Australian Ethical Investment (ASX:AEF): With 50 straight quarters of FUM growth, this ESG fund manager must be doing something right

Australian Ethical Investment (ASX: AEF) is one of the best ways to leverage the growth in ESG investing on the ASX, because it is right amid the action.

The ESG fund manager has experienced significant growth in its customers and funds under management in the past few years, both due to increasing awareness and desire for ethical investing as well as the solid performance of the company’s funds.

But the stock is off all time highs reached when interest rates were near zero. Shares had a topsy-turvy 2025, finishing 2% lower but having plenty of highs and lows. The high was continued growth in its FUM, but the prospect of rate rises and scruitany from APRA led to weakened investor sentiment.

Does the new year mean a clean slate for investors to look at the company? We think it does.

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Introduction to Australian Ethical Investment 

Australian Ethical Investment is an ethical wealth manager, offering superannuation, pension and investment funds – predominantly equities and fixed income. It was founded in 1986 and listed on the ASX in 2002. Much of AEF’s existence has been a slow and steady journey, only surpassing $1bn in Funds Under Management (FUM) in 2014.

But after taking 28 years to get to $1bn, AEF took 10 years to get to $10bn. Why? Because in recent years, ESG investing has become more and more popular as investors have become increasingly aware of ESG issues – such as climate change, carbon emissions and company governance – and such factors can positively or negatively affect investments. Its AUM sat at ~$14bn as at the close of FY25.

People want to invest ethically

A survey by the Responsible Investment Association Australasia (RIAA), released in March 2024, found 88% of Australian expect their superannuation and other investments to be invested ethically. 76% said they would be willing to switch providers if their current fund didn’t align with their values. The gradual Wealth Transfer from Boomers to Gen Z will see be a key catalyst for increasing ethics in financial markets as will growing brand awareness. It is Number 3 ranked by super customers and received favourable rankings from Lonsec and Zenith.

Australian Ethical has successfully leveraged its market position and expertise to capitalise on these trends. 5 years ago (at the end of FY20), it had $4bn FUM. As of September 30, 2025 (the most recent update) it has $14.3bn in FUM and recorded 50 consecutive quarters of positive inflows. It closed the prior financial year with $119.4m revenue and a $23.9m profit, figures which were up 19% and 29% respectively. It paid a 14c per share dividend, up 56%.

Granted, some growth has been inorganic through the acquisitions of Christian Super and Altius Asset Management. But even so, it has had 5-year CAGR of 28% in its FUM, 19% in its revenue and 18% in its annual dividends. It has achieved 9.7% p.a. return since inception which is 2.2% p.a. above the benchmark. Its Emerging Companies Fund has achieved 12.2% p.a. return compared to a 5.4% p.a. benchmark.

The company also boasted that its portfolio has 75% less Co2 intensity, 2.3x revenue from sustainable impact solutions. 4.1x investment in renewables and energy solutions and 5.2x revenue from sustainable water and agriculture and pollution prevention.

Australian Ethical shares have had challenges 

Australian Ethical’s share price has largely followed suit with the company’s growth, growing nearly 600% between May 2019 and November 2021. Shares had a torrid 18 months thereafter as interest rates rose and the market lost appetite for listed fund managers as the performances deteriorated.

Australian Ethical did not fare as badly as its peers, but still saw a drop in performance, even amongst its purportedly ‘defensive funds’. Furthermore, as a stock that had grown so much since the Corona Crash, Australian Ethical was an easy stock to sell.

A possible rise in interest rates may harm investment market sentiment too. That said, it is not as if employers have to pay less super just because of interest rates so money will still be flowing in. Also remember that the Altius acquisition saw the addition of fixed income products which may yield a higher return but have lower fees. While FUM keeps rising strongly, mix effects and margin compression can concern investors who focus on fee‑based profitability.

APRA’s intervention

But arguably the biggest concern for investors came in the form of an APRA intervention in late 2025. The regulator imposed additional licence conditions on Australian Ethical Super — the superannuation fund operated by the company — concerning its related‑party expenditure and governance practices. APRA required the fund to bring in an independent third party to strengthen governance and oversight of related‑party arrangements. This regulatory action spooked the market, with the stock falling significantly on the news, as investors weighed the risk of higher compliance costs or reputational damage and potential constraints on future earnings.

Could it hurt the company going forward? Not in an existential way. it does mean additional process, reporting, and possibly structural changes to how investment services and fees are arranged and scrutinised. Inevitably this will mean more costs.

So, is Australian Ethical a buy at the moment?

Yes. It has a proven track record of growth and we think Australian Ethical still has upside left in it as it continues to grow its FUM and investment performance. The reduction in interest rates should help its ASX investments, and the company too.

The biggest risk we see is global financial markets entering another correction, which would risk the performance of Australian Ethical’s investments. But we still believe, the company will grow in conjunction with ESG investing because for Australian investors, there are few (if any) other choices in that space.

So, in conclusion, at the current share price we believe AEF presents a good entry opportunity for long term investors, particularly those with an ESG focus. There is practically no other ethical fund manager on the ASX, and very few in the market generally with the proven track record that it has.

Frequently Asked Questions about Australian Ethical Investment

• What is Australian Ethical Investment?

  AEF is an ASX-listed fund manager specialising in ESG type investments.

• Is Australian Ethical Investment an Australian company?

  Yes, AEF is based in Australia with offices in Sydney and Melbourne.

• Does Australian Ethical Investment pay a dividend?

  Yes, the company paid out 14c per share in FY25.

• What is Australian Ethical Investment’s FUM?

  As of September 30, 2025 (the most recent update) it has $14.3bn in FUM.