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

Thank you for standing by, and welcome to the GQG Partners Inc. 2026 Half Year Earnings Release Conference Call. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [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 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, on the ASX Listing Rules to 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 of such recordings available to the public without the prior written permission of the company. I would now like to hand the conference over to Mr. Tim Carver, CEO. Please go ahead.

Thank you, and thank you, everyone, for joining us for our half yearly results. We are joined here by my partner and our Chairman, Rajiv Jain; our CFO, Charles Falck; and our Head of Distribution, Steve Ford. So let's dive right in. And if we can go to Slide 3, please. Provide the financial highlights for the period. We ended the period with funds under management of USD 156 billion. We had net outflows of the period of $15.1 billion, that was offset by about $7.2 billion in returns on our portfolios. We had net revenue of $397.2 million for the period and net operating income of $301.8 million, each roughly 1.5% lower than the same period in the prior year. Our Board has declared a second quarter dividend of $0.0362 per share a 90% payout ratio of our distributable earnings and a slight increase over our Q1 dividend. If we go to Slide 4 for anyone on this call who doesn't know who we are. We're a global equity boutique. We've been around for about 10 years, and we've raised about $150 billion in that period. We tend to run concentrated, highly active portfolios. Our business is defined by a well-diversified distribution capability, well-diversified client assets by geography, client type, vehicle type and strategy. And if you look at the pie chart on the right-hand side here, you can see that we have a highly diversified book of business across 4 core strategies where our international equity strategy represents just under 50% of the business of our assets, I should say, our emerging markets and global equity strategies, each just under 25% and our U.S. equity strategy just at 10%. Our investment approach is to target high single-digit to low double-digit rates of return over a full market cycle with significant downside protection and lower volatility. We have historically been successful in delivering against this, and this is what our clients expected us. Now for those of you who have been on calls with me before, you know that I'd say that this business begins and ends with performance. And if we go to Slide 5, I think it's no surprise to anyone that in the short term, our 1-year performance has lagged the index. And that's in a market where we've seen sort of historically extreme market returns that is not atypical for the way we manage money. In other words, when markets run like this, we oftentimes will underperform on a relative basis. But -- and I think that, that also defines the primary driver of why we've had net outflows for the period because we have had clearly some investors who have chase performance coming in and now reversing that as our relative performance has lagged over the 1-year basis. But I think it's very important to understand this contextually. So if we go to Slide 6, what you see is that our 3-year returns across all strategies have compounded at double-digit rates of return. So right in line with what clients would expect of us, and frankly, maybe slightly better than we would expect of ourselves. And we've done this with substantially lower volatility. So if you go to the next slide, you'll see that our downside capture ratio is significantly better than our peer group, and we have lower volatility in the market. And so, what this means is that for our core client base, over the past 3 years, they are experiencing exactly what we have set out to do, what our goals are and what they would expect of us. Now that doesn't mean that we won't continue to have outflows by more short-term oriented investors, but it does mean, I believe that our core client base, our core consultants that support us core institutional clients, our core platforms, all recognize what we set out to do over the long run and are satisfied that we are accomplishing that goal. Now if we go to the next slide, you can see what this means to the business over the past 3 years. And what we've tried to do here is show a bridge from where our assets were 3 years ago, adding or subtracting net flows and then adding the total returns from our various portfolios. And as you can see, that's led to a very robust, very resilient, very stable business. We'll get into a little bit more details on this throughout the presentation. But before we go into any more depth on this, I want to hand over to Charles and ask him to go into detail on the financial results.

Thanks, Tim. I'll start on Page 10 with the highlights. As Tim mentioned, we closed the half year at $156 billion. Average from actually increased a little bit for the first half over last year and was at $164.5 billion. I'll touch on how that drives management fees and overall revenues on the next page as we get into a little bit more of the details. $397.2 million in net revenue resulted in net operating income of $301.8 million. And you see the strong operating margin in the chart on the bottom left, the line indicating 76% profit margin for the first half. This resulted in $228.4 million net income to shareholders. We adjust net income for noncash items when determining the dividend and you'll see at the top right, distributable earnings was $234.9 million, resulting in a dividend declared for the first half of $211.8 million. On a per share basis, that equates to 0.0716 per share or $0.08 of earnings per share. With that, I'll move on to the next page to comment on a little bit more detail on what's driving the income statement. So as mentioned, the increase in average FUM resulted in higher management fees. Additionally, we were also able to increase the fee realization to 48.6 basis points for the first half. Those improvements were, as Tim mentioned, offset by a reduction in performance-based fees, which was lower this year, resulting in $397.2 million in net revenues for the first half, a reduction of about $5.8 million in revenues or 1.4%. Drilling down on the expenses, there's offsetting trends there. Compensation and benefits as well as IT and services increased. The former is a result of merit increases awarded to the staff and the latter of price increases from some of our data providers as well as the applications and services that we consume. Those increases in expenses were more than offset by a reduction in third-party distribution fees as well as a reduction in general and administrative resulting in total operating expenses of $95.4 million, $400,000 lower or 0.5% lower than they were for the same period last year. If we go down to the provision for income taxes, you see that, that also improved, both on an absolute as well as a relative basis, and that is due to the apportionment methodologies in some of the state and local taxes that were subject to in the United States. So positive development there that resulted in $228.4 million of net income to shareholders for the first half. With that, I'll move on to the next page. Balance sheet. We continue to have a strong balance sheet, high liquidity with $168.9 million cash as of midyear and no debt outstanding. Moving on to the cash flow statement on Page 13. We continue to have strong cash flow as a result of operations. and the predominant use for that cash is dividends paid out as well as working capital. You'll note on the bottom right, the Board and Tim mentioned this as well, the Board declared a second quarter dividend of $0.0362 per share were $107.1 million in aggregate that continues to represent a 90% payout ratio. And the dates on that will be ex and record date at the end of August on August 26 and 27 and then a payment date of September 25. Before I hand it over to Steve, I wanted to just take a minute to sum out. And if you look at Page 14, you see our history. This chart illustrates in the blue chart -- excuse me, in the blue bars, what our funds under management was starting at the end of 2020 prior to us going public and ending with the June 30 number that we just reported of $156 billion. I think this -- further to the point that Tim made on our growth and our compound growth I think this illustrates how much we've grown over this period of 6 years and how the flows and market performance have contributed to that. growth and how they also compare in relative size to our overall asset size. At $156 billion, we are within 10% of our maximum from -- over the course of our history. But with that, I'll hand it over to Steve Ford for comments on our distribution.

Thanks, Charles. Appreciate it, and good to reconnect with everyone again. I want to spend just a few minutes thinking about our client base and what I believe is part of the underlying resiliency that exists, while fully acknowledging that we've had a challenging short-term period in terms of net flows, but our team has been very busy, being very proactive in engaging our clients all around the world across all channels. You'll see that if you follow our written strategies and communications at all. But how do you think about the core client here, which I think is probably more durable than the market appreciates through the lens of that a long-term core client. And so you have to think about a client that's been with us, say, 4 or 5 years. And if you move to Slide 16, I think it's a very interesting way to look at it. We talk about this usually as basic pure performance. But this is actually client experience because this is rolling 5-year periods in all of our strategies. And so look at the percentage of those experiences that are above the line or below the line. And so there's always going to be variations in performance but as you start to zoom out and think about what's the long-term experience of the core client here is actually still quite positive overall. Also, if you move to Slide 17, you'll see that we continue to live up to our focus on downside protection, which is a huge element of how we think about compounding capital over time. Tim alluded to it in the downside or more than related to it showed it in his downside protection numbers. And as part of that overall 3-year compounded return stream that you see. And then if you move to Slide 18, the long-term risk-adjusted return picture remains quite positive. And so you combine that with also, I think, an underappreciated element is that, call it, 2/3 of our assets come through the wholesale channel and that's through our own efforts and through sub-advised partnership efforts. And within that, there's a large percentage that's actually taxable. So when you zoom out and you think about the long-term experience still being generally quite positive, combined with very strong absolute returns, many of those investors also have created a taxable situation. And so that doesn't mean that we're immune to performance variation, but I think it does create an additional stickiness in that part of the client base that's probably underappreciated. So if we move to the next slide, Slide 19. We've covered this before many times if you've been on with us. But all of what I just said is, in fact, been bolstered by the fact that we have a very diverse business for a manager of our type by strategy, by geography by client type. There's no meaningful institutional investor concentration to speak of. And there's literally thousands and thousands of clients that make up this overall diversity. Slide 20. If you follow along with our monthly numbers, there's no surprises here. The new data is just how it breaks down by channel. And what you see is actually a relatively consistent behavior this year across channel, which I think speaks overall to the type of investors that we approach regardless of channel. And then finally, Slide 21, I want to spend just a little bit of time actually forward-looking where I think there are perhaps some green shoots, especially as we expect our performance, hopefully, to mean revert. And this is a view of our growth that we've experienced in retail managed accounts and also active ETFs. And in particular, I want to spend a little bit of time on the active ETF. We launched our first fund in this category in the U.S. roughly a year ago. And despite having the most challenging 1-year performance of our firm's history, we've seen this vehicle grow considerably. And so what we've done here is, I think, proved our operational capability, which requires an additional level of technical expertise to implement these vehicles in a tax-efficient way but in the U.S. market, in particular, there is a strong tailwind for platforms to add these vehicles. And I think now that we've built a solid operational base to move forward from, I think there's significant opportunity for product development that exists in active ETFs, and we're hopeful to see that as a future growth engine. So with that, I'm going to pause there. I'm going to turn it over to Rajiv Jain, our Chairman and Chief Investment Officer, and let him give you an update on current market outlook and portfolio position.

Thanks, Steve, and thanks, everybody, for joining. As you know, we've had challenging performance over the last 18-odd months. I think some of the things we do need to keep in context is that the 2 types of market conditions that we generally don't tend to do well. One is in markets are very cyclically oriented or very frothy and are coming from -- out from a bear market. So this is not typical. However, I think there have been some things that we have crossed -- we're clearly underestimated. One is obviously demand for compute and the broadening out of industrial growth in most -- in almost all the larger countries in the world, maybe to the exception of China. And as the earnings system has continue to come through very, very robust, in fact, if you look at last summer, NVIDIA was 35x earnings now at 16x, 17x earnings. So, I mean I can go through a list of names. But actually all selling at lower multiples today than they were last summer when we had sort of cut our exposure to these areas in a meaningful manner. As you know, we do not have any philosophical issues owning these. We have owned some of these in a big way before. And we -- including deep cyclicals or whether it's coming from energy, as you know, in '21, '22, we exited tech in '21, bought back in '23. So we do -- we have owned all of these historically. Now as we reassess our exposure and looking at the demand, some of the data points have begun to shift in February, March or thereabouts in terms of rental for GPU rentals in terms of the pricing for compute and gel and some of the other demand indicators that we are looking at. So it turned in February, March. And as a consequence of that, we begin to sort of change the -- some of the names that we owned and where we're seeing a fairly strong outlook on a go-forward basis. So as we speak today, we are actually over technology over semiconductors, the only portfolio that we are not over with tech and semiconductors is actually emerging markets, where it is essentially South Korea and Taiwan, which is almost 40% of the index combined in tech. So we are slightly underweight, but all of the other ones, we are actually over it. We cut back quite aggressively utilities, health care staples. Some of them did not do as well as we had thought. On the earliest picture have been okay in utilities, et cetera. But clearly, you could not keep up with the significant increase in estimates you've seen. In fact, it's quite unprecedented the estimate revisions you've seen in some of these areas. And our view is that the valuations today. If you believe these companies have slightly longer duration, I think they could be reasonably attractive. So I think the portfolio looks meaningfully different. And I think that's not a typical of what we have done. We've -- we -- this is not the first time I've underperformed this much. In fact, unfortunately, unfortunately, I've been here before. I've underperformed far more than this and we recovered. That is part of active management. We are not we -- our core proposition is being adaptable. We talk about all the time, but it does mean that from time to time, we would miss some of the trends. But the question is, does the fundamental borne to come back in those areas or new areas. So I think we feel quite excited in terms of how the portfolio is positioned. -- and what the demand drivers are. And we remain sort of optimistic about our longer-term performance outlook. Tim?

Thanks, Rajiv, and thanks, everyone. I think we can open it up now for Q&A if anybody has questions.

[Operator Instructions] Your first question comes from Julian Braganza with Goldman Sachs.

Just a first question. I was wondering if you could provide some color just around the gross flows and gross outflows. Just be interested, I know you don't provide the numbers. but just being to see how that's been tracking more recently?

Julian, yes, thanks for the question. I mean as you know, we don't break that down. It's sort of hard for me to answer that in any generality without sort of providing selective disclosure here. But what I'd say is that we continue to have positive inflows on a gross basis and obviously, outflows on a gross basis. So it's not completely on sighted.

Okay. Then maybe just then in terms of the tax rate, the 25.3%, is that sustainable from here going forward?

Yes. So I think that the -- as we've talked about before, the unique nature of U.S. tax for a firm like ours is that we have many different states that we pay taxes and so we pay federal tax plus state taxes. And the state tax rates change all of the time. And it's obviously unpredictable to know exactly what will -- where tax rates will change state by state. So the best way to think about taxes has been just to take the current print and extrapolate that forward. I think that's the most accurate way to project taxes out in the future. We know, of course, that they will change. But there's no reason to believe that they should directionally change one way or the other. We don't -- so I think the best thing to do is just extrapolate from the most recent tax rate and carry that forward.

[Operator Instructions] Your next question comes from Elizabeth Miliatis with Macquarie.

I'm sorry if I missed it, I was just on another call. But just around portfolio positioning overall. We've been noticing a bit more of a name into tech across the 4 funds. Just your view on what shifted there?