Ashmore Group plc · LSE:ASHM
Ashmore — Investor Day (April 2013)
71 slides from Ashmore's investor day presentation, Apr 24, 2013
Slide 1: Ashmore Group plc Capital Markets Day
Ashmore Group plc Capital Markets Day 24 April 2013
Slide 2: Agenda
Agenda 2.00pm Welcome & introduction Mark Coombs 2.10pm Emerging Markets Jan Dehn 2.40pm Investment processes Alexis de Mones, Felicia Morrow, Robin Forrest, Ricardo Xavier 3.30pm Break 3.40pm Distribution Christoph Hofmann 4.10pm Local fund management Tom Shippey 4.30pm Operating model Graeme Dell
Slide 3: Ashmore Timeline
Ashmore Timeline Corporate high Public equities yield fund fund launched Acquisition China JV launched established of EMM Local First US USD currency First IPO 40-Act debt fund fund Ashmore SICAV Turkey Brazil funds Indonesia launched launched MBO launched subsidiary subsidiary launched subsidiary 1
Slide 4: Ashmore Today
Ashmore Today AuM by theme (US$bn) Summary External 10.1 • Specialist active manager of Emerging Markets assets 14.8 Local • AuM of US$77.7bn diversified across a range of asset classes 5.5 Corporate 2.3 Blended - 8 investment themes 5.9 Equities - 22 sub-themes 17.1 Alternatives • Track record of d
Slide 5: Investment Themes
Investment Themes External Debt Local Currency Corporate Debt Equities Alternatives Overlay/Liquidity (US$14.8bn) (US$17.1bn) (US$4.7bn) (US$5.9bn) (US$2.3bn) (US$10.1bn) Global • Broad • Broad • Broad • Broad Global • Special Situations • Overlay Emerging • Sovereign • FX • High yield Active - Dist
Slide 6: Leading Long-term Investment Performance
Leading Long-term Investment Performance Summary estimated performance by theme YTD 1yr 3yr 5yr 31 March 2013 Ashmore Benchmark Ashmore Benchmark Ashmore Benchmark Ashmore Benchmark External debt Broad -1.5% -2.3% 11.5% 10.1% 12.0% 9.9% 10.3% 9.4% Sovereign -2.6% -2.3% 10.7% 10.1% 11.0% 9.9% 10.6% 9
Slide 7: Three Phase Strategy
Three Phase Strategy • Specialist, active manager of EM assets • Access a broad range of developed and emerging markets capital pools • Maintain leading investment performance track record • Diversified revenue streams • Align interests of clients, shareholders and employees • Deliver profitable gro
Slide 8: Emerging Markets
Emerging Markets Jan Dehn Co-Head of Research 8
Slide 9: Defining Emerging Markets
Defining Emerging Markets The key criterion is income per capita, which is typically well below that of developed markets Market characteristics Emerging Developed Income per capita Low, growing rapidly High, stable or growing slowly Capital markets Shallow, developing Sophisticated, mature Economic
Slide 10: Emerging Markets: 20 years History
Emerging Markets: 20 years History External debt index spread (bps) 2,000 Mexico Legend 1,800 Investment Grade rating Default / devaluation Crisis 1,600 Brazil 1,400 Russia 1,200 Financial, Venezuela Eurozone (ongoing) 1,000 Ecuador Argentina 800 Asia 600 Mexico 400 Russia 200 Brazil EMBIG - 1992 19
Slide 11: Emerging Markets: GDP per Capita Evolution
Emerging Markets: GDP per Capita Evolution GDP per capita of selected EM countries against the progression of US GDP per capita (US$) 50,000 Hong Kong 45,000 40,000 35,000 Korea Hong Kong 30,000 Russia 25,000 Turkey Brazil Philippines 20,000 Indonesia 15,000 Korea Russia China Turkey Brazil 10,000 I
Slide 12: Emerging Markets: Superior GDP Growth
Emerging Markets: Superior GDP Growth 160,000 8% 140,000 7% 120,000 6% GDP (US$bn constant prices) Forecast GDP growth rate 100,000 5% CAGR 80,000 4% 1.8% 60,000 3% 40,000 CAGR 2% 5.6% 20,000 1% 0 0% 1990 2000 2010 2011 2012 2013 2014 2015 2016 2017 2020 2030 Developed Markets Emerging Markets DM GD
Slide 13: Emerging Markets: Fundamentals
Emerging Markets: Fundamentals Convergence: increasing influence of Emerging Markets in a global context Share of Global consumption 33% 67% MSCI World Weight 13% 87% Global Debt Market Cap 18% 82% 2010 Market Capitalization 31% 69% GDP (US$) 37% 63% Population 87% 13% 0% 10% 20% 30% 40% 50% 60% 70%
Slide 14: Economic strength of Emerging Markets
Economic strength of Emerging Markets Greater resilience to external shocks Gross government debt (% GDP) FX Reserves (US$trn) 10 109.9 112.7 9 104.7 100.6 94.5 8 81.0 7 76.6 74.0 6 5 4 39.5 36.5 34.7 35.7 36.3 34.4 32.6 32.7 3 2 1 0 2006 2007 2008 2009 2010 2011 2012E 2013E 2006 2007 2008 2009 2010
Slide 15: Consequences of US Dollar Depreciation
Consequences of US Dollar Depreciation United States household debt/disposable income (%) 140 130 120 110 100 90 80 70 60 50 40 Source: US Treasury, March 2013 15
Slide 16: Emerging Markets Universe
Emerging Markets Universe Fixed income Equities 50,000 12,000 45,000 10,000 40,000 35,000 8,000 30,000 US$bn US$bn 25,000 6,000 20,000 4,000 15,000 10,000 2,000 5,000 0 0 1995 2000 2005 2010 2015 2020 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Local currency sovereign Local cur
Slide 17: Emerging Markets Universe Remains Mainly Off Benchmark
Emerging Markets Universe Remains Mainly Off Benchmark Investable universe ($trn) 0.7 5.4 1.2 4.2 13.6 54.8 3.4 17.5 27% 23% 35% 50% 67% 77% 82% 100% 73% 77% 65% 50% 33% 23% 18% External Debt Local Currency External Corporate Local Corporate EM Equities Global Equities UK Equities US Equities Debt D
Slide 18: Investment Processes – Fixed Income
Investment Processes – Fixed Income Alexis de Mones Robin Forrest Ricardo Xavier Portfolio Managers 18
Slide 19: Investment Processes – Fixed Income
Investment Processes – Fixed Income External Debt Local Currency Corporate Debt Equities Alternatives Overlay/Liquidity Global • Broad • Broad • Broad • Broad Global • Special Situations • Overlay Emerging • Sovereign • FX • High yield Active - Distressed debt • Hedging • Sovereign, • Bonds • Invest
Slide 20: Mapping the Main Fixed Income Investment Themes
Mapping the Main Fixed Income Investment Themes Yield 10% Local Cur. Bonds Corporate Debt EM Local Currency Govt Bond Yields 6% Local Currency Bonds External Debt Emerg. (Sovereign) Mkts FX External Debt Special 3% Sits US Treasury curve 0% Duration 3 Months 5 Years 10 Years EM Local Currency assets
Slide 21: Navigating EM Fixed Income Returns
Navigating EM Fixed Income Returns Our experience has shown us that there is always value somewhere in the Emerging Markets EM fixed income index returns 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 External LC bonds External LC bonds LC bonds FX Corporate LC bonds External External +22.2% +23.
Slide 22: Specialist, value-driven, macro top-down active manager
Specialist, value-driven, macro top-down active manager Global macro top • Forward looking analysis of global and local macro-economics, politics, interest rate and currency dynamics down • Analysis of the drivers of market prices Macro / Credit focus • Analysis of economic and credit risk of the as
Slide 23: Overview of Investment Committee process
Overview of Investment Committee process Risk Call Global Macro Overview • Changes in portfolio exposure levels (Research) Investment Committee (IC) Updated credit views Country / Corporate Updates • Changes in issuer-level risk assessment (IC standing members + Senior (PMs) PMs) Theme allocation Th
Slide 24: Corporate Debt Sample Investment: Polkomtel
Corporate Debt Sample Investment Polkomtel Yield convergence • Investment description - Participation in multi-tranche €3.2bn bridge financing for 12 take-private of leading Polish wireless operator (Sep 2012) 10 - Subsequent participation in issuance of: Yield (%) - €942m 11.75% Snr Notes due 2020,
Slide 25: Corporate Debt Sample Investment: Jafza
Corporate Debt Sample Investment Jafza 120 Jafz Sukuk 3M Eibor AED + 130 bps 27/11/2012 in USD • Investment description 110 - Purchase of Jafz Sukuk AED 7.5bn Eibor +130 Notes due 100 Nov 2012 - Bonds at issue in late 2007 rated A1/A+, but dropped to Refinanced at par 90 B/B2 80 Buy • Company overvi
Slide 26: Local Currency Sample Investment: Russia
Local Currency Sample Investment Russia 9.00 RFLB 7.4 Jun-2017 • Global macro background 8.50 - ECB removing tail risks with LTRO and OMT Buy Buy - Stable oil prices at high levels 8.00 - Strong inflows to Emerging Markets local bonds 7.50 • Country overview 7.00 • Fundamental improvements: - Centra
Slide 27: Local Currency Sample Investment: Brazil
Local Currency Sample Investment Brazil 14.00 Policy Rate: Selic (left axis) 8.00 • Global macro background Consumer Price Inflation: IPCA (right axis) 7.50 13.00 - Global GDP growth down from 3.9% YoY in 2011 to 3.2% 7.00 in 2012 12.00 6.50 Yield (%) Yield (%) - China GDP growth decelerating 11.00
Slide 28: Investment Processes - Equities
Investment Processes - Equities Felicia Morrow CIO Equities 28
Slide 29: Investment Processes - Equities
Investment Processes - Equities External Debt Local Currency Corporate Debt Equities Alternatives Overlay/Liquidity Global • Broad • Broad • Broad • Broad Global • Special Situations • Overlay Emerging • Sovereign • FX • High yield Active - Distressed debt • Hedging • Sovereign, • Bonds • Investment
Slide 30: Investment philosophy: value in context of growth and quality
Investment philosophy: value in context of growth and quality Step 1 Step 2 Step 3 Step 4 Sell Discipline Top down country Idea generation Security analysis Portfolio construction allocation • Based on stock buy/sell metric Use valuation model to Universe of over 2,000 Balance sheet, cash Risk-adjus
Slide 31: Equities Sample Investment: Sorouh Real Estate
Equities Sample Investment Sorouh Real Estate Date: 7 Sep 2012 Current Holdings: $17.5m Investment Thesis • The company is currently undergoing a merger discussion with Aldar. Country: UAE % of NAV 4.0% • It is a logical step: both Sorouh and Aldar are 1) entirely focused on Abu Dhabi, 2) market ver
Slide 32: Relative valuations
Relative valuations Portfolio offers compelling value without sacrificing quality and growth Valuation Quality / Growth 14 2.5 25% Price to 2013 forward earnings (US$) 12 2.0 20% Price to 2013 book value 10 1.5 15% 8 6 1.0 10% 4 0.5 5% 2 0 0.0 0% MSCI EM MSCI EM Value MSCI EM Growth Sample BGA MSCI
Slide 33: Broad Global Active (BGA)
Broad Global Active (BGA) • Longstanding philosophy and process based on deep fundamental research - EMM founded in 1987 • Transaction gave an opportunity to review and challenge approach - confirm (or otherwise) philosophy and process - position BGA investment strategy for outperformance - express
Slide 34: Influence of Fundamental Research
Influence of Fundamental Research Active risk expansion and increased value exposure driven by fundamental research Active share 73% 72% 71% 70% Active risk 69% 4.50 68% 4.00 67% 3.50 66% 3.00 65% 2.50 % Jun-2011 Jun-2012 Dec-2012 2.00 1.50 1.00 Value 0.50 14% 0.00 12% 10% Jun-2011 Jun-2012 Dec-2012
Slide 35: Broad Global Active – Recent Performance
Broad Global Active – Recent Performance BGA Composite (gross of fees) versus Benchmark Cumulative Returns: July 2012 – March 2013 18% 16% 14% 12% BGA: +12.1% 10% Benchmark: +9.8% 8% MSCI EM Value Index: +8.1% 6% 4% 2% 0% -2% Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 BGA Composi
Slide 36: Moving Product Mix to Higher Margin Strategies
Moving Product Mix to Higher Margin Strategies History of innovation, well established speciality products, strong long term performance track records and high levels of client interest Small Caps (incepted 1994 in Latam) Global Frontier Markets (2010) • Access to secular growth • Uncorrelated sourc
Slide 37: Strong Investment Performance
Strong Investment Performance Ashmore EM Global Small Cap Ashmore Frontier Africa 14.4% 15% 13.5% 35% 32.2% 30% 10.4% 25% 10% 9.2% 21.6% 7.0% 20% 16.2% 5.5% 15% 5% 4.1% 10.0% 3.9% 10% 3.8% 5% 1.9% 0% 0% 1 Year 3 Year 5 Year Inception 1 Year 3 Year 5 Year Inception Ashmore EM Glbl. SC Composite MSCI
Slide 38: Distribution
Distribution Christoph Hofmann Head of Distribution 38
Slide 39: Distribution Strategy
Distribution Strategy • Broaden institutional business by capitalising on - trend towards EM investments - increasing importance of EM economies in global context - rapidly developing local market opportunities • Focus on areas with high flows - ‘plain vanilla’ EM debt, local currency, corporate deb
Slide 40: Distribution Medium Term Goals
Distribution Medium Term Goals “Leading EM manager” in all EM-related asset classes - thought leadership in financial press - brand name recognition among financial professionals (“Think Ashmore”) Marketing - sponsoring of EM-oriented events where appropriate - white papers as product-agnostic ‘conv
Slide 41: Organisational structure
Organisational structure Distribution Institutional Business Institutional Account Intermediary Product Marketing/Marketing Development (IBD) Management (IAM) Business Management Services 15 employees 7 employees 6 employees 4 employees 15 employees Predominantly a Responsibility for Initi
Slide 42: Well-diversified Institutional Business
Well-diversified Institutional Business AuM by theme (US$bn) • United States - public and private pensions continue to be our External 10.1 strongest base 14.8 Local - defined contribution is increasingly important 5.5 Corporate - corporate treasury money is a growing client segment 2.3 Blended - en
Slide 43: Regional Differences in Approach to Intermediary Distribution
Regional Differences in Approach to Intermediary Distribution United States - three main business lines - sub-advisory and white label products - mutual fund brokerage and private banks - offshore and closed-end funds - strong emphasis on ‘point of sale’ sales support through local wholesalers Inter
Slide 44: Quantifying the opportunities: DM allocations
Quantifying the opportunities: DM allocations • Average DM allocation to EM is ~5%, implying ~$4trn AuM • Ashmore’s market share is ~2% • A ‘neutral’ allocation to EM is ~15%, based upon MSCI World weight (13%) and share of global fixed income (18%) • Every 1% increase in DM allocation to EM, at tod
Slide 45: Local Fund Management
Local Fund Management Tom Shippey Corporate Development 45
Slide 46: Growing EM Capital Pools
Growing EM Capital Pools Sources of assets (US$trn) Europe North America 6% 34 4% Asia ex. Japan 40 Middle East 25% 10% 8 2015e 3 Africa 2015e 2015e 13% 2015e Latin America Australia and 1 Japan 14% 5% 2015e 4 15 2015e US$105trn US$311trn 2015e EM 16% % Indicates capital markets 2010- EM DM 2015e CA
Slide 47: EM Local Market Dynamics
EM Local Market Dynamics Growth drivers Savings product penetration Deposits Mutual Pension assets Annual insurance • 87% of world population (% of GDP) funds (% of GDP) premiums (% of GDP) (% of GDP) • 65% of population aged 35 or under (vs. 43% in DM) (2010) Brazil 66% 41% 13% 3% • 33% of Global c
Slide 48: Local Market Opportunity
Local Market Opportunity Current EM AuM US$11trn – potential for US$40trn Assumptions Illustrative growth opportunity (AuM, US$trn) • Base case average GDP growth of 6.7% Mutual • Increased savings product penetration: Funds '12 2.0 7% 20% Mutual Funds — mutual funds from 7% to 20% of GDP (US Mutual
Slide 49: Local Market Presence
Local Market Presence Ashmore has an expanding global footprint, with on the ground presence in the largest Emerging Markets Moscow • Real Estate Istanbul Beijing London • Equities • Real Estate New York • Local Currency Washington D.C • Private Equity Tokyo Shanghai Mumbai • Equities • Private Equi
Slide 50: Local Fund Management: Market Entry Considerations
Local Fund Management: Market Entry Considerations • On-ground presence beneficial • Tailored entry approach based on country characteristics(regulation, market) – not one size fits all Local presence • Commitment through crisis recognised and benefits firm globally, not just in country • Consider a
Slide 51: Supporting the Local Platforms
Supporting the Local Platforms • Deploy best in class institutional practices group wide Governance — higher of global and local standards (e.g. compliance procedures) • Ensure local businesses benefit from Group support • Assist with business development – growth option analysis (organic vs. M&A) •
Slide 52: Local Fund Management: Developments Driving Opportunities
Local Fund Management: Developments Driving Opportunities Mandatory pension & insurance contributions Brazilian managers Bank owned managers AuM ($bn) Independent managers AuM ($bn) • Indonesian employer contributions / Brazilian public sector BB DTVM 234.9 Legg Mason 13.5 • Turkish focus on pension
Slide 53: Growing EM Client Base
Growing EM Client Base • Increasing proportion of AuM sourced from Emerging Assets sourced from EM Markets c.25% 20 — c.25% of total AuM 17.3 — 32% CAGR from Jun-06 to Dec-12 13.7 15 13.3 • c.US$1bn of assets now managed locally 10.4 US$bn 10 • Distribution strategies tailored to local markets 7.0 c
Slide 54: Operating Model
Operating Model Graeme Dell Group Finance Director 54
Slide 55: Operating Model Characteristics
Operating Model Characteristics • Ashmore’s operating model has the following characteristics: — industry-leading EBITDA margin — scalable platform with substantial operating leverage — consistently good cash generation — targeted investments to underwrite future profitable growth — strong balance s
Slide 56: High Quality Profits from a Scalable Platform
High Quality Profits from a Scalable Platform • Focus on growing diversified recurring management fee income Margin development stream 120 • Many factors influencing management fee margin - mix and volume effects the most pronounced 100 - profitability and longevity of a large segregated mandate can
Slide 57: EBITDA Margin Development Scenarios
EBITDA Margin Development Scenarios • Assumptions for a conceptual EBITDA model: Conceptual EBITDA margin development - AuM doubles over a five year period 75 - a range of average net management fee margins - 20% variable compensation 70 EBITDA margin % - fixed cost inflation is the variable Average
Slide 58: Cash Generation and Utilisation
Cash Generation and Utilisation • Operating profit translates consistently to cash Principal uses of cash (£m) 300 140% - ~10% free cash flow yield 250 120% • ‘Business as usual’ activities utilise the majority of the group’s 100% cash flow 200 80% - tax 150 60% - share purchases to avoid dilution 1
Slide 59: Seed Capital
Seed Capital Underwrites future growth • Seeding funds underwrites future AuM growth Seed capital by theme - gain access to new markets / distribution channels Theme % total seed Principal funds (e.g. Indonesia, US 40-Act mutual funds) by capital providing initial scale to funds External 2% SICAV -
Slide 60: Seed Capital: Valuation and accounting considerations
Seed Capital Valuation and accounting considerations • Attractive returns on capital in advance of AuM growth Historical returns on exited seed capital investments • Valuation considerations Theme Investment cost Hold period Annualised (US$m) (months) return - IFRS accounting complicates the picture
Slide 61: Balance Sheet
Balance Sheet • Ashmore has a strong balance sheet - no debt Evolving balance sheet, stable cash balance (£m) 600 - no FSA consolidation waiver 500 - substantial cash balance - cash and seed capital equivalent to tangible 400 shareholders’ funds 300 • Which confers commercial and strategic flexibili
Slide 62: Distinct, Equity-biased Remuneration Structure
Distinct, Equity-biased Remuneration Structure Variable compensation is varied • Distinct remuneration policy, with principles of rewarding 19% performance, incentivising equity ownership and ensuring 18% 18% 18% consistency of approach across the firm 14% • Fixed (salary) remuneration capped at a l
Slide 63: In conclusion
In conclusion • Ashmore is well positioned to benefit from growing investor capital pools - specialist, active manager focused solely on Emerging Markets - leading, long term investment performance track record - scalable global distribution platform - network of local offices to access domestic EM
Slide 64: Appendix
Ashmore Appendix
Slide 65: Investment Performance Notes
Investment Performance Notes for estimated performance by theme To be read in conjunction with data on slide 6 1. Unless stated otherwise performance: a. Assumes reinvestment of dividends; b. Is shown gross, i.e. before the deduction of fees/costs. Fees/costs vary between different Ashmore funds for
Slide 66: Biographies
Ashmore Biographies
Slide 67: Biographies
Biographies Mark Coombs Chief Executive Officer of Ashmore Group plc and Chairman of the Investment Committee, has been involved in Emerging Markets since 1983. He holds an MA (Hons) in Law from Cambridge University and joined Grindlays Bank plc in 1983. Following its acquisition by Australia and Ne
Slide 68: Biographies
Biographies Felicia Morrow Chief Executive Officer and Chief Investment Officer of Ashmore Equities. She has served as the Firm’s Lead Portfolio Manager since 2003. She has also served as the Latin American and Southeast Asian Portfolio Manager for the global portfolios and has managed the Latin Ame
Slide 69: Biographies
Biographies Tom Shippey is Head of Corporate Development, in which capacity he has been responsible for developing and implementing Ashmore’s corporate strategy. Prior to joining Ashmore he worked for UBS Investment Bank, advising on M&A and capital raisings in the financial services sector. Tom qua
Slide 70: Disclaimer
Disclaimer IMPORTANT INFORMATION This document does not constitute an offer to sell or an invitation to buy shares in Ashmore Group plc or any other invitation or inducement to engage in investment activities. Certain statements, beliefs and opinions in this document are forward-looking, which refle
Slide 71: Ashmore
Ashmore