Ashmore Group Plc (ASHM) Earnings Call Transcript & Summary

Good morning. Good to be back in the hurly-burly of a half-empty auditorium. Thanks for coming, those who've come. 6-month results for Ashmore Group Plc. Tom Shippey, Group Finance Director; myself, Mark Coombs, Chief Executive, we're going to take you through things as usual. This is the overview, summary of how the period has gone for us. So financial performance impacted by the market, as you might expect. AUM at $87 billion, down 8% for the period. We stayed tight on cost as usual, so the operating costs dropped 7% as well. Our adjusted EBITDA is down 14%, maintain our margin at 67%. We've delivered seed capital profits of GBP 25 million, which is a pretty good number, but not as strong as the previous period. Our adjusted diluted EPS is at 10.4p and interim dividend per share stays at 4.80p. In terms of what we're doing strategically, things continue to -- we continue to make progress. We're very happy with what -- things that are happening in the local market businesses and within the equity platform and in investment grade as well. Quite a lot of people looking to add to that space despite nervousness of our U.S. rates. Local platforms in total, assets under management are up 12% over the 6-month period. In terms of our investment processes, we're doing what we always do. '21 was a much harder year for EM performance than '20, and we continue to do what we tend to do. Currency, equities and IG all outperformed. High-yield didn't, but we added risk to get into the position where we recover over the cycle as usual, particularly in high-yield credit. Macro is getting generally better for EM. EM central banks are kind of getting -- have got in front of things. Concerned about inflation because it tends to lose -- people tend to lose power in inflation in emerging economies, if you lose control of it. And so central banks got ahead of the curve and pushed up rates long before people like the Fed and the Bank of England. This is good. And we should now get -- if you get a flagged U.S. interest rate rise environment, it's not a shock. Emerging market fixed income tends to outperform. '21 headwinds are slowly fading. January wasn't fabulous. February is slightly looking like it's going to be slightly better already. And basically, valuations are cheap across EM, debt and equities. So where are we in the cycle? What's happening? We've seen these kinds of things before. Policy responses have been pretty good in EM, a, because they're less able to but, b, because they're more concerned about doing it much less fiscal stimulus and getting rid of deficits much quicker than developed markets. The convergence trend is intact in terms of EM to DM. Normally, what happens is the Fed titans that you get an initial nervousness ahead of it starting. And then once it starts, EM tends to outperform. So as a result of that, we feel pretty good about what's happening in the dollar bond space from here. As I said, central banks in EM have got ahead of the curve, which is good. U.S. real rates are negative. EM real rates are positive in many cases. And there's a 500 basis points difference. China is going through a growth adjustment, but it's still -- but those headwinds should unwind through '22, particularly in the context of likely stimulus coming through the back of the Olympics and running into the October, November reelection of Xi. They are pretty clear on what they want to do in the long term. Right now, they kind of want to make sure people don't get too depressed. So I think there's going to be some steady easing in China. We've already seen quite a lot of it flagged December and in January. So valuations are pretty cheap for us. In terms of just to summarize that, equities are at a 15-year relative low to developed markets. That's a nice place to be in technically. Local currency bond yields now positive real yield over 6% across the index, and there are some much higher rates than that if you want to find them. The external debt spreads are back to about 400 basis points across the index. So plenty going on that gives us a chance to perform this year. In terms of where we're at 1, 3 and 5 years, '21 was a tough year for EM. And in terms of the way we invest for some of our themes, it was, therefore, a tough year as we want to take advantage of cheaper prices. So 1, 3 and 5, 39%, 44% and 54% outperformance respectively. If you think about this, we've seen this before. This is exactly the kind of thing that happens cyclically. So we feel very confident about where we are now. We think we're at a nice cyclical low, both in terms of performance across some of the fixed income strategies where we acquire risk and also in terms of investor appetite. What tends to happen is there's a lag to performance in terms of flows, but we feel pretty good from where we go from here this year. As I said it before, in terms of relative local currency equities and investment grade has been outperforming. Corporate debt in the short term, not, and the same with blended. In terms of where we are strategically, some pretty good progress this year. Investors kind of froze up a bit in COVID. They sort of didn't do much of anything. That's probably a slightly sweeping statement. But there's a considerable reduction in activity, both in terms of inflow and outflow. And that sort of freezing up has started to unwind in the last quarter of last year and continues now. So there's more going on. So we're -- and we're able to get back on the front foot, go see them. So I think we've been starting to travel since Q4. We're getting in front of people again, which is great. Because not doing that is a complete pain in the neck, both for them and for us. Not all investors are open to visits live now. I think a lot of -- by the end of March, most will be. But there's still certain pockets where they're uncomfortable. So if you go to the states, we're now at the point where 1/4 of people will see you in the flesh and 3/4 won't, but they're all sort of getting there sort of March, April. In Europe, end of March is the trigger for a lot of people. In the Gulf, you can see anybody now. In Asia, it's a bit AC/DC, but it's hard because of quarantine a lot of places still. So if 100% is fully open to see anybody you want, we're probably now at about 30% across the globe. So we're making progress there. And of course, you're Zooming them. It's much better to be in person. That's true both for client interaction and also for investment decision-making. So we're beginning to get back in the field, which is great. So the first thing is to raise underweight investor allocations to EM generally and specifically for certain things that we do to get -- increase our market share, so particularly in the equity space. So what happened in the last 6 months were gross subs were at a similar level to the prior year so not yet at enormous levels, but beginning to pick up and flattening off and people starting to focus again on what are they doing with their portfolios. So that's fine, and we're pushing on those things. Where we've picked up money has tended to be interestingly in blended and external debt, which is the place that's taken a lot of pain in terms of index performance through '21 and also in equities. So actually, all places that had a rough time through '21. But that's where we're seeing people, a, they're underweight to us in equities, and they say, you guys are good at performing in it; and b, they feel a little bit underweight to the fixed income space generally. So in terms of Ashmore and diversifying us because we want to be able to offer people any kind of investment in EM. So across asset classes where are we at. Equities momentum continues. It's ticked up as a percentage of AUM with net inflows and strong relative performance across pretty much all equity products. There are pockets of underperformance here and there, but the main themes are outperforming over a decent period of time. If you look on the right here, global emerging markets equity platform strategies. So we have 3 kind of significant ones. Active all cap and small cap. Decent benchmark performance net-net-net over 3 years between 10% and 16%. And our Alpha is varying between 150 and 1,000 basis points, which is one of the reasons that we're seeing inflows. The outright performance has been okay, and our Alpha has been good. Investment-grade fixed income, we're also seeing continuing buying into that, where people are saying we like what happens in the dollar investment-grade space. We like the pickup of U.S. investment-grade markets, and we can see -- we're not making massive Alpha there. One isn't making massive Alpha there, but we're making good Alpha there. So steady increases in the investment grade space. Seed capital continues. We've been putting most of our seed capital over the period into ESG-type product. The other products as they're reaching more clients, so for example, the equity products, we're starting to see most of that money coming back out of the seed. We always do that when we hit a certain size. We'd like to recycle seed capital. But most seed from here is going into, I guess, 2 places. ESG, as we seek to establish track records for pure ESG product and some of the alternatives things that we're doing, where we're supporting some of the growth of some of the assets that we're doing in health care, for example. Intermediary retail is at 6% of AUM. The platforms in place hasn't changed. Retail just ebbs and flows with the market, and the top slice always moves very quickly in and out. So it's been a high percentage of AUM. This is probably a cyclical low, I would suggest, of AUM, but a lot depends on what happens on the institutional side, of course. And then in terms of the local businesses, which as you know, has been something we've been committed to for a long time. They're delivering really good growth, and that's a great thing, that what we hope would happen is happening, which is those economies are growing faster than DM. That's continuing. And more importantly, usable financial assets are growing and penetration within sort of the local demographies is happening at a much greater rate, much deeper. So the AUM now was up 12% over the period. We're up at about $8 billion, starting to make a difference. That's great. Indonesia, the company that we established a few years ago, into public a couple of years ago, up -- record AUM increase, up 16%. Saudi, up 50% year-on-year. So we're really beginning to get some nice growth there. And in Ashmore Colombia, we continue to add to the alternatives strategies. So local platforms, if you look on the bottom right, AUM in Asia, up 13%. It's now at $5 billion. Half-on-half, that's a 15% growth. Middle East, up 45% year-on-year. Latin America, no real change, but a little bit of an increase, but not a huge number. But half-on-half a decent number. So overall, $8 billion, 15% up year-on-year. Not bad. And we see that continuing. We're seeing, as I say, increased financial assets in these markets. Am I handing to you? Let me hand to Tom.

Okay. So as usual, let me give you a brief overview of the financials over the 6 months before delving into the detail. So while, as Mark said, there's an inevitable impact from lower market levels on the financial results, the business model is designed to deal effectively with these different revenue environment. And the strength and liquidity of the balance sheet enables continued investment and progress towards Ashmore's organic growth objectives. Hopefully, the review will illustrate these results are consistent in terms of maintaining high profit margins, efficiently converting profits to cash and subsequently returning capital to shareholders in the form of ordinary dividends. The impact of the negative sentiment on EM asset prices means that over the 6-month period, assets under management declined 8% from $94.4 billion to $87.3 billion, with negative performance contributing $3.9 billion and net outflows of $3.2 billion. Adjusted net revenue, therefore, reduced by 12%, reflecting 6% lower net management fees and lower contributions from both FX hedges and performance fee income. It should come as no surprise to you that we continue to maintain a strict control of our operating costs, and these were reduced 7% year-on-year, meaning that adjusted EBITDA was 14% lower, broadly consistent with the revenue movement and delivering an operating margin of 67%. Notwithstanding the market environment, the seed capital portfolio generated a pretax gain of GBP 25 million over the 6 months. While a meaningful profit, the absolute level was approximately half of the gain in the prior year period, meaning that reported profit before tax declined by 23%. The Board has declared an unchanged interim dividend of 4.8p per share, reflecting the balance between the lower statutory profit level and the positive outlook that Mark described. Looking now at the AUM development over the 6 months. Well, as we described back in September, the summer months were relatively subdued, levels of client activity began to pick up through the second quarter. For the half overall, gross subscriptions were at a similar level to the prior year at $7.8 billion or 8% of opening AUM. There continues to be broad demand from a mix of both new clients, representing around 1/3 of institutional flow and existing clients adding to their mandates with decent activity levels across both the fixed income and equity teams, notably, new client mandates funded in external debt, blended debt and equities. There continues to be good demand for investment-grade credit particularly in Europe. And reflecting the opportunities reflected by the recent market volatility, we saw flows of around $250 million into Asia-focused corporate credit strategies. Reflecting our objective to increase alternatives AUM, Ashmore Colombia raised approximately $200 million in the first close of its third private equity fund, focused on investments in domestic and regional infrastructure projects. The level of redemptions was also broadly consistent with the same period a year ago, an $11 billion or 12% of AUM. While there's no particular overall theme, I would draw out 2 main drivers of outflows. First, we saw some pension funds begin to withdraw capital from blended debt mandates. These decisions had little to do with the asset class or performance, but reflect the underlying schemes becoming fully funded and consequently choosing to shift their asset allocation towards lower returning asset classes. And secondly, local currency redemptions include some institutions tactically reducing exposure at this point in the rate cycle, and a reduction in exposure of about $1.7 billion from overlay mandates. On a net basis, the outflow of $3.2 billion was split 2/3 institutional and 1/3 intermediary retail, with the latter understandably reflecting a shorter average duration than institutional capital. Completing the AUM picture, the impact of investment performance reduced AUM by $3.9 billion or around 4% of opening AUM. This is against the backdrop of lower market levels with benchmark index declines of 11% in equities, 6% in local currency markets and approximately 1% in hard currency corporate and sovereign debt. Turning now to the P&L. Adjusted net revenues declined by 12% year-on-year to GBP 138.2 million. Looking at the main components, the majority of the group's income is in management fees, which declined 6% year-on-year to GBP 131 million. The 4% growth in average AUM was offset by a stronger average cable rate, and the net revenue margin fell by 3 basis points year-on-year and by 1 basis point compared with the previous half. On a constant currency basis, net management fees fell by 2%. The drivers of the net revenue margin continued to be consistent with lower levels of intermediary-sourced retail capital and outflows from higher-margin mutual funds explaining 2/3 of the reduction. The remaining 1 basis point year-on-year is attributable to large mandate flows, product mix and competition. There was no net impact from investment theme mix in the period. My guidance, therefore, continues to be for competitive pressure on fees to cause approximately 1 basis point or so of underlying margin drift over a 12- to 18-month period. Performance fees of GBP 3.1 million were delivered across a range of fixed income funds based on prevailing market levels, current performance in eligible funds and the usual bias of performance fees to the first half of the financial year. I'd reiterate the guidance I gave in September, which is for no more than GBP 4 million of performance fees for the financial year to June '22. And finally, the dollar rate was less volatile than the prior year period. And so while FX hedging gains of GBP 2.7 million were achieved, these are approximately 1/4 of the level reported in the prior year period. Looking now at operating costs. You will see the continued effectiveness of the business model and cost discipline in the 7% year-on-year reduction in adjusted operating costs. At the interim stage, variable remuneration is accrued at 20% of pre-bonus profit. And so this component of costs responds directly to the lower level of reported revenues. Staff costs of GBP 13.7 million are comparable to the prior year period with little change in the group's overall headcount. We continue to exert firm control over non-staff costs. And despite a GBP 0.5 million increase in the accrual for charitable donations, other operating costs were also kept broadly flat at GBP 9.8 million. In terms of the trajectory for operating costs from here, encouragingly, employees have now returned full time to the London office. Business travel is beginning to resume, and we expect the other offices around the world to continue on the path to pre-COVID working practices over the coming months as restrictions are eased. As I guided in September, this means the total fixed staff and other operating costs of GBP 23.5 million will trend back to the 2018/'19 levels or approximately GBP 50 million a year. While cost inflation was held below this run rate in the first half, it's therefore reasonable to assume that the second half of the financial year will be closer to a GBP 25 million run rate. The group seed capital has delivered a number of benefits over the past decade, notably supporting funds that today account for $9 billion or approximately 10% of the group's AUM as well as generating material P&L gains. In this period, the diversity and breadth of the portfolio delivered a further meaningful profit of GBP 25.2 million, with negative mark-to-market movements on the liquids side, more than offset by valuation gains on private equity assets in the alternatives fund. Of the GBP 25 million, GBP 23 million was unrealized at the period end. The GBP 2 million that was realized reflects the movement since 30th of June 2021, with a total of GBP 17 million of gain realized over the life of that invested capital. New seed capital investments were made of GBP 6 million in the period, primarily to support further strong growth in the local investment management businesses as well as the ESG products that Mark referenced. Redemptions of GBP 40 million were achieved after successful investment realizations and the subsequent return of capital by alternatives funds as well as match redeeming the continuing strong inflows into the equity strategies. At the period end, the group had GBP 334.8 million of market value invested in funds and a further GBP 8.5 million committed, both broadly flat on the June levels. While the size of the program will continue to depend on market movement and the ability to redeem capital profitably as funds grow and mature, the group remains committed to using its balance sheet resources to make investments in pursuit of its strategic growth objectives. To complete the P&L picture, profit before tax of GBP 116 million is 23% lower than the prior year, reflecting the 14% decline in adjusted EBITDA and the returns on the seed capital portfolio being at a lower absolute level year-on-year. The effective tax rate of 17.8%, while below the U.K. statutory rate is a touch higher than implied by the geographic mix of profits. This is due to the impact of the share price on the allowable value of employee share awards, partially offset by certain unrealized seed capital gains not being subject to tax. Given the diverse nature of the group's operations, its profits attract a reasonably wide range of corporate tax rates. The current underlying effect -- sorry, the current underlying effective tax rate based on the geographic mix of profits is approximately 17%. So all else being equal, this will increase from April 2023 when the U.K. corporation tax rate increases from 19% to 25% with an estimated impact of around 3 percentage points. Lastly and importantly, as mentioned earlier, the Board has maintained the interim dividend of 4.8p per share. Taking a brief look at cash flows. The group's business model consistently converts a high proportion of earnings to cash. After tax, the majority of this is returned to shareholders via the ordinary dividend. Additionally, as you know, the group purchases shares to avoid the potential dilution resulting from the award of equity to employees under the group's bonus scheme. And in this period, there was a net redemption from seed capital investments. Cash flows in the first half of the financial year include the payment of cash bonuses and the final ordinary dividend in respect to the prior year. Therefore, as is typical, the cash balance at the period end was essentially unchanged at around GBP 445 million. And finally from me, before I hand you back to Mark to sum up, a brief word on the balance sheet, which continues in the theme of consistency. Total capital resources of GBP 823 million means the group has GBP 667.4 million of capital in excess of its Pillar II regulatory requirement of GBP 156 million, equivalent to 94p per share. This excess is primarily held in the form of cash with the balance supporting the seed capital program. As you're aware, the U.K. regulatory regime is undergoing some change. And as I mentioned in September, while there'll be some movements under the bonnet, the overall impact on Ashmore's regulatory capital levels is likely to be modest. The introduction of K factors is likely to reduce the Pillar I requirement, but I expect no material impact on the calculation of Pillar II, which will continue to represent Ashmore's overall regulatory requirement. The new rules will also introduce a basic liquidity requirement based on fixed overheads and the assessment of wound-down costs. Again, our consistent and conservative balance sheet, along with significant cash available and no debt means that we're appropriately structured for the new regime. This, as was the case previously -- therefore, as was the case previously, under new regulations, Ashmore will continue to maintain a well-capitalized liquid balance sheet to support its strategic growth objectives across market cycles. With that, I'll pass it back.

Thank you, Tom. So the summary is really pretty simple. Things are happening as we would expect. So the financial performance is heavily impacted by the market environment. That happens, that happens all the time. And that's what happens in the cycle, and we set ourselves up to deal with that and to move forward. When we get moments of negativity, we don't get very positive performance right after that. Strategically, we've actually made some pretty good performance in the last couple of years. Local businesses are growing nicely and seeing a nice pickup. And now the strong performance we've had in equities is beginning to reach the client base. So we've been talking to them for a long time. Once you get through a 3-year, 5-year track records, people start to register. We're in this place there where we're taking market share, which is a good place to be. So we feel very positive about all of that. The sales force gets it, the clients increasingly get it. And we've made investments within the sales force to push more towards that space because, obviously, we're very experienced in selling fixed income. We're experienced, but less experienced in selling equities. And so we are looking to beef people up and access the channels that move through equities. So I'm happy with where we're going strategically. Investment process is doing what they do. We have some outperformance in some of them, some underperformance in others. But the underperformance is where we should have it. Because if we stick to our process, we should be taking risk in difficult years, adding to risk through those periods through in terms of where value is, and outperforming over the long period. And then on the macro, a lot is in the price. Everybody is pretty sweaty about everything. A lot is in the price. And that will go from fixed income equity, even our share price. There's a lot in the price. So we feel pretty good about where we should be from here. So we would expect to see as the world gets used to interest rate environments as they stop thinking it's all one-directional, as you start seeing some figures that don't suggest that it's roaring inflation for the rest of their lives, as you start getting a surprise positive figure, there's a lot of price. So we think it's quite an interesting time to be investing. I think that's it in terms of what we want to say. Happy to take questions as ever. And the good news, although I don't know how to use it, is that your mic is actually in your chair or in every other chair. So you grab it, I think you press it, right? Yes, they have the bloke in the back that says press. The man at the back, says everyone attack.

Bjorn Zietsman from KBW. I wonder if you could give us a comment on current trading, just through January. How markets are treated at Ashmore?

Well, January has been a pretty bad month for a lot of markets. It's treated as kind of market normal, I think. I don't think there's been anything dramatic in terms of relative performance, kind of normal. You wanted to ask something, sorry.

Mike Werner here, UBS. I guess 2 questions. One, you mentioned you had a $200 million close in the Colombia alternative funds. Are there opportunities for future closes there? And then just, I guess, in that general space, I mean, it seems like quite an attractive potential space, right, long-duration capital, generally pretty good fee margins. You guys have the capital resources to support that business. How do you think about that business as we look out over the next 3 to 5 years?

Thanks, Mike. So yes, to answer the questions, hopefully, in order. It's a first close. So there's going to be a further close. And that -- those funds, if you remember, they tend to have 2 markets for them, domestic pension funds and then international capital. And what tends to happen in those local single -- local alternative products, is you close the pension funds first, because they kind of get themselves together, and then you go and talk -- you'd always talking to the external market, but they tend to be a lot more of that in the second close. So there will be another close. So we would hope that, that would grow this year. In terms of that area, yes, we've done alternatives forever. Alternatives is something that adds value in a series of ways. It gives you access to people with significant capital locally. So you see transactional activity. It gives you access, it gives governments something else from you other than we're just trying to deal with your sovereign or we're trying to buy simple credit or we're trying to buy a straightforward equity. You can sometimes be useful for them in terms of privatization initiatives or long-term infrastructure. So it helps your overall access, and the fact that we have access to government, that will feed some of that. However, it's something we want to keep doing, but I think it's a business, I think, whether it's private equity or dedicated infrastructure or very long-term infrastructure debt, there are certain things that we really like that we think are growing: health care, education, infrastructure are 3 of them, and we'll tend to focus on those. From time to time, there'll be the other transaction that isn't that, but that's really where the preponderance of the investment is going to be because that's what the countries need and the real estate is sort of a subset of infrastructure in the way we think about it. So we'll be doing that as well. But it's very local. So you need to be local -- so that you need to be local to the investment. And so what tends to happen is you find a particular theme, and you find a particular area, you can do it and you work that. So we think there's going to be a lot more going on for us in health care. That's been quite successful for us, and we think there'll be a lot more progress in that space with a particular -- we've done it in Latin America, we've done it in the Middle East and we've done a little bit of it in Asia. We don't see much for us there in Eastern Europe, but we see more in all of those places. We see quite a lot in terms of growing, if you like, middle income and being able for private health care and reducing the burden on the government, increasing the quality of health care. So we've got a big push there. So you will see more of that from us. However, it's not like a liquid asset class where you're picking up assets every day. It's very transactional. It's a much more long-term view. But you'll see more of that from us. However, if we are successful in what we do as a business, I don't think the percentage of the assets is going to be a huge percentage of what we do because the liquid stuff, it will do this as the alternatives does kind of that. So I think there'll be more of it. I think it is very high margin. We like it, but we're trying to only do it, we're not any good at it. So we focus on particular segments and particular economy. And when you find the right people, you can then do it in somewhere else. But you need to find the right people who can be -- you've got to be very local on real estate infrastructure. Yes, please?

It's Bruce Hamilton, Morgan Stanley. In terms of the sort of ESG approach, and can you give any more color on the products? Because, I guess, could it be that there's some impact strategies along the lines of the illiquid stuff versus -- how should we think about that in terms of size and timing to market. And then the second thing on fee margins. I guess it's been a while since you were at the sort of 1 basis point decline for a 12-month period. So I guess, is your confidence driven by the fact that all that retail pain is done and so -- and we move forward, so it's kind of the mix of business is better? Is it to do with more balance between new institutions and existing institutions? Any sort of color on that, I guess, would be helpful.

Do you want to do the fee bit first?

I can. So just so that I'm clear, and we all understand, the 1 basis point of guidance that I gave is the competitive erosion over time. And I think we've talked about before, there will be other factors that are often more meaningful than that, that will affect our reported margin, which will be the mix of investment theme, the size of mandates that we're winning or losing and the split between institutional and retail. So one of the big headlines or headwinds that we've been facing over the last 18 months or so has been the erosion of the proportion of capital from the intermediary side, has gone from 15% down to 6% and that the intermediary distributed capital is typically at a 15% to 20% net revenue margin premium to the institutional book. So that's been the headwind, and that was -- if I think about the 3 basis points of move last year to this period, 2 out of the 3 basis points is a consequence of that declining proportion of retail.

I'm just looking there's an instruction there.

Do I need to do it? I didn't [indiscernible]...

No, no. You don't need at all. Somebody is holding under your chair, that's why you're speaking. You are in fact a glove puppet. So am I.

So, yes, obviously, our strategic objective is to turn it around. So if the 6% goes back to 15%, where it was pre-COVID, that would provide a tailwind. So just -- the 1 basis point is competitive erosion over time, and the other things will be plus or minus depending on whether -- if we continue to raise more equity capital than fixed income, that will have upward pressure. The local market businesses are typically higher margin than the global book, and that will have upward pressure as that continues to grow. So it's a mixture of factors.

Yes. The bigger the scale you get in the fixed income, the more margin pressure you have in it. And that will eventually be true in equity, but we're a long way away from that. So equity is generally margin accretive for us as is alternatives, but it's small in the scheme of things. And then in terms of the types of ESG investing, that's a really good question. We -- you want to -- we've had a series of ESG principles since we started. It just didn't used to be called that. And so we now have effectively 2 pools of capital, the bid that did that, and the bid that's very ESG defined with some -- where we're using specific scoring and we're specifically excluding names based on ESG factors rather than the sectors. That's where most of our seed is going because we think that's what makes the most sense in terms of servicing the clients. The answer to whether there will be more impact is quite a difficult one, because some -- for example, we're doing something specific in the real estate space in Latin America than in Colombia, and what's happened is that the client base that we have are moving themselves in terms of where they want to be. So what was originally a very, very strong E business because trying to reduce environmental impact generally in the whole property sector down there, we're very good at that. So there's a big emphasis on it. It wasn't called ESG the last time we did it. But it clearly is now. And so the question there becomes, how far do the institutional clients that want to invest in want to go? And the answer is they're not all that sure. So -- and so what ends up happening is you say, look, we're going to do this new product. You know about all the principles we do. Oh, that might count as impact. Okay. Well, how do we look at that? So there's a whole big conversation. So I can't answer the question properly because I think there will naturally be a move to impact in some places. Defining impact is very extreme. So I would say, if you say, are we going to become a pure impact investor? The answer would be no. Are we open to there being some impact investing in what we do? Yes. Are we going to spend a huge amount of resource in terms of people, acquisition to do that ahead of seeing demand? No. I would say we're much more likely to be mainstream ESG than heavy impact investing. And we've done a bit of impact investing in terms of not actually investing, but giving money away through our foundation. So we see some of that at the small scale. But are we going to become a venture impact investing house? No. Will we end up with more of it? Almost certainly in 10 years' time because some of it will creep that way and it will get easier to do. And the big problem with all of that is scale, finding the right things to do to actually help. Please.

It's Gurjit from JPMorgan. Just a couple of questions. Just can you elaborate like how we think about the impact of rising rates in the U.S. and how that sort of benefits Ashmore? Is that because the EM countries have moved quicker on rate hikes? Just a bit of sort of -- I guess, I'm not an expert on, I guess, the market to be helpful on that topic. Secondly, your duration of your funds. What is sort of the broad duration of your funds at Ashmore? And then finally, just on the performance on the soy and the seed gains. There's quite a big divergence between the unrealized on -- I think it's alternatives that you made most of those unrealized gains. So just is that private equity? Just why there's such a big difference to liquid performance?

Why don't we split those? I'll start with the rising rates thing. Unexpected rises in rates are very bad for EM fixed income, very bad. If you get it, it correlates [ tremendously ] to that. Very tightly to unexpected U.S. rate rises, I'm talking about U.S. rate rises. And so over various periods in time when the market is surprised by something, the global markets is surprised by something, you see a big impact. So you had the taper time from last time around and the big impact on here. And that's always true. But what's also always been true, if you look back empirically over the time, if things are flagged and interest rate rises appear measured, it's unexpected or very rapid and negative. And then over a period of time, EM tends to outperform DM fixed income. Why? I think it's because people think the world isn't over, and they still have to have fixed income assets. And there's spread support. And I think they'd rather be in something with a bit more spread if they don't think it's all going to hell. If they think it's all going to hell, they don't want to be any more spread. So I think over a 3- to 5-year cycles, we've got a lot of data on this. So it just happens that empirically what has happened is EM has tended to outperform. I think it's spread support. There are some people who say, "Well, this is great, I can own more treasurers at higher prices," but they tend to -- there also seems to be just more people who are happy to have assets where they feel the spread protects them against generally rising rates. In terms of duration, it varies dramatically -- sorry, second question. In terms of duration, it varies dramatically. So we have a short duration product that have very, very little, and we have product that can do whatever it likes that can have as much as it wants. We trade duration where it makes sense. So for -- in the bond space, let's focus on the bond space, because this is the obvious one, the duration. We -- there is, if you like, tends to be 2 types of assets, very heavy credit input, where actually duration is relevant, of course, spread duration is relevant, but it's less about pure duration. It's more about something happening in the credit getting better or worse dramatically. So it tends to be at the high yields and -- and then there's stuff that's very tightly priced over U.S. treasuries. So like the better rated credits where duration is much more of a factor. You start trying to trade duration and suffered a lot of credit in it, you're probably trading the wrong thing, a, because bid offer spreads can be very big and 5 basis point moves in direction, you can't really capture them; and b, because the credit then crushes the duration to be honest. In terms of pure U.S. dollar rate duration, there are a bunch of countries where you can trade that. They tend to be the much bigger, more liquid ones. Again, you've got to be careful that you don't get sucked into the best country in the world in terms of EM, let's pick a country that people you should just trade rate duration, say, Mexico. You should -- if you think, oh, it's just about U.S. rates, it's U.S. rates are a bit of a pickup, you make a big mistake on the 1 event in every cycle where actually there's a big credit change. Government suddenly decides to be very supportive to the oil sector, which is a public-owned company, hasn't been before. And suddenly, there's a big credit change that can make a difference. So you can't just get complacent about U.S. rates. So we're always trying to trade EM, but the additional duration twitch in terms of which investors will trade the stuff that's tightest to treasuries, we're also cognizant of. We're trying to trade relatively big moves in duration out there. And what tends to happen is that people are very worried about inflation and they think, oh, we're going to get this big sell-off and there will be concern about it, our stuff does widen a bit. And so there are moments to trade U.S. rate duration. There are little pockets around nervousness when it becomes the thing everyone is obsessed to. So it really varies, really varies.

And on the seed capital question -- yes, sorry about that. So the portfolio currently is about 60-40 liquid to illiquid. So you can estimate pretty accurately what happens on the 60%. So that was about negative GBP 11 million in the period. And we have, if you like, positive GBP 36 million on the alternatives but...

These are mark-to-markets or...

Sorry, just sticking to that. So the bulk of the GBP 25 million, as you picked up, was unrealized in the period. The GBP 2 million that was realized, as I tried to explain, was actually crystallizing GBP 17 million in aggregate on those assets that were exited in the period. So there was GBP 15 million of mark-to-market gain in the prior year that was then crystallized, but only -- we only take the credit for GBP 2 million of realized gain in this period. So that is assets that were sold in the last 6 months that have been marked up at the June reporting point. And then the other piece, and it's often because alternative assets, the valuation tends to trend along at a relatively conservative level, and then there'll be a meaningful pickup at the point of exit. So that was what we saw with the ones that were sold in the period. And a couple of other assets, 1 in particular where we achieved a listing in the period, so we're now marking to market to the listed price, but we're still locked up and we can't exit yet.

Hubert Lam from Bank of America. Just 1 question. You have a lot of excess capital, and you've always had a lot of excess capital. Have you thought of doing more with it? You mentioned that you thought there was a lot of negative news already baked in the share price. I know buybacks could be hard to do, but you thought of returning more capital or doing M&A with excess capital? Just any thoughts on that.

Yes. I mean, obviously, you look at all options. As you accumulate capital, you look at all the various things you can be doing, and we do it. As the Americans say, keep it under advisement. What you noticed we tend to do is if we think the share price and we have a program because we're going to be issuing shares to staff every year, we tend to be acquiring shares if we see that they start to get cheap to support the EBT issuance of share capital. So we effectively do that as we go along. But we would look at all options. If something attractive comes up in terms of M&A, we would look at it. You've got to be sure you're really getting something you're going to keep if you do M&A, though, in the asset management space. We're not really in the game of trying to buy something that does everything for everybody in half the cost base. We're relatively lean in what we do. So we don't want to kind of inherit other people's problems for the sake of it. So it needs to be something that's accretive to what we do in terms of quality in investment, things that are outperforming and are sustainable that people aren't hitting the beach and just trying to give us their cost problems. So we don't want to -- yes, I'm not going to name names, but we don't want to turn into -- it's a different trade. We're not that trade -- you're not trading us for that. Do you want to add anything to that?

Portia Patel from Canaccord. I wondered if you could just comment on local currency in particular. So I think you've talked in the past about that being a great theme. But just some color on how that theme particularly performs in the context of U.S. rate rises would be helpful.

Yes. So U.S. -- within the fixed income part of what we do, U.S. -- the local currency tends to trade the most volatile, unless there's extreme credit events in certain countries. It tends to be the most volatile because it's got rates and FX and a bit of credit in it within the fixed income space. So it's up there involved, not quite with the equity, but it can be. So in unexpected U.S. rate fears, it's super volatile. It's probably the most volatile part of the fixed income space just based on U.S. rate because people aren't expecting it. In terms of where it's at now, it also tends to be quite interesting. It's a cyclical thing. It tends to be -- you get long periods of dollar strength where it tends to struggle to perform. Even if you got net positive real rates, the FX thing kind of works quite against you for a period of time. And you get investors thinking we might as well enter our assets, right? So there's a huge sucking of assets into U.S. everything, equity, fixed income, whatever. And then you get sort of cycles of 3 or 4 years where it goes the other way, when people starts saying, well, hang on, where does the dollar go from here? And what are the dollar fundamentals? And if U.S. rate rises are steady, but is not 1 directional, where is that going? And then it depends on relative value. And at the minute, local -- there's obviously a variety, it's not homogenous. But a lot of the more fiscally astute and people who have switched on in terms of emerging economies within policymakers, have been pretty aggressive in trying to deal with inflation -- the bottlenecks caused by inflation within their countries. So they're kind of ahead of the game in terms of interest rates. I don't think the world is super long that because a lot -- because there's a long dollar positive cycle. So I think the technical is relatively good for that. So we feel pretty good about local currency from here actually for the next 12 months. Caveat, there's something blowing up and stuff happens. Yes, please.

Nicolas Vaysselier for BNP Exane. I'm sorry to come back on the private assets again. I was wondering if you could give us more color on the returns you're able to achieve on that bucket or the returns you are targeting. I was wondering as well if now we are more likely to see this kind of lumpy gains on the seed capital line over time. And to come back on business opportunities, so you mentioned possibilities to do more in LatAm and Middle East, a bit less in Asia. I was wondering if that's because this region is maybe more covered by the private alternative asset manager giants like the U.S. ones?

So this is all -- you're talking about the private and everything, private assets, yes. Yes, we -- I mean, obviously, we don't want to do it just as a hobby, so we want to create some scale in it. And Tom talked about 60-40 being the split between liquid and illiquid in terms of seeding. If everything goes brilliantly, you'd expect that all turned a bit to go up because the liquid stuff has been so successful and then shrinking as a percentage of the seeding because it's all coming back out. And you get much faster turnaround than that. So you'd expect -- yes, you'd expect to see a number in there that I'm not saying it will increase usually in absolute terms, but as a percentage of our seed, it may get a bit bigger. We'd be quite careful that it doesn't become everything we do, but I can see that happening. And I'd -- we'd be very happy to do that if we see the things that work for us strategically. So again, we're looking not just to seed for a laugh, we're looking to seed something that makes sense. So the health care space, the infrastructure we've been seeding because we think we can get scale in it and it will be the same story as the liquid thing, but it just takes longer. You're right in that realizations are lumpier there. So every now and then, there could be some quite positive realization. And if you don't get realizations for a period, you won't get that. So that is true. So I would expect it to sometimes be nothing and sometimes be something a bit more chunky. You just have to watch for the absolute number and how big the overall business is going, because the overall business is growing much faster. It won't make so much of a difference. If the overall business isn't, it will make more of a difference. So I think that's fair. In terms of where we see ourselves doing things -- I'm sorry, returns first. Dramatic moves, big differences because private equity, you're looking at -- you're really looking at 20%, 25% returns in things that are based on health care and education. It's not like venture capital. I mean, we do do some new build stuff, but it's a part of a bigger business platform. So there's brownfield and it's buying into existing businesses is the main driver and then improving them. There is a little -- there is some greenfield, but -- you're not -- it's not venture capital type returns. So it's not 0 or 30x. In infrastructure, debt is very different. It's a very long-dated debt, and you're looking at pickup of local rates typically, and it's decent returns. But we're not talking high teens. We're talking high single digits to low teens. And that's because that's what the investors want. So you're getting different kinds of returns for different things. In terms of geography, I'm not saying no to Asia, it's just the opportunity and what we want to do has to be there. So it would be health care, education, infrastructure, whatever. It is true that some of the Asian infrastructure is very, very big. So some of the traditional infrastructure investors coming out of the states, Australia, they are doing very large tickets to do some of the very large plans that have actually probably overall lower risk and lower return, both in terms of equity and fixed income. So yes, you probably get big or less lucrative projects there. Having said that, there is opportunity for us in Asia, but it's very specific economies. And the opportunity tends to be where you've got a growing wealth -- a large demography with growing wealth, where there isn't a huge domestic barrier to entry. So it's quite difficult to do -- well, we feel it's quite difficult, maybe we are wrong, to do really large infrastructure investing in China, for example. Because as a non-Chinese player, there's quite a big barrier to entry for that, and they tend to want to fund a lot of themselves. In some of the other countries, we see the private sector as a growing piece of what's going on, and middle income getting bigger and moving to middle upper. And so that's very appropriate for education and health care in particular. So I guess the answer to your question is a very long answer. It's probably yes, but not always.

Just on Ukraine. I think there was an article this morning about Ashmore sort of having some exposure to Ukraine. Is it just [indiscernible] article or is there anything more to read in terms of how big is it? Is it significant or not very?

No, it's not significant in the scheme of things. It's only in certain funds that can do it. It's not in any of the investment-grade stuff or equity stuff. It's not a big drama. It's what we do. Well, thank you for coming. I mean, it's good to see people again, humans in the flesh. It's fantastic. Look forward to see you next time around as well. Thanks very much for coming and for your interest and for following the company. We appreciate it. Thank you very much. Bye-bye.