Australian Ethical Investment is at the "early stage" of benefiting from the growth in demand for ethical products, and expects further growth even as the company recently announced record profits for the 2020 financial year.
Australian Ethical reported net inflows of $660, an increase of 100% in the last financial year, as well as a net profit after tax of $9.5 million, an increase of 46%, while underlying profit after tax (UPAT) was $9.3 million (up 42%). Total funds under management is $4.05 billion (up 19%).
"I think the penny has dropped, that money can do well, and that myth that you have to give up investment performance to do well has been well and truly debunked," said John McMurdo, chief executive officer at Australian Ethical. "The opportunity set is huge - I think we're still at the very early stage of our own business of befitting from this change in sentiment, and in terms of the market opportunity and size from an ethical investment business, we're at the early stage of benefitting from that, rather than at the tail end of that."
Australian Ethical reported that revenue was up 22% to $49.9 million, with a performance fee of $3.6 million from outperformance of Emerging Companies Fund, up 350% from FY19's performance fee of $0.8 million.
Australian Ethical saw strong performance across its business categories, with increases in superannuation, managed funds and institutional.
"The other area is in advisory, that is the quickly growing area for us," McMurdo said. "We are putting on a digital client relationship management to serve the quite dramatic recent demand."
As part of that growth, Australian Ethical reported operating expenses of $37 million, an increase of 16%.
"We had increases in our core investment management team, our direct acquisition capability, we ran quite a significant brand campaign thru the year, and we had investment in technology," McMurdo said.
McMurdo foresees future challenges coming from competitors positioning themselves in the ethical space.
"I think one of the challenges we're likely to see is a degree of greenwashing emerge," he said. "It's really important as a sector that we educate the consumer on what is truly ethical."
Australian Ethical sees developing relationships in the institutional space as future opportunity, as well as fostering continued growth in the direct to consumer business, McMurdo said. The company will also focus on communicating not only what they screen out, but what the positive impacts of their investment are.
"We've engaged with over 400 companies over the last year, advocating for people, planet and animals, and that is something we take a lot of pride in," he said. "These are the positive actions where we are trying to have a profound impact in both listed and unlisted assets, and it's something we need to get better at sharing. ... We are overweight in areas like renewable energy, IT, healthcare, healthcare development, so genuinely we are delivering fabulous outcomes for shareholders as well as customers, and we put as much emphasis on where our portfolio is weighted toward as to where it's weighted against."