Aberdeen Group Plc (ABDN) Earnings Call Transcript & Summary

Hello, and welcome to the Aberdeen First Half Results for 2021. Today marks the next stage in the development of a company with a near 200-year history. I'm going to give an update on our progress against our strategic priorities that we shared with you in March and Stephanie Bruce, our Chief Financial Officer, will take you through the financial results. I'll wrap up with how we're investing to grow the business, then we'll be joined by Chris, Rene and Noel for the Q&A, and we'll be delighted to take your questions. At our full year results in March, we outlined our strategy to return the business to growth. This strategy is about developing a more balanced business that is less pro-cyclical and is a client-led strategy, focused on the 3 vectors of our business, Investment, Adviser and Personal. I described the growth journey and how it would look for you. And in particular, I said that in the near term, we would arrest the decline in revenue and improve our operating efficiency before creating a medium-term pattern of high single-digit revenue growth and further positive operating leverage. We have made a strong start in delivering those objectives against the background of supportive markets and a recovery from last year's early COVID challenges. We have delivered the highest rates of revenue and earnings growth since the merger with fee-based revenue 7% higher, adjusted operating profit, 52% higher and adjusted diluted EPS more than doubling. We also set the goal of becoming a more efficient company, and we targeted a cost/income ratio of around 70% as we exit 2023. Likewise, we have made a solid start with a full 6% improvement, recording a first half of 79%. We are at the start of our growth journey. -- and we're working hard to create momentum, and there is now clear evidence that our 3-vector model has sharpened our focus and improved our execution. And you'll see later, our investment performance remains solid, and I'm pleased to report that we completed our technology conversion onto a single fund management platform. Whilst a huge achievement in itself and a great simplification of our investment processes, it does not signal the end of improvement, but rather the beginning of a relentless drive to continuously improve our investment processes, improve our use of data and improve the consistency of our client outcomes. Whilst not yet recording asset growth at a group level, we have got very close with net flows -- net outflows of just GBP 1.9 billion ex liquidity compared to GBP 6.8 billion in the same period last year, and this is -- and this now has a negligible impact on our revenues. Here, you can see the details of each vector. Institutional and Wholesale is our largest business, and excluding liquidity, we further improved by 89% from outflows of GBP 7.5 billion in H1 last year to just GBP 0.8 billion this period. This is the best performance since the merger and is a solid position from which to further improve. The levels of outflows in insurance reflect normal de-accumulation activity. Of course, our clients' market strategies, which we are working with them on will, through time, begin to offset the normal pattern of de-accumulation. In the period, the low level of activity in bulk purchase annuities means we're not yet growing the insurance category. Adviser has recorded the highest net flows in 3 years and the first half of 2021 is equal to all of last year. Personal, too, had a significant milestone with a record first half and net flows greater than the cumulative performance since the merger. In March, I shared our growth strategy, and I outlined our priorities, the foundation of which is having the right talent in place across the entire company. The first 6 months of the financial year has seen the build-out of the new management team tasked with driving growth and executing cleanly against these strategic priorities. Our new operational structure creates clear lines of responsibility and accountability, aligned to the priorities of each growth factor. Caroline Conlon is joining us in November as the CEO of Personal Wealth. Noel Butwell is the CEO of Adviser. In the Investment sector, we've moved to a more regional model with global connectivity. Rene Buehlmann started in March in leading Asia, and he will talk to you about that. Chris Demetriou has started in his new role as CEO of U.K., EMEA and Americas. I'm now going to provide short updates on 4 of these priority areas, starting with our ambitions to grow in Asia. As you know, I have invested a lot of my career in Asia as a part of the world I have extensive knowledge about and a passion for. The opportunity in Asia is significant as the economic center of gravity of the world continues to move east. Already, more than half of the world's population live in Asia, and it will become home to half of the world's middle class. Investment assets are predicted to grow at around 12% per annum over the next 5 years, reaching 20% of global assets in 2025. Building on our expertise in the region is a major focus for us, and it starts with having the right leader. Rene Buehlmann joined us in March to lead the Asia Pacific business. We are well known and have a good footprint in Asia with locally managed assets of GBP 46 billion and we're managing GBP 18 billion of assets for our Asian clients. We expect demand for our global capabilities to grow as individual investors and savings institutions in Asia expand their investment horizons beyond their own markets. Through our own regional presence and through distribution partnerships, we're aiming to significantly grow our Asian business. Let me hand to Rene, who will explain how he is leading our very strong team to growth in Asia.

Hello from Asia. As many of you know, we have a very strong heritage out here in the region. Our business operates currently across 9 domestic locations with 500 staff and investors on the ground in each of these countries. We are reenergizing for growth, which is why we have exited earlier this year, our Indonesian domestic operations. Our revamp Asian strategy is basically based on 3 pillars. First, we want to accelerate the regional distribution of all of our global products and in particular in the wholesale channel. As a great example, serves our new partnership with Citibank where Aberdeen products will be available on Citi's digital banking and investment platform, Citi Plus, which opens up the wholesale distribution of our products to Citi's regional retail clients. Second. For investors, China is still one of the biggest alpha-generating markets. We have a very strong Asian and China investment franchise with over GBP 46 billion in AUM. We will strengthen our team further and combine with our deep global sustainability capabilities to become a leader in Asian sustainability. This will benefit both our regional and our global clients who are still under invested in China. To support this further, we have also just launched our Aberdeen Sustainability Institute in the region and thereby also support transition to net zero here in the region. Lastly, we want to leverage our strong digital and platform capability in the U.K. to establish strong strategic partnerships with banks and platforms here out in Asia. As a great example, serves our partnership with HUB24 in Australia, where we are in the process of developing a new digital investment platform for financial advisers.

Thank you very much, Rene. A great leader with a great team, and they're getting good results now. Now let me turn to private markets. Private and alternative assets are an important part of our growth strategy. We're investing in areas of high exogenous growth and have organized our business in the way that clients invest: real assets, private credit, private equity and alternatives. In the first half, we saw GBP 3.2 billion of deal flow. That's a 10x increase on the prior year, bringing us to AUMs of GBP 71 billion. We are committed to improving our investment capabilities and the acquisition of Tritax is a great example of 21st century ambitions in real assets, bringing with it exposure and expertise in the fast-growing future-looking logistics real estate market. They are the U.K.'s largest investor in large-scale logistics warehouses where occupier demand is strong and supply is constrained. They are meeting the needs of their e-commerce tenants by investing in modern, national and regional distribution centers ideally located to allow late night orders and next-day delivery, and they have 9.1 million square feet of consented land available to deliver new units for e-com retailers. Tritax Big Box, the listed REIT, last week announced their strongest half year performance with EPS up 23.6% and portfolio value up 10.9% to GBP 4.89 billion. Within alternatives, our U.S. precious metals ETF franchise has seen strong growth since we bought into the market 3 years ago with AUM now almost trebling to $7 billion. ETFs are, of course, a high-growth area, and we are now expanding our suite of products in the U.S. and internationalizing into Europe, including a new industrial metals fund aligned to the global electrification theme. I highlighted in March that the Adviser platform is a real gem, holding the #1 position in the U.K. adviser market for AUA and for gross flows. We are focused on both defending and growing our leadership position in this market as the market grows and consolidates. Our adviser and personal vectors are gateways for increasing AUM into our ecosystem. And in the first half, our Advice business contributed GBP 200 million of flows into our Discretionary Fund Management business. Now let me hand over to Noel, who is going to update you on our activity in the adviser vector.

Within the Adviser vector, we've recently launched our Adviser Experience Program, and this is a multiyear investment and improving the experience of using our solutions and revolutionizing how they can be tailored to individual client needs. Now our clients were seeing regular and ongoing improvements based on what they've told us is important to them. And we've already gone live with some of the first enhancements. Firstly, a new client engagement hub, and this is powered by leading technology from Amazon Web Services and Salesforce. This gives new and more effective contact options for clients with more intuitive systems and processes so that the adviser's time can be spent doing what's important, which is spending time with their clients. We've also launched one of the most integrated e-signature capabilities in the market and e-signatures are now embedded directly in many of our journeys. At its core, the program is a shift to a client-centric model rather than a traditional product-led approach. Everything within Aberdeen Adviser will be connected to an individual. And this means with now a touch of a button, all we can about the clients' experience with us. We've also been hard at work on our pursuit of primary position objective. Our ambition with every firm we work with is to become their primary partner, at which point, we expect at least 70% of all new business flow to be directed to us. We realigned the sales team to deepen client relationships and move more firms to that primary position. In the second half of this year, we'll launch our new Adviser portal, which will bring significant functionality for advisers. In addition, we developed a comprehensive new suite of reporting and secure messaging functionality. Looking into '22, we'll then see several further content drops with new tax wrappers and importantly, the junior suites, which we know clients are excited about. We'll see the conclusion of the acquisition of our Wrap products from Phoenix and also stock broking capability embedded. Our growth will be accelerated by us being the easiest business for our clients to partner with, delivered by a constant and relentless focus on competing and differentiating on the quality of our content and experience. For every firm, for every type of client, we want to be here for everyone as we move forward into this new era as Aberdeen.

Thank you very much, Noel, and you've really got that team buzzing. We are futurists and at the center of being futurist is investing and behaving responsibly. Our actions enable our clients to be better investors. And by focusing on responsible investing, we believe we can deliver better risk-adjusted returns. We're also running our business to have a positive impact on our environment and on society. The impact of climate change is one of the world's biggest challenges, and we are holding ourselves to account to have a positive impact. We've committed to net zero with 50% reduction by 2025. 98% of our sourced electricity is already renewable and we're a signatory of the Net Zero Asset Managers Initiative. As an investor, we are partnering with clients on solutions that allow them to achieve their future goals while dialing up the impact of their investments. At Aberdeen, we've taken a fully integrated approach to how we invest considering all ESG risks and opportunities. And importantly, how we manage the transition. Getting our assessment of this transition right is how we generate alpha. We do it in 3 ways. Firstly, ESG integration means throughout the entire investment life cycle. That means from idea generation to research, to peer review to portfolio construction and ongoing investment -- engagement with the investee companies. Accelerating availability of the ESG investment funds will have quadrupled our SFDR Article 8&9 SICAV fund range in the next 12 months. Thirdly, investing intelligently in brown opportunities today that have credible plans on how to get to green. That's how we'll generate long-term returns for our clients and at the same time accelerate progress to a carbon-free future. Let me hand to Stephanie now, who will provide details of our financial results.

Good morning, everyone. Our financial performance in the half year demonstrates momentum towards our growth ambitions, as you can see through our key indicators. Our fee-based revenue is GBP 755 million, 7% higher than the prior year, reflecting 4% higher average AUM and increase in revenue yields and favorable markets. Adjusted operating expenses are GBP 595 million, which is 1% lower than prior year. Adjusted operating profit is our key performance indicator and at GBP 160 million demonstrates strong growth momentum with a 52% increase against what was a depressed prior period. The resulting cost/income ratio of 79% is 6 percentage points lower than prior year and aligned with our progress towards our target of 70%. Adjusted capital generation is GBP 176 million, 71% higher than prior year, reflecting the increased operating profit. Overall, reflecting the reversal of strong flows into liquidity funds in the prior period, net outflows in the 6 months were GBP 5.6 billion. Liquidity and insurance are the main drivers of our outflows in this half, but this is low-margin activity. Now we are focused on the value of our flows as this dictates revenue. And therefore, excluding liquidity flows, which are low margin, there are net outflows of GBP 1.9 billion, an improvement of almost GBP 5 billion compared to the prior year. While still in net outflow, this does represent a significant improvement over prior periods with net outflows now less than 10% of the net outflows at the low point in the second half of 2018 following the merger. The benefit of this for revenue is clear, and I will cover this shortly. AUMA was broadly flat compared with the opening position in January, as higher markets have offset net outflows and the corporate actions we completed in the period. As a team, we are focused on arresting the decline in revenue, and we have made progress. In the first half, 3 key aspects have all contributed to the positive momentum compared with the first half of 2020, yields, markets and flows. Firstly, yields. As yields have stabilized, we have seen a positive impact on revenue. In the first half, our asset mix, together with the structural benefit from our new arrangements with Phoenix, have created a positive increase in revenue of 1% compared to the 1.2% negative impact seen in prior year. Secondly, on markets. These have been favorable in this period, benefiting revenue compared to the prior period. In addition, we earned GBP 10 million higher performance fees in this half. And thirdly, on flows. We have been working hard to improve flows by focusing on the investment needs of our clients and have delivered encouraging momentum in a number of asset classes, including real assets and private equity. The improvement in net outflows from our core portfolios, excluding Lloyds, has made a positive impact on revenue. This can be seen in the dramatic fall in the revenue impact from net outflows, excluding Lloyds, moving from GBP 27 million in the first half of 2020 to only GBP 2 million in the current period. This represents less than 0.5% of our revenue, so significantly better such that net outflows are now only having a modest impact on revenue compared to the impact back in 2019 of 9%. This improvement over time is captured here. The solid black line demonstrates clearly the significant change in the revenue impact from net outflows in our core activities of Institutional and wholesale, excluding liquidity, Adviser and Personal. You can also see on this chart the minimal impact from the flows in liquidity. Now this is the dotted line. And whilst we have seen large swings -- we've seen a really large swing from the positive flows of last year to the negative flows this year, this has only resulted in revenue impacts of negative GBP 1 million. So overall, insignificant. Our continued focus on cost management delivered a reduction in underlying operating expenses of GBP 20 million in the period, circa 7% on an annualized basis. This is net of increased compensation accruals to reflect the improved performance of the business, while inflation, corporate actions and foreign exchange all added to the cost base resulting in overall operating costs 1% lower than the prior year. After allowing for reductions in staff numbers as the phases of transformation program complete, offset by inflation in other accruals and staff compensation, net staff costs increased marginally to GBP 324 million. Non-staff costs were reduced by 4% to GBP 271 million, after lying for inflation and some brand expenditure in the half year, offset by savings in outsourcing costs, reflecting our actions to build further leverage from core services of our third-party relationships. We continue to simplify the business, addressing areas that are contributing lower returns. During this half year, we completed the simplification of the Nordic real estate business and the disposal of Parmenion. We also acquired the Tritax business. As a proportion of our AUMA, non-staff costs are 8% lower since the prior year. And we will continue to focus on this reduction as we move towards our target for cost income ratio of 70% as we exit 2023. The cost income ratio has improved by 6 percentage points to 79% for the half year period. Overall, we remain on track to deliver against our annualized synergy target of GBP 400 million later this year. And in the second half, we do anticipate additional spend on brand rollout, the impact of inflation and the move to hybrid working as COVID restrictions are lifted for our employees. So breaking down our results down by vector. It is pleasing that we delivered improved performance in all of our vectors. So turning first to investments, which is our core activity representing 84% of our assets under management and administration and 78% of adjusted operating profits. This vector has made good progress in the first half across the indicators. Fee revenue is higher by 6%, reflecting growth in all our asset classes, except Fixed Income and Multi-asset and Institutional Wholesale. Yields have improved as an increased proportion of AUM are held in equities and private markets. Costs have been controlled and reflect reductions in non-staff costs, particularly in third-party outsourcing costs offset by higher accruals for staff compensation to reflect performance in the period. The cost income ratio is 79%, which is 5 percentage points better than last year. Adjusted operating profit of GBP 126 million is higher by 33% in the prior period. Within the profile of flows in this vector, there are lumpy movements and flows in both insurance and liquidity which impact the overall flow numbers in any period. Although as I have just demonstrated the impact on revenue of each of these classes at 10 and 8 basis points, respectively, broadly, is not significant. Overall inflows in this vector, we have created good momentum. And as Stephen has highlighted earlier, we have created further leverage with gross flows, excluding liquidity, increasing by 13%, while redemptions have reduced by 2%, creating a positive movement on net flows of GBP 4.2 billion, a 48% improvement on the prior period. Encouragingly, the pipeline of one not funded flows is circa GBP 8 billion. AUM for the investments vector is consistent with the levels at year-end and reflects the net outflows, particularly from higher liquidity and insurance flows, offset by the positive impacts from higher markets and the corporate actions, which increased AUM by 2%. Our largest client in this sector is Phoenix at GBP 170 billion of AUM. We will see the remaining Lloyds Banking Group assets amounting to approximately GBP 34 billion transfer out in the first half of 2022. But remember, these are low-yielding assets. Our refreshed partnership with Phoenix is showing progress and is focused on working together to grow assets by providing solutions which serve the complex needs of the insurance customer base in the open and the closed books. So within the investment sector, our key growth opportunities are in the Institutional and Wholesale client base. Now specifically, in institutional wholesale, revenue is 8% higher than the prior year, and that is before taking account of performance fees. Yields have been stable overall. Encouraging for our growth strategy is the improvement of flows within institutional wholesale. Here, we have seen 21% higher gross flows, GBP 3.5 billion, compared to prior period, and at the same time, the redemptions have reduced by GBP 3.2 billion, an improvement of 13% on the prior period. This has created the positive movement for this activity as shown here. This progress is evident across most asset classes, particularly in equities and real assets, while headwinds were seen in fixed income as assets moved away from this strategy. Overall, we have seen the best net flows position in Institutional and Wholesale, excluding liquidity since the merger and the pipeline is also encouraging. In particular, the pipeline in APAC is strong, and our focus on building our presence with wholesale clients is a key focus for Rene and the team. And this will be aided by the Citi and HUB24 partnerships, which have been a key development in 2021. And of course, investment performance is key for our service to clients. In this period, the 3-year investment performance is 66% against benchmark, comparable with the position at the year-end. That overall consistency reflects differential performance across the core product areas and strategies as seen here, in large part reflecting style positioning within our offerings. We have seen a dip in equity performance in the 6 months to June, with the market's rotation of value acting as a headwind given our overall quality and growth bias. With the recent market adjustments, our preliminary result for equity performance in July demonstrates signs of improvement on a 1-, 3- and 5-year basis. Encouragingly, we now have 54 consultant ratings compared to 43 at the time of the merger. And for our wholesale client base, we have increased the number of Morningstar 4- and 5-star ratings to 125. That's an increase of 6%. So turning to the Adviser vector. Here, we administer GBP 72 billion worth of assets for our clients in the U.K., which comprise both national and regional advisers and discretionary fund managers. We typically retain assets on our platforms for an average of 6 years and this is increasing. We have seen strong growth in revenue on both platforms. Overall, revenue has increased by 26% as a result of new flows, market levels and the GBP 12 million structural benefit arising from the revised Phoenix arrangements, which more than offset the reduction from the impact of the pricing changes that we applied in 2020, which were implemented pre-COVID. Through these changes, our yield has increased by 2.2 basis points to 25.3 basis points. This higher revenue has resulted in a much improved 10 percentage point change cost/income ratio to 57% and an improved operating profit of GBP 37 million, an increase of 61%. Now we have a good track record of generating positive flows on the platforms. And in this half year, we have recorded the best flows in 3 years. As a consequence, the AUMA on our platforms has reached a record level as at June with an increase of 8% since the year-end. Turning to our Personal vector. Our clients are in the U.K. and comprise private clients, financial advisers, charities and trustees. This is currently the smallest part of our business, but is building momentum. The cost/income ratio, whilst improving to 90% in this period with a small profit, will require greater scale and further action to achieve our ambitions for this vector. Overall, gross flows increased to GBP 1 billion, a 67% increase and net flows recorded a fivefold increase. We see a significant opportunity for growth in the numbers of clients that we serve, addressing an Advice gap in the U.K. The number of clients in Aberdeen Standard Capital has continued to increase in the 6-month period by 6%. And assets under management in Aberdeen Standard Capital are now at record level with specific benefit from deepening our charities activity, launch of sustainable portfolios and providing improved functionality on the portal. Adjusted diluted earnings per share is 7p with a significant increase to prior period, reflecting principally the improvement in adjusted profit with additional benefit arising from the buyback, which was completed in February 2021. Adjusted diluted capital generation per share is 8.2p, an increase of 3.6p. This increase reflects the improved adjusted operating profit generated by the business. And importantly, this level of capital generation more than covers the dividend per share of 7.3p, which was as we forecast in the policy set out in March. This represents dividend cover of 1.14x adjusted capital generation. And that improved capital generation has contributed to our surplus capital position, which was further strengthened in this half year period from GBP 2.3 billion to GBP 2.8 billion. This includes the sale of 4.99% in HDFC Life, which added GBP 0.7 billion and is the continuation of our stated strategy for this investment. We intend to continue our strategy of monetizing the HDFC Life stake. The simplification of the business by disposing of Parmenion and the Nordic real estate activities realized over GBP 100 million. Offsetting in part of these disposals, we invested in Tritax in this period with a total potential consideration of GBP 0.2 billion. Our regulatory capital surplus at GBP 2.8 billion is an increase of 22%. A reminder, this does not reflect the majority of the value of our listed stakes. I highlighted in March that the new IFPR regime is anticipated for the start of 2022. On that basis, our indicative pro forma surplus would be of the order of GBP 1.7 billion, as we are no longer able to include certain elements of Tier 2 debt and insurance holdings. We are comfortable that this capital position is at an appropriate level, taking account of our growth and investment opportunities and plans. I'll now hand back to Stephen.

Great job. I'll now turn to our capital position. As of the 30th of June 2021, our capital resources remained strong at GBP 3.9 billion. This gives us the capacity to invest more in our business to accelerate growth. Each of the 3 growth vectors has a distinct investment plan. For investments, we will invest in further embedding advanced data analytics in the investment process and in closing the performance gap to best-in-class. Building out our business in Asia is also a focus and increasing our private markets capabilities, as we just described. We will also grow our investment in seed capital, which will fuel the growth of the wholesale channel. In our Adviser vector, we will continue to invest in the technology that Noel talked about that is needed to support our adviser experience program. Key to this is making our platforms even easier for advisers and their customers to use. For our smallest vector, Personal, we have been clear that growth will be through further acquisitions to get to scale. We also need to invest in technology to grow our digital direct-to-consumer savings and wealth offering. And this morning, I'm delighted to confirm that we have acquired Exo Investing, who have world-class artificial intelligence, digital investing capabilities that will allow us to bring always-on, 24/7, digital discretionary fund management to your smartphone. We are disciplined in the deployment of capital, applying 3 simple tests to every investment decision we make. Does it drive growth, does it drive returns, and does it get to scale. In that way, we will ensure that we are building returns for you, our shareholders. We are futurists. In summary, we made a strong start to our 3-year strategy with a 52% growth in adjusted operating profit. We've arrested the revenue decline. We've delivered record profit performance in our Adviser business, and we've seen record flows into the Personal business. The next 6 months will focus on investing for growth in all 3 of our vectors. We will continue to sharpen our investment capabilities and address improvements in investing performance. We'll concentrate on building our digital distribution and improve our wholesale capabilities, continue to upgrade our adviser experience. And importantly, we will concentrate on investing in our talent. Thank you for listening. We'll give you a quick 2-minute break, and we'll be back to take your questions. Thank you.

Welcome back, everyone. Stephanie and I are here, and we have Chris, Noel and Rene as well. And we are ready for your questions. Sara is going to take us through the session. Over to you, Sara.

Your first question comes from Haley Tam from Credit Suisse.

I have a couple, please, if I may. The first, in terms of your growth plans in Asia. Thank you for additional color here. To help us think about it, do you have a target to which the GBP 46 billion of AUM can grow to? And is this 12% per annum regional growth actually your best guide here? And maybe if there's any color you can give us on which global products you have earmarked for regional distribution, that would be very helpful. Second question, if I may, just on the Adviser business. You've mentioned the benefit of the new ranges of Phoenix to revenue yield here at GBP 12 million. Sorry for asking. I'm not actually entirely sure what that is. Could you but help me here understand how sustainable that is, if that was a one-off or if that's something I should expect to continue? And I'm sorry, just a cheeky third one. On your regulatory capital surplus, the GBP 1.7 billion post by FBR. That has increased by GBP 0.5 billion, helped by the GBP 700 million from HDFC Life stake sale. Just to confirm, my takeaway is that you are comfortable with this level of surplus planning to invest it. And so just to confirm, we should not expect to see any of this surplus return to shareholders in the near term?

So thank you, Haley. There's a lot there. Let me start to unpack it. So I'm going to take the Phoenix piece first. We have structurally improved the competitive position of the Adviser business. The GBP 12 million benefit was -- is the absence of payments that we used to make -- business-to-business payments, which you can think of as contra revenue that went to Phoenix. So that is a structural and permanent benefit that you can expect to see flow through our business in future periods as well. Turning to Asia, and I'm going to I'll throw it to Rene in a moment. I mean we haven't -- we were much bigger in the past in Asia than we are today. So when I examined the business and I looked at the history of the business and I saw the scale of the Aberdeen platform. If you go back to periods, just not that long ago, 2015 or so, we were a much bigger business. So our aspiration is to get back to being a significant force in the Asian market. We've got a great team on the ground there. We've done a number of things. We've tightened our footprint. So I talked to you in March about the fact that we were -- we look at Indonesia, for example, and although it's a great growth opportunity, the path to scale was simply too long. So we chose to exit Indonesia. Likewise, we've got other tightening up that we've been doing, Rene has been working on. That allows us to focus on a more hub-and-spoke model, and it allows us to distribute through partners. And the Citibank deal that we announced where we're already live in Hong Kong and the Digital Wealth Planner. We're going to be live in Singapore shortly. We're also going to be live in the U.S. And then we've added a series of funds to the Citi platform. But let me ask Rene to talk a little bit more about what he's been doing a little bit more about the product story and a little bit about his sustainability edge.

Thank you, Stephen. I think that it's, as you said, unpacking the question a little bit. There are 2 elements to it. Historically, Aberdeen had a very strong reputation here in the region, particularly around emerging market and Asian equity. I think the merger has brought us a much, much broader capability set, and that includes, in particularly bringing way more real assets, so real estate, fixed income, multi-asset capabilities to the region. So the focus is twofold. One is really helping to distribute these global products more to the region and just raise the profile of our firm as a whole here in the region. And then as you highlighted, the GBP 46 billion in Asian asset is actually Asian capabilities that we distribute both in Asia, but also globally. So our goal is clearly that rest of the world, we are well known for our very strong Asian investment capabilities. And we think there is still a lot we can do more there. And likewise, in Asia, it's really the full split that we can bring forward. Now Stephen touched quick on sustainability. We have done a lot in the ESG space for a very long time and have a very good reputation in incorporating this in our investment processes. And so our goal is to accelerate that process, particularly around the Asian investment capabilities. So if global investors want to invest in Asia, sustainable, they know where to call going forward.

And let me come back -- thank you very much, Rene. That was very useful. Let me come back to the last part of Haley's question, which was about our capital strength in the regulatory surplus. And I think you should judge us in the way that we create capital and invest capital. And over the short period of time that I've been in charge here, we divested businesses in the Nordics. We divested the Parmenion. We did that at a significant gain. We invested in Tritax and last week, they just reported record earnings and growth. We are investing because we see a world of opportunity. Our clients are asking us to invest in order to improve the investments that they can make. And we're going to continue to do that. I laid it out, our core Asset Management business, our Adviser business and our Personal vector. For the first time, you can see clarity in the nature of those investments. So we are actively evaluating where we can continue to invest as we announced this morning with the acquisition of Exo and you can expect us to continue to do that in a very disciplined fashion. And so we're not signaling that we're giving capital back.

And your next question comes from Hubert Lam, Bank of America.

I've got three questions. Firstly, in your flows in private equity, private credit, real assets, as you mentioned, were good. Is H1 flows a good run rate going forward or what annual flow should you expect from these segments that we should be targeting? Secondly, on costs, how should we think about costs in the second half versus the first half? So if you look at Slide 2, it seems to show that this is the bottom of costs. Should we expect costs to rise from here? And the third question, again, goes through your capital position. Of the GBP 1.7 billion of pro forma surplus capital, how much of this can actually be used for M&A and how much of this would you consider to be true surplus if you take into account the buffer?

Thank you, Hubert. I'll just talk a little bit about this, and then I'm going to hand to Stephanie, who is going to talk a little about costs and really thinking of it cost in terms of operating leverage because what you want is jaws that are open. If you've got revenues going up and your costs don't go at the same rate, you get operating leverage, margin enhancement and earnings growth. And a growth business should look at operating leverage rather than just -- a shrinking business just looks at cost. You can't just look at -- you can't shrink your way to growth. In terms of private market in the half year, we're very proud of the half year result. I think it's very good. But I think in much longer terms, we're not changing our guidance that we gave in March. In March, we said this year, the full year, this is the half, this full year would be were arresting the decline in revenue. And from that, we would then be able to inflect to a pattern of high single-digit revenue growth as a total group. You can see very clearly in the pattern of results that we've just given you today that we've got the Adviser business, lights on, assets growing and revenue growing, Likewise, in the smaller Personal business and in the biggest, largest business, our core Investments business, we've shown the best flow performance since the merger. So I would -- I can't give you specific guidance on -- with the private markets area. I can tell you it remains a focus and we're proud of the half year. But within the context of the overall business, I'm not going to change our guidance Stephanie?

Yes. I would just add also on flows, there's a number of areas, Hubert, as you say, which have actually performed well and have created really good positive momentum from the prior period. And that's very much part of the parameters and our thinking that Stephen and I shared with you back in March. So we're pleased with that momentum. Those are the parameters we're on, and we will continue to focus on that. I'd also say, regionally, we've seen some very good momentum coming through in a number of the areas regionally, and particularly in the U.S. and APAC, and that's obviously hugely pleasing as well. That's very much again, part of the parameters that we had -- that we set out to give our initial guidance. If I maybe just pick up on the cost point. And you said basically, how should you think about costs in the second half versus the first half, Hubert. I think what's important about is to understand about the first half is that we continue to exercise really, really robust cost management discipline across the organization to make sure that we really are focusing and targeting our expenditure on the right costs. You'll see from the slide that we've talked about, we have created underlying savings to the extent almost of 7% on an annualized basis, we will continue to take savings out of the business. But we will also, at the same time, invest in those areas which are going to help us on those growth priorities that Stephen, Rene, Chris and Noel are very much actively focused on every single day. And that's areas where it can help us create capability, access markets, really think about how we can open up that growth with our clients. So look, I really think about the cost as we will continue to be very disciplined on the savings that we want to affect as we complete the whole transformation program and as we look at areas where we aren't quite got the spend in the right place, but we will also be investing. I also think I would draw your attention to, we are seeing some increased inflation and regulatory costs, as you would expect. But the bigger sort of offset to the savings that we are making is very much decisions that we are taking as to where we want to invest for growth. I think of it overall as H2 as being a modest increase on where we are at the moment because, as I say, the underlying savings will continue, but we will see some additional investment going into the business.

And Stephanie, would you like to comment on the surplus capital questions...

Yes. So again, Hubert, as we've explained, I think, before, and Stephen has actually just touched on in terms of Haley's -- responding to Haley's question, very focused on how we utilize that surplus. You're absolutely right. We obviously do have a working capital, seed capital, and a buffer in there that we will continue to manage. I would draw you back to what I said in the presentation as well, we have available capital that is not even in those numbers as well. And that also has to be thought about in terms of how we think about our available funds for M&A.

Thank you. Sara, do we have another question on the line?

And your next question comes from Andrew Crean from Autonomous.

A couple of things. And coming back really to the regulatory capital. Are you prepared to actually give a number as to where you want to operate relative to your capital buffers? Or are you, to date, are you just sort of saying you've got excess capital, but not enumerating? I think the market would like to be able to understand the tolerance levels there. And then secondly, plans for HDFC Asset Management, I think you said on the Life side, that you're prepared to sell down further. What are your plans on HDFC Asset Management?