Trading Statement

14 July 2016

Interim Management Statement for the Six Months Ended 30 June 2016

Charlemagne Capital Limited (the "Group") sets out below the key revenue items and assets under management ("AuM") for the first six months of its current financial year. It is expected that the interim financial results will be announced in September 2016.

Key highlights and Group AuM

§ As at 30 June 2016, Group AuM were US$2.1 billion

§ Net management fees of US$9.0 million for the six months ended 30 June 2016

·     The Group remains well-capitalised with a strong and liquid balance sheet

The table below sets out the Group's AuM as at 30 June 2016 and the movements experienced in each product range in the period since 1 January 2016.

Notes:

Closing AuM is stated as including all subscription and redemption orders received for the relevant funds as at the close of the period but not processed until the first dealing date of the following period.

Unaudited revenue numbers for the six months ended 30 June 2016

Net management fees receivable were US$9.0 million compared with US$10.0 million for the previous six months and US$10.7 million for the comparable period of 2015, reflecting the fall in average AuM since that period and a small reduction in net revenue margin.  OCCO management fees, which are subject to a minority interest, accounted for 46% of total net management fee income during the period.

Crystallised performance fees were US$0.3 million compared with US$0.7 million for the comparative period in 2015.  Accruing performance fees¹ for 2016 which have not crystallised were US$8.5 million, US$6.6 million of which relates to OCCO and are subject to a minority interest, compared with US$0.9 million as at the same date in 2015.  Other income inclusive of gains/losses on investments held and foreign exchange was overall negative US$0.2 million for the period compared with positive income of US$0.4 million for the same period last year.

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¹Performance fees accrue throughout the reporting period in the accounts of each relevant fund.  It is the group's accounting policy only to recognise such revenues as they crystallise at the year-end date of the fund or, in certain cases, on redemption.  Levels of accrued performance fees at any particular time should not be seen as necessarily indicative of the eventual crystallised figures, especially in periods of above average market volatility.

Summary

Emerging markets ended the first half up having suffered a sharp decrease in values in the first two months and then recovered at the end of the first quarter.  The MSCI Emerging markets index was up by 6.4% in US$ over the full half year after being down 6.6% at the end of February.  

Overall flows for the Group were positive which is pleasing against a backdrop of continued industry outflows; however average AuM dipped in the first quarter and was down over the full period to US$1.9 billion compared to US$2.2 billion in the corresponding period last year and US$2.1 billion for 2015 as a whole.  This current average level of AuM remains below the level required to ensure sustainable profits on a recurring management fee basis.

Outlook

The first half of 2016 saw emerging markets (EM) equities outperform developed markets, reversing a five-year trend.  While the impact of the Brexit vote on developed markets was a sting in the tail at the end of the period, EM had led the way even before the 23rd June. There are several reasons for this. EM has been increasingly an unloved, and therefore under owned, asset class, trading at a historically low price to book ratio.  The shrinking EM growth premium looks set to widen again, as countries like Brazil and Russia start to recover from deep slumps whilst at the same time growth in the likes of Japan and the UK are slowing.  There are signs that market analysts are at last being more realistic (cautious) about estimating corporate earnings, which allows at least some chance that they might subsequently be exceeded.  

The Group's investment performance remains strong.  It was affected in the spring by the beta rally in commodity shares, which we generally don't own due to business models, ownership structures and earnings volatility.  This didn't help our growth style.  Despite this, five of the seven Magna strategies were in the top half of their respective FactSet Morningstar peer groups over the six months and six out of seven over 12 months.

The economic impact of an eventual Brexit on EMs should be modest, except in the remote event that globalisation is comprehensively reversed or there are other geopolitical shocks to the global economy.  However, the UK vote means that policy risk in the heart of Europe may remain elevated, for many years, at levels unthinkable just a few years ago.  The rise in populism and antiglobalism is also likely to be a key factor in the forthcoming US election.  These factors could destabilise developed economies at a time when the economics of the EM countries are beginning to recover.

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