Janus Henderson Group - Earnings Call - Q3 2020

Transcript

Speaker 0

Good morning. My name is Nicole, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group Third Quarter twenty twenty Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.

In the interest of time, questions will be limited to one initial and one follow-up question. In today's conference call, certain matters discussed may constitute forward looking statements. Actual results could differ materially from those projected in the forward looking statements due to a number of factors, including, but not limited to, those described in the forward looking statements and Risk Factors section of the company's most recent Form 10 ks and other more recent filings made with the SEC. Candice Anderson assumes no obligation to update any forward looking statements made during the call. Thank you.

And now it is my pleasure to introduce Dick Weil, Chief Executive Officer, Janice Henderson. Mr. Weil, you may begin your conference.

Speaker 1

Welcome, everyone, to the third quarter twenty twenty earnings call for Janice Henderson. As usual, I'm joined by our CFO, Roger Thompson. Let me start by saying that I hope all of you, your friends, your family continue to be safe and healthy. I'm really pleased to be back physically in our London office, taking this call at a safe distance alongside Roger. As we've said on previous calls, we'd like to take a long term view of our business.

That's somewhat at odds with the quarterly reporting cycle. So to that extent, what we've done is to say on the first and third quarter calls, we'll run through quarterly results, and then we use the second and fourth quarter calls to do a bit of a deeper update on the business and strategy. In line with this in today's presentation, I'll just give a brief summary at the start of the quarter from my perspective, and then I'll hand over to Roger, who'll go through, the results in some more detail. Following our prepared remarks, we'll take your questions. So turning to slide one.

Our third quarter results were strong. AUM increased 6%. Our long term investment performance was solid. Adjusted EPS of $0.70 was better compared both to prior quarter and to a year ago. Our balance sheet and cash flow generation remained very strong as we continue to return capital to shareholders during the quarter, both via dividends and also repurchases.

Roger will take you through the financial details, in more depth. But what I'd like to do is just try and tell you how I think about the quarter sitting in the context of our broader story, which really is about our strategy. If you turn to slide two, it's a reminder of our strategy, which is simple excellence. We're making great progress on delivering our strategy, building a strong and resilient foundation, which is designed to deliver organic growth and to increase profitability. Our path to achieving simple excellence is founded on the five planks, referenced on page two.

And let me just quickly turn to each one of those five planks. First, producing dependable investment outcomes. Our long term investment performance remains solid. Some of our strategies took a hit in the change in markets and COVID related beginning part of this year, but a number of our other strategies have done extremely well. And we've had the diversity and the resilience to to continue to drive forward.

And overall, long term investment performance remains solid. The second plank is that we have to excel in distribution and client experience. We've seen a significant improvement in net flow in in this quarter. We can definitely, see those numbers moving around, particularly with lumpy institutional flows over time, and it's hard to draw sort of an extrapolation line from quarter to quarter. But to me, I'm seeing a good momentum in a number of areas in our business, and I'm seeing improvement, in the execution.

And so I think, we are definitely getting closer to excelling in in distribution and client experience, which puts us on a path to achieve our objective of organic growth. Just as an example, our fixed income retail flows were positive across The US, EMEA, and APAC and have grown at double the industry rate in US retail during the quarter. Another example is we're capitalizing on a strong list of global focused products, which has been, for our global head of distribution, Suzanne Kane, and her team. They've put in this global focused product program, and it's working well. We're focusing on products with high growth potential, and are pleased with the year to date growth in those particular products.

The third plank is focusing on, an increasing operational efficiency. In the quarter, we've completed some major projects that simplify the way we operate our business, and that also served to free up capacity so that we can turn our attention not only to to current BAU business improvements, but also generational steps forward in our infrastructure. We completed back office systems with that. We consolidated TPAs. We took a number of other important steps during the quarter, that move us forward.

We told you last quarter also that we'd be taking a hard look at our business model and expenses. We're doing that, taking a careful and thoughtful approach. We need to balance cost savings against appropriate levels of continued investment, that are required to effectively drive our growth strategy and get us to simple excellence. We're making really good progress in the project. It's been a focus and and gotten attention from our board as well as the management team, and we've had the help of some excellent third party consultants.

And so we are really making progress. We've identified some very tangible, areas of savings that we'll be pursuing, and we also have a number of other ideas that that we're continuing to work through. I look forward to updating you on on progress in this area as the work progresses, and I expect to be able to give you more detail, about how we're doing this in the fourth quarter when we give you our expense guidance for the upcoming year. The fourth plank in our strategy is proactive risk and control environments. We further strengthened our team, with some senior hires, especially our our media head of compliance, which is an important position for us.

And we're taking steps to further strengthen control environments and relationships with the regulators around the world, so I'm pleased with the progress in this area. The fifth point is to develop some new growth initiatives. We're focusing on areas of strength for us combined with where we see our clients moving. Here, we're committed to delivering growth in a profitable way. Example, we continue to support growth in ETFs.

We've seen really good momentum in our VLNA and our JMBS ETFs in The US. Last week, we launched a triple a CLO ETF called JAAA in The US. It was the eleventh largest ETF launch out of, 1,600 in the last ten years. Outside of ETFs, earlier this month, we also launched a UK asset backed securities fund. I I think we're doing good work and continuing to develop, targeted new growth initiatives.

Before turning it to Roger, let me reiterate a commitment to delivering the benefits of our strategy to all of our key stakeholders, our clients, our employees, and our shareholders. We are driving forward in this regard with as much urgency as possible. We know that time is, expensive and not always our friend, and we are really working as fast as we can to deliver on this strategy. Let me say just a word about in tech. We've talked before about how we are facing some real challenges in our in tech business, driven primarily because of a couple of periods of underperformance in recent history in their investment strategies and also facing the challenge that a number of our clients are barbelling their portfolios of space.

They've been fighting this battle for a while, and this quarter represents improvement. They had better investment results. They also had better flow results. And so as we work, to face the challenges in the Intech part of our business, we know it's gonna take time to fully heal and get back to health, but this quarter does represent a step forward in our in tech business, and that's good. But as we think about the lumpy nature of that business and the large institutional account size that they deal in, it's hard to extrapolate from quarter to quarter.

And it's fair to say there's there's still some very significant, risk remaining in our in tech business as we go forward. And it's difficult to predict exactly the quarter to quarter path on the return to health of that part of the business. Looking away from InTech, when I look at the rest of the business, I think we can see a clear path to continuing to drive forward towards organic growth perhaps a bit more quickly. I'm optimistic that the rest of the organization continue on the path and continue with the steps that we've made to this quarter, and I really believe we are on the right path to achieving organic growth and driving greater profitability and building our business for the long term. So with that, let me turn it over to Roger to take you through the quarter's results.

Speaker 2

Thank you, Dick, and thanks everyone for joining us. Starting on slide four with investment performance. Investment performance remained solid with 58%, 61%, and 73% of firm wide assets beating their respective benchmarks on a one, three, and five year basis as of the September 30. The one year performance result in our equity capability is primarily from segments of our US equity business, which we previously noted. We're encouraged by Intech's improvement in its one year performance as Vic just mentioned.

However, the longer term performance will take longer to turn and hence remains a concern. Relative performance compared to peers is strong with 68%, 74%, and 78% of the AUM represented in the top two Morningstar quartiles on a one, three, and five year basis. Turning to total company flows. For the quarter, net outflows were $2,900,000,000 compared to the 8,200,000,000.0 last quarter and 12,000,000,000 in the first quarter, and they're the best they've been with time series that we check here. The quarterly flow number reflects lower redemptions primarily from the institution business, which were partially offset by lower gross sales in the intermediary channel as we typically see seasonally lower retail sales during the third quarter.

We ran across strategies and regions. Additionally, we're optimistic that we're through the majority of the redemptions that were likely as a result of the changes in the investment management team that we made over the last eighteen months. The intermediary business saw positive flows in our fixed income and multi asset capabilities, while outflows continued in our US mid and SMID cap capabilities due to short term underperformance, which we identified as a risk on last quarter's call. We're pleased with the improving flow trends and the broader business momentum as we progress through 2020, though we know there's still much work to do. As Dick just said, excluding INTECH, which is likely to be take longer to turn, we're optimistic about returning to positive organic flows in the near term.

Moving to slide six, which shows the breakdown of flows in the quarter by capability. Equity net outflows for the third quarter were $5,100,000,000 compared to $4,200,000,000 in the prior quarter. The quarterly outflows were primarily from elevated outflows in certain US strategies due to short term underperformance. Flows into fixed income were positive 1,800,000,000.0 in the quarter compared to negative 700,000,000 in the second quarter, primarily due to lower mandate redemptions, but also growing positive flows in retail. In retail, we're capturing market share and seeing positive flows across several strategies around the globe.

Intech outflows improved in q three to 100,000,000. The result includes a $1,000,000,000 funding as of Australia. We're pleased with Intech's improving short term performance and the better flow result this quarter. But as we've said previously, Intech is mostly institutional, and the results will likely be lumpy and fluctuate from quarter to quarter. Total inflows from multi asset were $600,000,000 driven by inflows into the balance strategy, and alternative outflows were $100,000,000.

Slide seven is our standard presentation of The US GAAP statement of income. Moving to slide eight, which shows a strong set summary financial results. There's a lot of green on this page. Adjusted third quarter operating results were up compared to the second quarter, primarily from a 10% increase in average AUM. Total adjusted revenues in the quarter increased nine percent compared to prior quarter due to higher average AUM, partially offset by seasonally lower performance fees.

Adjusted operating income for the third quarter of $162,000,000 was up 17% over the prior quarter, driven principally by higher revenue, partially offset by higher expenses. Third quarter adjusted operating margin was 36% compared to 33.5% in the prior quarter and 37% a year ago. And finishing up the financial results, adjusted diluted EPS was $0.70 for the third quarter compared to $0.67 for the prior quarter and up from $0.64 a year ago. On slide nine, we've outlined the revenue drivers for the quarter. Higher average assets were the biggest driver of the quarterly change in adjusted total revenue.

Net management fee margin for the third quarter was 45.8 basis points, up from 45.7 basis points in the second quarter and up significantly from 44.4 basis points a year ago. The margin remains resilient, and the increase of 1.4 basis points over the past twelve months reflects the ongoing mix shift and our focus on quality flows. Performance fees were $7,000,000 in the quarter versus 17,200,000.0 in the prior quarter where there are more accounts eligible for fees, but up from 1,400,000.0 in the same quarter of last year. We currently expect q four performance fees to be ahead of q four last year, but that will obviously depend on final performance for the year. For mutual fund performance fees, the third quarter was a negative $5,000,000 Turning to operating expenses on slide 10.

Adjusted operating expenses in the third quarter were $288,000,000 which was a 5% increase compared to the prior quarter. Adjusted employee compensation, which includes fixed and variable staff costs, was up 6% compared to the prior quarter, predominantly from higher profit based incentive compensation. Adjusted LTI was down 13% for the second quarter from the impact of the mark to market adjustments in both quarters and social security taxes on vestings in The UK that occurred in the prior quarter. In the appendix, we've provided the usual detail on the expected amortization of existing grants. The third quarter adjusted comp to revenue ratio was 43.9%, in line with our mid forties guidance.

Adjusted non comp operating expenses were up 12% compared to the prior quarter. The increase is primarily related to marketing, FX, and professional fees. For the year, we anticipate our non comp expenses to be down low single digits compared to 2019. And finally, our recurring effective tax rate for the third quarter was 21.3%, below the statutory rate guidance of 23% to 25%. The lower rate in the third quarter was impacted by a US state refund received during the quarter.

And lastly, slide 11 is a look at our capital management. Cash and cash equivalents were $927,000,000 as of the September 30, of which Janice Henderson's portion was $909,000,000. As a reminder, you should think about the amount of cash we have on the balance sheet as what the board and managers are comfortable operating the business with due to regulatory requirements, a conservative working capital buffer, and cash set aside to meet the 2025 debt maturity. As we said previously, we remain committed to returning excess from future cash flow generation to our shareholders. During the third quarter, we paid approximately $66,000,000 in dividends to shareholders and today have declared a 36¢ per share dividend to be paid on the November 23 to shareholders of record as of the November 9.

And in the quarter, we purchased 2,400,000.0 shares of our stock for a total of $50,000,000. And since we started our buyback program in q three twenty eighteen, the buyback program has been 9% accretive. Now I'd like to turn it back over to Dick for a few comments before we begin q and a. Thank you, Roger.

Speaker 1

Before handing over to the operator for questions, I'd like to briefly address, the elephant in the room, recent investment in our firm. As you know, Tryon has made a significant investment holding approximately 9.9% of our shares. Look. We value input and good ideas from all of our shareholders. If TriNet has specific views or suggestions to share with us, we certainly will consider them as part of our broader thinking and and take that seriously.

We are deeply committed to driving the shareholder value creation. Like most public companies, we can't really comment on market rumors or speculation. Our board and management team will act responsibly and will act in the best interest of all our Janus Henderson shareholders. Our plans and focus, though, remain centered on delivering simple excellence, which we believe is the right path forward. We're making progress against the five planks of our strategy, and we're moving towards fully unlocking the gross synergies from the Janus Henderson merger.

Achieving excellence takes time, and that can be frustrating. But it's the right path that we're on, and our priority remains to deliver simple excellence and growth. As we turn to q and a, please keep your questions directed on the quarterly results as there there really isn't that much more we can say about this trying situation. We appreciate your understanding. With that, let me turn it over to the operator for your questions.

Speaker 3

Thank you. Ladies and gentlemen, at this time, we will conduct the question and answer session. In the interest of time, questions will be limited to one initial and one follow-up question. If you would like to ask a question, please press star one on your phone now, and you will be placed in the queue in the order of your question. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Once again, please press star one to ask a question. And we'll pause for just a moment to allow everyone an opportunity to signal for questions. And we'll take our first question from Ken Worthington with JPMorgan.

Speaker 4

Hi, good morning. Thank you for taking my questions. Thank you for your your prepared remarks. I think consolidation remains a theme today for the industry. When Janice merged with Henderson, you indicated that you had the size and scale at the time to compete.

But if you looked at over the next, you know, few years that you might not be in a position or your position would be dramatically enhanced by the the merger with with Henderson. So as we think about Janice's size and scale today, do you think you have the size to effectively compete in the global asset management business over the next decade at your current pace of growth, or does Janice benefit from pursuing acquisitions, you know, to better position the company again for the next decade?

Speaker 1

Hi, Ken. Dick here. Thanks for the question. Size by itself helps a few things. Right?

It it helps your, ability to capture economies of scale. It helps your ability to, invest in a breadth of ideas. And it helps your, ability to invest in your infrastructure, and it probably also helps you build a a broader, brand with with key clients. So there's some really good things that happen with size. But there's some challenges with size.

It typically doesn't help alpha, and it typically doesn't help excellence. And getting through consolidations or accumulating inorganic transactions involves a huge amount of disruptions, which frankly clients penalize very heavily. So I think our priorities are clear. Our first and highest priority is to deliver excellence for the existing clients that we have. Our second priority is to drive growth organically.

And if we have the excellence and the platform well established through those two things, there probably will be inorganic things that may well fit that could enhance the scale and and add qualitatively, to our business, in a way that that more than offsets the disruption. But the key is you've got to be delivering that excellence. Size without the excellence is just a bigger problem. So we're pursuing that appropriate level of excellence first as our highest priority. We'll keep trying to drive to get to organic growth.

And I think that firm that has established itself in that space is frankly a better, a better acquirer, and is is more ready to to take on the challenges of some future consolidation. But right now, our focus really more is is delivering on the excellence. If you think about how pressured we are to consolidate in the near term future, we have a margin this quarter of 36%. That's pretty good. So, I don't think we're desperately, missing out on economies of scale at the moment.

And I think our our our priorities are correct, focused on delivering on the existing simple excellence strategy, getting to organic growth. And, and with that said, we always have an ear open to opportunities. We're always listening and talking to people about potential ideas. And if we find something very special that would more than offset the disruption that it brings, we'd certainly be interested in something like that. But, the odds of something like that coming along that's that's such a great fit, you know, that doesn't happen very often.

Speaker 4

K. I your comments were really helpful. Thank you very much.

Speaker 3

We'll take our next question from Nigel Pitoway from Citi.

Speaker 5

Great. Thank you very much. Just first of all, obviously, with the flows that you're you're trying to sort of get organic growth in, I mean, what what do you think is gonna be the biggest driver of that? Is it gonna be sort of equity outflows diminishing? Is it gonna be stronger growth in fixed income?

Where where do you have the sort of greatest hope that the improvement will come to to push you into a growth situation?

Speaker 1

Hi. It's Nick again. Thanks for that question. You know, I think it's it's with us, we're a complicated story when it when it comes to something like that. We have so many products operating in so many parts of the world, and they're moving in different directions against, different market backdrops.

It's hard to give you a really simple pithy answer to your question. You know, we've seen our traditionally extremely strong Denver equity franchise, face some challenges through this market environment this year, particularly small to mid cap investing, which has been right at the heart of the the very best of our, investing, has has taken a challenge. On the other hand, fixed income, European investing, some of our absolute return strategies have all taken, the opposite tack and have demonstrated really substantial outperformance, during the period. And so I think we're going to be a bit of a complex story in all periods with some products moving, better than others in different market environments, and it's the balance. But wrap, if you wrap those things with excellent client service, with excellent client experience, with a really strong, infrastructure, that delivers the right information at the right time to the right people internally and externally, then I think you have the opportunity to be resilient through those different parts of the market cycle.

And if everything you're doing is excellent, I think you'll you'll win across time with that hand, and that's what we're trying to accomplish. And so there'll be parts of our business that will go through challenges in every market environment, but hopefully, we can we can consistently more than offset that with all the good stuff we're doing. And I think we're on the right path to delivering that. We're just not quite there yet.

Speaker 2

Hey, Nigel. It's Roger. If I if I had a couple of specifics, you know, Dick's mentioned fixed income. We are you know, the fixed income performance you can see is in a totally different place than it was, you know, a few years ago. It's very strong across the board.

And in a market where fixed income is is growing, we're taking market share. So that's that's, you know, that's around the world. We're seeing we're seeing outsized market flows against the market in the in the in The US and also around the world. In in in equity, the pipeline for for for growth in institutional equity, there's a number of interesting things there. Nothing funded in q three, but there are things there are things there that we we would hope and expect to come in in the in in the future.

You know? And and in new products, you know, there are our ETF franchise is growing growing really well and really fast, continued growth in v and l a, and JNBS, as Dick mentioned earlier. And we've shown that we can be a real player in that space. You know, the, the the JAAA that we launched a couple of weeks ago, you know, the eleventh largest eleventh largest fund, ETF launch over the last decade. So we're pretty excited about what we can do in that space as well.

So there are there are plenty of areas where, that that there are you know, that that we're seeing we're seeing growth. There are couple, as Dick said, there will be in a business as diversified as ours, which, you know, which have challenges short term, but they're fantastic investment teams.

Speaker 5

Okay. Thank you for that. And then maybe just as the follow-up. Obviously, you seem to have deferred sort of further detail on the sort of cost efficiency program by a quarter. And you obviously mentioned the need to balance off investment with with actual savings.

I mean, how how are you feeling about that balance currently? You know, is do you think that most of the savings that you're gonna generate are gonna be reinvested or or or will there be some sort of relatively meaningful impact on the on the overall cost base?

Speaker 2

Yeah. I don't think anything's nothing's nothing's changed there, Nigel, is you know, with with three, four years through the merger, and as we said on the last call, it was time to, you know, time to the right the right time to be looking at our business, how we do it. And and, obviously, you know, COVID has COVID has given us an opportunity to look at things in a different way. So we've done, you know, we're working through a a a detailed piece of work. As Dick said, you know, this business, you know, is it's really important to do this right, and not to disturb the momentum that we've got because we are on the right track.

So, you know, there's there's we're working through that. You know, we'll give you updated guidance as we normally do around around q four. We are investing you know, we've been investing in our business. We will continue to invest in our business, but there are efficiencies that will drop to the bottom line. Yes.

Speaker 5

Okay. Thank you.

Speaker 3

And we'll take our next question from Brendan Carrig from Macquarie.

Speaker 6

Hi. Just the first question for me. Just, Dick, just a clarification on the comments you made just around the flows to Intech. Is it fair to assume that the reason you're sort of alluding to the the the potential troubles in those business isn't necessarily that there's a pipeline of of outflows or redemptions that have been requested, but it's more that it's it's probably more likely that you do get a normalization back into outflows over the quarter just given the the performance track record.

Speaker 1

Yeah. I think that's a fair thing to say.

Speaker 6

Okay. And the second question I had, just on the buyback. So, obviously, there's a fair bit of capacity left, about half of of the capacity left to get done in the quarter. Is it possible to get through the entire amount in the quarter, or or could we expect that there might be some some, yeah, some capacity that was left as as the year ends of that $200,000,000?

Speaker 2

Yeah. But it's Roger. The the well, I think we're a 103,000,000 through the 200,000,000 that the board authorized through April through April next year. We'll we'll we'll, you know, likely continue with the same structured buyback program that we've that we've had before, you know, looking at looking at market volumes and the like. So I I wouldn't expect us to do it in one quarter, but, you know, we'll you know, and you can you can see in at least in Australia, you can see what we're doing on a daily basis.

Okay. Thank you.

Speaker 3

And we'll take our next question from Ed Henning from CLSA.

Speaker 7

Thank you for taking my questions. Just two from me. Can we just start on equities and the and the gross sales? If you look at the last four quarters on slide 17, they've been trending down. Is this a concern for you that the sales aren't coming through?

As strong as that were?

Speaker 2

Two pieces to that. Yeah. There's two pieces to that, I mean, partly one of it is what I just referred to on on on institutional. Q three, there was nothing big that funded an institutional, but but there is you know, equities is part of that institutional pipeline I talked about. So I think that's just timing.

Two other on the on the intermediary side, it's more in line with where we were q three last year, and we are a little bit slower in The US given that short term underperformance in in part of The US part of The US strategy. So I think, yeah, not certainly not concerning on the institutional side and not concerning, you know, with turning the corner, as Dick mentioned, in in what's been a very powerful franchise in Europe. You know, our our US our US equity capability, you know, is a is a very powerful engine. That is that is that is seeing poor poor performance over the last six months, which will slow us down for a little bit there. But as I said, that's a that's a great team doing great work, and and they'll back strong, I'm sure.

Speaker 7

No worries. And just a second question. If we look at both the the near term and the medium term, you talk about a mix shift that's been helping margin as you push, you know, more into and get more flows in for FX and e and ETFs. Can you just touch on how that how that'll shift your mix on your margin going forward?

Speaker 2

Yeah. I think that's that's that's very fair, Ed. You know, we've been winning more in more in in higher fee, and and and some of the assets we've been losing, as we've mentioned before, been have been lower fee assets. You know, we have got a a very broad church of of product, and the pipeline is is is across that. So, you know, we've always said, you know, there is yeah.

We're not we're not immune to we're not immune to fee pressure. So, you know, you you shouldn't expect that fee that fee margin to improve forever. You know, the fact that it's improved 1.4 basis points over the last year, I think, sets us apart from from a significant amount of the competition. But but over time, you, you know, you should you should see that flatten out and and, you know, and probably you know, over time, we'd expect to see that that fee margin come down a little bit, and that's why we need to run an efficient, effective, excellent business to look at some of those efficiencies to to maintain and and possibly further improve the margin. But, yeah, if we if we win significant mandates in some of our enhanced equity, some of our, you know, buy and hold fixed income type products, they're obviously at lower fee.

Speaker 7

Yep. Okay. Thanks.

Speaker 3

Take our next question from Andre Stadnik with Morgan Stanley.

Speaker 8

Good morning or good afternoon. I just wanted to ask two questions. Firstly, on the operating margin, it improved to 36% in the quarter. Is that some of the early wins on the cost transformation coming through, or is that, you know, you know, better market conditions helping out as well?

Speaker 2

We're yeah. Yeah. What you've got at the end of this quarter, you've got a market that's improved. We've got less performance fees than we had in q two. Q three is a very light performance fee quarter.

We're still relatively light in in some areas, you know, from from low COVID type spending. I guess you define it as t and e. Our marketing is up from q two, but still below, where it was a year ago. So it's a real mix of things. But no.

I don't sorry. And and, yeah, it's, you know, it's it's us running an efficient business. You know, we're not this isn't a I I guess what I wanna differentiate on is we're not doing something that we, you know, that we won't do in any way. You know, we're we are constantly looking at running an efficient business. So, you know, there is a how do we fundamentally look at doing things differently?

That's that's right. But we are so that there are things that have come through this quarter. Yes, guess. But there will always be things where we're looking and driving efficiency. But, yeah, 36 is is the right margin for the quarter.

Speaker 8

Thank you. And the second question, I wanted to ask about, you know, progress in in Japan. And, you know, what would, you know, what would it take to accelerate the progress? You know, do you think there needs to be, you know, more product that's, you know, tailored and more popular with the Japanese market? Or do you think, you know, your partners in Japan, you know, would need to push harder on sales and distribution?

You know, because it seems like the Japanese progress at sort of the instrument has slowed recently.

Speaker 2

Yeah. Hi.

Speaker 1

This is Dick. Thanks for that. Yeah. I agree with you. I think we had more momentum in Japan, and it's it's slowed.

There's still some good things happening there, but but I think it's a it's a fair observation to say we need to to reenergize and and dig deeper on how we're pursuing that business because, you know, we had more growth earlier on and and it slowed a bit. So I don't have a a simple magic answer for you on that one. We're aware of it. We're focused on it, and we're asking ourselves the questions about what do we need to do to reenergize and and reinvigorate some of the stuff going on in that space. It's not an easy business, and it's very competitive in Japan.

They're very well informed and sophisticated client base, but, but we need to keep pushing to do better, and and we are. I don't know, Roger, do you have any

Speaker 2

There's there's a couple of things I think which are relevant. What we haven't had is a sort of blockbuster launch. Right. A billion dollar, you know, at at a single go. There's a couple of things we've talked about over the last few quarters that I think, you know, that are more flow product.

And as I always describe it, those things, they're more sort of the CFO's friend because that's money that just comes in in the classic river of nickels over time, and is probably, you know, quite possibly even more valuable. So we launched, you know, a year or so ago in the summer of nineteen, we launched our, adaptive allocation strategy in Japan for Daiichi Life. And at the end of last year, we launched a product for Daichi Frontier Life, which we talked about in those. Those two have have been, you know, raising money a little bit every day, every month. They're now around a billion dollars between the two of those.

So things like that are, you know, are are great to see coming through on that on that regular basis, but they're not they don't stand out. So it's a there's some positives there. And I think the other piece, you know, which which remains very positive from from Daiichi is obviously the growth of the business in Australia with Tau, which has which has happened over the last over the last

Speaker 9

eighteen months or so. So some real

Speaker 2

some real growth down there.

Speaker 10

Thank you.

Speaker 3

And we'll take our next question from Patrick Davitt with Autonomous Research.

Speaker 9

Hi. Good morning. Thanks for taking my questions. Appreciate your candor on kind of the risks at NTEC. Could you remind us of the concentrations there?

I think a few quarters ago, you mentioned a handful making up the totality of the assets and and also remind us, kind of the seasonality of that and those decisions more of a four q event or kind of spread throughout the year.

Speaker 2

I think the the decisions aren't aren't necessarily yeah. Yeah. Clients are looking at clients are looking at mandates over the course of the year. So I don't think there's anything any real seasonality there. But you you're right.

There are there are, yeah, Intech is a is an institutional business, with some substantial mandates, and and should any of those, you know, should we yeah. This quarter, we've won a billion dollar mandate, but we have several multibillion dollar mandates, in the existing book. And the five largest strategies of Intech make up almost 60% of their business. So, yeah, there is a there is a concentration there. Great.

Thank you. And then Does that does that help, Patrick?

Speaker 9

Yeah. That's very helpful. Thank you. And then The UK real estate strategy has been getting some press. I don't know if you can give us an idea of what the pipeline of redemption is there or or any kind of view to when that might reopen.

Speaker 2

No. We've said that that we've said that that, is unlikely to reopen until the first quarter of next year. We're still building liquidity in it. The the material uncertainty clauses that were across the industry have been raised. The fund, is, is top quartile in in what it does and and how it's it's already performance, and the and the asset mix in there, I think is is pretty strong.

But we are we are cautious about about, opening that fund, and seeing, and seeing outflows. And and and, therefore, we want to make sure that need to make sure that, we built the right amount of liquidity in it. What there is at the moment, despite the the material uncertainty clauses being released, is, withdrawn, is that there is, there is very little transit, very few transactions going on in the market. So so selling, selling properties, is taking time. So that's that's what's going on there.

So, yeah, that's the is yes. There will be some outflows when that reopens in in q one next year. We'll look for q one next year because at the moment, it is still soft

Speaker 1

close. Next

Speaker 2

The fund is about 2 and a half fund is about 2 and a half billion dollars.

Speaker 9

Yes. Thanks very much.

Speaker 3

We'll move on to John Dunn from Evercore.

Speaker 10

Alright. Thank you. Can you talk a little bit about some of the investments you're making in the intermediary channel, potentially looking at new vehicles and also how those relationships are evolving?

Speaker 2

I think we're all yeah. The the product launches, you know, that we've that we've made that we've made over the last over the last few years and continue to make, particularly around getting the right the right instruments in the right in the right vehicles around around the world. And we've seen we've seen success. Interestingly, looking at, you know, looking at thinking that when we were at the board yesterday, you know, we were looking at where flows have come from, and they've actually there a lot of flows from products that didn't exist a few years ago. So the products we launched, over the last few years, whether they be vehicles of existing products, so take something like strategic income is a great product that's been sold in Europe.

We launched this in The US a year or so ago at Developed World Pond. That is now the third largest selling in The US fund in The US. We've talked about our ETF franchise, which is growing, you know, from a low base, but I think we've now got around 3 and a half billion dollars in ETFs. And JAAA, we're pretty excited about being a that that being another substantial product. You know, our our global stable product launched in The US, obviously, where there is a a lot of interest there on multistrack products.

So there is there is plenty of plenty of work going on both in terms of new product, but also making sure that we've got the right vehicles in the right places.

Speaker 10

Got it. And then kind of a corollary to that. You mentioned customer experience, which is becoming more and more important. Could you give us a flavor of kinda what differentiates you guys in the different distribution channels in that vein?

Speaker 1

Yeah. You know, I think customers want they want investment excellence consistently. Second, they want the right information at the right time. Third, they want access to the real thought leadership of your firm that, in a convenient and easy format, that makes them better at their jobs, that enriches, how they engage with their bosses and their clients, and makes them, better. And and if they have a problem and a question or a complaint, they want you to deal with them as as efficiently and friendly and effectively as as humanly possible.

So at every stage of that, we've been investing in improving the technology to enhance our ability to do that, improving

Speaker 11

Got it. And then the increase in g and a and professional services quarter over quarter, did that have to do with this efficiency plan just because some of your peers we've seen been flat to lower in this COVID environment? So just wondering if we could get a little more detail on what drove that.

Speaker 2

No. Sure. That's the there's a couple of things in there. Partly, that's FX. So sterling strengthened in the in the quarter against the dollar that comes from the revenue line and the cost line.

So a part of that is that a part of it is is some one off one off consultancy that we've that's that's around there, but not really not really around the investment investments that Dick's talking about. Now we've been investing, and we will continue to invest in the business. That's built into the guidance we've got around us being lower than lower than last year. And, again, like I said, we'll we'll continue to update update guidance, and we'll give you that at the end of the year.

Speaker 1

Great. Thank you.

Speaker 3

And we have no further questions at this time. Ladies and gentlemen, that brings us to the end of our conference today. We do appreciate your participation today. Have a good rest of your day.