Ulster Bank's fund manager set for €5.8m profits

Ulster Bank Investment Managers (UBIM) is expected to make pre-tax profits of around €5.8 million (£4.5 million) this year, compared to €3.5 million last year, according to an information memorandum on the company - which is for sale.

UBIM, which manages Ulster Bank's fund management operation, was put up for sale two weeks ago.

At the end of October, it had just under €7 billion of funds under management.

The information memorandum, which has been seen by The Irish Times, was prepared by NCB Corporate Finance, the corporate finance arm of Ulster Bank and has been circulated to prospective buyers.

It shows that 64.3 per cent of the funds under management are equities, 22.1 per cent invested in bonds, 4.9 per cent in property while cash accounts for 8.7 per cent.

The memorandum shows that UBIM's equity portfolio has 27 per cent of its investments in Ireland, 22 per cent in Britain, 21 per cent in Europe, 20 per cent in the US, and 7 and 3 per cent in Japan and the Far East respectively.

The decision to sell UBIM was taken by Ulster Bank and its parent NatWest, which also plans to sell Ulster Bank to fend off hostile bids from Bank of Scotland and the Royal Bank of Scotland.

Ulster Bank's chief executive, Mr Martin Wilson, has said the divestment is in line with the bank's desire to focus on retail and corporate banking. UBIM's core business is managing pension fund assets.

It has 235 pension fund clients and 333 institutional clients. Clients include Glanbia, CRH, RTE, Compaq and Unilever. It also manages nine retail mutual/unit funds for the personal investment unit which are mainly distributed through the Ulster Bank network. The bank is retaining the unit. This is because many of these clients would be clients of the bank itself rather than of UBIM.

UBIM will pay an investment accounting charge of €2.7 million this year to Ulster Bank Investment Services (UBIS).

This is a fee for the provision of back office - or administration - services.

The company also pays UBIS, which is due to be sold separately, an administration fee for its unitised funds.

UBIM's revenue for the subsidiary in the 11 months to the end of October was €14.495 million, with direct salary expenses of €3.8 million and direct administration costs of €2.36 million.

The figures show that profits have been growing strongly over the past three years, to €2.5 million in 1998 from €878,000 after tax in 1996.

The memorandum says funds under management have grown rapidly since 1990 and that growth has been organic with new business being won through competitive market tenders.

"The UBIM institutional business development team has been very successful in attracting new business in the Irish market and new institutional mandates for the year to date are valued in excess of €400 million," the memorandum states.

It says that cash-flow on domestic pension funds is around 5 per cent a year.

The company has about €140 million under management for charity funds in the segregated pensions market and €80 million in unitised funds (that is, where the money is put into a spread of funds).

Corporates account for €638 million in the segregated pension funds market and €26 million in the unitised funds market. Market sources said last night that UBIM, a well-regarded company, had built its market share by charging low management fees. "The fees are at the lower end of the spectrum," said a source.

Some analysts have said it could fetch £90£100 million but opinion is divided.

A rough rule of thumb is around 2 per cent of funds under management - UBIM has £5.4 billion under management.

But 2 per cent would also represent a multiple of around 25 times earnings, which would appear a "quite aggressive" high, according to some sources, who suggest the final figure may be somewhat lower.

Among those tipped to be interested in buying UBIM are Irish Life & Permanent, Norwich Union and Friends Provident. A management buyout is also possible.

Prospective purchasers must make indicative bids by January 14th.