Welcome back, everyone. Next up, we have Ian Lowitt, who's the CEO of Marex Group. Marex is a global diversified financial services firm providing liquidity, clearing, market access, and risk solutions across commodities, energy, rates, FX, and equities. Track record over the past decade has been pretty impressive to say the least. They've had roughly 20% revenue CAGR and profit in each of the last 10 years. Since going public, they've put up eight straight quarters of profit growth. They just reported a record first quarter. Ian, thanks for coming back.
Thank you.
All right, maybe just starting things off. The last few years have brought a lot of different forms of volatility. We've had rate volatility, tariffs, commodity dislocation, geopolitical instability. You've navigated it all, continued to put up record quarters in growth. How would you characterize the environment today, and what is the resilience of the model through these different forms of volatility? Tell us about your business.
Well, thanks, Patrick. Look, I think that we set out to build a business that was going to be resilient and it was going to be able to deliver growth and high-quality earnings across a whole range of market environments. As we reflect on not just our long-term track record, but our track record as a public company, so over the last eight quarters, I think we've been able to demonstrate that we have, in fact, been able to deliver that. Just to the points you made, Patrick, there's clearly been a huge amount of challenge in various quarters over that time period. As you point out, we've actually been able to grow earnings versus the quarter, the year prior in every one of those quarters over that time period.
That I think is indicative of the effectiveness of the model that we've created and the fact that there are inevitably going to be challenges in the market, and there are going to be times where certain things are tailwinds and certain things are headwinds. What you want to do is construct a business that can deliver growth across all of those environments, and I think we've done that. Some of these quarters are great use cases. The third quarter of last year, for example, was one where exchange volumes were down quite markedly. I think there were concerns from investors that in a world where exchange volumes were down quite significantly, that that would affect the firm's business. We're obviously very pleased that in the third quarter of last year, actually, our profit was 25% up on the prior year.
First quarter of this year, also a set of challenges, very high levels of volatility. While that's opportunity for us, it's also some challenges, and again, as you point out, a record quarter for us. As we think about the current market environment, what we're seeing in the second quarter is exchange volumes down on the first quarter, not a surprise. Exchange volumes were particularly high in the first quarter, but we're seeing on average probably down 15% second quarter versus first quarter, and versus March, which was an extremely high volume month. We're probably seeing volumes that are down 30%. Notwithstanding that backdrop, in part because the prime business is doing so well for us in this environment, as I indicated on our earnings announcement, April was on track for performance that was consistent with the record first quarter.
May, we've seen a continuation, maybe even a strengthening of that a bit versus what we saw in April. Notwithstanding that backdrop, which has some fatigue in it, some decline in market volumes, the overall business is gaining share and client balances continue to be extremely strong, and the performance is extremely strong.
Obviously, nobody has a crystal ball, but given the volatility we saw in the first quarter, sometimes you see, and we're seeing it right now, volumes dry up after a big volatility event like that. As you look out to the rest of the year, any thoughts on, you got a new Fed chair, we got the midterms in the U.S. coming up. Any thoughts on the outlook for volumes the rest of the year?
To some extent, all we can do is react and respond to what it is that the market delivers for us. What I can say, which is maybe helpful, is when I think about exchange volumes, they've grown on average 10% a year for a very long time period. I don't see anything that undermines that in any way. I see adoption of these products increasing more and more, investors finding use for that. We find more geographic extension for these product types. While this is obviously going to move around quite a lot quarter- to- quarter, as a general matter, I think the structural growth is something like 10%, and it has been for a long time, and I don't see anything that's changing it.
While there are fads about different things that might undermine that in some way, and I think the issue this week is perpetuals, I really don't see that changing industry structure in any kind of way, and I see this continuing to grow, even though there'll be volatility quarter-t o- quarter.
Sure. Yeah. No, I won't. I'll stay away from perps with you. We got plenty of people to talk to it about. You mentioned the growth in the market's been strong. You've been taking market share. One of the things you emphasized at the time of the IPO was the opportunity as a non-bank FCM to take share from larger-.
Yeah
banks as they continue to deprioritize those areas of the business. Two years into life as a public company, how has that played out relative to your expectations, and where are you winning the most?
Yeah, I think that in the two years since IPO, I think that we've exceeded our own expectations, and I think we certainly exceeded the market's expectations. At the time of the IPO, we thought that the firm could grow 10%-15%. What we sort of forecast at the time was we would grow at 12.5% off our reference point, which was 2023, which is GBP 230 million of PBT. That would've taken us to probably about GBP 300 million last year. We didn't do GBP 300 million, we did GBP 418 million. We're obviously growing a lot faster than we anticipated, and I think a lot faster than sort of the market and investors anticipated at the time. Now, what's behind that is actually not that the market itself is a lot better than we anticipated.
Because to the earlier question, we expected exchange volumes to grow at 10%, and they broadly have, and we expected the interest rate curve to reflect what would the forward curve was in 2024, and it's broadly played out that way. It's not a better market for our set of businesses, it's that we've been able to take share and we've been able to grow in ways we didn't anticipate. That, I think is extremely positive. The thing that has played out is that that opportunity to take share from banks has remained. It hasn't changed. What has changed, though, is our level of competitiveness has improved in a way that I don't think we could have anticipated.
At the time of the IPO, we were essentially winning mandates in clearing where the banks were de-emphasizing it or even just telling clients, Look, we don't want to clear your business anymore. It's almost like you took the things that the bank didn't want. Now we're in a position where we can compete for essentially any mandate, and often win those against fierce competition from the Goldmans, Morgans, JP Morgans, BNPs, Soc Gen. There are many RFPs that we can point to where we've been in competition and we've been able to win those. What we've been able to evolve and develop is a business model which now no longer just sort of picks up what the banks don't want, but we can actually go and win mandates with the largest clients.
When you look at what's driving our growth, we're growing successfully with small and mid-size companies, but most of what I think is fueling that outsized growth is the progress we're making with the largest clients. The clients that pay us more than GBP 5 million, if you look at 2025 versus 2024, that increased from 36- 49 clients. As a sort of cohort, they paid us GBP 300 million more than they had in 2024. The growth is coming from cross-selling to larger clients and winning the mandates of things that are sort of coming due, even if in the face of competition from the banks. That's not what we'd anticipated at the time, but it's obviously very heartening to see.
Let's talk about margins. At Investor Day, you indicated margins will improve gradually as the scale benefits flow through. You're prioritizing long-term growth over near-term margin optics. The adjusted PBT margin sitting at 22%, I believe, in the first quarter. Where are you on the margin trajectory today?
Sure.
Where is the bulk of investment spend going today, where you might not see a payback for two or three years?
Yeah. Look, I think that what's happening with margins is sort of interesting. Five years ago our margins were 14%-- sorry, 15%. They've grown pretty steadily each year and it was 21% a year ago, and as you say, we're running sort of at 22%. What that is is it's an interplay of a lot of different things. The level of investment we're making because we want to ensure that there's enough structural growth in our underlying businesses that we can offset whatever cyclical headwinds are coming our way, is a strategic priority for us. We are investing in sort of new assets, new geographies, new products. As you diversify, you go into new products, new geographies, and that means you have to invest in support and control infrastructure which isn't sort of at scale, and that obviously impacts margins to some extent.
I think what we're seeing now is a circumstance where I think we can be more confident that the margins are going to continue to expand and get to sort of that mid-20%s to high-20%s sooner than I think we would've anticipated. We are seeing investments generate returns faster. We are seeing more returns to scale. We are seeing the impact of technology raising productivity. We do think that AI will again raise productivity and it won't translate into wholesale reduction in workforce and fewer people. What it is going to do is increase the productivity of our existing staff in a quite material way. I think that will feed through into margins.
I think at the time of the IPO, we would've been quite conservative in what we thought was going to happen with margins, and certainly what we're seeing at the moment is margins expanding somewhat faster than we would've expected.
As the business scales, do you think that high 20% range, is that kind of like appropriate terminal margin for your business?
I don't think it's a terminal margin. The reason that I say that is I do think that as an executive committee, we spend time looking at our three-year plan and where we think we're going to grow the firm. I think the firm is going to grow sort of differentially in high infrastructure areas. We're going to grow in prime, we're going to grow in clearing predominantly. We're quite excited about the prospects of a payments capability that we're building up, things that are infrastructure-intensive, high margin, very sticky. As that becomes a bigger part of the firm, I think the margins sort of grow with that.
Sure.
We also think, again, technology has the potential to really transform what we do, and more and more of where the growth is going to come from is going to be electronic flows. Consequence of that is I don't know what the terminal margin is. I wouldn't suggest to people that it's going to get north of 30 in a sort of medium- term, but I don't think it's capped at 30 for the businesses that we're in. I think it can get higher than that.
Okay. Let's talk about M&A. In the last 18 months, you've completed a number of acquisitions. You have Hamilton Court in FX, Aarna in Abu Dhabi, Agrinvest in Brazilian commodities, and Winterflood, which gave you a big footprint in the U.K. equities.
Yeah.
I think earlier this week there was Levmet that you announced.
Yeah.
Just walk us through some of the strategic logic across the deals you've done recently.
Yeah.
How's the integration going? Where are the cross-sell opportunities popping up?
Yeah
in these deals?
Yeah, look, all of these are great examples of how you can make acquisitions, which if they suit your strategy and are good cultural fits, can see very material lift as being part of the Marex platform. It's very much the way in which we think we have an avenue of growth. It's not the only avenue of growth, but it's an important avenue of growth. These are all interesting examples of how that's happened. If you think about Aarna was a sub-scale clearing platform in the Middle East. As it came onto the Marex platform, its profitability increased on the very first day by 50%. We were able to retain their business, but the terms of business as part of Marex versus as a small sub-scale player actually increased their profitability by 50%.
In the case of Hamilton Court, it was a small firm providing FX services to corporates. As part of Marex, it's sort of perceived very differently by potential clients. In April, Hamilton Court was actually running at double the revenue that it was running at pre-acquisition. Winterflood is a market maker in U.K. equities. It's an area that we had a very small business, now we acquired a larger business. We were able to, and we actually completed that this weekend as well, we were able to sell off the custody business to Epiris, which is a private equity firm. We're able to acquire the Winterflood business at negative goodwill. Maybe GBP 25 million we were paid to take it effectively. That's going to generate probably GBP 100 million of revenue and GBP 20 million of PBT.
Is running probably 20%, 25% ahead of where it ran prior to our acquisition. It's in the public domain, we've been mandated to do the retail sleeve of SpaceX's IPO for retail in the U.K. Which again, was never a mandate that Winterflood would have won itself, but it can as part of Marex. These are all examples of things that integrate very successfully into our franchise. They see very rapid lift and then they bring us sort of, to your point about cross-sell, a set of clients that over an extended period of time you can bring more products to. The lift is not out of cross-sell initially, that's a much slower process, but you do get lift as part of this.
In terms of the integration, I think the way we approach it is you want to integrate things onto the Marex platform as rapidly as you can, and that's usually even the very first weekend. You put everything onto our books and records, onto our risk systems, onto our surveillance systems, onto our operation systems. We would often keep the front ends and plug those into the Marex backend, and we would break up their organization so their ops goes into our ops, their finance goes into our finance. We just want to do that as a matter of principle to take complexity out and to make sure that these integrations proceed very smoothly. We've had great success with essentially all of them, which we're very pleased about. As we see our pipeline, it's extremely robust with things that fit into this model.
We're able to do things with people we really like, where we see successful adjacencies and an ability for them to be more successful on our platform than they can on their own.
Sure. You mentioned the pipeline there. That was going to be my next question. I guess in terms of the pipeline, you've done a lot of these tuck-in acquisitions. What's the appetite now to do some larger, more transformational deals?
Yeah.
I think that some of these tuck-ins have ended up.
Yeah
larger, more transformational deals.
Yeah
the appetite for that and how you think about return hurdles in this environment.
Sure. Look, I think that as we've said, we've always been open to a larger, more transformational deal, but we've never felt the pressure to pursue it if we didn't think we had high conviction that it would create a lot of value for our shareholders. To a point you made about one of our acquisitions, which I didn't talk about. We acquired the prime brokerage business from TD Cowen, and we paid a premium of GBP 25 million for it. It was making GBP 80 million of revenue, GBP 8 million of PBT. The two years on as part of the Marex platform, that's making GBP 250 million of revenue and it's generating about a quarter of our profit. It has been transformational, but we're able to do that without spending a lot of capital and taking a lot of risk that it might not work out.
We have looked at the larger transactions, but again, because we see so much value in doing what we're doing, we don't feel the pressure that we need to do those transactions. Obviously StoneX bought R.J.O, I think the market has been very positive on that. We looked at that and didn't pursue it. If we were going to do something, we would have done something at a lot lower price. It might work out very well for them. They're a very effective firm at acquiring and integrating things, but we didn't feel the pressure to do that. We're open to larger things. We haven't seen anything that we felt made sense for us, and we've been able to grow very successfully without it.
In terms of acquisitions and the hurdles, we look for things that are going to generate at least 20% return on equity, 20% pre-tax margins, and we're also looking to get payback on the premium that we pay within 2-3 years. So we're very picky on the set of things that we do. Again, in my own mind, I would rather do 10 things at GBP 100 million than do one thing for GBP 1 billion, given the risk that the one thing for GBP 1 billion isn't going to work out for you.
Sticking with the topic of capital allocation, you've done some senior note issuances in recent years. What do you view as the right level of liquidity for the business at this scale? How do you think about capital allocation from here across.
Yep
organic investment, M&A, and then in particular, share repurchases, which I think you were just approved for at your AGM.
Yep. Yes, look, I think that there's two different things here. One is how much liquidity do you have and how do you source that liquidity? A second thing sort of around capital. With regard to liquidity, we see great benefit in having a substantial and well-supported public issuance program in the U.S. We have just done a GBP 500 million, five-year. Last year, we also did GBP 500 million. I think we will continue to do that because I see real benefit in building recognition of our name. Our recent issuance, we did a Treasuries + 177, which was 50 basis points tighter than we did a year before. Our credit is improving, our name recognition is going up.
You want to be in a position where, to your question about doing a transformational deal, if you did need to go out and raise a lot of liquidity quickly, you were able to do it because people know your name and have been covering you for a while. We do want to create the right balance in our liquidity across public issued debt and structured notes. That's all part of a program. We run very substantial liquidity surpluses, even relative to the regulatory stress cases. As we get bigger, I think those liquidity surpluses are going to get bigger.
It's very low-cost insurance for the biggest risk to our firm, which is you end up in a world with market turmoil, clients requiring cash, and you want to be in a position where you can support those clients and you can continue to operate effectively. While that's a drag on earnings, we're generating 30% ROE, we're growing very quickly. We can absorb that drag, and that insurance is absolutely worth it from our perspective. With regard to capital, we actually just had a very successful hybrid capital issuance yesterday, so raised $500 million of essentially AT1 equivalent that has, or will have, 100% equity treatment from S&P when we move it to the new Bermuda holdco. That's, again, an area where we do look to increase the capital we have because we're so confident of the opportunities we have to grow.
In terms of our capital allocation, as you will know, we prioritize maintaining our investment-grade rating and supporting the growth of our organic businesses, and that's a use of capital. We do have a dividend, which we think sends a very positive signal as we increase it that the board has confidence in our growth. Then we use what isn't utilized for those two things for acquisitions, both the premium and the amount of capital that's required to support those businesses in a way that's consistent with the investment-grade rating. At the moment, we're in a world where we see more opportunities to invest that capital in that way than we have capital. You're going to be constrained, and that's the right place to be constrained. It keeps us disciplined around capital deployment. We do have now support from our shareholders to do buybacks.
I think of that really as something that it's important in the event that our stock dropped dramatically and we wanted to be able to buy back stock. That's something that we didn't have and now we do have. We don't have plans to buy back stock in the normal course, simply because we see so much opportunity to invest that capital in acquisitions. If you're acquiring things at two to three times earnings and you're able to grow them as successfully as we have, that's probably one of the most effective ways we can create value for shareholders.
All right. Last one. Big picture, what are the metrics and milestones investors should be paying the closest attention to if they want to track Marex? What do you think the single biggest thing investors in this room are most underestimating about Marex's potential in the next few years?
Well, look, I think that as I said at the outset, what we're very focused on is growth and growth in quality earnings. What I pay attention to is, are we in fact growing each quarter? What sort of variability in our earnings, and we have a sort of Sharpe ratio version of that, and that's extremely high. What we want to do is grow the firm and grow it with very high-quality earnings. The healthcare measures that people can see is obviously what's our share, what's happening with client balances, and client balances have been growing steadily and continue to grow. In terms of what it is that investors may be under value in Marex. I don't think there's a thing that I would point to and say it's obviously out there and people don't value it.
I think that there's some natural skepticism that notwithstanding the fact that we've grown earnings every quarter for eight quarters, that eight quarters might not be indicative of how it's going to go in the next eight quarters, because it's really difficult to separate what sort of market and idiosyncratic versus structural. I think over time, the market will come to appreciate our ability to generate those sort of stable growth. If this quarter does turn out to be as it indicates it will, consistent with where we were in the first quarter, notwithstanding the less attractive market environment, again, I think that'll be another strong signal about the effectiveness of our franchise.
The thing I think it's hard for anybody to get some feel for is just how good the organization is at doing all the things we ask it to do in terms of finding opportunities, executing on those opportunities, doing it in a very effective and well-controlled way. I think that's what's really our competitive advantage in delivering these exceptional returns. Over time, I think people will get more confident that it's that capability that will deliver those returns over time.
Fantastic. I think that's all the time we have, Ian.
All right.
Thank you so much for joining.
Thanks, man.
Yes.
Thank you.