Ashmore Group Plc (ASHM) Earnings Call Transcript & Summary

These are the Ashmore Group results for the year ended 30th of June '24. Nice to see many of you that we know. Any that we don't, thanks for coming. Anybody that isn't here, we never liked you anyway. It's at 9:00. So now we can start. So I'm going to give a brief overview. My name is Mark Coombs. I'm the Chief Executive of Ashmore. This is Tom Shippey, the Group Finance Director. Most of you know him well, probably better than you want to but you do. And we're very glad to present our annual results. So in summary, the markets had a pretty good year for emerging markets last year. We also had a pretty good year in terms of outperformance. Index, the indices that we invest in were all up between 13% at the highest one and 1% at the lowest one. In terms of how our assets performed against developed markets, fixed income outperformed everywhere basically. Equities did pretty well despite a big headwind from China, which is a big part of the equity index. And we, as a company, outperformed in most of the significant strategies we have, which is good. What did that do for us in terms -- where do we get to in terms of business? Our operating performance basically suffered lower assets under management. We had a net outflow. So that obviously impacts the operating performance in terms of the P&L generated by the, if you like, the core business. However, we had a higher statutory profit, really driven by some very strong performance fees in a couple of the themes that we manage. And by the way, we managed our balance sheet. So returns from the investment income on our balance sheet. So in terms of summary points, our average AUM was down 10%, and net management fees were at GBP 160 million, down 12% year-on-year. What that does to our adjusted EBITDA, taking out seed capital and FX implications is it brings it down 27%, although we're still a high operating margin business because we started from a very high operating margin place, and we're at 41%. PBT increased because of that balance sheet return, particularly 15% to GBP 128 million, really reflecting the balance sheet and the higher performance fees that we achieved through certain transactions closing and exiting. As I flagged last year, VC charges increased. Remember, I talked in the past about we set ourselves a soft range of up to about 25%, which we moved to 35%. And I mentioned to all of you guys and we've mentioned through the year to others, I'm sure. We set the VC charge at 31%, which means we're investing in our business. Diluted EPS actually increased because of that balance sheet return, 12% year-on-year to 13.6p and we maintain a strong and liquid balance sheet. We have GBP 700 million of financial resources. We're maintaining the dividend. We see the business as a business that is good for the long term. We don't see any reason to be highly volatile in terms of returns to shareholders, et cetera. So where does that leave us? EM is performing. It has better growth in valuations than DM, frankly, and tends not to run up like crazy. And basically, investors generally everywhere pretty underweight EM now. There was a whole lot of panicking, running diving behind the sofa, particularly from the Americans. And so they're going to need to increase their allocations to capture performance. We're at that time in the cycle where they're beginning to think about it. Summarizing the fundamentals, just to give you a bit more about why they're in a decent place. I touched on this last year. Basically, management at the economic level, fiscal and monetary policy has been better, I think. I'm making a generalization, but in EM and DM. Inflation has been controlled pretty aggressively, partly because they remember when it isn't. Inflation getting out of control in EM changes governments pretty fast. So they're trained as well, if not better than us, and they have lots more practice managing it. So inflation has been managed pretty well. Real interest rates are still fairly high, and there's room for a bit more in terms of rate cuts. Credit ratings from economies that weren't allowed to go nuts and print huge amounts of money in COVID are net positive, as you'd expect, and we have net positive credit rating changes through '24. If you look at the bottom left, this is kind of the rating outlook, which is a proxy, I suspect, what they say it's very accurate, but we call it a proxy for a country's economic health. And if you look at S&P, Moody's and Fitch, in '22, negative credit moves, let's just stay with S&P for the moment because it's simple. S&P more negative than positive rating changes. And as you can see, that's moving -- that little red bits getting smaller and a little blue bits getting bigger. So that means a net outlook for EM is moving from "Oh dear, isn't it all terrible? The Russians have invaded" to "Luckily, they haven't yet invaded everywhere, and what's doing better and what isn't, and where do we get to vis-a-vis developed market, fiscal and monetary policy?" So positive credit ratings for EM generally, which is an interesting thing. It's also begun to be picked up on as a theme. We've spent some time on this. Initially, this came from the Far East, actually, where some of our longest and oldest clients said "We've actually noticed that if we buy investment grade fixed income in dollars, it's actually we get better returns and we get much lower risk vol than if we sit firmly in GBI -- in Global Agg or one of the much broader fixed income global indices." And that is a theme that's beginning to be picked up, which is hang on a minute. This part of EM, in the investment grade space, that is actually better investment grade than DM, less concentrated in the U.S. and gives us a chance to reduce our risk in down markets and to make a little pickup in upmarket. So there are people saying, "Well, maybe we should think about this as part of our global bond portfolio." So not just treat it as a separate. You're on EM if it's highly risky and you're off it if it's not -- if you don't like risk. That actually, there's an opportunity to use this as a risk reducer. So that's quite interesting in itself. And the credit rating behind it sort of enhances that story. So we're having quite a lot of conversations about that. Growth is still better than DM, which gives you a better backdrop for the equity platform, which is great. And we're mostly through with one big exception, the 50% of the world is voting this year. Big chunks of it have done that. We've got through India, Indonesia, Mexico, South Africa. We've got the little economy over the pond to do this thing in November and then next year is a much less democratic electoral action year. Much less excuses for doing nothing and for hiding behind the sofa. On the right here, we talk about that GDP growth point in the graph on the bottom, EM is the dark green, developed is the light green. I'm not quite sure why they're both green, but anyway, you can just see the difference. And the DM is underperforming in terms of growth. The growth premium is there and has continued and it's consistently superior. The premium remains that if you want more growth, you go to EM. And what does that mean in terms of inflation? As I say, EM -- look at that net real rate. It's big there since middle of '23. So that is, I think, a positive and supportive place for long-dated duration in local currencies and possibly for the FX themselves, particularly if you're in a U.S. rate-cutting environment. So we could be hitting -- getting to a nice sweet spot in the local currency space, which supports the equity platform as well as the fixed income platform. Performance and diversification. Well, I touched on the indices before, so just to give you a bit more detail on the summary point. So fixed income outperformed global bonds. Great. Equities was pretty strong, but didn't outperform U.S. because of the Magnificent 7, which obviously distorted returns there. But if we look on the right, it just gives you a flavor. So external debt, which is dollar govies, up 9%; local currency, up 1%; corporate debt, up 9%, equities, up 13%; ex China, up 18%. So that's how EM has performed in dollar terms. Developed markets, bonds are just up 1% and equities are up 21%, driven, as I said, by the Magnificent 7. It's all changing. AI revolutionizes the world. So there's that bubble that supported that. China is less relevant in fixed income. So it's a 4% weight up to 10% rather than equities, which is 25% weight. So China is struggling through the year in terms of returns. Obviously, it was more impactful in the indices in emerging markets for equity than it was for fixed income. And active management is the thing, right? You've got to move around to find places where you can make your returns. Just to give you a sense of the different sources of return and how that looks. So you've got, on the right-hand side, spread. As you can see, we're not at anywhere near a tie in terms of spread over treasuries. We've had ties in '13 of about 220 basis points to mid-250s we've touched several times. So there's room for spreads to come in and for spread tightening all around. How are we doing on investment performance? We're doing pretty well, actually. These numbers slightly mask that. So we're continuing to outperform in most places. We've had a very strong year in external debt and in blended, actually, in most places. Local still has a good 3- and 5-year number. It had a very, very close to index number this year by being quite conservative, which has made sense in the time in the cycle. So it just ticked slightly under the index as opposed to slightly over. So there's quite a -- the underlying pattern is numbers are good and continue to be good there. We don't have any issues there. In the equity space, different -- there's obviously the global asset pools and there's the local, a variety of issues there. In the global space, we've had some pretty strong outperformance in what we do in the All Cap space and Frontier, mixed performance in 1 or 2 of the other global strategies. And then the local strategies, some good, some less good. But we've got pretty strong long-term track record in the global strategies, and we're beginning to see that get recognized by the consultant base and clients. So we've kind of built our 5-year plus track record there, we need to see. And in terms of the underlying business, we're -- the net flow from the small space is continuing to be positive, which is good. This is you, Tom. Thank you.

Okay. So assets under management at the year-end came in at $49.3 billion, 12% lower with the movement driven by positive investment performance, offset by net outflows. Strength in EM assets and the outperformance Mark described, added GBP 2.1 billion over the 12 months with positive contributions across all of the fixed income and equities themes. Subscriptions of GBP 7.2 billion were at a similar level to the prior year. And while some investors continue to be risk-averse, we saw meaningful subscriptions into local currency funds, ongoing flows into investment-grade product, new equity mandates and successful private equity fundraising. Redemptions fell year-on-year to $15.7 billion, resulting in a 26% reduction in net outflow from GBP 11.5 billion to GBP 8.5 billion over the period. As described in the quarterly trading statements, the main driver of redemptions was institutional decisions to derisk by reducing EM allocations given the perceived macro uncertainty. In terms of client activity levels today, the summer months are typically quieter. And so we would expect client interactions to begin to pick up over the coming weeks, which will allow us to determine exactly how risk appetite is developing. That said, over the past 6 months, we have seen consistent areas of increased client interest with a meaningful increase in RFPs compared with 2023, more focused engagement from consultants, notably on the equity side and new mandate activity in local currency and investment-grade assets. This pickup is consistent with the positive environment Mark described and the acknowledgment by investors that there are fewer global macro headwinds today than a year ago, notably in terms of inflation levels, the path of interest rates from here and the uncertainty associated with elections. So turning to the financials. Ashmore's diversified business model has delivered strong growth in statutory profit despite the impact of lower asset levels on operational results. Starting with revenues, higher performance fees largely offset the impact of 10% lower average AUM levels on net management fees, resulting in a 4% reduction in net revenue. Sterling was notably stronger against a weaker dollar compared with the prior year, meaning that on a constant currency basis, revenues fell by only 1%. Non-VC operating costs increased by 5% year-on-year and reflecting the increase in performance fees and the strong balance sheet returns, the variable remuneration charge equates to 31% of profits. In aggregate, therefore, adjusted EBITDA declined by 27% to GBP 77.9 million, which equates to 21% in constant currency terms and delivers an operating margin of 41%. While this cycle has seen a 50% reduction in assets, the 41% operating margin remains high by industry standards. And as seen in previous cycles, the inherent gearing of the business model means the operating margin will expand as AUM increases. Importantly, we've maintained the level of resource employed in the business not only in financial terms but also in operational capabilities with a similar number of employees in core functions and the scalable operational infrastructure in place. In addition, despite the reduction in assets, we've continued to invest in strategic growth, developing the local asset management network and deploying seed capital. This through-the-cycle approach means that the platform is well positioned to manage the higher AUM levels that come with a cyclical upturn without meaningfully adding to the cost base. Now turning back to the financials. The management of the balance sheet delivered good returns, including seed capital profits of GBP 22 million generated across a range of investment themes, including external debt, equities and alternatives and interest income of GBP 25 million earned on the group's cash and deposits of just over GBP 500 million. Given the seed gains and the higher interest income, reported PBT increased 15% to GBP 128.1 million, net of a circa 5% drag from FX and diluted EPS is 12% higher at 13.6p per share. Finally, as Mark mentioned, the Board has recommended a consistent dividend per share of 16.9p for the year, recognizing the improved statutory profits and the strength of the group's balance sheet. Turning now to the revenues. Adjusted net revenue was down 4% year-on-year. Net management fees were 12% lower, reflecting 10% lower average AUM and a 3% headwind from the stronger sterling. The net management fee margin increased to 39 basis points, largely due to catch-up fees earned on private equity capital raising in Colombia, which are by their nature one-off. The other factors that typically impact the revenue margin were all relevant in this period, but largely netted off. For example, there was a small positive impact from investment theme mix and flows into or out of large mandates but the margin increase was offset by ongoing competitive pressure and other mix effects. My guidance, therefore, remains that competition will have a roughly 1 basis point impact every 12 to 18 months. And other factors will continue to influence the reported margin depending on, for example, the size and complexity of mandate wins and losses. I would note that Ashmore's strategic growth areas, such as equities, alternatives, the local asset management businesses and intermediary retail clients can deliver relatively higher revenue margins and therefore, provide some counter to the ongoing industry pressure. And finally, on revenue margin, adjusting for the one-off in Colombia and the disposal of a subscale real estate business in Colombia, the run rate margin in the alternatives theme would be about 120 basis points. And consequently, at the group level, the pro forma net management fee margin would have been 37.5 basis points, also indicative of the run rate at the start of the current financial year. Looking at performance fees, a number of funds across the 3 main asset classes delivered significantly higher fees this year at GBP 22.7 million versus GBP 5.1 million in 2023. Approximately 2/3 of these fees were delivered by funds in alternatives following successful asset realizations with the remainder earned from institutional mandates in local currency, equities and blended themes. In terms of performance fee expectations for the current financial year, it's possible that further alternatives realizations could again generate fees. However, I've not assumed any, and therefore, at this early stage, I estimate performance fees to come in, in the mid-single-digit millions range as we've seen in prior year. Moving now to operating costs. The total non-VC operating costs of GBP 60.6 million are in line with the guidance I gave at the half year stage. Staff costs increased by 3%, primarily reflecting the full year impact of wage inflation experienced in certain locations in 2023. Other operating costs rose by 9%, reflecting nonrecurring higher professional fees. And therefore, given the balance between some ongoing inflationary pressure and our continual focus on operating efficiently, I'd expect full year '25 non-VC operating costs to come in at a similar level to the current year. Turning to variable remuneration. The accrual of 31% reflects a number of factors, including the continued delivery of investment performance across a range of strategies, the generation of higher performance fees and the balance sheet returns delivered through effective management of the group's financial resources. While the broader market environment has been favorable this year and the outlook is positive, the operating performance of the firm has been impacted by cyclically low AUM levels. Therefore, as we flagged a year ago, the VC charge represents a higher proportion of operating profits as well as recognizing employees' contribution in delivering statutory profit growth for shareholders. Looking ahead to '25, as is normal, the variable comp decision will be taken after the year-end. But for modeling purposes, a reasonable assumption would be to use the reported 31%. And the final outcome will, as usual, depend on the performance of the firm over the full year, including any performance fees and balance sheet returns alongside the underlying operating performance and strategic progress achieved. The group's seed capital program has been a notable source of profits this year. Through active management, the group has successfully recycled GBP 69 million worth of seed capital and delivered a realized gain in the year of GBP 11.3 million. The total life-to-date gains from these investments is GBP 16.1 million, meaning that since inception, the seed program has cumulatively generated profits of GBP 159 million for shareholders. Consistent with the group's strategy, new seed investments were into funds in the alternatives, equities and local currency themes and also into vehicles to facilitate access to funds managed by Ashmore's local offices. Given the strong market backdrop over the last 12 months, there was an additional unrealized gain of GBP 10.4 million to give total P&L gain of GBP 21.7 million in the period. Finally, on the P&L, higher rates, together with effective management of the treasury balance, generated GBP 24.9 million of interest income, nearly 60% higher than in the prior year. The group currently achieves yields of about 5% on its cash and deposits, which are relatively short term in nature. Also reported in finance income is an accounting gain of GBP 5.2 million, which resulted from the sale of the group's Colombian real estate business and the partial disposal of a minority interest in an Indonesian fintech company. These gains are by their nature one-off. Overall, the combination of the operating performance, balance sheet management and the profits on disposal delivered a 15% growth in PBT to GBP 128.1 million. At constant exchange rates, profit before tax increased by 20%. The effective tax rate of 23.3% is higher than I guided at the half year due to a greater proportion of profits generated in higher tax jurisdictions such as Colombia and the U.K. in the second half. On a year-on-year basis, the rate is also impacted by the effect of a slightly lower share price on the value of share awards. Based on the current geographic mix of profits, the group's effective tax rate remains in the range of 21% to 22%. Looking at financial resources. In terms of cash flow and the balance sheet, the picture should be a familiar one. The group generated GBP 113.5 million of operating cash flow in the year, delivered a net GBP 68 million from seed capital recycling and then GBP 21 million of interest income. The ordinary dividends paid to shareholders used GBP 124 million, and the group purchased GBP 14 million worth of shares to satisfy employee awards. Total cash flows in the period increased cash and deposits by GBP 37 million to GBP 505.7 million. Including the seed capital investments of GBP 260 million, the group has significant financial resources of approximately GBP 700 million at the end of June, representing in excess of GBP 599 million or 84p per share over the group's total capital requirement. This well-capitalized liquid balance sheet supports the group's strategic initiatives, underwrites the dividend policy and enables continued investment, including at points in the cycle where assets and therefore, operating profits, are lower. And then finally for me, I thought it would be useful to provide a brief update on Ashmore's network of local asset management businesses. These platforms help diversify the group's earnings and grow AUM in line with our strategic objectives. Over the 12 months, local assets increased by 7% to GBP 7.5 billion, now representing 15% of total group assets. The growth was broad-based and achieved notwithstanding market headwinds in Indonesia. Notably, Ashmore Colombia increased its assets by 18%, reflecting successful capital raising into private equity and strong performance in its listed equities product. This business has good momentum and is currently marketing an infrastructure-focused private debt fund to local institutions. Ashmore Saudi's assets grew 12% in the year through a combination of alternatives fundraising and the funding of new equities mandates raised from domestic institutions. And finally, Ashmore Indonesia delivered -- sorry, Ashmore India delivered strong growth with assets rising 30% year-on-year. New funds were launched during the period to provide dedicated access to the Indian equity market for both international and domestic investors. As you can see from the table on the right-hand side, the asset contribution actually understates the financial diversification benefits that these local businesses provide to the group. Today, they generate around 30% of revenues and EBITDA and deliver an operating margin close to 50%. That's all for me. I'll now hand you back to Mark.

Thank you, Tom. So just touching on outlook. So the asset classes generally across EM, equities, fixed income and alternatives have been pretty strong investment performers since late 2022, since the whole big drama about U.S. rates. Good '23, good '24 in terms of asset class performance. Those underweight investors are just missing out on this. We expect this to continue for reasons I've mentioned in terms of growth premium, in terms of net real rates, which reflects both equity and fixed income opportunity and both in the private and the public markets. So that's our message. "You're missing this, and you might want to come out from behind the sofa." What will often drive that is lower U.S. rates and some kind of adjustment to bubbles. So we think we're beginning to see both of those things. U.S. rates have pretty certainly peaked for this point in the cycle and are likely to come off, which will be supportive of anything nondollar, both bonds and equity, particularly -- obviously that helps bonds, but it's true for both. And again, both public and private. So we think that's a good thing. But the other thing is that the whole AI goes up forever. And yes, there are some clear P&L gains for companies that are in that space in terms of equipment, et cetera. These things get overbought. And if you get an adjustment in the Magnificent 7, which we're getting, and we'll continue to get once you have that huge spike, then you start to see some vol. People will start to say, "Well, it isn't all just about the U.S. It isn't all just about the Magnificent 7." And you get the U.S. election out of the way. Next year should be a year where our conversations become easier in terms of "Why are you hiding behind the sofa the whole time?" Because sometimes hiding behind the sofa is quite a risky thing to do, because it's just one sofa in one room. And that has been our message over many, many years, and this is a time in the cycle where it's a very strong message and our guys are hammering it out. And as a result, we're beginning to see some positive conversations, I think, in actually all of the things we do, in both equity, fixed income and in alternatives. Whether we win or not will be about, first of all, getting that message across and continuing to do that, but also then we have to be a performer, an outperformer in the theme. So if we're not an outperformer in the theme and consistently doing it, we're not going to raise those assets. So that's a minimum requirement. We all know that. So valuations, fine. They support it. That helps in terms of outperformance against DM. And to get the alpha, we've got to be active. So we continue to do our thing. I mean we've had this conversation with some of you before, I'm sure. We have it with a lot of clients. We're always under margin pressure and highly liquid themes for the -- against passive product. The good thing about what we do is the passive product demonstrably underperforms in some of the larger themes because it's impossible to replicate the opportunities through passive products in some cases. It's easier in some, but it's almost impossible in some others. So that helps as well. So anyway, so that's our message. Absolute and relative valuations are okay. They're pretty attractive. Equities have obviously considerably less multiples than we've got going on in some of the DM markets. As earnings growth accelerates, we should be in a position that we will be able to outperform, both on the beta, but also our continuing alpha outperformance in our broader products will come through. In fixed income, we pay more in dollars, and we have spread. So a dollar -- as people see that their deposits only make less as things go forward, U.S. money market products become less attractive. People will be driven into other things. This happens every time. And as I say, fixed -- I mentioned it before, the investment grade story is actually quite a powerful one being picked up by some of the bigger people now actually. We didn't really think about that. There's 25-year data now that shows that whatever happens in terms of activity and vol generally, investment grade in EM dollars is a significant risk reducer against investment grade U.S. -- other U.S. dollar product. So that message, I think, is beginning to get across. So -- and we also think in terms of where we're at, the dollar is pretty close to its peak and probably past it. We think the Fed is going to politically cut rates at least once now, maybe more. It's unlikely to be -- even if it stays the same, that's a more positive environment than any kind of fear of increased rates. We think rates will come off over the next 12 months. I always think the markets expect more in either direction. But I think the direction is negative downward for U.S. rates, not upward. And the U.S. itself is not in fabulous shape, massive twin deficits, very high debt. For those of us who have other places to go, yes, there's benefits of liquidity and the sheer scale of the market. But there are reasons that having -- everyone having got super concentrated there, not least through performance in the Magnificent 7, that they've got to do something else. And we're having those conversations with institutional investors. And we're beginning to have those conversations with retail investors in the U.S. too. Retail tends to actually lead a bit in the U.S. It's a bit knee-jerky, but it tends to lead a bit. But most of that U.S. capital, I think, is going to do nothing until the new year just because "Oh, it's the election." Nobody gets shot for staying in the U.S. So we think we're going to get -- the sales guys are feeling better than they have for a while. Obviously, they're not having a wonderful time. If you lost 10% of your AUM, you're not feeling like you're having a great time. But they're definitely having good conversations, and we're beginning to see some wins. So that was pretty -- through '23, there was not a lot of kind of activity in terms of RFIs. Now there is. There's a pipeline. So that's -- this is a typical turning point in the cycle. On the right-hand side, we talk about I mentioned the risk return piece. The bottom right chart is probably worth touching on a little bit. This is vol from 2% to 10% along the bottom axis and annualized returns up to 5.5%. This is in dollar returns. These are all dollar asset classes we're looking at here, though. And you can see that these -- the risk return profile of treasuries and WGBI and everything is kind of in the sort of 5% to 7% range. You can -- if you add a weighting of EM sovereign IG to that, which is a much higher return asset class, you can actually reduce your overall vol. And when you do the blended efficiency frontier, which this isn't, it reduces your overall vol, and it gives you a better return. Not 300 basis points is better return, but 20, 30, 40, 50 basis points, 10%, 15%, 20% of EM sovereign joining your WGBI or your Global Ag. Valuations, yes, there's still some value in this, which is great, especially compared to what's happening elsewhere. So your yields are in the 8s, 6s, not in the 3s, 4s, 5s and your price earnings ratio in the MSCI is 12 as opposed to 19 in the world. MSCI EM is 12. So a summary for us. EM has had a good return period, which is good just on an index basis over the last 12 months, better in fixed income developed world, less good in equities, principally due to Magnificent 7 in China, 2 offsetting effects, but otherwise equal or better. We're outperforming in most of the things that matter over the long term, and we continue to target that. The alpha is obviously everything. As a result of kind of the net flow move, the assets under management dropping, our operating performance is less good than it was the year before, which is how it is in this time of the cycle. But we made more profit -- statutory profit because we managed our balance sheet. And we had some performance fees in certain strategies in equity and alternatives in particular and also some in local that basically delivered over the year through exits and completion of annual resets. So the financial side was better than the operating side. Where we see it from here, emerging markets are doing okay. They've still got the superior growth story. If anything, that's probably a little stronger given what's going to happen to where the U.S. is going to postelection. Valuations are still better than DM. These are all good things. For us, we -- our strategy continues the same. Stay diversified, get better in the things that we're good at and -- sorry, get bigger in the things that we're good at that will be the equity space; our local businesses that are doing well; the alternative space, where we think we should be much bigger. We've got some interesting strategies there that we need to get into a broader marketplace. And with our existing client base, all of whom have sort of pulled their horns in over the last couple of years in the fixed income space, be in their face and say, "Okay, here's the time to buy this. Make sure you buy it with us." And as I say, we're beginning to see those conversations turning much more positive. So that's it, I think. Thank you for coming.

Any questions? Mike. There's a thing here. You probably know this button.

Two questions, please. I think in the past, and you talked a little bit about it today, some of the, I guess, overhangs on EM debt, you had the outstanding U.S. election, Fed rates and geopolitics. Now it seems like you're at least close to 2 of those lifting. How should we think about it from a relative perspective? Is the geopolitical risk still just going to be a headwind for you guys once we get through these 2 speed bumps? And I've got another question, but I'll ask you after that.

So in terms of geopolitics, the 2 ski bumps being the U.S. election and the delay, I'm waiting for that to happen and military aggression in various places. Yes. Okay. So the U.S. election will finish, so we'll get through that. So -- but the U.S. market has definitely run home over the last couple of years as we all know. They're not going to run internationally the day after the election, but I just think we're going to have a much more positive conversation with lower home returns if they lose money in their equity book, which they're beginning to. I mean, I remember this when I started way back. "Why would I leave America? It's so risky. I should put everything in America," and that works right up until there's a massive drop in the U.S. equity market, and everybody's pension fund has gone from 30%, 60%, 80% because of asset growth and nobody has managed it. Asset price appreciation. They've just become enormous in the U.S. equity market, and to some extent, the bond market when rates are there. So that concentration is back from a lot of U.S., particularly institutional money. I'd say U.S. retail, yes, they did it, but there's a little bit of a change there. But while they're making money in U.S. equity, they'll still obviously be happy with it. They only focus on it when they lose money. So a little hiccup like we're getting now, it starts to make people think, get the election out of the way. The conversations are much more positive in the U.S. from what our sales guys are telling us than they were. I don't expect it to turn around like that. But I would expect us to see a positive outflow in terms of -- sorry, not outflow. Outcome, in terms of what happens next year in the U.S. Geopolitics, I think we have to be quite careful about that one. As ever -- everybody says, "Oh, fine, whoever wins the election, there will be peace in the East." I wouldn't guarantee that because you're dealing with lots of different factors. Things -- the thing about conflict is that in the end, people get fatigued by it, by death, by the cost of it, by the impact of it, and that happens on both sides. So the longer it goes on, the more likely it is either to hit -- if you've got past the initial configuration, either to hit a lower ebb of maintenance or to stop. I think that certainly, the conflict in the East and in the Middle East is mostly in the price, assuming we don't get full-scale invasion of Israel by Iran or something like that. That's not my base case because a lot of people are trying quite hard not to do that, not least the Iranians. Because that's quite a risky thing for them to be doing. But if we think about how life used to be '60s, '70s, '80s, not all of us were alive for that, but some of us were. We lived with a pretty uncomfortable geopolitical world for quite a long time. We just got used to it. And we're just not used to it. We've had the peace premium from the '80s through the '90s, early 2000s. And people are just not used to it. So markets unfortunately adjust and get used to dealing with it. So the impact of it happening was horrendous and took a while and rippled, and everyone "Oh my God," but people kind of get used to living with that a bit. So there's that. Obviously, caveat some enormous event not happening. I think -- I'm not predicting there's going to be some great peace everywhere, but I'm not predicting it getting dramatically worse. And I think what will happen if there is an outbreak of peace and something, the market will overbuy it. So we'd actually be a seller into that quite quickly, I think, as the market will get overcarried away. So that was that one. What was the other one you asked?

Yes. No. The second question is more for Tom, actually, if that's all right. Really helpful chart on Page 13 in terms of the contribution from the local offices, particularly on the delta between the AUM and the revenue. Is that mostly management fee? Or is that partly driven by maybe higher performance fees in some of the local businesses? Just your thoughts.

In this period, we've had a couple of performance fees locally in Saudi and in Colombia. So in dollar terms, about $3 million worth of performance fees in those 2 platforms. And we would expect Colombia's capital raising into private equity and private credit at the minute and it's also realizing some of the earlier-stage vintages. So there's a chance that Colombia could generate an incremental fee or 2 in '25. Saudi, the business is much more liquid. The balance of the asset is more liquid. So that will depend on fund performance. But there are some alternatives products there as well that could crystallize fees. The businesses themselves, as I mentioned, they are naturally higher revenue margin -- management fee revenue margin businesses than the global business, at least for now.

Anybody else? Please. You've got a little thing in the seat. It's in the back, I think. And you have to press the button.

Yes. This is Laura Gris Trillo from Jefferies. I just have one quick one. I was wondering if you could provide a bit more color on where exactly you're having these positive client conversations. I know you mentioned investment-grade EM, but if there's any other specific themes that you're having positive client conversations that would be very helpful.

Yes. I think we're having good conversations in a few places. So -- and of course, conversation sometimes delivers assets, but there's always a lag. But where there are much more positive conversations is people saying, "Well, wait, I've got so many dollars. Should I be thinking about local currency bonds?", so those conversations. And actually, we're seeing a lot of RFIs and activity as a pipeline in that space. So our track record in performance there is good, and we need to maintain that. And so that's one space in fixed income. I would say the other space we're having a lot of positive conversations, we've got a very strong track record now in equity. And we're having positive conversations there, both in the broader strategies in terms of the All Cap space, but also in Frontier, both of which we've had very good performance for a long period of time. And obviously, there's an element of performance chasing, but that's okay within that business. So we'll take some of that money. So we're getting conversations that are positive there, especially in the broad, equity space. People are just sort of saying, "Well, hang on. How far is the U.S. run? What else can I do?" So that's starting to happen, which is good. Alternatives obviously, where we deliver for people and have performed, like in Colombia and Saudi and stuff, we expect to be able to reproduce and raise capital there. And some of the stuff we've done in terms of health care, we expect to be able to raise more capital there. So alternatives, the conversations are what they are with people who allocate there. It's not something that you turn on and off. But I think that's pretty good, too. And the local businesses, having good conversations with the institution -- it depends on the market for retail. They're having pretty good institutional conversations. And what we're beginning to see, which we never used to see, is the old developed market allocators who said, "Well, if I'm [ buying ], I just buy a global product, it's all too hard. You go figure it out." What we're beginning to see now is people trying to be pro or negative selective on countries, which is better for us because we like the fact that we can offer you a global product, but the whole point of our local business, if you want to buy Saudi equity through us, we can sell you Saudi equity managed in Saudi. Ditto Indonesia, ditto Colombia, ditto India. And the plan is we'll continue to try and do more of that where we think there's an opportunity to do scale. So the whole "We don't like China" means that we're getting a lot of clients now saying, "Well, is there an ex China strategy I can do? Or can I do China separately from the rest of EM?" Now in other words, ex China plus China. So that then can -- if I want to do something else, can I -- who's the main beneficiary of people in America getting sweaty about China? Oh, is it India? Is it Mexico? So can I do dedicated single-country product for an India, for a Mexico, for an Indonesia, et cetera? Colombia. So we're seeing some single country interest from the developed world, which never really used to happen in any scale. So the guys are having conversations with institutions about a single country, not just retail, which sometimes follows that, more institutional. So that's interesting, too. So that's where we're seeing positive conversations. And it tends to be, of course, where you're performing. So strategies you've not been performing, you don't have very positive conversations. Fortunately, we're performing in most things at the minute. So the conversations are good in all of them. What we're not seeing yet, which is interesting because it's been such a massively good performer, is in dollar EM high yield, particularly in external debt, has been such a good performer in the last 12 months. We have and the market has. We're not seeing a whole lot of conversation about that as a specific theme. It's much more the risk reducing the bigger pool of capital for investment grade. But like everything in life, the performance has been so good, I guarantee you, people will start to talk about that because they chase performance. So we're having conversations about Frontier, but we should have had 3, 4, 5, 6, 7 -- how many years ago because it's an interesting market place and it's getting bigger and it does something very different from the rest of EM equity. We're getting it now because we've generated 1,000 to 1,500 basis points of alpha, okay. It will be the same with ED, high yield. Where we perform, where the beta performs and we perform, you obviously get flow at the margin. Anybody else? Yes, please?

This is Smaranda Morosanu from JPMorgan. My question would be on the VC accrual. So you said that the -- you expect that to stay flat at 31% in the coming year. I'm just wondering what sort of underlying assumptions you have with your AUM development for that to be the case.

Okay. So maybe I should clarify. I think what I said was for modeling, if you wanted to assume the same 31% rate at this point early in the year, that's a reasonable assumption. And what we'll do is we'll give you a bit more guidance at the half year point when we know how the half year has gone and sort of how we're feeling about the current financial year. But for modeling purposes now, I think 31 is a reasonable assumption.

Dave McCann from Deutsche Numis. Just to follow up on that question, actually. So at the half year, on the VC accrual, you said you had accrued at 27.5%, and obviously, it came in at 31%. So what delivered -- what led you to increase it so substantially in the second half and for the full year?

So the performance of the business was in financial terms, second half weighted. So performance fee generation in the second half is higher and the returns that we generated from the balance sheet in terms of seed capital realizations and critically, the life-to-date gains on the seed capital was second half weighted. I think they were GBP 4 million in the first half and GBP 16 million in the second half. So those 2 factors combined, basically, to drive a higher charge over the full year.

Yes. I guess just to follow up then, I guess, you were telling us to model 27.5% as a reasonable expectation for the full year a few months ago. Why is 31% now the right thing for us to be thinking about modeling? I appreciate there's a range. 31% is roughly in the middle as opposed to 27.5%, which was towards the bottom. But just could you give us that confidence there given what you said 6 months ago didn't really come to fruition?

Well, as Tom says -- I mean, I'm sorry, I'll let you answer, but I won't first. We made -- all the big chunky money came in the second half, and you pay people for performance. So clearly, that makes a difference. Carry on. Back to you. And you can't predict that. You don't know until you close the deals, that you're going to make that money. Go ahead.

So as I said in the presentation, the decision will get taken in 12 months' time. I'm trying to give you a bit of guidance for the full year. I appreciate 31% is a different number to 27%. We're starting the year with a lower AUM level than we started last year. So it's a balance between the percentage and the absolute level of profits. And then ultimately, at the end, it's sort of a weighted scorecard, if you like, of a whole range of different things that bottom-up build to a percentage. I'm giving you a 31% as a reasonable starting point for plugging in your models.

No, I get that. It's like asking you...

I think it's going to be where you're all at anyway.

It could be 30. Pick a number. It doesn't matter.

As you're pointing out, I'm sure I'll be wrong in 12 months' time.

I guarantee it.

Yes. I guess you are pointing to performance fees being down in the year. You said mid-single digits ex alternatives. So I guess with that in mind, is 31% right -- really the right -- I mean, yes. You said it will...

It depends on alternative -- it depends on performance. Yes. Look, this whole -- yes, it's a difficult thing. You can model 35%, if you like, because we've said we won't do more than that. That would be very conservative, but it's difficult. I understand your problem. We have the same problem. Anybody else? Well, thank you very much for coming. Nice to see you. I look forward to seeing you again soon, I hope. And yes, we're looking forward to just getting the U.S. election out of the way, and having people say, "Wow, this is where we need to be." And meanwhile, we keep performing and thank you very much for your time and for talking to your clients. Thank you.