian Ethical has been able to tell investors about its FUM and provide earnings guidance.

Quarterly netflows

For the quarter, it reported $102 million of positive net flows. That included a $150 million redemption by an institutional client that is internalising management of its sustainable option. Excluding that, net flows were $252 million for the quarter.

Quarterly flows were reportedly driven by superannuation contributions. Super saw netflows of $200 million, while managed funds saw net flows of $50 million, which was affected by cautious market sentiment.

For FY22 as a whole, net flows were $943 million. Excluding institutional, net flows were $1.14 billion – a 20% increase. This included record superannuation net flows of $751 million, an increase of 22% year on year.

FUM

However, due to volatile investment markets, Australian Ethical saw FUM finish at $6.2 billion at 30 June 2022, which was a 9% decrease from 31 March 2022. But, FUM for FY22 rose 2% thanks to the strong net flows.

Customers

Another 4,794 customers joined Australian Ethical during the quarter, taking total customers to 83,066, up 4% from 31 March 2022. Customer numbers increased 17% year on year.

Christian Super update

The company announced that it has signed a successor fund transfer deed with Christian Super, which will see all members of Christian Super transferred into Australian Ethical super in late 2022 or early 2022.

Both funds agreed that the transfer will align with members’ best financial interests and preference for purpose-driven investing.

Australian Ethical confirmed there would be no change to its investment philosophy or process and it will continued to be guided by its ethical charter. The board will remain unchanged, as will its endeavours to advocate for positive change in companies, the economy and society more broadly.

This transfer will see the fund’s membership increase by up to 30,000 members and it could lead to the opportunity to accelerate its ability to pass on benefits to all members such as fee reductions. It has almost $2 billion of FUM. But it will come with transition and integration costs as well.

Earnings guidance

The fund manager told investors that its Emerging Companies Fund will pay a performance fee of $0.4 million.

The underlying profit after tax (UPAT) guidance range for FY22 is now between $10 million to $10.4 million.

Final thoughts

This short-term FUM decline isn’t ideal, but I don’t think a fund manager should be judged heavily based on one quarter. FUM netflows into the business continue.

The Christian Super update looks promising, though it’s possible some members may prefer to go to a different fund. Even so, increased scale could be good news for Australian Ethical’s profitability.

I’d be happy to buy shares at the current Australian Ethical share price for the long-term potential growth of the superannuation FUM.

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