Jan Dehn, Ashmores London-based head of strategy, spent his junior and senior high school years in Tanzania and Kenya, where his parents worked for the Danish equivalent of the Peace Corps. He earned a Ph.D. in economics from the University of Oxford, where his adviser was celebrated development economist Paul Collier. Dehn, who spent two years in the mid-90s working as an adviser to the Uganda Finance Ministry, believes the end of the Cold War transformed the potential of emerging markets, forcing countries to implement reforms that attract private capital rather than playing the U.S. and Soviet Union against each other for benefits. Aid has been part of my life, and Ive seen it doesnt work, Dehn says.MARK LANGHORN COOMBS DEVELOPED HIS PASSION for emerging markets largely on the job. He did some traveling in his youth and studied geography and law at the University of Cambridge, graduating with a BA in 1983 before heading to the City of London, which at that time was gearing up for a generation-long financial boom. He took a job at Grindlays Bank because of its heavy international accent and went to work on the Latin America desk. The regions debt crisis had erupted the year before when Mexico announced it couldnt service its debts and banks suddenly found themselves holding billions of dollars worth of dubious and illiquid loans. Looking to make money on Grindlays loan book, Coombs and his colleagues in 1985 started swapping some Latin assets with other banks. Gradually, the desk started brokering transactions for other banks, ultimately investing some of Grindlays own capital in debt trading. The bank, which was acquired by Australia and New Zealand Banking Group in 1984 and later renamed ANZ Grindlays Bank, was well positioned in 1989 when thenU.S. Treasury Secretary Nicholas Brady kick-started a vibrant secondary market by allowing countries to exchange their debt for tradable bonds. Sensing a larger opportunity, Coombs persuaded his bosses to expand beyond the interbank market and manage outside money. In October 1992 he launched the Emerging Markets Liquid Investment Portfolio with $18 million that felt like a huge amount of money at the time, he says raised mostly from wealthy Middle Eastern clients. The fund aimed to produce relatively high returns with a conservative strategy of investing in a diverse pool of liquid emerging-markets securities, mostly sovereign debt. That strategy paid off three years later. Markets were in turmoil after a massive spike in U.S. Treasury yields in 1994 and Mexicos financial crisis at the end of that year, but when the Liquid Investment Portfolio unveiled its three-year track record in 1995, it boasted annualized returns of 23.2 percent, nearly 10 percentage points better than J.P. Morgans Emerging Markets Bond Index Global Diversified. Our intention was to be very conservative, but, lo and behold, we had the best-performing fund, says Booth. That performance attracted strong inflows, but ANZ decided to pull back from emerging markets in 1998, in the wake of the Asian financial crisis and Russias debt default. So Coombs and six partners took the fund management business private in a 1999 management buyout, terms of which were not disclosed. It would be by far their best investment. At a time when most investors had fled emerging markets and were focusing on the technology boom, Coombs and his team were doubling down on the sector, convinced of the long-term potential. We didnt feel like we were taking a big risk, says Booth. We had assets at a very low price. Our funds did very well. Ashmore went public in a 2006 IPO, and its strong performance allowed the group to enter the FTSE 100 Index in September 2011. In early July, Coombss 41.75 percent stake was worth £1 billion based on the companys share price of 344 pence. Forbes estimates his net worth at $2.4 billion, making him the 16th-richest person in the U.K. Booth, the only co-founder besides Coombs who is still active in the firm, owns a 6.7 percent stake worth £163 million. Other notable shareholders include Boston-based Fidelity Investments, with a 4.98 percent stake, and BlackRock, with 4.41 percent. Coombs is an unusual chief executive for a public concern. He almost single-handedly created one of the U.K.s fastest-growing companies with his vision and drive, yet he shuns the limelight. An intensely private man, Coombs hadnt given an interview to any publication since Ashmore went public before speaking with Institutional Investor for this article by telephone. Jon Moulton, a venture capitalist who was the only outside investor in the management buyout, recalls why he decided to back Coombs: He was determined, bright, absolutely single-minded. I liked him. It was a good call. Thats an understatement. Moulton invested £250,000 in the buyout, for slightly less than 7.5 percent of the firm. The IPO valued his stake at £89 million. He has since sold most of his holding, but he retains a small interest for reasons of good investment and affection. In 1994, Booth was working as an economist at the Inter-American Development Bank in Washington, hoping to return to London. He had lined up interviews with eight banks, but after talking with Coombs for 40 minutes, Booth accepted a job offer and cut short his search. It was obvious that this guy was going to be successful, he says of Coombs. Hes a gentleman. He has character. I can trust him. If he says hes going to do something, hes going to do it. If he agrees to something, he will stick with it forever. Today, Booth who plays double bass in amateur orchestras in his spare time is Coombss public alter ego, meeting frequently with investors and promoting Ashmores views with investment notes and appearances on CNBC and other media outlets. Coombs continues to put his own stamp on Ashmores culture, even while surrendering portfolio management in favor of a team-based approach. In Moultons view, the successful transition from a firm very much centered around Coombs an efficient, well-run dictatorship, as he puts it to an organization that takes decisions collectively makes Ashmore a singularity. Ashmore pays relatively modest base salaries Coombs and finance director Graeme Dell earn £100,000 a year while offering sizable performance-related bonuses that vest over five years. Strategist Dehn says the staff loves the long-term focus. We all to a tee buy in to this, he says. Im never leaving this firm. Although he has loosened his control and gradually sold off nearly 20 percent of the company over the past six years, Coombs insists he has no plans to retire any time soon. Youve got to want to try and make a difference every day and perform, he says. It gives me a buzz. I cant see any reason I would stop doing it. Coombss investment philosophy is simple. In a nutshell: Retain faith in the emerging-markets story, buy when others are selling, and stay as liquid as possible. We try not to be doing things at the same time as everybody else, says Coombs. Our approach has often been to acquire risk in crisis, to do it very steadily and progressively, and to be disciplined about it on the basis that over a three-year cycle youre going to be a huge outperformer. If you take short-term negative mark-to-market to achieve that, thats okay. The firm did well by buying assets early in the first quarter of 2009, before the rebound in financial markets took hold, says Booth. Ashmore has cultivated relationships with policymakers in emerging markets, both to inform its own investment decisions and to win business. Central banks, sovereign wealth funds and other governmental bodies constituted 31 percent of the groups investor base at the end of June 2011 (the most recent figure available). Booth is a frequent visitor to Beijing; the firms patient efforts to nurture relationships in China paid off in 2007 when the government allowed Ashmore to take a 19.99 percent stake in Beijing Investment Trust Co., a securities and fund management company. The companys formula has certainly delivered. Ashmores broad external debt composite, which covers a variety of segregated accounts and mutual funds including the Liquid Investment Portfolio that invest primarily in dollar-denominated sovereign debt, has generated an annualized return of 20.26 percent since inception in 1992, compared with 11.89 percent for J.P. Morgans EMBI GD. The firms local currency bonds composite has produced annualized returns of 11.38 percent since inception in August 2005, compared with 10.9 percent for J.P. Morgans Government Bond IndexEM Global Diversified. Ashmores corporate debt broad composite has produced returns of 12.83 percent since inception in August 2007, compared with 7.65 percent for J.P. Morgans Corporate Emerging Market Bond Index Broad Diversified. The business has also delivered for shareholders. Ashmores net income was flat in the first half of its financial year, which ended on December 31, at £96.1 million, as weak markets during the period contributed to a 61.7 percent drop in performance fees, to £23 million. The firms net management fee margin of 76 basis points of assets under management is well above the industry average, though. At the end of March, Ashmore managed $15.1 billion in external debt, $10.3 billion in local currency debt, $2.3 billion in corporate debt, $12.3 billion in blended debt, $7.8 billion in equities, $2.7 billion in alternatives (including Chinese and Russian real estate joint ventures and an Indian special-situations fund), $6.5 billion in multistrategy accounts and $8.9 billion in overlay and liquidity products. Ashmores foray into equities underscores the risk and volatility that persist in emerging markets despite the countries growing economic clout. Equity arm EMM rode the boom as well as anyone in the past decade, growing assets to a peak of more than $20 billion in 2007. But the firm made some bad calls, notably by being underweight on China in 2006 and 07 because of concerns over the health of Chinese banks, then by hesitating to take on risk in early 2009, when emerging markets led a global rebound. Poor performance sent many clients packing, and assets plunged by 50 percent in 2008 alone. Morrow says the firm learned a painful lesson: Dont let macro sentiment cloud your bottom-up stock selection. Its really important to focus on valuations and fundamentals, she says. We dont know whats going to happen in the world, but where a quality management is in charge, we can take some comfort. For his part, Coombs believes EMMs investment process is sound, and he likes the firms team-oriented culture. Ashmores $246 million purchase helped grease the exit for van Agtmael, whos retiring, and provide equity incentives to retain EMMs 39 portfolio managers. With a full array of emerging-markets investment products, Ashmore is ramping up its sales efforts. The U.S. is a key target, says Christoph Hofmann, who joined two years ago from Pimco as global head of distribution. Currently, some 80-odd U.S. clients contribute 22 percent of the groups assets. We certainly want to maintain that or even grow it, says Hofmann. Ashmore is also making a play for affluent retail investors. In the past two years, the firm has launched a range of mutual funds, which it sells through the likes of Barclays and UBS in Europe, Charles Schwab Corp. and Fidelity in the U.S., and SMBC Nikko Securities in Japan. We dont want your cousin to know about Ashmore, Hofmann says. We want your cousins private banker to know about Ashmore. Retail now makes up 16 percent of Ashmores investor base, but the firm aims to grow that share to as much as 45 percent within five years, says finance director Dell. The really interesting target, however, is the emerging markets themselves. For the better part of 20 years, Ashmores sales pitch has been that these developing nations will dominate the 21st-century economy. If it wants to ensure its own future, the firm needs to manage a chunk of that growing wealth. Ashmore begins with a solid base. At the end of December, $13.2 billion of its assets originated in emerging markets, much of it from central banks and sovereign wealth funds. In addition, the firm opened subsidiaries in Brazil in 2007 and in Turkey in 2008 to manage money locally for local clients; those units had $300 million and $150 million, respectively, in assets at the end of March. Thats pretty small beer. Franklin Templeton Investments, which is pursuing a similar strategy, has built up nearly $2 billion in assets in Malaysia alone. Executives say Ashmore will launch more local subsidiaries in the next five years, with the most likely targets including China, Colombia, India and South Korea. It adds up to an ambitious agenda. The only question is, can emerging markets and Ashmore deliver on their promises?
Booth, for one, has no doubts. He is confident that emerging markets will grow until they offer every asset class that exists in the U.S. Hes already thinking of a core-plus product, but with a twist: It would invest 80 to 85 percent of assets in emerging markets and tactically place the remaining 15 to 20 percent in now-risky developed markets. Youre talking about 30 years of arbitrage possibilities, he says.