GQG Partners Shrugs Off Adani

Small Caps | Dec 13 2024

While there was an immediate rush to the exits following the recent Adani news, funds are flowing back into GQG Partners and brokers point to longer term performance success.

-GQG Partners suffers initial outflows due to Adani
-December to date shows funds flowing back in
-Longer term outperformance solid
-Targets trimmed but mostly Buy ratings

By Greg Peel

Last month, boutique fund manager GQG Partners ((GQG)), headquartered in Fort Lauderdale, Florida, saw its shares plunge by -20% following news that Adani Group companies, of which GQG is a major backer, was facing indictment charges from US authorities over an alleged bribery scheme.

Jarden estimates GQG has invested around 4-6% of funds under management (FUM) into Adani companies. While both Adani and GQG each lost an immediate -20% in share price on the news, since the Adani founder was accused of having participated in a bribery scheme, Adani stocks are down by -6% (to Tuesday), with GQG down by -16%, reflecting not only its Adani exposure, but also, in Jarden's view, fears that net funds flows will deteriorate.

The outsized GQG fall has also been attributed to a move by UBS, early this month, to downgrade GQG to Neutral from Buy.

UBS anticipated a period of cyclical weakness in fund flows ahead for the asset manager, but noted the downgrade was not inspired by the much-publicised Adani exposure with which UBS felt "comfortable". UBS' research had discovered funds flows into GQG's International Opportunities fund had pretty much ground to a halt recently.

The broker suggested positive outperformance over three and five year horizons will be somewhat diluted by one-year underperformance as stronger historical performance numbers roll off. UBS slashed its target price as a result, to $2.30 from $3.30.

There were otherwise three Buy or equivalent ratings from the four other brokers monitored by FNArena covering GQG and one Hold. There was a collective holding of breath ahead of the release of GQG's November performance update.

And Exhale

GQG reported net inflows of US$0.1bn for November, lower than the average of US$2.0bn for the calendar year to date, but a positive given the issues around Adani, Ord Minnett suggests. GQG reported gross inflows of US$4.2bn in the month, a higher level compared to the same month in the previous three years, signifying strong demand for its products.

While November net inflows appear weak, Jarden's analysis of around 65 listed GQG funds suggests net inflows deteriorated immediately after the Adani allegations were made public on November 20, troughed on November 22, and recovered through to December 3. Indeed, the data suggest GQG achieved around 4% net inflows in the first two days of December.

November is also typically a seasonally weak month, and Jarden's analysis of daily flows over a longer period suggests flows rapidly deteriorated due to negative macro news but quickly recovered thereafter.

Morgans' assessment of some of GQG's funds under management (FUM) also shows some outflows likely occurred directly post the Adani news. Based on fund performance, Morgans does not expect this to persist for an extended period.

The Emerging Markets fund, which is more than 10% exposed to Adani, outperformed its benchmark by around 1% in November, Morgans notes. Over the timeframes one to five years, all strategies have outperformed benchmarks meaningfully, ranging from 180 basis points to 920bps.

While GQG flagged gross inflows remained strong through and immediately following the Adani incident, the November performance numbers imply to Goldman Sachs the slowdown in net flows relates to perhaps more elevated outflows around that time period. The broker thinks most of the slowdown appears to be driven by Emerging Market Equity and International Equity funds.