Ashmore Group plc Investor presentation September 2019 www.ashmoregroup.com
A specialist active manager of Emerging Markets assets EMERGING MARKETS FUNDAMENTALS UNDERPIN LONG-TERM GROWTH • EM accounts for majority of world’s population ( 86%), FX reserves (76%), GDP (59%) • High growth potential: social, political and economic convergence trends with DM • Large, liquid, diverse investment universe • Investors are underweight, typically <10% allocations vs 15%-20% EM weight in global indices ASHMORE CHARACTERISTICS LONG-STANDING INVESTMENT APPROACH DELIVERS OUTPERFORMANCE • AuM of USD 91.8bn diversified across eight investment themes • Deep understanding of EM underpins an active, value-based investment philosophy • Inefficient markets mean volatile prices, but significant alpha opportunities • Strong investment performance, 97% of • Investment committees, not a star culture AuM outperforming benchmarks over • Performance track record extends over 27 years three years • High EBITDA margin (66%) DIVERSIFIED CLIENT BASE • Well-capitalised, liquid balance sheet with • Global client base diversified by type and location ~£560m of excess capital • Retail markets accessed through intermediaries • 30% of AuM sourced from EM-domiciled clients • Alignment of interests between clients, employees and shareholders; employees own ~46% of equity DISTINCTIVE STRATEGY & EFFECTIVE BUSINESS MODEL • Progressive dividend policy, more than • Three phase strategy to capture value from long-term EM growth trends £1bn returned to shareholders since IPO • Remuneration philosophy aligns interests and provides flexibility through profit cycles • Disciplined cost control delivers a high profit margin • High conversion of operating profits to cash (110% since IPO) • Scalable operating platform, 307 employees in 11 countries • Network of local EM fund management platforms • Strong balance sheet supports commercial and strategic initiatives, e.g. seed capital 2
Emerging Markets Current views
Emerging Markets outlook Cautious global macro backdrop Value in EM: external debt spread (bps) • Rising concerns over US and global growth 450 • Risk of continued US trade war with China/Europe 400 • Base case for US economy to deliver below-par growth but 350 market increasingly fearful of recession • 300 Dovish DM central banks • US$13trn DM bonds have negative yields 250 Dec-2017 Mar-2018 Jun-2018 Sep-2018 Dec-2018 Mar-2019 Jun-2019 In contrast, EM provides attractive risk-adjusted returns • Fundamentals are in good shape: Value in EM: equities cheap versus growth outlook ˗ GDP growth premium expanding vs DM ˗ Low inflation and high real rates ˗ External accounts in balance • Central banks able to ease policy from a stronger position • Valuations are compelling after July/August 4
Historical valuations relative to Developed Markets External debt Local currency Index: 19 countries, 19 issuers, 220 bonds Index: 73 countries, 169 issuers, 741 bonds 8.0% 6.00% 550 7.0% 5.50% 500 6.0% 450 5.00% 5.0% Yield (%) 400 4.0% 4.50% 350 3.0% 4.00% 300 2.0% 3.50% 250 1.0% 200 0.0% 3.00% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 EMBI GD spread over UST, bps JPM GBI Global (lhs) JPM GBI-EM GD (lhs) Yield difference: GBI-EM vs GBI Global (rhs) Equities Corporate debt Index: 52 countries, 644 issuers, 1,455 bonds 5.0 110 700 4.5 100 600 4.0 90 500 400 3.5 80 300 3.0 70 200 2.5 60 100 2.0 50 0 1.5 40 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 EM vs DM growth premium (IMF, %, lhs) MSCI EM vs DM total return (Dec2010=100, rhs) CEMBI BD spread over UST, bps 5
Volatility risk • Active management can exploit value created by Average per annum volatile prices in inefficient markets Default episodes (cost in bps) 1998-2018 (bps) Argentina 2001 483 US 10yr bond (bps) 356 • Significant alpha can be generated versus EM net of defaults (bps) 716 Ecuador 2008 125 passive (index) exposure EM ‘risk free spread’ 360 Ivory Coast 2011 61 Belize 2012 10 Argentina 2014 92 • Bond yields provide substantial reward for risk taken, based on actual defaults Ukraine 2015 63 Mozambique 2017 7 Venezuela 2018 154 External debt index yield and defaults 1,400 Yield net of defaults (bps) 1,200 Estimated loss from default in EMBI GD (bps) 1,000 800 600 400 200 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Ashmore, Bloomberg, JP Morgan, Moody’s. Data as of 28 February 2018. Venezuela recovery rate assumed to be 40%. 6
Active versus passive investing in Emerging Markets Large investment universe, low index representation • EM fixed income and equity markets are inefficient 30.0 US$26.5trn Benchmark indices are unrepresentative of the US$24.5trn 12% 13% investment opportunity 25.0 Active management is critical 20.0 US$ trillion 15.0 • US$11.3trn Structural developments, e.g. removal of capital US$10.5trn 2% 11% controls, will increase index representation over the 10.0 long term US$3.4trn 5.0 28% US$1.3trn 69% 0.0 External External Local Local Fixed income Equities sovereign corporate sovereign corporate Mkt cap included in benchmark Mkt cap not included in benchmark Wide range of returns available (12m to December 2018) +14% EMBI GD index -4.3% -25% Source: BIS, JP Morgan, Bloomberg 7
Ashmore Group plc
Consistent three-phase strategy to capitalise on Emerging Markets growth trends 1. Establish Emerging Markets asset class Recent developments • • Ashmore is recognised as an established specialist Emerging Markets manager, Investor allocations to Emerging Markets are increasing, and and is therefore well positioned to capture investors’ rising allocations to the asset growth in global capital pools means a larger absolute classes opportunity versus five years ago • Ashmore delivered net flows of US$10.7bn in FY2018/19, with clients increasing allocations back towards target levels 2. Diversify developed world capital sources and themes • • Ashmore is diversifying its revenue mix to provide greater revenue stability Ashmore continues to develop products and capabilities through the cycle. There is particular focus on growing intermediary, equity within its eight investment themes • and alternatives AuM Intermediary retail channels account for 15% of Group AuM 3. Mobilise Emerging Markets capital • Ashmore’s growth will be enhanced by accessing rapidly growing pools of • 30% of Group AuM has been sourced from clients domiciled investable capital in Emerging Markets in the Emerging Markets • Local platforms in seven markets manage AuM of US$5.3bn 9
Strategy phase 1: Establish Emerging Markets asset classes GDP per capita (indexed 1980 = 100) • Ashmore’s proven investment expertise, specialist focus and 2018 EM = US$11,100 scalable distribution model mean it is well-placed to exploit DM = US$45,800 the growth opportunities across Emerging Markets • Huge structural growth opportunity as nations develop and 1980 Emerging Markets increasingly viewed as mainstream asset EM = US$1,500 classes 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020f 2022f 2024f • Diversification is important: not a single asset class. There is Emerging Markets Developed Markets a wide range of risk & return profiles and large investable markets across fixed income, currencies, equities and illiquid assets Significant growth opportunity from higher allocations (%) 1 7.5 • Institutional allocations are underweight and rising steadily 6.4 Typically low/mid single digit % allocation to Emerging 5.4 Markets 4.2 3.8 JP Morgan GBI-Agg Diversified index has 22% EM weight 3.6 2.0 Ashmore’s specialism, expertise, experience and n/a distribution model enable it to capture rising 2005 2010 2015 2017 investor allocations to Emerging Markets Equity Fixed income (1) Ashmore, annual reports of representative European and US pension funds collectively responsible for more than US$750 billion of assets 10
Strategy phase 2: Diversify assets under management AuM by client type • Ashmore’s broad distribution capabilities deliver AuM diversified by investment theme, client type and client Central bank location 1% 12% 15% Sovereign wealth fund 7% 2% Government AuM development (USD bn) Pension plan 100 18% 16% Corporate/financial institution 90 Fund/sub-adviser 80 70 Intermediary retail 29% 60 Foundation/endowment 50 40 AuM by client location 30 20 10 17% Americas 26% 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Asia Pacific 9% Europe ex UK UK External debt Local currency Corporate debt Blended debt Equities Alternatives Multi-asset Overlay/liquidity Middle East & Africa Ashmore’s immediate priorities are to grow AuM 23% 25% (absolute and as proportion of Group) in equities, alternatives and from retail clients Data as at 30 June 2019 11
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