Q1 2022 Principal Financial Group Inc Earnings Call
Good morning, and welcome to the principal financial group first quarter. It yourself, it's funny two financial results conference call.
There will be a question and answer period. After the speakers have completed their prepared remarks, if you would like to ask a question at that time simply press Star and then the number one on your telephone keypad.
I would ask that you be respectful of others and limit your questions to one and a follow up so we can get to everyone in the queue.
I would now like to turn the conference call over to Humphrey Lee Vice President of Investor Relations.
Thank you and good morning, welcome to principal financial group's first quarter 2022 conference call.
As always materials related to today's call are available on our website at investors dumped principal dot com following a reading of the safe Harbor provision CEO , Dan Houston, and CFO , Deanna Strabo will deliver some prepared remarks.
Then we will open the call for questions other available for the Q&A session include Chris Littlefield retirement income solutions.
Walter Global asset management, and Amy Friedrich U S insurance solutions.
Some of the comments made during this conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act.
The company does not revise or update them to reflect new information subsequent events or changes in strategy.
Risks and uncertainties that could cause actual results to differ materially from those expressed or implied.
Ive discussed in the company's most recent annual report on Form 10-K filed by the company with the U S accretive and Exchange Commission.
Additionally, some of the comments made during this conference call may refer to non-GAAP financial measures.
A reconciliation of the non-GAAP financial measures to the most directly comparable U S. GAAP financial measures may be found in our earnings release financial supplement and slide presentation.
Dan Thanks, Humphrey and welcome to everyone on the call. This <unk>.
Morning, I'll share the progress, we're making against our financial targets and touch on key performance highlights for the quarter.
Deanna will follow with additional detail around our first quarter results as well as our current financial and capital position before.
Before we dive in I have a few important business updates to share we continue to work towards a second quarter close of the transactions to reinsure, our U S retail fixed annuities and UL SG blocks as shared previously we expect approximately $800 million of deployable proceeds upon closing and through additional capital management actions in China.
C C B pension management, a subsidiary of China Construction Bank recently announced they are in the final stages of seeking regulatory approval for principal to acquire a minority stake of more than 17% and the pension company CCP is the second largest bank in the world and we've had a strong relationship with them for over 17 years.
Through our asset management joint venture.
We look forward to receiving final approval and expanding our relationship to leverage our global retirement and asset management expertise through our partnership we plan to share more details once the transaction closes.
Lastly, the integration of the institutional retirement and trust business is now complete as the final piece the trust and custody business successfully migrated to principal during the first quarter.
The IRT acquisition added scale and elevated our position to a top retirement provider, including number three provider of defined contribution plans based on the number of participants and the number one position for defined benefit nonqualified deferred compensation and Aesop based on the number of plants and gave us new capabilities.
<unk>, including an industry, leading depth and breadth of retirement offerings through total retirement solutions is providing new revenue opportunities, including IRA rollovers managed accounts and proprietary asset management and as a result of the acquisition we benefited from growth in the sales pipeline driven by our new consultant relationships.
Turning to our financial highlights on slide four amid market volatility ongoing impacts from the pandemic and geopolitical events and uncertainties. Our first quarter results highlight the focus strength and resiliency of our diversified business strategy in the first quarter, we reported $429 million of non-GAAP earnings are $1.
63 cents per diluted share.
Excluding significant variances earnings increased 8% over the first quarter of 2021.
We continued to deliver on our strengthened capital deployment strategy to return excess capital to shareholders in the first quarter, we returned nearly $900 million through share repurchases and common stock dividends.
We closed the first quarter was $714 billion of total company a U M. A 7% increase over the first quarter of 2021.
Now turning to our business highlights focused execution on our growth drivers, a retirement asset management and benefits and protection continue to fuel growth across the businesses.
In U S insurance solutions, we delivered tremendous growth in the first quarter. After a strong 2021, the demand for benefits robust hiring and favorable wage trends continue to increase across our target market of small to medium sized businesses.
Specialty benefits premium and fees increased 10% compared to the first quarter of 2021.
Driven by record sales strong retention and employment growth trailing 12 months employment growth was a record 4.7% for the total block.
In individual life, our focus on business market is resonating with distributors as we produced a record nonqualified coli sales and robust business owner sales over 50% of the coli sales were part of a total retirement solution plan with R. I S.
Highlighting the opportunity to build long term multi product relationships with customers through integrated solutions.
Our pipeline of new business continues to grow as employers focus on benefits as one effective strategy to help them attract as well as retain talent.
And our U S retirement business R. I S V reoccurring deposits were strong and increased nearly 60% compared to a year ago quarter. This includes a 17% increase in our legacy block. In addition to deposits from the IRT retirement participants as the economic recovery continues participants are saving more.
For retirement compared to a year ago. The average dollars of deferrals per participant has increased 5% and the average dollars of employer match per participant has increased 6% both of which are fueling growth in reoccurring deposits.
Additionally, the number of participants differing across the block has increased more than 2.2 million over the same period, reflecting the full integration of the IRT retirement participants.
The increase in deposits strong sales and retention as well as a benefit from fewer dollars of withdrawals due to lower equity market performance drove $3 billion of positive account value net cash flow in the first quarter for our I S fee and global asset management Pgi managed AUM of $537 billion.
Fitted from positive net cash flow and the addition of certain migrated IRT trust and custody assets.
This was mostly offset by macroeconomic market conditions, which negatively impacted equity and fixed income markets during the quarter.
Pgi delivered more than $3 billion of positive net cash flow across both institutional and retail platforms driven by our differentiated solutions within real estate specialized income capabilities and alpha performing equity strategies.
Turning to investment performance on slide six market volatility combined with the rotation from quality and growth to value investing impacted our short term investment performance during the quarter.
Our longer term investment performance as well as real estate returns positions us to drive positive net cash flow and to attract and retain assets going forward outside the U S. Our focus remains on growing our diversified fee based revenue across our asset management and retirement business amid near term macro and regulatory headwinds reported AUM for principal inner.
National was $164 billion at the end of the quarter.
Driven by favorable foreign currency movements since the beginning of the year.
AUM in China, which is not included in our reported AUM grew by 10% from the end of the year to $193 billion with strong growth coming from retail clients before I turn it over to Deanna I want to highlight a notable recognition. We recently received pensions and investments once again included principal on its list of.
Best places to work in money management, we're proud to be one of only five companies that have been included every year and the awards 10 year history.
This is just one example of how our employees and leaders continue to build a culture that makes people proud to work at principal and delivery every day for our customers Deanna.
Thanks, Dan Good morning to everyone on the call. This morning, I'll share the key contributors to our financial performance for the quarter as well as an update on our current financial and capital position.
Our transformation into a higher growth higher return more capital efficient company focused on our growth drivers is paying off.
As of the first quarter and excluding significant variances non-GAAP EPS increased 13% over the year ago quarter, and ROE improved 50 basis points from the end of the year to 14, 5% and as well on the way to 15%.
Net income attributable to principal was $376 million in the first quarter, including $53 million of net realized capital losses were $20 million of credit losses.
Excluding significant variances first quarter non-GAAP operating earnings of $478 million or $1 81 per diluted share increased eight and 13% respectively compared to the first quarter of 2021 .
The non-GAAP operating earnings effective tax rate was approximately 15% on a reported basis and 16% excluding significant variances.
For the full year, we continue to expect to be within the 17% to 20% guided range.
As detailed on slide 14, we had several significant variances that had a net negative impact on non-GAAP operating earnings during the first quarter benefits.
Benefits from favorable variable investment income and inflation in Latin America were more than offset by Covid related claims lower than expected and high performance higher DAC amortization and the final IRT integration cost.
He's had a net negative impact to reported non-GAAP operating earnings of $63 million pre tax $49 million after tax and approximately <unk> 19 cents per diluted share.
Specific to variable investment income RIS spread principal international and individual life benefited by a combined $47 million pretax primarily due to higher than expected alternative investment returns.
This was partially offset by a negative $32 million impacting corporate as the increase in interest rates and decline in equity investments negatively impacted some mark to market investments.
Calvin continues to impact results in RIS spread and U S insurance solutions with approximately 153000 U S COVID-19 related deaths in the quarter.
At $30 million after tax impact was at the higher end of our rule of thumb.
Looking at macroeconomic factors in the quarter. The S&P 500 index decreased 5% and the daily average decreased 3% compared to the fourth quarter.
This negatively impacted fee revenue compared to the fourth quarter as well as DAC amortization in RIS fee.
The daily average increased 16% from the year ago quarter, benefiting revenue AUM and account values in RIS fee and Pgi.
Foreign exchange rates were a tailwind compared to the fourth quarter and on a trailing 12 month basis, but a headwind relative to the year ago quarter.
Impacts to reported pre tax operating earnings included a positive $3 million compared to fourth quarter, 2021, and negative $4 million compared to first quarter 2021 and a positive $11 million on a trailing 12 month basis.
And RIS spread pretax operating earnings were a record on a reported basis as strong net investment income favorable experience gains and growth in the business boosted results relative.
Relative to the fourth quarter Pgi's margin and pre tax operating earnings were pressured by expected expense seasonality and lower fee revenue, including a 4% decline in management fees as well as lower performance fees, which can be volatile quarter to quarter.
As we discussed on the outlook call results in principal international are being pressured by regulatory fee reductions in Mexico that went into effect at the beginning of the year.
First quarter earnings were negatively impacted by approximately $10 million as a result of the reduction.
We acknowledge there are headwinds in Mexico, and we're taking action to offset a portion of this impact in the near term through expense management.
It is important to remember that the mandatory contributions in Mexico are scheduled to increase annually from six 5% today to 15% and 2030 more than doubling retirement savings.
This will provide financial security for our customers and long term growth for principal.
Specialty benefits had a strong start to the year with a 60% first quarter loss ratio, excluding COVID-19 claims and a 10% increase in premium and fees over the first quarter of 2021 and.
As Dan mentioned, we continue to work towards a second quarter close of the reinsurance transactions and our expectations around the financial impacts haven't changed from what we shared on the outlook call. As a reminder, we will have a year to date true up that will transfer all of the associated revenue and earnings as of the beginning of the year turning to capital and liquidity we were.
Our strong financial position and are focused on returning excess capital to shareholders.
At the end of the first quarter, we had $1 $7 billion of excess and available capital, including $1 $4 billion at the holding company higher than our $800 million to cover 12 months of obligations and approximately $325 million in our subsidiaries.
Our estimated risk based capital ratio was 400% at the end of the quarter in line with our target.
We will continue to maintain a 20% to 25% leverage ratio and expect the ratio to improve once the transaction closes and as we paid down $300 million of long term debt set to mature later this year as shown on slide five we are well on our way to returning our targeted $2.5 billion to $3 billion of capital to shareholders in 'twenty two.
Two including two to $2 $3 billion of share repurchases.
We returned nearly $900 million of capital to our shareholders in the first quarter with $167 million of common stock dividends and $724 million through share repurchases.
$560 million of share repurchases was through a 700 million dollar accelerated share repurchase program the balance of which will be completed in the second quarter.
Last night, we announced the 64 common stock dividend payable in the second quarter, a 5% increase from the dividend paid in the second quarter of 2021 .
This is in line with our targeted 40% dividend payout ratio and reflects strong business performance as we move forward in executing on our go forward strategy and strengthened capital deployment approach, we will continue to invest in our growth drivers of retirement in the U S and select emerging markets global asset management and U S benefits in <unk>.
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All with an aim to drive long term shareholder value.
This concludes our prepared remarks, operator, please open up the call for questions.
Thank you at this time I would like to remind everyone that to ask a question Best Star and then the number one on your telephone keypad.
Just a moment to compile the Q&A roster.
The first question comes from the line of John Barnidge with Piper Sandler Your line is now open.
Thank you very much.
You've had strong growth in alternatives and pgi.
<unk> product seems to be in secular demand can.
Can you maybe talk about that and.
Does this make you want to create more product for that business as well. Thanks.
Yes, good morning, John I appreciate the question and Youre right, Pat and his team have been deliberately shifting and they've been doing it for years and it's obviously paying off here as we continue to see the market cycle, but you want to provide some specific feedback on the old yes, John Thanks for the question.
It really starts first with our client interests and we continue to see some very very strong interest in and outs, particularly rou assets and in the private space.
And as you probably know we are one of the largest real estate investment management organizations worldwide and so we're going to continue to build on the differentiated capabilities, we have within real estate and offer those capabilities through all the different channels that we have.
Serve today, and we think there's a lot of runway in terms of not only in institutional space, but also in the retirement space and then ultimately as high net worth individuals continue to seek out new alternative investment strategy. So I think we're going to continue to actually grow in our real estate capabilities. We also have some very strong private credit capabilities in.
I think that's a place that also has significant growth potential and so we will be continuing to build out our private credit capabilities going forward.
Beyond that we will continue to seek out new capabilities that we think the marketplace desires.
Things like hybrid debt more.
More private equity capabilities would be something that we.
We'd like to sort of aspire to continue to also build out so we will lean in towards alternatives because client demand is increasing.
Because we have strong capabilities in that.
That arena John .
Fantastic and then.
Follow up.
Strong movement in group sales across all products.
Can you maybe talk about that the health of the small business.
Because I know that's a large portion of our consumer base.
Yeah, It's a great observation clearly small business is open for business in the U S for sure Amy you want to provide some additional detail John Thanks for the question, yes. It is.
Clear that that small business strategy is working and so when we look at those small business dynamic they are hiring and theyre, taking care of their key executives and they're worried about competing with all size businesses in terms of what they do for their key executives and how they attacked and her team talent and so we're.
Really seeing ourselves is the beneficiary.
A competitive wage market, a competitive labor market, but probably even more importantly, this is the expression of really what's been years of the build for us at a local market. We have experienced are folks who are well seasoned and well developed relationships in our local market and what we're seeing is we have products that are attractive.
Underwriting that's disciplined and growth that we see is very strong which is going to continue to be strong. So this macro conditions as well as our own brand and our own developments in technology and processes and relationships that are really paying off for us and we see that continuing in 2022.
This might be a good time to re introduce Chris Littlefield to investors who's new to the role, replacing Renee schaaf, although he's not new to the industry. These formerly been CEO of two other publicly traded companies I know he knows a number of the analysts on the call today, but honestly, replacing Renee He's got responsibility for our RIS fee and spread business.
So maybe Chris to follow on John's comments with regards with regards to the <unk>.
<unk> medium sized business market, how are you seeing that for the retirement space, Yes. Thank you Dan.
John Good to talk to you again.
We see the same strength in the retirement space as well and we continue to see strong employment growth.
Across all segments of our business and certainly see growth in small business, we see an uptick in adoption of plans as well as increases in matches across all segments. So we really see the same strong employment tail winds in the retirement side of our business.
As we see it in the group benefits side. Thanks, John for the question.
Thank you.
Our next question comes from the line of Tom Gallagher with Evercore. Your line is now open.
Good morning, Dan I recognize you probably can't give specific.
Comments on the China construction bank.
Deal that you mentioned can you can you at least indicate whether you would expect that to consume a meaningful amount of your capital from a size standpoint and would that potentially.
Reduce the size of buybacks, where it sounded to me like you were still planning on.
Doing the buyback ranges.
You had guided to for 2022.
Yes, Tom I appreciate the question I'll have to follow up here.
I just want to be on the record with this and many of you have followed principal for a very long time and you have known that it has been our long term desire to expand our relationship with CCP I remind investors. Its the second largest bank in the world. We've had a relationship on asset management and retail mutual fund business.
Since 2005, it's a very healthy relationship you heard in my prepared comments that we are buying a minority interest in or what is already a well established.
Retirement company, what makes them a little bit unique time as they they have pillars, one two and three so it allows them to manage money for the national and provincial retirement savings pools as well as the enterprise annuity, which is probably been the most common conversation with investors in the past and then lastly.
Pillar three is around private retirement funds of funds. So this is just a terrific win for principal we're very excited and I'll have Dan is sort of finish up with some additional details around the transaction.
Just as a follow up there.
This was factored into our 2022 capital deployment plans. If you remember back to the outlook call. There was a waterfall chart. There that showed kind of beginning of the year to the end of the year and there was a placeholder in there or M&A and or additional share buyback. So that would have been included in that and thus does not have any impact.
Jack.
On what we've talked about regarding return to shareholders in the year 2022, and we will obviously give more financial details capital earnings implications of that transaction. Once it's closed but as Dan said, we're very excited about the opportunity and the prospects going forward, Okay that helps Tom.
That does thanks, Dan Deanna just my follow up is Deanna.
Deanna can you comment on.
The sequential decline in expenses at Pgi that you would expect into <unk> I know seasonally Q1 is on the high side just wanted to get a sense. If you could give kind of a dollar range I was thinking maybe $10 million to $15 million reduction seem reasonable given what's happened historically, but if you could provide.
Any any color on that.
Yeah, I think at a high level here in the right ballpark, but I'll see if that has anything else.
To add onto that.
I think what youre, referring to is sort of this.
First quarter of the year, we had this sort of a true up in terms of expenses relative to long term compensation payroll taxes and that does have an increase in the first quarter expense structure for pgi.
And it's probably going to be more around $15 million in terms of what that expenses and you should not expect to see that expense.
In the second quarter.
That's great. Thanks, Pat.
Thanks, Tom.
Our next question comes from the line of Ryan Krueger with gave me double you. Your line is now open.
Hi, Thanks, Good morning could you within Pgi could you discuss how the rising interest rate environment.
Is <unk>.
Could affect demand for your product and your flow outlook going forward.
Yes.
Yeah, Ryan I think one of the things Thats, great I think about our suite of investment capabilities. We have some very strong income producing investment capabilities and the actual sort of rise in interest rates are starting to create some very interesting absolute returns again in fixed income. So we're starting to see again, some pivot more towards <unk>.
<unk> conversation around the absolute returns at things like emerging market debt preferreds high yield sort of sort of that is producing in terms of absolute return. So that's one sort of aspect of it clearly within our existing block because we do have a total return sort of portfolio of fixed income the rise in interest rates has.
Created a say somewhat of a headwind in terms of mark to market on our existing block in terms of AUM, but from a client perspective, we're seeing some very interesting I think eyeballs again on fixed income in terms of allocations.
Got it thanks.
And then.
Deanna do you have.
Preliminary estimate on what the true up impact would be in the second quarter. After the reinsurance transaction closes.
Yeah Ryan.
Just as a reminder, and you're correct there will be a true up in the quarter that the transaction closes to transfer those economics to the counterparty.
I don't have the estimate in the first quarter, but we will be transparent regarding the impact and I would say, it's still in alignment of what we talked about at the outlook call.
Regarding those pieces that will impact earnings in the year and if you remember that was a total of about $130 million of after tax impact.
Including the earnings from those blocks stranded cost as well as lost revenue in in Pgi, but regarding the first quarter true up we'll make sure you have that and once those transactions close.
Thanks, Brian .
Thank you.
Our next question comes from the line of Erik bass with Autonomous Your line is now open.
Hi, Thank you may.
Start wanted to follow up on Ryan's question on Pgi net flows and just was hoping you could provide some more color on the trends in the first quarter.
And sort of the dynamics between retail and institutional and then with markets continuing to sell off in the second quarter are you seeing any changes in demand or the institutional pipeline is it taking longer for anything to fund.
Yes.
Yes, Erica thanks, Thanks for the question.
We had I think a very across the board.
Strong net cash flow in the first quarter both in some of the income oriented investments that I highlighted earlier, along with real estate that we discussed earlier, along with some alpha generating equity strategies.
We're continuing to see that strong demand in the second quarter, Ryan and it's actually in those three areas again.
We're continuing to see some very strong institutional demand, particularly in real estate and in the and then the high Alpha generation equity capabilities and then in terms of retail.
The continuation of I think the storyline toward.
Desires and and strong Alpha equity capabilities continues and we continue to see flows there so I'm quite constructive on the second quarter yet in terms of the continuation of what we're seeing since first quarter.
Great. Thank you and then one question I just noticed in the slide deck I think your sensitivity now to a change in 100 basis points of interest rates is 1% to 2% of earnings I think it had historically been less than 1%. So just was curious why this has increased especially since you're exiting.
S. T you all in fixed annuities, which I thought would've been more rate sensitive pieces of your business.
Yeah.
So we did update that at the outlook call and did reflect kind of the go forward kind of prospect. There I think we have a better understanding of the impact on some of the fee.
Levels within Pgi and RIS that we've reflected in there just given the fact that.
A portion of that AUM is fixed income.
And so again I think it's still modest probably relative to most of our insurance peers. It's positive on a long term basis, but can have some short term pressures just given the impact on a loan that was under the category of a refresh as we looked at prior experiences and what that look like so I think it's on our.
Part of our refinement Eric.
Got it and just where would the biggest benefits coming through by business line.
Yeah, you know ultimately youre going to see it in a number of places, but again it can take some time to emerge.
Obviously net investment income you'll see benefits from so obviously that would be primarily in spread in the insurance businesses, you'll have some impact ultimately on our pension costs, which actually gets spread across all of our businesses claim reserves and capital backing our insurance businesses.
Would benefit as well.
And so you know again, primarily the benefit.
It would be in more of the annuity and insurance businesses.
Got it thank you.
Thank you Eric I appreciate it.
Our next question comes from the line of JC Banco <unk>.
That's Barclays. Your line is now open.
Thank you good morning.
I'm wondering if you could shed some color on your view of favorable non COVID-19 group life claims that you saw in specialty benefits.
Yeah, absolutely we can handle it.
So tracey one of the things that have to keep in mind about our block of group life is that our block in scoop license can be primarily.
Underwritten for small cases, the plan designs are going to be designed around those small cases. So when we're looking at small case, they're going to have the ability to have the right kind of lineup with the experience that we're seeing on them on a more more frequently than some of the other folks who are writing in that large case market place. So we have the ability to kind of.
Get that right and claims lined up pretty closely together, what we are seeing in that block of business, though is that our average claim size is probably going to be smaller than some of our peer competitors just from the plan designs. We're writing in that space. So we're seeing what I would consider sort of normal positive volatility on that.
Non Covid group life block, but again principles group life block is probably going to have some characteristics to it that could behave differently than the rest of the industry.
And a follow up to reciprocate.
No. That's very helpful. Yeah, maybe sticking with specialty benefits. If you could also touch on the.
The increase in your individual disability loss ratio and if we should.
If I should read into that about anyway.
Okay.
Thanks, Tracy Yeah, I would not read into that in any way I would look at the things that happened within individual disability as you know one or two claims can move some things around ultimately it's a combination of new clean attended the incidence of those as well as the termination so I'm seeing.
What I would consider a regular inappropriate patterns for our block of business on the new claims we're putting on as well as the termination rates on those so I'm not seeing anything COVID-19 or non COVID-19 that looks out of pattern.
That was very clear thank you.
Tracy Thank you.
Thank you. Our next question comes from the line of Sydney.
Jeffrey Your line is now open.
Thank you I'm just curious on RIS spread I think Dan in your comments you mentioned it was a record result, even on I believe on a normalized basis. The results came in much better than your guidance. So could you just unpack that and I think you mentioned a couple of things, but if you could give us any specificity on what drove it that would be helpful.
Yeah, I'll make some comments and then see if Chris wants to add as well.
Do keep in mind the need that the current quarter results do include retail fixed annuities, so that will be adjusted out once the transaction closes and we also saw some positive volatility inexperienced game those again tend to be stronger in the first part of the year and then normalize out for the rest of.
For the year, but I would probably still point you back to our outlook ranges for.
For the full year and really focused on those post transaction ranges for both revenue growth and margin, but again first quarter was a really strong start to the year and some of that trend I think will continue some will see some volatility quarter to quarter Krishna.
I think she covered it well thank you excellent.
Okay, and then I guess my follow up.
On is on Mexico, obviously, you guys guided to the reduction in fees.
But we were a little surprised to see that business produced a loss and it looked like there was some volatility in NII. So I.
I guess.
I'm wondering if you think that business can return to profitability and then Relatedly is that an area, where you guys would think about inorganic growth.
Yes, So let me, let me take it and I'll throw it to Deanna as well, we'll tag team. This a little bit. The first thing I'd say is we've been talking about this for some time, but in spite of the regulatory fee reductions that occurred earlier in the year, we do see a path forward for that for that business in large part because the contributions are going to start scaling up from six 5% to <unk>.
15% up until 2030. There is this is a significant pool of capital in Mexico, We think that the legislative and regulatory changes have been made so we know what the operating model needs to be we know that we've got a shortfall as it relates to revenue relative to the expenses as Deanna said in her prepared comments.
We're in a position to take that expense out and get it into get it in a proper alignment. So a good path and with that I'll throw it to deanna to talk to the numbers specifically yeah. Just one comment there that you may not be aware, but Mexico did have a hit from a high in the quarter.
It would have been in the magnitude of four to 5 million and so absent that earnings would have been slightly positive in the quarter. So I just wanted to make sure that you understood well I don't think we explicitly split it out the significant variances by country, but that was the impact in Mexico.
And then inorganic growth there or is that still on the table or is that something you'd be interested in.
You know right now we're focusing on on growth in an organic way, we're looking very closely at all the all the options and we think there are things we can do from a distribution perspective. There are some things we can do to manage our our expenses, but we don't see that the path forward in Mexico would involve a large acquisition, let's say in <unk>.
Order two to change our long term view of.
The Mexico market does that help sneak up yeah that that's pretty clear. Thank you Dan.
Okay.
Our next question comes from the line of Jamie Polar with JP Morgan. Your line is now open.
Hi, Good morning, first I had a question on just Pgi investment performance and if we looked at one year numbers, they seemed weaker than a year five year or longer term. So wondering if you could just comment on what's causing that or like is it market driven some of the big guys with classes yoga and audit style or what's going on there and how does that.
This affect your views on your flows over the next year or two.
And Jimmy I appreciate the question I'm reminded of the old adage, you're only good as your most recent quarter, but.
As we know Pgi has put a lot of very solid quarters back to back for many years and you are right. The one year performance is soft in general patent his team have been interrogating those those.
The rationale and why we find ourself in a position today. So please yes, Jimmy thanks for the question I think one of the things that just to highlight as well.
There has been a fairly significant shift over last couple of quarters relative to investors.
Our performance has behaved relative to our style of investing.
There are some of the marketplaces, providing and we have a very bias sort of approach on the equity side to grow and to quality and value really has definitely outperformed growth in the marketplace and quality has not served well in the marketplace in the last few quarters and some of the sort of.
The sectors that have been very much driving I think some of the other.
Our returns in the value space energy and commodities, which have been big winners, that's not where we spend a lot of.
So in terms of quality and growth. So there has been I think.
Factor tilt that has caused.
One year numbers to be as they are that being said as I.
Mentioned earlier in my earlier responses.
Investors continue to look at our three and five year numbers in terms of their decision, making and we continue to see in some of our real strong alpha producing capabilities really in small cap small cap and mid cap and actually in large.
Large cap in terms of our capabilities with a line of Blue Chip. We're continue to see very strong three and five year numbers and that's continuing to attract capital to us in terms of sales activity and retention. So we will continue to be very focused on obviously navigating short term performance, but we still have I think a very strong long term <unk>.
<unk> sort of Alpha generation platform here, and we have confidence that that will endure itself as we go forward.
Okay.
And then on the retirement business.
When when you initially took on the wells block and the trust and custody assets.
Gum dropped because of lower interest rates.
I think now you've changed the product a little bit but deal how do you think about that business that the.
Increase in rates that we've seen recently.
I start with the fact that I think it's nice to have the trust and custody Mrs fully moved over along with retirement business and there's a there's a clear path forward with a lot of momentum and I'll ask Chris to speak to your specific question yes.
Yeah. Thanks, Jamie I think what you're referencing is our principal deposit sweep program products. So we have moved that over from a revenue share to under principal bank and we've seen that sweep deposits increases we've clawed back a great deal of the revenue with that product at the end of the quarter were sitting at about $2 4 billion.
<unk> of assets in the program.
And that was up a bit over the first quarter and we continue to see opportunities to potentially grow that but we want to give it a little bit of time to evaluate the performance how it behaves in the risk appetite and returns before we increase our exposure there but overall.
We manage that now more as a net investment margin business net interest margin business and Wouldnt expect to see big swings are big big upsides or downsides as with all of that product.
Jimmy as you know we talked last quarter that we were trying to make up for that roughly $70 million shortfall and the structure is allowing us to recover some of that and so again, we like what we're able to navigate here to recover some of those revenues as originally projected two to investors.
Thank you.
Thank you.
Our last question is.
Scott.
Right.
Hi, Thanks for taking the question.
<unk>.
My first one is just a an unexpected flexibility in light of.
The market correction that we've experienced here could you discuss your expense base and just how to think through what portion of it is more variable versus the portion that's fixed and how we should expect that to play out.
I appreciate the question Alex the one thing I just want to remind investors of is we have a longstanding history of aligning our revenue with our.
We're aligning our expenses with revenues and we've gone through a lot of cycles over the years and even as we divest businesses and acquire these businesses. We've always prioritized the alignment of those of those matters and it's a great question given the.
The current volatility Dana please yes, thanks, Alex we can follow up with you. So some of the specific splits on the expenses, but I kind of go back to what Dan talked about whenever you have a.
A quick move in the markets there can be some lag in our ability to adjust our expenses, but our management team is really focused on that we have proven history of that if I look at it quarter over quarter, even with net revenue up in the 4% to 6% range, our comp and other is only up less than 2% and if you can.
Back to the trailing 12 month basis, when we saw them.
The 14% increase in revenue or comp and others only up nine and so it is something we look at we take very very seriously you might see some lag relative to that but.
No doubt that we will continue to focus on adjusting the expense base either.
Through variable natural basis or other actions to make sure that we're producing margins that these businesses should produce.
A follow up Alex.
Yeah, maybe a quick unrelated follow up.
Just with the closing of the Wells Fargo IRT business.
Are there are there any sort of quarter over quarter considerations that we should think about it in the <unk> just in light of a full quarter of having an onboard I don't know if I'd PSA a BS and so forth.
Go away or.
I'm sure. It's part of your outlook, but just wondering if there's anything you know as that is totally closed that we should think about.
I'll throw it to Deanna here in a second but what I would tell you is we've been doing it all along and peeling back those expenses is as we've taken over more responsibility what I can what I can reaffirm is that we're very much on track with all of the original projections that we had laid out with regards to expense.
The expense synergies and revenue synergies and I talked a little bit about that in my prepared comments, but DNA anything to add yes, I'll make a few comments and then see if it has anything to add so you know the first thing is.
Integration costs are now complete so you'll no longer having that come through from a significant variance perspective, and then even though we have seen a ramp down of PSA and have started the synergies nozzle.
Obviously ramp up now that it is all complete.
And so you will see that flowing through both RIS fees expenses as well as total company.
And you'll see some more of that as we go through the rest of the year.
Chris anything to add no I think that takes you capture I mean, we will see the TSA run off probably mostly in the first quarter and integration costs are complete so I mean, I think I think you'll see and we've said over the course of the year, we can see margin improve.
Normal markets.
<unk> due to increased expense synergies from the acquisition. So I think you'll see that through the back half of the year very good. Thanks, Chris Thanks, Alex for the question. Thank you.
And we have reached the end of our Q&A Mr. Houston Your closing comments please.
First thank you for taking the time this morning, and we look forward to getting completion on the USG in the fixed retail fixed annuity transaction.
We feel very good about where we're at with regards to return.
Return of capital to shareholders and again right on track with where we're at probably equally as excited about the momentum we have in our go forward strategy and executing on that consistently we're going to continue to invest in our growth businesses, we're going to continue to invest in talent and we're going to take out expenses that don't add value I'd also be remiss, if I didn't say how fortunate.
But we are to have Humphrey Lee joined the team. It's been wonderful Onboarding him. These last 90 days I know he has reached out to a lot of the sell side and we'll certainly work with the buy side, we want to make sure that the information we're providing to you is transparent that it resonates and we'll continue to look for opportunities to continue to improve on.
Our disclosures to investors and frankly, we very much look forward to coming out and visiting with you in person in the very near future. Thank you and have a wonderful day.
Yeah.
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