Impax Asset Management Group Plc (IPXAF) Earnings Call Transcript & Summary

Right. Okay. Welcome, everybody, again. We're going to hear very shortly about Impax' full year results for the period up to the end of September. I'm just going to go through a few admin points. First of all, this presentation is being recorded, so you will be able to watch it again and you'll also be able to see the slides that are presented by the management. There will be a feedback form to the audience after the event, which both ourselves and the management would be very grateful if you can take just a minute or two to share your thoughts on that. For those of you not familiar with Zoom, you will see in the options button under more and then Q&A.. An obvious place to please write your questions and we should have plenty of time to go through those at the end of the formal presentation. On which we're very delighted to be joined again by CFO, Karen Cockburn; and Ian Simm, who is the CEO and of course, the founder of Impax Asset Management, and I am now going to pass over to Ian to commence the presentation.

Okay. Andy. So without further ado, just straight into the agenda. So three things to cover, I don't think we need to get through the appendices, but I'm going to give a quick summary. Karen will then cover the financials, and then I'll come back with a brief summary of the outlook. So many of you perhaps have not met us before, but why it Impax asset management? Well, we believe there's an enormous investment opportunity worldwide over the next 5 to 15 years in what we call the transition to a more sustainable economy which essentially is based on a mainstream capitalist idea that consumers are increasingly looking for more efficient, less polluting goods and services and that would cover areas like clean energy, infrastructure, smart materials, food and agriculture and many others beyond that. This is not about ethical investing, it's about thematic or sector-specific opportunities. Impax has been in business since I started the company in 1998, and we've become a global player. We have clients all over the world. Over the last 5 years, we've initially seen a rapid expansion in competition as many of the large branded houses in our area or in the asset management area have decided they wanted to develop and launch products in climate change or related topics, but many of those players have recently retreated in the wake of some challenges, particularly from U.S. regulators around their response to fiduciary duty. Many of them have confused themselves and the market as to whether they're trying to make money or save the world, whereas Impax is very clearly been aiming to make money, but in areas where those investors looking for good environmental outcomes, there is a tangible nonfinancial benefit. So a global player with weakening competition. And crucially, our business strategy is focused on scaling the business. So as you'll see, we have three elements: listed equities, fixed income and private equity, each of which is positioned to be scalable. And we are well on the way to scaling fixed income. We've already scaled listed equities and in private markets, we are well established with the planned scale in the future. And of course, a scaled business model will deliver a rapid growth of returns to shareholders. Next slide, please. So what's behind this transition to a more sustainable economy? Well essentially, it's about disruption, which creates market uncertainty around pricing. So the disruption is coming from technology change, from regulatory change and from changing consumer sentiment in areas like electric vehicles and transportation, in renewable energy, in the rapid growth of infrastructure investment, for example, water supply. The regulations in these areas are changing as rapidly as the technology. And so there's plenty of opportunity around the mispricing of both publicly traded and privately held assets. So these sectors have been transformed. And therefore, there's an opportunity for a specialist manager with significant resources to more insightful research than the average market investor and therefore, to uncover value. So that's basically what we're doing. Next slide. So as Andy said, these are from now on the results for our financial year ended 30th of September 2025, the six elements of the business highlights that I've shown here so it has been a particularly challenging market for investors this year, we don't need to tell you that, but it's been a continued dominance in some parts of the year by the so-called magnificent 7 stocks or AI-related mega cap names in particular. At other times, the market has been quite broad. So timing of those changes has been quite challenging. We -- after a period of rapid growth in the 2019 to 2022 period, we have outflows to negative, but the net outflows are initially quite significant -- at the start of this financial year have become significantly improved in the second half. As I'll show in a moment, the valuation of the main equity strategies that we're running has become quite compelling. So this does represent an attractive buying opportunity. Meanwhile, from a broader perspective, as we seek to develop further scale and opportunities to build the business further, we're making quite significant progress, particularly with the acquisition of SKY Harbor, a unit focused on high-yield investment management in the fixed income space. Meanwhile, we've been increasingly focused on efficiency in our business operations and we've reduced our cost base, but not in sacrificing our ability to grow or our financial strength. So the business remains very strong with a very material balance sheet such that we've been able to announce and we're nearly completed with a GBP 10 million share buyback program. Next slide. So Karen will cover the financial highlights in a moment, so I won't steal her thunder, but if you eyeball these numbers and compare them to the smaller numbers below FY 2024, you'll see that things have generally retreated, and that's on the back of the outflows that I just mentioned. So I'll come back to the details, but still healthy results in absolute terms, but less than they were the previous financial year. So the market has been challenging. I think the backdrop here is that consumer confidence has been fragile and is probably weakening, particularly in the U.S., and that's been precipitated by the tariff interventions, geopolitical tensions and the consequences for inflation, not least of which concerns about government debt. So we're not definitely heading into a downtown or recession, but over the last 6, 9 months or so, there's been concern about that fragility. And so that has really caused institutional investors to be cautious while at the same time, retail investors are seemingly ignoring those signs and continuing to plow our money into the stock market. A lot of the asset owners in the world are looking back at the last three years, seeing that the very, very narrow market with the AI stocks dominating as -- caused a problem for active management and say there's an increasing interest in the non-actively managed or so-called systematic strategies where Impax does have quite a nice established base. Meanwhile, fixed income markets have been pretty well positioned this year, but the relatively tight spread, particularly compensation for risk premium is holding everyone back at the moment. And in private markets, there's a huge amount of capital chasing the larger deals but Impax is playing in the small to midsize area where there's still plenty of value to be harnessed. Next slide. So I'm afraid in this presentation, there's a couple of very busy slides. This is the first of them and best to look at this in 4 quadrants. So water in the top left, leaders, specialists and global opportunities are our 4 largest sources of revenue in terms of investment strategies. And in each of the quadrants, there's a pair of bars for each of the last 5 years, the dark blue bar is the return in the year from the Impax strategy compared to the all Country World Index in yellow. So if you look at the right-hand end of each of the quadrants, you can see that in 2021, we outperformed the market. But in each of these strategies for the last four years, we have not kept pace the market. And that's been accompanied by -- or driven by a significant derating and the bursting of the valuation metrics that we've seen back in 2021. So we do feel that we're at the bottom of the cycle at the moment because we are tilted towards certain areas of economy, then it's very common as we've seen on a couple of occasions, probably three occasions in the last 27 years that we are out of favor relative to the main market for a period and then we come back into favor. So we are long a return to being in favor. And I think the catalyst for that return are starting to appear. It's probably a little bit too early to announce that we're definitely out of the woods. Hopefully, that will materialize in the new year. Next slide. So on this valuation point, just some data around 2 of those 4 strategies I referred to, water and specialists. This is a -- in each case, a 5-year comparison between September '20 and September 2025 of something that's called the PEG ratio or price earnings to growth so that the ratio of price earnings, which is a metric of valuation divided by the growth rate. So a high number here means quite expensive, a low number quite cheap. So the dark blue, again, Impax' strategy against the Country World Index benchmark in yellow. So September 2020, we were trading at a premium in both of these strategies, and now we're trading at a notable discount. So this is what I was referring to earlier about the compelling nature of the valuations now relative to where we were 4 or 5 years ago. Next slide. So same busy slide, but this time for fixed income, same quadrant arrangement this time for our 4 major fixed income strategies. The top left is the one we just picked up with the acquisition of SKY Harbor, which just closed first of April this year. And the bottom right, global high yield is the strategy we picked up last year 2024 from the acquisition of Absalon Capital Management in Denmark. And then the other two strategies are the fixed income strategy we've had since 2018 when we bought Pax World management in the United States. So if you do the same comparison blue bar against yellow bar for each of the years, then you can see that, broadly speaking, the fixed income strategies are either ahead of benchmark or not too far behind. So this is a much more robust area where the underperformance or outperformance is much less pronounced, much less cyclical, but this is what clients really want something which is a bit more reliable with lower probability of deviation. So these strategies are actually quite nicely positioned, and we've got a very good pipeline in this area. Next slide. I'm afraid that I'm just [ trotting ] through a set of slides that we present on a semiannual basis. So if you're not that interested in the numbers, apologies, this is how we put everything together, but I'll just keep going. So what this does is it shows the bridge on -- from the left, which is our assets under management in GBP 1 billion at the end of 2024, financial year 2024. So that's GBP 37.2 billion through the half year period or half year point rather in green, GBP 25.3 billion to the end of September, GBP 26.1 billion. So this is the bridge shape. So I'm sure if you followed us for a year, you'll have heard the press news about us losing a mandate from St. James's Place announced back in December, and this actually landed in February, so that was GBP 6.2 billion of asset under management reduction. And then the outflows and inflows in the first half were negative about GBP 4 billion offset by some market movement -- or sorry, first half was compounded by some market movement down. And then in the second half, the net flows were GBP 2.7 billion, so a significant improvement in the second half. We got the acquired assets from SKY Harbor acquisition and then markets were positive in the second half. So as you can see, comparing the green, blue and yellow, we had a particularly significant drop in the first half of the year and then a slight increase net-net in the second half. So I think that does point to a stabilization of the business. Next slide. This is a breakdown of our assets under management and revenue. So the first two columns shown in the blue bars, the Impax financial year end position. And the yellow bar this time is our position a year earlier. So starting with the left-hand column, our thematic equities represented 64% of our asset under management at the end of September 25, up slightly, core equity is down because that's where the St. James's Place mandate dropped from. I'm not going to read out all these numbers, but I hope you get the idea. So the regional breakdown in the middle shows that the EMEA region and North America region were down moderately, but the U.K. was down considerably as a percentage -- sorry, the North American and EMEA was up slightly, but that was because the U.K. was down considerably as a result of the St. James's Place mandate loss. And then by product type, the revenue is shown again in blue bars. So just worth pointing out the BNP Paribas mutual funds, which remains our largest aggregate client, 25% of revenue coming from them. Just stable compared to 12 months earlier. Next slide. And the movement inflows or assets under management, this is in GBP 1 millions. But basically, if you divide by GBP 1,000, you get to GBP 1 billion. So St. James' Place, that's the GBP 6.2 billion outflow. Notable here on this slide is the middle top, which is the significantly reduced outflows from BNP Paribas. So that's encouraging and has continued to decline into the new financial year. And then segregated accounts on the bottom right is actually a Asia Pacific institutional investor that was paying us a very, very low fee and a performance fee. So we're not too disappointed to see that one go. Next slide. So moving on from the numbers to our strategic priorities, of which there are 6. So essentially, we're looking to scale the business in equities, fixed income and then grow private equity. That's the top line. And then the bottom line, build our sales and marketing, all our distribution channels, deepen our partnership with clients and then optimize our operating model. So a little bit more detail on these coming up. Next slide. So starting with listed equities. We are continuing to enhance our investment process, using technology and of course, AI, to which we're doing through a careful set of experiments. We have introduced more structure into our research team. And then in the product area, we are launching our first exchange-traded fund in the United States, which will happen in a couple of months' time, we are expanding our systematic equity product range and we've launched our new emerging markets fund. Next slide. In distribution, there's much more work being done to sell to clients directly in German-speaking Europe, which is DACH, Scandinavia, Benelux and France, and then we have a very good sales colleague in Canada. Through this channel in the Benelux area, we've won a very large segregated mandate, which landed in June. And meanwhile, our Sustainability Center is continuing to provide a differentiated service to clients. I'll come back to that in a moment. The -- in addition to the reduced outflows from BNP Paribas, we have been cultivating further partnerships for distribution in the Asia Pacific region, Latin America and Southern Europe. Meanwhile, our brand continues to resonate globally and as our competitors pull back, as I was saying at the start, then we're seeing an increasing opportunity not just for winning new [indiscernible], but also for winning mandates that clients are wanting to switch from some of these large branded houses that they no longer want to do business with. Next slide. So fixed income, as I mentioned, we completed the acquisition of SKY Harbor in April. We now have 23 investment team members, which is critical mass. That compares to 5 when we bought the Pax business. Client base is now spread nicely over both Europe and the U.S. with an established set of products around those 4 major strategies. We're making very good progress in adviser or consultant endorsements. These are essential for gatekeeping for the major asset owners and we're starting to extend our wealth management profile, not just in the U.S., which we've had for a number of years, but also now in many markets in Europe. So lots to look forward to in fixed income, and I think there's a good chance of a rapidly expanding set of inflows here. Next slide. And then in private equity, for those of you that don't know us in this area, we have been, since 2005, running a series of 10-year funds, we call them limited partnerships, and they are investing in the renewable energy space, particularly backing the developers of renewable energy assets all around Europe. These developers tend to be relatively small companies. They are relatively under-resourced in financial terms, and therefore, they're very happy and keen to do work with a sophisticated and well-capitalized or well-sized fund manager like Impax. So we are making very good progress with exiting our third fund and also deploying our fourth fund. So regulation around what you can say in this area around expansion, but I'll leave you to join the dots about what happens next. So we're making good progress in expanding this business. Meanwhile, the efficiency programs continue to develop because of the drop in assets under management, we've been able to reduce headcount from about [ 320 rolls to 275 ], so that's a drop roughly 15%. Frankly, that did actually reflect an inefficiency in our expansion 2019 to 2022 period when we were growing extremely quickly. And the way that we added roles at that time was probably not optimal. So many of these positions have been eliminated without any loss of capability. So crucially, we've been able to downsize the head count without any reduction in that capability or in our growth potential. And meanwhile, there's plenty of project work underway to improve our efficiency with the broader adoption of technology. That may well lead to further head count reduction in the future, again, without compromising our growth potential. And then as I said, the sustainability center, this essentially is helping our clients in 4 or 5 ways. So we are through the center, enhancing our research, we are coordinating our engagement and stewardship work with underlying companies. We're providing detailed reports to clients around nonfinancial outcomes, and we are helping them with thought leadership information, for example, around physical climate risk and at the same time, working on a collaborative basis with them around the engagement with policymakers so that there can be a financial expertise injection into new market creation and the associated regulations. At which point, I think I'm handing over to Karen.

Thank you, Ian, and thank you all for your time this afternoon. I'm just going to take you through those numbers that Ian's flashed in front of you there at the start. But it do reflect that Ian's comments that we find ourselves at the bottom of the cycle and numbers still a healthy profit but do reflect the level of outflow that we have seen this year. So starting with on Monday, we announced then the adjusted operating profit of GBP 33.6 million and the EPS sitting at 21.3. Now both of those numbers down by just over 1/3 from the prior year. And you can see that it's a net reduction of GBP 19 million, and that has come from a GBP 28 million reduction in revenue being offset then by the cost action that Ian referenced by about the savings that we made in year of GBP 9 million. Important, I think, we'll get into in a little more detail that as we did lose some of those larger clients, the actual fee margin, a key measure for the health of the business did improve. Now we finished the year in an operating margin of 23.7% and also finished the year with the balance sheet in very good health with capital and cash surplus. And on the back of that, proposing a dividend of 8p, 12p for the full year, representing a payout of 55.7%, and that's aligned to our dividend policy, a nice set our dividend payout, a sustainable rate. And then we finished a busy year also with a buyback, our first-ever buyback, which I'm happy to say is well on track for completion for the end of the calendar year. So the next slide looks at the revenue in a little more detail that sort of just unpacks that sort of reduction that we saw in the year, but it's predominantly driven by the reduction in the AUM. Based on Ian's slide, if you recall, that started the year at GBP 37 billion, but finished at GBP 26 billion. The average is for the two years are the ones that really drive sort of the revenue calculations and you can see that they have dropped reflecting that outflow. So just looking at the bridge, you can see the significant drop in the income year-on-year was this level of outflow and you can see SJP being the largest contributor to that. Now that was offset by favorable market movement and then the impact of the acquisitions as we build out our fixed income capability that took the full year to GBP 141.9 million. Now looking at asset management, it's usually important just to see where we are today. And there's a figure in the circle at the bottom of GBP 126.1 million. We call that the run rate, which is where we find ourselves and September times 12. Now what that figure reflects, it's important to sort of say the level of outflow that we had, 80% of it happened in the first half of the year. So the business has been in a very stable position of GBP 26 billion plus or minus a little for the last 6 months. And that's the position that we look for -- that we would like to retain before we push on for growth. In terms of looking at sort of where we think a number like that, I know you all have models and how that might outturn for the year. The guidance that we gave to the broad analyst community of which equity development takes part in our consensus is really very conservative that it's difficult to call when we expect sort of the growth to return, but we have many reasons to be optimistic as we talk there about the fixed income opportunity systematic and the ETF that we're very active in terms of new product. But I'm being very conservative in terms of where I see that coming in. So I expect the revenue to be a figure still beginning with a 1, maybe with a 3 at some point in the next 12 months. Now a really key component of looking at the AUM then is the average fee margin, which you saw increased to 46.9 in the year. Now that is the fee that's made up of over 80 clients and about 90% of that -- 95%, it comes from our listed equity business. And then about 10% of our business is this fixed income. So a combination of those as we grow forward, I expect to see sort of that run rate margin of 48.4 basis points come down slowly over time as we do grow that fixed income business. But that is a very healthy, well diversified supported by 80 clients margin and a sign, I think, of the underlying strength of the business. I then move on to look at costs on the back of that outflow that we had with a very active cost management program and the 45 people left the business. You can see in the bridge that the two orange blocks that we talk there are really staff related, so 45 people resulted in GBP 5.6 million saving in the year. On average, they left maybe 6, 7 months into the year. So that will gross up to over an GBP 11 million saving as we move into the new year. For those that follow us, a very important policy that we have is the level of variable staff cost. That's the bonus pool. We align that very closely to investor interest in that the policy is to pay out no more than 45% of the pre-bonus profits in the form of bonus. So what that means is that with that adjusted profit, the reduced profitability coming through, and it is the simple mathematics of that takes that into a saving, but the key point being very aligned. So a significant cost reduction in the business. And then we continue to invest -- whilst removing costs, we will continue to invest in the areas where we do see the opportunity for growth, and that's where you see the cost base build back up marginally, the acquisition of SKY Harbor bringing in additional cost and also then sort of just the regular inflation view. But where we finish the year is that whilst the cost across that bridge dropped by GBP 9 million, the two figures at the bottom of the table show you the actual run rate cost of the business reduced by GBP 20 million, so we have been able to respond to quite a significant amount of the AUM and flow loss that we've had. Just very quickly, looking down the left-hand side, you can see the head count there that has reduced, 45 heads came out. We did add some further into our fixed income business. We now have 23 investment professionals in our fixed income business. So that's a business ready to scale. And you can see the cost reductions just came broadly out of -- across the whole business rather than any one specific area. So our refined cost base is what we're taking into the new year and then bringing the revenue and the cost together just to look at that operating margin, 23.7. We have enjoyed a number of years previously in the 30s, and we feel confident about getting back into an operating margin of 30% in the medium term. So that's really finishing off on the P&L. Very quickly on the balance sheet, moving on to a couple of slides to say all in very good health. And with health finishing the year with GBP 64.7 million of cash on the balance sheet, significant healthy surplus in that. Key uses of the cash this year, it has reduced and broadly because of the relatively large prior year dividend being paid out of this year's reduced operating earnings. We -- and the acquisition of our own shares, which is the buyback. And also, we continue to buy shares into our EBT to further align our staff to shareholders. and of course, the purchase of SKY Harbor, which happened in April for $6 million roughly that comes out of that figure. So that leaves us with very healthy cash balances and on the back of that paying a dividend yield of 6.9%. Again, a very clearly defined policy that we've had for dividend over a number of years which is to pay out at least 55% of adjusted profit after tax. And this year, we're just -- we're putting this 55.7% to a sustainable rate. Now that level of dividend of 12p for the year plus the buyback, I'll talk about that in a moment. That's putting GBP 25 million, a significant amount of cash back in shareholders' hands over the period. Based on that dividend payout, looking on the next slide, at capital, again, remains with very healthy surplus. There's no debt in the business. We continue to generate capital. It shows we will -- it shows that actually the surplus there in that orange box looks as if it increased in the year. Once we complete the buyback, you'll see that reduce slightly. And then also an important message for me, just like costs where we're invested for growth. Our capital, we also have nearly GBP 17 million in seed capital, where we see growth opportunities. When we're doing this presentation, I think always important to talk about our capital allocation priorities. These have not changed since we updated at the half year when we restated our capital allocation policy. But the real priority right now in this period of volatile earnings is the financial resilience we will seek to pay the sustainable dividend. I mentioned we continue to purchase shares into the EBT. And then there always is the excess that we will carry looking for growth to invest into the business but also seeking to grow by small accretive acquisitions has always been part of the DNA of the organization, and that continues. And then just a page to finish with based on looking at the buyback. Just to confirm, we announced on the 22nd of May, a buyback of GBP 10 million. At the 30th of September, when the accounts, when you read them, you'll see that we had about 1/3 of that completed. We had a very active last couple of months and finish as of the day of the -- on Monday's date of announcement that we had 89% complete of the program. We, therefore, expect to complete that over the coming weeks. Net-net base, give or take a bit on where the share price is, we expect to be canceling up to 4% of the opening share capital on that. EBT. So just to sort of -- we've mentioned that, we continue to buy shares, spending GBP 3.4 million this year. And the EBT holds a significant portion, GBP 5.9 million of the issued share capital of the business. And then I just wanted to call out, we haven't looked at it for a while in these presentations, it's just that the broad shape of the share ownership with BNP being the largest asset holder and also being the largest shareholder of the business with 14%. That has been at that level for quite some time. And then we do seek and hence, why we continue with this EBT -- capital. We're seeking to have employees whether it be to own up to 12% of the issued share capital as well. Of course, we've got the founders in there and the free float. But that's always been a broadly stable set of shareholdings. With that, until our time for questions, I will hand it back to Ian. Thank you.

So just to wrap up on the outlook slide. So look, I think the investment management market is really an interesting juncture. The major asset owners around the world are increasingly looking for specialist investment management service in differentiated areas. So this is where Impax really stands out because for more than a quarter of a century, we've been focused on an area of the economy that is growing in a sort of secular way in the direction of more and more provision of cleaner less polluting goods and services. So there are some political bumps in the road around, for example, U.S. energy policy. But frankly, that's what asset management in the active area is all about. So we're able to navigate these political headwinds very successfully. So our differentiated brand does give a very easy calling card to the world's major asset owners, pension funds and sovereign wealth funds. And we've got a very wide base of such clients already. We also have offices in the U.S., a couple of offices in Asia and throughout Europe. So we're well placed to reach out to other potential clients in this space. The equity business relative to fixed income and private markets still dominates with 90% roughly of our value or our revenue coming from listed equities. And as I'm sure you appreciate, strategically, we are trying to diversify that by growing fixed income and private markets so that the business is less dependent on the equity market cycle. We haven't got that yet because it takes time to diversify. And therefore, we have been exposed in the last 3 or 4 years to that equity market cycle, which is similarly at the bottom, and we're waiting for a recovery. But in the meantime, the AI phenomenon is delaying that as more and more capital chasing the very large AI stocks. So I think the wide expectation in the market is that 2026 will be broader, there'll be less dominance by the major cap tech, AI names. And in that context, we ought to bounce back to outperformance. So the business development and diversification of business will continue. We're not signaling any more acquisitions at the moment, but that's certainly part of our medium-term plan. And in that context, as Karen laid out, we have a very strong balance sheet and ability to fund directly further acquisitions and a brand which asset management teams and boutiques, I think, increasingly find attractive as a potential home. So I will pause there, hand back to Andy.

Great. Thank you very much, both of you. Very thorough detail and a very clear presentation. Plenty of questions coming in, so let's go straight into them. Exuberance is a long way of describing the -- some of the flows money in recent years. And it certainly seems to be the case that some clients who put money with Impax have only had a short-term lived interest in sustainable investing. As you mentioned Ian, 27 years, this business has been going. Could you give more of a perspective about how long typical mandates might last on average in recent years or over that period. and give a bit more comfort on the stickiness of institutions who are genuinely interested in investing in this space?

Okay. That was quite a long question. So I think the easy way to address that is to say that there's two types of clients that we've seen recently, the long-term clients that have been with us for 5 to 25 years and then the more recently arrived clients. So I think the more recently arrived clients who've probably been less patient, and many of them came in with a very strong tailwind to the sector in the 2019 to 2021 period. And aggressively, that was pretty much the top of the market. So they're the ones who've experienced the most significant negative impact from the cycle. So as implied by the question, the longer-term clients generally are still with us at scale, as Tara mentioned, there's over 80 clients and that's 80 contracts. So some of those contracts will be with funds with multiple, in some cases, hundreds of underlying clients. What's the outlook for the business in terms of clients? Well, I think there's a very good chance that those longer-term clients will ride out the cycle because they've not lost as much money from -- because they didn't invest in the peak but also probably understand what we're doing better than the more recently arrived ones. But then as I said several times, we do have a great client outreach and client service team all around the world, so we're well placed to win additional business.

Very clear. Thank you. Right. You have consistently sought to grow fixed income and private markets to diversify the business. Does the Board have a longer-term target in mind for what might be a more balanced and ideal split between listed equities, fixed income and private markets?

Well, the Board doesn't have a formal target, and there's no statement as to what we're aiming to achieve. But I think if you look at other firms at a slightly bigger scale who do both fixed income and listed equities, then it's not uncommon to have two equally sized divisions. I think the uncertainty really is around private markets, which generally are more difficult to scale and where you need to be very careful about quality because if you don't deliver consistently good returns, then it's almost impossible to grow further. So we do enjoy the market insights and relationship connections for -- in the industry that our private markets team build or offering us, but we're not in a hurry to expand that area as rapidly as we think fixed income will expand.

Okay. Just on private markets, we have a question. Would you describe their activities as more VC than PE or the other way around?

Well, these terms tend to be a little bit slippery as I'm sure the questioner knows, the way we describe what we do is value-add infrastructure. So we are looking to get a capital gain by backing the developers of new assets and by putting money into -- from the construction of the new assets and then once the assets are built, we sell them. So that's why there's an infrastructure style, but it's value add in the sense of having a relatively short turnaround time and not owning the assets for yield, which would be a more sort of core or core plus based infrastructure strategy.

Okay. And whilst we're checking definitions, we have someone asking if you could just describe in a bit more detail what systematic equities products involve and who are the typical buyers for such products?

Sure. Yes. So one of Impax' strengths is the creation of taxonomies or universes of thematic stocks that fit the criteria, for example, in the water sector, we have a taxonomy of water stocks, water-related stocks or similarly in the food sector. So at the moment, our actively managed strategies, look at those universes and pick stocks through the judgment of the individual fund manager in a systematic equity strategy for, for example, water or food, the human intervention would simply be to check how the computer was doing in performing the same exercise, so computer and systematic would basically pick the stocks by running a very large number of portfolios of different weightings and different stocks and recommend the best one. So then the human intervention is simply to make sure that the output is consistent with the process. So less human intervention, lower tracking error or lower deviation from the benchmark and as a result, probably lower fees to the clients, but an ability to scale very considerably.

All very clear. Karen, I think this one might be for you. You mentioned that adjusted operating margins are hopefully going to move back to what have historically been much higher levels. It seems like most of the heavy lifting has been done in cost control. So can you just identify where your confidence is coming from on the other side of the equation is that operational leverage as assets grow? Or is it margins, if you can just elaborate?

Yes. So we have been very diligent, I think, this year in cost reduction and we sort of -- I want to say we have the cost base that we believe is the right cost base for the opportunity that's in front of us. So where would the confidence come from is where I'm being cautious. So that's why I say over the medium rather than the short term is the fixed income. They come -- they're large mandates that we've sort of -- we have in place our distribution network. So we have in place and that team of 23 investment professionals. We have a 10-year track record. So our investments have been made in that area that really should be scaled -- that will -- is our main opportunity for scaling. So I think the way I look at it is that we have really refined the cost reductions, what they did was really refined the listed equity cost base. So when that grows again, that will grow without much investment. But the real sort of step change will come from me in the fixed income growth. And the piece that I can't call is just the timing on that, but all the infrastructure is in place to enable that.

Yes, makes sense. Geographical question. North America or North American operations provided about 40% of your revenues. Could you give us an indication of the split between America and Canada in that number? And looking ahead, do you think that the sheer scale of the U.S. economy is the bigger opportunity? Or is it perhaps that Canada, which is certainly at the moment, more pro sustainability may prove the more interesting area to invest in?

Well, we've had some distribution in the United States since 2008. In fact, we brought our distribution partner, Pax World management in 2018. And we have, therefore, a very nicely positioned mutual fund platform serving the wealth management and to some degree, the retail market as well as an institutional client service group. In Canada, we have initially used BNP Paribas Asset Management but when they decided to pull out of Canada, we were able to pick up their representative who moved from BNP Paribas to Impax and is currently living in Montreal and doing the same job for us directly now. So we've had business in Canada for probably 15 years. In terms of the relative size of Canada, I think I know the answer, but Karen, do you have the exact number?

So I'm going to say North America in total is about GBP 10 billion of our asset. And I'd say somewhere mid-15%, probably Canada, 15% to 20%.

Yes. So that is heavily skewed to the wealth management market through distributors in Ontario and Quebec. A little bit of institutional, but it's mainly wealth. I do think there's very strong potential for that platform to grow because I think Canadian individuals and families are very well disposed towards and interested in the transition to a more sustainable economy. In the United States, I think, clearly, we need to be careful where we market. We do have a very well-established client base with the so-called wire houses, which will be the groups like JPMorgan, Morgan Stanley, Bank of America, Merrill Lynch and to some degree, Raymond James, Wells Fargo. And those represent very scalable relationships. There's also quite strong consultant following for -- amongst U.S. groups like Cambridge Associates who know our strategies very well, and there's a large number of institutional investors, particularly East Coast and West Coast who are still very interested in this area. So as a net or summary of all that, I would say that the North American opportunity is still very attractive in spite of the federal political headwinds and we do have a team of about 110 people in U.S. with one person in Canada who are building on our brand, which has been there since actually 1970s, which was the origins of taxable management.

Great. A couple of questions on the BNP channel, which I'll put together. Historically, Ian, I think you've explained that their outflows last year were mostly driven by top-down asset allocation at their end. And there is an additional -- there's a question, is that why it's stabilized in recent months? And an additional question, is it a question of the BNP sales force being more focused on your product and the two may well be linked.

I think that BNP Paribas Asset Management is well known throughout Europe as a money market funds and fixed income specialist with equity funds being a key component, but not as big or is a sort of high prominent, as prominent as those two other asset classes. So as you correctly pointed out, Andy, I've said before that in the last two or three years, BNP has been recommending to its wealth management clients, wealth management sector clients that they have a relatively conservative portfolio. So I think, yes, the fact that the outflows have been dropping does suggest that the central gatekeepers are incrementally more positive about equities and the salespeople are, therefore, proposing that allocation to equities are improved. So the other components in that story is the acquisition by BNP Paribas Investment Management of the counterpart in AXA, so AXA Investment management, which dramatically increases the size of the aggregated team. So we're looking forward to more distribution potential through a much larger platform.

Good to hear. And last question, I think, with some providers of asset management services, withdrawing from the sustainable investment area. Has that changed the identity of competitors that you come up against in tenders in recent months. Do they still tend to be firms with global reach, like yourselves? Or might there be local experts based in the region, be it Asia or America?

Well, if we cast our minds back 5 or 6 years or longer, then there was a group of specialist players with global reach who we would generally come up against. It's probably half a dozen names. And those groups are still around because like Impax, they are focused on not necessarily dedicated to you, but focused on this transition to a more sustainable economy. Around 2019, 2020, as I've mentioned, many of the very large asset managers in the world developed products in this area, and many of them, if not most of them, have actually bought back. So we're left with the same old group of experienced peers. But frankly, no one is as large as Impax in terms of resources. I think we are globally the largest manager dedicated to this area and probably the most diversified client base. So we are well placed to win mandates. And meanwhile, as I've said, the asset owner community is still very interested in what we're doing, albeit some of the pension funds, for example, in the southern part of the U.S. are fearful of coming into the space because of the political backlash. But if you strip that out, then the rest of the market is still very interested in what we're doing.

Great. Very good notes on which to finish the Q&A. Thank you to the audience for many questions. Thank you, of course, to our presenters. And Ian, perhaps would you just like to summarize the positive outlook?

Sure. Yes. Well, thanks for joining. Thank you to Equity Development for hosting. I think investment has to be a medium-term game. Otherwise, it becomes impossible to do other things in life. And I think Impax is fantastically positioned for medium-term success given our globally leading brand in an area which is set for further expansion. And the market is overdue a return to a more normal broader structure with less dominance by a handful of names. And in that context, our investment performance should be bouncing back fairly promptly. And when it does, then I think the flows can pick up very quickly. So we also have a good track record of acquisitions. We have a very strong culture management, as Karen says earning around 20% of the business, so very nicely aligned with external investors. So we really value the connection with everybody. Thank you to everybody who's dialed in and particularly those who've dialed in before and are following us. We're always available for one-on-one questions, if there's anything you'd like to address to us directly and look forward to staying in touch.

Thank you.

Thanks, Andy. Appreciate it.