Q4 2019 Earnings Call

February 5, 2020

Operator: Welcome to the Janus Henderson Group Q4 and full year 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. In the interest of time, questions will be limited to 1 initial and 1 follow-up question. In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements due to a number of factors, including, but not limited to, those described in the forward-looking statements and risk factors sections of the company's most recent Form 10-K and other more recent filings made with the SEC. Janus Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you. Now it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Henderson.

Welcome to the Janus Henderson group fourth quarter, and full year 2019 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period in the interest of time questions will be limited to one initial and one follow up question.

In today's conference call certain matters discussed may constitute forward looking statements actual results could differ materially from those projected in the forward looking statements due to a number of factors, including but not limited to those described in the forward looking statements and risk factors sections of the company's most recent form 10-K and other more recent filings.

Operator: Actual results could differ materially from those projected in the forward-looking statements due to a number of factors, including, but not limited to, those described in the forward-looking statements and risk factors sections of the company's most recent Form 10-K and other more recent filings made with the SEC. Janus Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you. Now it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Henderson.

Made with the SEC.

Janus Henderson assumes no obligation to update any forward looking statements made during the call.

Thank you and now it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Henderson.

Operator: Mr. Weil, you may begin your conference.

Mr. While you may begin your conference.

Dick Weil: Welcome, everybody, to the Q4 and full year 2019 earnings call for Janus Henderson Group. I'm Dick Weil, and I'm joined, as usual, by our CFO, Roger Thompson. In today's presentation, I'm gonna touch on our full year business results, try and give a broader discussion on flows, and talk a little bit about the business outlook for 2020. I'll turn it over to Roger, who will go deeper into the quarterly results, and following our prepared remarks, we'll take questions from you as always. When I look back on 2019, the headline that I think will grab your eye is $27.4 billion in outflows.

Welcome everybody to the fourth quarter and full year 2019 earnings call for Janus Henderson group.

Im Dick Weil, and I'm joined as usual by our CFO Roger Tom.

In today's presentation I'm going to touch on our full year business results.

Give a broader discussion on flows and talk a little bit about the business outlook for 2020.

Ill, then turn it over to Roger who will go deeper into the quarterly results and following our prepared remarks, we'll take questions from you as always.

So when I look back on 2019, the headline that I think we'll grab your eye is $27.4 billion in outflows.

Now we're accountable for that result, that's the truth and we need to own that but it's important that we not let that mask a lot of other things going on in the business.

Dick Weil: Now, we're accountable for that result, that's the truth, and we need to own that, but it's important that we not let that mask a lot of other things going on in the business. We're seeing some very positive momentum in some very good parts of our business. Our investment performance is best in class. That's starting to show through in generating positive flow results across many regions and products, primarily in our retail businesses. Now, these are smaller in AUM than some of the institutional flows, but substantially higher fee business. Our financial results are strong, and our business is generating good cash flow, which we were able to return to shareholders through both dividends and a $200 million share buyback. Let's turn to slide 2.

We're seeing some very positive momentum in some very good parts of our business. Our investment performance is best in class, that's starting to show through in generating positive flow results across many regions and products primarily in our retail businesses.

These are smaller U.M. than some of the institutional flows but substantially higher fee business.

Our financial results are strong and our businesses generating good cash flow.

Which we were able to return to shareholders through both dividends and a 200 million dollar share buyback.

Let's turn to slide two.

I think first thing I want to call. Your attention to is our investment performance remains very strong was 69%, 76% and 77% of assets, beating the respective benchmarks over the one three and five your time periods, which is another sequential improvement.

Dick Weil: I think first thing I want to call your attention to is our investment performance remains very strong, with 69%, 76%, and 77% of assets beating the respective benchmarks over the 1, 3, and 5-year time periods, which is another sequential improvement from prior year and is really an excellent result. Next, we got to face the $27.4 billion in outflows, but with the benefit of markets, it's important to note that the ending AUM is actually 14% higher than a year ago and forms a good starting point for 2020. Next, let's turn to financial results. We generated over $460 million in cash flow, which allowed us to complete both the $200 million buyback, and also we distributed $272 million in dividends.

From prior year and is really an excellent result.

Next we got to face the 27.4 billion in outflows.

But with the benefit of markets. It's important to note that the ending a U M is actually 14% higher than a year ago and forms a good starting point or 2020.

Next let's turn to financial results.

We generated over 460 million in cash flow, which allowed us to complete both the 200 million buyback and also we distribute a 272 million in dividends.

We're also announcing today and Roger will go into more detail on this that our board has approved another 200 million buyback for the next 12 months.

Dick Weil: We are also announcing today, and Roger will go into more detail on this, that our board has approved another $200 million buyback for the next 12 months. Moving on to slide 3. Slide 3, I'm going to try and give you just a deeper dive into our flows. On the slide, you can see that the year reflected outflows in the 4 business areas that we previously identified to you as significant challenges for us. In INTECH, Global Emerging Markets, Core Plus, and European Equities, we saw the substantial lion's share of the outflows during the year. Turning to INTECH, the $10.8 billion of outflows were really driven by some performance challenges they've had.

Moving on to slide three slide three I'm going to try and give you just a deeper dive into our flows.

On the slide you can see that the year reflected outflows in the four business areas that we previously identified to you as significant challenges for us so in INTECH.

Global emerging markets core plus and European equities, we saw the substantial lions share of the outflows during the year.

Turning to INTECH.

The $10.8 billion of outflows were really driven by some performance challenges they have had.

Dick Weil: INTECH has made enhancements to their investment process based on lessons learned. We're confident that this will lead over time to better performance, will help their clients, and will ultimately drive their business back to a more positive frame and result. That's gonna take some time. Next, let's turn to Global Emerging Markets. During the year, we replaced our Global EM team. As you know, that put substantially all those assets at risk. The change in portfolio management resulted in $3.7 billion of outflow reflected in our 2019 numbers. Now, we're really excited about our new emerging market team. They've gotten off to a great start, they're working well in our firm, and we're really quite optimistic about that team's ability to work with the rest of us and rebuild assets in this important strategy area.

In Tech has made enhancements to their investment process based on lessons learned and we're confident that this will leave overtime to better performance and will help their clients and will ultimately drive their business back two or more positive frame and result, but thats going to take some time.

Next let's turn to global emerging markets.

During the year, we replaced our global OEM team and as you know that put substantially all those assets at risk.

The change in portfolio management resulted in $3.7 billion of outflow reflected in our 2019 numbers.

Now, we're really excited about our new emerging market team they've gotten off to a great start they are working well in our firm and we're really quite optimistic about that team's ability to work with the rest of us and rebuild assets in this important strategy area.

Third, let's talk about our core plus fixed income business outflows during 2019 were $3.1 billion.

Dick Weil: Third, let's talk about our Core Plus fixed income business. Outflows during 2019 were $3.1 billion. The outflows improved over the year as performance improved. Toward the end of 2019, we finalized a change in the US fixed income leadership and portfolio management team, particularly with the hiring of Greg Wilensky. We're really happy to have Greg on board, and we're pleased about this change. Whenever we make a change like this, this obviously puts clients on notice and puts the business under some watchful eyes because of these changes. Let me turn next to European Equity. Like our Core Plus business, the $2.7 billion of outflows occurred mostly during the first half of 2019, with only $200 million of outflows in Q4.

The outflows improved over the year as performance improved.

Towards the end of 2019, we finalized the change in the US fixed income leadership and portfolio management team, particularly with the hiring of Greg Wielinski, We're really happy to have Greg onboard and we're pleased about this change, but whenever we make a change like this this obviously puts clients on notice and puts the business under some watchful eyes because.

As of these changes.

Let me turn next to European equity.

Like our core plus business the $2.7 billion of outflows occurred mostly during the first half of 2019 with only $200 million of outflows in the fourth quarter.

Dick Weil: Their performance has improved. They're now outperforming benchmarks on a 1-year basis. We're hoping that we're well on the way to moving back towards inflows in this very important business area. Again, to summarize, these 4 business areas contributed very substantially to the difficult flow result. Important steps have been taken in each area, and we're confident that with the passage of time, we can bring each of these areas back into a position of strength in our business. As I mentioned in my opening remarks, the 2019 flow is masking a bunch of good things and positive momentum in our business. I wanna just explain why I said that in a little more detail in slide 4. Slide 4, we broke out 2019 in 3 client types: institutional, intermediary, and self-directed.

Their performance has improves and they're now outperforming benchmarks on a one year basis.

So we're hoping that we're well on the way to moving back towards inflows in this very important business area.

So again to summarize these four business areas contributed.

Very substantially to the difficult flow result, both important steps have been taken in each area and we're confident that with the passage of time, we can bring each of these areas back into a position of strength in our business.

As I mentioned in my opening remarks, the 2019 flow is masking a bunch of good things and positive momentum in our business and I wanted just explain why I said that in a little more detailed on slide four.

Slide four we broke out 2019.

In three client types institutional intermediary and self directed and then also we further broke it down in between the first half of the year in the second half of the year.

Dick Weil: Also, we further broke it down in between the first half of the year and the second half of the year. Institutional is impacted primarily by the four areas that I just mentioned. I wanna focus on the building positive momentum in our intermediary business that began to take shape, particularly over the second half of the year. In second half 2019, we had inflows of $2.1 billion, and that reflects a 3% annualized organic growth. This represents a positive run rate in some of the most competitive retail markets in the world. The second half of the year represents an $8.4 billion net flow improvement over the first half. This improvement was spread globally across many products, and I'm excited about the prospects to build on that positive momentum as we enter 2020.

The institutional is impacted primarily by the four areas that I just mentioned.

I want to focus on the building positive momentum in our intermediary business that began to take shape, particularly over the second half of the year.

And second half 2019, we had inflows of 2.1 billion.

And that reflects a 3% annualized organic growth.

This represents a positive run rate in some of the most competitive retail markets in the world.

The second half of the year represents an 8.4 billion dollar net flow improvement over the first half.

This improvement was spread globally across many products and I'm excited about the prospects to billable net positive momentum as we enter 2020.

Dick Weil: In the next slide, I outline a few of those promising elements. Let's turn to slide 5. As we think about what's promising entering 2020, first and obvious is investment performance. Our total company investment performance is very strong. As I said earlier, it represents an improvement over previously very strong numbers. From a retail standpoint, we have 76% of our mutual fund AUM in the top two Morningstar quartiles over one, three, and five-year time periods. Also, 85% of our US mutual fund AUM have 4 or 5 overall Morningstar ratings. These are truly exceptional results. Our investment performance remains, in my mind, the best leading indicator for our future success in this business and will lead to flows.

And the next slide outline a few of those promising elements.

Let's turn to slide five.

As we think about whats promising entering 2020 Onest an obvious is investment performance. Our total company investment performance is very strong and as I said earlier. It represents an improvement over previously very strong numbers.

From a retail standpoint, we have 76% of our mutual fund AUM in the top two Morningstar cortiles over one three and five year time periods.

Also 85% of our US mutual fund AUM have four or five overall morningstar ratings.

These are truly exceptional results.

Our investment performance remains in my mind, the best leading indicator for future success in this business and will lead to flows.

Dick Weil: We are seeing this begin to play out in our intermediary business over the second half of 2019, and we believe we have a great opportunity to build on this momentum in 2020. The second element after investment performance I want to talk about is that we're actually already winning new business. I've talked about this momentum in our intermediary business. In North America, we're capturing market share. The organic growth rate in the second half of 2019 for our equity products was 5 points above the industry average. Our fixed income growth rate was 14 points better than industry average. In Q4, continental Europe had a $700 million net inflow, which is our best result since the merger. Latin American flows were positive, and we see lots of opportunity there.

We are seeing this begin to play out in our intermediary business over the second half of 2019, and we believe we have a great opportunity to build on this momentum in 2020.

The second element after investment performance I want to talk about is that we're actually already winning new business I've talked about this momentum in our intermediary business in North America, we're capturing market share the organic growth rate in the second half of 2019 for our equity products was five points above the industry average our fixed income growth.

It was 14 points better than industry average.

In the fourth quarter Continental Europe had a 700 million net inflow, which is our best results since the merger Latin American flows were positive and we see lots of opportunity there our product mix is more diversified than ever and we're excited about the prospects for that business.

Dick Weil: Our product mix is more diversified than ever, and we're excited about the prospects for that business. On the product side, we've seen substantial growth in a number of strategic products across equities, fixed income, and multi-asset. Our Balanced Strategy had $4.2 billion of net inflows. Our Multi-Sector Income strategy had $1.6 billion. Our Global Strategic Fixed Income had $1.4 billion in net inflows. In addition, on the institutional side, our business is working to rebuild its pipeline. We're seeing encouraging early signs in the US, in EMEA, in Australia, across a diversified set of products, including equities, fixed, ETFs, and in tech. Look, right now, on the flow side, what we're seeing is good news in retail.

On the product side, we've seen substantial growth in a number of strategic products across equities fixed income and multi asset.

Our balance strategy had $4.2 billion of net inflows.

Our multi sector income strategy had $1.6 billion, our global strategic fixed income had $1.4 billion in net inflows.

In addition.

On the institutional side, our business is working to rebuild its pipeline.

We are seeing encouraging early signs in the us in EMEA in Australia across a diversified set of products, including equities fixed EPS end INTECH.

So look at right now on the flow side, what we're seeing is good news in retail.

Dick Weil: We are starting to see prospectively early signs of pipeline growing in institutional, which leads us to be optimistic that with the passage of time, we can get that business back to a much better place. Third thing I would like to call your attention to is the progress we're making on our team with our people. During the year, we made several key additions. We bolstered our investment in our leadership teams, including a new global head of distribution, a new head of US fixed income, a new Global Emerging Market team, and a new global head of enterprise risk, just to name a few. Finally, let me call attention again to our financial strength.

But we are starting to see prospectively early signs of pipeline growing and institutional which leads us to be optimistic that with the passage of time, we can get that business back to a much better plus.

Third thing I would like to call your attention to is the progress we're making on our team with our people during the year, we made several key additions.

We bolstered our investment in our leadership teams, including a new global head of distribution.

A new head of us fixed income a new global emerging market team and a new global head of enterprise risk just to name a few.

Finally, let me call attention to again to our financial strength.

We continue to generate strong cash flow, which is supporting ongoing investments in our business and of course, its supporting the $272 million in dividends that we paid out last year and the 200 million buyback that we completed.

Dick Weil: We continue to generate strong cash flow, which is supporting ongoing investments in our business, and of course, it's supporting the $272 million in dividends that we paid out last year and the $200 million buyback that we completed. With that, I wanted to turn it back over to Roger to do a deeper look into the quarterly results.

With that I wanted to turn it back over to Roger to do a deeper look into the quarterly results.

Thank you Dick and thanks, everyone for joining us.

Roger Thompson: Thank you, Dick, and thanks, everyone, for joining us. Diving straight into the Q4 results. Investment performance over the 3-year time period remains strong and consistent with the Q3 level, with 76% of firm-wide assets beating their respective benchmarks as of 31 December. Net outflows increased to $6.7 billion in the quarter as a result of an increase in redemptions, primarily from our institutional clients, which were partially offset by an increase in gross sales. Despite these outflows, ending AUM increased 5% due to strong markets and favorable FX. Lastly, the financial results were better than the prior quarter, with EPS of $0.65 compared to $0.64 a quarter ago. Turning to slide 8 for a look at investment performance. Overall investment performance relative to benchmarks remained strong.

Doug starting to the fourth quarter results.

Investment performance over the three it's on page remains strong and consistent with the third quarter level was 76% to from what assets within their respective benchmarks as at the fed effective December.

Net outflows increased to 6.7 billion in the quarter as a result of an increase in redemptions, primarily from our institutional clients, which were partially offset by an increase in gross sales.

Despite these outflows ending AUM increased 5% due to strong markets and favorable FX.

Lastly, the financial results were better than the prior quarter with EPS of 65 cents compared to 64 cents a quarter ago.

Turning to slide eight for liquid investment performance.

Overall investment performance relative to benchmarks remains strong we still continued strength in performance across all of our capabilities across the one three and five year time periods with exception of positive equities.

Roger Thompson: We saw continued strength in performance across all of our capabilities across the 1, 3, and 5-year time periods, with the exception of quantitative equities. At INTECH, whilst performance did improve from prior years across the 1, 3, and 5-year time periods, the results are not where they need to be. As Dick mentioned, the team have implemented some enhancements to the process, which should benefit clients in the long run. On the right-hand side of the slide, you can see that the relative performance compared to peers is very strong, with at least 76% of AUM represented in the top two Morningstar quartiles on a 1, 3, and 5-year basis. Now turning to total company flows. For the Q, outflows were $6.7 billion, compared to outflows of $3.5 billion last Q.

Aspentech loss performance did improve from prior years across the one three and five year time periods. The result, so we're not where they need to be on as Dick mentioned that same have implemented some enhancements to the process, which should benefit clients in the long run.

On the right hand side of the slide you can see that relative performance compared to peers is very strong with at least 76% of our UN represented in the top two Morningstar Cortiles auto one three and five yet basis.

Now turning to total company flows.

For the quarter outflows were 6.7 billion compared to outflows of three to half billion last quarter.

Despite the higher net outflows, we did seem importance and further improvements and intermediary net inflows during the quarter artistic has already mentioned, we continue to see momentum building in this channel, which we're very encouraged by.

Roger Thompson: Despite the higher net outflows, we did see an important and further improvement in intermediary net inflows during the quarter. As Dick has already mentioned, we continue to see momentum building in this channel, which we're very encouraged by. As Dick's already talked about the 2019 flow results in some detail, I won't spend too much time on slide 10. We provided this view of the flows one final time, as we indicated we would on last quarter's call. Before moving on to the financial results, I wanted to give an update on known outflows and asset dispositions for Q1 2020. In terms of dispositions, in Q4, we entered into an agreement to sell Geneva Capital Management. The sale is anticipated to close during Q1 2020.

Castex already talked about 2019 flow result in some detail that wed spend too much time on slide 10, we provided this view of flows one final time as we indicated weve would last quarter's cool.

Before moving on to the financial results I wanted to give an update on node outflows and asset dispositions for the first quarter of Twentytwenty.

In terms of dispositions.

In the fourth quarter, we entered into an agreement to sell Geneva Capital management decided is anticipated to closed during the first quarter of Twentytwenty.

Roger Thompson: The assets under management are approximately $5 billion and will be shown as a disposition of assets in our reporting. This transaction aligns with one of our strategic priorities of focus and simplification, while Geneva Management fulfill their desire to operate independently. In flows, first, in Global Emerging Markets, we have the previously notified $1.2 billion redemption, after which the remaining $400 million of assets under management will almost entirely be retail. Second, the change in portfolio management leadership on the Core Plus fixed income strategy at year-end influenced a mandate loss in January of approximately $5 billion. This mandate was at very low fee and therefore will have a minimal impact on our P&L.

Assets under management or approximately 5 billion and we shut as a disposition of assets in our reporting.

This transaction aligns with one of our strategic priorities the focus of simplification, while Geneva management fulfilled bet is off to operate independently.

On an flows first in global emerging markets. We have to previously notified 1.2 billion redemption after which the remaining 400 million of assets under management will almost entirely be retail.

Second the change in portfolio management leadership on the core plus fixed income strategy at year end influenced a mandate loss in January of approximately $5 billion.

This mandate was at very low fee and vessel will have a minimal impact on our PNM.

Despite these known outflows in Q1 Twentytwenty. The fact of the vast majority of our AUM is strongly performing for clients on the momentum with seeing means that we're pleased to see an improving institutional pipeline on a competence and the opportunity to continue the momentum were seeing in the retail business into twentytwenty.

Roger Thompson: Despite these known outflows in Q1 2020, the fact that the vast majority of our AUM is strongly performing for clients and the momentum we're seeing means that we're pleased to see an improving institutional pipeline and a confidence in the opportunity to continue the momentum we're seeing in the retail business into 2020. Slide 11 is our standard presentation of the U.S. GAAP statement of income. Moving to slide 12 for a look at the summary financial results. First, looking at the full year's results. We began the year at a significantly lower AUM level due to the market declines in December 2018. Whilst AUM did recover, the full year results reflect the impact of that lower starting point.

Slide 11 is often the presentation of the U.S. GAAP statement of income.

Moving to slide 12 protocol the summary financial results.

Yes, looking at the fully as results.

We began the year at a significantly lower you am level due to the market declines in December 2018.

While sell you have did recover the full year results reflect the impact of that lowest starting points.

Roger Thompson: Average AUM was down 3% over the prior year, which, along with a lower net management fee margin, drove lower management fees and led to a 6% decrease in the adjusted total revenue for the year. As we move into 2020, AUM is 14% better than it was a year ago. Full year adjusted operating margin continued to be strong at 35.8%, and adjusted diluted EPS for the year was $2.47 compared to $2.74 in 2018. The 10% decrease in adjusted EPS was driven primarily by the reduction in revenue. Now looking at the quarter-over-quarter comparison. Our Q4 adjusted financial results primarily reflect good market conditions and higher performance fees during the quarter.

Average AUM was down 3% over the prior year, which along with a lower net management fee margin drove lower management fees and lets was 6% decrease in the adjusted total revenue for the year.

But as we move into Twentytwenty AUM is 14% better than it was a year ago.

Full year adjusted operating margin continues to be strong at 35.8% adjusted diluted EPS for the year was $2 47 compared to $2 74, 2018, the 10% decrease in adjusted EPS was driven primarily by the reduction in revenue.

Now looking at the quarter to quarter comparison.

Our fourth quarter adjusted financial results, primarily reflect good market conditions and high performance fees during the quarter.

Average AUM increased 1% over the third quarter, driven by positive markets and currency movements, partially offset by outflows.

Roger Thompson: Average AUM increased 1% over Q3, driven by positive market and currency movements, partially offset by outflows. Higher average assets and the seasonality in performance fees resulted in a 7% increase in total adjusted revenues from the prior quarter, which flowed through to adjusted operating income of $171 million, up compared to Q3. Q4 adjusted operating margin was 36.9%, almost identical to the 37% in the prior quarter. Finally, adjusted diluted EPS was $0.65 for the quarter, compared to $0.64 for Q3. On slide 13, we've outlined the revenue drivers for the quarter and also the full year. Before discussing the revenue drivers, I wanted to walk through a small change we've made in how we reported our revenue line items.

Hi average assets on the seasonality and performance phase resulted in the 7% increase in total adjusted revenues from the prior quarter, which flowed straight to adjusted operating income of $171 million up compared to the third quarter.

Fourth quarter adjusted operating margin was 36.9% almost identical to the 57% in the prior quarter.

Finally, adjusted diluted EPS was 65 cents for the quarter compared to 64 cents for the third quarter.

On slide 17, we've outlined the revenue drivers for the quarter and also the full year.

Before discussing the revenue drivers I wants to walk through a small change we've made in how reported our revenue line items.

Roger Thompson: Previously, we showed distribution expenses as a separate line in the table to calculate total adjusted revenue. We will now net the portion of distribution expenses against the revenue line item for which it applies, either management fees, shareholder servicing fees, or other revenue. We've also adjusted the prior quarters for comparability. The total adjusted revenue amount obviously does not change. More accurately allocating distribution expenses has resulted in an increase in the net management fee margin. We're happy to talk you through this offline if for anyone who wants any more details. Now moving into the quarterly change in adjusted total revenue. Higher average assets and seasonal performance fees were the biggest drivers of the quarterly change, resulting in a 7% increase in total revenue.

Previously we show distribution expenses as a separate line in the table to calculate touched adjusted revenue.

We will now net the poster distribution expenses against the revenue line on each of which implies a the management face shareholder servicing fees or other revenue. We've also adjusted the prior quarters for comparability. The total adjusted revenue amounts of ITSI does not change.

More accurately allocating distribution expenses as resulted in the increase in the net management fee margin.

Well happy to talk you through this offline for anyone who wants anymore details.

Now moving into the quarterly change in adjusted total revenue.

Higher average assets and seasonal performance space with the biggest driver for the coffee change, resulting in the 7% increase in total revenue.

Net management fee margin for the fourth quarter was 44.9 basis points, which was up from 44.4 basis points in the third quarter, but down from 46.1 basis points a year ago.

Roger Thompson: Net management fee margin for Q4 was 44.9 basis points, which was up from 44.4 basis points in Q3, but down from 46.1 basis points a year ago. The quarterly increase is welcomed and is primarily due to a mix shift resulting from stronger markets and also positive flows in our higher-yielding intermediary business and outflows from lower-yielding assets. While we still expect net management fee compression over the longer term, the current trends we're seeing in our business should support a stabilizing or even improving net management fee margin in the near term. We provided the 2019 net management fee margin by capability in the appendix. We will continue to disclose this metric on an annual basis and hope you find it useful.

The quarterly increases welcomed at is primarily due to a mix shift resulting from stronger markets and also positive flows in our higher yielding intermediary business and outflows from low yielding assets.

While we still expect net management fee compression over the longer term. The current trends, we're seeing in our business should support to stabilizing or even improving net management fee margin in the near term.

We provided the 2019 that management fee margin by capability in the appendix.

We will continue to disclose this metric at an annual basis and hokey funded useful.

Moving to performance fees, which were $18 million compared to 1 million dollar the third quarter.

Roger Thompson: Moving to performance fees, which were $18 million compared to $1 million in Q3. The Q4 result was driven primarily by segregated accounts within our Global Life Sciences and Global Technology strategies. US Mutual Fund performance fees were relatively flat to Q3 at negative $1 million, but improved significantly from the negative eleven and a half million dollars a year ago. While we can't predict what future performance fees will be like, there are a few positive items to note as we begin the year.

The fourth quarter result was driven primarily by segregated accounts within our global life Sciences, and global technology strategies.

You asked me to fund performance fees were relatively flat to Q3 at negative $1 million, but improved significantly from the negative 11 of the half million dollars a year ago.

Whilst we can't predict what future performance fees will be like.

There are few positive items to note as we began the year.

First the UK upset the 10 strategy after underperformance in 2018 outperformed its benchmark meaningfully in 2019.

Roger Thompson: First, the UK absolute return strategy, after underperformance in 2018, outperformed its benchmark meaningfully in 2019, and as at 31 December, the OIK was back above its high water mark, which would enable the strategy to begin to earn a performance fee in 2020, whilst the CCAP range was just slightly under its high water mark. Secondly, the European Equities funds within the CCAP range also performed well during 2019 and are on track to earn a performance fee in their next measurement period during Q2 2020. Third, our US Mutual Fund fulcrum fees see potential for further improvement in 2020, as with all performance fees, that, of course, is dependent on future performance.

And as at the fed effects December the oil was back above its high watermark, which would enable to stress street to begin to and performance fee and twentytwenty, whilst the C. Cap range was just slightly under its high watermark.

Secondly, the European equity funds within the state cap range also performed well during 2019 on track to at a performance fee and then next measurements periods during the second quarter of Twentytwenty.

Third our us mutual fund spoken phase see potential for further improvements in twentytwenty, but after the old performance fees that of course is dependent on future performance.

Roger Thompson: Finally, I wanted to point out that the amount of AUM subject to performance fees, and hence the opportunity for the firm to earn performance fees in the future, has not significantly changed. Turning to operating expenses on slide 14. Adjusted operating expenses in Q4 were $292 million, up 7% from the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, was up 10% compared to the prior quarter, primarily as a result of higher pre-bonus profits and the impact of year-end adjustments to our cash non-cash payout mix. Adjusted LTI was up 5% from Q3, largely due to mark-to-market adjustments. In the appendix, we provided further detail on the expected future amortization of existing grants, along with an estimated range for the 2020 grants for you to use in your models.

Finally, I want to points out that the amounts of our UN subject to performance fees on hence the opportunity for the from two and performance space in the future has not significantly changed.

Turning to operating expenses on slide 14.

Adjusted operating expenses in the fourth quarter with $292 million up 7% from the prior quarter.

Adjusted employee compensation, which includes fixed and variable costs was up 10% compared to prior quarter, primarily as a result at higher pre bonus profits on the impact of year and adjustments, So occassional cash pack mix.

Adjusted LPI was up 5% from the third quarter, largely due to mark to market adjustments.

In the appendix, we provided further data on the expected future amortization of existing grants along with an estimated range for the twentytwenty grown speech to use in new models.

The fourth quarter adjusted comp to revenue ratio was 43 to help sense over the 30 of the total comp to revenue ratio was 44%.

Roger Thompson: The Q4 adjusted comp to revenue ratio was 43.5%, and for the full year, the total comp to revenue ratio was 44%. Adjusted non-comp operating expenses increased 3% quarter-over-quarter from various factors, including higher seasonal marketing expenses and higher run rate costs in investment administration, coupled with a few one-time costs, which were partially offset by a one-time $5.5 million credit in G&A related to the successful appeal to the legal outcome that occurred in 2018. Finally, our recurring effective tax rate for the Q4 was 24.4%, and for the full year, the firm's effective tax rate was 24.0%. Looking forward to 2020, I want to take a few minutes to provide some insight into what we anticipate in our expense base.

Adjusted non comp operating expenses increased 3% quarter over quarter from various factors, including higher seasonal marketing expenses on high run rate cost that investment administration, coupled with a few onetime costs, which were partially offset by once on five and Hoffman and credit in Gionee related to the successful appealed to the legal outcome for the coding.

In 2018.

Finally, our recurring effective tax rate for the fourth quarter was 24.4% and for the full year the fence effective tax rate was 24.0%.

Looking forward to Twentytwenty I want to take a few minutes to provide some insight into what we anticipated our expense base.

As a management team we're focused on balancing the appropriate amounts of investment that is required to grow our business a maximize profits over the medium term with sound financial discipline on an awareness of margin pressure.

Roger Thompson: As a management team, we're focused on balancing the appropriate amount of investment that is required to grow our business and maximize profits over the medium term with sound financial discipline and an awareness of margin pressure. It's important to note that we run the business with an emphasis on the long term versus quarter-to-quarter margin results. With that said, let's walk through a few points for 2020. First, looking at compensation. We don't anticipate a significant change in the adjusted comp ratio, which should continue to be at the high end of the low 40s. Second, for non-compensation expenses, we'd expect to see an increase of low to mid single digits. Finally, the firm's statutory tax rate is expected to be similar to 2019 at 23% to 25%.

But it's important to note that we run the business with an emphasis on the long term versus quarter to quarter margin results.

With that said, let's walk through a few points for Twentytwenty first looking at compensation, we don't anticipate a significant change in the adjusted comp ratio, which should continue to be at the high end to the low fortys.

Second the Noncompensation expenses wed expect to see an increase of low to mid single digits and finally, the fence statutory tax rate is expected to be similar to 2019 at 23% to 25% effective right, we'll obviously be impacted by various differences, which arrive cost quarter.

Roger Thompson: The effective rates will obviously be impacted by various differences which arrive quarter-over-quarter. Turning to slide 15 and a look at our balance sheet. As at the end of December, Janus Henderson had consolidated cash and investment securities of $2 billion, of which $700 million were third-party assets, which were consolidated onto the balance sheet. The increase quarter-over-quarter resulted from a $100 million short-term investment we made into our seed book, which caused an entire fund to be consolidated onto the balance sheet, including third-party money in this fund. Lastly, on slide 16, let's have a look at our capital management. We remain committed to returning excess cash to shareholders.

Turning to slide 15, and then look at our balance sheet.

At the end of December John attendance, and had consolidated cash and investment securities of $2 billion of which 700 million with third party assets, which will consolidate stone for the balance sheets.

The increase quarter on quarter resulted from a $100 million short term investment we made into our seat book, which close knit tops onto deconsolidated onto the balance sheets, including third party money in this fund.

And lastly on slide 16 that some of the cut our capital management.

We remain committed to returning excess cash to shareholders.

Roger Thompson: In 2019, we were able to fund $472 million of dividends and buybacks, which represents 102% of the cash flow from operations that were generated during the year. During Q4, we paid $66 million in dividends to shareholders. Additionally, in the quarter, we completed the remaining $13 million of the fully accretive $200 million authorization, purchasing 511,000 shares. The completed authorization totaled 9.4 million shares that were repurchased during 2019, resulting in a 5% reduction in the share count. As Dick referenced to the beginning of the call, we are pleased to announce that the board has authorized an additional on-market accretive share buyback of up to $200 million through April 2021.

In 2019, we were able to fund $472 million of dividends and buybacks, which represents 102% to the cash flow corporations that we generated during the year.

During the fourth quarter, we paid $66 million in dividends to shareholders.

Additionally, in the quarter, we completed the remaining $13 million of the fully Accretes is 200 million dollar authorization purchasing 511000 shares.

The competed authorization totaled 9.4 million shares that were repurchased joined 2019, resulting in a 5% reduction in the share count.

Let's take reference to the beginning of the coal that we're pleased to announce the board has authorized an additional on market accretive share buyback of up to $200 million through April 2021.

Roger Thompson: With that, I'll turn it back to Dick for some concluding thoughts before the Q&A.

With that I'll turn it back to take for some concluding thoughts before the kuni.

Dick Weil: Thank you, Roger. We start 2020, 14% ahead of where we started last year. That makes me excited. We have great opportunities in front of us. We know that our path to success remains the same. We have to deliver Simple Excellence across all that we're doing for our clients, for our owners, and our employees. If we can remain consistent and firm driving down that path, we have terrific opportunities. Our investment performance is excellent. We're beginning to see that investment performance drive better flows across, particularly our intermediary business, where frankly, our fees are substantially better. We have the breadth of product to meet client demand in many, many interesting ways. Finally, our financial foundation is solid, allowing investment in the business and also returning capital to our shareholders in the form of buybacks and dividends.

Thank you Roger.

We start 2020, 14% ahead of where we started last year that makes me excited.

We have great opportunities in front of US we know that our path to success remains the same we have to deliver simple excellence across all that we're doing for our clients for our owners and our employees and if we can remain consistent and from driving down that path.

We have terrific opportunities our investment performance is excellent and we're beginning to see that investment performance drive better flows across particularly our intermediary business, where frankly, our fees are substantially better.

We have the breadth of product to meet client demand in many many interesting ways and finally, our financial foundation is solid allowing investment in the business and also returning capital to our shareholders in the form of buybacks and dividends.

Dick Weil: I firmly believe we are a better company today than we were a year ago. I'm excited about the path that we're on to deliver for our clients, owners, and employees. Now, I'd like to turn it back over to the operator for questions.

I firmly believe we are a better company today than we were a year ago I'm excited about the path and were on to deliver for clients owners and employees.

Now I'd like to turn it back over to the operator for questions.

Thank you.

Operator: Thank you. Ladies and gentlemen, at this time, we will conduct the question-and-answer session. In the interest of time, questions will be limited to 1 initial and 1 follow-up question. If you would like to ask a question, please press Star and then 1 on your phone now, and you will be placed in the queue in the order received. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal. Our first question comes from Ken Worthington, from J.P. Morgan.

Ladies and gentlemen at this time, we will conduct a question and answer session in the interest of time questions will be limited to one initial and one follow up question.

Thank you would like to ask a question. Please press star and then one on your phone now and you will be placed in the queue in the order received if you're using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Once again. Please press star one to ask a question and ill pause for just a moment.

To allow everyone an opportunity to signal.

Our first question comes from Ken Worthington from JP Morgan.

Hi, good morning on leading first on fixed income.

Ken Worthington: Hi. Good morning. Maybe first on fixed income, more elevated fixed income outflows. It looks like there's maybe $1 billion+ that came out of the Australian business this quarter. Can you give us some background on this? Is this related at all to the $5 billion that I think you said was coming out in January? How is the performance of these Australian products that look like at least one had some elevated outflows? Thank you.

More elevated fixed income outflows it looks like there's.

Maybe a billion plus that came out of the Australian business this quarter.

Can you give us some background on this is this related at all to the 5 billion.

That I think you said was coming out in January.

And how is the performance of these Australian products.

That looks like at least one one had some elevated outflows from Q.

Again, it's Roger Debbie I think with two pieces in the fixed income numbers from the fly points of view, which is 40 with pricing.

Roger Thompson: Hey, Ken, it's Roger. Yeah, I think there's two pieces in the fixed income numbers, from the flow points of view, which are sort of worth noting. The first, as you said, is we had one mandate, without, in Australia from the Aussie fixed business. That's a business that's been growing very well over the last three or four years. We had one client, who we've been sourced some money. That's the money that's been taken away from us. Overall, that business is in very good shape and continues to win money, particularly on the retail side.

First as you said is we had won mandates with an app in Australia from the fixed business. That's a business has been growing very well.

Over the over the last three or four years, we had one and clients who have been saw some money for money that that's been taken away from us.

But overall that that business is in very good shape.

And continues to win money security on the retail song.

Roger Thompson: The second piece is an outflow from a client, again, which has reallocated money away, but a very strong client relationship we have, and we're very happy that, you know, we've been able to work with them, and have reallocated money from fixed into equity. There's a gross up, if you like, on the on flows, from a client move, out of fixed into equity.

And the second piece is a an outflow from a client's again, which is reallocating money away with a very strong client relationship. We happen. We're very happy that we've been able to work with them on of reallocated money from fixed into into equity. So this.

This is a growing sop if you like on the on flows.

From a client move.

Out of Fixturing into equity.

Okay, great. Thank you.

Ken Worthington: Okay, great. Thank you. Then just Dai-ichi, can you just level set us, where does that relationship stand today in terms of the AUM contributed either in Janus from subsidiaries or related companies, Dai-ichi? Are there opportunities in 2020 to further expand that relationship?

And then just Daiichi I can you just a level set us where does that relationship stand today.

In terms of the a land contributed.

Contributed either.

Alan Janice from subsidiaries are related companies tight to Daiichi and are there opportunities in 2020 to further expand that relationship.

Yes, Hi, Ken it's it's Dick.

Dick Weil: Hi, Ken. It's Dick. It looks like the Dai-ichi relationship at December totaled about $12.8 billion, broken out as the Dai-ichi general account, a little over $3 billion, its affiliate Asset Management One, you know, which is really third-party money, at $6.6 billion, its affiliate TAL and Asteron down in Australia, $2.7 billion, and then, $300 million out of Protective Life in the US, which is another Dai-ichi affiliate, totaling about $12.8 billion. That's the relationship. In terms of opportunity to continue to grow it, of course, there are opportunities to continue to grow it. It's fair to say that if you're in the life insurance business in Japan, you're probably not swimming in excess capital. You know, it's very competitive, it's tight.

It looks like the Daiichi relationship at December total about 12.8 billion.

Broken out as the day to general account a little over 3 billion, it's affiliate asset management one.

Which is really third party money at 6.6 billion affiliate towel and asked are on down in Australia 2.7 billion, and then 300 million at a protective life in the U.S., which is another daiichi affiliate totaling about 12.8 thats the relationship.

In terms of opportunity to continue to grow it of course, there are opportunities to continue to grow it but it's fair to say that if you're in the life insurance business in Japan, you are probably not swimming in excess capital.

And so it's very competitive it's tight they do a very professional job of allocating their funds in and we're in there competing for additional business both from them and their affiliates and also through there.

Dick Weil: They do a very professional job of allocating their funds, and we're in there competing for additional business, both from them and their affiliates, and also through their auspices and good relationship with Asset Management One to other third parties in Japan. That flow of new business, you know, has slowed down a little bit of late, and we're obviously optimistic that we can get that engine running better again with some new assets. you know, it's likely to be lumpy and hard to predict on a quarter-to-quarter basis.

There are auspices and good relationship with asset management one.

Two other third parties in Japan.

Net flow of new business.

His his.

His slowed down a little bit of late and we're we're obviously optimistic that we can get that that engine running better again with some new new assets, but it's likely to be lumpy in hard to predict on a quarter to quarter basis.

And we'll take our next question from Andre Stadnik with Morgan Stanley.

Operator: We'll take our next question from Andrew Stadnyk with Morgan Stanley.

Good morning, Thanks for taking the time I just wanted to ask two questions Firstly.

Andrew Stadnyk: Good morning. Thank you for taking the time. I just wanted to ask 2 questions. Firstly, on the institutional flow update for Q1 2020, can I just confirm the fixed income, $5 billion mandate being switched into equities? Is that being switched with you or not with you into equities? Kind of part B of that question, are we alright to assume that there is no update on INTECH? In other words, the run weight on INTECH seems to be better than what it was to start the Q4.

On on these seasonal.

Well update for the first quarter Atlantic and then just confirm the fixed income 5 billion mandate been switching to equities.

That being switched with you or not with you in take these and then kind of part b of that question.

We have a robyn seem that there was no update any intake in other words, Ron weighed on intake seems to be better than what the goals.

To sell the fourth quarter.

Okay.

Hi, This is Dick let me just.

Dick Weil: Yeah, this is Dick. Let me just... I think we haven't communicated as clearly as we would like. The $5 billion out in fixed income in Q1 is not related to the flows that Roger was just describing in Q4 of last year in fixed income. Those are separate things. The switch that Roger referred to related to some of the Q4 fixed income flows for last year, which was a client who moved out of fixed into equities. What Roger said about the Q1 flow anticipated of this year of $5 billion out of fixed was that in changing the lead PM, and team leadership in our North American fixed income business that manages our Core and Core Plus fixed income.

I think we haven't communicated as clearly as we would like the 5 billion out in fixed income in the first quarter is not related to the flows that Roger was just describing in the fourth quarter of last year in fixed income and so those are separate things and so the switch that Roger referred to related to some of the fourth quarter fixed income flows.

As for last year, which was declining moved out of fixed into equities, what Roger said about the first quarter flow anticipated of this year, a 5 billion out of fixed was that in changing the lead pm.

And the team leadership and our North American fixed income business that manages our core and core plus fixed income.

That caused the client to pull money, we receive notice and Roger explained that that money was coming out in the first quarter and we're not aware that where thats going that she's coming out of us.

Dick Weil: That caused the client to pull money. We received notice and Roger explained that that money was coming out in Q1, and we're not aware that where that's going. That's just coming out of us. Anything to add? Go ahead.

In the I'd go ahead.

Roger Thompson: Nothing. I mean, there is nothing else to add on. Sorry, on INTECH, Andre. I mean, it is, there's no new news, nothing we're aware of for Q1.

Yes, I mean, there was nothing else to add on on Andre sorry on the in check on growth smooth.

Thanks.

There is no no new news nothing nothing we are aware.

For the first quarter.

She is.

Andrew Stadnyk: Cheers. Thank you. My second question, just, you know, thinking about the low to mid-single digit non-comp growth guidance, you know, what is that being driven by? Because underlying inflation is very benign, very low all around the world. You know, call it, you know, almost zero. Is that growth being driven by, you know, currency movements, or are those, as, you know, deliberate investments that you're making into the business?

Thank you and my second question, just thinking about the low to mid single digit non comp.

Growth guidance, and what is that being driven by because on the line in place and it's very benign gorilla all around the world that you Nicola.

Almost zero so is that growth is being driven by currency movements or others.

Deliberate investments that you're making into the business.

That product that primarily so aside from inflationary rather than it is a little bit of FX FX and there is as the dollars weaken a little bit for fourth quarter.

Roger Thompson: They're primarily, like you say, some inflationary rising there. There's a little bit of FX in there as the dollar's weakened a little bit into Q4. Primarily these are investments in our platform. We're continuing to invest, you know, and to ensure that we've got a world-class platform. Yeah, there's some more spend to be done there.

Primarily the Reinvestments in our platform a we're continuing to invest.

And to ensure that we've got a well cross platform on if this there was some more spend to be done that.

And we'll take our next question Dan Salmon from Jefferies.

Operator: We'll take our next question from Dan Fannon from Jefferies.

Thanks, Good morning, So I guess, a follow up on the US credit so curious how much in that core.

Dan Fannon: Thanks. Good morning. I guess a follow-up on the US credit. Curious how much in that core, what is left that's institutional, that, that's being managed out of those strategies that now has a new leader?

What is left that's institutional that's being managed out of those strategies. This now has a new leader.

This is Dick I don't have the breakdown of retail versus institutional.

Dick Weil: This is Dick. I don't have the breakdown of retail versus institutional in that business, so I don't think I could give you a good description. We might be able to go into some more detail in a future quarter. Apologies I don't have.

In that business. So I don't think I could give you a good description we might be able to to go to some more detail in the future quarter, but apologies I hope will follow with you offline down on exactly what regarding that.

Roger Thompson: Well, we'll follow up with you offline, Dan, on exactly what we've got in there. You know, it's a multi-billion dollar franchise.

So it's a multibillion dollar franchise.

But predominantly retail.

Dan Fannon: Predominantly retail?

Yes, yes.

Dick Weil: Yes.

Roger Thompson: Yes.

Dan Fannon: Okay.

Okay.

Yes interim limited.

Dick Weil: Yeah, predominantly retail.

Great and then just to clarify I believe you said there was a five and a half a million dollars benefit to gionee in the quarter.

Dan Fannon: Great. Then just to clarify, I believe you said there was a $5.5 million benefit to G&A in the quarter. Just curious what the starting point of the kinda low to mid-single-digit growth is for the non-comp expense, and then also how we should think about any P&L impact from the sale or the pending sale of Geneva in terms of what comes out of the income statement or AUM levels. You said, I think, $5 billion in AUM, but just curious about other, you know, kind of flow throughs from that.

So just curious what the as a starting point of the.

At a low to mid single digit growth is for the non comp expense and then also how we should think about any pinedale impact from the sale or the pending sale in Geneva.

In terms of what comes out of the income statement Reram levels. You said I think 5 billion into you, but just curious about other.

Flow throughs from that.

Sure banner advertising you carve out there was a five dollarsmillion one off and gain in the fourth quarter on a on a legal appeal.

Roger Thompson: Sure, Dan. As I said, you're quite right. There was a $5.5 billion one-off gain in the Q4 on a legal appeal. There's a couple of other things, one-off going the other way. When I talk about low to mid-single digit comp rise, I'm talking about on the full year 2019 trigger. In terms of Geneva, it's a $5.5 billion business that we're selling. Is that will come out of come out of both the revenue and the expense line. There are some approvals that need to come through from the clients in that business.

The there's not there's a couple of other things one off going the other why that when I talk about low to mid single digit cop rock I'm talking about on the full year 2019 trigger.

On an incentive to Geneva.

It's a 5.5 and a half billion dollar business that we're selling if that will come out of come out of both the revenue on the expense line.

Is there are awesome.

Yeah approvals that made some things to come through from the from the clients in that business. So hopefully come through near the end of this this month and hopefully the deal will close in March.

Roger Thompson: They'll hopefully come through near the end of this month. Hopefully, the deal will close in March. In which case, the revenue and expense of that business will drop out of our P&L. I mean, it's a, you know, smaller part of the business, so it's relatively insignificant.

In which case the the revenue and expenses is a business will drop out of drop out of our pan out I wouldn't say, it's a it's a smaller part of the business. So it's relatively insignificant.

Well take our next question, Tom Patrick Davitt from Autonomous research.

Operator: We'll take our next question from Patrick Davitt from Autonomous Research.

Hi, good morning, guys.

Patrick Davitt: Hey, good morning, guys. Just to quickly follow up on the expense question, could you confirm if that includes or excludes distribution? When you say full year 2019, should we use that base that includes kind of the non-cash items you've been calling out over the year?

Just quickly follow up on the expense question I could you confirm if that includes or excludes distribution and when you say full year 2019 should we use that base that include kind of a noncash items, you've been calling out over the year.

So that that excludes distribution.

Roger Thompson: That excludes distribution. Sorry, the second part of your question, Patrick?

I'm sorry, the second part your question Patrick.

Patrick Davitt: Should we adjust for severance and non-cash items, like the charge you took in Q4?

Sure sure should we adjust for severance and noncash items.

Patrick Davitt: Should we adjust for severance and non-cash items, like the charge you took in Q4?

Like like the charge you took in the fourth quarter.

Sorry, not just on a on a net basis.

Roger Thompson: no, just on a net basis, if you, against our full year 2019, we're gonna be, I'd expect to be up low to mid-single digits on the overall number.

It gets against our full year 2009 team, we're gonna be I'd expect to be up low to mid mid single digits on that on the overall number.

Patrick Davitt: Okay, fair enough. Thank you. We know about, you know, the obviously the issue with the legacy EM book leaving. Is there an opportunity, I guess, given that the new team came from somewhere else, for the same thing to happen to benefit you in terms of the money they used to manage?

Okay fair enough. Thank you.

So we know about you know the obviously the issue with the legacy in book, leaving.

Is there an opportunity I guess given that the new team came from somewhere else front for the same thing to happen to benefit you in terms of the money they used to manage.

We don't expect to get a big crossover of the money that they used to manage as you know a client he was with them.

Dick Weil: We don't expect to get a big crossover of the money that they used to manage. You know, a client who was with them at their old firm would be unlikely to come across, I think, given what we know about the structure of their business at the old firm. You know, it could happen in small numbers, but we don't expect a significant.

At their old firm.

We would be a unlikely to come across I think given what we know about the structure of their business at the old firms. So it could happen in small numbers, but we don't expect to significant yeah. I mean, the transfer of assets, but you know you never know yeah. We are saying you can see in the public banks. It would seem positive flows in the rate in re file in emerging markets, which given that.

Roger Thompson: Yeah, I mean...

Dick Weil: ... transfer of assets, you know, you never know.

Roger Thompson: We are seeing, and you can see in the public data, we're seeing positive flows in retail, in emerging markets, which given the team's only been with us for a small number of months, is a great start.

Seems only being with us for a number yeah. A small number of months is is a great stuff yeah, but you know them all the more exciting piece will be when we start to win.

Dick Weil: Yeah.

Roger Thompson: The more exciting piece will be when we start to win institutional business. That obviously will take a little bit longer, but the team's off to a great start and working very well with across with other investment teams, but also building great links with the distribution teams around the world, which obviously we can bring to that team.

Institutional business that obviously with like a little bit longer and for the team is off to a great start working very well with a cross with other with other.

Investment teams, but also.

Building great links with it so.

The distribution teams around the wells, which obviously, we can bring to that.

Our next question comes from Alex Blostein with Goldman Sachs.

Operator: Our next question comes from Alex Blostein with Goldman Sachs.

Great. Good morning, everyone. So predict encouraging comments on flows into 2020. So I was wondering that outside of the $5 billion are now on fixed income outflows, maybe give us a sample where net flows that so far in the first quarter.

Alex Blostein: Great. Good morning, everyone. To Dick Weil, encouraging comments on flows into 2020. I was wondering that, you know, outside of the $5 billion of sort of known fixed income outflows, maybe give us a sense of where net flows stand so far in Q1. Bigger picture, intermediary channel, obviously seeing pretty good momentum. Can you spend a couple of minutes on just which geographies and which products in particular are driving better net flows in that channel?

And then bigger picture intermediary channel, obviously seen pretty good momentum can you spend a couple of minutes on just switching geography, Ethan which products in particular are driving better net flows in that channel.

Yes, hi.

Dick Weil: Yeah. Hi. First, on the known outflows in Q1, Roger called attention to two. There's $1.2 billion that's going out, left the last big piece of the old EM equity business, then there's $5 billion out in fixed income that Roger called attention to. In terms of flows coming in, it's not just one product. It's, you know, the current flows are predominantly driven by the retail segments of our business, and that's geographically diverse. It's also product diverse, more diverse than it's been in the past.

First on the known outflows in the first quarter Roger called attention to two so theres a billion to this going out left the last big piece of the old M. equity business and then there was a 5 billion.

In fixed income that Roger called attention too in terms of flows coming in.

It's not just one product is.

The current flows are predominantly driven by the retail segments of our business and Thats geographically diverse it's also product diverse.

More diverse than it's been in the past and so the lead product hedged for the last little while been our balanced fund.

Dick Weil: You know, the lead product has, for the last little while, been our balance fund, managed by Mark Pinto and just a terrific product that has led in a number of markets around the world and has been our most successful product. We have a lot of different. It's a very diverse set, and it varies geographic region by region, so I couldn't do a good job of summarizing it on a global basis.

Managed by Mark Pinto, and just a terrific product that has led in a number of markets around the world than it's been our most successful product, but we have a lot of different it's a very diverse set and it varies geographic region by region. So I couldn't do a good job of summarizing it on a global basis.

Okay fair enough, but but no no explosive commentary on that Netflow, so far in first quarter outside of the two knowing redemptions.

Alex Blostein: Okay, fair enough. No explicit commentary on the net flow so far in Q1 outside of the two known redemptions?

Dick Weil: No, no, you know, we think that we have an opportunity to grow on this momentum that we've shown you in the deck. That's what we're planning on doing, and we think the investment performance supports that. We think the energy from our new global head of distribution supports that. We're optimistic about how those things develop. You know, this is something we win over time. It's not an explosive change in direction.

No I you know, we think that we have an opportunity to grow on this momentum that we've shown you in the deck.

And that's what we're planning on doing and we think the investment performance supports that we think the the energy from our new global head of of distribution supports that and so we're optimistic about how those things develop it but.

This is this is something we went over time, it's not an explosive change in direction.

Alex Blostein: Yep, that makes sense. My second question around the quant business. I was hoping to better frame the path for this business. 20 basis points net fee rate, obviously below the blended, which is good news. I was hoping you could help us frame the net operating margin in that part of the model, relative to the 36-ish percent of net operating margin for Janus Henderson as a whole.

Thanks.

Second question around the Kwan business was hoping that a frame the the path for this business. So.

20 basis points snappy rate, obviously below the blended which is good news I was hoping you can help us frame the net operating margin in that part of the model relative to the 36% of so not operating margin for our agenda tenants into the whole.

I mean, we never we'd ask if we don't give a overall, but yeah. It's a successful business it's profitable.

Roger Thompson: I mean, we don't give overall, but yeah, it's a successful business. It's profitable. You know, it's still $47 billion of assets, I think the number is, $45 billion. You know, it's a business that we're looking to grow, but, you know, it's, it is a, it's a profitable business.

Ah, Yes, it's still $47 billion of assets I think numbers.

45.

So it's a business that we're looking to grow up but it's it is I, it's a profitable business.

And our next question comes from Craig Siegenthaler with Credit Suisse.

Operator: Our next question comes from Craig Siegenthaler with Credit Suisse.

Good morning, everyone.

Craig Siegenthaler: Good morning, everyone.

Hi, guys feel first starting with your impressive overall investment performance. Our worry here is that despite really good performance pretty much in every business that intact.

Roger Thompson: Hi, Craig.

Craig Siegenthaler: First, just starting with your impressive overall investment performance. Our worry here is that despite really good performance pretty much in every business ex INTECH, you're still seeing large net outflows, which will continue into 20, just given the items you highlighted. If overall performance does normalize over the next year, why would this not pressure total flows and current levels?

Still seeing large in outflows, which will continue one to 20, just given the ideas you highlighted so.

We'll go well performing does normalize over the next year.

Why would this little crusher total flows from current levels.

I think if our performance softens you will see.

Dick Weil: I think if our performance softens, you will see, you know, the predictable effects of that, as you would see some slowdown on the retail side, where we're currently seeing gathering momentum.

The predictable effects of that as you would see some slowdown on the retail side, where we're currently seeing gathering momentum and over a period of time over a period of time total in Pennsylvania, and you would if it persists you know see that the the pipeline that we're starting to build on the institutional side, you know that wouldn't come through as actual flows.

Roger Thompson: Over a period of time.

Dick Weil: Over a period of time.

Roger Thompson: It tends to lag.

Dick Weil: You would, if it persists, you know, see that the pipeline that we're starting to build on the institutional side, you know, that wouldn't come through as actual flows as well. I mean, we're in a performance business. We're always in a performance business. We have to perform. It's something we're doing quite well now. We need to convert that into more positive flow momentum. The other thing that the flow number misses, which we've talked about previously, is, you know, not all flows come in the same sort of quality of business, if you will. Sometimes some of these big flows that are very eye-catching are driven by the largest, you know, sort of institutional accounts that, by their nature, coming in huge size, come in extremely competitive fees.

As well I mean, we're going to performance business, we're always underperformance business, we have to perform.

It's something we're we're doing quite well now and we need to convert that into more positive flow momentum. The other thing that the flow number Mrs, which we've talked about.

Previously as you know not all flows come at the same sort of quality of business. If you will sometimes some of these big flows that are very eye catching your driven by the largest.

Sort of institutional accounts that by their nature coming in and huge size come in an extremely competitive fees.

Dick Weil: When they go out or, or come in, it makes a big, eye-catching splash on the AUM and flow line, rather less on the revenues and profit line. We're dealing with some of that. We're winning in some places where the fees are good, and we're losing some accounts in big institutional places where the fees are not quite as beneficial to us. The AUM line and the flow line tells part of the story, but obviously, the goal of this company is to build profitable business, and we're doing that, in particularly in retail businesses all over the world.

And when they go out or come in it makes a difference it makes a big eye catching splash on the on the women flow line.

Rather less on the revenues and profit line and so we're dealing with some of that we're winning in some places where the fees or are good and.

And we're losing some accounts in big institutional places, where the feeser are not quite as a as beneficial to us. So the U.M. line in the flow line tells part of the story, but obviously the the goal of this company is to build profitable business and and we're doing that in particularly in retail businesses all over the world.

Oh, Thank you off starting to see a intermediary tends to move a little earlier and you are starting to see that well performance. Yeah. If you off the second question a year ago. Yeah. We were starting yeah, we'd had a good good year or so of performance I'm flows what really setting an intermediary they now have.

Roger Thompson: I think you are starting to see, and intermediary tends to move a little earlier. You are starting to see that performance. You know, if you asked the same question a year ago, you know, we were starting... You know, we'd had a good year or so of performance, and flows weren't really turning in intermediary. They now have. If we can continue that trend, that's the excitement we've got on intermediary. As Dick said, we're starting to rebuild the pipeline in institutional. You know, let's, you know, let's hope that comes through. You know, I think you are now starting to see that performance starting to come through in flows.

And if we can continue that trend that's being sought we've got on the intermediary as Dick said, we're starting to rebuild the pipeline in institutional.

Now, let's let's let's hope that comes through but yeah. I think you are now starting to see that performance starting to come through in flows.

Thank you Roger look we on a per where performance business and without it we won't we will succeed the way we need.

Craig Siegenthaler: Roger.

Dick Weil: We're a performance business, and without it, we won't succeed the way we need to.

Thanks for my follow up on Brexit.

Craig Siegenthaler: Thanks. This is my follow-up on Brexit. Can you articulate if you continue to think this could be a positive catalyst for your European equity business? You're seeing real indication that cash is getting ready to move off the sidelines of investors, especially in the UK risk?

You are you thinking can you think this could be a positive cows European equity business, and we've seen really vacation accruals and getting ready to move off the sidelines investors, especially in UK regress.

The occasion area as Dick pointed out you know with positive and intermediary flows in the U.S. on the confident in Latin America small in Asia. The one place that we are still negative although less negative than we were a is the UK.

Roger Thompson: The UK can, I mean, as Dick pointed out, you know, we're positive in intermediary flows in the US, on the continent, in Latin America, small in Asia. The one place that we are still negative, although less negative than we were, is the UK. We're certainly not alone in that. The UK remains, yeah, the cork is still in the bottle. It didn't go off last Friday. Yeah, money is still sitting on the sidelines. I think, you know, it may start to come, but I don't think, you know, we'd be calling that as... You know, like I say, last Friday is only the beginning, not the end.

Certainly not realizing that the UK remains or if the coke is still in the bottle.

It Didnt go off last Friday.

If money is still yeah sitting on the sidelines I think when it might start to come but I think yeah, we'd be we'd be calling that as as a.

Yeah like they last Friday doesn't is only the beginning not be had a a number of other challenges you know in in the in the UK in the UK market I'm sorry.

Roger Thompson: There are other challenges, you know, in the UK, in the UK market. The UK is probably the area across the industry, which is the most difficult at the moment, and we're no different than that. You know, it's the one area where we're not positive in intermediary, although, as I say, it is slightly improved.

So you guys probably is probably the area across the industry, which is the which is the most difficult environment. We're no different than not it's the one area, where we know positive in intermediary although at the site is slightly improved.

Our next question comes from Simon Fitzgerald time, Evans <unk> partners.

Operator: Our next question comes from Simon Fitzgerald from Evans and Partners.

Well I got a similar question to the last one just asked in regards to the UK year pain increase strategies.

Simon Fitzgerald: Well, I got a similar question to the last one just asked in regards to, the UK and European equity strategies. I'm more interested to know a little bit more about whether you feel that your European equity strategies performance is up to scratch to be able to pick up a bit more of the flow if we did see a turnaround in flow in those strategies in particular.

I'm more interested in knowing a little bit more about whether you feel that your European equity strategies performance is up to scratch to be able to pick up a bit more the flight, we did say turned around and in flowing nice strategies in particular.

Yeah, Hi, it's Dick Weil I think that.

Dick Weil: Yeah, hi, it's Dick Weil. I think that the European equity strategies, broadly speaking, had a pretty tough couple of years leading into the second half of last year. In the second half of last year, they really picked up and.

The European equity strategies broadly speaking had a pretty tough couple of years, leading into the second half of last year. The second half of last year, they really picked up and holding off into.

Roger Thompson: For a whole of last year, really.

Dick Weil: Roger's saying really all of last year, they picked up and delivered, you know, improved performance. Given their sort of long-term success and strength, we think they're pretty close to being able to get back to gathering positive assets and being in a good position to participate. There's more work to be done. I mean, they aren't yet at that point where they have a really healthy track record, well-established and consistent and would be the natural winners in the battle. They've put themselves, you know, much closer to that point, but they still have a little ways to go after improvements last year.

Roger seeing really all of last year, they picked up in and delivered.

We improved performance and a and given their sort of long term success and strength, we think they're pretty close to being able to get back to to gathering positive assets and being in a good position to participate.

But there's more work to be done I mean, they aren't yet at that point, where they have a really healthy track record well established and consistent and would be the natural winners in the battle that they put themselves in a much closer to that point, but they still have a little ways to go.

After.

After improvements last year, so they're pretty yeah. There's at least 100 basis points ahead across just about I think all strategies over one year or at least 100 ahead.

Roger Thompson: They're at least 100 basis points ahead across just about, I think, all strategies over one year, at least 100 ahead. They're certainly second, certainly second quartile, possibly bumping into first over one year in a couple of places. And as Dick pointed out, you know, outflows were still negative in Q4, but only $200 million, which compared to where they were in the beginning of the year, is a pretty significant improvement. Yes, we have that opportunity, Simon. Should European equity be in favor everywhere, we're back in the game.

That certainly second certainly second quarter mile, possibly bumping into first I have a one year in a couple of places on as Dick pointed out no outflows were still negative in Q4, but only 200 million, which compared to where they were in the beginning of the year is a pretty significant improvement so yes.

Well it where.

We have that opportunity socgen.

Should European equity B B b in favor.

Everywhere Ben Yeah, we're back in the guide historically Henderson has been a terrific leader in that space and we're looking forward to getting back there and we have that opportunity.

Dick Weil: Historically, Henderson has been a terrific leader in that space, and we're looking forward to getting back there, and we have that opportunity.

Okay. Thank you I'm also want to explore a little bit more about they seem to made every channel I'm, particularly in the U.S. that some started to improve.

Simon Fitzgerald: Okay, thank you. I also want to explore a little bit more about this intermediary channel, particularly in the US, that some started to improve. Many other investment managers at the moment have been calling a turnaround in retail net flows, so you're not alone in that regard. Wondering about what changes you might have made in terms of distribution and channels, in terms of staffing, more on the distribution side or anything you can point to there that's also attributable to the improvement there?

Yes.

Many other mismanaged to them I mean have been calling a turnaround in retail net flows. So you know line in that regard the wondering about what changes you might it might in terms of distribution channels 10, stopping warn the distribution sought or anything you can point to did it's also attributable to the improvement there.

I think it's more a yeah, it's more consistency story there song than anything else here, we're winning and we've got a growing if that might business with three more in the already a channel, but will but we're winning in the in the big channels in the in the wire houses et cetera, So, but as Dick said, it's a it's a market share gain.

Roger Thompson: I think it's more a, you know, it's more a consistency story there, Simon, than anything else. Yeah, we're winning, you know, we've got a growing SMA business. We're doing more in the RIA channel, but we're winning in the big channels, in the wirehouses, et cetera. But as Dick said, it's a market share game. We're seeing, you know, in Q4, we see, again, this is public data you can see in SimFund. You know, we're seeing significant market share gains in very competitive markets, you know, US equity being the most competitive.

I'm, we're seeing that with the full quarter. We see again. This is public back to you can see in same Tom.

Yeah, we're seeing significant market share gains in very competitive markets and U.S. equity being the most competitive.

Roger Thompson: As we've always said, may or may not grow overall, but there's a significant amount of market share that we can win and grow our business, which in the pure intermediary space, we are doing. It's not that we're doing something fundamentally different. As Dick said, Suzanne's come in and is, you know, working pretty hard with the distribution teams globally. We hope to do more. We hope to do more and deliver more, but it's nothing new.

And as we've always said may or may not grow overall, but there's a significant amount of market share of that we can we can win.

And grow our business, which in the pure intermediary space, we are doing but it's not that we're doing something fundamentally different as Dick said exams coming.

And is a annie's yeah, working pretty hard with its with the distribution teams globally.

And we hope to do more we hope to do more an unbelievable, but it's nothing new.

The new stuff that Suzanne is doing hasn't been on the table long enough to.

Dick Weil: The new stuff that Suzanne is doing hasn't been on the table long enough to dramatically change the trajectory yet. She's doing some reorganization and changing around the staff a little bit. We're optimistic that her changes will compound the momentum that we're seeing for the reasons that Roger has described, but it's still fairly early days.

Two dramatically change the trajectory, yet, but but she's doing some reorganization and change around the staff a little bit we're optimistic that that her changes will compound the the momentum that we're seeing for the reasons that Roger has described but it's still fairly early days was one of his or her yet and one of the other things is you know we've talked about cloud.

Roger Thompson: It's one of.

Dick Weil: For her yet.

Roger Thompson: Yeah, one of the other things is, you know, we've talked about client experience as one of the, you know, one of the themes for the organization. There's a couple of things where, you know, we are recognized that the PCS Portal is something that has been viewed extremely positively. The work we do in, in our Janus Henderson Labs, working with clients is viewed very positively. These things look as if they're starting to bear fruit.

We experienced is one of the one of the one of the things for the organization as a couple of things, where we all recognize that the Tcs portal is something that is being viewed a extremely positively the what we do in in a in our Jonathan. This is a labs are working with Clarksons view is viewed very positively. So these things.

For the because at the starting to bear fruit.

Our next question comes from Chris Harris from Wells Fargo.

Operator: Our next question comes from Chris Harris, from Wells Fargo.

Thanks, guys.

Chris Harris: Thanks, guys. Just one question related to your operating margins. Your AUM ended the year on a high note, up 14%.

Just one question related to your operating margins.

Yes, a ended the year on a high note up 14%.

Sean Calman: ... fee rate sounds like it'll be flattish, maybe up a little bit. You've got favorable mix happening underlying the businesses. At the same time, you're also making investments. If we put all that together, how should we be thinking about your margin for 2020? Is flattish kind of the goal, or do you think you might be able to do a little bit better than that?

Chris Harris: ... fee rate sounds like it'll be flattish, maybe up a little bit. You've got favorable mix happening underlying the businesses. At the same time, you're also making investments. If we put all that together, how should we be thinking about your margin for 2020? Is flattish kind of the goal, or do you think you might be able to do a little bit better than that?

Fee rate sounds like it'll be flattish, maybe up a little bit you've got favorable mix happing happening underlying the businesses.

But same time, you're also making investments.

Simply put all that together how should we thinking about your margin for 2020 is it's flattish kind of the goal or do you think you might be able to do a little bit better than that.

No I mean, we yeah, we've we've raised the right because it yeah and intention for the for the margin to be that it is a high fiftys. We did 35 seven I think it was for the full year this year.

Roger Thompson: No, I mean, we, you know, we've reiterated that there an intention for the margin to be in the, you know, in the high 30s. We did 35.7%, I think it was for the full year this year. You know, if markets continue to be strong and we deliver performance fees, then, you know, that higher 30s is certainly possible. It, you know, it requires strong markets.

Yeah, if markets continue to be strong and we deliver performance phase.

Then.

I've got that higher says, it's certainly possible, but it requires all it requires strong markets and a.

Dick Weil: And some performance-

And some performance face, but and if thats baked into that guidance given on a on on so that if the guidance is on what the comp ratio is well the noncomp is and what the overall margin is but and I were 35.7 and as you say we start the year with the IRA you went to pick up and then.

Roger Thompson: Some performance fees. You know, that's baked into the guidance I've given on, you know, so the guidance is on what the comp ratio is, what the non-comp is, and what the overall margin is. We're at 35.7, and as you say, we start the year with a higher AUM figure than the average for last year. Some of that should flow through to the bottom line.

Than the average for last year. So doubleclick is the bottom line.

Okay. Thank you.

Sean Calman: Okay, thank you.

Chris Harris: Okay, thank you.

And next question comes from.

Operator: Our next question comes from Ed Henning, from CLSA Brokeratus.

Hi, good morning.

From C.L.S. St brokerage house.

Thank you for taking my questions I'm, just firstly it clarity on the Geneva style, you talked about obviously the revenue in the cost dropping out will that be gain on sale coming through and is that going to hopefully fon wants in first quarter.

Ed Henning: Thank you for taking my questions. Just firstly, a clarity on the Geneva sale. You talked about obviously the revenue and the cost dropping out. Will there be a gain on sale coming through, and is that gonna hopefully finalize in Q1?

Yes, it will be there will be a yeah, we're selling the business, we'll we'll treat that as a normal five so Italy will strip it out from the operating earnings we want to show you what the business is already on an ongoing basis. So.

Roger Thompson: Yes, we're selling the business. We'll treat that as non-op, though, it'll be, we'll strip it out from the operating earnings. We want to show you what the business is earning on an ongoing basis. That will show as non-recurring. There will be a cash. There will be a cash drop.

I wish I wasn't as a as nonrecurring.

But yeah, it would be a contingent sylvia can only be a cash growth.

How much sorry.

Ed Henning: How much, sorry?

So I didn't fit but didn't say how much I said, there will be so cash coming Oh, yes.

Roger Thompson: I didn't say how much. I said there will be some cash coming through the door, yes.

Okay. Thank you I'm just the next one just thinking about obviously Geneva buying out the aim team, leaving is this making you want to kind of revisit compensation ratios or something you guys continue to think about always just you know two teams kind of leaving it's just ongoing part of businesses your and your large business.

Ed Henning: Okay, thank you. Just the next one. Just thinking about obviously Geneva buying out, the EM team leaving, is this making you want to kind of revisit compensation ratios or something you guys continue to think about, or it's just, you know, two teams kind of leaving, it's just ongoing part of the business as you're a large business?

Yeah, Hi, this is Dick I don't think those two things are related at all in our mind in <unk> I think the E.M. team that that departed was extremely well paid in the issues were not compensation. So much as they were culture.

Dick Weil: Yeah, this is Dick. I don't think those two things are related at all in our mind. You know, I think the EM team that departed was extremely well-paid, and the issues were not compensation so much as they were culture. We were, in the end, really not suited for each other, and we wish them well, you know, as they move on to a place that maybe is more suited for them. We're happy with that. I don't think that was comp related. The Geneva thing was also similarly not, in any way comp related.

And we were in the end.

Really not suited for each other and we wish them well you know as they move onto a place that may be as more suited for them.

But we're happy with that and I don't think that was comp related in the Geneva thing was also similarly, not in any way comp related but you know Geneva was a a strategic decision made by legacy Henderson entered a point when they didnt have so much of the U.S. business and they added this small cap growth manager in the U.S.

Dick Weil: You know, Geneva was a strategic decision made by Legacy Henderson at a point when they didn't have so much of a US business, and they added this small cap growth manager in the US, and started trying to build their way into the US retail business. You know, after the merger with Janus, we had a tremendously strong and well-established, you know, small and mid and SMID cap growth teams operating, it was no longer so sensible for the sales team to try and have multiple versions of that under the same brand going out all over the markets. They didn't fit anywhere near as well, the combined Janus Henderson company, as they had previously at Henderson. And I think that was recognized by them and by us.

Yes, and started trying to build their way into the U.S. retail business.

After the merger with Janice, we had a tremendously strong and well established small and mid and smid cap growth teams operating and.

And it was no longer so so sensible for the sales team to try and.

Have multiple versions of that under the same brand going out all over the markets and so.

They didnt fit anywhere near as well to combine Janus Henderson companies they had previously.

At Henderson, and I think that was recognized by them and by US and again and I don't think any that has anything to do with comp levels, Oh, we pay our people well we pay our people fairly their accountable when things don't go well. There is also accountability for that but at the moment, we don't see a need to change census.

Dick Weil: Again, I don't think any of that has anything to do with comp levels. We pay our people well, we pay our people fairly. They're accountable when things don't go well. There's also accountability for that. At the moment, we don't see a need to change that system.

Well take our next question from my carrier with Bank of America.

Operator: We'll take our next question from Mike Carrier with Bank of America.

Hi, guys. This is actually Sean comment on for Mike You mentioned some of the new things that Suzanne wants to put in place that haven't been put in place yet can you talk about what the shift in strategy is going to be for distribution.

Sean Calman: Hi, guys. This is actually Sean Calman on for Mike. You mentioned some of the new things that Suzanne wants to put in place that haven't been put in place yet. Can you talk about what the shift in strategy is going to be for distribution?

[noise] I don't think I couldn't be more specifics in say she's made a series of changes and she has made them already it's just too soon to see them coming through in terms of driving different flow patterns and what might have otherwise been but she is shifting has shifted and continues to shift resources around.

Dick Weil: I don't think I can be more specific than say, she's made a series of changes. She has made them already. It's just too soon to see them coming through in terms of, you know, driving different flow patterns than what might have otherwise been. She's shifting, has shifted and continues to shift resources around through a strategic review that she's done, trying to make sure that our people are aligned against the right opportunity set with the clients. I think she found opportunities to reallocate resources between different parts of the business to better align with where we have our best opportunities. She's also driving additional focus and accountability from the sales force on a smaller number of focus products across the organization, which I think makes sense.

Through strategic review that she's done trying to make sure that are our people are aligned against the right opportunity set with the clients and so.

I think she sound opportunities to.

To reallocate resources between different parts of the business to better align with where we have our best opportunities. She is also driving additional focus.

And accountability from the Salesforce on on a smaller number of focus products across the organization, which I think it makes sense.

Dick Weil: Focuses and simplicity are keys for us strategically in what we're trying to do. She's very bought into that, and she's driving that, that through her team as well. That's not gonna be something that you'll see sort of the quarter after she starts implementing those changes. It takes time to come through, and in the fullness of time, I think her sales force will be, you know, more effective. But there's nothing dramatic or to use a word from the prior call, from earlier in the call, explosive. There's nothing like that that we're talking about. This is just good management by a good manager. We're optimistic that over time, she's inherited a really terrific team, and we think, they'll be doing more, moving ahead.

Focuses and simplicity are keys for us strategically in what we're trying to do she's very bought into that and she is driving that.

That through her team as well so.

That's not going to be something that you'll see sort of the quarter. After she starts implementing those changes it takes time to come through in the fullness of time will I think for Salesforce will be more effective.

But theres, nothing dramatic or or to use the word from the prior calls from earlier in the call explosive there's nothing like that that we're talking about this is just good management by a good manager and we're optimistic that over time, she's inherited a really terrific team and we think there will be doing more.

Moving ahead.

Okay, Great and then there's been an increasing focus around S.G. for clients in the industry can you provide an update on your yes key strategy.

[Analyst]: Okay, great. There's been an increasing focus around ESG for clients in the industry. Can you provide an update on your ESG strategy?

Sean Calman: Okay, great. There's been an increasing focus around ESG for clients in the industry. Can you provide an update on your ESG strategy?

Yeah, we're addressing iasci is at a number of levels you know first at the investment level, we had him for a long time had really excellent.

Dick Weil: Yeah, we're addressing ESG at a number of levels. You know, first, at the investment level, we have, for a long time, had really excellent product strategies dedicated to various versions of ESG. We feel like we have some specialty products that fit investors where they want a specialty ESG kinds of approaches to investing. Second, when you look at our entire investment process, we're working with our analysts and our investors to make sure that across all of our investing, we look at each of the ESG factors, specifically as risk and return factors.

Product strategy is dedicated to.

Various versions of the SG.

And so we feel like we have some some specialty products that fit investors, where they want a specialty is cheap kinds of approaches to investing second when you look at our entire investment process, we're working with our analysts and our investors to make sure that across all of our investing we look at each of the U.S.G. factor.

More specifically as risk and return factors, so integrated into our investment analysis across all of our investing.

Dick Weil: Integrated into our investment analysis across all of our investing, we're looking at making sure that we're taking good account of E and S and G factors, as part of both investment opportunities and risks, both from a technical perspective that, you know, you can see the world's flows maybe going more in that direction. The more Larry Fink talks, maybe the more people put money in that direction, and that's something to count. Also in substance, in terms of in company operations and things, ESG factors are representing significant risks and opportunities that our investors and analysts are taking into account. Third, we think about it on a company basis. You know, our employees want to work at a company that makes them proud, that reflects their values.

We're looking at making sure that we're taking good account of E and F and G factors.

As part of both investment opportunities and risks on both from a technical perspective that you can see the world's flows maybe going more in that direction.

The more Larry think trucks, maybe the more people put money in that direction and Thats somebody to count and also in substance in terms of in company operations and things.

Yes key factors are represented significant risks and opportunities that are investors and analysts are taking into account and third we think about it on a company basis.

You know our employees want to work at a company that makes and proud that reflects their values.

Dick Weil: You know, as we operate our company, we're trying to make sure that we're reducing our carbon footprint. We've adjusted our facilities and are taking steps to reduce our carbon emissions per person across the company. We're doing a lot of things in terms of diversity, in terms of other things, to make sure that we are reflecting as a company, our shared values, and where we want to stand as people operating the company. On all three of those levels, we're quite active and making progress.

As we operate our company we are trying to make sure that were reducing our carbon footprint. We've we've adjusted our our facilities and are taking steps to reduce our carbon emissions per person across the company and we're doing we're doing a lot of things in terms of diversity in terms of other things to make sure that that we are reflecting is it.

Company, our shared values and where we want to stand as people operating company and so on all three of those levels were quite active and making progress.

Our next question comes from Robert Lee with KBW.

Operator: Our next question comes from Robert Lee with KBW.

Great. Thanks, Thanks for taking my questions. This morning are this afternoon case maybe.

Robert Lee: Great, thanks. Thanks for taking my questions this morning or this afternoon, case may be. I guess my first question is, you know, I mean, it's great that, you know, the momentum in the intermediary, and as you mentioned, you know, it's a market share game in a lot of ways. With that in mind, I'm sure you know, part of the goal is to have bigger presence in more healthier growing parts of the industry. Can you, with that in mind, talk a little bit about what some of your strategic priorities are in terms of new products, new distribution channels, outside, you know, kind of the core business, and, you know, to what extent would, you know, M&A, if at all, play a role in some of those initiatives?

My first question is.

It's great that Oh, the momentum and the intermediary and then there could you mentioned.

That's a market share gain a game in a lot of weight, so with that of mine and for you.

Part of the goal is to be have bigger presidency.

More help your growing parts of the industry's acute with that might talk little bit about somebody youre.

TJ priorities or in terms of new product distribution channels outside.

Kind of the core business and to what extent wood.

No M&A if at all play a role in some of those initiatives.

Sure. So our strategy right now it's called simple excellence in what we're focused on is delivering a in our business and I think there's a page it here that outlines it.

Dick Weil: Sure. Our strategy right now is called Simple Excellence, and what we're focused on is delivering in our business, and I think there's a page in here that outlines it in the ways that we've described. If you look at strategies and you characterize them as either do what you're doing more effectively or do something different, this is more the first than the second. It's less reliant on new products and new markets, and it's more reliant on getting the maximum potential out of the stuff we're already doing. If you talk to the external consultants and the wise heads around the business, most folks say that private assets, private equity, and those sorts of things are a fast-growing part of the business. They'll point to China as being a fast-growing part of the business.

In the ways that we've described it as you look at strategies and you characterized it as either do what you're doing more effectively or do something different. This is more as a first then the second so it's less reliant on new products and new markets and it's much more reliance on getting the the maximum potential out of the stuff we're already doing.

If you talk to the external consultants in the wise heads around the business most folks say that private assets private equity and those sorts of things are a fast growing part of the business they'll point to a China as being a fast growing part of the business and I'm not so many other parts.

Dick Weil: Not so many other parts, maybe that are super fast-growing parts of the business, and we're obviously not really well represented in either one of those two spaces. We think about that, but the opportunities to do those things really well are rare. First on our agenda, before too many, you know, getting too far down the road of new adventures, is to make sure that we deliver across the set of things that we're already doing. Our focus is really much more on completing the work that we began with the merger of Janus and Henderson and delivering on the potential across what we're already doing, than it is on taking further steps in, in private assets or in new geographies.

Maybe that are super fast growing parts of the business and we're obviously not really.

Well represented in either one of those two spaces, we think about that.

But.

The opportunities to do those things really well are rare and first on our agenda before too many E getting too far down the road of New Adventures is to make sure that we deliver across the set of things that we're already doing and so our focus is really much more on completing the work that we began with the merger Genesis.

Anderson and delivering on the potential across what we're already doing a then it is on taking further stepson in private assets are in new geographies, but we keep we keep those questions open we analyze them. We study what the opportunities are and if we were to come across something that we thought was a terrific opportunity and growing marketplace. We.

Dick Weil: We keep those questions open, we analyze them, we study what the opportunities are, and if we were to come across something that we thought was a terrific opportunity in a growing marketplace, we'd, you know, we would sure take a hard look at it. It's really not our top priority, as indicated by our Simple Excellence and our strategy.

We are.

We would sure take a hard look at it but it's really not our our top priority as indicated by our simple excellence and our strategy.

Hey, Thanks, and then maybe the follow up on impact on the cost about them.

Robert Lee: Okay, thanks. Then maybe the follow-up on Intac. I mean, you talked about making some changes there. I just wanted to, you know, make sure I understood. I know there's been some changes over time there. I don't know if there were more recent changes that you've put in place at Intac to try to, I guess, we'll call it, right the ship a bit. Given that that's likely seems set to be a drain on new business for a while to come, given the performance, any color on, you know, if the underlying profit possibility of Intac is similar or greater or less than kind of the broader Janus franchise, if there's any kind of disproportionate economic impact from those, from that?

Thank you can change is balance one of them to make sure I understood I know there's been some changes over time, there I know if they were more recent changes that you put in place at in Texas and try to I guess, we'll call it like ship a bit.

Given that that likely.

Got to be a dream on.

New business for for a while to problem getting performance.

Any color on the.

The underlying property possibility of impacted similar greater or less than panel the border jadot spread side.

Any kind of disproportionate.

Well economic impact on those.

Hello.

Dick Weil: No, Well, first, like all of us, they run business in a lot of different channels and formats, their fees are, you know, a range of things. They're large institutional accounts that tend to make the big motion on, in the AUM side, tend to be very low-fee accounts. Offsetting that, they tend to run a very, like a lot of quantitative managers, they tend to run a very efficient investment platform. As a consequence, you know, their profitability is similar to the rest of the company. I wouldn't, you know, I wouldn't expect anything surprising from INTECH.

Yeah.

They tend to run it well first like all of US they run a business in a lot of different channels and formats and so their fees or are.

A range of things.

But they're large institutional accounts the tend to make the big motion on on a in.

The 81 side tend to be very low fee accounts offsetting that they tend to run a very like a lot of quantitative managers they tend to run a very efficient.

Investment platform and as a consequence, you know there their profitability is similar to.

The rest of the company.

And so I wouldn't you know I wouldn't expect anything surprising.

From intact I would just say that when if you see really large flows in or out of from individual big institutional accounts on the way in or the way out those are probably not the.

Dick Weil: I would just say that when and if you see really large flows in or out, from individual big institutional accounts on the way in or the way out, those are probably not the highest fee levels. They're probably much closer to the lowest fee levels in our range.

Hi, just fee levels, they're probably much closer to the to the lowest fee levels and orange.

And we have time out for one more question coming from Nigel put away from Citi.

Operator: We have time for one more question coming from Nigel Pittaway from Citigroup.

Hi, guys a couple of questions just the first one actually still on INTECH. If you do you look at the sort of relative performance in the top two Morningstar cool tells them and I think it into September. It was 97 57 97, and then as you see showing there on slide eight it's come to 20 to 20 219.

Nigel Pittaway: Hi, guys. A couple of questions. Just the first one, actually, still on INTECH. If you do look at the sort of relative performance in the top two Morningstar quartiles, I mean, I think at end of September, it was 97, 57, 97, and then as you're showing there on slide 8, it's gone to 22, 22, 19. It does suggest that in Q4, there was a relatively significant underperformance versus peers. Is that not at all concerning in sort of your ability... I realize it's only 1 quarter, but is that not at all concerning in your ability to sort of be able to recover and reinvent that business?

This suggests that in the December cool. So there was a relatively significant underperformance versus peers.

What we thought another tool concerning in sort of your ability I realize it's anyone pools somebody's I don't know that sold concerning and your ability to sort of begins to recover or recover and reinvent not business.

Well I did you say, it's one quarter and as you as you would no doubt have surmise from the data going from a little bit above.

Dick Weil: Well, as you say, it's one quarter, and as you, as you would no doubt have surmised from the data, going from a little bit above, you know, the median to a little bit below the median can move the statistics that we talk about. That's not necessarily. That's not a measurement of how far away from the median they are. It's just a statement as to whether they're above or below. Modest changes can move the numbers around as they did in the Q4. Are we concerned? Sure, we're always concerned, but one quarter is a pretty small data set, and over, you know, long periods of time, Intac has done its job pretty darn well. So that's what we focus on.

The median too a little bit below the median can move the the statistics that we talk about but that's not necessarily.

That's not a measurement of how far away from the median they aren't just as statement as to whether they're above or below so modest changes can can move.

Moved the numbers around as they did in the fourth quarter or we concern sure. We're always concerned but one quarter is is a pretty small dataset and over long periods of time INTECH has done is job pretty darn well.

And so that's what we focus on in terms of the changes that they've they've made they've learned some lessons. Some some risk factors that have historically been treated as residual and largely irrelevant in the in tech investment.

Dick Weil: In terms of the changes that they've made, they've learned some lessons. Some risk factors that have historically been treated as residual and largely irrelevant in the INTECH investment process, I think with the advent of a lot more factor investing, those factors have become both more crowded and more volatile. It became sort of a painful lesson through INTECH's last few years of history, that rather than leave those things to sort of zero out in the long run, they have to risk manage them a little bit more along the way. They've as they have through their whole history, they've been a learning organization, and they've adapted their execution to lessons learned, and this is the latest chapter in that process.

Process.

I think with the advent of a lot more factor investing those factors have become both more crowded in more volatile and so it became sort of a painful lessons through intechs last few years of history that rather than leave those things to sort of zero out in the long run they have to risk managed them a little bit more along the way and so they the as they have through.

Their whole history, they had been a learning organization and they've adapted their execution to lessons learned and and this is the latest chapter in that process. So I think they've made some good changes.

Dick Weil: I think they've made some good changes, to reflect the fact that some of the factors are more crowded and more volatile and can't just be left alone as residual, but you have to manage the risk of them a bit more, which they are now doing. That should bear fruit in terms of reducing volatility and, and some of the worst episodes in the future. That leads us to be more optimistic in a long-term sense, but in a short-term sense, won't make that big of a difference. The last thing I'll note is they have had historic periods of underperformance in the past in their records, and they tend to come back well, and we're optimistic they can do that again.

To to reflect the fact that some of the factors are more crowded and more volatile and can't just be left alone is residual but you have to manage the risk of them a bit more which they're now doing that should bear fruit in terms of reducing volatility and.

And some of the worst episodes in the future and so that leads us to be more optimistic in a long term sense, but in a short term sense, we'll make it wont make that big of a difference.

The last thing on notice they have had historic periods of underperformance in the past in their records and they tend to come back well and we're optimistic thinking they can do that again.

Okay and then thank you thought maybe just fondly hum in the market FX movement was pretty significant in the quarter and correct me if I'm wrong. It doesn't seem like consensus was very good at forecasting. It is there anything sort of particular to collapsing in Matt you can that.

Nigel Pittaway: Okay, thank you for that. Maybe just finally, I mean, the market FX movement was pretty significant in the quarter, and correct me if I'm wrong, it doesn't seem like consensus was very good at forecasting it. Is there anything sort of particular to call out in that movement that's, you know, different to just market moves, or is it just basic market moves, and obviously, it's just hard externally to forecast exactly what's going on?

No different to just market moves or.

Is it just basic market moves and obviously, it's just hard externally to to full cost exactly what's going on.

Are you talking about nonoperating nonoperating income Nigel.

Roger Thompson: Are you talking about non-operating income, Nigel?

No just are you, adding the market FX moves it yeah.

Nigel Pittaway: No, just the AUM, the market FX moves in AUM.

Roger Thompson: Okay. No, I mean, there's nothing unusual in there. I mean, it's, it's the, I guess, in the Q4, markets were strong, and the US dollar softened slightly. Actually, softened quite a lot. I think Sterling moved 7%, Aussie dollar moved 3 or 4, Euro moved 3 or 4. You know, you've got some pretty big currency moves driving our AUM, and also therefore, driving our revenue line and a bit of cost line as well. There's nothing in there. We've obviously got a lot of equity. You've also got performance in there. You know, when you're strongly performing, we're adding alpha on top of those market moves.

Okay.

[noise] nominal pretty nothing unusual in that I mean, it's it's the.

I guess enough in the fourth quarter markets with strong on the U.S. dollar soften funding.

So actually softened quite a lot I think selling these 7% or the dollar move through a full.

Youre a move through a full or so you've got some pretty big you got some pretty big currency moves driving up already UN I know, so therefore, driving our revenue line out a bit of cost along as well. So there's nothing there's nothing in there.

And we've we've obviously got a lot of a lot of equity Coolsculpt performance in that and when you strongly performing we're running out for on top of on top of those market moves.

Roger Thompson: Yeah, we're pleased to have entered 2019 at $328 billion and be leaving 2019 at $375 billion. Yeah, that's market-driven.

So yeah, we were pleased to.

Roger Thompson: Yeah, we're pleased to have entered 2019 at $328 billion and be leaving 2019 at $375 billion. Yeah, that's market-driven.

I have entered 2009, saying at 328 billion I'd be leaving 2019, a 375, but yes.

Yeah, that's market driven.

Thank you.

Operator: Thank you. Ladies and gentlemen, that does conclude today's conference. We appreciate your participation today.

And ladies and gentlemen that does conclude today's conference. We appreciate your participation today.

[music].

Oh.

Oh Oh.

[music].

Q4 2019 Earnings Call

Request a DemoDemo

JHG

Janus Henderson Group

Earnings