The Pru's investments in newly floated companies underperformed the stock market by 14 per cent, according to an analysis for the Independent on Sunday. It was much the worst performance among the top 50 institutions.
Its £200m investment in new issues included some of the biggest flotation disappointments of the year including MDIS, Chiroscience Group, Beazer Homes, Eurodollar Holdings and Midland Independent Newspapers.
This question mark over the Pru's share-picking abilities is another blow for the company, already under pressure because of the abrupt departure of its chief executive, Mick Newmarch, following questionable share dealings and allegations that the firm mis-sold personal pensions.
AMP, owner of Pearl Assurance, underperformed by 5 per cent. It was brought down by investing heavily in Aerostructures Hamble, a corporate fiasco whose shares stand at a fraction of the flotation price.
Morgan Grenfell and CIN, the coal industry pension fund manager, underperformed by 4 per cent.
The analysis was conducted by Citywatch, the research organisation that gathers information on institutional investments by decoding nominee accounts to identify the holder of the shares. It compared the share price performance of each flotation with the FT-SE All Share index.
Mark O'Hare of Citywatch stressed the findings were indicative only. They are based on the assumption - true nine times out of 10 - that shareholdings were acquired at the time of the float and not subsequently. The large flotations of 3i, Telewest and BSkyB were excluded from the analysis because they skewed the results too much. He said the Pru was hit by two particularly unfortunate investments - its 8 per cent holding in MDIS and its 7.5 per cent stake in Beazer. "Without those two, it would have outperformed the market,'' he said.
A spokesman for the Pru said the analysis was a short-term snapshot only. Its main UK life fund, which invested in floats, had outperformed the market by more than 0.5 per cent each year over the last five years. He pointed out that the analysis excluded the 3i float, one of the Pru's most lucrative investments. Some Beazer share purchases were made subsequent to the float, when the price was lower.
The Citywatch analysis - the first of its kind - found a wide spread in the share-picking abilities of fund managers. Eight of the top 50 did very well, beating the index by more than 5 per cent; 17 of them were beaten by the index.
Phillips & Drew Fund Management came top in the analysis, its portfolio of new issues outperforming the index by 23 per cent. It was helped by investing in a large number of new issues - 80 - and by largely avoiding the hi-tech companies. It also picked some of the best performing new issues including London Clubs International, Go-Ahead Group and UPF Group.
Second best was Schroder, which was boosted by large investments in London Clubs and UPF. Mercury Asset Management, another strong performer, had stakes in London Clubs and Go-Ahead - to offset its investments in Aerostructures and United Carriers.
Mr O'Hare said institutions that invested a lot tended to do better: "The moral is you need to follow new issues closely to know the good from the bad."
The market for new issues this year would be tougher, he added. "Fund managers will be more choosy, and companies and their advisers will need to target the right investors carefully."
Performance of new issue investments
Investing institution Performance relative to
FT-A All Share index
Phillips & Drew Fund Management +23%
Mercury Asset Management +14%
Legal & General +14%
Edinburgh Fund Managers +11%
Morgan Grenfell -4%