Thank you so much. Welcome, everyone, to the 2025 Global Exchange and Trading Conference. My name is Patrick Moley, Senior Research Analyst covering the exchanges, brokers, and trading companies. Kicking off this year's conference, it's my pleasure to welcome Marex Group CEO Ian Lowitt. Ian's been CEO of Marex since 2016. Marex is a U.K.-based financial services firm providing liquidity, infrastructure, and exchange access across global energy, commodity, and financials markets. The company successfully completed an IPO, I think a little over a year ago, April of last year. Ian, thanks for joining us.
Thanks, Patrick. Yeah, this was actually the first conference that I did after our IPO in April, so I have a very warm feeling about it.
That makes me feel good. Maybe just starting it off, kind of state of the union on markets. We've had a volatile beginning of the year. What impact has some of the U.S. policy implementation had on the markets in which you operate? Any kind of color you can share on the trading environment today?
Sure. I mean, as you may well know, because we've sort of announced our first quarter and gave sort of a sense at Invest Today on how things were going, it's been a very positive backdrop for our set of businesses. Anything that increases uncertainty in the world and increases volatility is broadly a good backdrop for our business. We've been able to take advantage of that. I mean, the way we're trying to set up the firm is so that we can continue to grow in a very steady way, but be set up to take advantage of periods where there is heightened volatility. I think we've done that over a long period of time, and that's continued. We certainly are starting to see some evidence that that uncertainty is pushing some group of people to the sidelines.
At the moment, there's still very robust exchange volumes and a great deal of interest. As there's uncertainty, people need to hedge out exposures. That's sort of a helpful backdrop to all of the firms that you cover.
One of the things that you talked a lot about when you went public and at Investor Day was the competitive landscape and the opportunity that you had to take share from some of the larger FCMs that were servicing their customers more. How does the competitive landscape, I guess, look today? With talks of potential bank deregulation in the U.S., does that change the competitive landscape at all? How are you thinking about that?
Yeah, I mean, what's interesting is just the extent to which over the course of the year that has improved for us, even relative to what we would have anticipated. At the time of the IPO, we anticipated that this opportunity, which is essentially for a non-bank FCM to come in and take sort of increased share in clearing as well as in providing access to market liquidity. That has sort of played out probably in a more positive way than we would have anticipated. Some of that, I suspect, is just the brand value you get as a public company and the fact that so many more market participants know about you and are willing to engage. Our ability to sort of add clients and do more business with clients has accelerated over the course of the last year.
With regard to anticipated changes in bank regulation or just how those regulations are applied, I mean, it does not appear to play through, and I do not expect it will play through in terms of anything changing with regard to our ability to continue to grow share. I think the reason for that is if you are a bank CEO and you are faced with a set of opportunities today, are you going to choose to invest in areas that you have allowed to atrophy over a long period of time and you do not really have the organization or the expertise to turn that around in any way, when on the other hand, you have got this massive opportunity to redirect capital towards your trading books and you are very successful with that?
We're certainly not seeing any increase in sort of competition from the banks, more so than it has been over the last series of years as a result of these changes, and we don't anticipate it.
The other area of growth for you has been through M&A. You announced that you plan on doing four to five smaller acquisitions a year with a larger transformational deal every few years. You announced a deal this morning. Do you care to maybe speak on that announcement and then any other insight you can give into the pace of M&A that investors should expect from here?
Yeah, I mean, we're excited to announce that we've acquired a company in Brazil, which I think we've identified as an area of interest and opportunity at a couple of our quarterly earning announcements. This is just sort of a great opportunity for us. It's a physical commodity broker in Brazil, great client relationships, 1,300 clients, an opportunity for us to expand into a different product set as well as to expand out geographically to diversify the firm. It's a great example of the kinds of things that we're looking to acquire because it's a great company, does extremely well, but essentially has run into some series of constraints in terms of its ability to grow. It has a lot of ambition. It feels it has a great business model. It can expand in Brazil. It can expand into the Americas.
It's constrained in its ability to do that. It thinks that as part of Marex, it can grow much more effectively than it can grow on its own. Those are the kinds of opportunities that we're excited about because we're not buying earnings. We're buying capabilities. We're buying clients, not access to clients. As a result of that, we have high expectations that that business will be able to grow very quickly as part of the Marex platform. That's how we think about M&A. M&A for us is about one path to create capabilities and bring clients onto our platform. You can always think about the alternative. You could build it organically, or you can go and acquire it.
Certainly, when you think about the challenges of building something organically in a country like Brazil or another acquisition we completed recently, a clearing business in the Middle East, the notion of being able to successfully do that organically sort of pales when you compare it to what you can generate if you just go and acquire a great company. That's broadly how we see M&A. As you noted, we believe we have sort of the capability and the capacity to do an acquisition a quarter in terms of our ability to integrate those successfully onto our platform. We're always open to those larger, more transformational acquisitions. Those are going to be much harder to forecast with any regularity, whereas the number of sort of smaller bolt-on acquisitions, there really are. We have like 50 in our pipeline.
You can have high confidence that within that 50, there will be four or five that will meet our return hurdles, which are quite high, as well as sort of their strategic fit and be able to provide us with a path to growth.
Maybe just quickly on the return hurdles for those who maybe aren't as familiar with the story, can you just talk about what those are when you look at potential M&A?
Yeah, so essentially what we're looking to do is generate a 20% return on equity within sort of the first year. At the end of the first year, you want the run rate to be a 20% return on equity. That actually cuts out a lot of things because you can't rely on long-term cost synergies or revenue synergies. You have to feel that you're acquiring it at a price where the combination of its growth opportunity and what you've actually paid allows you to generate that 20% return. We also obviously want it to be a good cultural fit. We want to ensure that it's additive to the platform, that it's a way to diversify the firm. That 20% year one hurdle actually turns out to be sort of a gating factor for a lot of acquisitions.
Brazil was one area that you have mentioned in the past as being a potential focus of M&A. As you look across the pipeline that you mentioned, do you think there's still more work you can do in Brazil? What geographies kind of are most attractive to you right now?
Yeah, I mean, we're trying to build a sort of genuinely global firm. I think we're quite well on that particular path, although there's quite a lot of opportunity in a lot of countries for us to expand in. We've already talked about our genuine interest in growing out in the Middle East. We've got a flourishing franchise in Asia. It's quite small, but it's growing very quickly. The United States remains the largest market for our set of services. We see a lot of opportunity to grow in the U.S. I mean, what we're really just trying to do is diversify the firm's earnings, make it more resilient. Geographic expansion is a very important way to accomplish that from our perspective.
I mean, referencing sort of one of your earlier questions about sort of the impact of tariffs and geopolitical uncertainty, it definitely feels to us that clients are looking for almost like strong regional capabilities in addition to globalness. It is valuable, I think, to have flourishing and sizable franchises in Brazil, in the Middle East, in Asia, in the United States, in Europe, because clients are looking for that. I think that we'll be able to continue to grow with that focus.
On the organic side, you've guided to adjusted pre-tax earnings growth of 10% plus, excluding the inorganic opportunity. What are some of the assumptions baked into that? How do you expect to kind of continue to achieve that over time, given you've seen that, I think, consistently over the last 10 years?
Yeah, I think the track record we have is one that we're particularly proud of. We've been able to grow profitability sequentially every year over the last 10 years. The CAGR of that has been 35%. Interestingly, the growth over the last five years is actually higher than the growth over the earlier five-year period. Although the sort of starting reference point was lower, the growth has actually been accelerating. Last year, we were able to sort of continue in and about that range, and most of it was organic.
We have high confidence that the opportunity that we see, which is essentially to expand into the space that the banks are not competing for as aggressively as they compete in certain other areas, and expanding geographically and expanding by product, will allow us to support organic growth in, call it the double digits, low double digits. We do not forecast that for any particular year, but we certainly feel that that is the case if you were looking over a three or a five-year horizon. We believe that we can augment that with acquisitions. Our sort of target is to have about 40% of our annual growth coming from acquisitions and 60% being organic. It is actually skewed more towards organic over the last three years. I think that over the long term, that is probably how it is going to land.
We have high confidence that as we look out, the combination of advantages we bring to bear, the quality of our organization matching with the opportunity that we see can support those levels of growth.
I think you mentioned that leaning organic the last few years. At Investor Day, you laid out a couple of examples of how you've been able to deepen the relationship with specific clients and really grow Marex's portion of the wallet share. Can you talk about how you've been able to do that and some of the specific examples of the value add that you brought that have led clients to do more business with you?
Yeah. I mean, look, when you're in a business like ours where essentially what you're doing is servicing client flow, when you're growing revenues, you're increasing the number of clients and the amount of business you're doing with them almost definitionally because there's no proprietary trading in the business. There's no profitability away from what you're generating with your clients. If you see our revenue growth of 25%-30%, you know that you must be adding a lot of clients and you must be sort of deepening the business that you're actually doing with them. We're seeing both of those things. We're seeing sort of more receptivity from some of the largest clients in the world in the clearing space to become clearing clients of Marex.
We're seeing our increased capabilities and the breadth of products and services we can provide both geographically and by product, meaning that more people are happy to do more business with us across those different products and geographies. What we're finding is we're adding clients. Some of that are the clients that the banks are choosing not to compete for because they're smaller clients or medium-sized clients that don't meet their particular strategy. Also, in terms of the most sophisticated and larger fee-paying clients, we're making inroads because those clients are interested in the quality of the service, the breadth of service, as well as the fact that we're not a bank and they're looking to diversify their service providers. They're not just looking at banks.
Our investment-grade rating distinguishes us from the other non-bank FCMs who potentially could be providing these services to them. We feel like we're actually pretty early in that particular process. We've been able to successfully cross-sell a lot of clients, but it's very early in that particular process. It's enough to convince us that that really is a genuine and substantial opportunity, but not that we're anywhere near the end of what that opportunity represents.
What do you think, as you look across the product set, what asset classes or specific products do you think are most, or you'd be able to cross-sell the easiest or where you've seen traction in the past?
As we think about our history, we started out really as a commodity player. That's a particular strength of ours. We recognized that in order to create the diversification and the resilience of earnings that we really wanted, we needed to expand out into what we refer to as sort of financial products, but essentially equities and fixed income, and within fixed income, sort of credit rates and FX. We're earlier in that sort of process. Where do I expect to see growth? I expect to see growth in those particular product sets. We're still quite small in FX. I think we have quite a lot of opportunity to expand out in securities clearing, in single stock options, in LCH clearing. That's the area where we've come to it more recently.
We have not penetrated those opportunities to the extent that I think we will over a period of time. We are also quite excited about the opportunities in commodities. AgriVest, that we announced this morning, is agricultural physical brokerage. We still see a lot of opportunities in those areas as well.
Over the last five years, your operating margins have expanded from around the low teens to around 20%. I think it was in 2024. Some of that's been driven by NII. What do you kind of view as the core drivers of margin expansion from here? How do you just kind of expect the margin profile to evolve over time?
Yeah, I think, I mean, as I think about margins, we're carrying a lot of investment inside the firm, which seems to me to be absolutely the right trade. I think that what we're interested in, and I believe investors are interested in, is our ability to continue to grow profit in a sort of reliable and steady way. What I am very focused on is making sure that there's enough investment and initiatives within the firm so that I can have confidence that we're going to be able to continue to grow, not just for the next quarter or the next two quarters, but for the next year or two years or three years. We're laying down investment spend today for things that we don't anticipate are going to generate returns for three years.
You need to be doing that, or else you can't have confidence that you're going to be able to continue to show that and maintain that record of growing profitability because you just have no knowledge of what the market environment is going to be like over those periods. Within our margin number is a very large level of investment, but that feels like the right trade-off for us to be making. We have seen our margins expand. As you say, they were sort of 15% a number of years ago and 20% last year, 21% for the first quarter. I do anticipate that as we grow, there will be returns to scale and we will see those margins improve. They will improve slowly. Our focus is very much around long-term growth more than it's around short-term margins.
Moving on, we got about five minutes left here. Risk is a big focus for you on your first quarter earnings call. You really emphasized that you were choosing to operate at higher levels of liquidity as kind of an insurance in the current environment, albeit at higher funding costs. Can you talk more about that approach as well as just approach to risk more broadly?
Yeah. Look, I mean, I think that making money in these sorts in our business is about not losing money. And so I think you've got to be very cautious about sort of credit risk, about operational risk. There's very little market risk in our business. Liquidity is sort of so hugely important, particularly when you're unsure about the markets. We raised $600 million of debt in October last year. In May this year, we raised another $500 million. It just felt to us at that time that it was sensible to have the liquidity on hand. If the market environment deteriorated in some way, having the liquidity is essential. If it doesn't deteriorate, having that liquidity allows you to lean in and support a new set of clients.
Either way, that liquidity is going to be very valuable to the firm. I think it's an indication of just how seriously we do take risk and risk management in that we're willing to sort of have those extra costs in our P&L because we want to make sure that the firm is really safe. At times of uncertainty, having that liquidity is worth its weight in gold.
As you look forward, do you anticipate raising more capital? Or how do you think about the next 12 months? How do you feel about the level of capital today?
Yeah, look, I think we feel good about our level of capital. We maintain our investment-grade rating. That's critical. That's one of the factors that we pay enormous amount of attention to. We're comfortable with our capital allocation strategy, which is maintain the investment-grade rating and support our organic growth to return some amount of capital to shareholders in the form of dividends, have capital available for M&A, which is an important sort of driver of growth. We're very comfortable with the mix of that. We're generating enough earnings that there's no requirement for us to go out and raise additional capital.
Okay. So we'll end on a big picture question. The stock's almost doubled since the IPO. It's been a great year for you. How do you kind of keep this momentum going? Do you expect to keep the momentum going? And as investors look at the next 12 months, what are some of the metrics and milestones you think we should be paying attention to?
Yeah, we're actually more than double. So that's.
More than double.
That's obviously very heartening. Thanks to all of the investors who have placed their trust in us and sort of supported us in it. I mean, I think that we've grown our earnings. In the end, growing your earnings and showing the reliability of your growth and the reliability and the recurring nature of your revenues will sort of be reflected over a period of time. As I've indicated, we have high confidence in our ability to continue to grow. We recognize that the environment might change in some ways. We're trying to build a firm that can continue to grow through a whole range of different market environments. We want to be in a position where we can take advantage of unusual periods of volatility. We certainly don't rely on that for our growth or for our performance.
What's going on sort of under the covers is increased demand for the kinds of products that we provide. Exchange-traded derivatives are increasingly attractive to retail investors. Retail aggregators are a big part of the client growth that we're experiencing. We see exchange volumes growing. They may not continue at a double-digit pace, but we certainly do not see it slowing materially from the levels that we're at at the moment. We do not see any change in the competitive landscape. Broadly, we see a lot of very positive factors that help us win clients and win additional business from the clients that we have. That's what's going to power our growth. We do not see the opportunity declining in any way. We do not see our ability to capture that opportunity declining in any way.
That is why I think we're so confident about the future.
It's interesting you mentioned retail there because I don't think a lot of people view Marex as having much retail exposure. What role do you think retail could play in the story going forward? Do you have any aspirations to penetrate deeper into that section of the market?
I mean, servicing retail flow is, I mean, I think sort of an attractive business. I think it requires a particular set of skills around compliance that we do not currently have. Our focus is to be an institutional firm. Some of the institutions that we service are the firms that aggregate retail flow. We are very comfortable playing that role, which is essentially providing those firms with, I mean, at the ideal point, you do everything for them other than deal with the clients and marketing to clients and generating the products, which is where their particular expertise is. If they could basically have a plug and plug into a firm like Marex where all of the clearing, all of the market data, all of the reporting that they need to make is taken care of, that is a very attractive product to them.
I think that we're very competitive in terms of being able to provide that service. There is no doubt that the increase in exchange volumes that are a function of retail investors increasingly utilizing those as a way to reflect their investment preferences is ending up in one way or another through Marex. It is not because we're dealing directly with those retail investors because we do not have an expertise around that. We are seeing those flows.
All right. Great. Ian, that's all the time. Thank you so much for joining us. It's been a fun story to watch. We wish you all the best.
Thank you very much.
Thank you.