The specialist investor reported more than $1bn of net inflows in its latest quarter, with redemptions falling to their lowest level in over 15 years.

Ashmore Group (LSE:ASHM) has offered fresh evidence of a change in fortunes after a long period in which investors withdrew money from emerging markets strategies. In its trading statement on 14 October, the first of its current financial year, the London-listed manager reported Assets under management of $54.5bn, an increase of $0.5bn over the quarter.

The rise was driven entirely by clients. Net inflows totalled $1.1bn, more than offsetting a negative Investment performance of $0.6bn. Redemptions were at their lowest quarterly level in more than 15 years, a detail that may matter as much as the headline inflow, since a fall in withdrawals points to existing clients staying invested as well as new money arriving.

About the company

Ashmore Group is a London-listed asset manager that specialises in emerging markets. Founded in 1999, it manages money for institutional clients such as pension schemes, sovereign investors and insurers, as well as through funds sold via distributors. Its investment themes cover fixed income, including external debt, local currency bonds and corporate debt, as well as shares in developing markets, alternatives and blended strategies that combine several approaches.

The firm earns most of its Revenue from management fees, which are charged as a percentage of assets under management. Income therefore rises and falls with two things: the level of client money held, which moves with net inflows and outflows, and the Market Value of the underlying holdings, which moves with investment performance. Performance fees, earned when returns exceed agreed hurdles, add a more variable layer and are typically lower in difficult markets.

The latest trading statement showed assets under management of $54.5bn, up $0.5bn over the quarter. Net inflows of $1.1bn more than offset a negative investment performance of $0.6bn, and redemptions were at their lowest quarterly level in more than 15 years. The company's strategy is to deepen its emerging markets expertise, broaden its client base and benefit from the Long-term Growth of developing economies, while keeping its cost base disciplined and its Balance Sheet conservatively managed.

Ashmore also holds a meaningful amount of its own capital, which it uses to seed new strategies and to support its operations, and the investment return on that balance can add Volatility to reported profit in either direction.

Broad-based demand

The statement described inflows as spread across fixed income and equities, primarily in strategies focused on emerging markets. That breadth is notable for a manager whose fortunes are tightly linked to investor appetite for developing economies.

The statement arrived in a quarter when at least one other UK manager also pointed to a renewed interest in diversification. Ashmore (LSE:ASHM)'s negative investment return suggests that the quarter was not a straightforward one for asset prices, and that the rise in assets depended on the flows rather than on market gains.

The distinction is important for an asset manager, because fee income is earned on the level of assets. Market-driven gains can reverse quickly, whereas net client inflows tend to be regarded as a better indicator of Demand for a firm's products. One quarter does not establish a trend, however, and the sustainability of the improvement will be judged over subsequent reporting periods.

How asset manager Earnings are built

For a firm like this, revenue is closely tied to the average level of assets over a period. A quarter-end figure does not capture that average, so the path of assets during the half-year matters as much as the closing number. Costs are largely fixed in the short term, including staff and technology, which means changes in revenue can have a magnified effect on profit.

Flows also carry information. Net inflows suggest that clients are adding to their allocation, while a drop in redemptions suggests existing clients are staying invested. Both are different from market gains, which can reverse with a change in sentiment.

Distribution matters as well. The company sells through institutional mandates and through intermediaries in several regions, so shifts in how large allocators view emerging markets can feed through to flows over several quarters rather than all at once.

The emerging markets cycle and what to watch

Emerging markets assets are sensitive to the direction of the dollar, to global interest rates and to Commodity prices, as well as to local politics and growth. Periods of dollar weakness and falling yields have historically supported demand, whereas the opposite conditions have tended to lead investors to reduce exposure.

The half-year report will show how the inflows have translated into fees and profit, how costs are developing and how the company is managing its capital. Investors are also likely to watch the mix of flows between fixed income and shares, as well as any change in the pace of redemptions in the next trading update.

Currency effects are a further factor, because reported assets and fees are affected by the movement of local currencies against the dollar and sterling.

Financial position and recent events

The inflows follow final results published on 7 September covering the year to 30 June.

Corporate activity has been limited since the statement. The company (LSE:ASHM) announced the results of its Annual General Meeting on 5 November and published a notification of a director or senior manager share transaction on the same day.

The next scheduled detailed financial report is likely to be the half-year statement. Last year's equivalent was published on 12 February, and it will show how the quarter's inflows have fed through to management fees and to profitability. Performance fees and the movement of emerging market currencies and bonds are among the other variables that typically affect results for a manager of this kind, and the direction of investment returns following the negative contribution reported for the latest quarter will also be followed.