Q2 2022 Janus Henderson Group PLC Earnings Call

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Good morning, My name is Harrier and I'll be your conference facilitator today.

Thank you for standing by and welcome to the Genesee <unk> group's second quarter 2022 results briefing.

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.

Do you want to make sure 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 in the forward looking statements and risk factors sections of the company's most recent Form 10-K and other more recent filings made with the SEC.

Jonathan <unk> assumes no obligation to update any forward looking statements made during the call.

Thank you.

My pleasure to introduce <unk>, Chief Executive Officer, Jonathan.

You may begin your conference.

Thank you everyone for joining us today on Janus Henderson second quarter 2022 earnings call I'm Alexandra I'm joined by our CFO , Roger Thompson and today's call I will start with a short introduction before handing it over to Roger Schrum, you through our second quarter financial results in detail.

I'll then share my initial observations mind you after only about a month on the job and how we're thinking about evolving our strategy and then following our prepared remarks, we'll take your questions.

Before Rodger gets into results I want to start by expressing how pleased int part of the Janus Henderson team Mike.

First few weeks here has validated my reasons for joining.

As I speak to you today I'm, even more convinced about the long term opportunities ahead of us.

I took the role of CEO , because I clearly saw the tremendous talent and potential in this business I'd like to take a moment to tell you, but the main reasons why I think Janus Henderson represents such a good long term opportunity on slide two.

I go a long way back with Janus Henderson, that's a very special place to me.

It's a people business as core with very talented and motivated employees, we're energized to win.

Earlier in my career as a sell side analyst I was fortunate to serve Janus Henderson investment teams, where I was struck by the intellectual honesty depth of research and focus on client outcomes. We are a true research securities selection and portfolio management powerhouse at the firm.

The client service model also remained strong I've competed against Janus Henderson as client service teams and what our clients are telling me is that we are known in the industry for over delivering for customers and distribution partners.

Furthermore, I was attracted to the truly global nature of our firm forward thinking corporate functions and a strong financial foundation.

While I'm optimistic about the longer term potential for Janus Henderson, one must acknowledge that there are also significant headwinds for this business.

Those of you who know me.

Paris analytical and collaborative.

I will remain that way with all stakeholders, including you.

The facts are that we have some investment strategies that have delivered mixed performance.

That we are losing market share in the industry and that our stock has underperformed.

All of this of course is limits geopolitical tensions record inflation volatile consumer confidence and certainty around interest rates and concerns around global liquidity theyre, having negative consequences on our near term outlook.

There's a lot to like attendance Henderson and much work to do.

I'll now turn the call over to Roger to run me through the second quarter financial results.

Thank you Allie and thank you everyone on the call for joining us today.

Starting on slide three and I look at our second quarter results.

Historically challenging market conditions around the globe and continued outflows have had a significant impact on our results.

Our long term investment performance remained solid with 60% of our assets, reaching their respective benchmarks over three years, which is similar to the prior quarter.

June ending assets under management with just under $300 billion down 17% from March you said lower markets U S dollar appreciation against other currencies and net outflows.

FX I think a lot of it.

30% of our AUM is denominated in Sterling Euro and Australian dollar all of which we could get for U S. Dollar in the second quarter.

Net outflows was $7 8 billion.

We've seen a significant slowdown in intermediary sales across all regions due to rising interest rates inflation recession fears and geopolitical unrest.

The financial results are down compared to the prior quarter as revenues were significantly affected by those weaker markets FX and net outflows.

In the quarter, we completed $56 million of the $200 million of share buybacks authorized by the board.

<unk> announced the 39 cents per share quarterly dividend.

Moving to slide four and I look at investment performance.

The one year investment performance reflects the extremely challenging market conditions in the first half of the year.

In equities inflation aggressive monetary policy recession say as the supply chain issues have created significant volatility.

Our investment professionals remain disciplined in our approach and are focused on looking through the near term uncertainty being steadfast in delivering positive long term outcomes for our clients.

Fixed income continues to be impacted by the west Bund telephone record and our short term underperformance defense has been modest in most cases.

Switching to long term investment performance remained solid with 60% and 65% of assets, beating their respective benchmarks over the three and five year time periods as of the 13th of June .

Investment performance compared to peers continues to do well with over 60% of AUM represented in the top two morningstar quartile over all periods.

Slide five shows company flows for.

For the quarter net outflows was $7 8 billion.

Compared to $6 $2 billion last quarter.

With the flow trends, we've seen in the first half of 2022 and the market volatility expected to continue through at least the end of the year. We anticipate flows to remain negative in the near term.

Turning to slide six for a breakdown of flows by client site.

Net outflows for the intermediary channel with $5 7 billion.

The decline in flows is attributed to a 32% slowdown in gross sales as I mentioned earlier on the previously disclosed $1 $3 billion liquidation of the UK property funds, which occurred in June .

The lower gross sales so not unique to Janus Henderson as the industry has seen lower active retail sales in the U S EMEA and Latin America, but we also lost market share, particularly in equities.

Clients are sitting on the sidelines as they monitor character events.

The impact of the Russia, Ukraine wall tightening central Bank policy and ongoing inflation.

Until these market headwinds subside, we can expect this risk off sentiment to continue.

Institutional outflows were $1 3 billion.

Pleasingly the quarter included a $3 $7 billion funding from European clients into our global commodities mandate in the alternative capability.

This funding was offset by the previously announced $2 billion redemption and the Sterling bond maintain credit strategy from a longstanding European insurance clients.

The approximately $4 billion remaining to be retained in this mandate will happen over the second half of 2022 and trucks is yet to be determined.

And also took a $2 $4 billion in net redemptions in the equity capability, which was spread across several strategies.

Going forward, our pipeline is diversified by products and clients, but including the $4 billion mentioned above we still expect negative flows from institutional over the remainder of the year.

Finally, net outflows for the self directed channel, which includes direct and cig market investors.

$900 million.

Slide seven shows the flows in the quarter by capability.

Equity net outflows in the second quarter were $5 8 billion compared to $3 $5 billion in the prior quarter.

Outflows were driven primarily by U S smid cap growth and small and mid cap value strategies in U S retail education to the institutional outflows I previously mentioned.

Given the strong recovery in performance in the U S mid cap and Smid Enterprise. For example is now in the top quartile of the one in five years, we did see outflows slow over the quarter until July .

We're pleased to have reopened Smith and small cap.

Pension funds, which have been closed for several years.

Second quarter net outflows for fixed income with $3 $3 billion, reflecting the $2 billion Sterling volume maintain institutional redemption on the market conditions for bonds, which impacted the retail side of the business.

Total net outflows from multi asset with $900 million.

Driven by the balanced strategy within our retail channels.

While the net outflows as a result of short term performance the medium and longer term performance remains very strong.

Alternative inflows were $3 3 billion.

This is the result.

Of the $3 $7 billion global commodities.

When an institutional which was partially offset by the $1 3 billion outflow related to the sale of the UK property funds.

Okay.

Moving onto the financials slide eight is the U S GAAP statement of income.

And the detailed 10-Q, you will see an investment loss of $109 million the low operating income which is reversed out in NCI.

This is the result of the mark to market losses on our funds, which we were required to consolidate this quarter. The base figures net out in net income and EPS.

Slide nine is a look at our adjusted financial results.

Adjusted revenue decreased 11% compared to the prior quarter, primarily due to lower average AUM.

Net management fee margin for the second quarter was $49 two basis points compared to $49 four basis points in the prior quarter excluding insight.

This slight quarterly decline is due to mix shift from weaker markets and net outflows funds, which were partially offset by a performance fees generated from your kids.

Smaller companies.

Company's investment trusts.

Global multi strat funds multi strategy hedge funds and the CCAR Pan European funds.

Looking at the second half of the year all else equal underperformance will continue to impact performance space.

As we sit here today based on current investment performance, we estimate aggregate performance space for the full year could range from negative 35 40.

$45 million.

This includes roughly negative $60 million from U S Mutual fund performance fees.

The result will be dependent on future performance for these negative performance fees will cause a significant delta to revenues.

Compared to 2021.

Moving to expenses.

Adjusted operating expenses in the second quarter with $278 million down 7% from the prior quarter.

Adjusted employee compensation, which includes fixed and variable costs was down 12% compared to the prior quarter, primarily due to lower variable costs, given the lower pre bonus profits as.

As well as favorable FX and the closing of the <unk> transaction at the end of the prior quarter.

Adjusted LTI was down 3% from the first quarter in the appendix we've provided the usual table on the expected future amortization of existing ground sea to use in your models.

Adjusted comp to revenue ratio was 42, 6%, which was flat to the first quarter.

Adjusted non comp operating expenses were also flat compared to the prior quarter.

Finally, our recurring effective tax rate for the second quarter with 25, 7%.

For the full year the firm's statutory.

Pre tax rate is still expected to be in the range of 23, 25%.

Adjusted operating income in the second quarter of $149 million was down 16% over the prior quarter driven principally by the lower average assets, which are partially offset by corresponding lower variable compensation.

Second quarter adjusted operating margin was 34, 9%, finishing up second quarter results adjusted diluted EPS was <unk> 63.

And looking at the remainder of the year I do want to provide an update on expectations for 2022.

Average AUM in Q2 with 9% higher than closing AUM.

Bookings equal you should therefore expect management fees will be lower by this amount in Q3.

In terms of guidance, we now anticipate the competencies ratio in the range of 44% to 45% for 2022.

The change from the previous low Forty's expectation is there.

Results in difficult markets and net outflows negatively impacting the revenue line. Additionally.

Additionally, as discussed performance fees are also trending negative which impacts the comp ratio.

Non compensation, we are proactively managing our discretionary expense base and will look to slow down spend on such items with marketing and savings.

With this disciplined approach coupled with favorable FX or non U S. Dollar denominated expenses, we anticipate the non compensation expense growth to be in the low to mid single digits down from the previous guidance of low teens.

Our philosophy has always been to maintain strong financial discipline and invest in the business, where it strategically makes sense also looking to operate more efficiently to provide the fuel for growth.

That will not change as we still have investments we need to make in our business. However, with the ongoing market turmoil, we will be at a more prudent.

And our expenses.

Finally, skipping over to slide 11, and I look at our liquidity.

Cash and cash equivalents right $148 million as of the.

As of June an increase of approximately $66 million, resulting primarily from strong cash flow generation, partially offset by returning cash to shareholders.

We returned $121 million to shareholders via dividends and share buybacks.

We purchased $3 1 million shares of our stock for $56 million.

$144 million.

Buyback authorization remaining to be completed by next year's AGM.

Since the inception of our accretive buyback program in the summer of 2018, we've reduced our outstanding share count by 17, 3%.

Finally, we paid $66 million in dividends during the quarter and declared a <unk> 39 per share dividends. We paid on the 24th of August to shareholders of record as of the <unk>.

With that I'd like to turn it back over to Ali.

Thanks Roger.

As I said at the start of the call. There is a lot to like and much work to do.

Although I haven't been here for only better months I'd like to share. Some initial observations after spending some time with global colleagues clients investors and members of our board on slide 12.

As I have delved into the company I continue to be impressed by the talent our people's values any opportunities ahead, but the challenges facing us and the industry are steep.

First Janus Henderson overall branded performance remained good but those could be better too often we're not garnering our fair share of client interest and engagement while.

While the clients, who know us truly appreciate us and we them many potential clients don't know, who we are and the value we can provide.

Our Q, often losing out on brand awareness and consideration despite having good investment performance.

We need to be more differentiated creative and focused in order to serve our clients better.

Second.

Janus Henderson became a global company upon merger, but it is roughly back to 2017 merger EQM levels. Excluding in tech. Our total shareholder return metrics have notched delivered while the broader market and asset management peers have performed much more strongly.

Opportunity remains to take more advantage of this global company.

Third we have a good foundation of culture and people in place on which to build but delivering our one firm collaboratively and with a sense of accountability and urgency has been missing.

Im sure. Many of you are eager to hear financial details about our future. The answer is that it's still early days.

The diagnostic and corresponding strategy articulation to take several months. So I'll give you more details on my findings and clarify how our past should evolve over the next few calls.

We have however, already begun to gain deeper insights into our business and working with my team to turn the opportunities we see for Janus Henderson into our strategy with a winning execution plan.

I can tell you from our out helping to define and serve our clients' needs in a dynamic and competitive asset management landscape.

There are three areas that we just need to get right.

First we need to protect and grow our core businesses.

Second we need to amplify the strengths, we already have but haven't fully leveraged.

And third we need to diversify where we have the right to win.

All of this on behalf of our clients.

Their clients our employees shareholders and other stakeholders.

On slide 14, there are many opportunities that already exist to protect and grow our core businesses by addressing our market share losses. For example in 2021, we delivered 25 billion of U S. Active long term mutual fund gross sales, but that only represented a small sliver less.

And then 1% up three five trillion and industry gross sales.

<unk> well below our weight.

We are a top 20 asset manager out of many hundreds of clients in key markets, where we operate in the intermediary space, yet, we havent AUM market share of 2% or less in each of those markets in the intermediary channel and active management.

There is real strength in each of these regions and at the same time, there is plenty of opportunity to grow and when we can better align distribution resources to faster growing channels and markets.

There are many opportunities at the individual investment strategy level too we.

We have many quality investment strategies in categories, where we had outstanding investment performance.

AUM share of less than 1% in that category.

In the example shown were significantly smaller versus a large competitor and they consistently have much weaker investment performance and we do examples like this offer tangible opportunities to grow our core franchise.

In terms of amplify on slide 15.

I look around this organization in every corner I turn I see a lot of interesting expertise.

We've launched some exciting products for the past three years withdrawn our core strengths as an investment powerhouse and provide a truly differentiated way of meeting clients needs for.

For example, our AAA CLO ETF has grown to $1 4 billion AUM.

AUM and has seen net flows of $1 billion year to date and offers retail investors a rare opportunity to access the CLO market and resonate in a rising rate environment, our biotech hedge fund leverages, our investment expertise and our traditional global life Sciences strategy and offers our clients a differentiated product at a typical hedge fund.

Fee structure.

We globalize our award winning North American portfolio construction strategy capability by broadening the offering to Europe and Asia. The asset allocation tool helps our advisor clients by client portfolio solutions analysis to deliver better outcomes for their clients.

We extended our long standing U K only global sustainable equity strategy to seek out and then at U S. 40 Act fund, which has helped.

Triple over the period.

We need to and can do more of these types of innovative product launches and eco extensions to fully unlock the talent demonstrated by our investment and distribution teams to deliver for our clients.

Flipping now to slide 16 as.

As I mentioned earlier, there are gaps to fill in our product offerings. So that we can better meet our clients' needs our clients tell us they want to do more business with US. This is not about being all things to all people and we need to pick what we do as a firm.

But we are not adequately represented across faster growing asset classes channels geographies or vehicles, where our clients want to see us.

For example, during the quarter, we announced the inorganic addition of an emerging market debt team, adding this capability diversifies, our existing strength in emerging markets credit global bonds and emerging market equities.

We believe it is a critical component of a premier global asset management platform. The acquisition fills a gap for US as you can see in Red on this slide and a fast growing segment of the market that many clients look to for higher income and risk adjusted returns.

The team and I have and will continue.

Can you identify those areas complementary to our firm where we believe we have the right to win whether that be by filling gaps and investment teams or capabilities or within channels or regions.

Said simply we are unexposed to trillions of dollars of asset management addressable AUM, where we have or can have the right to win I've done exactly this before and we can do it here.

Turning to slide 17.

Confident that we will be able to deliver the full potential of the company to our clients and all our stakeholders, but it will take time.

Given him only month, and we will get back to you with more views on our financial outlook and transition timing, but in this industry. As you know each change one makes it takes a long time typically more than a year to deliver signs of progress.

We're in a transition period of upgrading leadership reinvesting the business and improving how we work at.

As part of that we need to create fuel for growth by driving increased efficiencies in the business.

So in summary, I think there are a lot of opportunities for the business to unlock over the long term I am excited by the talent client focus and a strong financial foundation.

This team and I are certainly up for the challenge and strongly believe that over time not overnight Janus Henderson can and will win again to deliver consistent organic growth with attractive operating margins.

I turn the call back over to the operator for your questions.

Thank you Mr <unk>.

Just as a reminder.

If you'd like to ask a question. Please dial star followed by one on your telephone keypad now.

And in the interest of time, please limit yourself to one initial question and one follow up.

And our first question is from the line of John phenomena of Jefferies.

Goodbye.

Hi, Thanks, good morning.

Congrats also on the position.

Wanted to just kind of expand upon your comments I know, it's early and you talked a lot about what you've seen and are focused on but in the context of the industry and the consolidation that you're seeing in scale that.

That people are pursuing.

And what Youll firm has pursued as well how are you thinking about both inorganic.

Potential growth in the context of some of the things you've highlighted here that you obviously seem to be focused on improving what you have.

Hey, Dan Thanks, a lot I haven't done anything yet so.

So I'll hold that.

Good luck.

I think if you think about M&A view hasnt changed for very long time around it which is it has to be client focus that the client led M&A in other words scale for the sake of scale.

It's unlikely to deliver better results more often than not for for the client and so you've found is if the main factor M&A success right is cost cutting in a deal then the likelihood of success is relatively low.

On the flipside if augment.

Minting capabilities for firm so that firm estimate case can deliver better for our client.

Those are currently more successful M&A.

M&A is always.

As part of the risk, but those are generally more successful and so that's how I think about it as how this.

This firm will be thinking about M&A.

Some of those gas, we've talked about before and again all being client led.

Understood and then just a follow up on kind of the institutional activity and maybe feedback I guess youre hearing from clients and their intermediaries are based on the transitions within the management realm.

Think Roger you kind of commented on the outlook for this year, maybe being negative just broadly for the institutional component.

If you could get more specific in terms of either.

James asset classes or specific mandates or sales channels that would be helpful.

Let me, let me kick off that in terms of in terms of the specifics of my comment.

And there is we've got we've got a fairly broad pipeline of opportunities across different capabilities and actually around the world as well.

But there are as we talked about on the last call. We have we have one large redemption.

From a UK sure into by maintain credits $2 billion of assets during the quarter and 4 billion of which will come out in the remainder of the year, including that we expect the net.

To be.

The negative for the year overall, but we are obviously expecting something something for fund and we've seen some things.

They're starting to come through in Q3, so, but net net what I'm, saying is including that 4 billion, we'd expect a negative number and if you want to comment on anything on <unk>.

Overall client views.

Sure sure I've been speaking with clients and I guess I would.

Separate out into two areas one is.

More broadly the clients, who know us a real clients clients that we serve.

They generally speaking.

Are rooting for us they want us to do more business with them.

They would like us to have more stability I'm, probably part of that but they just have more stability for sure, but our clients value us and we certainly value them enormously and are doing our utmost to serve that.

Then there is the potential clients I guess I call them.

And they don't really know us they don't know what we can bring to them. They don't know the abilities that we have from an investment perspective across asset classes equities fixed income multi asset alternatives.

They don't know the client service model that we bring to them.

Which is which is over delivering for their needs and not just them as a client but their clients as well. So I think thats, an enormous amount of opportunity that we have.

But we have to we have to obviously tablet.

Thank you.

Thank you and our next question is from the line.

Yes, Jonathan.

Mr. <unk>. Your line is now open.

Hi, Good morning, and thank you for taking my question.

The first one is just on the.

Potential inorganic inorganic addition intensive.

Potential size and.

<unk>, which is going to be more focusing on smaller bolt on acquisitions.

Particularly fit within the existing franchise or would you be looking for something.

Italy.

That would hopefully you'll take it in.

And then also intends to capacity or would you say that the data on that.

Available.

Cash on the balance sheet at the moment.

Would there be any appetite potentially.

And finally in this quarter.

Large acquisitions as well.

Thanks for the question.

But it's a little early to be able to tell exactly.

I think philosophically you've heard of how I think about M&A, which is it has to be client led.

That that generally means that I'm agnostic to size if it delivers on the outcome, which is better results for our clients.

We certainly have flexibility in my mind in terms of the balance sheet.

We certainly have the opportunity to.

To do deals now could that be a set of smaller deals that deliver on client needs or could there be something bigger if it actually fits.

Possibly.

It's a little bit too early for me to give a convicted answer about that.

Okay, great. Thank you.

Just another question in terms of your cost base, obviously, you pulled back on the non comp growth rate.

Which is fairly sensible given where markets are today.

Event that.

Still quite challenging for the next.

Yes.

And obviously, you've just come on board and you wanted to.

<unk>.

To make some changes within the business.

In terms of finding that capacity.

The investment within the team.

Across the business.

How should we think about sort of the growth rate.

If markets remain challenging.

If they want to spend a bit more.

To improve.

Improved attained.

Would it be sort of a reshuffling of the existing Costco potentially some costs Greg.

In the next few days.

So so obviously there is alignment of timing right.

Elizabeth explained it appropriately.

There are clearly outside pressures in the environment, you're seeing the markets.

That puts pressures on our margins, we have a base of fixed cost, obviously, and so we would deleverage and so does everybody else in this industry and many other industries. So there was that outside pressure, which is one one points.

The second point is absolutely you are right, we need to invest back in the business. There are many investments that we're making currently that are high priority for us and that we're going to continue and they are going to be more if we're going to again make sure we deliver for our clients and the way they want to be serviced and expand to other clients and other regions and other <unk>.

And strategies that we have the right to win it. So you have those two things.

And of course, we will do our best to manage our expenses.

And create that fuel further growth.

But the timing wont always be aligned youll have to invest and hopefully the cost savings will happen over time as well.

I'll, let you think through what that means to your margin and EPS model in the short term, but those are the mechanics of reality.

Okay, great. Thank you so much.

Okay.

Thank you. Our next question comes from the line of Ken Worthington of Jpmorgan. Your line is now open. Please proceed.

Hi, Good morning Ali welcome to Janus.

Maybe first given the decline in assets and the outlook for revenue over the next couple of quarters, the dividend payout looks quite high.

As we get into the second half of the year. There is a high payout makes sense and is the dividend at this level something you think Janus should support.

Hey, Ken Thanks for the question.

As you can imagine it's something we're thinking about a lot in collaboration with the board and thinking through our.

Priority has always been and continues to be to invest in the business to grow the business.

And then our priority is to give sustainable progressive dividend, which we've been doing and then programmatically buy back stock along the way.

I think that makes sense, but again as I.

You mentioned before that there arent any sacred cows at the firm.

That being said the cash flow of this industry and of our business is actually quite good. It is of course volatile given the markets, but the cash flow is actually quite good. So we're going to take everything into consideration as we laid out.

Needed plans from here, we want to ensure we have the right balance of.

Good dividends good repurchases.

Also allow us to invest for growth for the longer term, both organically and inorganically as well as provide for shareholders.

So we want to remain very steadfast and prudent with our cash usage that has been our cash your hits historically and anything we decided to do as I mentioned at the outset, we will be collaboratively with between the board and the management team.

Okay, great. Thank you.

Then.

This question is sincerely.

If we look at Janus over the last 22 years.

The peak of the markets in 2000, Janus said 330 billion of AUM, Despite a big deal.

Between then and now assets are lower than what has been a pretty big.

Bull market run over that period of time.

Ryan is your biggest shareholder it as previously disclosed management industry could benefit from consolidation. So I guess are you here to sell Janus and how long is reasonable to try to fix Janice until a sale becomes the right solution for your shareholders.

Yeah. So look I appreciate the question.

And I do not ever got your sincerity so.

So thanks for staying at.

Yes.

Hi.

Asked myself those questions a lot before I took this job.

And conversations with everybody that you mentioned and others.

I am here to to fix this business.

Im here to look at the strengths that we have which are incredible investment prowess across categories across investment strategies I'm here to build on that build on the client centric mindset that we have and build on the extremely high quality of people that we have throughout the organization.

<unk>.

As I mentioned earlier nothings, perfect, we're not perfect, but theres enormous opportunity to improve the business I think there is too little collaboration and transparency throughout the business and we can we can build on that and improve that again for the sake of our clients I think historically you mentioned a long time period certainly.

A student of history of this firm as well as best as I can in a short period of time.

But.

<unk>.

We are in a decisive as we should be around several points that we should be decisive now and can actually grow this business significantly and I do think that there is.

A element of accountability.

And urgency that needs to be brought to the organization.

That is my mandate.

My mandate is to improve this business by maintenance to fix this business and country specific question.

There is nothing in me that suggests that this business can be the consolidator.

And become and impacts to the industry and a real change the industry.

At this point and so I'm very.

Excited about what I'm seeing I'm pleased about what I'm seeing it's not going to be easy road, but we can be a leader in this industry. There's no doubt in my mind Kevin.

Okay, great. Thank you very much.

Okay.

Thank you and our next question is from the line with Alex Bluestein of Goldman Sachs. Alex Your line is now open.

Good morning. This is Brian Daley on behalf of Alex Congratulations and welcome.

I really like the analysis that you ran on slide 14 the concept.

Based on the Illustrative example, you had.

What do you think the reasons are the Jonathan Hasnt been able to generate better market share across the categories, where <unk> had better performance and then I'm trying to tie that the concept of gaining market share with some of Roger's comments about prudently managing expenses and I think there was something specific about marketing. So how would you tie those two together.

Managing marketing expense relative to driving better market share.

Yes.

For the question so first off.

As you look at slide 14, right and you think about the protect and grow category.

That's really building protecting and growing the base of our core businesses that we have that are externally strong if youre pointing to is all about market share and when you think about having a great product to sell we have plenty of great product to sell but unfortunately, we havent been gaining market share a lot of it comes down to obviously the view distribution and what we've done.

And I think we have a lot of opportunity to improve that.

When you think about that or frankly anything else in an organization. There's always this push and pull right I'm not sure. We've got the balance right yet so what I mean by that is if you think about.

Any sales organization and you all know thats on the call Salesforce 101, but frankly throughout the organization, it's all of our metrics monitoring and money to put it bluntly right. So so measure.

The right metrics market share as an example monitor that metric and then kind of compensate on the metric reward that metric. So that's the push element to it.

I think we can certainly do a better job on that focusing on areas of growth focusing on channels of growth.

Focusing on clients, who are growing more than others really making sure that we are.

Putting up our sales so to speak in the right in the right wind areas. So that's the push to talk to it but then there's also the poll.

And that's what's around purpose, that's around thinking around not just our clients, but our clients clients and how we serve them better that's around the strategic vision that we're developing as you know that's around this urgency and thats buyer. So it's really both of those things pushed element and the pull elements now.

That's not going to change overnight right, especially the post side of things, but those are things that in success of organizations.

Ah has to be in place and I think that will deliver better from a growth perspective.

To tie it to your second part of your comment around around <unk> marketing, which is client facing again. It goes back to I was saying before we can focus a lot of that.

Our focus them on areas, where the rois are better on the pre analytical value look at our Ohio on things there.

Are some areas, where we're spending on the rois in quite as strong, but there are areas, where we get great Rois, let's do more of that let's lean into that and those I think are not incompatible in terms of how we want to spend our money again to deliver for clients and in the end result in a better market share for us.

Understood.

<unk> tightened somewhat.

Sort of identifying some of those rois.

And the comments I think you had said something about selectively upgrading the leadership team with a specific capabilities that you think Janus Henderson could benefit from.

So.

There are a few broadly right. So you've seen that there are some open roles given some changes originally in the organization.

Those are places we are casting a wide net I think there are some areas like ESG and others that we need to bolster some of our current knowledge base and expertise broadly, though I've been very impressed by the talent here.

It's been quite high caliber.

I'm still listening and learning about things, but if I'm very comfortable with the team I have around me right now.

People have to have again more accountability more targets and so time will tell a little bit, but I'd be I'd be surprised if this is the gist of your question I'd be surprised if their headline requiring changes to leadership at this point.

Understood. Thank you.

Thank you and our next question is from the line of Brian Bedell.

Brian Your line is now open.

Great. Thanks, Good morning, Hey, Roger and congrats and welcome as well.

Maybe just.

To go on.

Recent line of questioning maybe just start on the distribution side.

Maybe just to get in the weeds, a little bit more on that do you think some of the problem has been with the gatekeepers at the distribution.

Our organization.

Or rather more of a sales capacity issue because like you said the performance has been very good and you're punching below your weight.

So is it more of those two things.

Or is it.

And different distribution channels, where you think youre under underrepresented and then if I could.

I had one more flavor to this is there is it important that you have a message that Janus Henderson is not for sale. This is a firm that's.

I'm going to grow organically is that a very important message to did.

To deliver to your distribution partners.

So thanks for the question Brian .

Well, let me start backwards, absolutely clients look for stability and.

Heretofore there wasn't that much right, there's a lot of change in the organization.

One of my priorities is to bring stability back.

And so yes, absolutely if I were a client I want stability. So we don't have to deliver that for them.

So yes, we will we will be there for our.

The message, we want to bring to them and hopefully that's a message that I can.

Great.

But every one of our sales folks distribution partners have to do that as well so thats kind of your second part of your question.

On the first part.

Yes, My short answer is both and it depends right, which is not a very satisfying answer and just as you'd imagine start to dig into this with our team and trying to have a better understanding of it but so far I've seen both.

And it depends on the region.

Alright, Okay, and then maybe just more holistically the.

You said the underlying culture is very strong.

What do you think has been holding.

Pull back.

From from executing better just across the firm in terms of either collaboration between Janus and Henderson and across invest.

Investment teams.

Or has it been has it been leadership in the middle of the ranks.

What do you think is sort of the main thing you need to repair to enhance the culture and the effectiveness of the culture.

Okay.

So first off it is going to be Janus Henderson, who does Janus Henderson, we're one firm and Thats something that is embedded in People's mindsets and that has to continue to be the case.

I guess as I take a step back imagine iPhone diagnostic phase Greg I've looked at this a little bit and look I've spent.

All of my career.

Developing implementing and or analyzing some may say critiquing strategies or different types of firms.

And as I've seen many reasons why strategies and execution fail and in my view there are a few common issues in.

And there are probably three that come to the top for for this firm.

One is what I call the denominator problem.

And you've seen this over and over and over again, which is really having a great perspective of what are the size of the universe Youre playing in.

If you take a very narrow view kind of with blinders on.

That means Youre, just can do the same thing over and over and over again right.

A broader view a broader view of the denominator and really focus on in this industry, what our clients want.

Ben It's a it's a more successful it's a broader view give you more degrees of freedom.

And we then can deliver on what our clients want as opposed to what we know how to do I think thats. One thing that certainly has to in my mind change the kind of denominator problem that we have we have to think more broadly.

Thing is.

Typically when a strategy is purely top down units really good ideas.

Internal you've heard me say this I want folks with ideas you missed that idea that that's just top down towards becoming too rigid and theres not a lot of buying our accountability and so our strategy and execution can't can't really be just top down.

And then the third thing that bubble to the top as you asked the question Brian .

As you have to explain the why the why we're doing.

<unk> stuff again clients being first and foremost.

Not just the logic about what we're doing in the explanation of why we're making some decision, but also a broader vision about our vision and purpose, but what we're doing for our clients and so so you put all that together that at least get to I think on the right path.

Of what the strategic vision could be but then of course.

Other part of your question there is execution right.

Nutrition element to it and if you have the right by and it goes a long way, but it's about accountability, it's about urgency I've heard.

<unk> spoken about that today and.

My mandate is to have both for this firm and I'm already starting to see a willingness to change and a willingness to march in that direction as we as we built in a very short period of time.

To answer the question.

Yes.

Great color, thanks very much.

Thank you and our next question is from the line of Anthony of CLSA.

Your line is now live.

Thank you I appreciate your time couple of questions from me. Firstly, if you go back to slide 16, do you see more issues with and there's lots of holes on this slide do you see more issues with the lack of capabilities or the lack of distribution avenues, there and are there any.

Quick wins in this or is it really just a long term play on both sides of the fence here.

The first one.

Yes, no it's a great question.

I wouldn't call anything thats industry quick wins.

Sure.

Maybe quicker than others, but there certainly aren't any quick wins.

On the distribution side of things.

There are I think.

Quicker wins, I guess to use the word that we can implement.

Let me let me give you an example, I talked about that.

And we're putting them in vehicles really good and Thats the strategy that we're putting the vehicle that clients actually want to see so think of the global sustainable equity example that I've given.

We rolled that up into other 40 act funds, where clients are actually looking for this but they wanted in the REIT vehicle. So it's a packaging change again and those arent overnight either right. There are a bunch of things you have to go through but the steps you have to go through but those are things that we can effectively switch on and there are many many other examples.

Like that where we don't have the right vehicle for the right client again, serving clients' needs.

So those may be more on the earlier side of things.

Then, yes, absolutely their investment capabilities that we have to build and I think some of them will be organic but I do think to two I guess one of the questions earlier.

We're going to have to do some inorganic additions you've seen the inorganic condition. For example that we did at the emerging market debt team in the quarter Gosh I really hope you guys got to meet that team.

That was a classic client led.

Inorganic addition.

From a from a for a very good team right.

Great performance.

Great pedigree Likeminded people from a cultural perspective, and enormous potential and it fits right because we have an extraordinary strong emerging market equity team that we brought onboard we have global across many many many of our fixed income and also equities.

Our investment strategies and that fits in quite quite nicely. So so I guess the answer is it will be both but yes. There are some earlier things rather than only inorganic and only investment capabilities.

That helps.

That does thank you very much and then just a second just hopefully a quick question. If you look at Roger mentioned before obviously <unk> going to fall on average basis, and if you look at where the flows are going do you anticipate the margin to continue to trend down and I'm just given the mix that's coming through in the next couple of quarters.

So look we've given you the information that debt that Roger gave him that I gave I will let you guys to manage our models I don't think that's unreasonable to think through in terms of the mix effect of our business.

Okay. Thank you.

Thank you and our next question is from aluminum Andre Stadnyk Morgan Stanley .

Andrew Your line is now open.

Thank you good afternoon I wanted to ask two.

<unk>.

First one just around the strategies.

Are you happy.

With the size of the state strategy is a solid portfolio.

Call it other Jonathan Hence the Amendment Ali.

Sorry, I can't hear what you said at the outset.

What kind of what strategies.

Yeah.

Let's see the city is this strategy is currently being in the development stage.

Oh in the feed stage start.

So.

Look we have a lot of really interesting strategy in the feed stage, yes. The pipeline is is quite quite full.

I have to spend some time looking for it and candidly triaging some of it.

I think we have a lot of opportunity to deliver for what the clients want and what we have in our covered that doesn't mean, we shouldnt do more that doesn't mean, we shouldn't be more.

Kind of denominator question I was waiting before we shouldnt be broader in the way we think about things.

But yet there are some really interesting potentials and can see it right now.

Yeah.

Thank you and my second question I wanted to.

Ask around Comped, because with exit of inks.

Okay.

<unk> become too big of a gap in terms of the broader capabilities Janus Henderson and it's still an area of interest and demand for clients.

Is that something you think as a matter of urgency in terms of filling that gap.

So quanta is very broad right.

Andre.

To define what quanta is for us and where we have the right to win.

The landscape in the inventory of Quant internally is actually quite quite high we use quants tools across the board.

Think of what we do from an EPS perspective think of what we do in terms of helping our portfolio managers look at their portfolios.

What we do broadly more broadly from a client view of how do we think about.

Turning tools it looks like so far in my inventory in this organization.

The key will be.

And the <unk> decision is one of those that fits into the key will be to make sure. We have the right to win and whatever we do including Quad. So.

So we have to make sure we have the right to win and what we provide our clients and Qantas have to fit into that as we think about our strategy.

Overall.

Okay.

Okay.

Okay.

Yeah.

Thank you. Our next question is from the line of Patrick Tenet of Autonomous Research Patrick Your line is now open.

Okay.

Okay.

Hey, good morning, guys and congratulations Ali because it's good to hear your voice again.

I have just one kind of more philosophical question for you kind of innovative Ken's and also meant sincerely.

Sure you thought through this as you've made the choice to take the job. So I. Appreciate all the comments you've made about the opportunities you see to turn things around and I Hope Youre right, obviously, and I think thats, probably just as much or maybe more of a secular issue than anything Janus specifics.

So why are you so confident that given the firm can now suddenly talking about broader secular trend, particularly now that it looks like the current environment is actually accelerating the secular trends against active managers like channels.

Yes.

If you look at the performance.

If you look at the Investor base, if you look at how we're serving clients.

On a very special combination.

Product and client service that you rarely find elsewhere I would put what we have up anywhere to anywhere else anything else.

The challenge has been for quite some time and focus on the business that we own.

When we do today again.

That denominator question without thinking of other ways to serve our clients.

As you all know Patrick it's something that I've done before and with at least some some inklings of success and I think it really can be done here as well, which is bringing in more holistic.

Investment strategy and service model to our clients is something that we just haven't done as a firm yet.

So there is enormous potential there that doesn't mean, it's an overnight success that doesn't mean to your point it's easy.

Everybody is onboard with patients for that everybody is on board.

<unk> in that way in terms of the board and others.

But the opportunity here the foundation here is great actually be able to build.

Half of that.

I think the other element that I mentioned, this a little bit before to kind of.

It's got this great base, but effectively to your point to my point has been firing on all cylinders.

There is a cultural change that we need to spring and unfortunately that cultural change has been in some sense.

Slowed.

There are a lot of distractions in the system. So.

So the merger in my mind was certainly a very big focus of people times I think I'm going to tell you that so that was the primary thing is to get Janus Henderson together and then there were slapped I COVID-19 like everybody else and in the midst of kind of going through.

The the laboring of bringing companies together that became another issue to deal with perhaps not ideally they would have been and then you had changes throughout the organization.

I think I think one has to look back and say look with everything that's happened. So far the resilience of this organization is extraordinarily high and Thats My belief, Patrick and I will do my best to prove it to everybody on this phone and so everybody else at this firm will try to prove it my belief is that the resilience.

As a foundation for us to be successful over overtime.

Again, not easy, but we can get there because this industry and its complexity is actually pretty simple.

Have the right product that your clients want and get it to them and that's what we're that's the that's the trajectory we're going to be.

Thank you.

Thank you and our final question today comes from the line of jumped on with Evercore ISI. Your line is now open.

Alright, Thank you very much.

You talked about.

Jonathan with global reach.

Maybe talk a little bit of that.

Some low hanging fruit.

Through that lens, the regional lens, where you can affect the most change and then maybe even in areas, where you can extend their global reach.

Yes, thanks for the question.

So look there are lots of areas that again.

Coming some slack a few days in but there are lots of areas that I am seeing where there's opportunity.

For example, some of the easiest things that you see is best practice sharing.

So that's not just global but there is a lot of opportunity there. Its also intra regional so within the U S or elsewhere.

Why is this.

Distribution person having success with this fund what's the message what's the story.

Let's figure out what we're doing there and apply that elsewhere. There are a couple of really interesting examples that we're going through right now where we're very successful in EMEA with a particular product and we tested out the messaging elsewhere in the world and guess what that resonates too.

And so I think there are those kind of best practice sharing examples that we can that we can bring in.

There are a couple of other elements that I see so far besides best practice sharing one is some of our clients.

Clients are just global.

Right.

They want to be served globally. They want to be served across across the world and we didn't have that let me give an example until recently we didn't have a global head of institutional.

Right.

It.

Many of our clients right from a consulting perspective or otherwise might want to be served from a global perspective, we didn't have that and so now we're putting those things.

Two into place I think the last thing is learnings from an investment strategy perspective.

To that to that chart with the green the Reds and yellows.

If you're almost.

Sales of those charts together there are products that are that we don't have that are interesting to clients and reside in investment capabilities in other parts of the world that we don't have a great presence in for investment perspective.

That's something that we can bring together and bring to our clients. So again best.

Best practice sharing serving our global clients globally, and then having access to broader investment strategies. Those are just a few of the examples that I would argue we can bring to bear as.

As we put our whole strategy.

Packaged together.

Got it and then just quickly on heating and new product launches do you have.

Okay anything like a soft target per year of things you'd like to do and then maybe could you point to anything that might be kind of on the front burner.

I'm going to disappoint, you I really don't at this point.

That's something I have to delve into a little bit more.

The good news is that we have things that we have ceded biotech hedge fund.

<unk> is quite attractive to think of the two triple H a triple b.

Yes.

We have we talked about global sustainable equity there are other pieces there.

But I don't want to.

Bring short shrift to the non investment strategies that we're investing in I mentioned tcs or portfolio construction strategy that we have that's a tool that's not an investment strategy. It's a tool in their other tools that we have I think in the hopper that could be interesting to help our clients. So so.

So well that we're going to have to invest in right hopefully that's been clear and it will take time, but we think we have a competitive advantage that we can bring to the market.

Got it thanks very much.

Thank you and we have no further questions today. So it's my pleasure to hand back to Mr. <unk>.

Closing remarks.

Well, thanks very much.

Harry Thanks, very much everybody for joining and for engagement with us.

And to come with us on this journey.

As I said a couple of times during the call. There is a lot to like attendance Henderson and there is much work to do so bye for now.

Thank you to everyone who has joined the call today. This concludes the Janus Henderson second quarter 2022 results briefing and now disconnect your lines.

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