Another grim update from UK fund management sector. This one’s from Ashmore.
The emerging markets specialist, which recently joined the FTSE 100, has revealed a big fall in assets under management and a Paulsonesque performance from its recently acquired equities business.
26.7 per cent fall in Equities AUM in one quarter? What on earth happened?
Market vol, apparently.
Market volatility resulting from the challenging and uncertain macroeconomic backdrop, particularly in the United States and Europe, resulted in adverse investment performance across the themes with the equities and local currency benchmarks experiencing the greatest falls, particularly in the month of September.
However, some analysts aren’t totally convinced with that explanation.
Here’s Deutsche Bank’s Carolyn Dorrett, who says falling indices can only explain some of the poor performance (which you should note is not just confined to equities).
Investment performance was -US $7.1bn, compared with our est of -US$4.6bn. Over this period, the benchmark external EM debt index, JP Morgan EMBI, was down -2.1%, while the local currency EM debt index, JP Morgan EMLI+, was down -9.2%. Since the acquisition of EMM, the MSCI EM equity index has fallen -16%. Although falling indices explains some of Ashmore’s negative investment performance, it does not explain it all. Ashmore’s key funds also underperformed. For example, Ashmore’s main external debt fund (EMLIP) saw its NAV fall -7.1% in 3M end-Sept (undperf of 5%), while Ashmore’s main local currency EM debt fund (LCD) fell -10.3% (undperf of 1%)
A point also picked up by Stuart Duncan at Peel Hunt.
Negative market movements accounted for $7.1bn of the decline. Recent fund data highlights the significant underperformance of key themes in September – for example, EMLIP fell by 8% in September, the LCD fund by 10% and the blended fund by 8%. Worst affected was the Multi-strategy theme where AuM fell by 19% to $6.8bn.
And his colleague Mark Williamson:
As expected following the publication of the fund fact sheets on Tuesday Ashmore’s performance has suffered during the quarter as a consequence of the dislocation in markets relating to the Eurozone debt crisis and concerns over global economic growth. However, the disappointment was greater than we had expected and the Equities franchise is struggling. It is likely that the logic underlying the acquisition of EMM will be brought into question, however we continue to view this as option value and believe that time will be required to turn performance and flows.
All this is important because their performance fees are likely to take a hit. Citigroup is forecasting £59m of performance fees for the year to June 2012 . But following the losses in September, many of these funds are now flat or down year to date, it says.
They have moved from being close to crossing 6 per cent performance fee hurdles to being well below them. (see Figure 2)
As such Citi expects today’s statement to drive large earnings downgrades, perhaps shaving 22p-24p off of EPS.
And before you ask, the reason the incoming downgrades have not triggered a Man Group style sell-off — a quarter was sliced off its market value on the day of its recent statement — is because Ashmore has already suffered a brutal sell-off.
As for Man Group, there’s still no sign of that elusive dead cat in spite of Wednesday’s plea.
Its shares are down again!
Will it ever rally?
Update: 3.12pm (London time).
Ashmore’s flack’s would like us to point that there performance has recovered in October. As evidence they present this “buy” note (obviously) from Numis Securities.
Ashmore published September factsheets yesterday (11/10/11) for the flagship funds, which generally showed a weaker performance (i.e. flagship funds underperformed benchmarks during September) and implied net flows than we had expected. However, we also observe from those funds that publish weekly prices and from benchmarks to date, that there has been a partial performance recovery so far in October. We have marked our forecasts to market for these factsheets and fund prices/benchmarks for the month to date. This results in a -4% downgrade to our Sep-11 AuM (to $58.2bn) and our Jun-12 EPS.
Related link:
Paulson & Co warns of asset redemptions – FT