A team with rare expertise emerges

Ashmore has a 20-year record as an emerging markets specialist in the institutional market and a range of products that it has started to open up to retail investors. By Shaun Cumming.

To most British retail investors, Ashmore is an unknown entity, and has been since the group was launched in 1992. The traditional background of this emerging markets specialist is as an institutional investment house, and the firm had never sought to enter the retail market. But over the past year, this policy has been under review.

Ashmore decided to make a firm commitment to the British retail market towards the end of last year, when it hired appropriate personnel. Dominick Peasley, the group’s head of European third-party distribution, says Ashmore will make further strides into the retail market this year.

“We will be on the traditional UK platforms over the next couple of months,” he says. “We are looking at those which are deemed deep retail, through to the busines- to-business style platforms.

“But we are trying to be targeted with who we do business with. Also, given the structure of our funds, we want to provide the firm’s staff with a way to access the funds themselves. With most of the platforms, there is not a lot of emerging markets choice. If we can get out there and tell the story, I think it will help push the brand.” (Focus continues below)

Meera Patel, a senior analyst at Hargreaves Lansdown, says there are aspects of emerging markets that are interesting. “We are doing a lot of work on emerging markets recently because there are not that many good managers around.

“Whether [Ashmore] has only done institutional before or not doesn’t really matter to us. What matters to us is the track record of the firm’s products, but also the track records of the individual managers.”

However, there is a sticking point for Patel. Ashmore’s strength is evenly split between emerging market debt and equities. Patel says that, for at least one of these areas, the British retail market is not ready.

“We are much more interested in equities than debt. Investors have difficulty understanding debt for our own market and Europe, so I am not sure the appetite for emerging market debt is there at the moment.”

Click to enlarge

Christoph Hofmann, Ashmore’s global head of distribution, says that the firm’s reputation and long track record in the institutional market should be a comfort to potential investors. “We want to take our institutional quality products into intermediary channels so that global investors can benefit from a process which has benefited large institutional investors around the world for a very long time.”

Among the firm’s qualities is its experience of working with emerging markets throughout various cycles over two decades. This means it has experienced a wide variety of the conditions that these markets can produce. While fund groups that have recently entered the emerging markets space did so during a bull market, Ashmore has seen the downside as well. Lessons learnt in these battles may prove crucial in the years to come.

The first Ashmore fund was launched in 1992, Peasley says. Since then the group has grown in terms of its assets under management and as a business entity. It listed on the London Stock Exchange in 2006, entering the FTSE 250, and has since joined the FTSE 100.

Ashmore’s progression towards retail fund platforms makes sense, but it maintains a strong relationship with its traditional customers. “The business is predominantly institutional,” Peasley says. “Clients include central banks, insurance companies and pension funds. The reason we never entered the retail space is because we never needed to. Institutional growth was so high.

“We are about 250 people strong, and recently took on 80 people through the acquisition of Emerging Markets Managers (EMM).

“In terms of how our assets under management – which stand at about $60 billion [£37.6 billion] – break down, we have different ’buckets’.” These are designated for external debt, local currency, corporate debt, equities, alternatives, and liquidity. “We run single-country funds across the debt and equity spaces. We have the likes of external debt in Russia, local currency debt in Brazil, Turkey, and Asia.”

Although Ashmore maintains offices and a staff presence in many of the markets it operates in around the world, it manages global money from its headquarters in London.

“Where we have country-specific funds, and investment teams in those countries, they all have an input into the views we take on those markets,” says Peasley.

“But the global money is run by the team here [in London]. This is because we like our overall management to be able to go into a country independently and then step away from it with no biases.”

Peasley says that fund managers and investors hold a natural bias towards their home country, and this is a risk that Ashmore considers.

Nevertheless, because of the diversity of markets that the group operates from, having this strong presence on the ground is seen as essential. It also boosts the group’s credibility as an emerging markets specialist.

Hofmann says a balance has to be struck. “We have teams on the ground, which is really good. Let’s look at Brazilian fixed income. There is a team based out in São Paulo which is like a mini Ashmore in Brazil. The global products, however, are run from London because if you are born and bred in Brazil, you will be very bullish on Brazil. We have people that must go into the markets regularly but can step out to get a more neutral view.

“It is the same for [investment managers] in Britain or Germany. If you live in Germany and were born there, you are very German in your view.”.

The (Bric) nations – Brazil, Russia, India, and China – are very popular with investors because of the growth opportunities they can produce. Furthermore, after years of study, British investors are beginning to understand them better in terms of risks, regulation, governments, and corporate governance. Indeed, many Bric specialist funds have been launched in the British retail market over the past couple of years.

Perhaps surprisingly, the Bric idea is not one that Ashmore particularly subscribes to.

Hofmann says: “Brics are interesting, but there is a serious question to be asked. That is, why invest just in four countries when you could invest in 60 or more countries? That’s not to say we do not invest in the Bric economies, because we do. They are big countries with good growth prospects, but [if you are] only investing in Brics you are limiting your opportunities [throughout global emerging markets].”

”Where we have country-specific funds, and investment teams in those countries, they all have an input into the views we take on those markets”

The Ashmore approach considers all emerging markets from a top-down, actively managed perspective. The group says this requires deep knowledge of the markets and an understanding of why things could go wrong, highlighting the potential risks. It is for this reason that Hofmann says investing in emerging markets passively could be costly.

“You need to have strong macro views on the fundamentals of a country. Our investment process is benchmark aware but it is not tied to a benchmark.

“There is no point investing in a country you do not like just to track the benchmark.

“In 2001, when Argentina defaulted, if you owned the benchmark you immediately lost [about] 16% of your money just by being passively invested. If you have foresight you can avoid these shocks,” he adds.

In Hofmann’s view, investors’ perception of emerging markets overall as high risk is unjustified. There is more risk in developed economies than emerging markets at present, he argues. “There is political risk in every country – that is not emerging market specific,” he adds.

Nevertheless, risk management is high on Ashmore’s daily agenda. Its entire process is modelled to account for risk factors. Rather than “star” individuals managing funds, investment committees oversee all investment decisions.

If the idea of committees conjures up images of bureaucracy, Hofmann says that for Ashmore the practice makes the investment process smoother, quicker and more efficient.

Emerging markets debt is a core area. Ashmore runs products investing in sovereign, corporate, and external debt. Even though some investors are not fond of the asset class, as Patel at Hargreaves Lansdown suggests, emerging market debt appears to be a particularly hot field at the moment. Several groups have either launched products recently or have announced plans for imminent launches.

Hofmann sees this as a compliment.”It is nice to see others recognising the space. It also helps the asset class in that it is another source of liquidity.”

The group’s funds have produced mixed performance over three years. Of its funds with a record over that period, four are top quartile, two are second quartile, two third quartile and seven fourth quartile. One of its top performing funds is the Ashmore Brasil fund, which is top quartile over three years, returning 53.34% to investors to January 31, 2012, according to Morningstar data. Ashmore also runs the Ashmore Global Opportunities investment trust.

Ashmore certainly has some appealing qualities for the British retail market. It has a long track record and is diverse both in terms of asset classes and product range. As Patel points out, genuine emerging market specialist managers with experience and a good track record are rare.

Ashmore is an emerging market specialist fund manager founded in 1992 and based in London. It has assets under management of $60 billion (£37.6 billion).