Ashmore battles client defections as emerging markets face bumpy ride
On February 23, senior staff at the UK’s most prominent emerging markets fund manager made a prediction about Russia.
Many countries, including the US, had warned that an invasion of neighbouring Ukraine was imminent. But while strategists at Ashmore kicked off their briefing saying investors needed to be cautious, their conclusion was clear: top managers at the FTSE 250-listed group did not believe Russia’s president Vladimir Putin would launch a full-scale invasion.
Indeed, it had accumulated nearly €143mn in Russian government debt by the end of January — as more than a hundred thousand of Moscow’s troops massed on the border, according to data from Morningstar covering the group’s publicly available funds.
In the early hours of the next morning, Russian troops crossed the border and the war began. By the end of February, the worth of Russian debt had fallen 80 per cent; a month later money managers across the industry were writing it down to virtually zero.
As other founders have left the group, the number of people with the stature to challenge him also appears to have dwindled. “The original idea was to have equality between founders but it’s drifted a long way from that,” said one former employee.
Another said: “It’s very dominated by Coombs. I’ve never worked anywhere where the business is so dominated by one person, with everyone constantly asking themselves: ‘What would Mark think’.”
The person close to Ashmore challenged the argument that Coombs dominated, pointing to its investment committee and board as sources of authority, and said the chief executive is not central to every decision.
Coombs also retains significant control by owning 33 per cent of the company — although this is down from almost 40 per cent three years ago. He pledged to cut his stake to about 30 per cent after a 2018 warning from Institutional Shareholder Services that he could gain “creeping control”.
Many argue this makes him highly aligned with Ashmore’s shareholders and clients. “He founded it and he’s chief executive . . . it’s essentially Coombs asset management. His steering of the company is one of the biggest cases for buying it,” said Maile at Panmure.
Ashmore is known for its lean cost structure — a design intended to help it withstand volatile EM cycles — with most employees on what is, for the industry, a low base salary of about £100,000 with a large part of remuneration offered in equity. Coombs forgoes a bonus when Ashmore underperforms, regarded by many in the market as symbolic of this ethos.
What comes now
With a sizeable cash buffer, no debt and a commitment to maintain a generous dividend, Ashmore can afford to wait out the long drought in emerging markets.
It has also developed local fund management businesses in other markets, such as Colombia and Indonesia to help diversify.
Despite sweeping consolidation in the asset management industry there is no suggestion that they might be a takeover target given Coombs’s shareholding, with employees owning about another 10 per cent.
But another trend threatens its model of active management: the push by the passive investing industry into emerging market assets.
“The bigger that universe of issued debt becomes, the easier it becomes to replicate in an index proxy. If you underperform consistently — or get caught in something like being completely on the wrong side of China property — I do think that’s a difficult position,” said the industry veteran.
This story originally appeared on: Financial Times - Author:Adrienne Klasa
