These are the Ashmore Group results for the year ended 30 June 2024. Nice to see many of you that we know, any that we don't, thanks for coming. Anybody that isn't here, we never liked you anyway. It's 9:00 A.M., so now we can start. So I'm going to give a brief overview. My name is Mark Coombs. I'm the Chief Executive of Ashmore. This is Tom Shippey, the Group Finance Director. Most of you know him well, more probably better than you want to, but you do. And we're very glad to present our annual results. So in summary, the markets had a pretty good year for emerging markets last year. We also had a pretty good year in terms of outperformance.
The indices that we invest in were, are all up between 13%, the highest one and 1% at the lowest one. In terms of how our assets performed against developed markets, fixed income outperformed everywhere, basically. Equities did pretty well, despite a big headwind from China, which is a big part of the equity index, and we, as a company, outperformed in most of the significant strategies we have, which is good. What did that do for us? Where did we get to in terms of business? Our operating performance basically suffered lower assets under management. We had a net outflow. So that obviously impacts the operating performance in terms of the P&L generated by the, if you like, the core business.
However, we had a higher statutory profit, really driven by some very strong performance fees, excuse me, in a couple of the themes that we manage, and by the way, we managed our balance sheet, so returns from investment income on our balance sheet. So in terms of summary points, our average AUM was down 10%, and net management fees were at GBP 160 million, down 12% year on year. What that does to our adjusted EBITDA, taking out seed capital and FX implications, is it brings it down 27%, although we're still a high operating margin business because we started from a very high operating margin place, and we're at 41%.
PBT increased because of that balance sheet return, particularly 15% to GBP 128 million, really reflecting the balance sheet and the higher performance fees that we achieved through certain transactions closing and exiting. As I flagged last year, VC charges increased. Remember I talked in the past about we set ourselves a soft range of up to about 25, which we moved to 35, and I mentioned to all you guys, and we've mentioned through the year to others, I'm sure, we set the VC charge at 31%, which means we're investing in our business. Diluted EPS actually increased because of that balance sheet return, 12% year on year to 13.6p, and we maintain a strong and liquid balance sheet. We have GBP 700 million financial resources. We're maintaining the dividend.
We see the business as a business that's good for the long term. We don't see any reason to be highly volatile in terms of returns to shareholders, et cetera. So where does that leave us? EM is performing. It has better growth and valuations than DM, frankly. It tends not to run up like crazy. And basically, investors generally everywhere are pretty underweight EM now. There was a whole lot of panicking, running, diving behind the sofa, particularly from the Americans, and so they, they're gonna need to increase their allocations to capture performance. We're at that time in the cycle where they're beginning to think about it. Summarizing the fundamentals, just to give you a bit more about why they're in a decent place. I touched on this last year.
Basically, management at the economic level, fiscal and monetary policy, has been better, I think. I'm making a generalization, but in EM than DM. Inflation has been controlled pretty aggressively, partly because they remember when it isn't. You know, inflation getting out of control in EM changes governments pretty fast. So, they're trained as well, if not better than us, and they've lost lots more practice managing it. So inflation's been managed pretty well. Real interest rates are still fairly high, and there's room for a bit more in terms of rate cuts. Credit ratings from economies that weren't allowed to go nuts and print huge amounts of money in COVID are net positive, as you'd expect, and we have net positive credit rating changes through 2024.
If you look at the bottom left, this is kind of a rating outlook, which is a proxy, I suspect, but they say it's very accurate, but we call it a proxy for a country's economic health. And if you look at S&P, Moody's and Fitch, for in 2022, negative credit moves... Let's just stay with S&P for the moment because it's simple. S&P, more negative than positive rating changes, and as you can see, that's moving, that little red bit's getting smaller and little blue bit's getting bigger. So that means the net outlook for EM is moving from, "Oh, dear, isn't it all terrible?
The Russians have invaded," to, "Luckily, they haven't yet invaded everywhere, and what's doing better and what isn't, and where do we get to vis-à-vis developed market, fiscal and monetary policy." So positive credit ratings for EM, generally, which is an interesting thing. It's also begun to be picked up on as a theme. We've spent some time on this.
Initially, this came from the Far East, actually, where some of our longest and oldest clients said, "We've actually noticed that, if we buy investment-grade fixed income in dollars, it's actually we get better returns, and we get much lower risk vol than if we sit firmly in GBI, in Global Ag or one of the much broader fixed income global indices." And that is a theme that's beginning to be picked up, which is, hang on a minute, there's part of EM in the investment grade space that is actually better investment grade than DM, less concentrated in the U.S. and, and gives us a chance to reduce our risk in down markets and to make a little pickup in upmarkets.
There are people saying, "Well, maybe we should think about this as part of our global bond portfolio." Not just treat it as a separate, you're on EM if it's highly risky, and you're off it if it's not, if you don't like risk. That actually there's an opportunity to use this as a risk reducer. That's quite interesting in itself, and put the credit rating behind it sort of enhances that story. We're having quite a lot of conversations about that. Growth is still better than DM, which gives you a better backdrop for the equity platform, which is great, and we're mostly through, with one big exception, you know, 50% of the world was voting this year. Big chunks of it have done that. We've got through India, Indonesia, Mexico, South Africa.
We've got the U.S. election over the pond to do this thing in November, and then next year is a much less democratic electoral action year, much less excuses for doing nothing and for hiding behind the sofa. On the right here, we talk about that GDP growth point and the graph on the bottom, EM is the dark green, developed is the light green. I'm not quite sure why they're both green, but anyway, you can just about see the difference. The DM is underperforming in terms of growth. The growth premium is there and has continued, and it's consistently superior. The premium remains that if you want more growth, you go to EM. What does that mean in terms of inflation? As I say, EM, look at that net real rate.
It's big there, since middle of 2023. So that is, I think, a positive and supportive place for long-dated duration in local currencies and possibly for the FX themselves, particularly if you're in a U.S. rate cutting environment. So we could be hitting, getting to a nice sweet spot in the local currency space, which supports the equity platform as well as the fixed income platform. Performance and diversification. Well, I touched on the indices before, so just to give you a bit more detail, I mean, on the summary point. So fixed income outperformed global bonds, great. Equities was pretty strong but didn't outperform U.S. because of the Magnificent 7, which obviously distorted returns there. But if we look on the right, it just gives you a flavor.
External debt, which is dollar govies, up nine, local currency up one, corporate debt up nine, equities up 13, ex-China up 18. That's how EM has performed in dollar terms. Developed markets, bonds are just up one, and equities are up 21, driven, as I say, by the Magnificent 7. It's all changing. AI revolutionizes the world. There's that bubble that supported that. China is less relevant in fixed income, so it's a 4% weight on the, up to ten rather than equities, which is 25% weight. China's struggling through the year in terms of returns, obviously, was more impactful in the indices in emerging markets for equity than it was for fixed income. Active management's the thing, right? You've got to move around to find places where you can make your returns.
Just to give you a sense of the different sources of return and how that looks. So you've got on the right-hand side, spread. As you can see, we're not at anywhere near a tight in terms of spread, in terms of spread over treasuries. You know, we've had tights in 2013 of about 220 basis points to mid-250s we've touched several times. So there's room for spreads to come in and for spread tightening all around. How are we doing on investment performance? We're doing pretty well, actually. These numbers slightly mask that. So we're continuing to outperform in most places. We've had a very strong year in external debt and in blended, actually, in most places. Local still has a good three- and five-year number.
It had a very, very close to index number this year by being quite conservative, which has made sense at the time in the cycle, so it just tips slightly under the index as opposed to slightly over, so there's quite a. The underlying pattern is numbers, numbers are good and continue to be good there. We don't have any issues there. In the equity space, there's obviously the global asset pools, and there's the local variety of issues there. In the global space, we've had some pretty strong outperformance in what we do in the all-cap space and frontier, mixed performance in one or two of the other global strategies, and then in the local strategies, some good, some less good.
But we've got pretty strong long-term track record in the global strategies, and we're beginning to see that get recognized by the consultant base and clients. So we've kind of built our five-year plus track record there. We're beginning to see, and in terms of the underlying business, we're getting the net flow from a small base is continuing to be positive, which is good. This is you, Tom.
Yeah.
Thank you.
Okay, so assets under management at the year-end came in at $49.3 billion, 12% lower, with the movement driven by positive investment performance offset by net outflows. Strength in EM assets and the outperformance Mark described added $2.1 billion over the 12 months, with positive contributions across all of the fixed income and equities themes. Subscriptions of $7.2 billion were at a similar level to the prior year, and while some investors continued to be risk-averse, we saw meaningful subscriptions into local currency funds, ongoing flows into investment-grade product, new equity mandates, and successful private equity fundraising. Redemptions fell year on year to $15.7 billion, resulting in a 26% reduction in net outflow from $11.5 billion to $8.5 billion over the period.
As described in the quarterly trading statements, the main driver of redemptions was institutional decisions to de-risk by reducing EM allocations given the perceived macro uncertainty. In terms of client activity levels today, the summer months are typically quieter, and so we would expect client interactions to begin to pick up over the coming weeks, which will allow us to determine exactly how risk appetite is developing. That said, over the past six months, we have seen consistent areas of increased client interest, with a meaningful increase in RFPs compared with 2023. More focused engagement from consultants, notably on the equity side, and new mandate activity in local currency and investment-grade assets.
This pickup is consistent with the positive environment Mark described, and the acknowledgment by investors that there are fewer global macro headwinds today than a year ago, notably in terms of inflation levels, the path of interest rates from here, and the uncertainty associated with elections. So turning to the financials, Ashmore's diversified business model has delivered strong growth in statutory profit, despite the impact of lower asset levels on operational results. Starting with revenues, higher performance fees largely offset the impact of 10% lower average AUM levels on net management fees, resulting in a 4% reduction in net revenue. Sterling was notably stronger against a weaker dollar compared with the prior year, meaning that on a constant currency basis, revenues fell by only 1%.
Non-VC operating costs increased by 5% year-on-year, and reflecting the increase in performance fees and the strong balance sheet returns, the variable remuneration charge equates to 31% of profits. In aggregate, therefore, adjusted EBITDA declined by 27% to GBP 77.9 million, which equates to 21% in constant currency terms and delivers an operating margin of 41. While this cycle has seen a 50% reduction in assets, the 41% operating margin remains high by industry standards, and as seen in previous cycles, the inherent gearing of the business model means the operating margin will expand as AUM increases. Importantly, we've maintained the level of resource employed in the business, not only in financial terms, but also in operational capabilities, with a similar number of employees in core functions and the scalable operational infrastructure in place.
In addition, despite the reduction in assets, we've continued to invest in strategic growth, developing the local asset management network and deploying seed capital. This through the cycle approach means that the platform is well-positioned to manage higher AUM levels that come with a cyclical upturn without meaningfully adding to the cost base. Now, turning back to the financials, the management of the balance sheet delivered good returns, including seed capital profits of GBP 22 million, generated across a range of investment themes, including external debt, equities, and alternatives. Interest income of GBP 25 million earned on the group's cash and deposits of just over GBP 500 million.
Given the seed gains and the higher interest income, reported PBT increased 15% to GBP 128.1 million, net of a circa 5% drag from FX, and diluted EPS is 12% higher at 13.6p per share. Finally, as Mark mentioned, the board has recommended a consistent dividend per share of 16.9p for the year, recognizing the improved statutory profits and the strength of the group's balance sheet. Turning now to the revenues. Adjusted net revenue was down 4% year-on-year. Net management fees were 12% lower, reflecting 10% lower average AUM and a 3% headwind from the stronger sterling. The net management fee margin increased to 39 basis points, largely due to catch-up fees earned on private equity capital raising in Colombia, which are, by their nature, one-off.
The other factors that typically impact the revenue margin were all relevant this period, but largely netted off. For example, there was a small positive impact from investment theme mix and flows into or out of large mandates, but the margin increase was offset by ongoing competitive pressure and other mix effects. My guidance, therefore, remains that competition will have a roughly 1 basis point impact every 12- 18 months, and other factors will continue to influence the reported margin, depending on, for example, the size and complexity of mandate wins and losses. I would note that Ashmore's strategic growth areas, such as equities, alternatives, the local asset management businesses, and intermediary retail clients, can deliver relatively higher revenue margins and therefore provide some counter to the ongoing industry pressure.
Finally, on revenue margin, adjusting for the one-off in Colombia and the disposal of a subscale real estate business in Colombia, the run rate margin in the alternatives team would be about a 120 basis points. Consequently, at the group level, the pro forma net management fee, fee margin would have been 37.5 basis points, also indicative of the run rate at the start of the current financial year. Looking at performance fees, a number of funds across the three main asset classes delivered significantly higher fees this year at GBP 22.7 million, versus 5.1 in 2023. Approximately 2/3 of these fees were delivered by funds in alternatives following successful asset realizations, with the remainder earned from institutional mandates in local currency, equities, and blended themes.
In terms of performance fee expectations for the current financial year, it's possible that further alternatives realizations could again generate fees. However, I've not assumed any, and therefore, at this early stage, I estimate performance fees to come in in the mid-single-digit millions range, as we've seen in prior year. Moving now to operating costs. The total non-VC operating costs of GBP 60.6 million are in line with the guidance I gave at the half-year stage. Staff costs increased by 3%, primarily reflecting the full-year impact of wage inflation experienced in certain locations in 2023. Other operating costs rose by 9%, reflecting non-recurring higher professional fees. Therefore, given the balance between some ongoing inflationary pressure and our continual focus on operating efficiently, I'd expect full year 2025 non-VC operating costs to come in at a similar level to the current year.
Turning to variable remuneration, the accrual of 31% reflects a number of factors, including the continued delivery of investment performance across a range of strategies, the generation of higher performance fees, and the balance sheet returns delivered through effective management of the group's financial resources. While the broader market environment has been favorable this year and the outlook is positive, the operating performance of the firm has been impacted by cyclically low AUM levels. Therefore, as we flagged a year ago, the VC charge represents a higher proportion of operating profits, as well as recognizing employees' contribution in delivering statutory profit growth for shareholders.
Looking ahead to 2025, as is normal, the variable comp decision will be taken after the year-end, but for modeling purposes, a reasonable assumption would be to use the reported 31%, and the final outcome will, as usual, depend on the performance of the firm over the full year, including any performance fees and balance sheet returns, alongside the underlying operating performance and strategic progress achieved. The group seed capital programme has been a notable source of profits this year. Through active management, the group has successfully recycled GBP 69 million worth of seed capital and delivered a realized gain in the year of GBP 11.3 million. The total life-to-date gains from these investments is GBP 16.1 million, meaning that since inception, the seed program has cumulatively generated profits of GBP 159 million for shareholders.
Consistent with the group's strategy, new seed investments were into funds in the alternatives, equities, and local currency themes, and also into vehicles to facilitate access to funds managed by Ashmore's local offices. Given the strong market backdrop over the last 12 months, there was an additional unrealized gain of GBP 10.4 million to give total P&L gain of 21.7 in the period. Finally, on the P&L, higher rates, together with effective management of the treasury balance, generated GBP 24.9 million of interest income, nearly 60% higher than in the prior year. The group currently achieves yields of about 5% on its cash and deposits, which are relatively short term in nature.
Also reported in finance income is an accounting gain of GBP 5.2 million, which resulted from the sale of the group's Colombian real estate business and the partial disposal of a minority interest in an Indonesian fintech company. These gains are, by their nature, one-off. Overall, the combination of the operating performance, balance sheet management, and the profits on disposal delivered a 15% growth in PBT to GBP 128.1 million. At constant exchange rates, profit before tax increased by 20%. The effective tax rate of 23.3% is higher than I guided at the half year, due to a greater proportion of profits generated in higher-tax jurisdictions, such as Colombia and the UK, in the second half.
On a year-on-year basis, the rate is also impacted by the effect of a slightly lower share price on the value of share awards. Based on the current geographic mix of profits, the group's effective tax rate remains in the range 21%-22%. Looking at financial resources in terms of cash flow and the balance sheet, the picture should be a familiar one. The group generated GBP 113.5 million of operating cash flow in the year, delivered a net GBP 68 million from seed capital recycling, and earned GBP 21 million of interest income. The ordinary dividends paid to shareholders used GBP 124 million, and the group purchased GBP 14 million worth of shares to satisfy employee awards. Total cash flows in the period increased cash and deposits by GBP 37 million to GBP 505.7 million.
Including the seed capital investments of GBP 260 million, the group has significant financial resources of approximately GBP 700 million at the end of June, representing in excess of GBP 599 million or 84p per share over the group's total capital requirement. This well-capitalized liquid balance sheet supports the group's strategic initiatives, underwrites the dividend policy, and enables continued investment, including at points in the cycle where assets and therefore operating profits are lower. Then finally, for me, I thought it would be useful to provide a brief update on Ashmore's network of local asset management businesses. These platforms help diversify the group's earnings and grow AUM in line with our strategic objectives. Over the 12 months, local assets increased by 7% to 7.5 billion, now representing 15% of total group assets.
The growth was broad-based and achieved notwithstanding market headwinds in Indonesia. Notably, Ashmore Colombia increased its assets by 18%, reflecting successful capital raising into private equity and strong performance in its listed equities product. This business has good momentum and is currently marketing an infrastructure-focused private debt fund to local institutions. Ashmore Saudi's assets grew 12% in the year through a combination of alternatives fundraising and the funding of new equities mandates raised from domestic institutions. And finally, Ashmore India delivered strong growth, with assets rising 30% year- on- year. New funds were launched during the period to provide dedicated access to the Indian equity market for both international and domestic investors.
As you can see from the table on the right-hand side, the asset contribution actually understates the financial diversification benefits that these local businesses provide to the group. Today, they generate around 30% of revenues in EBITDA and deliver an operating margin close to 50%. So that's all from me. I'll now hand you back to Mark.
Thank you. Thank you, Tom. So just touching on outlook. So the asset classes generally across EM, equities, fixed income, and alternatives, have been pretty strong investment performers since late 2022, since the whole big drama about U.S. rates. A good 2023, good 2024 in terms of asset class performance. Those underweight investors are just missing out on this. We expect this to continue for reasons I've mentioned, in terms of growth premium, in terms of net real rates, which reflects both equity and fixed income opportunity, and both in the private and the public markets. So that's our message, you know, you're missing this, and you might want to come out from behind the sofa. What will often drive that is lower U.S. rates, and some kind of adjustment to bubbles.
So we think we're beginning to see both of those things. U.S. rates are pretty certainly peaked for this point in the cycle and are likely to come off, which will be supportive of anything non-dollar, both bonds and equity, particularly, but obviously, that helps bonds, but it's true for both and again, both public and private. So we think that's a good thing. But the other thing is that, you know, the whole AI goes up forever, and yes, there are some clear P&L gains for companies that are in that space in terms of equipment, et cetera. These things get overbought, and if you get an adjustment in the Magnificent 7, which we're getting and will continue to get, once you have that huge spike, then you start to see some vol.
People start to say, "Well, it isn't all just about the U.S., it isn't all just about the Magnificent 7," and you get the U.S. election out of the way. You know, next year should be a year where our conversations become easier in terms of, well, why are you, why are you hiding behind the sofa the whole time? Because sometimes hiding behind the sofa is quite a risky thing to do, 'cause it's just one sofa in one room, and that has been our message over many, many years, and this is a time in the cycle where it's a very strong message, and our guys are hammering it out, and as a result, we're beginning to see some positive conversations, I think, in actually all of the things we do, in both equity, fixed income, and in alternatives.
Whether we win or not will be about, first of all, getting that message across and continuing to do that, but also then we have to be a performer, an outperformer in the theme. So if we're not an outperformer in the theme and consistently doing it, we're not going to raise those assets. So that's a minimum requirement. We all know that. So valuations, fine, they support it. That helps in terms of outperformance against DM. And to get the alpha, we've got to be active, so we continue to do our thing. I mean, we've had this conversation with some of you before, and I'm sure we have it with a lot of clients. Well, we're always under margin pressure in highly liquid themes against passive product.
The good thing about what we do is the passive product demonstrably underperforms in some of the larger themes, because it's impossible to replicate the opportunities through passive products in some cases. It's easier in some, but it's almost impossible in some others. So that helps as well. Anyway, that's our message. Absolute and relative valuations are okay. They're pretty attractive. Equities have obviously considerably less multiples than we've got going on in some of the EM markets. As earnings growth accelerates, we should be in a position that we will be able to outperform, both on the beta, but also our continuing alpha outperformance in our broader products will come through. In fixed income, we pay more than dollars, and we have spread.
So as people will see the deposits only, you know, only make less as things go forward, U.S. money market products become less attractive, people will be driven into other things. This happens every time. And as I say, fixed income, I mentioned it before, the investment grade story is actually quite a powerful one, being picked up by some of the bigger people now. Actually, we didn't really think about that. There's 25-year data now that shows that whatever happens in terms of activity in vol, generally, investment grade in EM dollars is a significant risk reducer against investment grade U.S., other U.S. dollar product. So that message, I think, is beginning to get across. And we also think in terms of where we're at, excuse me, the dollar is pretty close to its peak and probably past it.
We think the Fed is going to politically cut rates at least once now, maybe more. It's unlikely to be. Even if it stays the same, that's a more positive environment than any kind of fear of increased rates. We think rates will come off over the next 12 months. I always think the markets expect more in either direction, but I think the direction is negative downward for U.S. rates, not upward, and the U.S. itself is not in fabulous shape. Massive twin deficits, very high debt. For those of us who have other places to go, yes, there's the benefits of liquidity and the sheer scale of the market, but there are reasons that having everyone having got super concentrated there, not least through performance in the Magnificent 7, that they've got to do something else.
We're having those conversations with institutional investors, and we're beginning to have those conversations with retail investors in the U.S., too. Retail tends to actually lead a bit in the U.S.. It's a bit knee-jerky, but it tends to lead a bit. But most of that U.S. capital, I think, is going to do nothing until the new year just because, "Oh, it's the election. Oh, you know," nobody gets shot for staying in the U.S.. So we think we're going to get the sales guys are feeling better than they have for a while. Obviously, they're not having a wonderful time. You know, if you lost 10% of your AUM, you're not feeling like you're having a great time. But they're definitely having good conversations, and we're beginning to see some wins. So there was pretty.
Through 2023, there was not a lot of, kind of, activity in terms of RFIs. Now, there is. There's a pipeline. So that's this is a typical turning point in the cycle. On the right-hand side, we talk about, I mentioned the risk-return piece. The bottom right chart is probably worth touching on a little bit. This is vol from two to 1 0 along the bottom part of the bottom axis, and annualized returns up to 5.5 . This is in dollar returns. These are all dollar asset classes we're looking at here, though. And you can see that these are the risk-return profile of treasuries and WGBI and everything is kind of...
You know, in the sort of 5-7 range, you can, if you add a weighting of EM sovereign IG to that, which is a much higher return asset class, you can actually reduce your overall vol. And when you do the blended efficiency frontier, which this isn't, it reduces your overall vol, and it gives you a better return. Not 300 basis points better return, but 20, 30, 40, 50 basis points, 10%, 15%, 20% of EM sovereign joining your WGBI or your Global Ag. Valuations, yeah, there's still some value in this, which is great, especially compared to what's happening elsewhere. So, you know, your yields are in the eights, sixes, not in the threes, fours, fives. And your price earnings ratio in the MSCI is 12 as opposed to 19 in the world.
MSCI EM is 12. So summary for us, EM has had a good return period, which is good just on an index basis over the last 12 months. Better in fixed income developed world, less good in equities, principally due to Magnificent 7 in China, two offsetting effects, but otherwise equal or better. We're outperforming in most of the things that matter over the long term, and we continue to target that. Alpha is obviously everything. As a result of kind of the net flow move, the assets under management dropping, our operating performance is less good than it was the year before, which is how it is in this time in the cycle.
But we made more profit, statutory profit, because we managed our balance sheet, and we had some performance fees in certain strategies in equity and alternatives, in particular, and also some in local, that basically delivered over the year through exits and completion of annual resets. So the financial side was better than the operating side. Where we see it from here, emerging markets are doing okay. They've still got the group superior growth story. If anything, that's probably a little stronger given what's gonna happen to, with the, where the U.S. is going to post-election. Valuations are still better than DM. These are all good things. For us, our strategy continues the same. Stay diversified, get better in the things that we're good at, and. Sorry, get bigger in the things that we're good at.
That would be the equity space for the local businesses that are doing well. The alternative space where we think we should be much bigger, we've got some interesting strategies there that we need to get into a broader marketplace, and with our existing client base, all of whom have sort of pulled their horns in over the last couple of years in the fixed income space, be in their face and say, "Okay, here's the time to buy this. Make sure you buy it with us." As I say, we're beginning to see those conversations turning much more positive, so that's it, I think. Thank you for coming. Any questions? Mike, there's a thingy here. You probably know this better than I said.
Thank you. Two questions, please. I think in the past, and you talked a little bit about it today, you know, some of the, I guess, overhangs on EM debts, you had the outstanding U.S. election, you know, Fed rates, and geopolitics. Now it seems like we're at least close to, you know, two of those lifting. How should we think about it from a relative perspective? You know, is the geopolitical risk still just going to be a headwind for you guys once we get through these two speed bumps? And I got another question, but I'll ask you after that, that's okay.
So in terms of geopolitics, the two speed bumps being the U.S. election and the delay, waiting for that to happen, and military aggression in various places? Yes. Okay. So, U.S. election will finish, so we'll get through that. So but the U.S. market has definitely run home over the last couple of years, as we all know. They're not gonna run internationally the day after the election, but I just think we're gonna have a much more positive conversation with lower home returns if they lose money in their equity book, which they're beginning to. I mean, I remember this when I started way back. Why would I leave America? It's so risky.
I should put everything in America, and that works right up until there's a massive drop in the U.S. equity market, and everybody's pension fund has gone from 30%, 60%, 80% because of asset growth, and nobody's managed it. Asset price appreciation. They've just become enormous in the U.S. equity market and to some extent, the bond market and rates are there. So that concentration is back from a lot of U.S., particularly institutional money. U.S., I say U.S. retail, yes, they did it, but there's a little bit of a change there. But while they're making money in U.S. equity, they'll still obviously be happy with it. They only focus on it when they lose money.
So a little hiccup like we're getting now is, it starts to make people think, get the election out of the way. The conversations are much more positive in the U.S. from what our sales guys are telling us than they were. I don't expect it to turn around like that, but I would expect us to see a positive outflow in terms of. Sorry, not outflow, outcome, in terms of what happens next year in the U.S.. Geopolitics, I think we have to be quite careful about that one as ever. You know, everybody says, "Oh, fine, whoever wins the election, there'll be peace in the East." I wouldn't guarantee that because you're dealing with lots of different factors.
The thing about conflict is it, in the end, people get fatigued by it, by death, by the cost of it, by the impact of it, and that happens on both sides. So the longer it goes on, the more likely it is either to hit, you know, if you've got past the initial configuration, either to hit a lower ebb of maintenance or to stop. I think that certainly, the conflict in the East and in the Middle East is mostly in the price, assuming we don't get full-scale invasion of Israel by Iran or something like that. That's not my base case, because a lot of people are trying quite hard not to do that, not least the Iranians, because that's quite a risky thing for them to be doing.
But if, you know, if we, if we think about how life used to be 60s, 70s, 80s, not all of us were alive for that, but some of us were. We, we lived with a pretty uncomfortable geopolitical world for quite a long time. We just got used to it, and we're just not used to it. We've had the peace premium from through, from the eighties through the 90s, early 2000s , and people are just not used to it. So markets unfortunately adjust and get used to dealing with it. So the impact of it happening was horrendous and took a while and rippled, and everyone, "Oh my God!" But people, people kinda get used to living with it a bit. So there's that. Obviously, carry out some enormous event not happening.
I think I'm not predicting there's gonna be some great peace everywhere, but I'm not predicting it getting dramatically worse, and I think what will happen if there is an outbreak of peace and something, the market will overbuy it, so we'd actually be a seller into that quite quickly, I think, because the market will get over carried away, so that was that one. What was it on U.S.?
Yeah, no, the second question is more for Tom, actually.
Good.
If that's all right. Really-
Interesting.
Really helpful chart on page 13 in terms of the contribution from the local offices, particularly on the, you know, the delta between the AUM and the revenue. Is that mostly management fee, or is that partly driven by maybe higher performance fees in some of the local businesses? Just, you know, your thoughts. Thanks.
Yes, in this period, we've had a couple of performance fees locally in Saudi and in Colombia. So in dollar terms, about $3 million worth of performance fees in those two platforms. And we would expect if Colombia's capital raising into private equity and private credit at the minute, and it's also realizing some of the earlier stage vintages. So there's a chance that Colombia could generate an incremental fee in 2025. Saudi, the business is much more liquid. The balance of the assets is more liquid, so that will depend on fund performance. But there are some alternatives products there as well, that could crystallize fees. The businesses themselves, as I mentioned, they are naturally higher revenue margin, management fee, revenue margin businesses than the global business, at least for now.
Anybody else? Please, you've got a little thing in the seat. It's in the back, I think.
Oh, okay.
You have to press the button.
Yeah. This is Laura Castillo from Jefferies. Thank you for taking my question. I just have one quick one. I was wondering if you could provide a bit more color on where exactly you're having these positive client conversations. I know you mentioned investment grade EM, but if there's any other specific themes that you're having positive client conversations, that would be very helpful. Thank you.
Yeah, I think we're having good conversations in a few places. So, and of course, conversation sometimes delivers assets, but there's always a lag. But where there are much more positive conversations is people saying: "Well, wait, I've got so many dollars. Should I be thinking about local currency bonds?" So those conversations. And actually, we're seeing a lot of RFIs and activity. There's a pipeline in that space. So our track record and performance there is good, and we need to maintain that. And so that, that's one space in fixed income. I would say the other space, we're having a lot of positive conversations.
We've got a very strong track record now in equity, and we're having positive conversations there, both in the broader strategies in terms of, you know, the all-cap space, but also in frontier, both which we've had very good performance for a long, long period of time, and obviously, there's an element of performance chasing, but that's okay. We're in that business, so we'll take some of that money, so we're getting conversations that are positive there, especially in the broad equity space. People are just sort of saying: Well, hang on, how far can the U.S. run? What else can I do?, so that's starting to happen, which is good.
Alternatives, obviously, where we deliver for people and have performed, like in Colombia and Saudi and stuff, we expect to be able to reproduce and raise capital there. In some of the stuff we've done in terms of healthcare, we expect to be able to raise more capital there. So alternatives, the conversations are what they are with people who allocate there. It's not something that you turn on and off, but I think that's pretty good, too. And the local businesses are having good conversations with the institutional. It depends on the market for retail. They're having pretty good institutional conversations, and what we're beginning to see, which we never used to see, is the old developed market allocators who said: "Well, if I buy EM, I just buy a global product. It's all too hard.
You go figure it out." What we're beginning to see now is people trying to be super pro or negative, selective on countries, which is better for us because we, we like the fact that we offer you a global product. But the whole point of our local business, if you want to buy Saudi equity through us, we can sell you Saudi equity, managed in Saudi. Ditto Indonesia, ditto Colombia, ditto India. And the plan is we'll continue to try and do more of that, where we think there's an opportunity to do scale. So the whole, we don't like China, means that we're getting a lot of clients now saying: "Well, what is there an ex-China strategy I can do? Or can I do China separately from the rest of EM?" So in other words, ex-China plus China.
So they then can if I want to do something else. Can I—who's the main beneficiary of people in America getting sweaty about China? Oh, is it India? Is it Mexico? So can I do dedicated single country product for an India, for a Mexico, for an Indonesia, et cetera. So, Colombia. So we're seeing some single country interest from the developed world, which never really used to happen in any scale. So the guys are having conversations with institutions about single country, not just retail, which sometimes follows that, more institutional. So that's interesting, too. So that's where we're seeing positive conversations, and it tends to be, of course, where you're performing. So if strategies you've not been performing, you don't have very compelling positive conversations. Fortunately, we're performing in most things at the minute, so the conversations are good in all of them.
What we're not seeing yet, which is interesting because it's been such a massively good performer, is in dollar EM high yield, particularly in external debt, has been such a good performer the last 12 months. We have, and the market has. That we're not seeing a whole lot of conversation about that as a specific theme. It's much more the risk, reducing the bigger pool of capital for investment grade. But like everything in life, the performance has been so good, I guarantee you people will start to talk about that because they chase performance. So we're having conversations about frontier that we should have had three, four, five, six, seven, however many years ago, because it's an interesting marketplace, and it's getting bigger, and it does something very different from the rest of EM equity.
We're getting it now because we've generated a 1500 basis points of alpha. Okay. It'll be the same with ED, high yield. Where we perform, where the beta performs, and we perform, you obviously get flow at the margin. Anybody else? Yeah, please.
Hello, thank you for the presentation. This is [audio distortion] from JPMorgan .
Hi.
My question would be on the VC accrual. So you say, you said that they, you expect that to stay flat at 31% in the coming year. I'm just wondering what sort of underlying assumptions you have there, AUM development, for that to be the case?
Okay, so maybe I should clarify. I think what I said was for modeling, if you wanted to assume the same 31% rate at this point earlier in the year, that's a reasonable assumption. And what we'll do is we'll give you a bit more guidance at the half-year point, where we know how the half year has gone and sort of how we're feeling about the current financial year. But for modeling purposes now, I think 31's a reasonable assumption.
Hi, Dave McCann from Deutsche Numis. Just to follow on that question, actually. So at the half year, on the VC accrual, you said you had accrued it at 27.5, and obviously it came in at 31.
What led you to increase it so substantially in the second half and for the full year? Thank you.
So the performance of the business was, in financial terms, second half weighted, so performance fee generation in the second half was higher. And the returns that were generated from the balance sheet in terms of seed capital, realizations, and critically, the life-to-date gains on the seed capital were second half weighted. I think there were GBP 4 million in the first half and GBP 16 million in the second half. So those two factors combined basically to drive a higher charge over the full year.
Yes, so I guess just to follow up then, and I guess you were telling us to model 27.5% as a reasonable expectation for the full year, a few months ago. Why is 31% now the right thing for us to be thinking about modeling? I appreciate there's a range. You know, 31% is roughly in the middle as opposed to 27.5%, which was towards the bottom. But just could you give us that confidence there, given what you said six months ago didn't really come to fruition?
Well, as Tom says. I mean, I'm sorry, I'll let you answer, but I won't first. We made all the big chunky money came in the second half, and you pay people for performance, so clearly, that makes a difference. Carry on. Back to you, and you can't predict that. You don't know until you close the deals, that you're gonna make that money. Go ahead.
So, as I said in the presentation, the decision will get taken in twelve months' time. I'm trying to give you a bit of guidance for the full year. I appreciate 31 is a different number to 27. We're starting the year with a lower AUM level than we started last year, so it's a balance between the percentage and the absolute level of profits. And then ultimately, at the end, it's a sort of a weighted scorecard, if you like, of a whole range of different things that bottom-up build to a percentage. I'm giving you a 31 as a reasonable starting point for plugging in your model. So it's actually-
No, no, I get that. It's kind of like asking me-
I think that's were you're all at anyway, so-
It could be 30.
I mean.
Pick a number, it doesn't matter.
As you're pointing out, I'm sure I'll be wrong in 12 months' time.
I guarantee it.
But, yeah, I guess you are pointing to performance fees being down in the year. You said mid-single digits, ex alternatives.
Yep.
So I guess with that in mind, is thirty-one right, really the right? Yeah, I mean, yeah, you've said it depends.
It depends on the alternative. Look, it's a difficult thing. You could model thirty-five if you like, 'cause we've said we won't do more than that. That would be very conservative, but it's difficult. I understand your problem. We have the same problem. Anybody else? Well, thank you very much for coming. Nice to see you. Look forward to seeing you again soon, I hope. Yeah, we're looking forward to just getting the U.S. election out of the way and having people say, "Wow, this is where we need to be." Meanwhile, we keep performing, and thank you very much for your time and for talking to your clients. Thank you.