Ashmore Group Plc (ASHM) Earnings Call Transcript & Summary

Thank you for coming. My name is Mark Coombs. I'm the Ashmore Group Chief Executive. This is Tom Shippey, Group Finance Director. We're going to talk to you about our half year numbers for the 6 months ended December 31, '24. Here's an overview of where we're at. We're at about $49 billion of assets under management, which is broadly unchanged over the period. A couple of reasons, really, sentiment's improving a bit for what's going on in EM, not in the U.S., but in Asia and Europe. People are saying, hang on a minute, there's some other stuff we should be doing. We've been sitting in short in dollars for a long time. What else should we be up to, how many dollars do we really want. So we've reached the point now where redemptions are trailing off as we'd expect in terms of the cycle. And so flows are beginning to move in the direction we want them to, which is inwards, not outwards. Our operating model remains as it's supposed to be, which is fairly efficient. So it mitigates situations when we have lower average AuM. We're at an EBITDA margin on an adjusted basis of 42%, which is relatively high for the industry, which is where we want to be. Net revenue is down 14% year-on-year, driven again by lower average AuM. We keep controlling the operating costs. Obviously, that's always a challenge. They're down 9% year-on-year. Diluted EPS is at 5.4p. We've maintained the interim dividend of 4.8p. Our outperformance continues across a range of strategies, being active is what we do, and that obviously is important when the flows change that they flow to us. So that's good and we can always do better. But we're happy that we're outperforming across a broad range of what we do. Q1 of our financial year was a very positive time in terms of the index. Q2 is a pretty terrible time in terms of the index. It's still up a bit in terms of index. But just in terms of the backdrop, people are getting very nervous about election of President Trump and all that kind of stuff. And fears about, well, would the dollar suddenly be a huge rally and would that be a headwind for everything non-dollar. In terms of our strategy and what we do in terms of our strategic initiatives, they are continuing to diversify the business, which is good, continue to give us some growth. The equities, investment funds and accounts are in net inflow, continuing and have been in net inflows since we all through the last 3 or 4 years. So up another 4% to $7 billion. The local platforms are also growing, which is the reason they're there, to provide growth in economies that are large enough to provide significant growth, up 2% to $7.6 billion, particularly in India and Colombia, where we've seen nice strong client flows. India, because people have caught on it as a theme, a [ friend ] shoring or a non-China place for growth in American relationships. Private markets continues to grow. We're looking to do things there that are long term and different for EM. So long-dated debt capital for infrastructure. We've been able to close another product down there in LatAm and we've realized a couple of private equity investments that delivered some performance fees. And that will continue to be part of what we do. We like it to be a bigger part, and we're making efforts to do that. And then in terms of macro, most EM economies are in pretty good shape and certainly in better financial shape than a lot of DM ones, better GDP growth and better monetary and fiscal management. This is sort of a markets overview, a game of two halves or in this case, two quarters. Q1, so the first 3 months, the 30th of September, EM performed well. Inflation was calming down. Central banks were cutting rates. Bond yields were rallying. China had some sensible stimulus finally and people thought, okay, the China problem is bridging the beginning of the end or the end of the beginning. Market indices, just to give you a flavor of, so for what we do from EM equity up 9% to external debt and dollars up 6%, pretty much everything was positive, the world equities are up 6% as well. So it's a pretty good environment. Our net flow dropped -- our net outflow dropped to $0.7 billion in the period, so dropping, and our performance is up [ $3.5 billion, ] which is nice. Second 3 months of the quarter to 31st December '24, market vol coming in, people say, well, maybe inflation isn't beaten. Bond yields kind of reversed what they've done in Q1. Big fears about the U.S. election. And this is just index performance. So in terms of the indices, EM equities were down 8%, global bonds were down 5%, external debt -- EM bonds were down 2%, again, showing resilience against global bonds, which is a feature that, as I say, I think the Europeans and the Asians have seen this continuing to happen now even in negative markets. So I think that's one of the reasons we're seeing interest in that space. We were down $2.6 billion. Our net flows were down to negative $0.4 billion So decreasing trend of net outflow. We're in a period of a huge amount of noise and the key thing is to be active, but active in terms of thinking about it, not getting whipsawed left and right. So we're going to be in a period of huge amount of noise for another 3, 6 months, 4 years, whatever. And you've got to actually stop listening to the noise as much as you can and think about what's actually happening. So get to the data. In terms of investment performance, just to summarize, this is our 1-year, 3-year and 5-year, just as a flavor. So 1 year, we're at 43% outperforming, which is okay, a bit better than June. We'd like it to be above 50%, of course. Good performance in the corporate credit space and in external debt, very good performance in the equity, level equity businesses. Variety in the local businesses, but overall, as I say, 43%. Over 3 years, we're up to 58%, great numbers in local and same in 5 years. As you can see, as long as you got a strong track record over one of the periods, that gives you the chance to be in the right place for inflow. And we were at 57% over 5 years, which is about the same as where we were in June. We're at about 60%, 62%. So the market weakness that we saw in end of '24, we actually quite liked. We thought it gave us an opportunity, especially in local currency and equity to buy some things we've been trying to buy and to take some positions we wanted to. So end of Q2, which is the last calendar quarter, we set ourselves up for Q3, which is the first calendar quarter of this year, where we are now. So in terms of what we're up to, the things that we've been trying to do, we're continuing to do and they're doing what they do. So we've got good performance in equities generally across the piece, up 4%, again, the $7 billion, continuing to go up in every quarter even through a period of significant outflow to EM generally. We're growing in the equity space. We're now at 14% of group assets, $7 billion, good stuff. I think we're now being recognized more than just fixed income, which is good because we are more than fixed income. So that's good. And it's no longer -- sorry, I didn't know you did equity conversation with targets, which is great, consultants as well. Everybody understands, we've got some very good investors in that space. And we keep looking at ways to diversify within that. So can we provide clients tailor-made solutions to what they want to do in EM equity, not just we do all cap EM equity or we do active EM equity. But they say, well, I'd like to do something in India, great. We've got a pure Indian product, and here are the numbers, and it's great. And that's why we've been seeing flow there. And so EM ex China, there's a demand from the U.S. And so we put together EM ex China with seeded product. And that's something that we're seeing some interest in. That's the first thing really in terms of EM we're seeing out of U.S. institutions. But I still think for the U.S., you need some sort of figuring out what this year looks like for them to be a big investor again. Locally, our EM offices are growing, which is good, up 2%. We mentioned that, $7.6 billion of assets, 16% of the group, big jump in Ashmore Colombia to 21% growth, getting up for $2 billion now. Two things, private market stuff. So we raised a couple of private market funds, both private equity and private debt, which is great. Long-term money, which is nice to have and also the listed equity product, which has performed very well, raised a big chunk of extra capital. So that's good. India, too, 16% growth, up just over $2 billion. Clients are responding to good performance and wanting to play the market. And having seen the place get very expensive when we decide -- when we said, look, we think of adding some risk here, they decide to add it with us. So that's good because India sold off nicely, and that provides opportunity. So we think there's more to do within our existing network of local offices, but we will continue to expand. So we would expect to add local offices once or twice a year for the next 3 or 4 years, where we see opportunities to raise assets, to grow businesses that will grow with their countries. So that will continue. Probably one a year is reasonable because, of course, what you don't want to do is force it. And then remember, whenever you set something like that up, you want to make sure it's operationally connected in investor, connected into the parent, and everything is working well. But if it isn't one a year, if it's one every 2 years, that's fine. The key thing is finding the right people and being in the right market. We want to be investors-driven. We want to make sure we make returns and outperform. And then the final sort of component, diversification through locally managed private market stuff. I've touched on Colombia, $300 million on the second infrastructure fund, long-term money. It will probably be bigger than that. It's just the first close. We made some nice performance fees in both LatAm and Saudi. With our private equity healthcare platform has just opened a new hospital in Jeddah, and we'll continue to grow that. There's plenty more to do in the healthcare space in private equity for us. So we continue to grow the business, try and diversify, and look for growth in places where it's harder for others to do it. I think this is Tom. Thank you.

Thanks, Mark. Good morning, everybody. So looking at the financial performance for the period and starting with assets under management. While point to point, they were flat over the period, the average level was 6% down compared with the prior year. Combined with a lower average management fee margin and a slight headwind from FX, this delivered reduced management fees with a reduced impact partially offset by a comparable level of performance fees to last year and higher FX gains. Overall, net revenue declined by 14% year-on-year. Reflecting the market environment and consistent with our approach of tightly managing the expense base, adjusted operating costs were reduced by 9%. The VC accrual of 30% at the half year stage is slightly lower than the percentage for the full year 2024 and generates a charge of GBP 19.6 million. Adjusted EBITDA came in at GBP 33.7 million, 21% lower year-on-year and represents an operating margin of 42%, which remains high by peer group standards and demonstrates the efficiency of the business model and its ability to adapt to different operating environments. Despite the more volatile markets in the period, seed capital gains of GBP 5 million were achieved. Given market returns were higher a year ago, this result is around 1/4 of the level delivered in the prior year period. Therefore, resulting in PBT of approximately GBP 50 million and diluted EPS of 5.4p per share. Adjusting for FX and seed capital items, the operating diluted EPS is 4.8p per share, 17% lower year-on-year. Ashmore's balance sheet strength has been maintained with total financial resources of nearly GBP 650 million, giving an excess capital position of GBP 550 million equivalent to 77p per share. And finally, taking into account the operating result for this period, the group's strong financial position and a positive outlook for emerging markets, given resilient fundamentals, attractive valuations and underweight allocations, the Board has maintained -- sorry, has declared an unchanged interim dividend of 4.8p per share. As you can see from the chart, while the period started and ended with assets of approximately GBP 49 billion, the contrasting market conditions quarter-to-quarter Mark described had a notable impact on the investment performance achieved in Q1 and Q2. The effect of the more bullish global environment of the first 3 months was largely unwound around the time of the U.S. election through November. Encouragingly, client activity levels have continued to increase, and Ashmore's net flow position has improved, both compared with the prior year and during the half. This was driven by a stable level of subscriptions and a significant decline in redemptions as investors increasingly recognize the investment opportunities across EM, and the risks of being overweight stretched markets elsewhere. Subscriptions of $4.1 billion were delivered at a constant level during the half and were approximately 40% higher than in the prior year period. There were new mandates and top-ups to existing accounts in the local currency theme, and additional client allocations in external debt and equities. The $300 million first close of an infrastructure debt fund in Colombia increased assets in the alternative theme at the period end and demonstrates progress against the group's strategic growth initiatives. Redemptions of $5.2 billion were 30% lower than a year ago, and there was no discernible increase in redemption pattern around the U.S. election, contrary to the broader industry experience recorded in the various mutual fund data sets. Overall, net outflows fell to $1.1 billion for the 6 months, 1/4 of the level experienced a year ago and in the preceding 6 months to June. There was also a marked improvement from Q1 to Q2, with net outflows falling from $0.7 billion to $0.4 billion or $0.2 billion if you exclude the closure of liquidity fund, which held approximately $200 million of the group's dollar cash. As Mark mentioned, the local offices have continued to develop positively and in this period, delivered a net inflow of $0.2 billion, driven by client flows and capital raisings in Colombia and India, in particular, and net of the successful return of $200 million from a private equity vehicle managed by Ashmore Saudi Arabia. As we talked about in September, the robust macro performance of a number of larger EM countries, combined with attractive valuations, positive performance and low levels of allocation means that clients are increasingly engaged. 2025 has started in a similar fashion with Ashmore's global distribution team active across all regions. RFP activity approximately doubled in 2024, and the new business pipeline includes a healthy mix of equity and fixed income mandates as well as a number of new alternatives initiatives. Given this increase in activity, there's broad-based client demand across the product range. The growing focus on equities is coming largely from the Americas and the Middle East, including in the specialist single country and regional products. Demand for the broader fixed income range, particularly external debt and local currency bonds, is led by European and Latin American investors, and there's clear interest for the growing investment-grade asset class from clients in the U.S. and Asia. Looking now at the P&L detail. Adjusted net revenue of GBP 79.9 million is 14% lower year-on-year, with the contributions from performance fees and FX partially mitigating the lower management fees. Notwithstanding the more volatile market environment in the second quarter, performance fees were delivered at a similar level to the prior year period. The GBP 7.9 million was generated from successful private equity realizations in Colombia and Saudi Arabia, together with fees delivered from external debt and blended debt products. Based on current market levels and assuming no significant alternatives realizations in the second half, I'm not forecasting any additional material performance fees for the year. Net management fees were 17% lower year-on-year, reflecting the impact of a lower AuM level, a slight FX headwind and a 3 basis point decline in the net fee margin compared with a year ago. While the margin benefited from investment fee mix, notably higher equity AuM, this was more than offset by other factors, such as the return of capital from the higher-margin private equity funds, higher average overlay and liquidity assets, the temporary impact of raising new private market assets, which will benefit the group's margin on a full run rate basis and some ongoing competitive pressure. As I mentioned in September, the management fee margin coming into this period was a touch over 37 basis points. And given the range of factors impacting this half, the exit rate is around 35. The precise impact of the influences on the margin remain difficult to predict. However, the strategic growth initiatives such as growing the equities business and alternative assets together with the ongoing development of the local offices is expected to be margin enhancing over time, while the industry environment remains competitive. I therefore continue to expect this competitive pressure to have approximately a 1 basis point impact on like-for-like product over a 12-month period. And before moving on to costs, it's notable that the asset growth in the local platforms delivered a 13% year-on-year increase in aggregate revenue, with these businesses now contributing approximately 30% of the group's net revenue. Looking at operating costs. In this period, adjusted costs were reduced by 9%, demonstrating the flexibility of the operating model and our relentless focus on expense management. This has enabled savings in a period when industry inflation pressures are still apparent and has delivered a 5% reduction in non-VC operating costs. In terms of the detail, fixed staff costs fell by 2%, driven by lower average head count and other operating costs reduced by 10%, benefiting from lower professional fees and disciplined control of day-to-day expenditure, such as on data and travel. Looking at total non-VC cost of GBP 28.5 million for the half, this is a fair reflection of the run rate coming into the second half of the financial year. Finally, on costs, VC has been accrued at 30% at the half year, which takes into account the operating and financial performance, together with life-to-date gains on seed capital of GBP 0.6 million, compared with GBP 4.4 million realized in the prior year period. As usual, the final VC charge for the full year will be determined by the Remuneration Committee after the financial year-end and taking into account the full range of financial and nonfinancial factors. Hence, the 30% is my best estimate at the half year stage, and as in the past, the full year charge will be finalized once the full 12-month picture has been considered. And touching quickly on the local platforms, a consistent, scalable operating model is implemented in each location. In this period, double-digit revenue growth has been achieved and continued investment has been made in areas such as distribution channel development, yet there was minimal increase in costs. And consequently, adjusted EBITDA increased by 1/3 and the aggregate operating margin for these businesses expanded into the mid-50s compared with the 49% that was achieved for the full year 2024. Ashmore seed capital investments including commitments totaled nearly GBP 350 million at the year -- at the period end and invested in support of the group's strategic growth objectives. The program is actively managed. And in this period, GBP 90 million of new investments were made and a P&L gain of GBP 5 million was delivered. The additional capital invested established new funds such as a frontier markets debt fund, and capital was committed in terms -- in support of private markets fundraising, such as the Colombia senior debt infrastructure fund. Notably, Ashmore's local businesses are now sufficient scale and maturity to be able to use their own domestic balance sheets to see locally managed product without relying on group support. Recognizing the increasing client interest in EM assets, seed capital was invested in certain existing fixed income funds to enhance their scale for intermediaries to distribute. As client flows are delivered, this capital will be recycled and my expectation is that this will be quicker than the typical 3-year investment life cycle for our seed. Therefore, over time, I would expect the split of seed capital investments by theme, as shown in the pie chart, to more closely reflect the focus of the group's strategy. For example, with a greater proportion in alternatives and in equities. In this period, client flows into funds enabled the profitable recycling of GBP 9 million worth of seed, delivering a life-to-date gain of just under GBP 1 million. While there was some realization in the period, the unrealized mark-to-market life-to-date profits on the seed book increased from GBP 32 million to approximately GBP 41 million. This, taken together with the 10% of group AUM in funds that have been seeded, highlights the value of the seed capital program in supporting asset growth and delivering profits to shareholders over time. Finally, on the P&L, looking at interest income and tax. Net interest income of GBP 11.8 million reflects a yield of approximately 5% being achieved on the group's cash and deposits. In absolute terms, this is slightly lower than in the prior year as a consequence of lower average cash balances. Based on the prevailing rates, the group's cash continues to earn interest of approximately 475 basis points. The effective tax rate of 21.6% is in line with the guidance I gave in September and remains below the U.K. rate of 25%, largely due to the geographic mix of profits with meaningful contributions from lower tax jurisdictions, such as, Ireland. Based on the current mix of profits and before any impact from deferred tax or other factors that influence the tax position, I would expect the effective rate to remain in the 21% to 22% range. And finally, before I hand you back to Mark, a quick update on financial resources. Cash levels typically reduced in the first half, given the payment of the final dividend and bonuses in respect to the prior financial year. Additionally, in this period, the employee trust opportunistically acquired GBP 27 million worth of shares and the seed capital investments I referred to utilized a net GBP 81 million. After the generation of GBP 16.4 million of interest income in cash terms, the group ended the period with GBP 342 million of cash and deposits. Just over half of this cash is held in sterling with approximately 1/3 in U.S. dollars and the remainder in the group's other operational currencies. The group's total financial resources, including seed capital of GBP 646.1 million, representing an excess of approximately GBP 550 million over the level of required capital. Therefore, the group continues to maintain a strong and liquid balance sheet, which facilitates investments in support of the group's strategy and underpins the ordinary dividend to shareholders. And with that, I'll pass to Mark.

Thank you, Tom. So outlook from here. As I said, the fundamentals for most of the bigger emerging economies are pretty good, better growth than the DM. Pretty good fiscal discipline in most places, very high real yields and pretty dynamic Central Bank policymakers in terms of interest rates. So a bunch of them are still in a position for further rate cuts. And where they get nervous about inflation, they nudge rates up pretty quickly. So they're going to continue to be dynamic. And one thing that freaks out EM is inflation, so they'll be aggressive in trying to manage that, and that's a good environment for us to invest in. Most of the new governments are reforming to try and continue to grow. They're reforming with an eye to what's going on in the U.S. So they're desperately trying to grow, desperately is probably the wrong word, but they're definitely trying to grow regional alliances, the so-called South-South emerging economy to emerging economy alliances, promoting trade between the two. That is definitely picking up steam. They're bigger and stronger than they used to be, and they're happier to work with each other and to create trade networks that don't all rely on Europe or the U.S. So that, I think we're going to see more of that. And that in itself gives us a bit of opportunity because you start to get investment flow from EM to EM. So cash moving as well as trade. And that's one of the reasons behind the local businesses. It helps us source some of that capital that wants to leave one country and go to another, and be the vehicle for that. So that, we see that as another reason that we wanted to build the local businesses, and we want to build more of them. And what's going on in these countries is reflected in upgrades as a proxy for whether they're doing better. So positive outlook to a lot of credit and net credit upgrades over downgrades last year. We're going to get -- if there's a question about U.S. politics, [ Paul Measday ] is going to take it. We've already discussed that. So U.S. political noise, yes, so there's going to be lots of that. And the brutal truth is you've got -- yes, you've got to think about that, but you're going to try and crystal ball stuff isn't too clever, you've got to focus on the numbers. And in the end, everything comes back to the numbers. It can just be distorted by the noise for 6 months, 12 months. So we have to make decisions based on data and genuine policy, not noise. Tariffs, I think tariffs are in the psyche of a part of the U.S. public and back in the old days, that's McKinley and everything that Presidents did that and didn't have taxes. And in some ways, I think the current administration likes the idea of that. Whether they get there or not, I think it's pretty unlikely. But if you get a nuanced approach where it uses a negotiating lever, that becomes very difficult to trade. But if you accept that some tariffs are going to be here for the long run, which we do, you've got to take a view of what that does, what that does to inflation, whether you do get fiscal consolidation along with that or not, and if you get something that doesn't crush growth completely, all of which means that the opportunity within where we run around will gradually become clearer and clearer to Americans who realize that they can make America great again, but there are other opportunities elsewhere. And they're all unbelievably long where they live, unbelievably long. And then for us, you can't pick a country and say, this is the place to be. There's 70 countries plus that we can invest in quite cheerfully, and we choose to do that and move around amongst them and try find places that are interesting and different. And we'll continue to do that, to be the indices to attract flow and people are ready to buy it. In terms of fundamentals, yes, the numbers are there. 2 -- GDP, plus 2.5% EM over DM in '24, predicted about the same this year. So, positive stuff. And in terms of net flows, this is just something that obviously, we look at and care about. It's very cyclical. And you can see that there tends to be a pattern and things tend to -- there's an arc up and an arc down back up, and it looks as though we're in the right trend in terms of flow and we've been here many times before. So just to summarize, we think we're in good shape. The things that we're trying to grow, we think are the right things to grow and diversify what we do. Our operating model lets us manage through market cycles without firing everybody or hiring 1,000 people at once. So we have a pretty stable and strong and an excellent group of people we work with, which is a joy to all of us. We're active in what we do. We're producing outperformance. And the vol is not a terrible thing for us. Complete slumps and crisis are obviously short term, not good for anybody. Coming out of those tends to work quite well for EM. It's a pretty low correlation coming out of massive crisis. But we haven't had that. And if we don't have that, just having vol around a narrow band, it's pretty good for us. Our initiatives are growing and giving us diversification. And the macro is okay for EM economies, okay, not bad. That's it for me. Any questions, please? You've got to press something crazy or pull something.

[indiscernible] Morgan Stanley. Maybe just on the possibility of U.S. clients at some point coming back. Can you remind us the proportion of your business, your asset base, say that is sourced from the U.S. And then in terms of -- in your view, this is really sort of a matter of timing rather than say, a broadening of opportunities in fixed income, yield pickup because of what [ Apollo ] are doing and folks like that. And so is there more sort of competition for EM because there are more different sources of yield in credit these days?

So yes. So a percentage of assets, I think the high was from the U.S. was about -- Americas was about 30%, and we now, what, mid-teens? 11. So that just gives you a sense. I mean initially, retail and then institutional, when post '22 in Russia, just got -- they all ran home. You know what we should do? We should buy more American stock. We're over concentrated, let's over concentrate more. And let's sit in cash. A lot of them sitting in cash, 5% yields, that will do us. Thank you very much. So that's the range. And that probably, that is typical of a cyclical low in EM and when we get negatives for EM. That's typical that U.S. money flies around a bit. Then in terms of alternatives and fixed income. Yes. I mean I think higher interest rates, if people are looking at fixed income purely to reduce risk, they do a couple of things before they've thought it through. They run to cash, short end, money market, dollars, U.S. stuff, and they sit there for a bit, and they think that's all very nice. And then they start to get a bit sweaty when they think if inflation isn't after the races that they need to buy some duration. And at the minute, they're not really sure. So there have been some people who are starting to buy some duration, but not -- they're sort of in that, don't know now. Some of what is the American government is talking about would be highly inflationary. And so there's a whole lot of them. What happens? If we do lay off all the federal employees, okay, that's a big bump of cash for them to buy things for 6 months because they get 6 months money, it's currently planned. So there'll be a short-term spurt, possibly inflationary. But then they won't be able to buy anything, possibly deflationary. Meanwhile tariffs, inflationary. There's a whole -- until we really know what the policy mix is going to be and see it in effect, very difficult to get too aggressive around there. What that means in terms of things to buy in fixed income, yes, of course, people are looking for different ways to do things and for diversification. We had a pretty strong interest, as Tom said, in local currency. The back end of last year. So Q3, beginning of Q4, people are saying, I've got so many dollars. This is nuts. I have so many dollars, but it's been my friend, especially if I've been buying equities. But there is a moment when things become a bubble. So those are the kind of conversations we're having with people who can take currency risk and they either do it through currency or equity. And it's interesting, as Tom said, that's where we start to see some flow. And we have a lot of RFPs now in equity in local currency. The other thing is that in terms of the fixed income space is what we really have to do is educate people about -- sorry, sounds terribly condescending, but to talk to people about -- you can do a couple of things in EM. It doesn't just have to be, hey, man, risk on bull, high yield. You can do that and you can do it in spades if you want, both in credit and in sovereign and just in dollars. But EM in the investment-grade space in dollars has been a massive risk reducer and return enhancer over 25 years. And one of the ways -- a lot of the conversations we're having in fixed income in the minute aren't specifically about high-yield corporate [indiscernible] or sovereign. It's about, okay, wait a minute, I've been looking at the number, looking at numbers because we've been telling them like crazy that we can actually -- we can reduce our risk in our global bond books. So the market in the global ag becomes -- if there's an index weight of 10%, 13%, 15%, whatever, if you add to that through somebody who specialize at that, who adds alpha in the space, which we do in investment grade, have done continuously since we started, it's a different alpha model. It's 50 to 100 basis points. But people are happy with it. It gives you very big liquidity in a very big portfolio. And it's an interesting market for us to be looking at. People have always thought it's just risk on, risk on, risk on. And so that's part of our job is to educate people, they can do other things with us. So as well as other people offering higher rates in the U.S., offering people opportunity and perhaps high rates in euros, there are more things to do that we can do to help them get lower risk and better returns. So it's about education being out there.

It's Angeliki Bairaktari from JPMorgan. Can I ask with regard to the performance deterioration in the last quarter of 2024, there's typically a bit of a lag between sort of performance and flows. And we saw that you had very strong performance in Q3, and that translated potentially into better flows in Q4. What are you seeing now in terms of the conversations that you're having with your clients in terms of sort of the flows in Q1? Has the performance affected that? And with regards to the redemptions more specifically, I think you mentioned that subscriptions have been flat, but what has been really improving have been the redemptions. Is that -- do you feel that you've reached a point of saturation, if I may call it that, where the clients who wanted to take money out have now taken the money out, and the clients that remain with you are the ones that are committed to the asset class? And a bit more of a strategy question. I mean you've built a very strong business in terms of being an emerging market specialist, clearly, a leader in credit. Also you're saying you're being recognized more in equities. How do you think about potentially combining and perhaps becoming part of the bigger platform because we are seeing consolidation trends in the asset management industry. There is this general perception that larger is better. So how do you think about that?

Okay. So the first one was about 3-month performance and the impact on flows. I don't think 3-month performance has a big impact on flows, honestly. I wish it did, but I don't think it does. I think the performance that really has an impact on significant flow is when the beta is positive, if you've got good 3-year, 5-year. We might be lucky with a 1 year, but you really -- 3 -year and 5-year tends to be the thing that most clients focus on and some longer. Retail money will jump around for 3 months sometimes, but we'll definitely jump around on 1-year flow retail money. But I don't think -- I think 3 months out or underperformance isn't -- when we talk to people, that's not really what we're selling. So I think that doesn't make much of a difference. The second part of the question is what are people talking about in the minute in terms of asking us. As I mentioned earlier, the conversations are about 2 or 3 things. They're about equity because my goodness, how many more U.S. equities can we have. So there's a lot of interest and we're having a lot of discussions about equity and the different flavors of equity. So one of the reasons we like local businesses, and we run local money locally, but we also run international product that's available to foreign people to buy into that, is when people say they want to buy India, they can buy that through us. If they want something ex China, they can do that through us. So different flavors of EM equity. Yes, there's the big all cap and active stories. But there's also frontier where again, being close to it, which we do and spend a lot of time and it means you can have dramatic outperformance and it runs on a slightly different correlation to EM. So I think equity, there's a lot of conversation about. In the fixed income side, a little bit reflecting on what I was saying before. There's a lot of conversation about investment grade and people are going, wait, hang on, maybe I'm thinking about this slightly differently. I need to think. Is it a risk reducer really? Does it want -- so we had a lot of conversation with data, which is great because the data is there. I think, as I tried to say earlier, I think the American conversations, Americas loves equity as a market. So a lot of those conversations are about equity knowing that they'll get local currency risk with it if they want when they buy the equity. So definitely, conversations there. IG, especially in the insurance sector there. Otherwise, Europe and Asia, there, it's a bit more -- they're a bit more -- the IG space, they enjoy that, but they're prepared to take probably a little bit more risk. And some will just do IG only, but some will do a blend of fixed income so especially in the external space. And they're all feeling very long dollars. So in Europe, we've been having a lot of conversation about local currency. In terms of what does that mean. If 10 people are crazy bullish and want to talk to us all day long about everything and they're knocking the doors to come to us, [indiscernible], we've never had a 10, but if that were 10, we're not at 10. We're probably at, I don't know, 4, maybe 3, having been at 1 this time last year. So definitely more conversation. When people make a lot of money in an asset class, they get quite nervous and they're pretty nervous about U.S. equity now, especially the tech story. It doesn't take much [indiscernible], that's expensive. Was that all the questions? Did I forget anything?

There's one more. Consolidation activity.

Yes. Well, we're a public company. We'd have to do what was interesting at the time that people came to us. But our plan is to stay doing what we're doing. We're not planning to be the consolidator by buying up rather expensive, lots of people cut their cost base, mid-market, U.S. or U.K. or Australian asset manager. We're not going to do that. But our plan is to continue doing what we're doing. We're in EM. There are things that we can do that we think are going to give us good growth. We want to be doing that and we're happy doing that.

This is Laura Gris Trillo from Jefferies. I just have one quick follow-up question regarding on the net flows that you saw in the fourth quarter of 2024 versus what we observed in macro flows because your picture was better than what we could observe. I was wondering if you could provide additional color on how your clients think versus the picture of macro flows? And also if it has to do with the fact that 83% of your AuM is in segregate mandates?

How they think? I think part of it is that, particularly the American investor base, has already thought and they're a bit out of the picture. So okay, you were 30 and now you're 11, okay, the denominators changed but whatever. So their thinking is less relevant in terms of making a difference. They can make an upward difference when they're ready, but they're not going to make much of a downward difference from here, a dangerous statement, but they're not going to make too much of a downward difference from here. I think also, as I said, people, they're very long to dollar. People are very nervous about being so long to dollar. And yes, they've been hiding in cash and short end money market and everything and thinking that's okay. But people have, in some ways, desperate to buy duration and people have been buying duration whenever they think there's a chance that we're going to get 1,000 rate cuts, even though we're probably only going to get one or none. But there's people -- markets always want to be optimistic. So seeing that they can get duration plus spread with us, I think, also keeps people a little bit more comfortable to be where they are. The other thing that's important with us is that a lot of what -- in terms of our flow activity, I mean we lose clients, of course, we do. We lose clients from day to day. It's very depressing when it happens. But I mentioned this, for a lot of what happened is we've got some clients we've had for a really long time and they just go up and down. So we have a lot of clients that have cut from 5 to 1 from '22, '23. So they are still clients, they just didn't like the price, they didn't like the beta and they're waiting to add. And there are a few things that drive the adding, one of which is relative interest rates between currencies, yen, dollar and stuff like that. Local currencies to dollar, dollar value, dollar inflation. So those have left, have left. Those are still there, probably want to still be there, and they're just deciding on when they like the market and when they want to do more with it. That was the first question. What was the second one? Sorry. Do you remember, Tom? That was it? Thank you. Great question.

David McCann from Deutsche [indiscernible]. Three from me. You gave some commentary on the management fee margin obviously dropping in the run rate. But it looks like within that, the blended margin was particularly contributed to that going from [ 43 ] down to [ 31 ] in the period. So could you give us a bit more color on that theme. Specifically what has driven that down, that would be useful. And then, Tom, I think I wrote this down right, you were suggesting that the run rate operating cost for the second half were broadly what they were in the first. But I know you did call out in the statement, legal and professional costs being lower. That to me maybe is just that could have been a bit one-off. So maybe you could, I guess, just square those 2 points with the run rate being I think you're saying similar to the first half, but it did -- there was possibly something that was one-off in nature in the first. And then just on the balance sheet, third question. Obviously, the seed -- you've invested a bit more in seed capital in this period, which is interesting. Maybe you could just touch on what was the rationale for doing that? And then just more broadly on the balance sheet. Is there anything you feel you can do more productively with that rather than just kind of leaving a lot of it still in cash?

Do you want to take that?

So first one on blended. There's been some competitive pressure there as there is everywhere. So there's a bit of competitive pressure. But the bigger impact was actually a fund that moved out of the blended theme. So it was a movement into external debt that just dropped the margin as reported in blended. The second one was around the run rate on costs...

Sorry, and it moved out because they changed their index.

So sorry, yes.

It's client-driven. They wanted to change it from a blended index to a single index.

So on the cost side, and there are a couple of things in costs. There's professional fees, travel, data are the bigger items where we've had a real squeeze. Nothing that I would say is specifically one-off. We're pushing everybody, all of our third-party suppliers. Those people are coming back to us this year going, oh, it's inflationary, everything is up by 7%. Well, no. Inflation is now at 2%. Inflation was 12, 18 months ago, there's no longer an issue. So we're just squeezing everybody as tightly as we always would. The comment about the run rate was just to give an indication, if you want to double the first half to get to a full year estimate. I don't think that's going to be widely out for the full year. And then the final one was around the balance sheet. So look, we're fortunate and that we have a well-capitalized balance sheet. So it enables us to use our capital at certain points. As I mentioned in the script, we're trying to make sure that a number of the products where we think they've got really good track records are of sufficient scale and size such that the intermediaries are happy to sell them. I think we've talked about that as being one of the ways that we use our seed capital in the past. There was about $50 million or so of that, that we did in the half that. We've put it to work to maintain scale and provide the intermediaries with the ability to sell it. I'd expect it to come back up.

And as Tom said, we will continue to use the balance sheet to seed things that we think we can grow scale in. So we'd expect alternatives and equities to continue to receive the seed capital to get bigger. So we'll keep using it. Anybody else? Okay. Well, thank you very much for coming. Thanks for your interest. Nice to see you all. Those I have seen before, nice to see you again. Those I haven't seen, great to meet you, long distance. And thanks very much for your interest. See you again soon. Bye-bye.