INVESTMENT house Edinburgh Partners has posted a fall in annual pre-tax profits from £25.9 million to £22.9m because of a dip in funds under management.

However, in the company's accounts for the year to February 2013, the directors highlight their confidence in the long-term outlook for the investment house.

The fund manager, which is chaired by Edinburgh merchant banker Sir Angus Grossart and is more than 75%-owned by employees, had average funds under management of £8.2 billion in the year to February. This was down from £9.2bn in the prior 12 months.

Chief executive Sandy Nairn, who set up Edinburgh Partners after leaving Scottish Widows Investment Partnership in 2003, said of the fall in funds under management: "We have seen a small number of outflows on global (equity management mandates), reflecting some restructuring (by clients), and some inflows, but not sufficient to compensate, on Europe and international (equities)."

On outflows, he added that "two or three" clients had moved their global equities funds to "passive" or index-tracking, as opposed to active, management.

Mr Nairn said Edinburgh Partners' global equities investment performance had been "very good" over the last 12 months, having been weaker in the preceding couple of years "for good reasons".

He added: "The market sentiment has shifted now, more towards valuation and away from safety."

Mr Nairn said the performance of Edinburgh Partners' European and international equity portfolios had also been "very strong" in the last 12 months.

Commenting on Edinburgh Partners' overall investment performance, he declared: "The performance numbers have ticked up very substantially. That is the critical piece."

Revenues in the year to end-February 2013 fell to £39.5m, from £45.8m in the prior 12 months.

Asked for his view of stock market valuations, Mr Nairn replied: "Global equities are a touch expensive, but not massively so. But all other asset classes are expensive. I think you should expect sub-trend returns (from equities). I wouldn't be predicting a sharp fall. The valuation doesn't necessitate the view you get a sharp fall."

Edinburgh Partners' accounts show it had capital and reserves of £43.8m at the end of February, up from £38.9m a year earlier.

Mr Nairn said: "We have a strong balance sheet. We have built that up because I think it is only prudent to do so. One never knows what the future brings."

The company had an average of 61 staff in the year to February. The average in the prior 12 months was 62.