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

Thank you for standing by, and welcome to the GQG Partners Inc. 2025 Full Year Earnings Release Conference Call. [Operator Instructions]. This call will contain forward-looking statements, including statements of current intention, opinion 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 the 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 of the likelihood or fulfilling of any such forward-looking statements, whether expressed or implied and except as required by applicable law or the ASX listing rules, 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 such part of the recordings available to the public without the prior written permission of the company. I would now like to hand the conference over to Tim Carver, CEO. Please go ahead.

Thank you, and thank you, everyone, for joining us for our 2025 full year results earnings call. We're thrilled to be here. As always, I'm joined by my partner, our Chairman and CIO, Rajiv Jain; our Chief Financial Officer, Charles Falck; and our Global Head of Distribution, Steve Ford. If we go to the second slide for our financial highlights, you will see that we had a solid year in 2025. We ended the year with just about $164 billion in funds under management, an increase of just over 7% from the prior year. If we actually update that to the end of business U.S. markets yesterday, we ended internally unaudited, we ended right around $172 billion, which is right on top of our record FUM for this business, which we achieved 6 months ago in June of 2025. So the business from a funds under management standpoint continues to be very robust and very resilient. For the year, for the 2025 calendar year, we had net outflows of $3.9 billion, offset by $14.8 billion of assets driven by investment performance. Now the business continues to be very well diversified across 4 major strategies and with large books of business geographically dispersed and across a number of different product types, both retail and institutional. For the year, we saw net revenues of $808 million, an increase of 6.3% from the prior year, net operating income of $622.5 million, an increase of 7.6% and net income of $463.3 million, an increase of 7.3% from 2024. The Board has declared a fourth quarter dividend of USD 0.0365 per share, which represents a 90% payout ratio of our distributable earnings, consistent with the third quarter 90% payout ratio that we announced last quarter. We're going to start this presentation with Rajiv giving an update on our performance and our investment environment, and then I'll bring back -- I'll take back over to talk a little bit more about the business after that. So Rajiv?

Thanks, Tim, and thanks, everybody, for joining. It's been quite a fascinating year. That's the best way I would put it in context of what's happening in the markets and obviously, geopolitically. But I think if you switch to Slide #4, I think what we're talking about is that there's been a clear shift towards cyclicals, particularly AI-driven theme as such over the last, just over 2 years. And as you know, we had significant exposure to those very names, but being disciplined to generate longer-term returns, we start cutting back in the second half of '24 and very aggressively first quarter of 2025, which obviously, in hindsight, was a little premature. However, having lived through some of these cycles, and I think it's fair to say that either you're early or you're late. It's very hard to time these cycles. Problem is that if you look at the underpinnings of the whole AI theme as such, we feel the underpinnings have gone progressively worse, not better. We continue to work on this theme, not just with our traditional analysts, but also with our nontraditional team. And the data points are actually quite startling in a negative way. Now the other aspect is that if you -- despite the fact that global unemployment numbers are creeping up, I mean, looking at 3- to 5-year highs in vast majority of developed countries, a significant part of emerging markets, too, including China, the defenses as such are actually fairly attractively valued. And as you can see on this page, the first -- the left-hand side chart, it is actually quite remarkable where the valuations are and the fact that some of the defenses have been underperforming for almost 4 to 5 years now, while you are seeing early signs of green shoots appear across the board. I mean, if you look at the last few quarters, things have gone progressively less bad or early signs of even improvement, but the valuations are not discounting that. Number two is, if you look at the weights in the index, what we do feel that some of the weights in the index of these names are actually quite -- of the tech names and the tech type names, which are basically driven by the whole theme is actually close to 50%, including emerging markets. More than half of the growth was really driven by what's happening on the memory side. And even within tech, as you know, software is finally getting hit. We wrote a piece of paper around 4 years ago is software, the new shale, which, again, we were a little bit early, but had you sold some of the software names then, you actually would be better served because of the dramatic sell-off that you're seeing. The accounting was very aggressive, and we feel some of the similar traits are now appearing on the semiconductor side. But the Max7, not only they are running out of cash. I mean, if you adjust for the stock-based compensation, et cetera, they are actually hitting the bond markets. And FTE had a piece that they will be looking to raise just under $0.5 trillion. Our view is good luck with that. And in the meantime, if you look at our positioning, if you go to next Page #5, what you're seeing is that the software is seeing still buying the tip. One of the questions we get all the time is that the retail desire to own anything that says up, i.e., buying the tip will continue. Our view is that, that I've seen in way too many cycles that happens at the tail end of the cycle, and that's not exactly what will support. In fact, you're seeing that in broad-based software ETF, there's massive call buying as well as inflows. That hasn't really supported the space because once these things fundamentally change, it will be very hard to maintain those. This is an informed chart, by the way, on Slide #6. I think we sometimes get compared to some of the larger competitors who got hit hard 4, 5 years ago in Australia. And I think the position couldn't be fundamentally different. We have overweight areas that have actually underperformed for 4 or 5 years and are very attractively valued. So we -- this was a conscious decision to pivot into that area. And as I said, having lived through a lot of these bubbles, whether agent property bubble, dotcom and GFC or the housing bubble, you almost have to be early. It's very hard to time these on the exit side. And you're seeing that in software, by the way, most of the growth managers have really struggled to exit those names because they first creep on you and they start melting. And if you look at our positioning, we are essentially overweight consumer staples, utilities and health care in a meaningful manner, not emerging. Emerging, we sell a lot of banks in various markets outside of China. The other -- the flip side is underweight into check. And I think there are clear signs of double triple ordering memory as well as DRAM, NAND as well as DRAM. And I think those things typically happen at the tail end of the cycle. There are clear signs of double triple ordering. By the way, that's perfectly normal. And I'll just start by saying that if you look at companies like Micron Technology, it was at the same price -- absolute price point last year as it was in year 2000 when they had fire-driven shortages. And if that is not cyclical, I don't know what defines cyclicality. So our view is that this is kind of very, very late in the game. Vast majority of folks would have tough time exiting, not to mention some of the names may actually go -- the names that we may actually go up because there's a way too much capital that will leave. I mean, if you look at NVIDIA, that's almost 8% of the S&P. If you look at cumulative energy plus utilities, that 5%. And that's trillions of dollars invested over decades. So when -- it may be easier to sell NVIDIA, but we're much more hard to get into some of these names. And in the last few weeks, again, it's very early days. I don't want to take victory laps here. But I think you would see that the upside pressure on these names could be quite interesting, especially very similar to price action that we're seeing as we saw in the second half of 2000, early 2001. Tim?

Great. Thanks, Rajiv. Let's move to Slide #8. And if we look at Slide #8, what I want to make sure everybody understands is, why is it if we look at the relative underperformance of our strategies over the course of the calendar year, why is it that we sit here today at near record levels of funds under management? I think that what really explains that is the way we position ourselves to prospects and to clients, the way we talk about our strategies with asset consultants, we always tell people that our objective is to outperform over a full market cycle by a couple of hundred basis points with lower volatility, protecting better on the downside and that we won't participate in runaway markets. And I think what you're seeing here is clear acknowledgment that our clients aren't expecting us to keep up, and that explains a lot of the reason why we haven't seen more significant outflows given our relative underperformance. If we look here on Slide 8, what I've highlighted here is that our promise is that we are going to do our best to try to deliver high single-digit, low double-digit rates of return over a full market cycle. As you see here, that's exactly what we've done and what our client experience has been. The other key point, if we move to the next slide, is that our business is extremely well diversified. And while the headline numbers and the headline news is highly focused on the U.S. equity market, what you see in our book of business is that nearly half the business, over $70 billion is in an international equity strategy that did north of 20% returns last year. So it's not a surprise that clients aren't leaving us when they've done 20% with us in the $70 billion book of business. And if you add EM alongside of that, that's over $110 billion that did better than double-digit rates of return. And while, of course, we didn't keep up with markets, I'm not suggesting we did. We're not likely to see catastrophic changes to the business or outflows when we have solid returns like this. Again, if you look at the U.S. equity strategy where our relative performance is most weak, it's the smallest part of our business, and I think, again, explains why the assets continue to hold up. If we go to the next slide, as Rajiv alluded to, inflection points matter. And so the other key point that I'd make here is that in the short term, performance has been quite strong. Even though markets haven't -- markets have been effectively flat for the past quarter, we've gained back quite a bit of what we gave up in the prior year, particularly on the developed market side here just really in the past 30 days, again, against sort of flat markets. And so we can see that we can gain back performance just as quickly as we gave it up. And I think that's why we see the clients stick with us and not reacting to short-term performance as long as we continue to deliver the way that they would expect us to deliver consistent with the philosophy of our strategy. If we move to the next slide, I just want everybody to see what it is like -- what the client experience is like at GQG. And what this shows is, had you been a client from the beginning of when the strategy since inception, you not only see solid returns, you see that even with the relative underperformance of last year, we're still at the top of the top quartile for that client experience. So for almost all clients with the exception of the most recent clients that came on Board, the client experience has been quite positive. And again, if we go to the next page, you see it again. Here, what you see is all 4 of our core strategies, if you pick any date in time where you have a 5-year return available to you in almost every single rolling 5-year return period across all 4 of our strategies, we've outperformed. So there's been a tremendous persistence. So the point of this is that the business is resilient because the vast majority of client experiences on a 5-year basis has been positive relative to the market. So when you add all of these things up, the very diversified book of business, the long-term consistency with our philosophy, the way that we communicate with our clients and the absolute returns over time, I think this explains why we continue to have very solid, very robust assets in the face of short-term underperformance. So with that, let me turn it over to Charles, who can walk us through the financial results for the year.

Thanks, Tim. If you'll switch to Page 14, please, I'll touch on the financial highlights and then go into a little bit more detail around the income statement. So as Tim mentioned, we closed out the year at $163.9 billion in FUM. Average FUM was actually higher at $164.3 million. That's a 10.8% increase over the prior year. And that's really what drives the net revenue figure of $808.3 million over $760 million the prior year. We continue to show extremely strong operating income as well as net income. Both of those grew 7.6% and 7.3%, respectively. You see the progression of net revenues in the bar charts on the bottom left, which indicate a compound annual growth rate of about 11%. And then the profitability, as shown by the line in our operating margin. We increased our operating margin, which is already high from 76% to 77%. So I think very strong financial performance. And if you switch to the right side of the page, we continue to pay out high dividends for the year at $439.3 million as a result of, as Tim mentioned, a 90% payout ratio on distributable earnings, which have also increased to $477 million. Illustrated on the bottom is our growth in net income as well as the diluted earnings per share of $0.16 per share. With that, I'll move to the next page, please. for a little bit more detail on the income statement. You see how revenue is composed of management fees and performance fees. Management fees, I touched on earlier. We experienced a small decrease in fee realization from 49.6 basis points down to 48.4 basis points. That's a result of a mix shift that resulted in vehicles with lower fees as well as strategies with slightly lower fees, driving management fees. On the OpEx side, we managed those very prudently. We're able to reduce general and administrative by $6.2 million or 14% by having a prudent approach to projects and management of operating expenses. And if you look at compensation and benefits, while that increased $4.9 million and 4.9%, average headcount for the year actually increased more. We went from 212 average headcount in 2024 to 240, which would be a 13.2% increase. One other item that I'd like to highlight on this page is our income taxes went up as a result of obviously higher and continued strong profitability. The effective tax rate moved only very little, but up from 26.5% to 26.7%. That's where we would expect the effective tax rate to be. It's been range bound since 2022 between 26% and 28%, so within that range. Moving on to the balance sheet. There's not that much to note there, very strong balance sheet with high cash balance that's used for working capital as well as the dividend payout, which I'll get to in a second. And then the deferred tax asset, which was created at our IPO, and we continue to depreciate over time. One other thing of note is that we did not have any debt outstanding at the beginning or during or for that matter at the end of 2025. Moving on to Page #17, the dividend payout. Tim mentioned this $0.0365 per share was declared by the Board earlier today. That's equivalent to an aggregate payment of $108 million in total dividend for the fourth quarter and continues to represent a 90% dividend payout ratio at 90% of our distributable earnings. With that, I'll turn it over to Steve for the update on distribution.

Thanks, Charles. Appreciate that. If we can move to Slide 19. I just want to circle back to a couple of the points that Tim made and try to give you the view from the front lines of how we talk to clients and how we set expectations and what I think ultimately leads to some of the resiliency in the client base that Tim and Rajiv have both alluded to. And the first thing that we talk about when we talk about our style of investing with clients is what is the expectation that you should have for returns. And over the long term, we want to beat the benchmark over a full market cycle. But we do that by delivering high single-digit, low double-digit compounding. And that comes out of every client-facing person's mouth at GQG Partners over and over again. And so what I put on the right-hand side of this visual is just zooming out just a little bit past the very short-term performance that people get focused on to look at a 3-year number. And you'll see our worst strategy compounded client capital at 13% annualized, which I think most all of them would have taken beforehand. And if you would have also asked the clients and said, there's going to be a market where the index is going to compound at 23% annualized, what do you think the likelihood of GQG outperforming in that market is? And I think most of them would have said that that's not a high probability event at all that we don't tend to outperform in runaway in frothy markets. And so what I think that you're seeing here is part of the reason why there's resiliency in the core client base. And we put on the bottom of this just those same numbers rolled 1 month forward to the end of January, not even incorporating what's happened so far this month. And you already see that picture improving on both an absolute and relative basis. And so this can actually move around relatively quickly when you're a high-tracking error manager. And I think it's why clients are going to be paying very close attention and be very thoughtful about maintaining long-term exposure to what we do. So let's go ahead and move to Slide 20. And the reality is it's not just about excess return. It's also about risk-adjusted return. And so when you look at this over most periods and certainly over the longer term, our risk-adjusted returns, the picture gets better, both against the benchmark and absolutely better against the peer group. And so that is -- it's those kind of things in common with the rolling returns that Tim showed before that all lead to that client experience. And again, I think part of why there's resiliency in the client base. Let's move to Slide 21. It's worth spending a little bit of time here more than we usually do talking about the diversification because I think as Tim noted, it's easy to think of this as a very, very siloed type of business. But the reality is -- or just looking about it through one investment team. But the reality is that the scale that we've achieved, the number of strategies we have, the geography-based diversification, the channel-based diversification, what you end up with is hundreds of thousands of individual client entry points with different rationales for portfolio construction over different time frames that will be correlated in their decision-making, but ultimately quite idiosyncratic and diverse. And when you put on top of that, what's going on, the divergence between, say, emerging and developed markets or ex U.S. markets, suddenly, you get a very distinct set of decisions being made across thousands and thousands of different investors. And certainly, some of them will be correlated in their decision-making. But again, it's just part of why it's much more complex than looking at a 1-year performance number. Let's move to the next slide. So let's talk about -- let's talk about flows. So we publish flows on a monthly basis. So I don't think there's any surprises here. As Tim talked about, we saw some outflows in the back half of the year. And I can tell you from the front lines, what we're seeing largely is clients reacting to shorter-term performance. And of course, we try to educate every client that we can on the front end that that's not a way to think about investing with us. But inevitably, some do, some have lower thresholds for pain. And we can't help every one of them make great decisions about entry and exit with GQG. But what I don't see is any deterioration in the -- what I would call the pillars or the foundation to our distribution strategy and our client retention strategy. So if you think about platform access, if you think about platform ratings, if you think about consultant ratings, et cetera, all these kind of core things that are the cornerstones for the leverage that exists in our distribution. As of today, those all remain solidly intact. So let's move to the next slide. We've talked a lot over time about our wholesale channel. Obviously, it's been a huge part of our growth over the last few years. And what I would say today when looking at the wholesale channel is at no point in our history have we had more access to platforms around the world than we have today. So over the course of '25, we continue to add product to different platforms, different strategies to platforms that we already do business with, et cetera, et cetera. So it doesn't matter what geography or you're looking at, that's been the case. And so while that's not going to stem near-term outflows from short-term performance, what I do believe is that as that picture improves, we're in the strongest position we've ever been in the wholesale channel to create growth when the opportunity presents itself. On the right-hand side, you'll see some thumbnails of actually content that we've produced. So if you follow along with us on our investor website, you will have noticed that our content strategy, I believe, continues to get better. And certainly, the quantity continues to go up. And in an environment where we do have short-term underperformance, and we know that clients are paying close attention to that, it's extremely important that we deliver transparency and insights about how we're investing and why. And as I always say, there's really 2 reasons that people do business with us. The first is performance and the second is insights. And so I think the feedback that we've received on the insights that we've delivered about the markets, about why our portfolios are positioned the way they are, has been extremely good, and it's a very important part of our overall client retention strategy. Let's move to the next slide. And I'll finish with this. This is on the back of the strength that we just talked about in our wholesale channel and the access that we have available. This gives you the sense of the attention that we're commanding in the institutional channel by looking at eVestment Alliance database, which is the largest global database of institutional investors, you'll see that we are essentially the #1 most viewed manager in the world across the strategies that we manage. And so again, I think that just shows you that we're commanding the attention of investors. We have a very deep and robust client base. And as the performance picture improves over the short and intermediate term, I think our ability to capitalize upon that remains as solid as it ever has. So with that, I'm going to turn it back over to Tim.

Great. Thanks, Steve, and thanks, team. I think we can open it up now for questions and have a dialogue with shareholders.

[Operator Instructions] The first question today comes from Nick McGarrigle from Barrenjoey.

Maybe just to start with one around positioning happy kind of same markets.

Nick, sorry to interrupt you. We can't quite hear you. Could you maybe get closer to the microphone?

Is that a bit better?

Yes, much better. Thanks, Nick.

Maybe just a question around portfolio positioning in the last 6 or 7 weeks. I guess we've seen software rollover haven't seen some of the defensive necessarily outperform enormously, but just how you think the last few weeks kind of colors your view around portfolio positioning moving forward, presumably taking some confidence from particularly the performance in defense.

Rajiv, you need to unmute.

Yes, Nick. So this is Rajiv. So look, I think if you had asked vast majority of folks, folks like yourselves, the expectations were that if the markets go down, we'll go down, maybe less, right? And our view was this is far more similar to dotcom bubble and the reaction afterwards, which means that the defense is because the gap is so dramatic, they should actually go up, particularly if the fundamentals are fine. And I think what has happened last few weeks because if you look at our performance, it kind of stabilized pretty much end of October, early November, and we have kind of kept up despite the run-up. And I think what has happened last few weeks gives me more confidence that the cracks appearing everywhere. I think the fact that E&Y is now questioning what Meta is doing, the cash flow numbers, Microsoft down, I think, about 1/3. Oracle has completely blown up. And I think it's a very narrow group of deepest cyclicals within tech, which are working. And I think that means that you are seeing classic signs, which is far -- typically happen at the tail end of the cycle. So it gives us more comfort. In fact, I mean, we haven't really changed anything over the last few weeks or even months. And I think -- look, I think the underlying corporate earnings news has been fairly good across a vast area of our names, not every name, but vast area of names. So as the narrowness of the market in terms of what's working within the AI team because even within the AI team, the cracks appearing. So private credit. I'll give you one data point that more than 60%, just over 60% of data centers being built in the U.S. are non-hyperscalers. So the perception that is the hyperscaler doing everything, first of all, is not true. It's actually wrong. The second thing is that NVIDIA has been one of the single biggest investors in AI infrastructure, okay? So -- and the question you have to ask is, if things were so good, why does NVIDIA had to invest another $2 billion CoreWeave, which, by the way, has more debt service and this is the fourth or fifth largest Neocloud has higher debt service than its revenue, okay? So our view is that you are teetering at the edge, you can keep kicking the can only for so long. So we feel pretty good. And I think the market reaction kind of tells you that, that there could be a -- who knows, but you've seen the meltdown in software. We feel it will spread to other areas ultimately.

And then just in terms of conversations with clients, obviously, you may be finding that hard to get through to clients last half year, given everything was going pretty well up until November. Just the tone of conversations with clients in this year and maybe some comments around the January flows were quite pronounced, but is it fair to say that there's some seasonality in the way U.S. investors allocate? So you kind of see a larger than normal either inflow or outflow depending on the momentum in January versus other months?

Yes, Nick, look, a couple of things I'd say. So starting point is if you look at the Morningstar ratings of our products, if you start with international, it's a 5-star rated fund. Global and EM are 4 stars and U.S. is 3 stars. All of them are gold or silver rated. So I think that there's a perception that clients are -- have more anxiety than they do. I think that -- and Steve can speak to this with more granularity than I can even in more meetings, but clients understand where we are. And again, because they don't expect us to keep up in markets like this, they're actually quite pleased with our positioning, particularly just seeing in the short-term performance, how much we're gaining when markets aren't rolling over yet like that's just a really positive performance pattern in the ultimate near term. And so we don't -- none of us anchored in the near term, but as it pertains to the experience that clients have and therefore, the client conversations we're having, I think clients are comfortable. Now look, there's clearly -- we had a lot of momentum in '23 and '24 with particularly retail in the U.S. equity strategy. I think some of that sort of performance chasing you're seeing on the other side on the way out, and that explains a lot of the outflows in Q4 and Q1. There is clearly seasonality. There's no question that January, you've got -- you do performance reviews for the full year. And you're going to have -- it's not at all surprising to me that we had higher outflows in January. And by the way, it wouldn't be surprising to me to see that continue through Q1. But it may take a little bit more of a market meltdown for us to see the outflows stem. But I just -- I'm not worried about meaningful really meltdown in client assets. And what we're seeing is the nice thing about this business and the way we're positioned, the portfolios are positioned is that when we're underperforming in runaway markets, the market return outstrips client outflows. That's been our experience so far. It was last year and continues to be. And then if the market falls, we would expect to outperform pretty materially, which should drive positive flows back to us. So I think we have a countercyclicality here that is very positive in terms of resilience of the business. So -- and you net all that out and where you're at, we're at the highest assets that we've ever been at, plus or minus sitting here as of end of business yesterday.

Great. And just in terms of the seasonality, just I guess the implied outflow rate into the first 8 business days of February looks like around $2.5 billion, scaling it up to a whole month. Just to help us understand, is January typically a more pronounced month, either positive or negative depending on the momentum leading into that because it's a reallocation month for U.S. investors. Just maybe Steve can comment on that.

Yes. Look, I mean, it's hard -- I'd be careful not to generalize, Nick, because like it's hard to say that they reallocate every January. What we do know is that every January, you're going to have a performance review. And so I do think in this case, we are seeing more pronounced January and maybe, again, may extend into February because the reviews happened in January, we're seeing more pronounced outflows based on the relative underperformance of last year. I do think there's seasonality in that, but I would be careful and I hesitate to extrapolate that to every single year. But Steve, you can add your thoughts to that.

Yes. I mean, I think that's generally a true statement, what you said, but I'd be really careful saying that it was exactly what did or didn't happen with our numbers in January. We don't have the granularity to truly know that.

The next question comes from Elizabeth Miliatis from Macquarie.

Just the first one on flows and what you're seeing from a client perspective. Sorry to keep hopping on this. But from the disclosures in your pack, it sort of seems that outflows are pretty broad-based by asset class and channel as well. Is there any particular pockets of weakness? So are you seeing a bit more of that lack of resiliency from your client base maybe on some of the newer clients. And so they have said we've not benefited from stronger performance. So they're the ones taking the money out? Or is there any particular pockets that you can sort of talk to? Is it pretty broad-based as the data might suggest?

Yes. Thanks for a good question, an important question. So if you look at the data, what you see is that, obviously, we've had sort of consistent institutional outflows that I think are not as related to performance. And then you've had near term really only 2 quarters of outflows, 2 quarters now plus a month in the retail side. And I do think -- although we don't have data to prove it, but I do think that this is likely, again, more momentum-driven investors, performance investors are following hot performance that we had in '23, '24 and then reversing here in '25 and beginning of '26. But again, I want to be really careful not to extrapolate too much from that because we don't have the granularity of the data to know exactly which investors come in and out of the mutual funds, which are the largest product type that we have. So -- but I think it stands to reason that that's what we're seeing.

Okay. Got it. And then just on the costs, the cost base has definitely pulled back a bit. Cost to income is, I think, towards the bottom end over the last few years. And particularly, the second half is typically higher just because of the share-based comp, but it's still -- if I look back over the last 4 halves, the cost base is actually quite low. It's the lowest half out of the 4. How should we think about costs going forward? Should we assume a similar sort of cost to income? Should we assume a bit of total cost growth? Like can you give us a bit of a steer on it because it does have quite a bit impact and it's tricky to forecast that out?

Yes. Look, we've not historically given any guidance. What I've said, and I'll continue to say is that while we never target a margin, we're never saying, okay, we want to have a cost-income ratio of 77%. We never say that. You can see it's been reasonably consistent around there. I think that if the business grows, particularly -- I mean, one way to think about this is if -- let's assume we have 0 flows in or out and you had $10 billion of growth in assets through performance. Well, most of that should be subject to -- there are variable costs associated with that, but paying a way to platforms and things like that. But otherwise, all that falls to the bottom line, and that should be margin enhancing, right? I think we are clearly very mindful of managing our operating expenses, but we're also balancing that with being very, very positive about where this business goes and making sure that we are making smart investments for the future. So we did increase headcount. We increased that on average with lower expense headcount, and we're investing in the team and training the team and growing the team, and we'll continue to do that. But I think that from a modeling perspective, the vast majority of our hiring is behind us, where we will hire will be where we see opportunistic great hires that we can bring on and/or where the business grows and we need to continue to support the infrastructure for that growth.

The next question comes from Julian Braganza from Goldman Sachs.

Just the first one. Can you comment maybe just on the recent trends around gross inflows and gross outflows? Just want to understand the relative pressure there across new business and outflows?

Thanks, Julian. Yes, listen, we don't break out gross versus net. We really only talk to net. But I think that the gross trends probably not surprisingly, you're going to see similar types of trends where in these types of markets where we underperform, you probably have less aggregate selling. So -- and I think you can see that reflected clearly in the net numbers.

And just relatively speaking, any qualitative comments, is it more accelerated outflows the performance? Or is it just on the new business side more so? Or is it both coming down pretty evenly?

Sorry, Julian, could you ask it again? I had a little bit trouble hearing the question.

Yes. I was just trying to understand if both inflows and outflows are coming down pretty evenly? Or is there more of an acceleration of the outflows relative to the inflows or vice versa, just relatively speaking, between the inflows and the outflows, which one would be moderating faster?

Yes. Sorry, Julie. So we don't break that down. I'm going to decline to comment on the difference between gross and net right now.

Okay. Okay. That's fine. And then maybe just for the investment team, just interested in any comments whether you've had any turnover in the investment team, just given the weak investment performance, but also the pullback in average comp per person. Just keen to understand any comments around investment team or even in the distribution team.

Yes. There's been no material turnover in the investment team. We have -- we do have a sort of more junior analyst program that is -- people tend to stay for a couple of years. You may see a little bit of turnover that where people don't re-up after that. But the senior investment team is very, very stable. The team is functioning extremely well. Where you see the average comp per employee going to come down, that's not driven by investment team that's driven by the full 200-some-odd number of people across the firm where we are disproportionately hiring younger folks on the team and training them today. I think the team is extremely well compensated. I think we have very positive ratings in terms of people's experience at the firm. So not -- I have no concerns culturally in terms of turnover. I think we're in a great place.

Okay. Let me add a couple of points here. I think the perception in most of the shops after underperforming like this might be that, whether the business arrive or not. That is not the case here. I mean I think this was a conscious decision to position this way. And we still feel we are early, not wrong. And I have been there, done this before. I mean, look, I underperform more than what you're seeing here. And I think this is a specific call made. We didn't accidentally end up here, and we are looking around, gee, we don't know what's happening. So there's actually positive. We're quite excited, by the way. And days like today, obviously makes us more excited, as you might appreciate, right? Because the -- as you know, they're all saying the markets go down in an elevator while go up in an escalator. And I think you're seeing that here. So I mean, look, if you go back to post GSE, post-driven, the biggest trades, whether it's just banks or energy or commodities, I mean there was a commodity -- supposed to be a commodity super cycle or before the dotcom or before the housing -- the property bubble in Asia. So there's a palpable excitement because we have done our work and the data points so far are confirming that, and you begin to see cracks appear in fairly well-held names. So if you take a 3-, 5-year view, the alpha proposition, we believe, could be actually pretty exciting. That's the tempo. It's hardly that, oh, they're going to be team turnover or anything like that. It's actually the opposite.

Got it. That's clear. And then just a final question for me. Is there any discounting any repricing on headline fees to retain at this stage, Tim, at all? Any -- even if it's around the edges, is there any repricing at all?

Sorry, can you ask the question again? We're really struggling to hear.

The line is not very clear. Yes.

Apologies, can you hear me now? Can you hear me now?

Yes, much better.

Okay. Perfect. I was just wondering, can you just also maybe just confirm just any repricing or discounting on headline fees to return even if it's around the edges. I just want to understand if that's becoming a feature at all in your discussions with the clients.

No, no. There's been no changes based on performance to pricing.

[Operator Instructions] The next question comes from Shreyas Patel from UBS.

Just a question on your performance. When you look at the depth of your underperformance and I guess, your own attribution analysis of that, if this AI thesis plays out, would that be sufficient to kind of unwind all of that performance? Or do you feel like there's a large component of that, which is being driven by stock selection versus some of the sector allocation and won't necessarily bounce back if this thesis plays out? Just curious on your thoughts there.

Yes, it's a good question. So look, could the stock picking better? Of course, it could be better. There's always room for improvement. Having said that, I think the -- and sometimes it is not well appreciated that the tentacles of this AI theme go wide and deep. I mean, if you have a lot of industrials, the power generators, for example, in Europe and U.S., if you look at it in some of the industrials in Asia, obviously, Czech, Korea, almost 2/3 is memory, right? So I think we -- not just we wouldn't be able to cover -- we will be able to cover the gap. I think this could be far better because that will -- we believe that this could actually push over the economy in a recession. I mean, if you look at unemployment in France, for example, in Germany, in U.K., in Australia, in Japan is almost always fully employed, but the economy isn't exactly booming. Then obviously, U.S. and Canada, China, that this would push the economies over the edge into recession. And once that happens, a lot of those deep cyclicals are trading at valuations you basically have never seen before. I mean, if you look, for example, U.S. banks, they have not really traded at these multiples on a price to book or price to revenue basis in 25-plus years. I'm talking to the investment banks, right? So I think this will actually roll a lot of things. For example, if you look at the U.S. banks, would they really be trading at these multiples if the IPO and M&A activity stops? Private equity would not be able to exit a lot of the software exposure even other -- and other exposures. So we feel this will have massive implications. So the question is not about 1,000 basis points or something. In fact, you gain 1,000 basis points on an average in some of these -- some of the bigger products we have without the market going down. So our view is that this could be far more significant. So it's a true alpha opportunity over multiple years. That's what we believe. You could be dead wrong, but that's what we believe here and now. So it's not simply cutting the ground. And by the way, if you look over to '21, '22, it took a few months for us to recover. I mean, not that dissimilar gap.

The next question comes from Andrei Stadnik from Morgan Stanley.

Can I ask around your distribution? Can you talk a little bit more about maybe some of the new vehicle launches that you've had recently? And how are you thinking about evolution and next steps in terms of your fund or your vehicle lineup?

Steve, do you want to take that?

Yes, happy to. So I mean, the most recent additions vehicle-wise for us have been in the ETF market in the U.S. as well as what's called CIT product set here in the U.S. as well, which is directed towards our version of what's similar to a super plan in the 401(k) market. And so those are fast-growing areas of the market, and we've seen initial response very positive. It does take a little bit of time for the new products just to build the trading history, the AUM history, et cetera, that gets access to the platforms, but we've seen material additions to platforms in the back half of the year, and we'll hit the 1-year mark for that kind of middle of this year, and that's a threshold for a number of other platforms. So -- and then beyond that, I think we are actively looking at other strategies that have the potential for the ETF vehicle. We already have that in all the CIT vehicles. I think there's always an important investment question to answer as well, though, which is the balance between transparency and capacity in those vehicles. And so that's an active consideration that we'll continue to make. And if the investment team feels that they're comfortable with those vehicles, then we'll look to launch additional offerings as well.

The next question is a follow-up from Elizabeth Miliatis from Macquarie.

Sorry, I had a quick follow-up just again, on the cost side of things. If we just look at compensation and benefits ex the share-based payments, that grew in '25 by about 3% versus average FTEs of 13%. So just wondering what that differential is? And is it just a mix or paying people a few -- a little less bonuses? And is that something we should continue to see going forward?

Yes, Liz, it's almost all explained by hiring more junior or lower compensated people as it's a mix shift. It's not a meaningful shift in overall comp to the existing team.

Okay. Got it. Sorry, I should have probably not asked specifically about bonuses. Just wanted to get a bit of color.

Yes, of course.

There are no further questions at this time. I'll hand the conference back to Tim Carver for any closing remarks.

Great. Well, thanks again, everybody, for joining us, and we look forward to seeing many of you when we're down in Australia in a couple of weeks for our semiannual roadshow. Thanks, everyone. Goodbye.