* H1 pretax profit down 7 percent to 120 mln pounds
* Shares down 1.2 percent
By Laurence Fletcher
LONDON, Feb 21 Emerging markets fund manager
Ashmore Group posted a 7 percent fall in first-half
profit, driven by lower returns from funds and a shift by
clients towards portfolios that do not charge performance fees.
While Ashmore has been winning clients, it is seeing margins
drop as it attracts institutional investors, such as insurers,
who tend to pay lower fees than retail clients.
These institutional investors mostly buy products such as
investment grade debt funds which have lower margins and are
less likely to command performance fees than high-yield funds.
Ashmore, founded by Mark Coombs in the late 1990s, said on
Thursday pretax profit for the six months to end-December was
120 million pounds ($184 million).
"We continue to believe that emerging markets is a
structural long-term growth theme. But we also note that Ashmore
has the short-term challenge of declining fee yields and an
eroding EBITDA (core earnings) margin," said Numis analyst David
McCann, who has an 'add' rating on the stock.
"Therefore, future actual earnings growth may be much lower
than the AuM (assets under management) growth opportunity
suggests," he said.
Ashmore stock was down 1.2 percent at 360 pence at 1010 GMT.
Finance director Graeme Dell told Reuters that fewer funds
had hit their hurdle rates, above which Ashmore can charge
performance fees, because absolute returns from emerging markets
have been lower recently than in the rebound following the
Performance fees fell a third to 15.3 million pounds, driven
by falling fees from its external and local currency debt funds.
Revenue margins fell to 0.69 percent from 0.76 percent.
Dell said there was "still opportunity for further spread
narrowing" in emerging market sovereign bonds, despite a drop in
spreads from 426 basis points to 271 basis
points over the course of last year.
"Equities are still well priced (relatively cheap). There is
opportunity for good appreciation there," Dell said.
Emerging market shares rallied more than 15 percent last
year - including more than 5 percent in the fourth quarter - as
signs China's economy would not slow too quickly and an easing
of euro zone debt crisis supported prices.
Ashmore's assets under management rose 11 percent during the
six months to $71 billion, boosted by investment gains as
markets rallied and by client inflows.