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One Fund Manager Escapes a Brutal Year

Mark Gilbert

(Bloomberg Opinion) -- Last year was punishing for the fund management industry. According to Amundi SA, $100 billion was withdrawn from European mutual funds in the fourth quarter alone. But one firm managed to buck the trend.

Ashmore Group Plc grew assets under management by 10 percent in 2018, figures released on Thursday showed, reinforcing the argument that in an industry facing such strong headwinds, it pays to be a specialist.

Ashmore’s focus on emerging markets, specifically fixed income, helped its shares outpace those of its competitors, especially in the final three months of last year when the wider equity market took a battering.

The relative illiquidity of emerging-market debt makes it trickier to create and sell exchange-traded funds based on it – just 15 percent of the assets invested in emerging-market bonds are in the form of passive products, according to UBS AG.

That has proved to be a boon for active managers like Ashmore. More than 80 percent of the firm’s assets are invested in debt markets, encompassing both local and foreign currency securities as well as sovereign and corporate issues.

The market helped, too, with emerging market securities outperforming their equivalents in developed markets. That helped Ashmore attract net inflows of $2.4 billion in the final six months of 2018. But challenges remain.

Bank of America Merrill Lynch produces a monthly survey of global fund managers. In February, for the first time in the poll’s history, money managers controlling $625 billion of assets said that the world’s most crowded trade is now being long emerging markets.

Some 70 percent of Ashmore’s assets underperformed their benchmarks in the past year, though it says 97 percent of its funds outperformed over three years. The firm says that 2018’s lack of returns came as its portfolio managers “bought into value” to position for future market gains.

Future returns will remain highly dependent on the dollar and the Federal Reserve, with the U.S. central bank’s renewed dovishness in recent weeks contributing to gains for both emerging market bonds and stocks.

Even if the broader market climate remains favorable, Ashmore shareholders will face some headwinds from a source much closer to home: Chief Executive Officer Mark Coombs.

The stock dropped 7 percent on Thursday after Coombs said he plans to reduce his 39 percent stake in coming years to below the 30 percent threshold at which U.K. takeover rules require a holder to bid for a company.

Ashmore has had to seek an annual exemption to this rule from regulators, which analysts at UBS AG dubbed “an optically challenging governance problem” given that more than 20 percent of other shareholders have voted against the request in recent years.

Coombs owns about 266 million shares. To sell enough of them to cut his stake to less than 30 percent would require offloading about 28.5 million annually which, based on the stock’s average daily trading volume of a bit more than a million shares, equates to adding a month’s worth of supply into the market. That is quite a sizeable overhang.

There might, however, be one long-term upside. Citigroup Inc. analysts reckon the share sales could open the door to a bidder in the longer term.

In an industry that needs to consolidate, Ashmore’s emerging-market focus could prove attractive to a competitor looking to add bulk and specialization.

--With assistance from Chris Hughes in London.

To contact the author of this story: Mark Gilbert at magilbert@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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