Fixed Income specialist Income Asset Management (ASX:IAM) has returned to its near-term profitability target with a strong flow of mandates and capital markets opening up.

IAM released its Q4 FY22 results, with revenue for the year up 72% to $7.40 million compared with $4.3 million in 2021, driven by positive contributions across the group.

Total revenue for Q4 was down 3% from Q3 FY22, which the company said reflected difficult market conditions in the second half as seen across equity and debt markets.

“In particular new-issue flows were effectively paused in Q4 as investors and corporates attempted to re-assess the market conditions,” IAM said in its ASX announcement.

Assets under Administration (AuA) across bonds and cash was more than $2bn with placement fees increasing 216% Year on Year (YoY) to $3.3 million.

“With Investment grade bonds in demand, such as the recent NAB placement, we see opportunities to greatly enhance our profitability by using our balance sheet to participate in these offerings,” the announcement said.


Income Asset Management


IAM Capital Markets

YoY trading volumes increased 250% with strong client growth through financial advisor groups highlighting that bonds are a key focus for investors.

Assets under management (AUM) grew 33% Q3 to Q4. Bonds transacted grew ~100% from $619m to $1.24bn Q3 to Q4.

Bond trading revenue was up 103% YoY to $2.9 million. Bond trading brokerage revenue in Q4 was up 11% on Q3 to $572k.

IAM said trading revenue was relatively strong, despite volatile market conditions. with the gap in the Capital Markets business for the quarter being a lack of primary market new issues, which when returns are expected to deliver strong results.

IAM Capital Markets started administration and execution services for a A$160m Not-For-Profit (NFP) portfolio. Year on Year trade volumes increased 250%.

New clients grew 192% YoY with strong demand from the financial advisor market, while quarterly private client numbers grew 17%.

IAM onboarded several financial advisor groups which significantly increases the clients that can access its Small Parcel Bond Service.


Service upgrades for financial advisors

To support IAM’s partnerships with boutique and larger financial advisor groups, along with private investors, IAM now offers more than 500 securities in parcel sizes of $50,000 across AUD, EUR, GBP and USD.

The company said this provides investors increased access to the corporate bond market and greater ability to build robust and diversified fixed-income portfolios.

In line with the service, IAM has enhanced its client portal to enable more advisor functionality.


IAM Cash Markets

Cash broking revenue increased for Q4 and IAM expects further growth in a rising interest rate environment.

Cash markets revenue was up $119k for the quarter reflecting an increase in assets and clients investing for longer terms.

There was a 58% increase for the year in negotiable certificates of deposits held on the platform with IAM attributing the rise to clients seeking greater flexibility and returns.

Assets on the platform increased 13% to $1.16 billion in Q4, with brokerage revenue up 72% for the quarter.


IAM Funds Management

IAM’s funds management incubation business is still nascent, but early results show a very positive outlook.

The group holds a 25% investment in Fortlake Asset Management and a 25% investment in Tactical Global Management (TGM), a $26bn global overlay manager.

The Group provides distribution, marketing, licencing, and back-office services to support growth of the businesses.

Fortlake’s public offer funds delivered strong risk-adjusted returns over the past 12 months, well above relevant peers and in line with, or above, objectives.

Fortlake and Trustees Australia (an IAM business) are finalising preparation for the listing of the first Fortlake ETF into the market in September 2022.

TGM continues to develop strategies focused on Sustainable Development Goals (SDG). Soon the business plans to launch pooled funds that will invest only in climate-friendly global companies or those that comply with UN Sustainable Development Goals.

Trustees Australia is seeing demand from institutional investors for its responsible entity and custodial services for small parcel bonds and small funds.

IAM expects the business to expand in FY23 and become a source of recurring revenue.


Cash flow and material investments

Net operating outflows of cash in Q4 was down 25% on Q3 to $1.525m. Cash inflows from customers were up slightly for the quarter, with outflows to suppliers and employees also remaining relatively flat, indicating that IAM’s cost base has stabilised.

In addition, IAM Group received an R&D incentive grant of $192k in June. The Group sees continued growth in revenue uplift in FY23 across all areas of the business as inflation and rising interest rates favour broad income focused investments.

The group has more than five quarters of funding, with this figure fluctuating as it changes the volume of bonds held on its balance sheet which are ultimately sold to clients and reflects the nature of the trading business.

IAM provides a $125,000 quarterly loan facility to Fortlake Asset Management, which is fully repayable. IAM has lent Fortlake a total of ~$916. In FY22 IAM also paid $3m for its holding in TGM.


Challenging conditions for fixed income

IAM CEO Jon Lechte said the organisation was doing well to navigate difficult times for fixed income markets.

“Last quarter, I said these were the most challenging conditions for fixed-income markets in a generation. This statement has continued to play out in Q4,” Lechte said.

“With many investment firms reporting double digit downturn in revenue and significant outflow of assets, our revenue has remained stable and assets under administration and management have grown across Bonds, Funds and Cash.

He said importantly as a growing business, it has stabilised expenses.

“As we head into the new financial year, we have seen a strong sentiment back to the debt markets,” he said.

“We have built an investment house focused on debt markets and we continue to grow despite the headwinds facing the broader market.”

Lechte said its funds management business continues to build, with strong interest in our distribution capability from other fund managers.

“We are confident this business will grow to be a strong contributor to the bottom line in the future,” he said.

IAM also sees significant momentum in the financial advisor segment accessing bond and cash markets.

“We are expertly placed for these groups to use our services, with our reputation for transparency in pricing and client management beyond question.”


Income Asset Management


This article was developed in collaboration with Income Asset Management, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.