GAM Holding AG (GAM) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the GAM Holdings AG Full Year 2019 Results and Strategy Update Presentation. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 20th of February 2020. And I would now like to hand the conference over to your speaker today, Pete Sanderson, Group CEO. Please go ahead, sir.

Thank you. Good morning. Thank you all for joining GAM's 2019 Results and Strategy Update Call. My name is Pete Sanderson, Group CEO of GAM. And I'm joined today by Richard McNamara, our Group CFO. I'll start the call by providing my perspectives on joining GAM and then briefly reviewing the firm's key milestones for 2019 before turning to Richard to walk you through our financial results. I'll then outline our new business strategy and outlook before concluding the call with Q&A. When I joined the firm in September of last year, I had conviction that GAM was a strong firm, albeit going through difficult times. I knew that GAM had strong investment performance, and I knew of GAM's industry reputation for its talented people and strong client relationships. Overall, I was excited to join GAM because I saw opportunity for growth and because I believe in GAM's role to help clients actively navigate markets in order to achieve their financial goals, particularly in uncertain times. 6 months into the role, I can tell you that GAM is the strong firm I thought it was. I love the fact that GAM is a firm of real investors and a firm with real client focus. Later in the presentation, I'll tell you more about my perspectives on the firm and why I'm so excited about our growth potential. But first, I'd like to take a few moments to review 2019. Financial markets in 2019 were volatile, with uncertainty due to geopolitical tensions, the status of U.S. and China trade talks, Brexit and other issues all sapping confidence from investors during the year. Despite this volatility, with some support from Central Bank action, we saw equity markets close the year with strong gains. Navigating these uncertain market conditions is where I see one of GAM's main strength, and this is borne out by our investment performance figures. In 2019, 78% of our assets under management outperformed its benchmark over 5 years and 74% over 3 years. Delivering our clients' investment performance is key, and 2019 was a good year across GAM's investment strategies. During the year, 2 important milestones were achieved. First, GAM successfully returned, on average, more than 100% of assets to our clients as part of the ARBF fund liquidation, a key moment for the firm and a positive conclusion to a painful period for all. Second, GAM successfully delivered on our planned 2019 cost savings, marginally exceeding target by delivering an exit run rate saving of CHF 42 million. 2019 was a challenging year for GAM's investment management flows but positive for our private label funds platform. Our investment management AUM declined approximately 14% over the year, ending at CHF 48.4 billion, maintaining a blended fee margin of 54.2 basis points across the book of business. Assets entrusted to GAM's PLF platform rose by some 11% over the year to reach a record high of $84.3 billion at an average fee margin of 3.9 basis points. With the reduction of our investment management AUM during 2019, our financial results suffered accordingly. Underlying pretax profit of CHF 10.5 million in 2019 was down from CHF 126.7 million a year ago. Given these results, the Board are not proposing a dividend for our shareholders this year. In a year where our financial performance has been poor, clear accountability and alignment with shareholders is key. As such, the Group Management Board will not receive a bonus for 2019, and I've also asked the Board to forgo my onetime fixed cash award that was due this year. I want to make sure that we're all setting the right tone from the top of the firm, and that is that we are accountable, and we are committed. I do not believe that our financial performance in 2019 reflects the retention of the business. And the management team and I, with full support of the Board, are committed to returning the business to growth. We'll return GAM to growth by respecting the firm's core competencies that drove its historic success while doing what is necessary today to make sure the firm can perform financially and is fit for the future. I'll take you through the 3 pillars of our strategy in a moment. But first, I'll hand over to Richard, who will cover our 2019 financial results in detail.

Thank you, Pete, and good morning to you all. We provided an estimate of our full year 2019 results in mid-January. The actual numbers we are presenting here today are in line with those estimates. I will start off by giving you an overview of how GAM's AUM has developed during 2019, touching on the key drivers, flows and investment performance. I will then focus on management fee margins, performance fees and how we achieved our cost-saving targets as part of the group-wide restructuring program. I'll also take a closer look at the impact of the change in the treatment of 40% of future Cantab performance fees, the restatements and our IFRS numbers. I will finish by taking you through our capital position. So starting with our investment management AUM. We ended 2019 at CHF 48.4 billion, a decline of approximately CHF 7.7 billion, of which CHF 1.9 billion related to the sale of the precious metals funds to ZKB as announced at our half year results. Our PLF AUM hit another record level, ending 2019 at CHF 84.3 billion. We saw net inflows of CHF 1.1 billion, and strong market performance helped increase AUM by some 11%. This business continues to attract new clients and benefits the flows generated by existing clients. Pete will talk more about PLF and Man Co services later in his presentation. Now looking at flows in more detail. Given market volatility, 2019 was a tough year. A slowdown in net global economic activity, monetary policy, inflation expectations and political uncertainty all weighed on investor appetite. Given the liquidation of ARBF assets took until last summer, this impacted how clients engaged with us throughout 2019. In the first quarter, we continued to see high levels of outflows with limited inflows as investors remained cautious, given the ARBF matters were unresolved. In April, we announced the agreement to sell the remaining ARBF assets, which gave many investors the comfort they were seeking. Hence, we saw a normalizing of gross outflows. As the ARBF assets were returned in July, we started to see gross inflows improve. This improvement was gradual but not sufficient to offset investor risk-off sentiment in periods during the third and fourth quarters. Despite the high level of outflows in 2019, some of our core strategies posted net inflows for the year, such as credit opportunities, Cat Bonds, emerging market equity, European and U.K. equities and the GAM Systematic Alternative Risk Premia strategy. Strategies negatively impacted included our absolute return strategies, emerging market debt, some regional equity strategies and the Cantab Quant and Core Macros funds. However, pleasingly, we continue to see an improvement in gross inflows as more and more investors take us off hold and start to invest in our funds. Looking at this geographically, we continue to see positive momentum in Asia Pacific and other high-growth markets, with some of our core European and North American markets taking longer to recover. Let me now turn to investment performance. As mentioned earlier, our clients and our investment management AUM benefited from continued, strong investment performance. This slide shows our 3- and 5-year relative performance by capability. In spite of some challenging market conditions, our 3- and 5-year track records remain strong with 74% of our AUM beating benchmarks over 3 years, up from 66% in 2018. Over the 5-year period, 78% of our AUM are beating benchmarks, up from 63%. The stability in our investment teams and their focus on delivering for our clients remains paramount and supports our near- and longer-term growth prospects, which Pete will talk about later. Clearly, our underlying profits are disappointing but not unexpected, given the impact of the prolonged ARBF matters. Our net management fee income declined 36% versus 2018 mainly driven by significantly lower average investment management AUM and some reduced management fee margin. Performance fees improved and increased to CHF 12.8 million from CHF 4.5 million in 2018. Our total expenses came in at CHF 315.7 million, down some 15% compared to 2018. I'll provide more details on this, our 2019 exit run rate, fee margins and performance fees shortly. So overall, our underlying pretax profit ended at CHF 10.5 million, in line with our mid-January guidance. This decline in profits clearly impacted the operating margin down to 4.3%, and the diluted underlying EPS decreased significantly. Pete will set out our new financial targets later in this presentation. But now turning to management fee margins. Our blended investment management fee margin declined to 54.2 basis points from 59.1 basis points in 2018. The main driver of this decline came in the second half of 2018, where the change in asset mix saw higher margin strategies such as in systematic fund of hedge funds as well as global rates and merger arbitrage declining. During 2019, the largest impact on margins was again the impact of net flows and the subsequent impact on asset mix. However, these impacts largely neutralized themselves, resulting in an average margin for 2019 in line with our exit margin at the end of 2018 of 54 basis points. Pleasingly, our exit margin at the end of 2019 is slightly up at approximately 55 basis points. As I've mentioned before, we're not immune to market-wide fee pressure, but we continue to see our growth potential in strategies mostly priced between 50 to 100 basis points. Moving on to performance fees. Our performance fees improved year-on-year driven by GAM Systematic Quantum Core Macro strategies, given their very strong investment performance during the year. Performance fee-eligible assets closed the year at CHF 5 billion, down from last year's CHF 6.1 billion. This was driven by a reduction in systematic AUM due to the loss of one large client in the Quant strategy and reductions in global macro and nondirectional equity funds. As shown in the table on the right-hand side, many strategies are either above or near their high watermarks. Even though performance fees are notoriously difficult to predict, this improved performance with high watermarks being passed or attainable provides some comfort around future performance fee generation. To put this into context, if all CHF 5 billion performance fee-eligible assets started the year at their high watermarks and delivered their internal target returns, the potential for annual performance fees would be potentially approximately CHF 20 million. Now looking at expenses. Personnel expenses, typically around 60% to 70% of our total expenses, were 18% lower year-on-year. Compared to 2017, these are now down more than 25%. The main driver was a significant reduction in variable pay, reflecting reduced business performance through lower contractual and discretionary bonuses. In addition, our headcount reduced by 12%, which is reflected in the reduced fixed personnel expenses. Our target compensation ratio of between 45% to 50% remains. However, in order to ensure future business stability, the compensation ratio increased to 59.7% in 2019. As we implemented our restructuring measures, we were able to reduce general expenses. After adding back the impact of the new lease standard, these were reduced by approximately 12%. So looking at our restructuring actions, you will see that we marginally exceeded our CHF 40 million cost savings target for fixed personnel and general expenses by the end of 2019. Our 2019 exit run rate stands at CHF 240 million, but after adjusting for the effect of the new lease standard, our exit run rate for fixed personnel and general expenses is now CHF 229 million. This slide shows where these savings were achieved, half coming from fixed personnel costs and the rest spread over general expenses. A large element was from consolidating our investment teams, as announced end of 2018 and completed early last year. We also optimized our distribution footprint, focusing where we see most opportunities for growth, and reduced some discretionary spend such as marketing. These numbers also include the benefits of our London office move, which we completed early last year. We remain laser-focused on identifying and achieving future savings, and on the next slide, I will set out our new cost-saving targets. We are targeting additional exit run rate savings of $30 million and $10 million by the end of 2020 and 2021, respectively, from fixed personnel and general expenses. Overall, this will mean $82 million of cost reductions from the start of the restructuring program in 2019 to the end of 2021. Our partnership with SimCorp is central to achieving these additional cost reductions as it moves our business onto a single technology platform for front and middle-office activities. The implementation has already started and will be completed in the first half of 2021. And through this implementation, we'll be retiring legacy systems, processes and practices. Total implementation costs are expected to be approximately $17 million and will be spread over the life of the contract. In addition, one-off costs of approximately $10 million will be incurred as we terminate contracts, and previously capitalized software is no longer used. We will realize efficiency benefits across our support functions and data usage. We will continue to look at costs, including discretionary spend, and saving targets also include reduced occupancy costs as we reduce space in some of our core locations. As we progress, we will provide updates on how these savings are being achieved. As announced in January, GAM accepted the decision of the SIX Sanctions Commission to recognize the financial liability regarding GAM's obligation to pay 40% of future Cantab performance fees to its former partners. There is no obligation to pay any liability until matching performance fee income is received by GAM. However, this change in treatment is now reflected in our 2019 financial results, where we recognize the financial liability of approximately CHF 35 million as at 31st of December 2019 and restated our prior year comparatives. This change has no impact on GAM's underlying profits or on our cash position but does impact the group's IFRS profits, as set out on Page 42 in the appendix. In summary, the recognition of the financial liability is backdated to the acquisition date in 2016, and subsequent periods have been restated. The net impact from 2018 was an increase in net assets of CHF 42 million and a reduction in the IFRS net loss of approximately CHF 12 million. On initial recognition, the offsetting item to the financial liability is an increase in intangible assets, goodwill and investment management contracts. As the remeasurement requirements under IFRS for our financial liability and intangibles differ, the net result is an increase in net assets by the end of 2018. Likewise, given any remeasurements of the financial liability and intangibles are reflected in the profit and loss as either acquisition-related or nonrecurring items, the IFRS profit is impacted. Full disclosure with the restatement is provided in Note 28.2 of the 2019 Annual Report. Turning to our IFRS numbers. We recognized a CHF 3.5 million loss after tax compared to CHF 916.8 million loss in 2018. As you recall, the loss in 2018 was caused by the recognition of a large impairment on goodwill and investment management and client contracts. As always, we deduct 2 items from underlying profit: acquisition-related and nonrecurring items. Firstly, acquisition-related items in 2019 include credit of nearly CHF 9 million, reflecting the remeasurement of deferred consideration and 40% future performance fee liabilities. Offsetting these are finance charges of CHF 17.9 million related to the unwind of discounts on these liabilities and CHF 9.7 million related to the amortization on investment management and client contracts. Secondly, nonrecurring items mainly include the CHF 14 million gain on the sale of the precious metals funds plus insurance recoveries of CHF 6.5 million. These were partly offset by an additional CHF 7.8 million impairment charge on Cantab investment management and client contracts. Before I finish on capital, let me briefly touch on tax. The underlying tax rate has increased substantially as lower profitability causes nondeductible costs to have a disproportionate impact on the effective tax rate. Until profits normalize, these types of expenses will continue to have a disproportionate impact and make our reported effective tax rate less meaningful. Our capital position remains robust, with cash and capital both increasing since the half year, helped by the seasonality of compensation payments. We have no external debt and have maintained the flexibility of our revolving credit facilities of CHF 80 million. Last year, the Board announced a dividend payout ratio targeted at least 50% of underlying net profit. This policy remains unchanged. However, given the de minimis underlying net profit for 2019, the Board are proposing no dividend. We remain focused on capital allocation, and we will continue to invest in the business to generate organic growth. However, we intend to put in place a new 3-year share buyback program when the current program expires. Once capital buffers are enhanced, and in the absence of other opportunities for organic investments, the new program will provide the group with future flexibility to return excess capital to shareholders. With that, thank you, and let me hand you back to Pete.

Thanks, Richard. As I said at the beginning, I joined GAM because I had high conviction in the firm's strong foundation and because I saw the opportunity for growth. The strategy I'm setting out today does not disrupt our investment professionals or change our distribution footprint. GAM is a business that I feel strongly is primed for growth. I believe we have all the investment capabilities and client connectivity that we need to succeed and grow. So we return GAM to growth by respecting the firm's core competencies that drove its historic success. That means we'll maintain our investment culture and focus on client service, and we'll trust in GAM's established global footprint and our proven investment capabilities to grow. The 3 pillars of our strategy to make sure GAM is fit for the future are efficiency, transparency and growth. This slide provides an overview of our focus areas for each of these pillars and the associated key financial targets. I'd like to spend a moment describing what these 3 words mean to me, and then we can turn to what they mean in practice for GAM and our strategy. Efficiency means our people can deliver for clients quickly and effectively. It means GAM is easy to do business with. It means we don't duplicate activity at the firm. It means we do take full advantage of technology. Transparency is key to building and maintaining trust. It means keeping our promises and being accountable. It means letting others see more clearly GAM trends. It also means acknowledging where we need to improve. Transparency also means focusing on good communication, both internally and externally. Efficiency and transparency will help to drive the third pillar of our strategy, growth. Growth for GAM means acknowledging the past but moving to the future. It means recognizing the strength of our core products and the value of our global market presence. Growth for GAM means focusing on our highest growth potential markets around the globe. Growth means continuing to always put clients first. Now turning to our strategy in more detail. First, efficiency. Fundamentally, this means organizing GAM in the best way to deliver for clients. To do this, we will better integrate our business processes, converging on a simpler One GAM operating model. There is significant opportunity to align processes and remove duplication due to the legacy business processes still visible from the formation of the GAM group from 3 separate businesses back in 2009. Secondly, we will take full advantage of technology by unifying GAM on to SimCorp as a single platform. SimCorp is a platform we know well at GAM. We use the platform today to deliver services to our third-party PLF clients, and we manage around CHF 10 billion of our investment management strategies on SimCorp already today. By consolidating the remainder of our investment management business on to SimCorp, we will realize significant efficiency benefits. It will also make our communications and reporting to clients clearer and more efficient. Aligning our business processes and unifying our technology will create synergies that allow us to realign the cost base at the firm and ensure that GAM is fit for the future. I'm very confident in our ability to implement these changes seamlessly and with only positive impact to our clients. I've successfully led businesses through transformations like this before, and I recognize the importance of a strong Chief Operating Officer to coordinate and drive these changes. I was thrilled to have Steve Rafferty join us last year as our group COO. Most recently, Steve was COO for Global Fixed Income at BlackRock, and he's working extremely well with a highly energized team here at GAM. When thinking about cost management, it's notable that our headcount fell by 108 or 12% to 817 FTE by the end of 2019. And while this number will continue to fall further, rather than managing to our target headcount number, we're focused on operating efficiently in order to achieve the CHF 40 million exit run rate cost saving in the next 2 years, targeting an exit run rate saving of CHF 30 million in 2020 and a further CHF 10 million in 2021. These savings form part of our 3-year plan to achieve a target operating margin of 30% by 2022. Turning now to transparency. Trust is an investment manager's most valuable asset, and for that reason, I want to make sure transparency and communication is a key focus of our strategy at GAM. Transparency means keeping our promises and being accountable, and as such, I want to make sure that we are more clearly aligned to our shareholders. I spoke earlier about discipline on compensation, and we have moved to higher proportions of deferred compensation to show our intent to be better aligned. Transparency also means letting others see more clearly GAM's strengths. One of the strengths of the firm I'd like our stakeholders to see more clearly is the Private Label Funds platform. PLF is a strong and industry-leading part of the business with a 27-year track record. PLF is a capability that I value, both for its diversification and stability but also for the strength of the institutional relationships that it brings to the firm. When we take a step back and look at the services delivered by our management companies in aggregate across both internal GAM and our third-party PLF clients, it is clear that this is a significant platform that will benefit from greater transparency and a clear articulation as a complete Man Co services business rather than simply focusing on a third-party PLF element of it. Over the course of the year, I intend to show more clearly the resourcing and financial performance of the aggregate Man Co services platform and through this transparency, support a better understanding of how GAM operates overall. Transparency also means acknowledging areas for improvement. One area that I would like to improve is how GAM performs on its corporate ESG ratings. ESG matters to me, our employees and our clients, and I'd like to make sure that GAM does not lag behind where we should be as a company. Although there is much focus in energy on ESG at the firm with a thriving employee network and clear enthusiasm, I want to make sure that this translates into observable results at the corporate level. On our ESG score, I'm challenging our team to move GAM in line with best-in-class peers, aspiring to move from an MSCI ESG rating of BBB+ to a rating of A or better by 2022. GAM has made much progress in recent years on transparency of governance and compensation in particular, and our 3-year strategic plan will ensure our compensation ratio remains in line with our target between 45% and 50% by 2022. Finally, transparency means focusing on good communication, building trust and creating positive relationships. In the past 18 months, GAM has made positive strides in ensuring continuous, open and transparent communication with our regulators. We've upgraded our internal risk and control environment and improved communication flow around the business. I intend to build on these foundations with full commitment to maintaining our positive open regulatory relationships. I want to drive even greater clarity by realigning our Group Management Board while also supporting better internal connectivity and transparency by expanding the membership of our senior leadership team to be more inclusive and to better reflect our geographic and functional footprint. GAM has great people, and I want more voices around the table as we continue to build our strong, open and inclusive culture. Moving on to growth. The first 2 pillars of our strategy ensure that we're doing what's necessary today to make sure the firm can perform financially and it's fit for the future. To grow, we are prioritizing and protecting our avenues to growth to give ourselves the maximum growth potential while investing significantly in our technology platform, and critically reviewing how we are organized in order to make sure our firm operates more efficiently. So GAM will return to growth by trusting in our established global footprint and in our proven investment capabilities as well as focus on new initiatives to diversify more into institutional mandates and expand our focus on multi-asset and solutions. To grow, I want to make sure GAM is looking forward with confidence. We have every reason to be confident. I was happy to see that GAM now has 9 funds awarded the highest 5 Crown rating by Financial Express. That ranks GAM in the top 10 of all asset managers and with the same number of 5 Crown funds as firms like BlackRock and Fidelity. We start 2020 from a good position. Our systematic capabilities are also standout performers with the GAM Systematic Multi Strategy Fund recently winning the 2019 Top Performer at the EuroHedge Awards. And it's also notable that our GAM Systematic Alternative Risk Premia offering attracted over CHF 800 million in net flows last year. GAM offers differentiated active investment offerings across equity, fixed income, systematic and solutions. The alternative sources of yield offered by GAM in fixed income are well positioned to meet client demand, as our regional and thematic equity offerings, which offer clients high active share portfolios in segments that we expect to be high-growth areas in the coming years. Our systematic capabilities offer clients access to conceive investments in liquid, mainstream formats while our solutions capabilities have strong credentials that we can further develop and grow. To grow, it's also critical that we maintain our high standards of client service and remain close and connected to our clients. This is a core part of what differentiates GAM and the reason that we can move quickly to respond to client needs around the globe. GAM already has a strong foundation from which to grow. We have the right product set, the right performance and the right relationships and footprint that we need. In 2019, despite the overall negative outflows from the firm, there were some positive signs with net new money in markets such as Australia, Japan and the Middle East. In Europe, Benelux, France, Austria and Italy all raised net new money. We have a distinct set of products, which we expect to do well in 2020. To meet our growth objectives for these products, we will continue to focus on core European wholesale. We will continue to focus on high-growth opportunity markets globally, Asia Pacific, LatAm and offshore U.S., in particular. We will continue to develop our product range, building a track record in our next-generation products and thoughtfully introducing ESG strategies in time. I also see great potential in our ability to bring more of GAM's capabilities together to provide a greater number of multi-asset and solutions mandates to clients. Our overall financial target, subject to market conditions, is to achieve an underlying pretax profit of CHF 100 million by 2022. By maintaining commitment to strategies that have a proven ability to grow, by trusting in our long-standing client relationships and focusing on the fastest-growing market segment, I can see clear avenues to the growth and gains in market share required to meet our financial targets. I believe GAM is extremely well positioned for the future, and I share the energy and excitement with our teams to start to deliver that growth. Finally, turning to thoughts on outlook. I've been impressed by what I found at the firm and have full confidence in our positioning and ability to grow. Because of this, our strategy does not involve any disruption to our investment professionals or change to our distribution footprint. Our focus on efficiency will not diminish GAM's avenues to growth. We are prioritizing and protecting our avenues to growth to give ourselves the maximum potential to restore shareholder value by rebuilding assets under management. We are maintaining our investment in client footprint while investing significantly in our technology platform and critically reviewing how our operations are organized in order to make sure our firm operates more efficiently and we can best deliver for clients. December and January saw continued improvements in gross flows with net flows being flat. We're seeing an increased return of client interest to positive flow across an increased number of clients. Given these early indications, alongside our continued, excellent investment performance and the record levels of client interaction at the firm during the past 3 months, I believe we are well positioned to attract new money going forward. So while I expect the market environment to remain volatile and investors to remain cautious, GAM is a business I feel strongly is primed for growth and ideally positioned to help clients actively navigate these uncertain market conditions and deliver the performance they need. And hence, I'm excited by GAM's growth prospects. As outlined today, our focus is on implementing our 3-year strategy based on the 3 pillars of efficiency, transparency and growth to ensure GAM achieves its new financial targets and is fit for the future. Again, to recap those targets: To achieve an underlying pretax profit of CHF 100 million at an operating margin of 30% and a compensation ratio between 45% and 50% all by 2022, subject to market conditions. Thank you all for your time and attention on the call today. That concludes our presentation. I'll now open up the call to Q&A. Operator, can we have our first question, please?

[Operator Instructions] Your first question comes from the line of Daniel Regli from Octavian.

For me, it's really a bit on the 2 ends where you aim to get to this CHF 100 million of this underlying pretax profit. Obviously, on one hand, it entails CHF 40 million cost savings. And on the other hand, it entails some revenue growth. When I'm looking at your, let's say, exit revenue base for 2019, which is around CHF 310 million, this means about 6% revenue growth over these 3 years? And if you could just maybe break this down for me a little bit more into products, where exactly you expect this growth to come from, which product areas do you see the biggest growth potential? And yes, obviously, also from a regional perspective, where in the EU, where do you see growth potential? And then secondly, on the costs. Also here, maybe if you could break down this CHF 40 million a little bit more into the different categories. Where do you plan to save costs, particularly on the FTE basis? Seeing your FTEs are going down. Where do you see further potential to take out employees without harming your growth opportunities or growth projections?

Thanks for the question. Let me start, first of all, on the product question of where you -- where we would expect to see growth come from. I think Pete set out on his prescription around the growth pillar that we have the product set, which is performing, whether that's in our fixed income table of strategies, whether is the systematic on the equity side and also the growth potential on our solutions and multi-asset. So there's an array of strategies, which we believe are extremely relevant to clients to help navigate these, obviously, uncertain market conditions. So there's no particular product which we're picking out to say that's going to be the product, which drives the AUM growth across the firm. Geographically, our European core markets are obviously still our core markets, given the history of the firm. And there's also extremely good prospects for growth in some of our more developing markets, whether that be in Asia Pacific, whether that be in LatAm or the U.S. offshore. So there's nothing in particular to pick out there. But I think one thing I would want to highlight is that, clearly, in achieving these targets, it's quite clear that we need to take market share or regain market share given the loss of assets, which we've experienced over the last 18 months. On the cost side of things, I'm not going to give you a detailed breakdown exactly of all the different categories, but broadly, it's not too dissimilar to what we've seen in the first CHF 40 million, which we've achieved in 2019 as pretty even split between fixed personnel expenses and general expenses, given the implementation of the SimCorp platform and the other benefits, which will come along with that. So I would follow the similar split to what you've seen in 2019.

Okay. Okay. And could you maybe elaborate a little bit more? So you plan to take out the CHF 40 million. This entails cost-cutting also with FTEs? Does this entail salespeople? Or is this back-office people you plan to replace by out -- ultimately raising...

Yes. Sorry, I didn't touch upon over your last point there. As Pete spelt out, this isn't impacting our investment teams. It isn't impacting our distributions footprint. The work which we have done aligning our investment team and capabilities and our distributions footprint was essentially started end of '18 and beginning -- and really impacted through the early parts of 2019. That is done. The piece which we're talking about now is the operating technology platform and our operating functions and support functions, where we're driving the efficiency there. So from a client and growth perspective, all those remain intact.

[Operator Instructions] Your next question comes from the line of Máté Nemes from UBS.

Yes. First of all, if you could perhaps talk a little bit about some of the key risks you see concerning your targets. You certainly caveated the 2022 targets by saying these are subject to market conditions. Can you perhaps give us color what kind of market conditions did you base these targets on? And how the first, let's say, 1.5 months of the year built up concerning this? And then secondly, I still wanted to get back a little bit on the CHF 40 million cost savings. I'm just curious really how much of that CHF 40 million is simply coming from the single operating platform and the related FTE optimization, FTE reduction? And how much of that CHF 40 million is coming from nonrelated activities or initiatives? That would be helpful.

So obviously, I'm not going to spell out all of our detailed assumptions around our market conditions, et cetera. I'm sure you would all build in your own assumptions around market conditions. I think the key point there is that we're not assuming any significant positive market conditions in any shape or form, just sort of normalized market conditions. And the sort of subject to market conditions point is really, just to highlight, there's a significant change in the market, and clearly, that could make those targets either more achievable because it's positive or more difficult, given any significant downturn. So maybe, call it, relatively benign market conditions as the assumption behind that. Regarding how the year started, I think Pete's already highlighted that during December and January of this year, our net inflows were flat as we continue to see that broadening of clients investing and bringing growth inflows offsetting the normalized outflows you get in the wholesale business. And then regarding the CHF 40 million cost savings, isolating out the single operating platform is really not the best way to look at it. This is about a single operating platform. There are clearly very direct benefits of that, which are part of that CHF 40 million. But when I look at the other elements of the CHF 40 million cost reductions, they're all very much linked to that key premise of around a single operating platform being as efficient as we can be and that -- whether that's linked to reduced occupancy cost because of -- it's link to reduced headcount or whether it's reduced data cost because of a single operating platform. So we only just bring the data once, et cetera. So I would very much view it as a single element. There is one additional element which again is [ semi-linked ] it's how we manage our whole IT estate. Clearly, the benefit of this single platform reduces that IT estate significantly. Therefore, the knock-on impact is that it will cost us a lot less to run the IT estate.

That's actually very helpful. And maybe one more question on capital and the cash position. Could you give us an idea how you think about tangible equity and net cash position? Where you would aim to be in the next 2, 3 years? Is there any change on the views there?