Tatton Asset Management plc (2T7.SG) Earnings Call Transcript & Summary

Thank you for all of you who are joining us today and for that little moment of a technical warm-up. But we are here now. We are live, and we are going to hear today from Tatton Asset Management, who announced their results last week, actually, Wednesday. If you haven't seen it already, we do have a research note up on our website from Paul Bryant. I do commend it to you. But for today, we're going to go through the presentation. We'll take some Q&A at the end. Please feel free to submit them as you go along. Otherwise, over to Paul Hogarth.

Thank you, Hannah, and good morning. Yes, if we could just run you through the results that we have. Yes, we can move on to Slide -- where are we now? Yes. key highlights. Absolutely perfect. Thank you very much. Right. So an exceptional set of numbers. We're absolutely delighted with it. I'm just going to pick up a few sorts of highlights. First of all, obviously, the tremendous organic flows of GBP 1.8 billion in the first half, which obviously were very exciting. Happy to say that post the half year as well, in October and November, we continued with that trend of lovely flows. So actually now we are at about GBP 2.3 billion of net inflows for the year and GBP 20.7 billion of AUM. So tremendous, tremendous start. I think picking out other pieces from that, over 1,038 IFA businesses now giving us business on a weekly basis, and we get a tremendous piece of EMI every Friday. And you can see that more and more firms are giving us more than GBP 1 million a week, which is obviously very, very good. We've guided you in the second half to say, let's just be a little bit more prudent and say put us down for GBP 200 million per month moving forward. And I think that has just been prudent. There are no signs of any let up. The budget hasn't changed anything in any shape or form. And then the other key highlights really would be the interim dividend, raising that up to 9.5p for the dividend that will be paid mid-December. So I think that's about it on that slide. If we can move on to the next one, obviously, just showing you how the group revenue and profits are showing lovely CAGR of 17% and 22%. And then the next slide is what we call our bragging slide, which shows the funds under management under influence. So obviously, great numbers. And then just really just on that slide, we have mentioned about the Perspective position. The Perspective business has been a long-standing business that we've worked with as part of the admission document in 2017, where we provide services to their discretionary fund management business, Cambridge. That contract actually expires in January 2026 and we're in discussions with Perspective about continuing with that and what those revised terms might look like. Obviously, it doesn't affect us for revenue in this year or the following year because it doesn't actually leave until January 2026 if it leaves at all. And as I say, we're in discussions to see what that might look like. Now we were aware that this might become the case because Perspective have been through a change in ownership. Perspective business was sold to [CBP] in 2019 and has since been sold on to Charlesbank last year. And we did see a copy of the IM. And within the IM, we could see mention of us and our contract and that they would look to renegotiate. So and that's exactly what we're doing currently. And obviously, we'll keep you posted as and when there'll be a little bit more from Paul in the financial piece shortly. But yes, we'll just have to see how it goes. And hopefully, we'll be able to negotiate terms and remain in play. As I say, if not, it isn't the end of the world by any stretch. So if I can move on to financial performance, Paul.

Yes. Thank you, Paul. So just from a headline perspective, you saw some of these numbers on the KPI from sheet. Really strong performance in the first half of the year from both revenue and adjusted operating profit, both growing around 23%, and we're really pleased to have maintained our margin above 50% as well. If I had to frame these results, it would probably be through the lens of really strong performance from Tatton net flows. As Paul mentioned, slightly held back by a subdued mortgage market. Below that margin line, we've got net finance income. It's probably worth pointing out that's all from our balance sheet cash. We don't take any clip from client cash, so just under GBP 0.5 million for the half year and probably we will head towards GBP 1 million for the full year with the GBP 27 million that we have on our balance sheet. And then you see that growth come through on the PBT and also the earnings per share. And we've continued to pay a dividend, which is 70% of the earnings, adjusted earnings, which is a 19% increase or just under 19%. And we split that 50-50 between H1 and H2. So just moving to the next slide. The division performance of Tatton is really, really very strong. As you can see there, 35% growth in our AUM, which actually equates to GBP 5.1 billion, which is a very impressive performance when you consider 7 years ago, we floated with GBP 3.9 billion of total AUM. And in 6 months, it's GBP 2.3 billion, which is a combination of the strong flows of GBP 1.8 billion that we mentioned earlier and then the investment performance is just under GBP 0.5 billion. For the first time, we split out the MPS and the funds, as you can see there, I think it's a strong performance of the funds actually with GBP 55 million of inflows. On the next bullet, we just split out actually the impacts that Perspective has on both the AUM and also the flows. So Perspective accounts for -- can you just go back there, please? Yes. The Perspective AUM is GBP 2.5 billion of the MPS AUM. They accounted for GBP 385 million of flows in the first 6 months, and they actually contributed GBP 0.5 million of revenue. So to save you doing the math, that's about 4 bps. So the impact in revenue actually would be relatively modest. The question we always get is sort of 2 questions really. One is, do we charge anyone else a reduced bps below the 15 bps? And the answer to that is no. Everyone else is charged at the flat 15 bps, all of the IFAs. And then secondly, what's the biggest concentration after Perspective? And the next biggest is GBP 400 million, which is a IFA in the South. Taking away the flows from the GBP 1.8 billion to the GBP 385 billion, we still give GBP 1.447 billion or GBP 241 million a month. So if you extrapolate that over 12 months, that would be closer to GBP 2.9 billion. So really still very strong performance on the flows from the underlying business. And then when you look at Tatton in a little bit more detail, the revenue grew at 28%, adjusted operating profit at 30.3% with the margin increasing with the operational gearing coming through to 63%. So just moving on to Paradigm on the next slide. Pleasing to see both the consulting and the mortgage firms increase. So that's the team doing a great performance there. Overall, the mortgage completions is slightly down year-on-year, albeit slightly up on the H2 of the prior year. So you can see it going in the general direction. Revenue and operating profit is broadly flat. So a slight increase in revenue with the inflationary costs coming through from prior year, a slight decrease in the adjusted operating profit, and therefore, that pushing through to margin as well as a slight decrease in the margin. Overall, the outlook is, obviously, we've seen a reduction in interest rates and recently a reduction in inflation, albeit it ticked up today to 2.3%. But overall, I think that's helped with affordability. And more importantly, we've also seen an increase in the applications year-on-year, so a 47% increase year-on-year, which is very, very strong. And applications are obviously a leading indicator for future completions. So there is some signs of optimism there for the second half, albeit we are guiding a similar second half of the year to the first half of the year. And then moving on to the next slide. which is just really for the uninitiated really of -- or new investors to the group. Just to give you a little bit of context around the historical performance and the margin trends that we've seen and where we expect those to go into the future. So you can see on the top dotted line, that's Tatton's growth over the year since 2020, where you see the continual increase in margin, which is our operational gearing coming through, as I explained earlier. Paradigm, well, initially when we came out of COVID, the margins ticked up because the mortgage market was very strong post-COVID. Since then, the mortgage market has been a little bit more subdued, and you've seen the margin tick down. But overall, the group margin has continued to increase or trend as an increase to over 50%, and what we're looking at is a sort of typically 1% to 2% improvement as we move forward. The things that obviously affect the margin is the mix and the split between Tatton and Paradigm. Obviously, Tatton is growing much more quickly. So we've got volume of over GBP 2 billion of flows per annum. The yield on that, so Tatton itself also has a mix, the mix between MPS and the funds. So we anticipate that yield on that revenue falling from the 21 bps this year to a medium-term trend of sort of 20 bps. And then the mix also within Paradigm and the mortgage business as well in the types of products that we utilize for the lending, that also changes as well. Overall, though, the costs, when we look forward, we historically gave guidance of between 10% to 15%. As we look forward now over the medium term, we think that will be closer to 10% to 12%. And it's a nice segue to the next slide, which actually we split out the cost base into sort of 4 buckets really. And we've annualized September '24 costs of GBP 21.7 million, so literally doubled them on an annualized basis. And you can see we've delivered the cost increases pretty much in between that 10% to 15% guidance. I think it's an important point to make that the employee costs remain the vast majority of the cost we incur. It's about 60%, and that also includes a variable pay element of about GBP 3 million, which is payable against flows and a discretionary bonus cost as well. And then on the right-hand side, you can see the inflationary costs of just under 5%, what we call investment in growth, which, as you can see, is really just new people and investment in marketing and distribution and then a couple of other sort of step costs and just sort of one-off costs as well. But overall, the key point on this slide really is that we don't see any foreseeable cost cliff. We've gone from GBP 3.9 billion to GBP 20 billion over the past 7 years. And in that period, there's been no significant increase or any one increase in costs, and we don't anticipate seeing that increase again as we head towards our GBP 30 billion target. And then moving on to the next slide. We always like to talk about the balance sheet. Obviously, the strength of the balance sheet is extremely strong with GBP 47.4 billion of net assets. That equates to a return on capital employed of 47.9%, so strong. The only real change here is the increase in cash. So we just, like I said before, have just under GBP 27 million. And on the right-hand side, you can see our capital resource requirement is 265% of the requirement, so the capital resources that we hold. The element of free cash there is probably around GBP 5 million to GBP 6 million once you take the regulatory capital away and also the headroom as well. And then finally, on the cash flow, it's a very, very simple cash flow, everything you would expect to see. The cash generated from operations is 94% cash conversion. Obviously, our interest, which you saw in the P&L, the dividend, which we paid from the final dividend and tax payments on account from a corporation tax perspective. The only unusual thing would be the seeding of our new passive funds where we seeded our own funds. We launched a range of passive funds earlier this year. We see them with GBP 1 million. We should see that come back into the business towards the end of this year or beginning of next as those gain some critical mass. But overall, that's the walk between March '24 and the current GBP 27 million we have on the balance sheet. And then finally, in terms of guidance, look, we're on track to deliver the full year targets in line with our expectations. As Paul mentioned earlier, we're guiding from a flow perspective to GBP 200 million per month. And then on Paradigm, as I said earlier, we anticipate H2 pretty much in line with H1. I think it's also an important point to make here, though, that we are still on target to deliver our GBP 30 billion targets by FY '29, irrespective of what decision we come to with Perspective. Thank you, Paul. And then Hannah, if we can move on to the strategic side. This is our favorite slide, really where we sort of show the size of the market and how it's continued to mature. You can see from the gray shaded box there that there are GBP 722 billion of assets that now sit on the platforms as given to them by the IFA community, so GBP 722 billion. I think that number is actually higher than that now. We saw a number the other day of GBP 859 billion of assets on platform. So going to the GBP 1 trillion, which we've highlighted previously. And then on to the green shaded point, you can see that of the GBP 722 billion, GBP 139 billion is now in DFM MPS. But again, we think that number is lagged. We think that number is probably around about GBP 150 billion, something like that these days. So they're quite historic numbers, but they're really the numbers that we can quote to you at this point in time. So you can see that we've maintained -- at least maintained our market share, which is great. But I think the real true highlight is to go back to 2017 and just say in 2017, there was actually GBP 25 billion in DFM MPS and look at what that's grown to by 2024 up to the GBP 139 billion or GBP 150 billion that we think it roughly is these days. So growing sector. I mean, the important metrics for us are we need the health and wealth of the IFA community to continue to prosper and they are so doing. They are in rude health. We remain IFA only. So that's the single channel that we receive business from. We champion the IFA at every possible opportunity, and we are seen as the IFA's friend. And obviously, that's also the strength of the platform market because we only actually look after assets that sit on platform. So that platform market, as I say, expected to go to GBP 1 trillion very, very soon, certainly over the next 2 to 3 years. And then the assets going into DFM MPS will go over the GBP 200 billion that we've highlighted in previous conversations. So all-in-all, very, very strong market dynamics. Our next slide really just shows you the GBP 30 billion target that we talked about last time. And as Paul says, with or without Perspective, we will get to that GBP 30 billion target by FY '29. We're in great shape. And we'll do that without any M&A activity. If we did have any M&A activity, it would be in the funds side of life where we can build up our FUM. And that would be on top of the GBP 30 billion. So it would take up north of the GBP 30 billion that we're talking about. So that GBP 30 billion is an organic target that we feel we will achieve by FY '29. And then the next slide really just shows you the strength and breadth of the business, which is our Tatton AUM by cohort. It's quite a complex slide, but I'll just explain what we're showing there. If we go back to March 13, 2013 and look at the lightly shaded gray you can see that that's a number of firms that were supporting us back in 2013 and then extrapolate that through to March '24, you can still see with the firms that have been with us the longest, they're still giving us more and more assets, which is obviously very pleasing. And then you can see the steepness of the graph at the top where the firms haven't been with us very long and are just giving us a percentage of their assets moving forward. So it's a shifting sand of assets coming through from more and more supporting firms. And I think that graph actually highlights that incredibly well. So moving on to the next slide. This is a new one for us. So this is where we're showing the sort of the net flow analysis across the broader market. So not necessarily comparing Tatton with every single DFM MPS provider, we're looking at platforms, we're looking at B2C propositions, we're looking at integrated players, we're looking at SJP and Rathbones and Brooks, et cetera. And you can see how well we're doing compared to all of those different areas, which says to us that the MPS is definitely the fastest-growing segment in the financial services arena. So we're very proud to be playing on that. The momentum is there. There's great demand for MPS products. And we obviously are getting those flows, not just because of our price, and we're very happy with our 15-basis points price. We think that is absolutely spot on, and we're under no pressure to change that. But also more importantly, the actual long-term consistent investment performance that we've achieved, and we've obviously shown the longest track record for that. So we've 11 years of consistent investment returns across our portfolios and just recent -- sorry about that. Just recently, journalists at Citywire have been doing an in-depth research into the top 10 MPS providers and had a really good look at them lifting the covers and basically having a really good look at the fund performance. And I'm happy to say that Tatton ourselves, we came out really well over 1, 3 and 5, and there's a little bit in Lothar's presentation shortly, which reaffirms that. So Tatton continue to attract more assets. IFA is doing well. And over the broader market, as you can see, we're doing exceptionally well. So on to the next slide. Really, we're just going to start to look at how the pie chart has changed over the years. We can obviously go back a lot further. And you can see, again, the number of Paradigm firms compared to direct firms is changing all the time. So we still refer to as the direct firms and new firms that have joined us post 2017, and we're sitting now with 86% of our firms are those new firms and 14% Paradigm firms. So the whole rollout of new firms and more firms attracting us or being attracted to us continues. This is still very much a land grab, ladies and gentlemen. We're still trying to get as much assets as we can as quickly as we can, and we're working hard to keep that project going in the right direction. So the next slide is really just a look at how we've evolved the MPS offering. I think it's, again, an important slide to show you. So we're not resting on our laurels. We're continually looking to evolve the proposition. You see the MPS world maturing. You see our product provision maturing. And these are 3 lovely examples of where we've increased the number of arrangements, but more importantly, we've increased the number of FUM. So over the last 6 months, these 3 different silos have produced us GBP 750 million of new monies. And it's very important, as Paul mentioned earlier, that all of these are all at 15 basis points with no revenue share going back to any of the IFAs. So co-branded is very simple for us to do. White labeling is a little bit more involved. Co-branding is literally just getting a hold of the clients or the IFAs details and putting that on our brochure. So very, very simple and straightforward with very little cost to our organization. White labeling is where the IFA wants to have his own named and labeled portfolios, which again is a little bit more work involved, but nothing too bad from a cost point of view. And then AIA is where the IFA actually wants to join us in the decision-making process by sitting on a joint investment committee alongside us, but with us having the sanction and power of veto of anything that we're not happy with. So we totally control where those portfolios end up. But as you can see, they've been attractive. The attraction is we get the asset faster, as you can see from the flows. And also, it's very, very sticky because their names are joined in with ours. So it's pretty impressive from that point of view. And then finally, just a quick look at the next slide, which is looking at the Paradigm business. So when you look at the revenue that comes through from the Paradigm business, it's now less than 15% of our total overall revenue is 14.6%. But Paradigm Consulting is very, very important part of what we do. We still get tremendous intel and information back from our IFA community as to what is keeping them awake at night and what we should be doing to help. And that's how we built out the broad change of all the portfolios that we have within Tatton. And on the mortgage side, I think we've done incredibly well, despite it being a difficult market. We've built up the number of firms. We've obviously helped with the mix, and we've also helped on the protection side as well. So I think the team have done an incredible job. And as Paul said earlier, we're guiding you to a similar performance in H2 to the one we've done in the first half, and well run. I got to commend the team to a tremendous return on that. And just for clarity, we will be unaffected by any review by the regulator into any loaded premiums, which -- and loaded commission rates, which has been going on within the industry, and we have never condoned it and never offered it. None of our firms have got any exposure as far as we're aware. But even if they did, it's not down to us as we're not responsible for the errors and emissions. They're all directly authorized in their own right, and Paradigm Mortgages is a non-regulated business. So yes, we just have to keep an eye on what happens in the wider market on that, but it won't affect us in any shape or form. So yes, I think that's probably about it from me. I'll pop you back to Lothar to have a look at the investment management side.

Thank you very much, Paul. Yes, on the investment management side, we have had a good year so far in the market, although it was also a year where there's plenty of opportunity for getting it wrong by overthinking it, I suppose. It's been an unusual cycle since the pandemic. So having stayed fully invested was the right call, not getting too excited about U.S. valuations was the other right thing. So we were neutral on the U.S. and the MAG7. We had some smaller regional overweight’s, which sometimes worked, sometimes didn't, but really where we did make good additional returns was in our active bond allocation where we sometimes just played the long or the overshooting of the yields buying into the 20-year U.S. treasury ETF and then selling it again when they plummeted. So that's all been good for us so far. And that also comes then through in the portfolio returns that we see on the next slide, which makes for very happy annual client review meetings at the moment together with the base effect of the sell-off a year ago, now giving the advisers for the 12 months a double-digit return story every all the way up from the defensive portfolios. And that's been picked up very nicely also recently by our industry media. Citywire ran a whole range of articles about what's driving the MPS success of different firms. And so that media coverage we've got from Citywire here just initially with the performance comparisons that you can see there at the bottom across selected ranges of ours. And then on the next slide, the commentary, I couldn't have wished for something better still. So next slide, please. What's driving performance. It says the secret to Tatton's performance might be that there is no secret. The approach is to focus on consistency of making big calls in different markets and to capture the gains of equities, and that's exactly what we're about. That's what the advisers value with us, the consistency of returns that we have produced over 10 years. We came out a second here in the long-term performance comparisons. Even if we go back to 10 years, we're up there. Coming second, we're quite happy not having done big calls in order to achieve that, but just solid work through portfolio construction, fund selection and otherwise, not overthinking the markets at the moment when it's very hard to come to high conviction cause one way or the other. On the following slides, we now have just over the different time periods, our different portfolio types, showing them against the ARC peer group, which there on the risk return chart is the black dots. The green dots are our portfolios. So on the 1 year, only our defensive underperforming the ARC peer group on a risk return basis, but not even anymore on the absolute return basis. On the next slide, 3 years, we can see a similar picture. On the defensive portfolios, that really goes down to us having had a lower equity allocation than our competitors, having been guided by the risk profiles that we couldn't have more than 25% in equities, which we are now changing since they're allowing our competition to have more around 30%. So we're adjusting that. If that's the 3-year, then the 5-year is looking just the same. And then lastly, I think we've got the 10 years as well on the next slide. So there's not many houses that can present a 10-year performance track record where we are outperforming on a risk-adjusted basis, our peers, which is a very strong picture. And on the next slide, finally, we have got the longest track record in Ethical with our balanced portfolio now actually going back 10 years, where is the rest going back 5 years. On the next slide then, we see how the flows are currently slightly changing. So what we see here is our matrix of products across or MPS portfolio propositions across the different risk profiles. And at the bottom, we can see how on a relative basis, the lower risk profiles are not growing quite at the same speed as the top-end. So what we can see is that after those years of very poor bond returns, clients are advised to go into slightly higher risk where the returns are maybe whether that volatility that comes with it for the sake of the higher returns. While at the same time, in the right-hand column, we can see how the Tracker proposition is currently the most popular, probably somewhat driven by the momentum of past performance where we know that the Tracker propositions don't have the same issue as active managers around concentration risk, specifically in the U.S. markets where obviously the Tracker exposure is quite heavily weighted towards those MAG7 stocks that have been driving equity returns this year. We're sometimes asked whether we are worried about our exposure to the U.S. And yes, while I think the whole industry is a little bit concerned about where U.S. valuations are compared to the rest of the world, we are comfortable in we're not being overweight in our allocations to the U.S. compared to others, but we've perhaps played it a bit more evenly across the capitalization spectrum and therefore, have actually reaped the rewards of being invested, but we're not the next Baillie Gifford by any stretch of imagination. We're not overweight in the U.S. compared to our competition. We're certainly not overweight compared to the index on the MAG7 stocks. Indeed, the managed active, which is still performing very strongly, will have an underweight to the MAG7 because they wouldn't be able to hold at the same concentration levels. That's it from the investment side. Well, there's our market variables and outlook, which hasn't really changed that much, except that, obviously, there are a couple more wildcards now with the election outcome in the U.S., where we have to see how the Trump administration is going to try to deliver on their promises because some of them could be quite inflationary if they're in the wrong sequence, and that could obviously put some pressure on to bond markets, bond yields again, which wouldn't be great for valuation levels. But at the moment, Wall Street seems to be assuming or pricing in that it will be in the right sequence, i.e., creating more capacity for the U.S. economy first before doing some of the more restrictive activities that they had also promised. So it's one to watch and one that gives us at the moment, still no incentive to go risk overweight. It will carry on in a steady pace with earnings hopefully catching up with where equity valuations have gone to in certain instances, but it's probably also prudent not to project forward on the basis of the last 12 months. So having more single digit returns over the next 12 months will be a good outcome, I think, for investors.

Thank you, Lothar. And I think back to you, Hannah. I think we're ready for questions now.

Absolutely. Good. Right. Questions. An incredibly robust performance in the results. Can you please talk about the potential risks to your business in the short and long term that the senior management focus on? And can you talk about competitive pressures in this respect?

Yes. No problem. I mean the risks are -- I think this is all about us best executing our plan. So we're not in M&A position. We're very much in organic growth position. So we've just got to keep that momentum going to get more and more IFA firms on board, and we attend every single possible meeting we can where there's groups of IFAs, whether they're through IFA distribution partners or trade bodies or whatever. So I've been making a joke on the roadshow that we'll go through an opening of an envelope if there's an IFA community there, but we really will. We literally dive around the country doing the very, very best we can to get in front of as many people as possible. This is still this land growth that I talked about. So major risk is really just the execution of the plan. On the competition side, yes, there are loads and loads of competition. I mean there are over 200 MPS providers out there now. So it's more people who aren't MPS providers than are. Pricing is changing. It hasn't really changed that dramatically over the last sort of 6 to 9 months, but the average charge is still probably 18 basis points or 19 basis points for the service. and we sit at 15%, and we feel, as I said earlier, very clear that 15 basis points is absolutely right. We still think it will become the industry norm and probably we'll get there rather soon. And some competitors have gone underneath us on price. And it doesn't necessarily mean that you do well just because you're cheaper. I think it's all around the whole blend of what you do. It's your price, which obviously is very important for consumer duty. It's also your outcomes for client outcomes and how well they do with the investment returns that they have. And we've shown that consistency over that long period, which, as I say, is exemplary. We've got to commend the team for that. The service standards that we give to those IFAs within the IFA community, we will work tirelessly with them to do as much as we possibly can to assist and then our distribution link. So I think that -- hopefully, that answers the question.

It does. It means always nicely on to another one. If your growth rate is far higher than the overall market, there must be some losers. Are you able to shed some light on which companies are the losers or the sorts of companies’ funds are flowing out of and into Tatton?

That's a cruel question, isn't it. No, I mean, actually, the way I'd answer it is to say our business development managers, whenever we sit in front of them and we do our sales meetings, I'll quite often ask the question, who are we competing with at the moment? Who's the one firm that's giving you a bit of [banks?] And actually, funny enough, that changes from month to month to month. It's never one firm in particular. But to be honest, we are not actually taking business from any other MPS provider or discretionary fund manager at this point in time. This is still what we call Phase 1 of IFAs deciding not to do it themselves, not to run their own advisory models and to basically outsource the investment management piece for the first time. So we're still coming across firms where the penny is dropping and they're saying, actually, I do want to do MPS now. I totally get it. I've spoken to enough firms out there who are making a big success of this. And therefore, this is what we want to do. So I would say we're still in Phase 1. Occasionally, we get some business from another provider, but it is only just purely occasion. That will happen as the market matures and we get to Phase II and Phase III of the development.

Still in land grab. Got it. Okay. If MPS currently makes up -- well, yes, the 90% plus of your AUM, do you see this level of dominance continuing or might BPS and funds make up a larger share going forward?

No. We believe, and I'm pretty sure we're right in that MPS will continue to flourish, and it will still be the growth area. We'll still back that up with funds. So we're obviously offering our portfolios through a fund wrapper. There could have been some situation if capital gains have got out of control with the budget, but that obviously didn't happen. So no, we would imagine that MPS will continue to thrive and continue to move forward. A lot of the tax wrappers in MPS are ISAs and pensions anyway. So the Capital Gains Act only affects you on certain GIA accounts where you've got size. So no, we think MPS will continue to prosper and move forward, but we will back that up with some funds and BPS underneath. BPS probably will have more of a struggle moving forward. And not so much with us because we are a low price point, and we are on platform. But if you look at the traditional discretionary fund management, the private wealth individual firms that are out there, we can see from all the stats and their reports how slow that is and how difficult that is to get. And that is probably bolstered by their MPS provision. But net-net-net, BPS, I think, will stop and continue to trend down.

Okay. Adjusted margin is currently just over 50%. At the scale you were targeting of GBP 30 billion plus, how high can this margin get to?

Well, I mean, that 50% margin is the group margin. So just to sort of split that margin out, if you look at the Tatton investment margin, the margin is now -- it's now 63%. And that we will expect as we get further and further assets on board that, that will tick up by 1 or 2 basis points per annum, sorry, percentage.

So our GBP 30 billion target is actually over the next 4.5 years. So you anticipate to get to sort of late 50s in terms of from a group perspective, from a group margin. So that assumes that Paradigm will grow at sort of low single digits and Tatton will continue to do what it's been doing for the last few years.

Okay. Lothar, 1 for you. A little bit of a question on sort of the music around Ethical potential for inflows, outflows. Are you seeing any trends from underlying clients who want these portfolios? A lot has been said about the younger generations having a higher demand for them. Is this something you see bearing out?

I think what we've seen over the last couple of years is that really the demand is now back to people who actually are after Ethical portfolio management rather than looking at past performance overly because for a while, because this is a growth tilted investment universe, which just naturally did very, very well over the last years. But then we had the growth slowdown in 2022. So that's shaking out a few of those, and we now have more, what I would call more genuine demand from those investors who want to invest in that specific investment universe. In terms of age groups, well, I have to say the age of our investors tends to be a little bit higher because that's when they have got the threshold assets to invest in the portfolio with the younger people probably only start and therefore, are more in other instruments than MPS is in.

Okay. Are you able to provide an update on acquisitions and what the pipeline looks like?

Yes, that's very simple and straightforward. We haven't got anything. So when we look at M&A, we've always said it would have to be earnings enhancing. Any M&A activity would be naturally in the FUM side, so it would be a Tatton-driven proposition, and we have nothing on the runway for M&A activity at the moment. What you see in our forecast and what we're saying is very much an organic play.

Slide 24. Can you talk about the last column of trend? And what does that show for you and for competitors? Let me pull it up. It's noted that Brooks McDonald has had a difficult time, but their trend shows positive. Can you confirm what that means? Let me try and pull it up. Did we say 25?

Yes. I mean it's very difficult to sort of talk about individual businesses without knowing them completely as we do. But proper strong trends there, which are wealth management is definitely a difficult area for attracting new flows. I think what Brooks have done is basically they have been getting MPS volume as well as obviously, the BPS side. And if you look at their numbers in their latest release, I think BPS was either level or slightly down and MPS was up. And I think that's where you get that netting effect of the arrow point in the right direction.

And then in the platform world, you still have your winners and losers. So [indiscernible] transact, probably Veeva is missing on there. They're probably the top performing platforms from a flow perspective with the smaller platforms still struggling for flows.

Just a follow-on on the Ethical question earlier, Lothar. What's your position on SDR and labeling for your Ethical range?

SDR is -- well, was perhaps an overdue regulatory oversight initiative. However, because it is so strict on what can qualify for SDR, the investment universe of SDR qualifying funds is just so small that we wouldn't be in a position at the moment to actually run risk diversified portfolios in the MPS for clients. So we have no plans for the time being of launching an SDR type MPS proposition.

And as a final question, if there are any more now at the moment. Do you make use of AI within the business?

We do to some extent. Yes, and we're very much aware of the opportunity and the potential of AI. I think IFAs can use AI probably to a greater extent than we can. A lot of the mechanical things that they do, the report writing, pulling together suitability reports and their annual reviews and everything, a lot of the AI support can be done from that. And we just saw a very, very straightforward application, which we were hugely impressed with where basically you have your AI bot with you in the meeting where the adviser is meeting the client and then the bot actually gives you a summary of everything that you've discussed within seconds of the meeting being concluded. And I have to say the output that we saw from that was incredible. So I think more for the IFA community, there's going to be lots and lots of AI development, which is going to streamline what they do, which is a good thing for us in the long-term because that means they'll have more time to be spent developing and working with more and more clients.

But yes, Copilot has become a regular feature on many desktops that you see in our offices as well, where it just increases operational efficiencies around documentation, meetings, anything that is not particularly requiring the biggest brain power, but needs to be done anyway.

Well, thank you for that overview. And to all of you who have joined us today, that is the end of the questions. We look forward to hearing an update in another 6 months' time.

Thank you very much.

Thanks, everybody.

Thank you. By-bye.