Ashmore Group Plc (ASHM) Earnings Call Transcript & Summary

Thank you very much for coming. These are our interims for Ashmore. If you're not for Ashmore, you're in the wrong room. Thank you for coming anyway, and good luck with the right room. So interims to 31 December. I'm Mark Coombs, Chief Executive; Tom Shippey, Group Finance Director, and we'll take you through what's going on. So this is the overview. We've had a pretty good quarter, half really, in terms of performance, outperforming across most strategies. Actually, the index was up. Well, we were doing better than the index, so that was pretty good. Inflation under control in most of EM over the half, so pretty good outperformance in a pretty good market, particularly at the back end of calendar, '23. Financial numbers reflect that in terms of stronger markets, but lower AuM on average, $54 billion, down 3% over 6 months, down 10% year-on-year. Operating costs broadly in line with the second half, about 2% up. We accrued VC at 27.5%. I think last time I spoke to you guys, I talked about the fact that we would be happy to accrue VC at a higher levels. Adjusted EBITDA down 33%. Margin is still at 46%. As a business, we still want to be a high margin player. That's why we feel comfortable we can do that. Balance sheet done pretty well in terms of interest income and seed capital, pretty strong performance there. So profit before tax is up 38% to GBP 74.5 million, and we're maintaining the dividend. Meanwhile, we keep doing, in terms of the business, our long-term growth strategy. Big underweights from investors in EM at the minute. Big underweights. So that's obviously the opportunity for us, when the [ beta ] turns, to make sure that we pick up the assets. We feel pretty good, in terms of our equities business, that's growing steadily. And alternatives as well, we're being able to keep raising capital in high margin areas. And our local platforms are steadily growing, much as we hoped they would do, when we decided to set them up. And we'd expect to do steadily more of that. So bigger proportion of group profit, and more places to do it. EM is in pretty good shape, economically. GDP growth is still good, 3x faster than developed world. Most countries, most, have a pretty good monetary policy now, and much less fiscal stimulus to unwind than the DM world. Markets wouldn't have allowed them to do as much stimulus, and that's a good thing, frankly. We look like we're at peak Fed rates for this cycle. Which we would expect to see a weaker dollar following that, and valuations are pretty good, pretty cheap. So that means that there's things to buy. In terms of momentum, this is useful, in that it just gives you, as usual, will give you a flavor of what's happened to the indices in EM, against DM, on the right. External debt index was up 6% in the last 6 months of last calendar year, local 4%, corporate 5%, equities 4%, developed markets 4% and 6%. So pretty strong numbers against developed markets, particularly in bonds, very strong bond returns, and not as strong equity returns, mostly driven by tech in the developed world. The rally sort of has continued, really, that all of '23 was relatively good for us in the end. As I say, much better fixed income performance in dollar markets. And equities less good, really because China was pretty poor. Where do we see it from here, and what have we seen that we're happy with, EM countries have really got ahead of inflation. They're paranoid about it, and they continue to be paranoid about it. It'd be interesting to see how much further rate cuts there are still around there, because they're nervous about what's happening in supply chains, as a result of greater global conflict. Market predictions of GDP growth are about 4% in '24 and '25 for the EM complex, as opposed to one for DM. Positive backdrop. Yes, markets are priced in peak Fed rates. They've overpriced in Fed cuts, but that's okay. I mean, the main thing is that we would see the dollar to be gently having a headwind rather than a tailwind in terms of valuation, which helps us usually in everything we do in EM. So good returns, opportunity for upside. We're in pretty good shape, I think, in terms of what's happening in the world in asset classes. Investment performance. We show you 1, 3, and 5. 60% outperforming generally. Strong outperformance in the local currency space, and an increasingly strong performance in the external debt space. It has some very good performance there. Blended as well on the back of that. The prime underperformer is corporate high yield. Corporate investment grade's been doing pretty well. But we're in okay shape. We're doing -- we've got enough clients saying, thank you very much for the outperformance, we just don't like the market, that we think we're going to get quite good top-ups when we see any kind of general relaxation of the fears of what's happening geopolitically. So let me hand you over to Tom for a bit more detail on what's happening in the market.

Thank you. Okay, so over the 6-month period assets declined slightly from $55.9 billion to $54 billion that comprised 2 very distinct quarters. The 3 months to September saw lower market levels in certain clients, particularly those in North America, continue to de-risk. And then, as Mark described, from November onwards markets rallied strongly leading to lower levels of redemptions, and consequently an improvement in net flow. Subscriptions of $3 billion comprised mainly top-ups to local currency funds, together with new equity mandates, including across the local office network, which also raised alternatives capital, such as into private equity funds in Asheville, Columbia. Redemptions of $7.5 billion were significantly lower than 1 year ago and continued to be primarily driven by portfolio de-risking and external debt and corporate credit, with much reduced redemptions in blended and local currency themes. In net terms, the outflow of $4.5 billion for the 6 months was an improvement on a $7.6 billion in the same period 1 year ago. And at this point, it therefore appears that client flows are following a similar pattern to previous cycles, with a period of strong market returns and Ashmore outperformance, leading to reduced risk aversion, a subsequent moderation of redemptions, followed by pick up in subscription activity. In terms of client sentiment and activity levels as we enter 2024, as you can see, there are some observable patterns depending on investor location. Notably, while there continues to be home bias amongst U.S. fixed income investors, we're seeing demand for equities and investment grade credit. Away from the U.S., investors are focused on local currency assets, both bonds and equities, and particularly in Asia, there's good demand for investment grade bonds. Overall, with activity levels picking up, the global distribution team of approximately 50 people remains appropriately structured and located to service Ashmore's client base. Ashmore's local businesses and key emerging markets continue to deliver strong asset growth, with total assets under management increasing by 12% over the 6 months to $7.8 billion and representing 14% of the group's total AuM. In Colombia, the team continues to raise capital into the third private equity fund with further commitments expected before the final close at year end. Across all asset classes, the business in Bogota now manages more than $1.5 billion. Ashmore Saudi Arabia opened a number of new domestic equity accounts and received further allocations to its thematic private equity strategies, taking total AuM to approximately $2 billion. Ashmore India is also approaching $2 billion mark and benefited from strong market performance and the launch of new specialist funds focused on the domestic equity market. The local market platforms have demonstrated the diversification benefits to the group through this cycle. Going back over the past 3 to 4 years, during which time our markets and the asset management industry more generally has faced some notable headwinds, it's pleasing to see that assets in the domestic platforms have increased by more than 50% from $5 billion to nearly $8 billion. The contribution to group revenues has more than doubled and the proportion of EBITDA has trebled to more than 20%. In aggregate, these businesses are now delivering high operating margins with an EBITDA margin of 45% delivered in the first half. Each platform has solid growth prospects over the medium term, including broadening their respective product sets through the development of additional asset classes. There's also the potential to further expand the network into additional countries that demonstrate attractive characteristics. Looking at the financial performance for the period, the operational results and the statutory earnings show quite different pictures. The lower AuM, with average levels down 10% and an increase in the average sterling dollar rate, meant that although performance fees doubled to GBP 8 million, overall net revenues declined by 13% year-on-year. Non-VC operating costs are in line with the guidance I gave at the full year in September, with a modest 2% increase compared with the second half of the '23 financial year. At the half year point, variable remuneration has been accrued at 27.5% of profit, again consistent with the view given in September, leading to adjusted EBITDA of GBP 42.6 million, 33% lower year-on-year. While the resultant operating margin of 46% is influenced by lower revenues at this point in the cycle, it remains high by industry standards, and Ashmore's consistent approach continues to focus on exerting control over fixed costs to ensure that the inherent operating leverage in the business model delivers higher profitability as the cycle term. Although operating profit declined in the period, the statutory results benefited from strong balance sheet returns. First, GBP 12.8 million of interest was earned on the group's cash around twice the prior year level, as deposits moved to higher prevailing rates. And secondly, the strong market environment Mark described meant that the group's seed capital investments delivered an overall profit of GBP 19.6 million in the period, compared with a loss in the prior half year, and including GBP 3.1 million of realized gain. Therefore, profit before tax increased by 38% to GBP 74.5 million, and diluted EPS of 8.5p increased by a similar amount. On an adjusted basis, removing the seed capital gains, diluted EPS was 5.7p. Based on the group's performance over the 6 months, its strong financial position, cash generation, and the positive outlook, the Board has declared an interim dividend of 4.8p per share consistent with prior years. Looking at revenues in some detail, net management fee income was 16% lower year-on-year, as a consequence of the 10% lower average AuM level and the headwind of sterling appreciating against the dollar, since the vast majority of management fees continue to be earned in dollars. To illustrate the FX impact, the constant FX rates, net management fees reduced by 10% in line with assets. The average management fee margin was 1 basis point lower at 39 basis points. A touch higher than the margin for the 2023 financial year. The bias of recent redemptions out of lower margin accounts had a small positive impact on the reported margin. However, this was largely offset by the impact of underperformance on the high yield book and outperformance of investment grade credit over the past 12 to 18 months, together with the ongoing effect of competition and other mixed factors. My guidance continues to be for the approximately 1 basis point per annum of competition effect to persist with other factors continuing to impact the margin according to the pattern of flow and relative performance. Ashmore's strong investment performance delivered GBP 8 million of performance fees in the period approximately double the level of 1 year ago. Performance fees are typically weighted to the first half of the financial year, and therefore, based on current market levels, I would assume no material performance fees are realized in the second half. Turning to operating costs, the 6% increase in non-VC costs largely reflects factors that were evident 1 year ago and are now having a full period effect, such as wage increases in certain locations. Therefore, the half-on-half comparison provides a more meaningful picture of the current cost pressures. On this basis, the 2% growth versus the H2 '23 run rate for both staff and other operating costs is consistent with the expectation I shared in September of low single-digit inflation for the full year. The growth in staff costs was driven by the full period effect of salary adjustments, with total head count reducing by 2% over the 6 months. For other operating costs, the main increases were in data and other IT-related expenditure. The VC accrual has been set at 27.5% of profit, which as a reminder now includes interest income and realized seed capital gains or losses on a life-to-date basis. As is the case every year, the bonus pool for the full year will be determined after the financial year end, but at this stage, I'd suggest that the half-year accrual rate is a reasonable assumption for the full year charge. The group's seed capital program manages investments with a current market value of GBP 288 million, and together with committed funds, the overall scale is around GBP 300 million. While there were no material new investments made in the 6 months, opportunities were taken to profitably recycle investments from the alternatives, local currency and equity funds. Seed investments made a significant contribution to the financial results in this period, with a total pre-tax gain of GBP 19.6 million. The majority of this was on a mark-to-market basis, but also includes a GBP 3.1 million gain recognized in the period on realizations, which on a life-to-date basis, taking into account the mark-to-market movements in previous periods, is GBP 4.4 million. Realized gains since the establishment of the program total GBP 146 million. As you can see from the chart, the group's seed capital investments are well diversified and naturally align with the strategic objectives of the group, such as increasing the scale of equities and the alternatives themes. Overall, the program has supported the development of funds that today account for 11% of assets. Before looking at cash flow in the balance sheet, let's finish on a couple of nonoperating items in the P&L. Firstly, Ashmore's long-standing, prudent approach of maintaining a highly liquid balance sheet is delivering meaningful income, now that interest rates are at a more normal level. The average yield achieved on balance sheet cash was just over 5% in this period, doubled the level of 1 year ago and delivered GBP 12.8 million of interest income. The market appears to be pricing in peak dollar and sterling rates, so this level may not be repeatable, but I would expect an annualized yield of approximately 5% on the group's cash to be generated in the second half. Secondly, the effective tax rate for the period of 19.2% continues to be below the prevailing UK rate of 25% due to a number of familiar factors. The geographic mix, while shifting slightly towards the UK and away from lower tax jurisdictions such as Ireland, had a positive impact, as did the effect of a higher share price on the taxable value of share awards. And finally, some of the unrealized seed capital gains only become taxable when realized. In terms of forward guidance, the current geographic mix of profit implies an effective tax rate between 21% and 22%, although the actual rate will depend on the other factors, such as those that had an impact this period. Reflecting all of the operational and other factors, the statutory diluted EPS of 8.5p is 39% higher than 1 year ago, and on an adjusted basis diluted EPS declined by 27%. Looking now at cash flows, a very consistent picture again here. The business model delivers a high conversion rate of operating profit to cash, with 94% of adjusted EBITDA delivering GBP 40 million of operating cash flows for the 6 months. The group paid tax of approximately GBP 10 million, and the prior year's final dividend distributed GBP 88 million in December. Market purchases of shares to satisfy equity awards used GBP 12 million, and the recycling of seed capital generated a net GBP 36 million of cash. Finally, interest income and other cash flows increased the cash balance by just over GBP 11 million, to stand at GBP 446 million at the end of the period. Finally, for me, a quick recap on the balance sheet. Consistent strength of the balance sheet is confirmed by GBP 671 million of capital resources, representing an excess of GBP 590 million over the required capital of GBP 81 million, equivalent to 83p per share. The excess capital position is a little lower than at the start of the year, as it reflects the interim dividend that's been declared, but doesn't include unaudited interim profits. The balance sheet remains highly liquid, with GBP 446 million of cash and GBP 288 million of mark-to-market seed capital investment, of which 2/3 are in funds with frequent dealing opportunities. This balance sheet structure underpins our ability to continue to invest across the cycle, and as we've seen in this 6-month period, it can also deliver meaningful returns. I'll hand you back to Mark for some comments on outlook.

Thanks, Tom. Right, in terms of outlook, performance has been pretty good, really, all of '23. You could argue since September '22, that's what it says here. A bunch of things really going to that. I mean, particularly fixed income over equity relative to DM. The DM story was really a tech story. But otherwise, I think that provides us with upside in the equity market vis-a-vis DM, straightaway relative value, looking forward from here. GDP growth is better, great, and the growth premium continues to be good. Inflation has been managed pretty aggressively in EM, good. Peak Fed rates, not so much dollar-supportive anymore, all good. So we're in a relatively pretty good shape, I think, against DM assets, which is a positive thing. If I think -- the way we think about this is every now and then you get this kind of fear of what's happening in the world, and everybody runs behind the sofa in America, or here, or wherever else. And we've sort of gone through with sort of coming out of that, I think, where it's kind of at the bottom of that. If you look at 2006, 2007, just in terms of allocations, and these are the conversations we're having with institutions, it's time to up the allocation again from where they were. You know, the EMBI spread back then was, when U.S. yields were at similar levels, was half what it is now. So that gives you tightening opportunity in the bond space. Index was much smaller, less liquid and less diversified, much less strong credit. So those are the conversations you want to be having with consultants. The headwind is probably electoral. Half the world is voting this year, and that freaks people out. So getting people to emerge from the sofa or from behind it and up their investment is really the story of what we're trying to do, which is why we continue to have a whole lot of salespeople running around trying to do that, and doing a pretty good job and need to do a better one. So this is a year where we should see those elections spin through. We should see people come out of the back end of that going, well, hang on a minute, in terms of relative value, where do I really want to be. So this is a classic sort of turning year, I think, where this feels like '94, '95, 2008, 2009, '14, '15, same kind of thing. Everybody panicked, everybody reduced their amounts of weightings to what happens in EM, and they're now going, oh, wait a minute, is DM expensive? Maybe it is. Where do we go from here? So we're kind of having people have those thoughts at the minute. And what's tending to happen is they're looking for particular things that give them that diversification within a risk environment they can cope with. So if you look at the investment opportunities, every sort of 8 to 10 year cycle, you get a dollar headwind, which really helps what happens in local currency and in local equity. I think we're kind of at that point. So people are going, well, hang on, where does the dollar go from here? It doesn't get a whole lot stronger. I may be wrong with my 7 cuts, or 5 cuts, or even 3 cuts, but I'm almost certainly not seeing a rate rise in the U.S. Caveat some massive inflationary effect in terms of geopolitical drama that smashes the supply chains. But if that doesn't happen, that's a tailwind which is particularly strong for local currency bonds. So I would say in terms of investor activity, we're seeing inquiry there in the fixed income space, and particularly in investment grade. Less in high yield, but particularly in investment grade. People are figuring out, not least of which, because our sales guys are doing a great job of telling them, that investment grade, sovereign and corporate debt and dollars, is a big risk return enhancer. It reduces risk, and it adds return when you look at efficiency frontiers, and we have data for 25 years now. So people are beginning to think that way, and some of the people who are concerned about risk generally, but are also concerned about the U.S. getting way too expensive, we're seeing a lot of interest originally driven by Asia, but spreading across the world, westwards. In terms of allocating, in terms of looking at their fixed income allocations globally, looking at Global Agg and saying, wait a minute, if an allocation to what happens in the dollar space in EM is really a risk reducer and a return enhancer, maybe we should be thinking of it that way. So interestingly, that's looking, the IG part of what happens in fixed income is being seen as a risk reducer across their global fixed income book, and that's an education process that if we got to get to 10 for fully educated, we're at about 1, and so we're beginning to see that happen, and that's quite an interesting conversation. That'll take us 3 to 5 years, but it's steady. So we're seeing mandate wins, and we're seeing pitches for that much more active in this quarter than even a quarter ago. High yield is distressed in lots of places. There are lots of distressed opportunities, which is normally good. You just got to pick the right ones and getting them at the right price. So there is some recovery potential there. But I think the particularly interesting space in terms of that high capital appreciation part is EM equity, not least of which, because you've got one of the biggest components of the market has been completely smashed, which is China in value terms. And at some point one would expect that to turn. The Chinese government seems to have got the joke, but you never know how much of the joke they've got, but there is definitely some level of stimulus coming through. The concern will always be the extent to which they get uncomfortable with too much wealth generation in too narrow a group of people, but we would -- I mean the market is fundamentally incredibly cheap. On most metrics, let alone compared to the U.S. market. And other EM equity markets are also in relatively good shape, although they perform much better ex-China than the headline numbers because of China's large weighting in the indices. But GDP growth premium is there again, all the things that support that. So we think there's quite a lot of opportunity in equity, and we're beginning to see people start to allocate there again, which is always takes a little bit of time. There's always, when the U.S. equity market runs too hard, people start thinking, oh, well, I just should be in U.S. equities. Once you get a little bit of a hiccup, then you tend to get a reallocation. And then alternatives, the themes we care about, infrastructure, healthcare, and education, there's still plenty to do. As you get bigger middle-income economies, more going on in EM, that's the area that you see considerable opportunity, and we would expect to continually do things in that space. The more we can do there, the better. And in terms of valuation on the right, the yields are reasonable. So the dollar bond index for sovereigns is 8% yield. That's reasonable. Spreads are nearly 400 basis points. Local currency index is at 6%, but you've also got the FX pick up, if you're right, but the dollar's going to weaken relatively. Treasuries are at 4%. GBI Global, the global bond index is at 3%. There's plenty of pick up there. And then in the MSCI, the world is on a PER rating of 17.4x, and EM's on 11.7x. So it doesn't take a genius to figure out that something's wrong with that pricing. Even if the world drops, the EM's got room to expand, just in terms of ratings. So pretty good outlook. And we're at that sort of turning point in terms of clients saying, well, I de-risked, and that's fine. When do I start -- how do I start taking risk again? How much do I want to put in EM? So those are the conversations we're having, which is typical, frankly, for this time in the cycle. It never changes. So we've been outperforming in a pretty good market environment. Okay. Financial performance reflects that in terms of stronger markets, but lower average AuMs. So we've seen a good appreciation of things we've invested in, et cetera. And we keep doing what we do. We're growing the local businesses. We're growing the equities and alternatives book, and we've got to focus on generating outperformance fixed income piece. The emerging market outlook is pretty good compared to DM, and pretty good outright, I think. So that's a sort of summary of how we see things. So thank you for your keen interest. Happy to take questions.

It's Hubert Lam from Bank of America. Just one question. As you said, you expect this year to be a turning year. Things are going your way around. Rates are going to be cut. Dollar weakening. DM being expensive…

I'm not really sure. I'm not sure how much rates are going to be cut, but I don't think they're going to rise. And if they're not rising, the tailwind goes immediately towards local assets over dollar assets. There may be some level of cuts. You'd expect something, because it's politically kind of important. But I'm not -- the markets rate cuts, I think, are over aggressive.

I guess my question is, do you expect this year to be a turning point for you as well, in terms of flows turning positive?

You'd think so. It's typically that time in the cycle. You'd think so. I mean, you want to see a couple of courses of positive flow performance, which we haven't got yet. So you would hope that sometime in the year that starts to turn. It would seem to be typical, if I look at all the previous cycles, and there have been a few of them. We have to deliver it, of course.

It's on Arnaud Giblat from BNP Exane. I've got 3 quick questions, please. Firstly, on variable comp, you're creating a 27.5%, and I suppose that's on your base case. How should we think about variable comp in the scenario of a positive outcome or a negative outcome, in terms of market backdrop, [ flows up ] revenues, I suppose?

I think I indicated last time, when we last spoke at the full year, that we saw it mentally, if we'd seen it as an up to 25% level in the past, which we start to, we saw it as possibly up to 35% in terms of what it could be. As you remember, for those of you like you, Anna, who've been loyal and true investors for centuries, it's moved around. It's been as low as 11%, up to 25% when it was that range, and so you'd expect it to move around, driven by how well we perform, how much money we make for the shareholders. It'll move around. Would you want to add anything, Tom? Or is that?

No.

Sorry, question 2.

Question 2, the management fee margin. So in alternatives, it went from 140 basis points, I think, at H2 to 161 basis points. What's driving that? Is it sustainable?

Yes. There's a bit of catch-up. So the incremental capital that was raised in Colombia in particular gets backdated to the first close. So there's a couple of million dollars' worth of revenue in the first half. It's included in that 161 basis points margin, so the true rate is really sort of 10, 15 basis points down when you strip the one-off.

Yes, that's true in any kind of alternative rates, and what they tend to be is several phases, so that will occasionally happen. You get these little spikes.

So a similar structure to the alternative managers. My third question is on India. I was wondering if you could perhaps share a bit more detail around the setup. Is it possible? Could you look at expanding faster with a partner? What's the plan there? Where could you get to? Because I mean a lot of the JVs that we see are bigger asset managers are working particularly well in India, so any kind of you could share with me?

Yes, we're open to that. What we're doing at the minute is getting the word out, which of what we actually do already. So there's quite a lot of -- we're spending quite a lot of time there this quarter actually. Tramping around the blocks and making sure that we get in front of all the investors that to tell them the biggest story and show them the numbers which have been good. We're open to that. The trick of course is getting the right partner. It's a bit like China in that way. You've got to pick the right partner. So we're open to things that will expand the business. We like the market. We like our people. The trick with a partner will be it'll really be a distribution thing because we think our investment team is very strong. So we don't need an investment enhancement in terms of partner. We need sales.

You got Mike here from UBS. 2 questions, please. First one, we've seen certainly an increase in passive exposure in the retail EM debt markets. One thing I don't get to see is really into the institutional space. I was just wondering if you're seeing clients or maybe your clients or potentially other clients, whether they're allocating a bit more into the passive side on the EM debt allocations. Just wanted to get your insights there.

I think you see fast decisions being made through passive in some of the institutional clients, but it tends to be fast asset allocation decisions. Then as they take a view as to how long they're in it and what they're doing with it, I think it spreads into a mix of active and passive, depending upon what the strategy is, because passive still isn't a great capture of all the returns in all the areas of the debt space. Although it is in some of the very top-end sovereign, it's fine. I think, in kind of this environment, what tends to happen is, funnily enough, retail can lead a little bit in terms of asset allocation. Everyone says it isn't retail terrible, although we're all retail investors. It tends to be a bit knee-jerk in and out, but I think one of the signals for us that's interesting for us is whether we start seeing retail allocation. And that, interestingly, through the bigger wealth managers. I find tends to be about picking active managers more rather than passive. So we're having quite a lot of conversations now with the wealth managers who are kind of off-risk for a couple of years, or our risk anyway. So we -- I think, yes, the key question this year is, as elections happen and as geopolitics does what it does, if we get kind of reducing of geopolitical risk, that will be a trigger for more buying the [ beta ] of EM, because people will get out from behind the surface. This feels like a year where we should be bottoming nicely in terms of flow and activity. Every month that passes that things are calmer and people can start looking at more ordinary economics, as opposed to being crushed by geopolitics, we should see better outlook. But geopolitical, there's no question that what's going on geopolitically is a big factor in people's minds, it's not just the U.S. rate story.

And then just one more. On the variable comp, just looking kind of where that variable comp accrued on a notional -- on a nominal basis in the first half, kind of in line with what we saw in terms of the comp in 2022. Last year in '23, obviously, we saw a variable comp come down. Should we think about this A, as a floor? Going forward, I know, Tom, you indicated that we should think about the second half accrual being similar to the first half, but yes, just trying to think about A, should this be a floor going forward just in terms of long-term forecasts? And then B, has the change been driven by talent competition? Or is this just something where the people are performing well and they deserve to get paid?

It's a mixture. I don't think you should see it as a floor. I mean, Tom will criticize and disagree if he wants, but I don't think you should see it as a floor. We vary quite aggressively in the past, and we try and do that around the company's performance and individual performance, and obviously, if you've got "talent", whatever we want to call ourselves, but the people in there, if they're doing a good job, and if they're highly paid, then them getting paid more can move it around more. I don't think it's a floor. As I say, we mentally would see the top end as a ceiling in terms of the way we think about the business, and when we tend to communicate to you, we try very hard not to break that, like last year. It does reflect competition for talent, but it also reflects how we see the business, and the fact that we've got a good group of people who deserve to be paid if they do well. So I think that's my summary in terms of no floor, and it can move around. Would you want to add anything?

No, I mean, it'll go up or down. The 27.5% is just, simplistically…

Yes, it really is.

Put something in your model. I think that's as good a guess as anything. And it'll get adjusted in August, September time for the full year numbers. And the point that I made last night on the call is that we've still got this lag effect between strong investment performance and financial performance catching up, if you like. So there are people performing well in the investment teams that deserve to be comped.

Yes, and in other areas too. And we're smooth, as you know. So it's not a floor. It could go up if we have a fabulous second half. It could go down if we don't. I mean, we'll make that call, as Tom says, kind of August time.

It's Bruce Hamilton, Morgan Stanley. Just a couple of follow-ups. On the alternatives book, given you said you're still fundraising for the Columbian product in the second half, should we assume probably more late management fees, and then the fees normalized thereafter?

There will -- assuming we raise the capital, we think we've got soft circle in the second half, they will backdate, but they won't be as significant as the first half effect. So it was about GBP 90 million in the first half of incremental capital. I think it'll be about a 1/3 of that max.

Got it. Okay. And then in terms of the sort of broader product pipeline for the alternatives businesses, as we look forward the next 6 to 18 months, what else do you have lined up, and how excited should we be about that sort of path?

I try not to be excited until it actually closes, because things have a tendency not to. I wouldn't get super excited. We'll truck along doing what we can. There are other things we're trying to do, particularly in the healthcare space, but I wouldn't get too excited. Head of sales will kill me if I get too excited, quite rightly.

Got it. Okay. And then second question on sort of dividend. I guess obviously the seed capital gains help, but on an underlying basis, the EPS at 5.7p is annualizing well below the dividend. But is it more the direction of travel, which obviously sounds good, that matters rather than flows inflecting positive? Or how should we think about that, given there's still quite a big gap between the core EPS and the dividend?

I'm happy to talk about that, if you want. I think we've always said that we're trying to be -- trying to retain capital as shareholders through sensible ways of doing it. We've always avoided the, hey, let's have a huge special, and wouldn't that be sexy, on the basis that it doesn't really give any long-time sustainability in terms of share price and company performance. So it matters to us that we pay dividends, and not least of which because the guys in the firm are shareholders too. But also we just think it's a good way of returning capital steadily over time, rather than trying to get too aggressive in the market and or doing specials. We obviously got to respond to what happens in the business. So if we reach a point where we believe the dividend shouldn't be what it is, then we'll obviously change it. We used to change it up in the past and people used to say, oh, why don't you increase the dividend? Well, because we want to be careful for a rainy day. We've had a rainy day and so we've not been cutting the dividend because we felt we had sufficient reserves not to do that. Our whole mantra is, in a risky world, both of the way we pay people and the way we reward shareholders, is to smooth and be conservative, and we've been able to do that. If it reaches a point, we feel we're not being conservative with dividend, we'll do something about it, either increase it or decrease it. But the way things stand at the moment, we like to try and be predictable and to be fairly stable. Would that be a fair summary? Would you want to add anything?

No, I guess just in terms of the factors, it's a combination of a number of things, right. It's the balance sheet structure, the capital position, but also, as you point out, the trajectory of earnings. Although, it's not just the underlying operating earnings because you can pay dividends out of statutory profits, not just the adjusted one.

David McCann from Numis here. First question, given you talked about some of the conditions where, I guess, flows could improve if things potentially go the way that they might do, and you outlined some of them. What do you think would be the areas where you're most likely to pick up with flows within the business? What themes? And conversely, are there any themes where you think there'd still be headwinds? And I guess if…

Shall I answer that?

Indeed, if things didn't go your way, where do you think the bigger risks might lie? I've got 2 more technical ones as well.

Let me quickly answer that. So I would see the likely flow in places where people are -- the most underweight and where we perform the best. So and people tend to look at, well, it depends on the investor, but a lot of them look at very recent performance. Some will look at longer-term performance. So that's not easy to make a generalization, but the things that have performed well tend to attract the money. That's just life. So I would see, particularly given where we're at in terms of market share, I would see pretty good flow likely to follow in some of what we do in equity. I would see pretty good flow in the investment grade space, as I said, because people are seeing it as a different kind of risk. It's actually, the simple EM debt is a very volatile asset class statement is wrong. So there are parts of it that are volatile, but the IG part is the opposite and actually a risk, as I say, a vol reducer against other IG. And so, we would expect to see flow there. And obviously, the local currency space is already getting some interest. Where we'd expect to see less flow in the short-term is probably the pure high-yield corporate space, just because it's -- there's been a lot of distress in that market and some of that, again, people tend to, flow tends to follow performance. So as performance turns, it tends to follow 1 year or 2 year later. So that's how I would see that. Does that answer the question?

Yes, it does. And then, just a couple more technical ones, probably for Tom. Can you just talk a bit more about increasing the tax rate guidance of '21 to '22, as the previous kind of '19 to '20, you touched partly in the presentation, but that is quite a big movement. So I just wondered if maybe you could give it a little bit more color. And I guess beyond the current year is '21 to '22, now the right sort of longer-term outlook, or is there any color there? And then, a second very nerdy question. You touched on it in the presentation, the realized seed gains were about GBP 3 million, but for the variable comp calculation, you've used GBP 4 million. So what's the difference between that GBP 3 million and the GBP 4 million?

Sure. Okay. So on the tax rate, the simple driver is, as I mentioned, we're now generating more profits in places like the UK and less profits through places like Ireland. So one of the big drivers of that is the SICAV platform in Luxembourg, which has shrunk more, if you like, than the rest of the business. The ManCo for the SICAV sits in Ireland. So the revenues from the SICAVs and a number of the other European domiciled segregated accounts pass through the Irish ManCo, and that's a lower proportion of the overall profit mix than it was 1 year ago. So that '21 to '22 rate reflects the mix today. All else being equal, that's a reasonable assumption for '24, '25, '26, but if the mix changes, the SICAV platform grows disproportionately to a book that's managed directly out of the UK domiciled ManCo, it could swing back again. So it's just where we are right now. And the nerdy question on the GBP 3.1 million versus the GBP 4.4 million is the GBP 3.3 million is the amount realized in this period. The GBP 4.4 million includes the other amounts recognized on those realizations in prior accounting periods. So it's the life-to-date gain on the investments that were realized in the period as opposed to the gain in this period on those assets that were realized. Okay, I can try and explain it again afterwards if you like, if that wasn't clear. Anyone else?

It's Angeliki Bairaktari from JPMorgan. Just one question on head count, which fell a little bit in this half versus the prior half. How are you thinking about sort of your staffing and your head count at the moment? Shall we expect it to come down further? And is sort of other strategies that you currently have within credit the right ones or could you consider perhaps merging a strategy or maybe even launching a new strategy?

So head count, we've tried to run pretty lean. So head count, at the margin you get increases and reductions from time to time, but we're not expecting dramatic changes in head count. We run the business as best we can to do the things we think we need to do. We invest over the long-term. Sometimes costs go up or down depending upon what happens to the staff, but there's no big plan to have dramatic changes in the head count down or up actually. In terms of strategies in credit, if by that you mean corporate, a couple of things are going on there. As I say, the investment grade piece is doing well in attracting interests for people who see a huge number of companies that now investment grade across the EM complex. And we're getting interest in doing pure investment grade strategies, which we have. So we're getting more of that. That doesn't mean a new strategy, but we are getting a little bit of interest from people trying to segment that a bit and get complicated in terms of currency hedging around it. So without saying we're going to add a new investment theme, I think there may be some product differentiation around particular clients, particular separate account clients who have particular needs in terms of how their capital looks and how much currency risk they take, and what their net returns are after currency. So the derivatives of themes I think will happen. In terms of merging strategies, no. Strategies, I think doing what they're doing. No plan to merge anything. Anybody else? Well, thank you very much for coming everybody. It's been nice to see you all. I hope we'll return to good music after this short intermission and I hope to see you again in the full years. Thanks very much, everyone. Thank you.