Q4 2020 Janus Henderson Group PLC Earnings Call
Good morning, My name is Andrew and I will be your conference facilitator today.
Thank you for standing by and welcome to the Janus Henderson group fourth quarter, and full year, 'twenty and 'twenty results briefing and.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period and the interest of time questions will be limited to one initial and one follow up question.
And 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 and the forward looking statements and risk factors section.
And of the company's most recent form 10-K and other more recent filings made with the S. E C.
Janus Henderson assumes no obligation to update any forward looking statements made during the call.
Thank you now and it's my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Henderson. Mr. Weil, you may begin your conference.
Welcome everyone to the fourth quarter and full year 2020 earnings call for the Janus Henderson group as usual and Dick Weil CEO I'm joined by our CFO Roger Thompson.
Let me start by saying I hope all of you and your loved ones are having a safe and healthy start to 'twenty 'twenty one.
And today's presentation and I'll give a brief summary of our 'twenty and 'twenty results.
I'll then touch on progress, we're making and delivery of our strategy of simple excellence and EBIT on how the businesses are starting out 'twenty 'twenty one and.
I'll also provide and update on our relationship with our strategic partner Dai Ichi, and then I'll hand, it over to Roger as usual who'll go through the results with some more precision and following our prepared remarks, we'll take your questions.
So, let's turn to slide three which takes a high level look at our 'twenty and 'twenty results.
Investment performance is solid and has held up well, despite really difficult market conditions in 'twenty and 'twenty, particularly and in the first half of the year, 68% 65 per cent and 72 per cent of our assets beat their respective benchmarks over the one three and five year time period.
Our fixed income teams did extremely well with at least 90% of our a O M, beating respective benchmarks over the same time periods.
We had more mixed results and some of our equity strategies in particular are our mid and smid cap growth U S strategies managed out of Denver faced some really tough times and in the first half of the year, but overall our teams had been terrific they've been resilient and they're doing their jobs and and we're proud of of their results.
And next despite disappointing outflows, particularly in the first half of the year AR with the benefit of markets. Our AUM ended up over $400 billion and we're pleased with that Marc This is up 7% on last year, it's up over 35 per cent from the market sell off from the bottom and the first quarter and so that's that's a.
A good mark for US we're pleased with that.
And the headline flow result for the year masks, a really important trend of progress building through the year, we had a really tough first half, but we've seen strong and growing momentum and are flows and are optimistic as we enter 'twenty 'twenty. One that we can continue on that debt better path that first half net outflows of $20 billion over 80% of the.
And net outflows of the year the back half was much better and reduced to 4 billion of net outflows and the second half and so that's the momentum I was talking about which even got better and the fourth quarter as U S. 1 billion of net outflows were the mark in the fourth quarter, we were basically flat or positive across all of our capabilities except for our.
Our quant equity capability, which as we previously talked about is going to take some more time to heal.
Finally, our financial results for the full year were very strong our adjusted EPS increased 22% over last year, we generated over $600 million and cash, which allowed us to return $394 million and dividends and buybacks to shareholders.
If you turn to slide four it's a reminder of our strategy, which is simple excellence.
Despite the unprecedented events of this past year.
I'm delighted that we've continued to make significant progress on delivering our strategy across each of our strategic pillars building, a strong and resilient foundation for our future.
Our path to achieving simple excellence is founded on five planks referenced on this page I previously said that delivering on simple excellence builds upon positive client relationships, which will drive organic growth as well as increasing profitability.
Looking ahead simple excellence forms a very strong foundation for stable and resilient business and supports sustained growth and the long run this means organically scaling operations and profitability across our existing core franchise delivering on the benefits of operating leverage but it also means in time it would enable us to remain alert.
Inorganic opportunities, which would complement our strategy and operating model.
We're taking the right steps as a firm to create value for all of our key stakeholders for our clients our employees and our shareholders and we're entering this new year with with a lot of optimism.
Slide five takes a look at some of the progress we've made and the strategic priorities cross investments and distribution despite.
Despite the market volatility and challenging conditions, which we've already talked about for our investment team. Our near term investment performance has strengthened throughout the year. We've seen some mixed pockets of performance since the market sell down and the first quarter, but our investment teams have done a really good job they've remained disciplined and true to their promises to the clients and their.
And strategies, we've taken steps also too and strengthen our investment teams during the year. We've recruited some excellent talent and filled key roles, we filled a new U S. Head of fixed income we added a new director of research and early last year those are crucial.
Crucial seats for us and we're really pleased with the talent that we were able to attract more recently it was exciting to fill a new head of ESG for our investment team, who will be leading our ESG approach across all of our investment capabilities. We've also continued to invest and our technology for our investment teams were doing a major upgrade to.
R O M S and portfolio risk systems, and these are really important investments to enable our teams to set our business up for future growth on the distribution side. We finished the year with real momentum the global distribution roadmap from our head of global distribution, Suzanne Cain brought real energy and focus to our efforts we saw double digit.
Digit growth across our global focus products, which is R. R. R. A list of products, where we see the best competitive positioning and high growth potential and that program is working really well for US. We also strength and senior leadership across distribution and client relations product team, including appointing new global heads of consultant relations.
Of product and product strategy, and ESG, which will further support our articulation and delivery of our ESG solutions to our clients.
In line with our conviction on the importance of data across our firm underpinning everything we do we've significantly expanded our distribution intelligence and client analytics capabilities.
Next let's turn to slide six and let me talk you through some of the accomplishments and the year delivering on simple excellence.
We continue to make significant progress and the execution of our strategy during the year, we completed some major projects that simplify the way we operate our business and that also serve to free up capacity. So we can add energy and resources not only to delivering be of you, but also to delivering generational steps forward in our infrastructure. In addition to.
Those things we've also done good work targeting new growth initiatives during the year, we extended some of our strongest product capabilities to new regions and vehicles, we launched new products like a biotech hedge fund and multi strategy fund our European focused asset backed security strategy as well as a number of new Etfs that are doing well and North America and.
Eylea, we've expanded our presence in key growth areas, including and Latin America. This list of achievements underlines the progress, we're making to continuously improve our firm we feel like simple excellence is working and we're proud of the progress we're making let.
Let me turn last on this page just just briefly to cost control.
We owe you an update as we've mentioned from prior quarterly calls on cost control Roger's going to take you through that cost management and more detail, but I just want to set a framework.
From my perspective as.
As we think about cost control, it's really important and we want to be as efficient as we possibly can but there are boundaries to that even more important and that efficiency is we have to make sure that we're delivering excellence and we have to deliver the growth that we've promised as well both in terms of AUM and and profitability. So for us that creates sort of a higher.
Ricky we need to be as efficient as we can without sacrificing that simple excellence and that growth and so that boundary is important and while our Roger will take you through the cost savings that we found and Theyre important and material. We've also found that we need to make some continued investments and our infrastructure in order to deliver that simple exar.
Once and growth so what we're doing as a management team is living in that in that framework and and that balance and Roger will talk to you more about that a bit later, let me turn to slide seven.
One last thing I want to cover before I hand, it back over to Roger I need to give you an update on our relationship with our strategic partner Dai Ichi Daiichi.
Daiichi has made a strategic decision to separate its operational partnership with Janus Henderson from its board and capital positions, it's decided that it needs to focus its capital on its global insurance business and so while they continue to be and exceptional partner for us they're going to change the capital relationship they're going to sell their.
<unk> and step off the board now we're disappointed because they've been a wonderful board member, but we're also pleased we have a new cooperation agreement that underpins, what we believe will be a strong and growing operational relationship into the future and so while disappointed that we won't have the benefit of their participation in our shareholder Register and on.
Our board to us the most important thing is that the wonderful operational relationship that debt. We've developed is going to continue and grow and we look forward to that going ahead.
As a result of this we have today announced the commencement of a secondary offering of common stock through which Daiichi intends to exit its investment and Janus Henderson through an underwritten public secondary offering.
We've agreed Janus Henderson will participate and the offering and will purchase up to $230 million of stock using cash.
Our participation is expected to be immediately accretive to our shareholders. We're pleased to demonstrate our ongoing commitment to returning excess capital to our shareholders and delivering on this commitment and and accelerated and disciplined manner.
Just as a little background to that we currently manage our about $10 billion on behalf of Daiichi and its subsidiaries and affiliates. This was 2 billion at the onset of our relationship back in 2012. It has grown nicely to 10 billion today and we're looking for opportunities to continue to to support that and even grow it further in the future and we look forward to.
Collaborating on the development of new investment products as well.
Our relationship will also continue to be supported by an exchange of human resources.
And we remain absolutely committed to expanding and Japan, we look forward to welcoming our senior Daiichi executive to share and the leadership of our Japanese business going forward.
Daiichi has been our largest shareholder for eight years and while we're disappointed to lose their involvement in that regard, we really do understand the competing needs and the pressure on their capital and we look forward to continuing our strong operating partnership and growing it and the future today's news will reshape our share register it doesn't change the path, we're on with simple excellence and.
Across our business so with that let me turn it over to Roger to give you some more precision and the results. Thank.
Thank you Dick and thanks to everyone for joining us starting on slide nine with the fourth quarter results.
As VIX already discussed our solid investment performance and a stronger U M. At the end of the year I'll touch briefly on flows and on E. P. S.
And that's outflows continue to trade and to better at $1.1 billion and the quarter as the results of net inflows into intermediary and strong gross sales and institutional.
The financial results were exceptionally good with EPS of a dollar and full sense.
Pet to 70 cents a quarter ago.
The significant increase was primarily due to higher average assets very strong seasonal average annual performance fees and investment gains on our seed capital.
Moving to slide 10 and investment performance.
Investment performance remains solid with 68, 65, and 72% of firm wide assets, beating their respective benchmarks on a one three and five year basis as at the 31st of December.
The one year performance improvements compared to the third quarter was primarily from the U S concentrated growth strategy with and equities.
[noise] performance of fixed income multi asset, which is dominated by balanced and alternatives is excellent and very competitive.
Additionally, we're encouraged by and tech significantly improved one year performance.
Relative performance compared to peers is strong overall with 50 766, and 71% of AUM represented in the top two Morningstar quartile on a one three and five year basis.
Now turning to total company flows.
For the quarter net outflows from $1.1 billion compared to 2.9 billion last quarter and contain he is off significantly improving quarterly flow trend.
The quarterly flow number reflects the best gross sales figure since the merger.
This gives twenty-twenty up two highest grossing el quarters ever and speaks to the momentum we're seeing and the business.
The flow results, whilst negative and not yet where we expect it to be is the best quarterly number and over three years.
Looking deeper net flows were flat or positive and strengthening across all capabilities, except constantly bankruptcies, which as we've said will take time to turn even with that solid one year and investment performance.
Now, let's move to slide 12, which shows the breakdown of flows and the quarter by client site.
Previously we provided this view of flows as a one off and earnings presentations. However, it is an important way and how we look at and think about our business and as such beginning this quarter will present and discuss the flows and this amount of regularly.
So let's look at the quarterly detail.
Intermediary net inflows for the quarter with $1 billion.
Across regions net flows and EMEA Latin America, and Asia Pacific were all positive <unk>.
Spread across fixed income multi asset and equity strategies.
These inflows were partially offsets in the U S from certain U S equity strategies experiencing short term under performance.
The intermediate result shows a breadth of product and our global distribution footprint.
Institutional net outflows for the fourth quarter with $1.2 billion, which included some strong wins in the U K and EMEA offset by net outflows and quantitative equities of $3 4 billion.
Gross sales of $8.8 billion with a best result, since the merger and reflects converting some of the strong pipeline that's been building and institutional.
Finally, net outflows for the self directed channel, which includes direct and supermarket investors was $900 million and the quarter.
Slide 13 shows the breakdown of flows and the quarter by capability.
Equity net flows for the fourth quarter were virtually flat compared to $5 1 billion of outflows and the prior quarter.
The improvements and quarterly outflows included a one 2.1 billion dollar funding from a large insurance clients and the U K and so our U K and health index strategy as well as positive non U S retail flows.
Led by European small cap global life Sciences, and global sustainable equity, which is one of our dedicated ESG strategies.
Flows into fixed income were positive $1.2 billion and the quarter.
Fixed income continues to see positive flows and retail across a wide range of strategies and.
<unk>, our short duration H T F vanilla P and L. A.
Our developed World Bond European investment grade credits and global high yield.
Total inflows from multi assets were $1.2 billion driven by inflows into the balanced strategy.
Quantitative equity outflows declined and the fourth quarter to $3 $4 billion.
We're pleased with it and texts improving short term performance, but as we said previously it will take time for flows to turn.
And finally alternative flows were breakeven.
Slide 14 is our standard presentation of the U S GAAP statement of income.
Moving to slide 15 for a look at the summary financial results.
In summary, adjusted revenue operating income margin and EPS are all up strongly quarter on quarter and year on year.
First quickly looking at the full year's result.
Despite the extreme market drop due to COVID-19 and the first quarter the market recovery and strong cost control thereafter enabled increases across our adjusted financial metrics, even with a 1% drop and average AUM compared to 2019.
Although average AUM was down over the prior year, a higher net management fee margin and better performance space led to a 5% increase and adjusted total revenue for the year.
Full year adjusted operating margin improved two two percentage points over 20, 19% to 38%.
And adjusted diluted EPS for the year was $3.01 compared to $2 47 and 2019.
Now looking at the quarter on quarter comparison.
Our fourth quarter adjusted financial results, primarily reflect good market conditions and exceptional seasonal performance fees during the quarter.
Average AUM increased 6% over the third quarter, driven by positive markets and currency movements.
Higher average assets and seasonal performance fees resulted and 18% increase and total adjusted revenues from the prior quarter.
Adjusted operating income of $232 million was up 43% compared to the third quarter as a result of the high revenues and our continued strong cost discipline.
Fourth quarter, adjusted operating margin was 43.8 per cent compared to 36% and the prior quarter.
And finally, adjusted diluted EPS was $1.04 for the quarter compared to 70 cents for the third quarter.
Yeah.
On slide 16, we've outlined the revenue drivers for the quarter.
Higher average assets and particularly high seasonal performance fees were the biggest drivers of the quarterly change and adjusted revenue.
Net management fee margin for the fourth quarter was 45.9 basis points, which is up marginally from the third quarter and up from 44.9 basis points a year ago. This marks the fifth straight quarter of higher net management fee margins and demonstrates our resiliency during a period when the industry.
Saying fee margin compression.
We've provided the 'twenty and 'twenty net management fee margin by capability and the appendix.
And we'll continue to disclose this metric on an annual basis, and we hope that you find it useful.
Performance fees were $59 $3 million and the quarter compared to $7 million and the prior quarter. The fourth quarter was an exceptionally good results with many strategies outperforming and was primarily driven by annual performance face on segregated accounts with and all global life Sciences, and global Tech strategies, but also supplemented by several smaller amounts spread across multiple.
Simple strategies.
For mutual fund performance fees, the fourth quarter improved to negative $2 million from negative 5 million and the third quarter.
And because the performance space I think are important to understand more fully on slide 17, we've provided some more details on the change and performance fees year over year.
Performance fees in 'twenty, and 'twenty, when $98 million compared to $17 6 million in 2019.
And looking at the two years 2019 was on the lower end of what we'd expect in a given year, while 'twenty and 'twenty was one of the better years from performance fees.
The biggest factors and the increase were the performance fees earned from global Life Sciences Global technology core plus fixed income and intake and segregated mandates.
The U K absolute return and the U K Oik and see Caf.
Our global market neutral real estate European equity strategies also and performance phase and the CCAR Fund range.
As you can see it was a wide range of outperforming strategies that drove the increase and performance fees, which is great to see.
Turning to operating expenses on slide 18.
Adjusted operating expenses, and the fourth quarter with $297 million, which were up 3% from the prior quarter.
Adjusted employee compensation, which includes fixed and variable costs was up 5% compared to the prior quarter, primarily as a result of higher variable costs, given the higher pre bonus profits, partially offset by the impact of year end adjustments and a cash non cash payout mix.
Adjusted LTI was up 5% from the third quarter, largely due to mark to market.
And the appendix we've provided further detail on the expected future amortization of existing grants along with an estimated range for the 2021 grants for you to use in your models.
The fourth quarter adjusted comp to revenue ratio was 39.2%, which reflects the leverage and our business.
For the full year, the total comp to revenue ratio was 42.9%.
Adjusted non comp operating expenses were flat compared to the prior quarter.
For the full year, 'twenty and 'twenty non comp operating expenses were down 1% compared to 2019, which is in line with guidance and.
And finally, our recurring effective tax rate for the fourth quarter was 22, 1% and for the full year the firm's effective tax rate was 22.9%.
On slide 19, we give multi tails on our expense discipline. The specific exercise, we went through and the summer and our thoughts on 'twenty and 'twenty one.
Okay.
Our philosophy has always been to maintain strong financial discipline, whilst reinvesting in the business to deliver against our strategy is simple excellence and position us for growth.
This disciplined approach allowed us to take out $125 million and costs post merger, which was ahead of schedule and.
And to keep expenses well controlled over the last three years.
However, with the onset of Covid, coupled with the passage of time since the merger, we felt like 'twenty and 'twenty was the right time to take a fresh look at our cost base.
Alongside engaging an outside consultant to help us we took a real wire-brush store expenses and delivering on $40 million of additional cost saving opportunities, which we expect to realize over the next two years.
The savings will offset the investments, we're making and the business a.
A few examples and that if those investments are retooling, our client facing technology and reporting.
Implementing and upgraded order management system and streamlining our data architecture. These are all critical things for us to do.
These investments will improve our operational efficiency and support a growing business and enable us to do that cost efficiently.
By keeping expenses relatively flat.
With all that said I wanted to walk you through what that means for 'twenty and 'twenty, one and our expectations around expenses.
Given how we run our business with tight cost controls and the higher AUM entering 2021, you should expect to see increased operating leverage.
At current market levels, we anticipate the adjusted compensation ratio to decline further to the low forties.
And by that I mean, and the range of 40% to 42%.
These this results from a higher a U N and our ability to keep fixed comp expenses relatively flat year over year, even when considering annual pay rises and the impact of a weaker dollar entering 2021.
For non compensation expense, we would expect to see an increase and the mid single digits.
And that over half of the expected increase is due to currency rates given the highest sterling to U S. Dollar as we enter 2021 compared to the average rate over 'twenty and 'twenty.
The majority of the remaining increase is from higher marketing expenses as we take the learnings from the new way of interacting with clients and potential clients that we learned in 'twenty and 'twenty and apply that knowledge in 'twenty and 'twenty one.
Marketing spend will be higher than 2020, but still below 2019.
And finally, the firm's statutory tax rate is expected to remain at 23% to 25%, which is similar to 2020, but it could of course be affected by future changes to tax laws and the overall tax rate will be impacted by various differences, which arise quarter to quarter.
Lastly, slide 20 is a look at our balance sheet.
Cash and cash equivalents were $1.1 billion as at the 31st of December and increase of $182 million, resulting primarily from operating cash flow generation during the fourth quarter.
The strength of our balance sheet and the cash flow generation has allowed us to complete $131 million of accretive buyback in 2020 and would also allow us to repurchase the $230 million of our stock and the registered secondary offering that was announced earlier today.
Assuming the successful completion of the offering a participation effectively accelerate sop buyback for the current year.
Our capital philosophy is unchanged and we will provide updates from future, earning calls regarding our thoughts about any future buybacks as we evaluate our cash position and cash flow generation.
Turning back to the fourth quarter, we paid approximately $65 million and dividends to shareholders and today have declared a 36 cent per share dividend to be paid on the third of March to shareholders of record as at the 17th of February.
Now I'd like to turn it back over to take for a few comments before we begin Q&A.
Thank you Roger before handing it over to the operator for questions. Let me just briefly wrap up.
Most importantly, our investment teams performed over this past year with discipline and excellence across really challenging market conditions, we've improved results and many important areas.
And that had been impacted by difficult and volatile markets and even where we've seen difficult results. The teams are doing a really good job sticking with their discipline and their strategies and over the long term. We're confident that those very talented people will continue to deliver on their client promises. We've also further strengthened our global distribution and <unk>.
Product platform, we've made really good senior new hires and we've refreshed our product focus we've modernized our client experience and we're investing and the underpinning technology and data.
We're seeing important our improvements and flows in the second half of the year and into the fourth quarter and demonstrate the resilience and the diversification of our platform and capabilities. We've continued to maintain our focus on cost discipline, while also making the appropriate investments.
And significant technology and data and the operating platform enhancements needed tests to strengthen our future and deliver simple excellence and growth.
Daiichi will continue to be a very valued long term strategic partner for us and we look forward to continuing our tremendous relationship.
Looking ahead, our focus is on delivering excellence and delivering growth using the momentum we have entering this new year to continue our progress and to deliver strong profitable resilient business through our simple excellence strategy. We're confident we're on the right path simple excellence is working we're going to deliver for our clients for <unk>.
Owners and our employees and we're also going to continue to make positive contributions to all the communities and which we operate.
As we turn to Q&A I'd like to remind you that as we are in the market with our lives secondary offering we're subject to certain securities laws that limit our ability to discuss the Daiichi transaction.
This also limits our dialogue with you outside of the earnings call. During this period. So please be sure to get your questions included and this called now and we kindly ask that they remained focused solely on our earnings today.
With that operator, let me turn it back to you for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on <unk> on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
We ask that you please limit yourself to one initial and one follow up question at.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Ken Worthington of Jpmorgan. Please go ahead.
Hi, Good morning. Thank you for taking my my questions Dick and I'll I'll do my best to honor. Your are your your are.
Comments on the Q&A, but I would like to flesh out Dai ichi a bit more so hopefully I can do this and a way that allows you to answer.
How much did daiichi contribute to Janus sales and say 2020, and as we think about the Dai Ichi contribution I know some of this came from sort of those retail products, which would seem to be ongoing. So what portion of the sales are coming there versus the direct insurance.
Company.
Thanks, Ken.
Roger maybe able to find the precise numbers for you that the biggest sales we've made with the help of a you.
Daiichi is a very strong partnership more recently were down in Australia, where their subsidiary Tau and insurance company in Australia and partnered with our fixed income business and we manage.
Three or $4 billion of assets down there for Cal, which isn't a Dai ichi affiliate and that's the biggest change most recently and again that was fixed income assets. We also have some more retail products sold through their insurance company in Tokyo, and that's much smaller numbers, but sort of a steady drumbeat.
Coming in through that way and so they've helped us in both those ways and probably other ways that aren't right on the top of my head, but they've been a terrific partner, but if you look across the size of our gross sales.
You know with the exception of a lumpy Tao.
Our commitment and in a quarter, it's not a regular feature that it would be big enough to stand out from.
The rest of the business.
As we've said we started.
And 2012 with about 2 billion of their assets that we managed and it's grown to over and I think it's about 10 point for now so it's grown very nicely and they've also obviously been a supportive partner and lots of other ways, but that's the basic frame Roger can you fill in.
No I think you summarized it perfectly emanates grown and $8 billion over and over the eight years.
And that will be the biggest contributor and the last couple of years.
Okay, great and.
And then your equity your equity sales improved significantly.
Can you help us understand and you called out like a number of funds that are doing better as.
And as we think about this quarter versus maybe quarters last year, so ignoring that the weak first half of this year.
To what extent our debt the improvement seen in this quarter due to kind of lumpy kind of one off versus really things that you think are sustainable. Thank you.
And I mean, let me start on that one and then and then perhaps debt you can add to it and as I said there wasn't there was one large and instead.
Institutional mandate and the UK, which was $3 $1 billion of.
It flows.
But and then and then they're very long along tired of funds performing well through Europe European small cap growing well and life Sciences.
Yeah, yeah, and including a biotech hedge fund.
Yeah.
So it's a it's a pretty broad pretty broad suites on the other side, we've seen some outflows from our from our U S mid and smid cap capabilities, which we've talked about in terms of its short term performance challenges. This year and obviously has had a very very long standing and excellent record there Doug.
So again, we're not we're not concerned about that and in any way, but that's the other side of it the other side of the equation.
Okay. Thank you very much.
The next question comes from Ed Henning of CLSA. Please go ahead.
Thank you for taking my questions and I pretty much follow on from before firstly can I just start with Daiichi you mentioned you you managing about $10 billion and new agreement has a minimum of $2 billion for a period of three years.
In the old agreement was there any minimum and and why the 2 billion. Obviously is well below the 10 is the first question.
Yeah. The 2 billion was the same numbers and the old agreement and and.
And it's never really bounded our relationship in the past and that that number got carried forward into the new into the new agreement but.
But you know we have the opportunity to continue to grow the relationship with them. If we do a really good job, but it's not guaranteed.
But the the operating relationship remains strong.
Okay now that's good and and the second one is also on on equities just to Fuck just a follow up can.
Can you just run through one on the on the growth style Sade and you obviously Rajiv talked about there was a number of funds that contribute to the performance. There can you just touch on some of the capacities in those funds that are doing well and then on the outflows you touched on the U S and smid cap can.
<unk> to the outflows there can you just touch on how much of the outflows came from those two strategies.
Okay.
And so in terms of if.
We've got as you know, we got a very broad range of funds. We've got a couple of funds that all that all still.
Soft closed so.
Triton.
For example is itself closed and we've obviously got significant capacity and and a large cap capabilities like the 40 found and research in the U S and global.
Our European strategies, I've got I've got strong capacity as well.
And if something like life Sciences is growing very significantly and so at some point and at some point that will run out and that will that will that.
And that will get tighter, but we've got we've got.
We got good capacity across across equities and continue to grow.
In terms of in terms of day, the smid and made it in terms of the the outflows there that's.
About it's about 2 billion and the quarter.
Craig and monthly and Samsung.
You can see in terms of from the from flow data.
Okay. Thank you.
The next question comes from Dan Fannon of Jefferies. Please go ahead.
Thanks, Good morning so.
And just thinking about the simple excellence and some of the evaluation you guys had been putting forth across your business.
But you did mentioned and kind of inorganic growth potential and so just thinking about it and the backdrop of a consolidated and industry. How you think about.
And the plans you've put forward with your outlook and and scale across the various.
Businesses you're right.
Sure so so.
Think we've been very clear and consistent scale for us isn't really an answer.
The answer is excellence, so if you're a below average asset manager the proper price for you and a world where passive is available with basically no cost is is you know low to zero right. So the first goal is and scale. The first goal is excellence.
And then if you do that job that'll be confirmed through.
AUM growth and profit growth.
And so that's our plan and so.
When you think about simple excellence, it's about delivering on the Janus Henderson merger.
It's about delivering for our clients and it's about delivering the AUM and profit growth debt that will be the confirmation of the success of driving that that strategy.
But if you think about it and it's slightly grander timescale that builds a company with an extremely strong foundation.
And that company with that foundation is potentially a better a participant and inorganic ideas.
Does your building on a very strong foundation, so right after the Janus Henderson merger, we said.
We really want to make sure we build the right Foundation and we're not looking to add more complexity until we get the foundation right and simple excellence is getting that foundation right and then as you do that I think you become a more capable a participant in and potentially adding complexity, but when we think about those ideas, we're humble about it because.
We think Janus Henderson has a really good merger and its taking years and a lot of hard work to deliver on that potential.
Nobody should think these things can be done without that sort of commitment even when they are the right partners and so on.
We have a real humility and caution about thinking about inorganic ideas, but if you look across our business. We've had success, adding our ETF business through and inorganic transaction. We've added fixed income assets. We've added other pieces of alternatives and things and London. If you look at the history of both Janus and Henderson and now Janus Henderson, we've had success doing a transaction.
Actions and Inorganically of different sizes, and we certainly haven't turned our back on that but establishing establishing simple excellence builds the right Foundation, which when that's well done and that gives you more options to think about more things.
Got it.
And then Roger just with regards to the cost efficiencies that you announced and.
Think that concept and keeping things flat.
Balancing spend versus and the efficiencies coming out so over what time periods and are we talking about the $40 million.
Coming out and and again it could you be a bit more specific around where those.
Efficiencies might be coming from.
Sure.
That's over two years.
And yeah, we we looked across the whole of the business. The majority of it is non comp part of that is is things that we've learned during the year. So so and expectation that all debt off P&A spend continues to be Aloha.
And I talked about marketing and consolidation of our P. P. I use and other example, there of where we're where we've been improving.
Improving our cost structure, there and there's some cost efficiency and cost efficiency of it so.
The organization of the focus the bulk is.
And the noncompliance and and.
Delivery of the two years.
Great. Thank you.
The next question comes from Nigel put away of Citi. Please go ahead.
Thank you very much just to just festival and the follow up on that.
And that cost saving I mean, you're saying most of it is on the non compliance, but if you. If you do look at I'll say, if it hadn't revenue this year.
I'll take that and 'twenty it looks like if we take your sort of guidance and what's going to happen in 'twenty, one and literally the same thing could happen again. So can you just explain exactly why we're seeing that trend in and outs. It overlays.
Over this period.
But.
Yeah, that's because comps being lower the last couple of years and so that's following through effectively you've got a three year amortization of that of that coming down over the last couple of years.
And with comp levels.
Yeah.
Okay, and hopefully improving and the future and he'll be able to it will end up coming as well. So I guess, that's yeah. That's a separate thing, but it's what it is you know is relatively formulaic.
Off the off the variable comp we pay you know over the three years previously.
And and as we as we laid out in the appendix you've got the the current expectation of what else. It is all those various grumps over the over the over the vesting periods going forward.
Does that help nicely.
Yeah and put another way Nigel.
The the cost savings that Rogers talking about are not are reframing of the compensation or the L. Tip that we've been doing those programs are continuing consistently within the past and with the past.
And that's not not part of.
And we are saving the money.
Yeah, Okay fair enough and then changing tack, but perhaps going back to some of the earlier questions. I mean, all other states part of your sort of strategy. You've got this return to consistent net inflows the target and if he if you were to sort of roll out and tech hi.
Close do you think you ought to achieving that goal I mean, do we I mean, it looks like we still have to expect some volatility moving forward, but how far do you think you are away from consistent net and play.
I think when you're pretty close to the line. It's really hard you know the world assigns a huge.
Importance to being a little above the zero line or a little below the zero line and and when you are pretty close to that line and it's pretty hard to predict now we have lots of parts of our company that are doing really well and gathering momentum and we see opportunities are there are other parts of our company that are challenging and it's always the net combination of those two.
Things that.
That gives you the net result and.
And you know, it's really hard to predict where we're very close maybe on the upside may.
Maybe at zero, maybe a little bit on the downside ex ex in tech.
You know, we put up a quarter, which was positive ex.
And tech hopefully, we'll do that consistently but I wouldnt want to guarantee it it's not something we know for sure but it is what we aspire to we've said previously and we believe the path to organic growth for US is first organic growth.
Ex in Tech and then and texts going to take a little.
More time to to continue its healing process and then and then we'll get to organic growth with no no asterix about any part of it and that's the plan. We think we're on the plan, we think were making progress but quarter quarterly monthly and quarterly outcomes are theres, a lot of noise and that data and it's not linear.
Or are perfectly predictable.
Okay. Thank you.
The next question comes from Patrick Davitt of Autonomous Research. Please go ahead.
Okay.
Hey, good morning, guys.
So with some pretty big Lumpiness and in Tech and you mentioned I think last quarter there were.
Five mandates that made up 60% of the assets.
That's still the case started one of those come out to drive the outsized outflow number as we kind of think about you know what could come out this year.
No that's still the case Patrick.
And then I guess more broadly through that lens, any known big wins or losses, and the pipeline coming through this quarter.
Nothing to tell you about it at this quarter, we again, we don't normally got and intra quarter, but there's nothing there's nothing major that we need to tell you about the day.
Okay and on either side.
Yep Yep.
And expense guide how should we view that as how how walked in and should we view that VW markets. You know how much would market and have to move up or down for for that guide to change meaningfully and your view.
I mean it is it is very market dependent I mean, that's the biggest the biggest determinant on our revenue line is is the level of the market and the short and the short run.
So the guidance Ive given it today is it is that market levels and at the beginning of this year.
And and and actually the market has come off from where they are and then it will be difficult to achieve that that comp ratio.
Yeah.
But yeah, we've got as I said, we've got considerable.
Yeah, Tayo and effectively going into this year with a 14% higher.
And 14% higher average, 14% higher AUM levels and the average of last year.
And so you know.
You got a little bit to play with before you get to a low number and then this year, but as we stand at the moment, that's why I'm, giving the day that the low forty's on the comp ratio.
And I and I've got it at that.
And I thought that is 40 to 42 are kind of at current market levels.
And the but the G&A I imagine it could be more sticky.
Yes, correct.
Got it thank you.
But let me just Roger let me just jump in and go back just one more comment on in Tech.
And make sure I get these numbers right Roger but just so you all can size. It in tech is something like 10% of our AUM, but it's something a little less than 5% of our revenues. So that's just to give you a sense of the scale that we're talking about when we talk about that part of our business.
Okay.
Yeah.
Okay. The next question comes from Andre Stadnik of Morgan Stanley.
Please go ahead.
Good morning, Good afternoon, I wanted us to.
Two questions.
Firstly, just on the operating margin for this fourth quarter.
It seems particularly strong and no it.
It doesn't seem to be just WOMAC sees because I, just want and much stronger performance fees and good base feedstock costs were almost flat.
Several trial quarter, so was there anything else.
Happening and this quarter that supported the operating margin.
No no ready and when it is a it is a strong it's a strong management fee.
And you know our athletes and.
Oh, yeah over let's say increased significantly as I talked about our management fee margin.
Is is up slightly on a on on Q3 and it's the fifth the fifth consistent rise and and management phase and Paul.
That's obviously trade to the strength and equity markets are coming and coming through and and and moving the average upwards of up about fee rates and profit so say what we're selling.
And as I always say, we talk about asset from the school, but that actually is not the important measure.
Its revenue and its profit.
And we're selling we're selling some interesting product.
Apps.
Yeah and at prices that the clients are very happy to be paying for four interesting product.
So I'll throw a Phoenix continues to improve slightly so that comes through and that management fee and performance space, We've talked about on the cost side no. It's.
With flat quarter on quarter, Oh, there is anything really and the so and if there's anything else below the line and we've got some we got some strong investment gains.
And that's really and you go to net that against the N C I.
In terms of what well it's actually hours.
So you should look at those numbers net net there is a strong gain and that's partly because of some strong gains on a C cat portfolio in terms of some of that which is.
Less perfectly hedged.
And that has come through with some very strong guidance.
Okay.
Thank you. Thank you for that and my second question I just wanted to ask.
Richard Your question about ESG are you happy with your H cheap progress at the moment and with the New East Gee had coming on and what are some of the new targets are they as you said and pull them.
Yeah, we're really excited to have a new head of ESG and the investment side and and we've appointed one on the on the product and distribution side as well and the two of those folks will partner together to strengthen our response to ESG.
Are we happy no I mean, we've got a ton of work and we want to go faster we're impatient.
There's more data.
To pull together and and and articulate what we've actually been doing for a long period of time. So you know the first the first step is to be clear about all the good work, we're doing and communicated better and the second step is to strengthen the processes across the firm and be accountable and transparent and are in a better way to our clients and.
And that all the different social values, and and things that they care about and how those play into our investing so we're going to offer more.
Joyce and the future.
We're gonna offer more transparency and better data in the future. There's a lot of work to do to get there are we think we have and have some great new people to help us.
Get there, but but mostly where our sensors and patients we want to go faster.
I guess, if I just just to add some other some color on and so some of those things that they said.
And we have a very long established specific equity a global sustainable fund at $3.7 billion of value am now that was the U K and European Fund, Tony We launched that in the U S. A in 'twenty and 'twenty. So that's now established and and obviously, we hope to see that growth and non Troy will launch that I would.
Imagine, we'll be launching that and Australia are in 'twenty and 'twenty, one as well, but that's yeah. That's.
And we hope to see that continue to grow it's a fantastic products and managed by the fact and manage it from Morgan a decade I think it's been in existence for something like 15 years.
But that's only at the tip of the iceberg around around what are your streaming across $402 billion. In tech is ESG product. Our fixed income business is is it is pretty strongly and chimps and and ski runs our fixed income businesses and incredibly passionate about how how he or she is.
From the organization, we've been involved for a very long period of time and now we're a founding member of your U N P O Ray.
And as a corporation, we've been carbon neutral since 2000, and and seven we got a very long established diversity and inclusion strategy we've.
And we've had a foundation and set up for multiple years.
And a wave.
We're a supporter of FASB, we work them.
To to look at more things like T. C F day.
So the on the investment side.
And of course, the ice is coming to do is critically important in terms of articulating what we do as well.
And he has to develop it and.
And and and yeah, but I think it's it's a it's very important to understand that and this is this is an evolution of where we are as opposed to starting something starting something fresh.
Yeah.
Thank you.
The next question comes from Mike Carrier of Bank of America. Please go ahead.
Hi, guys. This is actually Shaun calnan on for Mike just.
Just a couple quick ones on Daiichi. So it had day provided and you guys with seed capital for new investments in the past and if so is that expected to continue and the future and then also do they receive a preferred fee rate on the assets that you guys manage for them.
Yes.
So they can go or do you want to take that.
And now you can go ahead Roger.
Hey, Sean Yeah, they they do provide some seed capital.
And for product from and again, that's where there's been some very good partnership over the over the years in terms of in terms of them and providing some fade.
We'd expect that to continue but obviously you know we're gonna have to look at it to see how that how that works out over.
And over time.
Perhaps it might be a little less going forward, we don't know that so but again that's not.
Yeah.
And that's no big change to our business if if that if that does and if that is a lower number that yeah that very strong balance sheet that we've got will allow us to will allow us to feed more if that's if that's a requirement for us so that's and no concern the toe and sensitive preferred phase and no are they paid.
The correct price for the size of the product and to talk with a product that they that they invested.
Okay. Thank you.
The next question from Hamzah <unk>.
And then it's Gerald Evans and partners. Please go ahead.
And thank you for taking my question two really quick ones on the performance fees. Roger you gave a breakdown in terms of the Delta and I think he mentioned for funds and I was interested to know what the largest one out of that Delta was a $42 million.
And I'm talking about the change between 19 and 20.
So two it might turn the phone.
The name and fond of me and.
As I say and global life Sciences, and technology have been tasted very successful area for us that they dominated the performance fees in Q4.
But the world for the World says and more than 5 million it and in terms of performance fees from our European small cap and and all U K absolute return and so.
Yeah.
And so there is there is debt and some sizable numbers across the board, but dominated by smoothed out by Lifesciences and.
Clip technology.
Okay second question and then in related to the project spend or at least the investment spend that will offset the $40 million of cost savings can you elaborate a little bit in terms of what some of those projects that are trying to achieve them or is it related to people cost.
Did you want to pick up on that.
And the investments that we're making and and perhaps I can just scratching and one of my honor and stopped in terms of what with what we're talking about and I think that the important message from a financial point of view is those costs are embedded in the guide and felt like Kevin.
And so as we said our job is is primarily about about being excellent and growing this business profitably.
But also doing that efficiently.
And the cost savings, we're talking about allow us to continue to invest and the business.
And that and that's yeah.
As we invest and the business and and hopefully grow the business that will continue to provide that leverage that we've talked about today. So again I just want to make sure that people are aware of and when we're talking about investing and the business that is that is included in the guidance that we're giving.
I think if you wanted to do you want to talk about the types of things that we're doing.
Sure. So I think we we've talked about previously the fact that when we brought the Janus and Henderson together, we took two infrastructures and tried to knit them together and make a single global infrastructure.
Sadly, we couldn't go straight to stage, two which is that really upgrade that global infrastructure to make it simple and excellent and so we had to step in and so we're we're now hard at work on the second step, which is which is upgrading and trying to reach for that standard is simple excellence that includes a major new Oems.
Our order management system, which is the heartbeat of our portfolio management side and includes risk engines attached to that for us.
Ah portfolio risk management, and attribution and those sorts of things that includes new data group to do data governance and data architecture that includes the whole rewrite of the way, we do and technology and cloud based technology on the distribution side to make sure that we're efficient and accurate and and excellent and how we're communicating with our clients and prosper.
Ex.
So it's a lot of very unglamorous plumbing projects all across the firm that costs tens of millions of dollars and and will go on for years.
And we're making really good progress against those things, but it costs from Doe and that's why it's really important that we've made the savings that we've made so that we can continue to afford to properly invest in the business and the excellence and the growth and still give you know good margins and returns to our owners.
Thank you.
The next question comes from Craig Siegenthaler of Credit Suisse.
Please go ahead.
Thank you. This is actually Karim of Hey, if you're filling in for Craig. This morning. My first question is on scale and you have nearly 402 billion and AUM do you believe you have enough scale to day to compete with other large asset managers and would you see a large global distribution effort.
Is it helpful to your organic growth.
So I think.
And I think excellence as the challenge not scale.
And so.
You know scale is only helpful. If it comes with excellence.
And if you can have scale with excellence more of it's better, but it's a rare thing.
In terms of or do we have enough scale and excellence to compete well if you look at our results I think they say we do.
We're doing a really good job taking care of our best clients and and we do have a strong global.
Distribution team and so I think we I think the results are unequivocal that we do have the scale to compete but it's it's and.
A constant challenge and as we continue to have to invest to fund excellence and fund global distribution and Theres continued business pressures you know, we're going to we're going to keep grinding on becoming more efficient so that that we can keep the answering this question and the affirmative going forward, but as you look at today. There is no question, where I think we're on.
And the right path and making progress.
Got it. Thank you and then for my follow up I believe it's it's a follow up for one of the questions that was asked earlier, it's on capacity and so you have some very large funds that run with high active share, including concentrated growth and mid cap growth. Besides I believe like to try and fund could you remind us with <unk>.
Other funds are closed and if we could see additional fund closed if the AUM keeps growing.
Thank you.
Okay.
And they got ready to fund and so that the that are closer and I'll try it and adventure and.
And as I said earlier, there is there is plenty of capacity and and the vast bulk of our funds.
It's and it's a nice it's a nice problem to have if we if we do get to the level, where we where we need to when they took to it and it's a soft close funds are but where we have a we've got heaps of capacity across the firm.
Alright, Thank you for taking my questions.
The next question comes from John Dunn of Evercore. Please go ahead.
Thank you.
You guys talked about and almost $9 billion sales and the institutional channel can you give us a kind of a flavor and what strategies are driving that and maybe could you characterize like where the institutional pipeline stands at this point.
Yeah. So as I said, the biggest the biggest silent and and Q and Q4 was a was this was a significant insurance client and the U K, which was a 2 billion people at $1 billion.
And U K enhanced index mandate.
So that's the that's the one sort of.
Significant significant.
They'll there there's a long tail of a long tail of others and I think the biggest other was about $1 billion.
Uh huh.
And I disclosed the and exactly.
Exactly what the pot line as we've talked about we've talked about that increasing and the past.
And I guess there was some some frustration that that wasn't coming through so we were pleased to say that pipeline is starting to come through and in Q4, we've got plenty of opportunities thoughtfully and I continue to build that pipeline.
As we go forward.
Got you and then the other thing on on and on all.
And I think mentioned it earlier is that that's an area that we and I. We've we've we've got a we've got a.
Yeah, a lot to do it and in and institutional and we got a great team working on it and we've we've continued to add and strength from that team and the and the and strength that the understanding between that time and and and investments.
So this quarter, we've hired a global head of consultant relations, which is important position to higher.
In addition to meet some other some other.
And our investments and the team. So we continue to we continue to hope and expect that other institutional business gets bigger over time.
Got it and then are you guys got and got to a mutual flows and all this quarter and what's that look for that business and what kind of product could maybe push it into positive territory in 'twenty and 'twenty one.
I guess I guess, there's there's a there's some there's probably been some outflows before we have some inflows and.
And somebody when someone that we have a property fund in the U K, which has been which has been a gated for the last sort of 11 months post.
ER posted dislocations and the property market.
And with Covid Covenant and and March last year, we announced recently that that fund will reopen.
Having raised liquidity over the last year and a very controlled.
And placing why the fund has actually performed very well, but we have had we have had clients locked up for 11 months and so we we we know and expect that when that fund reopens, which I think is the 24th of February.
And that we'll see some outflows there and so that will come through and up and and the old Samba.
The biggest and they're all there are several other things and they are the biggest other the biggest strategy and there was the U K absolute return and fun.
And which again has performed well and in in 2020 and had some outflows for the first time and a long time I was at the beginning of last year, I think but it plays and to say that hum going back into growth into small inflows and in Q4. So hopefully that will continue the growth going forwards.
Great. Thank you very much.
And the last question today will come from Liz Milliard his of Jordan.
Please go ahead.
MS Milliard as your line is open is your phone muted accidentally. Please go ahead with your question.
Hi can you hear me.
Yeah, Yeah. Thanks Louis.
Sorry about that my first question on the cluster and cost efficiencies and associated investments, you'll make using those efficiencies is there any timing differences and so did the in place and the outlets and is it is the cost savings that are frontloaded and and.
And the spending back loaded or should we see sort of brand across the two years.
They're pretty spread across the two years.
Okay, Great and then as per long question on cost as well.
Made a comment earlier that some of these savings will be teeny, obviously, you know and claims it impacts and I'm quite significantly.
And beyond the T. He should we expect some of that teenagers and sort of come back or have you have you sort of adjusted.
Your numbers I suppose and you'll.
This includes debt.
And new way and doing business and it and it takes COVID-19 bone and yeah. It's it it's the latter so we've built and an assumption that debt that we spend more than we spent last year, but not as much as we as we used to spend and pre the learnings that we've had over the last year. Obviously, we're all we're all learning as we go and see this.
But we but we expect that that I'll see any budget will be lower going forward than it than it was in 2019, but.
But we have but we're not saying that it will it will remain as low as it wasn't and 'twenty and 'twenty will come up a little bit from there obviously.
Alright, Okay cool thank you.
This concludes our question and answer session.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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