This call will contain forward-looking statements, including statements of current intention, opinion, and predictions regarding the company's present and future operations, possible future events, and future financial prospects. While these statements reflect expectations at the date of the call, they are, by their nature, not certain and are susceptible to change. The company makes no representation, assurance, or guarantee as to the accuracy of the likelihood or fulfilling of any such forward-looking statements, whether express or implied, and except as required by applicable law or the ASX listing rules, disclaims any obligation or undertaking to publicly update such forward-looking statements. Participants recording this call may use such recordings for their internal business purposes only and are prohibited from making any such part of the recordings available to the public without the prior written permission of the company. I would now like to hand the conference over to Tim Carver, CEO.
Please go ahead.
Thank you, and thank you everyone for joining us for our 2025 Full Year Results Earnings Call. We're thrilled to be here. As always, I'm joined by my partner, our Chairman and CIO, Rajiv Jain, our Chief Financial Officer, Charles Falck, and our Global Head of Distribution, Steve Ford. If we go to the second slide for financial highlights, you will see that we had a solid year in 2025. We ended the year with just about $164 billion in funds under management, an increase of just over 7% from the prior year. If you actually update that to the end of business, U.S. markets yesterday, we ended internally unaudited.
We ended right around $172 billion, which is right on top of our record fund for this business, which we achieved six months ago in June of 2025. So the business from a funds under management standpoint continues to be very robust and very resilient. For the 2025 calendar year, we had net outflows of $3.9 billion, offset by $14.8 billion of assets driven by investment performance. Now, the business continues to be very well diversified across four major strategies, and with large books of business geographically dispersed, and across a number of different product types, both retail and institutional.
Now, for the year, we saw net revenues of $808 million, an increase of 6.3% from the prior year. Net operating income of $622.5 million, an increase of 7.6%, and net income of $463.3 million, an increase of 7.3% from 2024. The board has declared a fourth quarter dividend of $0.0365 per share, which represents a 90% payout ratio of our distributable earnings, consistent with the third quarter 90% payout ratio that we announced last quarter.
We're gonna start this presentation with Rajiv giving an update on our performance and our investment environment, and then I'll take back over to talk a little bit more about the business after that. So, Rajiv?
Thanks, Tim. And thanks, everybody, for joining. It's been quite a fascinating year. That's the best way I could put it in context of what's happening in the market and obviously geopolitically. But I think if you switch to slide number four, I think what we're talking about is that there's been a clear shift towards cyclicals, particularly AI-driven theme as such over the last, you know, just over two years. And as you know, we had significant exposure to those very names.
But being disciplined to longer-term, you know, to generate longer-term returns, we started cutting back in the second half of 2024 and very aggressively first quarter of 2025, which obviously in hindsight was a little premature. However, having lived through some of these cycles, and I think it's fair to say that the either you're early or you're late. It's very hard to time these cycles. Problem is that if you look at the underpinnings of the whole AI theme as such, we feel the underpinnings have gone progressively worse, not better. We continue to work on this theme, not just with our traditional allies, but also with our nontraditional team.
The data points are actually quite quite quite startling in a negative way. Now, the other aspect is that if you despite the fact that global unemployment numbers are creeping up, I'm looking at three- to five-year highs in vast majority of developed countries, significant part of emerging markets too, including China. The defensives as such are actually fairly attractively valued. And as you can see on this page, the left-hand side chart, it is actually quite remarkable where the valuations are and the fact that some of the defensives have been underperforming for almost four to five years now while you are seeing early signs of green shoot appear across the board.
I mean, if you look at the last few quarters, things have gone progressively less bad or early signs of even improvement, but the valuations are not discounting that. Number two is, if you look at the weights in the index, what we do feel that some of the weights in the index of these names are actually quite... Of the tech names and the tech type names, which are basically driven by the whole team, is actually close to 50%, including emerging markets. More than half of the growth was really driven by what's happening on the memory side. And even within tech, as you know, software is finally getting hit. We wrote a piece of paper around four years ago, Is Software the New Shale?
Which we, again, we were a little bit early, but, but had you sold some of the software then, you, you actually would be in, you know, better served because of, of the dramatic, sell-off that you're seeing. The accounting was very aggressive, and we feel some of the similar traits are now appearing in the semiconductor side. But the Mag 7, not only they are running out of cash, I mean, if you adjust for the stock-based compensation, et cetera, they, they are actually hitting the bond market. And FT had a piece that they'll be looking to raise just under $500 billion. Our view, good luck with that.
In the meantime, if you look at our positioning, if you go to next page number five, what you're seeing is that the software is seeing still buying the dip. One of the questions we get all the time is that the retail desire to own anything that says up, i.e., buying the dip, will continue. Our view is that that I've seen in way too many cycles, that happens at the tail end of the cycle, and that's not exactly what we support. In fact, you're seeing that in broad-based software ETF, there's massive call buying as well as inflows. That hasn't really supported the space, because when these things fundamentally change, it'll be very hard to maintain those.
This is an important chart, by the way, on slide number 6. I think we sometimes get compared to some of the larger competitors who got hit hard four or five years ago in Australia. And I think the position couldn't be fundamentally different. We have overweight areas that have actually underperformed for four or five years and are very attractively valued. So this was a conscious decision to pivot into that area. And I said, having lived through a lot of these, you know, bubbles, whether Asian property bubble, or dot-com and GFC, or the housing bubble, you almost have to be early. It's very hard to time these on the exit side. And you're seeing that in software, by the way.
Mostly growth managers have really struggled to exit those names because they first creep on you, and they start melting. And if you look at our positioning, we are essentially overweight consumer staples, utilities, and healthcare in a meaningful manner, not emerging. Emerging, we still have a lot of banks in various markets outside of China. The other, the flip side is underweight in tech. And I think there are clear signs of double, triple ordering memory, as well as DRAM, you know, NAND as well as DRAM. And I think those things typically happen at the tail end of the cycle. There are clear signs of double, triple ordering. By the way, that's perfectly normal.
I'll just start by saying that if you look at companies like Micron Technology, it was the same price, absolute price point last year as it was in year 2000, when they had, you know, fire-driven shortages. And if that is not cyclical, I don't know what defines cyclicality. So our view is that this is kind of very, very late in the game. Vast majority of folks would have tough time exiting. Not to mention some of the names may actually go—the names that you own may actually go up because there's way too much capital that will leave. I mean, if you look at NVIDIA, that's almost 8% of the S&P. If you look at cumulative energy plus utilities, that's 5%, and that's trillions of dollars invested over decades.
So when it may be easier to sell NVIDIA, but be much more hard to get into some of these names. And in the last few weeks, again, it's very early days. I don't want to take victory laps here, but I think you will see that the upside pressure of these names could be quite interesting, especially very similar to price action that we're seeing as we saw in second half of 2000, early 2001. Tim?
Great. Thanks, Rajiv. Let's move to slide number 8. And if we look at slide number eight, what I want to make sure everybody understands is why is it if we look at the relative underperformance of our strategies over the course of the calendar year, why is it that we sit here today at near record levels of funds under management? And I think that, you know, what really explains that is the way we position ourselves to prospects and to clients, the way we talk about our strategies with asset consultants. We always tell people that our objective is to outperform over a full market cycle by a couple of hundred basis points, with lower volatility, protecting better on the downside, and that we won't participate in runaway markets.
I think what you're seeing here is clear acknowledgment that our clients aren't expecting us to keep up, and that explains a lot of the reason why we haven't seen more significant outflows, given our relative underperformance. If we look here on slide eight, what I've highlighted here is that our promise is that we are going to do our best to try to deliver high single-digit, low double-digit rates of return over a full market cycle. As you see here, that's exactly what we've done and what our client experience has been. The other key point, if we move to the next slide, is that our business is extremely well-diversified.
And while the headline numbers and the headline news is highly focused on the U.S. equity market, what you see in our book of business is that nearly half the business, over $70 billion, is in an international equity strategy that did north of 20% returns last year. So it's not a surprise that clients aren't leaving us when they've done 20% with us in, you know, in the $70 billion book of business. And if you add EM alongside of that, that's over $110 billion that did better than double digit rates of return. And while we, of course, didn't keep up with markets, I'm not suggesting we did, we're not likely to see catastrophic changes to the business or outflows when we have solid returns like this.
Again, if you look at the U.S. equity strategy, where our relative performance is most weak, it's the smallest part of our business, and I think again, explains why the assets continue to hold up. If we go to the next slide, as Rajiv alluded to, inflection points matter. So the other key point that I'd make here is that in the short term, performance has been quite strong. Even though markets haven't... You know, markets have been effectively flat for the past quarter, we've gained back quite a bit of what we gave up in the prior year, particularly on the developed market side, here in just really in the past 30 days, again, against sort of flat markets. So, you know, we can see that we can gain, we can gain back...
Performance just as quickly as we gave it up. And I think that's why we see the clients stick with us. So not reacting to short-term performance, as long as we continue to deliver the way that they would expect us to deliver, you know, consistent with the philosophy of our strategy. If we move to the next slide, I just want everybody to see what it is like, what the client experience is like at GQG. And what this shows is, had you been a client from the beginning of you know when the strategy since inception, you not only see solid returns, you see that even with the relative underperformance of last year, we're still at the top of the top quartile for that client experience.
So for almost all clients, with the exception of the most recent clients that came on board, the client experience has been quite positive. And again, if we go to the next page, you see it again. Here, what you see is all four of our core strategies. If you pick any date and time where you have a five-year return available to you, in almost every single rolling five-year return period, and across all four of our strategies, we've outperformed. So there's been a tremendous persistence. So the point of this is that the business is resilient because the vast majority of client experiences on a five-year basis has been, has been positive relative to the market.
So when you add all of these things up, the very diversified book of business, the long-term consistency with our philosophy, the way that we communicate with our clients, and, you know, the absolute returns over time, I think this explains why we continue to have very solid, very robust assets in the face of short-term underperformance. So with that, let me turn over to Charles, who can walk us through the financial results for the year.
Thanks, Tim. So if you'll switch to page 14, please, I'll touch on the financial highlights and then go into a little bit more detail around the income statement. So as Tim mentioned, we closed out the year at $163.9 billion in AUM. Average AUM was actually higher at $164.3 billion. That's a 10.8% increase over the prior year. And that's really what drives the net revenue figure of $808.3 million, over $760 million the prior year. We continue to show extremely strong operating income as well as net income. Both of those grew 7.6% and 7.3%, respectively.
You see the progression of net revenues in the bar charts on the bottom left, which indicate a compound annual growth rate of about 11%. Then the profitability, as shown by the line in our operating margin. We increased our operating margin, which is already high, from 76% - 77%. So, you know, very strong financial performance. If you switch to the right side of the page, we continue to pay out high dividends for the year at $439.3 million, as a result of, as Tim mentioned, a 90% payout ratio on distributable earnings, which have also increased to $477 million. Illustrated on the bottom is our growth in net income, as well as the diluted earnings per share of $0.16 per share.
With that, I'll move to the next page, please, for a little bit more detail on the income statement. You see how revenue is composed of management fees and performance fees. Management fees I touched on earlier. We experienced a small decrease in fee realization from 49.6 basis points down to 48.4. That's a result of a mix shift that, you know, resulted in vehicles with lower fees, as well as strategies with slightly lower fees driving management fees. On the OpEx side, we managed those very prudently. We're able to reduce general and administrative by $6.2 million or 14% by having a prudent approach to projects and management of operating expenses.
If you look at compensation and benefits, while that increased $4.9 million and 4.9%, average headcount for the year actually increased more. We went from 212 average headcount in 2024 to 240, which would be a 13.2% increase. One other item that I'd like to highlight on this page is our income taxes went up as a result of obviously higher and continued strong profitability. The effective tax rate moved only very little, but up from 26.5%- 26.7%. That's where we would expect the effective tax rate to be. It's been range-bound since 2022 between 26% and 28%, so within that range. Moving on to the balance sheet. There's not that much to note there.
Very strong balance sheet with high cash balance, that's used for working capital as well as the dividend payout, which I'll get to in a second. The deferred tax asset, which was created at our IPO, and we continue to depreciate over time. One other thing of note is that we did not have any debt outstanding at the beginning or during or, for that matter, at the end of 2025. Moving on to page number 17, the dividend payout, Tim mentioned this, AUD 0.0365 per share was declared by the board earlier today. That's equivalent to an aggregate payment of AUD 108 million in total dividend for the fourth quarter and continues to represent a 90% dividend payout ratio at 90% of our distributable earnings.
With that, I'll turn it over to Steve for the update on distribution.
Thanks, Charles. Appreciate that. If we can move to slide 19. I just wanna circle back to a couple of the points that, that Tim made, and, and try to give you the view from the front lines of how we talk to clients, and how we set expectations, and, and what I think ultimately leads to some of the resiliency in the client base that, that Tim and Rajiv both alluded to. And the first thing that we talk about when we talk about our style of investing with the, with clients, is what is the expectation that you should have for returns? And over the long term, we wanna beat the benchmark over a full market cycle, but we do that by delivering high single digit, low double-digit compounding. And that comes out of every client-facing person's mouth at GQG Partners over and over again.
And so, what I put on the right-hand side of this, this visual, is just zooming out just a little bit past the very short-term performance that people get focused on, to look at a three-year number. And you'll see our worst strategy compounded client capital at 13% annualized, which I think most all of them would have taken beforehand. And if you would have also asked the clients and said, "There's gonna be a market where the index is gonna compound at 23% annualized, what do you think the likelihood of GQG outperforming in that market is?" And I think most of them would have said it, that's not a high probability event at all, that we don't tend to outperform in runaway and frothy markets.
And so what I think you're seeing here is part of the reason why there's resiliency in the core client base. And we've put on the bottom of this, just those same numbers rolled one month forward to the end of January, not even incorporating what's happened so far this month. And you already see that picture improving on both an absolute and relative basis. And so this can actually move around, you know, relatively quickly when you're a high tracking error manager. And I think it's why clients are gonna be, you know, paying very close attention, and be very thoughtful about maintaining long-term exposure to what we do. So let's go ahead and move to slide 20. And the reality is, it's not just about excess return, it's also about risk-adjusted return.
And so when you look at this over most periods, and certainly over the longer term, our risk-adjusted returns, the picture gets better, both against the benchmark and absolutely better against the peer group. And so that is, it's those kind of things in common with the rolling returns that Tim showed before, that all lead to that client experience. And again, I think part of why there's resiliency in the client base. Let's move to slide 21. It's worth spending a little bit of time here, more than we usually do, talking about the diversification, because I think, as Tim noted, it's easy to think of this as a, you know, very, very siloed type of business. But the reality is...
Or just looking at it through one investment team. But the reality is that the scale that we've achieved, the number of strategies we have, the geography-based diversification, the channel-based diversification, what you end up with is hundreds of thousands of individual client entry points with different rationales for portfolio construction over different time frames, that will be correlated in their decision-making, but ultimately quite idiosyncratic and diverse. And when you put on top of that, what's going on, the divergence between, say, emerging and developed markets or ex-U.S. markets, suddenly you get a very distinct set of decisions being made across thousands and thousands of different investors. And certainly some of them will be correlated in their decision making, but again, it's just part of why it's much more complex than looking at a one-year performance number.
Let's move to the next slide. So let's talk about flows. So we publish flows on a monthly basis, so I don't think there's any surprises here. As Tim talked about, we saw some outflows in the back half of the year. And I can tell you, you know, from the front lines, what we're seeing largely is clients reacting to shorter term performance. And of course, we try to educate every client that we can on the front end, that that's not a way to think about investing with us. But inevitably, some do. Some have lower thresholds for pain, and we can't help every one of them make great decisions about entry and exit with GQG.
But what I don't see is any deterioration in the what I would call the pillars of the foundation to our distribution strategy and our client retention strategy. So if you think about platform access, if you think about platform ratings, if you think about consultant ratings, et cetera, all these kind of core things that are the cornerstones for the leverage that exists in our distribution. As of today, those all remain solidly intact. So let's move to the next slide. We've talked a lot over time about our wholesale channel. Obviously, it's been a huge part of our growth over the last few years. And what I would say today when looking at the wholesale channel is, at no point in our history have we had more access to platforms around the world than we have today.
So over the course of 25, we continued to add product to different platforms, different strategies, to platforms that we already do business with, et cetera, et cetera. So it doesn't matter if what geography or you're looking at, that's been the case. And so while that's not going to stem near-term outflows from short-term performance, what I do believe is that as that picture improves, we're in the strongest position we've ever been in the wholesale channel to create growth when the opportunity presents itself. On the right-hand side, you'll see some thumbnails of actually content that we've produced. So if you follow along with us on our investor website, you'll notice that our content strategy, I believe, continues to get better, and certainly the quantity continues to go up.
In an environment where we do have short-term underperformance, and we know that clients are paying close attention to that, it's extremely important that we deliver transparency and insights about about how we're investing and why. And as I always say, there's really two reasons that people do business with us. The first is performance, and the second is insights... And so I think the feedback that we've received on the insights that we've delivered about the markets, about why our portfolios are positioned the way they are, has been extremely good, and it's been a very important part of our overall client retention strategy. Let's move to the next slide. And I'll finish with this.
This is on the back of the strength that we just talked about in our wholesale channel and the access that we have available. This gives you the sense of the attention that we're commanding in the institutional channel by looking at eVestment database, which is the largest global database of institutional investors. You'll see that we are essentially the number one most viewed manager in the world across the strategies that we manage. And so, again, I think that just shows you that we're commanding the attention of investors. We have a very deep and robust client base, and as the performance picture improves over the short and intermediate term, I think our ability to capitalize upon that remains as solid as it ever has.
So with that, I'm gonna turn it back over to Tim.
Great. Thanks, Steve, and thanks, team. You know, I think we can open it up now for questions and have a dialogue with the chair members.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then two. If you're using a speakerphone, please pick up the handset to ask your question. We ask that questions be limited to three per person at the first time. Please rejoin the question queue for any follow-up questions. The first question today comes from Nick McGarrigle from Barrenjoey. Please go ahead.
Steve, thanks for taking questions. Maybe just to start with one around positioning, how have you kind of seen markets?
Hey, hey, Nick. Nick, sorry to interrupt you. We can't, we can't quite hear you. Could you maybe get closer to the microphone?
Is that a bit better?
Yeah, it's much better. Thanks, Nick.
Okay, thanks. Yep. Maybe just a question around portfolio positioning the last six or seven weeks. I guess you've seen software rollover, haven't seen some of the defensiveness necessarily outperform enormously, but just how you think the last few weeks kind of colors your view around portfolio positioning moving forward, presumably taking some confidence from particularly the performance in defense.
Rajiv, you need to unmute.
Yeah, Nick, so this is Rajiv. So look, I think if you'd asked the vast majority of folks, folks like yourself, the expectations were that if the markets go down, we'll go down maybe less, right? And our view was this is far more similar to dot-com bubble and the reaction afterwards, which means that the defense is because there's a gap is so dramatic, they should actually go up, particularly if the fundamentals are fine. And I think what has happened last few weeks, because if you look at our performance, it kind of stabilized pretty much end of October, early November, and we have kind of kept up despite the run-up.
I think what has happened the last few weeks gives me more confidence that the cracks are appearing everywhere. I think the fact that EY is now questioning what Meta is doing, the cash flow numbers, Microsoft down, I think, over a third. Oracle has completely blown up. I think it's a very narrow group of deepest cyclicals within tech, which are working. I think that means that you are seeing classic signs, which is what typically happen at the tail end of the cycle, so it gives us more comfort. In fact, I mean, we haven't really changed anything over the last few weeks or even months.
And I think, look, I think the underlying corporate earnings news has been fairly good across a vast area of our names, not every name, but vast area of names. So, as the narrowness of the market, in terms of what's working within the AI team, because even within the AI team, there's cracks appearing. So private credit. I mean, I'll give you one data point, that more than 60%, just over 60% of data centers being built in U.S. are non-hyperscalers. So the perception that is the, is the hyperscaler doing everything, first of all, is not true. It's factually wrong. The second thing is that, and NVIDIA has been the one of the single biggest investors in AI infrastructure, okay?
The question you're to ask is: If things are so good, why does NVIDIA have to invest another $2 billion CoreWeave, which by the way, has more debt, debt service, and this is the fourth or fifth largest new cloud, has higher debt service than its revenue, okay? So our view is that you are teetering at the edge. You can keep kicking the can only for so long. So we feel pretty good, and I think the market reaction kind of tells you that there could be a, you know, who knows? But you've seen the meltdown of software. We feel it'll spread to other areas ultimately.
And in just terms of conversations with clients, obviously the... You may be finding that hard to get through to clients the last half year, given everything was going pretty well up until November. Just the tone of conversations with clients in this year and maybe some comments around the January flows were quite pronounced, but is it fair to say that there's some seasonality in the way U.S. investors allocate, so you kind of see a larger than normal, either inflow or outflow, depending on the momentum in January versus other months?
Yeah, Nick, look, a couple, couple things I'd say. So, so starting point is, if you look at the Morningstar ratings of our, of our products, you know, if you, if you start with, you know, start with international, it's a five-star rated fund. Global and EM are four stars, and, and U.S. is three stars. All of them are gold or silver rated. So, you know, the-- I think that there's a perception that clients are, have more anxiety than they do. You know, I think that, you know, and Steve can speak to this in, with more granularity than I can, he's in more meetings. But, you know, clients understand where we are, and again, because they don't expect us to keep up in markets like this, they're actually quite pleased with our positioning.
Particularly, you know, just seeing in the short-term performance, you know, how much we're gaining when markets aren't rolling over yet. Like, that's just a really positive performance pattern in the ultimate near term. And so, you know, we don't, none of us anchor to the near term, but it, as it pertains to the experience that clients have, and therefore the client conversations we're having, I think clients are comfortable. Now, look, there's clearly we had a lot of momentum in 2023 and 2024 with particularly retail in the U.S. equity strategy. I think some of that, you know, sort of performance chasing you're seeing on the other side on the way out, and that explains a lot of the outflows in Q4 and Q1. There's clearly seasonality.
There's no question that January you've got, you know, you do performance reviews for the full year, and you're gonna have. You know, it's not at all surprising to me that we had higher outflows in January. And by the way, it wouldn't be surprising to me to see that continue, you know, through Q1. But you know, it may take, you know, a little bit more of a market meltdown for us to see the outflows stem. But I'm not worried about, you know, about meaningful really meltdown in client assets. And what we're seeing is. The nice thing about this business and the way we're positioned, the portfolios are positioned, is that when we're underperforming in runaway markets, the market return outstrips client outflows.
That's been our experience so far, was last year and continues to be. And then if the market falls, we would expect to outperform pretty materially, which should drive positive flows back to us. So I think we have a countercyclicality here, that is, that's very positive in terms of resilience in the business. So, and, you know, you net all that out, and where are you at? We're at the highest assets we've ever, you know, that we've ever been at, plus or minus, sitting here as of end of business yesterday.
Great. Thanks for that. And just in terms of the seasonality, just Jan- like, I guess the, the implied outflow rate into the first eight business days of February looks like around $2.5 billion, scaling it up to a whole month. Just to help us understand, is January typically a more pronounced month, either positive or negative, depending on the momentum leading into that because it's a, an out-reallocation month for U.S. investors? Just maybe Steve can comment on that.
Yeah, look, I mean, it's hard. I'd be careful not to generalize, Nick, because, like, it's hard to say that they reallocate every January. What we do know is that every January you're gonna have a performance review. And so I do think in this case, we are seeing more pronounced January, and maybe, again, may extend into February. Because the reviews happened in January, we're seeing more pronounced outflows based on the relative underperformance of last year. I do think there's seasonality in that, but I would be careful. I'd hesitate to, you know, extrapolate that to every single year. But Steve, you can add your thoughts to that.
Yeah, I mean, yeah, I think that's generally a true statement, what you said, but I'd be really careful, like, you know, saying that, as well as exactly what did or didn't happen with our numbers in January. We just don't have the granularity to truly know that.
Thank you.
Thank you. The next question comes from Elizabeth Miliatis from Macquarie. Please go ahead.
Good morning, and thank you so much for taking our questions. Just the first one on flows, and what you're seeing from a client perspective. Sorry to keep harping on this, but from the disclosures in your pack, it sort of seems the outflows are pretty broad-based by asset class and channel as well. Is there any particular pockets of weakness? So are you seeing a bit more of that, you know, lack of resiliency from your client base, maybe on some of the newer clients, and so they've said, you know, we've not benefited from stronger performance, so they're the ones taking the money out? Or is there any particular pockets that you can sort of talk to, or is it pretty broad based, as the data might suggest?
Yeah. Thanks, Elizabeth. A good question, important question. So, you know, if, if you look at the data, what you see is that obviously we've had sort of consistent institutional outflows that I think are, you know, not, not as related to performance. And then you've had near term, really only two quarters of outflows, two quarters now plus a month, in the retail side. I do think, although we don't have data to prove it, but I do think that there's likely, again, more momentum-driven investors' performance, you know, investors who are following hot performance that we had in 2023, 2024, and then, you know, reversing here in 2025 and beginning of 2026.
But again, I wanna be really careful not to extrapolate too much from that because we don't have the granularity of the data to know exactly, you know, which investors come in and out of the mutual funds, which are, you know, the largest product type that we have. So, but I think it stands to reason that that's what we're seeing.
Okay, got it. And then just on the costs, the cost base has definitely pulled back a bit. Cost to income is, I think, towards the bottom end over the last few years. And particularly the second half is typically high just because of the share-based comp. But it's still, if I look back over the last four halves, the cost base is actually quite low. It's the lowest half out of the four. How should we think about costs going forward? Should we assume a similar sort of cost to income? Should we, you know, assume a bit of total cost growth? Like, can you give us a bit of a steer on it? Because it does have quite a big impact, and it's tricky to forecast that out.
Yeah, look, you know, we've not historically given any guidance. What I've said, and I'll continue to say, is that, you know, while we never target a margin, we're never saying, "Okay, we want to have a cost income ratio of, you know, 77%." We never say that. You know, that you can see it's been reasonably consistent around there. I think that, you know, if the business grows, particularly, I mean, one way to think about this is if let's assume we had zero flows in or out, and you had, you know, $10 billion of growth in assets through performance, well, you know, most of that should subject to... There are variable costs associated with that, but you know, paying way to platforms and things like that.
But otherwise, all that falls on the bottom line, and that should be margin enhancing, right? I think, you know, we are clearly very mindful of managing our operating expenses, but we're also balancing that with being very, very positive about where this business goes and making sure that we are making smart investments for the future. So, you know, we did increase headcount. We increased that, you know, on average with lower lower expense headcount, and we're investing in the team and training the team and growing the team, and we'll continue to do that. But, you know, I think that from a modeling perspective, you know, the vast majority of our hiring is behind us.
Where we will hire will be where we see opportunistic, you know, great hires that we can bring on and/or where the business grows, and we need to continue to support the infrastructure for that growth.
Okay, got it. Thank you.
Mm-hmm.
Thank you. The next question comes from Julian Braganza from Goldman Sachs. Please go ahead.
Good morning, guys. Just the first one. Can you comment maybe just on the recent trends around growth inflows, and growth outflows, just to understand the relative pressure there, across new business and outflows? Thanks.
Thanks, Julian. Yeah, listen, we don't break out gross versus net. We really only talk to net. But, you know, I think that, you know, the gross trends, you know, probably, you know, not surprisingly, you're gonna see similar, you know, similar types of trends where, you know, when in these types of markets where we underperform, you probably have less aggregate selling. So, and I think, you know, you can see that reflected clearly in the net numbers.
And just, but just relatively speaking, any qualitative comments? Is it more accelerated outflows in the performance or, yeah, is it just sort of a new business side more so, or is it both coming down pretty evenly?
Sorry, Julian, could you ask that again? I'm having a little bit of trouble hearing the question.
Yeah. I was just trying to understand if both inflows and outflows are coming down pretty evenly, or is there more of an acceleration on the outflows relative to the inflows or outflows? So just relatively speaking, between the inflows and the outflows, which one would be moderating faster?
Yeah. Sorry, Julian. So we don't break that down. I'm gonna decline to comment on the difference between gross and net right now.
Okay. Okay, okay, no, that's fine. And then maybe just between the investment team, just interested in any comments, whether you've had any turnover in the investment team, just given the weak investment performance, but also roughly the pullback in average comp per person. Just keen to understand any comments around turnover in the investment team or even in the distribution team. Thanks.
Yeah, there's been no material turnover in the investment team. You know, we have a sort of more junior analyst program that is, you know, people tend to stay for a couple of years. You may see a little bit of turnover that, where people don't, you know, don't re-up after that. But, you know, the senior investment team is very, very stable. You know, the team's functioning extremely well. Where you see the average, you know, the average comp per employee come down, that's not driven by investment team, that's driven by the full 200, you know, some odd number of people across the firm where we are disproportionately hiring younger folks on the team and training them today. You know, I think the team is extremely well compensated.
You know, I think we have very, you know, very positive ratings in terms of people's experience with the firm. So not... I have no concerns culturally in terms of turnover. I think we're in a great place.
Okay.
Actually, let me put a point here. I think the perception in most of the shops after underperforming like this might be that, oh, whether the business survive or not, that is not the case here. I mean, I think, look, this was a conscious decision to position this way, and we still feel we are early, not, not, not wrong. And been there, done this before. We... I mean, look, I want to perform more than what you're seeing here, and I think this is a specific call to make. We didn't accidentally end up here, and we're looking around, gee, what, we don't know what's happening. So this is actually positive. We're quite excited about it. And days like today obviously makes us more excited, as you might appreciate, right?
Because, as you know, the old saying, the markets go down in an elevator while you go up in an escalator, and I think you're seeing that here. So, I mean, look, if you go back to post GFC, post Sovereign, the biggest trades bank, whether it's just banks or energy or commodities, I mean, there was a commodity, supposed to be a commodity super cycle, or before the dot-com or before that, the housing, the property bubble in Asia. So there's a palpable excitement because... Look, if you know, if we've done our work, and the data points so far are confirming that, and you begin to see, you know, cracks appear in fairly well-held, you know, well-held names.
So if you take a three to five view, three to five year view, the alpha proposition, we believe, could be actually pretty exciting. That's, you know, that's the temple. It's hardly that, oh, they're gonna be team turnover or anything like that. It's actually the opposite.
Got it. No, that's clear. Then just a final question for me. Is there any, any discounting, any repricing on, on, on headline fees to retain fund at this stage, Tim, at all? Any, any... Even if it's around the edges, is there any repricing at all?
Sorry, can you ask the question again? We're really struggling to hear you.
The line is not very clear, yeah.
Oh, apologies. But can you, can you hear me clearly now, Tim? Can you hear me now?
Yeah, much better.
Okay, perfect. I was just wondering, can you just also maybe confirm just any repricing or discounting on headline fees to retain fund, even if it's around the edges, just to kind of understand if that's becoming a feature at all in your discussions with clients?
No. No, there've been no changes based on performance to pricing.
Okay, awesome. Yeah, thanks so much for that, guys. Much appreciated.
Thanks.
Thank you once again. To ask a question, please press star one on your phone. The next question comes from Shreyas Patel from UBS. Please go ahead.
Hi, guys. Just a question on your performance. When you look at the depth of your underperformance, and I guess your own attribution analysis of that, if this AI thesis plays out, would that be sufficient to kind of unwind all of that performance? Or do you feel like there's a large component of that which is being driven by, you know, stock selection versus some of the sector allocation and won't necessarily bounce back if this thesis plays out? Just curious on your thoughts there.
Yeah, it's a good question. So, look, could the stock picking be better? Of course, it could be better. There's always room for improvement. Having said that, I think the... And sometimes it is not well appreciated, that the tentacles of this AI theme go wide and deep. I mean, if you look a lot of industrials, the power generators, for example, in Europe and U.S., if you look at it in some of the industrials in Asia, obviously check Korea, almost 2/3 is memory, right? So I think we would be able to cover the gap.
I think this could be far better because that will, we believe, that this could actually push over the economy in a recession. Look, I mean, if you look at unemployment in France, for example, in Germany, in U.K., in Australia, in Japan is almost always fully employed, but the economy isn't exactly booming. Then obviously U.S. and Canada, China, that this would push the economies over the edge into recession. And once that happens, a lot of those deep cyclicals are trading at valuations you basically have never seen before. I mean, if you look, for example, U.S. banks, they have not really traded these multiples on a price to book or price to revenue basis in 25+ years. I'm talking about the investment banks, right?
So I think this will actually roll a lot of things. For example, if you look at the U.S. banks, would they really be trading at these multiples if the IPO and M&A activity stops? Private equity would not be able to exit a lot of the software exposure, even other and other exposures. So we feel this will have massive implications. So the question is not about 10, 10, you know, 1,000 basis point or something. In fact, we've gained 1,000 basis point on an average in some of these, some of the bigger products we have without the market going down. So our view is that this could be far more significant. So this is a true alpha opportunity over multiple years. That's what we believe.
We could be dead wrong, but that's what we believe here and now. So not simply covering the ground. And by the way, even if we were at 21, 22, it took few months for us to recover. I mean, not that dissimilar a gap.
Great, thanks.
Thank you. The next question comes from Andrei Stadnik, from Morgan Stanley. Please go ahead.
Good morning. Can I ask around your distribution, can you talk a little bit more about maybe some of the new vehicle launches that you've had recently? And how are you thinking, you know, about evolution and next steps in terms of your fund or your vehicle lineup?
Steve, you wanna take that?
Yeah, happy to. So, I mean, the most recent additions vehicle-wise for us have been in the ETF market in the U.S., as well as what's called the CIT product set here in the U.S. as well, which is directed towards our version of what's similar to a super plan in the 401(k) market. And so those are fast-growing areas of the market, and, you know, we've seen initial response very positive. Does take a little bit of time for the new products just to build trading history, the AUM history, et cetera, that gets access to the platforms. But, you know, we've seen material additions to platforms in the back half of the year.
And we'll hit the one-year mark for that kind of middle of this year, and that's a threshold for a number of other platforms. And then beyond that, I think, you know, we're actively looking at, you know, other strategies that have the potential for the ETF vehicle. We already have that in all the CIT vehicles. I think there's always an important investment question to answer as well, though, which is the balance between transparency and capacity in those vehicles. And so that's an active consideration that we'll continue to make. And if the investment team feels that they're comfortable with those vehicles, then, you know, we'll look to launch additional offerings as well.
Thank you.
Thank you. The next question is a follow-up from Elizabeth Miliatis from Macquarie. Please go ahead.
Hi, just sorry, a quick follow-up, just again, on the cost side of things. If we just look at compensation and benefits ex the share-based payments, that grew in 2025 by about 3% versus average FTEs of 13%. So just wondering, you know, what that differential is, and is it just a mix or, you know, paying people a few, a little less bonuses? And, you know, is that something we should continue to see going forward?
Yeah. Yeah, Liz, it's almost all explained by hiring, you know, more junior or lower compensated people. So it's a mixed shift. It's not a meaningful shift in overall comp to the existing team.
Okay, got it. Sorry, I should have probably not asked specifically about bonuses. Just wanted to get a bit of color. Thank you.
Yeah, of course.
Thank you. There are no further questions at this time. I'll hand the conference back to Tim Carver for any closing remarks.
Great. Well, thanks again, everybody, for joining us, and we look forward to seeing many of you when we're down in Australia in a couple of weeks for our, the semiannual roadshow. Thanks, everyone. Goodbye.