Record’s average assets under management equivalent (AUME) were stable in the first half. Management fees were modestly lower as a result of a mix change towards lower management fee rate products, although some of these are capable of earning performance fees. Evidencing the potential to offset management fees forgone, the period saw crystallisation of a performance fee which allowed profit to increase by over 6%. For the future Record’s continued focus on new and enhanced products should help defend and increase the client base and AUME levels while performance fees could generate positive earnings surprises.
Record’s first half results showed total revenue up 3.4% to £12.6m including a performance fee of £1m. We calculate that average AUME in sterling terms was broadly similar to H118. Management fees alone were down 4.5%, partly reflecting greater adoption of the enhanced passive hedging product: some of these mandates carry a lower management fee but are capable of earning performance fees. Also affecting revenue was last year’s termination or switch from dynamic to passive hedging by UK clients. Costs were held steady allowing pre-tax profit to increase by 6.5% and diluted EPS by 5.9%. The interim dividend was unchanged at 1.15p and Record remains committed to its policy of paying out excess earnings in special dividends. The group retains a buffer of c £14m over its regulatory requirement and own cash (excluding cash in seed funds) of £17.5m.
Uncertain macro conditions continue to facilitate the marketing of Record’s services. Examples of work to innovate and broaden the product range include: extension of the licensing agreement with WisdomTree for a new range of ETFs, a framework for hedging EM currencies, a new range-trading strategy within MultiStrategy and the development of ways of integrating ESG factors into currency management. In Q319, $2.5bn of passive hedging mandates are set to terminate but Record reports a good range of client prospects spread by type of client, product and geography.
Record shares trade at a below peer-group average EV/EBITDA multiple for the current calendar year (7.0x) and similar to the peer average for FY20 (8.5x). Our estimates exclude potential AUME inflows and uncrystallised performance fees.