Back in the good times, Mark Coombs and his team of emerging markets bulls charmed the room with their charismatic storytelling and assertive style.

From London to New York to Tokyo, clients admired their expertise and gave them billions to invest in some of the world's least-understood economies.
Ashmore Group Plc rode the emerging-market wave to pull in billions of dollars of client money. Then came the pandemic, war in Ukraine and a global jump in rates that made investors reassess risk. At the asset manager — known for its high conviction bets and bullish style — by the time 2022 was out, negative performance and outflows had combined to erase $40 billion of assets.

Investors have yanked money from the emerging market fixed-income specialist in 10 of the previous 12 quarters. Assets, which were also hurt by soured positions, had almost halved to $57.2 billion. Profit before tax for the six months through December plunged 54% on a year-on-year basis.

Last Wednesday, the firm said its investments had gained in recent months and sentiment was improving, supported in part by China’s reopening after it pulled back from its strict Covid Zero policy. A much-needed respite with a slight catch: on a net basis, investors were still asking for their money back.

The Rise
Since it broke out of the Australia & New Zealand Banking Group and became an independent asset manager in 1999, the London-based fund house has earned a reputation for maneuvering through emerging markets. That peaked when Coombs and his traders saw their assets almost double to $98.4 billion in the four years through 2019.

At a time when active managers across the investment industry were struggling, Ashmore’s high profit margins were a testament to the value of a specific expertise. Clients couldn’t get enough. Even though performance was up and down, the money just kept pouring in. In the year through June 2018, net inflows reached $16.9 billion despite the firm losing $1.4 billion to performance.

Coombs was consistently bullish in trading updates over the years: periods of gains were a reason for investors “to increase their allocations,” while downturns created “significant value opportunities on which an active manager such as Ashmore can capitalise.”

If flows were the measure, Coombs was winning the argument.

As 2019 drew to a close, the firm had racked up almost $50 billion in new assets in just four years, the bulk coming from client deposits.

The Decline
Coombs, Ashmore’s chief executive officer and last remaining co-founder, who has a reputation as a hands-on boss with strong opinions, set the tone for the firm’s approach of relentless optimism, large positions and low profile, according to former employees, investors and analysts.

Rivals said Ashmore executives would often travel separately from the packs of Western investors that flew together. And the firm had such large holdings and influence, they were known to dictate the line-up of government officials they wanted present in meetings, according to two emerging bond managers who work for rival firms.

But the last few years have brought several large blow-ups in emerging markets, and Ashmore often had a front-row seat.

The firm is still the largest holder of China Evergrande Group’s dollar bonds and bought more debt of the troubled Chinese property developer when others fled for the exits. Ashmore executives had reassured clients in public comments and notes that an invasion was avoidable and upside remained in Russian assets.

Ashmore was far from alone in losing money in the down market. Yet its public funds were among the hardest hit. Its short duration fund lost almost 25%, underperforming around 98% of its peers in 2022, according to data compiled by Bloomberg. And its three largest public money pools all underperformed their peer groups, Bloomberg compiled data show.

The $1.8 billion Ashmore Emerging Markets Local Currency Bond fund lost 9.9% in 2022, two percentage points less than the average for its peers, the data show. The $1.2 billion Ashmore Emerging Markets Total Return fund tumbled almost 23% in 2022 and the $527 million Ashmore Emerging Markets Debt fund plunged 25%, well below the 14% average for their peers.

The Fallout
That’s translated to the firm’s bottom line. The 12 months ended in December were the least profitable in the company’s more than 15 years as a public company. The stock is down more than half from the record it hit three years ago.

A spokesman for Ashmore declined to comment for this story.

Now, as many of Wall Street’s biggest names debate whether there’s more opportunity or danger in emerging markets, clients also are asking whether Ashmore is the firm they want to navigate those tricky areas.

While the vast majority of Ashmore’s assets are managed in segregated accounts — for which information isn’t available — the firm’s public funds offer a peek into its fortunes. (At the end of December, 18% of Ashmore’s managed assets were held in the public funds.)

Ashmore’s once-mighty short-duration fund has gone from $7.8 billion in 2019 to just over $300 million in mid-February. The firm’s two largest public money pots have shed more than $8 billion in total since the start of 2020 and now manage $1.8 billion and $1.2 billion respectively.

The firm’s concentrated positions have become reasons for concern for some investors as markets have become more volatile. One former client said they had pulled hundreds of millions from a segregated mandate because they became uncomfortable with the risks being taken. Another said they now saw the firm’s continued bullish statements during downturns as a red flag.

But some investors are betting that the firm’s brand will remain synonymous with emerging market upside. Ashmore shares are up 16% so far in 2023, as the MSCI Emerging Markets index rose 7%.

“Interest in their asset class is clearly increasing as dollar begins to weaken and appetite for emerging markets improves so we would expect their flows to turn positive at some point in the next few months,” said Clive Beagles, a fund manager at JO Hambro Capital Management, who first bought Ashmore’s stock last January.

Ashmore may have a few more people to to convince. Of eight analysts following the stock, only one rates it a “buy,” data compiled by Bloomberg show.

Meanwhile, Coombs, Ashmore’s biggest shareholder with a stake of about 30%, isn’t budging.

“We expect investor risk appetite to increase over the course of the next 12 months, underpinning further market performance and ultimately leading to capital flows into the emerging markets,” he said in a statement last month as the firm announced another quarter of net outflows from its funds. “Ashmore is well-positioned for this environment.”

--With assistance from Michael J Moore.

This article was provided by Bloomberg News.