Janus Henderson Group plc (JHG) Earnings Call Transcript & Summary

And we are live. Good morning, and welcome, everyone, to the UBS Financial Services Conference. Many of you have been here for 3 days or even more enjoying Miami. This morning, we're very pleased to have a fireside chat with Roger Thompson, CFO of Janus Henderson Group. Welcome, Roger.

Thank you. Delighted to be here. I'm a Brit, so I don't see sunshine in February, so I'm -- wonderful to be here.

Excellent. Excellent. That's good to hear. So it's interesting because the top leadership at Janus Henderson is a combination of Ali Dibadj, who came on 2, 3 years ago to lead the firm as CEO; and Roger, who as CFO of Henderson was present for the combination of the 2 firms, became CFO of the joint company, Janus Henderson, and as such, has seen kind of the history and the evolution of the firm. So I'm curious, Roger, Ali and you and the leadership team have brought in some new strategies, new approaches. Where do you feel you -- the firm is at with those? How far along are you? And what are the next challenges coming up?

You're always evolving. Ali is -- I think -- I don't like talking about the merger, it was a long time ago. Yes. But you do go in different phases. And I think some of that -- yes, broadly, I think we did the first part very well. We sort of lost our way a little bit in the middle. And Ali has brought a real kick in life to us going forward. And sometimes you need that catalyst. So, yes, there is a lot going on in the firm. And Ali, as those of you know, is a ball of energy, which is exciting to work with. And I think 2,500 people are pretty excited about what we're doing. So yes, you're always on that journey. There's a lot of evolution there. You were just talking about the feel at the conference and the general positivity and excitement. Yes, that's pretty much what it feels like inside the firm. And when you see success -- and we're not there yet. So we've gone from what was a pretty tough 2022 to a significantly improved 2023, but we're not yet growing, not organically growing. But that feels good. You go from minus $31 billion of flows to basically flat last year. That's -- that means that people can see that we're moving in the right direction, and therefore, that excitement and that -- what Ali and hopefully the rest of the management team and the broader 2,500 people are doing feels good. So we're on the journey, and that's a good place to be.

Yes. Excellent. I wanted to ask about one of the highlights of the reinvigoration process so far, which is institutional flows, which a year ago for a couple of quarters, were extremely good. So a little bit, if I may, like Jesus with the apostles on the mountain tops, so here's your glimpse of heaven and now strap on those sandals and get back out there. So where are you in that process? How important has it been for institutional prospects who may not have participated in the first round, if you will, to see and hear about that success?

Yes. So anyway you're referring to is the first half of last year, we saw some significant institutional fundings. Our institutional business went from -- overall in the year last year went from about $14 billion out in '22 to $7 billion in '23, and most of that was actually in the first half. And to be fair, some of that was pent-up demand. It's things that we've been working on for quite some time. And the institutional pipeline is long. And what we said, I guess, 9 months ago, now probably was -- it's going to take us time to rebuild that pipeline. And that's definitely true. It's not happening. And we said it would take 12 to 18 months. It's certainly not quicker. So we have not got a massive amount of late-stage pipeline that's about to fund -- sorry, that's just a fact. But we said it would take time, and it does take time. What we are seeing is a number of things. The -- we are having better conversations with better people. The activity level is higher. That early stage pipeline -- the pipe is fatter. At this level, it takes time to come through. That doesn't mean there won't be some fundings coming through this year, but it's -- yes, the bigger things are probably the back end of this year or '25. And at the same time, on the other side of that, you've got some things that let things mature, clients move into different areas, clients profit take. Yes. It's never nice when that happens, but it does. We should be happy for them. So you're constantly -- yes, there's constantly some things going out the other way. We'll balance that hopefully with some coming in the top, but that -- what we're building is still something which is -- I wouldn't say it's over the horizon from where we are in our sandals, but, yes, we're not there yet. We've still got work to do. Some of the conversations are also more complex. We're moving more and more towards conversations, which are more solutions related. Those conversations take longer. They're very good conversations. We've got some really interesting things to talk about with clients, but they take a little bit longer to fruition as well. It means you have -- sorry, it's a longer than a product sell.

Right. And you went to exactly the point of my interest, which is better conversations with better people, so -- and you gave some detail on that. In terms of better people, how is it? Is it more senior people? Is it just the right people to have those conversations? Tell us about that.

It's a little bit of both. There are clients that we haven't talked to for a long time, and we're building things. We'll talk about brand probably on the intermediary space as well at some point, but branding what we do with insurers. Branding -- yes, so next week, we've got our second ever client event in Asia. We did one last year for the first time. We've got clients in there, some of the major sovereigns coming in for that. We've got an insurance summit that happens. So we're linking up clients much better. So they are better clients, and we're providing something which means that the decision-makers are coming and talking to us. And so it is -- I think it's a combination of both things. It's the right clients in the right place. And again, some of that flow is happening. They're just not the big ones yet.

Yes. Got it. Okay. One more on institutional. I'm just wondering, because of the level of fundings a year ago, how has sentiment changed because a lot has changed since then? So how has sentiment changed amongst those clients who may have given a mandate to Janus Henderson and now they're maybe coming back for more or wanting something different? Or where is they at as a group, if you can generalize a little bit?

So I guess -- yes, a lot of that money came from -- come from a couple of places. There were some Middle Eastern sovereigns. There were some large insurers. Really, they were the 2 pieces of insurers around the world. And yes, there is -- we have a -- still a relatively small part of wallet on -- certainly on the sovereign side. On the insurers, that's something, yes, that we're pretty excited by. When you do -- when you sell Australian fixed income to a European insurer, that's interesting. When you sell the second one about 2 months later, that's really interesting because, well, now I've got a trend. So how many other European insurers are going to be interested in Australian fixed income? And that's where we've got a fantastic, sweet product there.

Excellent. Switching to the active ETFs, which have been another point of early success as you reinvigorate the firm, primarily in the fixed income area. Just wanted to get your thoughts on who the buyers of that are and where you see, more importantly, the addressable market? How fast could it grow? And how big could it grow?

Yes. The addressable market is massive. Even I would just say, and there's about $7 trillion of cash sitting on the sidelines at the moment. And what we've done is taken a product which was institutional. Yes, there's been a CLO market for the institutional business for decades. But it was not accessible to the intermediary, to the retail marketplace and to lower level corporates. And by putting it in an ETF structure, we have totally opened up that market. And that's the exciting thing about this is we've created a massive opportunity -- opened a massive opportunity. So yes, I mean, it's been a wonderful success. We raised $6 billion last year. I was just saying a few minutes ago, $1 in every $5 that went into active fixed income came to us. Now that's -- we're now bigger than BlackRock. Now those words, you haven't heard me say that around...

Do you think anyone was bigger than BlackRock?

We are bigger than BlackRock in active fixed income. We're taking $1 in $5. We've got a suite of products. And currently, it's only in the U.S. Now, anyone can buy it, anyone can buy an ETF, but there's tax issues and things like that. But we've got to -- here, we have got a brand. We've got something really quite special, that has a very large capacity. And it's actively managed. It's proper fees, lower than our average fee, yes. But it is -- we're talking about an actively managed ETF. And again -- so there were some -- you and I getting to know each other, UBS have only recently picked up coverage, and thank you for that. But this industry obsesses by flow. It's the wrong thing to obsess about. It's about revenues. Well, it's ultimately about profit. But yes, we're growing the product, which is now $12 billion at active fixed income fees.

Are there other product areas where you would consider a similar vehicle, the balanced or equity?

So without a doubt, the opportunities -- having the right vehicle is the right answer. So we need to provide what the client wants. And if the client wants a CIT or the client wants SMA or the client wants an ETF, and we think it's a sensible thing to do, and we can do it. Why wouldn't we? There are things that we wouldn't do. There are still things around transparency. We've been pretty clear we won't just claim one. We'll do something in a different way. So we -- but there are -- we launched some equity ETFs. We haven't seen much traction with that yet. But again, the halo effect of the Janus Henderson ETF franchise is something that we're really quite excited by. It's -- as I say, it's a U.S. thing now. We've got some ETFs in Australia. Europe is -- yes, again, we've talked about this in my first 1-to-1 of the day -- 1-to-1 with 12 people in the room. Thank you.

We overdelivered.

You overdelivered. But Europe is -- yes, Europe is interesting. It's difficult. There's multiple regulators, there's X and Y. So it's a difficult thing to do. You can't just roll out what you do here. But again, we've got something here. And whether that's -- yes, obviously, the securitized fixed income suite of product is a natural place to start. But yes, there's plenty of other things that will wrap us -- will wrap in, in the -- whatever the right vehicle is. So it's not just ETF. We're doing more in SMAs. We're doing more in CITs. That's something that we probably didn't. We were pretty traditional in our vehicle structure for probably a little bit too long.

Yes. Wanted to shift in the context of the active ETFs and the momentum there, get your thoughts on passive ETFs, where it's unlikely you'll be bigger than BlackRock. But how important is that as a product offering, and in particular, and we'll start to bleed into the distribution angle, but how important is it for things like retirement solutions? And where does Janus stand on that?

I think it's a very important part of the market. It's not what we do. And it's a scaled product, but we're about providing differentiated insights and alpha. We're not going to deliver that through a passive product. So, yes, great business, congratulations, go and run it. Actually, I'm not sure it's a great business, doing business at 0 fees. I go back to fees...

It is free now...

We will participate in the active part of the market. That's what we do. It's what we're very good at and we're very proud of. We're a research-led firm. So yes, a big important part of the market and an important part of portfolios. But we massively believe in what we do, and we will back ourselves all the way around adding alpha.

Makes sense. Understood. As I signaled a little bit, wanted to shift into distribution, particularly in the intermediary channel, you had basically flat flows in 4Q, which is not necessarily conducive to such. So that's -- if not the size of the institutional, a notable achievement in my view. So Janus, in the way that you describe, it breaks it into adviser, delivery and then retirement. So maybe you could talk to each of those channels and the outlook for those.

Yes. The -- so we're talking here about the biggest part of our business. The U.S. intermediated business is the biggest market to us and something that up until 2023, for the last few years, we've seen outflows. And more importantly, we lost some market share. And that's the most painful thing is market share. And we've gone from losing market share to winning some market share. The biggest success has been in the adviser sales group. We're still seeing some outflows from our retirement business. But -- so we've got an adviser sales group that is now consistently an inflow. And again -- yes, we talked about institutional. That's going to be a bit of a bumpy ride before we get to that consistent product gold. The ISG group in the U.S. is now consistently an inflow. That's -- and -- you can plot them, you can do this, and you do, do this, I know. You can plot it. It's a nice shaped curve. So we're seeing an increased flow into that group. We're seeing that inconsistently in different -- across the different geographies. We've made a lot of changes. So Michael Schweitzer joined us about 1.5 years ago now probably and made a lot of changes, both in terms of people, but how we do things, how we address things, what we bring to market. It comes into -- also comes into the vehicle delivery that we just talked about. So the adviser sales group is delivering very well. The retirement channel is still a little bit -- is probably the next piece in the U.S. And then we've got the rest of the world. The detractor in the second half or most of '23, all of '23, was our European intermediary business. And -- that's part of the benefits and the cost of a diversified business. Europe was fantastic. You said I've been here for 10 years, yes, Europe is fantastic for a few years. We have a great brand and a great reputation. But when Europe's -- European intermediary business last year was about 8% outflow, we were about 8% outflow. Again, it's a market share gain. I don't like not winning, but that's a tough tide to swim against. So -- but if we can learn and we can pick up what we've learned in the U.S. and take that to Europe as well, then we've got these next 2 pieces, so what are we doing in retirement and what are we doing in Europe. Currently, we're about -- again, public data, we're about flat in intermediary flows globally. Europe is doing better, but it's still out or the U.K. definitely is. But the U.S. is an inflow. If we can get Europe up, now I've got the biggest part of our business at the highest fee starting to hum again. So yes, there's a process. We're working through a process. We're leveraging what we've done. We're learning from this, and we're applying to that. We did a brand campaign here in the U.S. for the first time ever as Janus Henderson. We measured the hell out of it. Marketing people will always tell you about clicks and views and things like that, but you take with a pinch of salt. We checked it. We tested it. We're doing this, we're doing that. We're not blanket doing things. We're doing things in markets. We'll take what we learned there. We're doing a little bit of that in Asia. We'll probably start something in Europe, again, when it makes sense. We'll do a little bit in Europe this year. So, again, we will carry on -- sure we get on to costs at some point, we'll carry on with the things that we did last year. Learning from those, what worked, we'll leverage, we'll tweak, we'll change, but that was a success. So we're really pleased with that, and we'll roll that out, and we'll continue to do things. So yes, adviser sales, great retirement. We've got more work to do. Europe, we've got even more work to do.

Keys for U.S. retirement, are there lessons learned as you talk about from the adviser channel that can be ported over into retirement to invigorate that?

There are, but it is also a different market. So it's not 1-for-1.

Yes. Okay. Yes. Makes sense. Wanted to ask about the alternative business, a little bit of a tale of 2 cities with the Henderson and Janus franchises. And then more recently, your partnership with Privacore. And maybe the latest updates on that and how you're looking to target the market that they've, I guess, identified.

So I think there's a number of pieces here. We do -- we've got some very successful liquid alternatives of various sorts from an absolute return fund that's been very successful for a very long time in Europe. We launched a biotech hedge fund, which has been incredibly successful over the last few years off the back of the life sciences team. So we do things in the liquid space. We've got a multi-strat hedge funds, which is actually what the enhanced index business comes back into the insurance side. So there are things we've got in the liquid space. We don't do things in the private space. And we've been very clear that scenario when you look at our strategy, the 3 pieces, protect and grow is very much the U.S. intermediary space. That's our bread and butter. We have to get that right, and we are getting that right. We have to amplify things that actually is some of the liquid alts piece. And then there's a diversify where clients give us the right. That's the third part of our strategy. There are areas that we would like to have in-house that we haven't got. And -- we'll talk about Privacore in a moment, which is the one thing we did do last year. But -- yes, we would have liked to have got some deals done last year in the private space. But again, hopefully, we very much -- we will do the right deal at the right price. We're not going to do the wrong deal or at the wrong price. And price is different, people have different views on pricing, and that's why market works. But, yes, we didn't find the right thing for us in '23. We looked at a lot of deals, primarily in private credit. That's what we've been talking about. Again, that's where is the link, that's the thing clients are asking us for. So you should expect us to do something in the private credit space in '24. Like I said, we would have liked to have done something in '23, but we're not going to do the wrong deal. Privacore is exciting. It's something that started from scratch. It's now 30 people. This is a -- again, I talked about the ETFs being a democratization of a product. This is a democratization of the private market. The endowments and the institutional people, yes, the allocation is sort of 20-odd percent of private. In the private wealth space, it's about 3. They want more access. And there are people, the Blackstones and the Apollos and the KKRs, can do that. But the vast majority of the space cannot support the private wealth managers. So what we've done is something which we think is quite neat and quite exciting, which is build the middle, is someone who is going to support GPs and link to the private wealth. They're in market now.

At the adviser level.

At the adviser level. So they're in market. They've got their first big private wealth managers signed up and their first GPs. They're in market. The first close will be in the next couple of months. That's exciting. And it's a name you'll know. So that is something that does 2 things: one, that could be a big business. Again, like I said, we're starting from scratch. What I've got at the moment is 30 people spending money, and it's a JV. We own 49% of it. So that's early days. But it also gives us something -- then we are more attractive to privates who might want to become part of Janus Henderson because this nirvana of retail sales is pretty unproven. But Privacore is something that -- yes, like I'd say, it's early days. We hope to tell you more and more about it during 2024, but it's quite exciting.

Yes. And right, it would sweeten the deal somewhat to have that established up and running and some momentum. And then potential partners would see that as attractive. Just want to ask quickly because you mentioned the M&A environment. One of the things that some have observed over the past year is that the bid-ask spread is narrowing, and then, sellers are being somewhat more realistic. Have you seen that? Have you gone back to maybe folks that you talked to before?

You see both sides. So when we -- yes, when we were talking in my first meeting about a deal that was done more recently that was at a massive multiple again. So -- and again, I'd say the prices are right for the buyer, and that's fine. We have not seen that -- yes, you have to believe -- the only reason to do these deals for us is we believe that together we can grow that business much faster than it can grow on its own. Otherwise, the multiples don't make sense. So you have to -- there has to be a significant cultural fit, and there has to be a financial construct that makes sense for both parties. And again, we'll be very happy to share the upside if we grow in the way -- in that way. But yes, some deals have been done at some big ticket prices. And yes, let's see if they're successful or not. Like I say, we will not do -- we're not in a rush to do a deal. We've got plenty of things to be working on. But yes, we do want to be in that space. We've got clients who want us to be in that space. That's the most important thing is we've got insurers who wanted to be working with us in a broader suite of products. And we think that makes sense, but we won't rush to do the wrong deal.

Since we're talking about M&A, I'll touch on capital a little bit. You started back with buybacks. I'm just wondering how the management team and the Board think about buybacks in terms of on the one hand, level of excess cash, whatever that may mean, but also the share price and how that interacts.

Yes. So we have a very strong balance sheet with net cash -- significantly net cash. And we have a very established capital framework. We'll hold cash and capital for regulatory reasons. We'll invest organically in the business. And these businesses are pretty simple. When we talk about investing in the business, it's really seed capital because on the capital side that's what it is. The investments we're making through P&L that's over here. It's really seed. And we've got a good seed book. There are things -- again, we're doing interesting things there. We're launching new products. They require seed and quite often now bigger seed than they ever have to get on to platform. We do what we call ramp product to get them up to a size that the UBS is going to want it on platform for. But we've got a good seed book. And then you come down to -- the other inorganic use is deals. Now, we -- again, no secret, we'd like to do some deals. And we've got a balance sheet that will allow us to do that. The bigger the deal that will -- yes, some of the -- yes, small deal will be cash, bigger deal could involve some debt or equity, but happy to do it in what makes sense. And at the bottom of that is, if we haven't got a better use of capital, again, when you add all that up and you look at the value of it, we'll return it to shareholders. We've got a very healthy dividend. And then, yes, over the last, what, 4, 4.5 years now, probably 5 years now, we have bought back 18.5%, that's probably more like 19.5% now of our stock, because we don't dilute. On the other side, we buy stock for any awards. And then -- so the buyback is real. So we have reduced the share count probably by 19%, 19.5% now...

Right. Gross is similar to net, right. Yes.

Absolutely. It's 100%.

Okay. You talked about over here investing P&L wise. And I'll sort of start at the top of the P&L. There's been questions about fee rate where Janus has maintained much steadier than many peers. So that's an achievement. But just how do you think of fee rate balancing versus sort of product profitability, which I know has been a focus of yours as well and how you expect to manage that. And then we'll talk about expenses and investing.

Yes. Again, it does come back to the fact that we're an active manager. So our fee rate is something which I think differentiates us from the competition. We are not -- yes, you're obsessed by flows, I'm obsessed by revenue and profit. Now it will change. It moves because of markets because we've got a big equity book and equity is higher fee. And as markets go up, my fee rate will -- my average fee rate will go up. Now that's just math. What really matters is the mix of products you're selling. And again, we will sell -- we have product which is hedge fund pricing. And we have a product which is enhanced index for an institute -- for a sovereign. They are very different prices. They are both -- yes, but again, we've done the modeling, we know what. Yes, they're both good businesses. They're different prices, but they're both good businesses. Now, if we sell a lot of enhanced index to sovereigns, if we sell a very significant amount of active fixed income ETFs, they're sort of 20-ish, our average fee rate is 48. So it will come down. But on the other side, if we sell -- great to see some of the real core equity in a really strong place. The research fund has got some fantastic numbers, the -- yes, where we are in the things we're really known for. Yes, smaller mid-cap growth technology, life sciences. So we've got a balance of these things going on. So I can't tell you what the fee rate will be. What I can tell you is we're happy doing both because if we add to those our profitability will go up and our margin will go up.

Yes. Yes. So similar profitability at scale even with the lower fee rate.

Yes, at scale. At scale.

Got it. Yes. Okay. I'm going to -- I have this question pad here, so I'm going to invite the audience to either use -- you can scan the QR code and text your question or you can just raise your hand, and we'll bring a microphone to you. I'm looking past the lights. Okay. Let's...

Let's see you, Adam, I think.

Let's talk about P&L investing. And we talked sort of about product profitability, but the firm is committed to reinvesting cost savings, which you have actually been increasing and ramping up back into business growth. So how should we think about expense growth in terms of like a base comp and/or noncomp expenses, over the longer term? And then on margin, is there a point where if things were to be adverse, which they're kind of not right now, but is there a point where you would cut to defend the margin?

Let me start at the back end because that's the negative bit, and then, we'll get to the positive bit. And on the other end, I'm talking on the positive a bit. So yes, the -- there's a natural defense on the downside, which is variable comp. And again, that's obviously happened over the last couple of years. That's not that -- yes, we don't want to be doing that. But that's a very natural lever in there. Outside of that, we run the business -- and actually including in that, we run the business for the long term. So we're not going to yank things around just because the markets have gone down. So there is not a margin target. We've got a very supportive Board. I've spent the last 2 days with the Board talking about strategy for the next few years. We've got a very supportive Board. So we don't have a margin target. We don't have to meet something because the market -- if the market goes down, that's a crazy thing to do to change your strategy, unless you believe that something has fundamentally changed for the very long term. And over the last couple of years, we have taken some things off the table because things haven't been -- it hasn't been the right market to be investing in. We did that brand campaign in the U.S. We didn't do it in Europe last year. Market was -- that wouldn't have made sense to be doing it. It wasn't the right market to be spending that money in. It might be now. So yes, we'll balance things on the downside. But the margin is not a fixed number. On the investment side, yes, there are -- there's 2 sides to that. We are controlled around expenses. I think we've got a good reputation for that. There is always more to do. We are -- I don't think our industry is the most efficient. There is more that we can do, and we will continue to do more. What we want to do is be more efficient and then reinvest that money in areas that we think we can grow faster in. We'll take money off the table here, and reinvest it over here. Because at the end of the day it is about growing revenue. And again, this is -- these businesses, as I said earlier, they're gloriously simple. It's a leverage business. If we can grow the revenue, we will grow profit, and ultimately, we'll move up the margin as well. So there are things that we will continue to do on costs, and there are things that are happening to us on cost. Inflation is real. Our non-comp costs, particularly in the areas of market data and indices and facilities and cloud costs, they're going up, right? So you've got to work out how to be efficient with that, and we're working really hard on that.

Is the rate of increase slowing in accordance with some of the headlines?

Yes, I think it is. What we saw in probably Q3 of last year was hopefully the peak of that. Yes, so that is true, but it's real. On the other side, there are things that we really want to do. There's investments we really want to make in the business, whether that be people in particular areas, whether it's the work we're doing around AI, Janus Henderson doesn't shout about stuff, right? And you and I getting to know each other, we won't shout about stuff, but there's a lot of stuff going on in the background. So yes, some really interesting things going on in the tech space. Across the world, we're doing some really interesting things there. We want to invest there. We want to invest in the areas where we think we can grow faster. We've got a great little business in Latin America. We will do more down there. We've got a business in Asia that is underleveraged, we will do more there. We've got a business that is now an inflow in this adviser group in the U.S., we need to feed it. We've got a great ETF franchise in fixed income, what's the next one down the track. So there is product development going on. So yes, there is -- there are things we're doing, but that is -- and again, hopefully, that can be seen is it's very balanced in how do we try and keep those costs under control as possible. We've got investment we want to make, how can we do that in a way by being more efficient over here to try and balance that down. I'd like to think we're doing a decent job there. There's always more to do.

We'll stay tuned. We are -- the clock is at 0, so I'm not actually sure if we're still webcasting, but I want to thank everyone in the room for coming this morning, and my very special thanks to Roger Thompson from Janus. Very much appreciate it.

Thanks, Adam.

Thank you.