GQG Partners Inc. (GQG) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the GQG Partners Inc. 2025 Half Year Earnings Release Conference Call. [Operator Instructions] This call will contain forward-looking statements, including statements of current intentions, opinions and predictions regarding the company's present and future operations, possible future events and future financial prospects. While these statements reflect expectations at the date of this call, they are, by their nature, not certain and are susceptible to change. The company makes no representation, assurance or guarantee as to the accuracy or the likelihood of fulfilling any such forward-looking statements, whether expressed or implied. And except as required by applicable law or the ASX listing rule, disclaims any obligation or undertaking to publicly update such forward-looking statements. Participants recording this call may use such recordings for their internal business purposes only and are prohibited from making any part such of recordings available to the public without the prior written consent of the company. I would now like to hand the conference over to Mr. Tim Carver, CEO. Please go ahead.

[indiscernible] our half yearly results conference call. I am joined today by my colleagues, Melodie Zakaluk, our CFO; Charles Falck, our Deputy CFO, who's going to be taking over from Mel when she retires at the end of the year; Steve Ford, our Global Head of Distribution; and of course, Rajiv Jain, our Chairman and CIO. If we can go to the next slide, I'll give the highlights of our financial results. We had a very strong first half of the year. We saw net flows of $8 billion that brought our funds under management at the end of June to $172.4 billion, a record for us for quarter end. And I note that as of yesterday, our funds under management was estimated at $171.3 billion. Now that's an estimate because we don't have final numbers yet, and they're not audited. But as you'll note that our FUM as of yesterday, was quite close to the record FUM that we ended Q2 with. Net revenue for the period was $403 million, an increase of 11% from the year ago prior -- same period. And net operating income grew 12.3% to $306.8 million. The Board has declared a dividend in the second quarter of USD 0.0356 per share, a 90% payout ratio of our distributable earnings. If we go to the next slide. As you know, I always say that this business begins and ends with performance. And obviously, in the short term, we've had some challenging relative performance, but the good news is that over the long run, our inception to date numbers remain very, very strong. Our risk-adjusted numbers remain very, very strong. And as we'll get into in great detail here, these are markets where we expect to underperform markets. And we say as much to our clients, our clients have those expectations as well. And I think this explains largely why the business has held in as well as it has, given the headwinds and relative performance in the shorter term. If we go to the next slide, you know that I always like to be judged by what we call our operational value added. I think that you should hold me to account and our team to account for how we add value to you as shareholders as compared to a static GQG. And as you can see, again, over the long run, I think we've done a fine job of adding value to the tune of $122 billion between flows and excess returns. Again, in the shorter term, you see, of course, the headwinds from the short-term relative performance. But I'm very confident that our portfolio positioning, which is very intentional for the market that we're in, will position us well to continue to add value, both from investment returns and continued value added to distribution over time. So if we go to the next slide, I will provide a few highlights from the first half. First of all, again, just to reiterate on performance, all of our 4 primary strategies are ahead of their benchmark from inception to date and have top quintile Alpha and Sharpe ratios since inception. 10 of our 14 mutual funds carried Morningstar Gold ratings. In terms of distribution, we remain a top 10 active mutual fund family ranked by net flows, and we are the top net flow earner for global equities in Australia. Our uses complex ended the period with over $8.5 billion of assets, an increase of 6% since the end of the year. Strategically -- I'm going to hand to Charles here in a minute to talk a little bit about a new product area, our launch of our first ETF. But I want to frame it to recognize that one of the strengths of this business has been very broad operational infrastructure that the team has built, that's enabled us to be active in many markets and many different fund structures. One of the -- clearly the fastest-growing parts of the market in retail is retail separately managed accounts and actively managed ETFs. We've had retail SMAs for a couple of years now. And in this period, we launched our first active ETF. And Charles will walk you through both sort of the market statistics and the reason for our launch into that market. So with that, Charles, I'll hand to you.

Thanks, Tim. If you switch to the next slide, please. Starting with retail managed accounts. I want to just touch on the industry trends, as Tim mentioned, and how we leverage that over the course of the last 3 years. So on the left-hand side, you see the chart of the historic development of that particular segment and how it's forecast to grow. As Tim mentioned, we launched retail managed accounts in the summer of 2022. And currently, that business has grown from $0 to $7.4 billion over the course of 3 years. We were able to leverage an existing operating model and infrastructure to expand our business and add this to an already, what I would argue, is a broad lineup of Australian managed funds, Irish UCITS and then domestically in the U.S., mutual funds as well as collective investment trusts and private funds. So it's an extension of that sort of product lineup that we were able to do without significant capital expenditures or investments or a change in cost structure, but really helped us address a retail segment and sort of benefit from this growth trajectory. If you switch to the next slide, similarly, but more recently, we launched our first active ETF. I think we're all aware of the attractiveness and growth that ETFs overall globally have experienced. But as Tim highlighted, we're focused on the active ETF space, which similarly has gone through strong growth. And with the launch of GQGU, which happened on July 14, we look forward to growing that business and potentially launching future ETFs as well. And the same story really holds here with the existing infrastructure, the existing team, we were able to do that. With that, I'll hand it over to Mel Zakaluk for comments on the midyear financials.

Thank you, Charles. If we could go to Slide 9, please. We're pleased with our financial results for the first half of 2025 in the wake of an environmental volatility and uncertainty. GQG experienced double-digit growth year-over-year on key metrics, including net operating income, net income after tax and diluted earnings per share as a result of 16.8% average FUM growth from the prior year period. FUM growth was driven by $8 billion net flows in the first half of 2025 with the tailwind from equity markets that were mostly positive around the world. GQG's operating margin for the first half of 2025 was 76.1%, an increase of 90 basis points from the first half of 2024, driven by an 11% increase in our net revenue versus 7.1% increase in operating expenses. Slide 10, please. As a result of the strong FUM growth, we saw net revenue increased 11% from the first half of 2024. Our revenue continues to be primarily driven and constituted by management fees, which represented 96.6% of our net revenue in the first half of 2025. During this period of market and relative performance volatility, we said that a high proportion of management fees as compared to performance fees provided a foundation for stable earnings. Our average management fee during the first half of 2025 was 48.2 basis points compared to 49.6 basis points for the first half of 2024, primarily due to a shift in strategy in vehicle mix. Operating expenses increased 7.1% compared to the prior year period, primarily as a result of growth in our FUM and investments in human capital. As expected in the human capital business, we believe the greatest investments we can make in our current team and in attracting other talented people as needed to operate the business and serve our clients. Compensation expense increased primarily as a result of new employee additions. While our sales were strong in the first half of 2025, sales commissions were lower relative to the prior year period as a result of certain planned changes in 2025. Compensation and benefits as a percentage of net revenue decreased modestly to 13.7% from 14.1%. Third-party distribution servicing-related fees are primarily related to the wholesale channel and our FUM-based expense which increased from the prior year driven by higher FUM in vehicles where these fees are incurred. General and administrative costs in the first half of 2025 decreased by $1.6 million as a result of lower professional fees which was partially offset by an increase in middle office fees due to higher FUM and increases in other general business expense, including occupancy fees. Nonoperating income increased $2.2 million primarily driven by a favorable foreign currency revaluation in the current period. With regards to our income tax expense, our U.S. GAAP effective tax rate decreased from 27.4% to 26.44% due to changes in state and local taxes. The net income attributable to noncontrolling interest is a 40% minority ownership of the Private Capital Solutions asset management business by our PCS portfolio managers. Please go to Slide 11. GQG's financial condition continues to be strong with no debt and in excess of $100 million in cash. The primary use of cash is for working capital and dividend payments. Growth in cash and accounts receivable are aligned with growth in revenue. Liabilities increased from the seasonal timing of payment of annual bonuses and service provider expenses. Let's go to Slide 12, please. As noted on the balance sheet, the primary use of cash continues to be working capital and dividends. GQG has distributed in excess of 90% of distributable earnings in the first half of 2025, resulting in $224.1 million in dividends paid during the period, which is a 33.6% growth rate from the half year 2024. Now Steve will take us through performance and distribution update. Steve?

Thanks, Mel. Operator, if we can start on Slide 14. I appreciate the opportunity to update everyone on performance as well as the asset base and flows. But before we dig into that in a bit more detail, I actually want to start with our investment philosophy because I think this is key to understanding performance both when we outperform and when we underperform. And we talk to clients about our philosophy investing as forward-looking quality. And I can talk to you about it for a long period of time, but to boil it down in summary, I would say forward-looking quality is all about compounding. It is not about style box investing, whether you're trying to be a growth or value manager. And the underlying point of that is that investors then expect a certain return pattern from us over time. And so any of our long-running sophisticated investors, if I were to ask them, if the markets were to rally 20%, 30% quickly in a short period of time, would you expect our strategies to outperform generally. And of course, they would love if that was the case, but most of them would say, no, we would not expect you to outperform, and they do generally expect us to outperform in periods of market weakness. So this aligns with our more adaptable compounding-focused, higher-quality overall strategy that we bring to market. So it's important to understand what investors are actually sold and educated on when they purchased our strategies, which will give you a good understanding of what their tolerance is for underperformance on a go-forward basis. So as I take you through the performance metrics, I think it will give you more context. Let's move to Slide 15. So this is a look at very shorter-term performance, that Tim highlighted earlier, on a 1-year basis as well as our inception-to-date performance. And this looks at it relative to benchmark and relative to peer group. And of course, the shorter-term performance, you do see some headwinds. But despite that being included in the longer-term performance, we're still amongst the best performing managers in the world. And I would remind everyone that you don't have to look very far back in our history, to find very similar periods of 1-year underperformance. And investors who stuck with us through those times have generally been rewarded over the longer-term periods for buying us or sticking with us during periods of underperformance. Let's move to the next slide. Of course, the shorter-term period of underperformance versus longer-term periods of outperformance, it's important to look at that from an element of persistency. And these graphs give you the rolling 3- and 5-year persistency of outperformance by each of our 4 core strategies. And what you see is that you're talking about 100% or very high 90 percentiles in terms of outperformance relative to benchmarks in all of our strategies. And as an allocator, it's very hard to pick which strategy is going to outperform, when on a short-term basis. And I have another visual that will help you understand that. But it's those longer-term numbers that really drive both new allocations as well as ability to retain assets. Let's move to Slide -- the next slide, please. Risk-adjusted returns, and I think the point here, many of you have seen this before, we like to show this northwest quadrant picture. The important thing here is to realize this is including the 1-year number that where we just underperformed. So despite that, if you're an allocator looking on an intermediate to longer-term basis, on a risk-to-reward standpoint, these strategies look extremely compelling. Let's move to the next slide. And this is a new visual I wanted you to take a look at. And so this is taking a look on the x-axis at market relative risk or beta. And on the y-axis is taking a look at risk-adjusted returns, alpha. And the blue dots are every 1-year period for those strategies. And I think it's fair to say there is a good amount of noise in the 1 year. So the dots are kind of all over the map. And then if you go to the 3-year numbers, the gold dots, it starts to narrow in. And then if you go to the 5-year picture, the green, it really focuses in on the northwest quadrant. And so again, if you think about it from the allocators perspective, if you think about it from what the performance pattern expectations should be around our strategies, helps give you a picture of what clients are experiencing relative to expectations. Let's move to the next slide. That, of course, translates into other risk-adjusted return rankings and different ratings like Morningstar. We always want to share these. We continue to have strong both Star ratings and Medalist ratings, as Tim highlighted earlier. Next slide. Let's look at the asset base and flow base picture. So not a lot of change now in client diversification, whether that's by region, strategy, our channel. Flows continue to be dominated by North America, given the size of the market. But we also see a lot of bright spots in other areas, in particular, our wholesale business in EMEA. Next slide, please. And so let's try to break down those flows just a little bit more. First half '25 actually saw some redemption pressure moderating in the institutional channel and continued strength in the wholesale channel. And to give you a sense of what impact flows may or may not be having on those channels with near-term performance, obviously, if you're following along, we posted an outflow number for August already. But what we're seeing in the institutional channel is those decisions if there's redemptions are really largely, at this point, not based upon performance, it's more about structural changes that may be occurring in a mature client base where there's changes to programs, asset allocations, consulting, actuarial, a bunch of other things that can have influence. Not to say that shorter-term performance doesn't pose a headwind. But allocators in the institutional channel are typically very long-term focused and very focused on understanding whether underperformance is expected in a given period of time relative to style and strategy. The wholesale channel, where we've had continued strength, you are more likely to experience short-term flow headwinds because of shorter-term performance. In particular, if the client is a newer client where they may have just had an entry point with us and may experience some of that. So there's a bunch of positives and kind of offsetting negatives in our flows right there where I think we have a lot of strength continuing in the intermediary or wholesale channels. And institutional, I think will continue to be kind of mixed based upon some factors in and out of our control on a go-forward basis. Let's move to the next slide. This shows that strength that's continued in first half of '25 for our wholesale business around the world. And I think what excites me about that is there's huge market penetration opportunity that remains here. There's many platforms where we either are not on today or we're just getting on. And in particular, with the SMA business that Charles mentioned earlier and now the ETF coming behind it, there's wide open greenfield there for us to get new product approved, to open new sales pipe that we'll be able to capitalize on. So obviously, it takes time to continue to accelerate some of those new platforms, but our headroom to grow is extensive in this channel. Let's move to the next slide. And as always, for this audience, I want to make sure that we highlight our Australian efforts. And while 1 half '25 is a little bit slower than some of the prior periods, that's much more a function of what we see as broader Aussie equity flows. If you look at the last 3 years, we still maintain the #1 net flow position relative to peer groups and feel we're in a particularly strong position to capture flows as they exist on a go-forward basis. So next slide. And finally, I'll simply end with one of the things that we take pride in, and which also I believe to be quite a leading indicator of our ability to capture flows is the amount of work that people are doing to review our firm and our strategies. And so this takes a look at eVestment, the largest database of investors and their activity in that database and our strategies relative to our competitors. And of course, you can see we kind of dominate the views by investors in this. And so I think that means that our client base is extremely engaged with us. We are seeing green shoots despite some headwinds in certain areas with short-term performance. So as that turns and as our performance is likely to experience a mean reversion, if that occurs, I think we're in a very strong position to capitalize on flows on a go-forward basis. So with that, I'm going to pause. I'm going to turn it over to Rajiv Jain, our Chairman and Chief Investment Officer, to give you some thoughts on current markets and portfolio positioning.

Thanks, Steve, and thanks, everybody, for joining. Obviously, the -- particularly the second quarter has been disappointing. However, I think it's important to put the performance in sort of bigger picture context. So we've always said that there are 2 types of market conditions where we are likely not to do very well. Number one is when the markets are very frothy. And number two is when they're very cyclically oriented. So if you go back to 2021, second half of '21, we underperformed almost by a similar magnitude in the second half, particularly last quarter. If you go back to earlier periods of over my career, you've seen similar performances or underperformances when the markets are very frothy, going back to the '99, for example. So the second part of this is the underperformance can be broken up into 2 types of underperformances. One is where the stock picking has been bad and you've kind of been bleeding slowly performance-wise over the long run. And the second one is kind of much more conscious decision to pivot the portfolio, which we feel is necessary part of a longer-term sort of better downside protection. And we feel it's very different to have underperformance because the first one versus the second one, because the second one, we can easily pivot back into other areas, which we have done from time to time depending on the conditions. And having lived through the dot-com bubble and some of the other ones, we feel this one is actually dot-com on steroids. I mean if you look at the valuation parameters like information technology as a sector, which is almost 1/3 of the -- a little more than 1/3 of the S&P and meaningful part of the emerging markets and other indices. On a price-to-revenue basis, today, the valuations are, in most cases, almost 2x, the valuation we saw at the peak of the bubble. So anybody says that we might be 2 years too early, we're basically saying that this bubble would be maybe more akin to what happened in Japan, which is kind of really extreme scenario, not to mention that conditions are hardly similar. The second part is that if you look at the underlying economic conditions, we feel they already begin to soften in so many different areas, and you've seen that. The third part is the focus on earnings revisions or earnings growth. If you look at what happened in 2000 or 2007, the more recent ones, and a bunch of other sort of similar periods, earnings almost always lags. In fact, if you go back to 2000s -- 2000, earnings revisions kept -- were positive until almost September, October 2000, while the NASDAQ was already down more than 1/3 because our view is that the underlying conditions are far worse in terms of revenue being generated because of AI. I mean looking at under $50 billion cumulative outside the infrastructure build out. And not to mention, there's a massive competitive intensity in the hyperscalers. So it's hardly a monopolistic position that we have seen or that we were seeing in '99 and in 2000 where Microsoft, for example, in '99, grew earnings at 70%; revenue was growing at 30%. It was a true legitimate monopoly. And now you have companies like Oracle actually undercutting pretty aggressively, and they have said specifically between 35% to 40% price competitiveness versus some of the hyperscalers. You've already seen signs of slowdown in AWS, where the margin decline was more than 500 basis points last quarter -- so -- on the AWS side. So we feel that you already begin -- you're seeing signs of cracks appear in so many different areas. And the problem is that these things are notoriously difficult at times, so they could be entirely be very early. But the other side of the mountain, the sell-off can be pretty sharp and swift. If you look at the examples, whether it's 2007 post [indiscernible] or the dot-com bubble or some of the other environments like emerging markets in '94, I mean the sell offs can be very, very swift. So our view is that we need to stick to as a fiduciary deliver to what our core proposition is, which is a better risk-adjusted insurance over the long run. And we feel that we ultimately will get paid for that. In the meantime, the portfolios are actually compounding at a fairly steady rate of sort of high single digits with the fairly attractive dividend yield. So it's not that the portfolio is not growing, it's portfolio is growing, except we are not buying what we feel fairly cyclical earnings team, so a lot of check names. Tim?

Thanks, Rajiv, and thanks, team. I think we can now open it up for Q&A.

[Operator Instructions] Your first question comes from Nick Nicholas McGarrigle with Barrenjoey.

I think we can obviously appreciate the discussion around market positioning and the view that you're expressing through the portfolio. And maybe just a question around the client understanding appreciation of that. We've obviously seen some outflows of late, but just some client perceptions on that and kind of a view on how much they understand that message?

Yes. Nick, look, I'll take the first sort of high level of that and then Steve can add to it. But look, as Steve's comments, we're getting at, we do a lot of work to condition clients that these are the frothy markets like these. And as Rajiv said, this is as frothy as we've probably lived through. We -- client should expect us to underperform on a relative basis. And so I think clients expect it of us. Now that doesn't mean that clients are always happy with it. And I think that where you're seeing the outflows will tend to be clients who are maybe newer with us, maybe have less of a relationship with us, maybe entered in a period where they've experienced absolute loss in their portfolio. So those clients, I think, are greater or more at risk. But for the vast majority of our business, I think the clients really do understand what we're doing. And when we have the opportunity to explain the portfolio positioning, I think clients really appreciate the rigor with which we are positioned and the fact that it's different from many of their other investment managers or in fact, than their passive exposure they may have in the S&P. So I think, Nick, that where we are today, I feel pretty confident that clients understand positioning, are not surprised by it even if they're not thrilled with the short-term performance.

Yes. I agree with all that. And certainly, our communication strategy has been to be extremely proactive and present with clients on this. And we were communicating the positioning prior to our last quarterly client investment update. But certainly, in that update where there are literally thousands of people who register either attend the live or attend the on-demand version, this was rolled out in great detail, and there's been several follow-on communications both formal and informal with the client base across channels. So I feel really confident that our messaging is out there to them about what and why. And I think, by and large, most of them agree with the positioning, but it does -- over time, they expect it to work.

That's helpful. I mean there was a bit of compression on management fee margins. Just -- is that just a pure mix shift? Or is there anything we need to consider in terms of the -- I think it went from 50 bps down to kind of 49. Anything to think about on that side?

Yes. It's just pure mix shift, Nick. Increased SMA in the U.S. equity strategy as a percentage of the total assets.

Your next question comes from Scott Murdoch with Morgans Financial.

Just firstly, just a little bit more around, I guess, the -- on the client side, obviously, really diverse base across channel and client sets. But can you maybe just give us an idea of concentration or diversity around the asset consultant side of the business. Obviously, you've been strong there in early days. Just an idea of how much FUM is, I guess, tied to decisions of certain asset consultants and what the concentration might be of those consultant decisions?

Yes, Scott, look, we haven't provided exact numbers, but what I'd say is we have a very broad support from asset consultants. If you go all the way back to our earnings roadshow, we -- I think we had 9 of the top 10 and 20 of the top 25 asset consultants in the world supporting us. And so it's a pretty broad base. We have -- certain consultants are obviously larger than others. But I don't view any one particular asset consultant as being -- providing a client concentration risk. And I would say that of all of the clients -- to the question, Nick asked just a second ago, the asset consultants, more than anybody, truly understand the positioning of the portfolio and the expectations that these are periods where we would have relative underperformance. So I don't view that the stretch nature of the short-term relative underperformance puts us at risk with asset consultants. Now look, to Steve's point, we -- ultimately we have to perform. And so you don't have forever. But I don't think we're anywhere near a period where our performance would put us at risk with the asset consultant community.

Okay. And just a second question. Obviously, PSC divisions really at its early stages, but more broadly, I guess, just an update on your thinking around or intentions to leverage your strong distribution, operational infrastructure that might not be necessarily through PCS but other intentions to bring on other teams or the like and expand the diversity of the business. Can you just update there?

Yes, yes. So I think, look, right now, my view is that we need to be hyper focused on communicating clearly with clients, making sure the portfolio positioning is right. I'm not looking for distractions of M&A of any sort. As we always say, I want to know what's going on. I want to be aware, and we want to be nimble and reactive. I think the point that Charles was making earlier in the presentation is the important one here. So the leverage -- we can leverage this in both infrastructure and distribution capability that we have with other product sets that are within the core strategies that we run today, and that's the way we're choosing to leverage, the infrastructure and distribution today. And I think that there's really very significant upside on a 3-, 5-, 7-year basis to continuing to drive both active ETFs and retail separate accounts. So I'm very excited about that, that we can just do from an organic standpoint and with very little risk and no distraction to the business. PCS continues to go well. As we've always said, it's not going to have a material impact on our financials, but the team is performing well. They've added a couple of portfolio companies to the portfolio, continue to bring on new legitimate partners. So I'm very, very pleased with what we've been able to do there, albeit in an immaterial way from an overall financial picture.

Your next question comes from Shreyas Patel with UBS.

Two questions from me. Firstly, just on the performance fees, which are obviously coming through a bit stronger. Is there any color you can give us around the look-back period around those?

Shreyas, look, as you know, we don't give the details of our performance fee structures. And so I don't have any comments that I can give that would be at all useful right now. But like I've always said, I think that we should assume that performance fees are low to mid-single-digit percentage of overall fees. Obviously, in a year like this where performance has not been a strong on a relative basis, you would expect that, unless our investment performance comes back, we wouldn't have as much contribution in the go-forward period for this year-end.

All right. Second question, just on your headcount growth, if I sort of back [indiscernible], it looks like you added kind of mid-single-digit headcount during the half. Just keen to hear about what the outlook for that is? And if there's any further areas where you need to be adding investment in head count?

Yes, Shreyas. So I think we've added 7 people year-to-date to the team. And look, I would assume that you have similar, very low-level headcount growth. Where we see opportunities, we will make investments, as we said before. The good news is that almost all of our headcount growth these days is with more junior staff, so it's lower cost headcount or it's in a specific opportunity where we see a real opportunity to go drive revenue with something. So in terms of infrastructure and core business, I don't see -- certainly, I don't see a meaningful expensive headcount. But we're always going to be -- we're super disciplined about expense growth. As you know, you can see it in the margins. We're obviously super disciplined in periods where we're seeing less robust FUM growth. And we will invest if we really believe that there's a return on investment, but we're very disciplined in that.

Your next question comes from Julian Braganza with Goldman Sachs.

Just the first question on the sales commissions. Can you maybe just clarify what changes were made to the sales commission plan that led to the reduction in sales commissions you're flagging there? Just interested to understand if this will have any impact on new flows and just how the structure has changed?

Thanks, Julian. Yes, we don't comment for competitive reasons on the structure of comp specifically. But what I'd say is that I think our sales team feels very, very good about the way they're compensated. I do not expect any of our compensation structures to have any negative impacts on selling or client service. I think the team is hyper-focused on -- both on service and on selling right now. So no, I don't see anything -- any negative impacts with respect to sales comp.

Okay. Great. And just the second question, in terms of the investment performance, has this started to flow through the long term? So you flagged the lower long-term incentive compensation. Is that a reflection of the weaker performance coming through the expense numbers? Or should we see more benefit come through into -- depending on performance into the second half? That's the first question. And also just in terms of just the investment team, has there been any changes to the investment team given the performance pressures and impacts on compensation?

So I'll take those in reverse order. So in terms of the team, no, absolutely no changes to the team. I think we're very pleased with the work that the team has done. And to be clear, we believe very strongly in our portfolio positioning. We believe that our clients will be rewarded for the way that we're invested right now, and we're extremely happy with the quality of the work of the team. And I've said this in past periods, we have to be careful when projecting out how compensation works because you can have periods where the performance may not be there, but the quality of the work is quite high, and you still pay people well. And you may have periods where we get exceptional performance, but we don't feel the quality of the work really drove that performance and so people may not get paid well. So it's not as tightly tied to either investment performance or flows. We are much more qualitative in the way that we think about the overall formulation of compensation for the team. In terms of how that impacts, I'm not sure that I fully understood your first question, but if you're asking whether we're seeing that in the expense line item related to compensation. I don't believe -- I can say definitively, we have not changed the expense line in compensation, for example, in the way we accrue for bonuses based on investment performance.

Your next question comes from Elizabeth Miliatis with Macquarie.