Jupiter Fund Management Plc (JUP) Earnings Call Transcript & Summary

I think we're right on time, so we'll get started. Wayne is just pointed out to me that as we're standing here face-to-face 2 years ago, when we did this markets were exactly at the same level with the COVID concerns in there. So it's been quite an interesting few years. Anyway, good morning, and welcome to the presentation of our full year results. I'm Andrew Formica, Chief Executive of Jupiter. I'm really delighted to once again be able to welcome you in person up to 2 years of virtual presentations. I'm sure you're all sick of not actually having to do this via Zoom. Putting a tie on and suit. So thank you for those who did get appropriately attired to come into the office today. I know, of course, there are many on the webcast as well. So morning to them, you're no less welcome. As we enter 2022, it does feel like that at one point, is a turning point in the pandemic, and I'm looking forward to the opportunity of engaging with everyone face-to-face as life starts to at least normalize and business activity picks up. Unfortunately, the events of the last few days highlight the continual risk that we must contend with in markets and in our industry. Turning back to 2021. It was a challenging year for Jupiter despite some significant progress on our strategic objectives over the last 12 months. Understandably, there has been a focus on our net flow position, which continues to impact investor sentiment and weigh on our share price. I'll try and -- I'll take some time to try and explain what's behind the redemptions we've been experiencing and what we're doing to address it. But I'd also like to touch on the future growth drivers of the business. I'm talking about here about our commitment to broadening our ESG offering, our ambitions in institutional space and our targeted expansion overseas. Investment in these areas started to yield results in 2021 and they remain key to reversing our net outflow position. Following this broad overview for me, I'll hand over to Wayne for a more forensic breakdown of the results. I'll then come back to you with some final thoughts on how our investment for growth has placed the business on a solid footing for 2022 and beyond. There, of course, be an opportunity to ask questions at the end of the session, both for those in the room and for those on the webcast. So let's begin with a look at some of the key numbers in our results today. Overall, it's been another year of growth across a number of key areas. Net revenue is up 27% and to more than GBP 568 million. Underlying profit before tax rose 21% to just under GBP 217 million and underlying earnings per share climbed 10% to 31.7p from 28.7p in 2020. Assets under management were up 3% to over GBP 60 billion, helped by positive market movements, which is a record year-end position for us. We faced a more challenging year on investment performance and flows, and I'll follow up with more detail in the next slides. But in brief, the investment outperformance of our mutual funds over 3 years fell to 58%. On flows, we did see a modest acceleration in the pace of net outflows to GBP 3.8 billion, but this remains a challenge to overcome. Despite this mixed picture, Jupiter remains financially resilient, you'll see throughout the presentation that we're continuing to invest through the income statement for future growth of the business while continuing to build up excess capital, which we remain committed to returning to shareholders. The starting point is through our ordinary dividend policy and the ordinary dividend to shareholders remained unchanged this year at 17.1p. Wayne will cover our capital allocation framework later on and how our thinking about additional returns of capital have evolved. Taking a closer look at our investment performance, I mentioned the dipping out performance over 3 years, and that's largely due to 2 of our larger funds slipping into third quartile just as the year ended. There's more detail on this in the appendix where you can see the usual slide that shows the performance of our largest funds. The 1-year picture, however, looks a lot brighter and bodes well for the future with 80% of Jupiter mutual funds outperforming peers, up from 63% in 2020. And as you can see, over 5 years, our performance also continues to hold up very well. This next slide demonstrates how our product range resonates with our clients. 2021 was all another year of record gross sales and overall sales up nearly 40% from 2018. This is not only a fantastic testament to the hard work of our sales teams, but also underscores the positive impact of the acquisition of Merian on our product range and our client support and conviction in our investment capabilities. However, we're still seeing an elevated level of outflows. Putting these numbers in context, the pace of outflows from our mutual funds slowed in 2021, while segregated mandate outflows, due to one-off client redemption in the first half of the year, reversed from what we've seen in the previous year. These segregated outflows are unlikely to be repeated. Indeed, we have generated net positive sales so far this year in segregated mandates. As a firm, we pride ourselves on being responsive to our clients' needs and it's very encouraging to report net inflows into our newly launched fund, which I'll cover in a few slides on. I just want to drill down here on where we've seen improvement and where the challenges remain. Looking across from left to right, our U.K. equity franchise suffered from overall subdued overall demand, though encouragingly gross sales continue to be high over GBP 3 billion of gross inflows into those strategies. European growth continued to recover from the departure of the lead manager in 2019, seeing a year-on-year decline in outflows helped by the strong performance of the new team in place. Our Merlin multi-manager range operates in a segment of the market that is seeing little growth even if overall assets held up well in 2021. Matt Beesley, Jupiter's new Chief Investment Officer, is working with the team to identify new areas where we could position this very well-regarded strong franchise. Our systematic long-only strategy has seen a steady recovery in its performance, helping to shrink outflows while GEAR, the long short version of the systematic strategies saw outflows slow to a trickle in 2021 on the back of their best ever 12-month return, comfortably putting them top of the first quartile. And our unconstrained fixed income range continues to see inflows, and you can see here how recovery from outflows of historically can really turn around quite quickly, and we saw that from 2018 to present. These 6 strategies alone pulled in GBP 12.5 billion in gross sales this year, a figure that allows us to put some perspective on the net outflow picture. Supporting an improving picture on flows has been the success of strategies we've launched over the last 4 years. Thanks to Jupiter's disciplined approach to product strategy, these newly launched funds have attracted significant client interest delivering GBP 2.2 billion in cumulative net inflows since 2018. This has come from a range of funds and mandates including Christmas, Global Sustainable Equities and then NZS Capital. As momentum builds and more of these products reach their 3-year track record, we'd expect growth to accelerate and for these new funds to represent a greater proportion of overall assets under management. I'd like to now hand you over to Wayne, who will provide a more detailed breakdown of the results and then I'll come back to briefly touch on the overview of the priorities for us in 2022. Thanks, Wayne.

Thank you, Andrew. Good morning, everyone. Before I start, I just want to echo Andrew's comments on how great it is to be doing this in person again. Also, it's good to see so many of you in the room today. As usual, I'm going to take you through the results in a little bit of detail. So let's kick off with a few headlines, which Andrew has already touched on. Net revenue is up 27% to GBP 569 million, with disciplined cost management and with some targeted investment, underlying profits were up 21% to GBP 217 million. After those exceptional items I guided to, that's a 39% increase in statutory profits resulting in underlying EPS of 31.7p. And today, we've announced a final dividend of 9.2p, taking the full year dividend to 17.1p, which represents a payout ratio of 54%. And I'll run through our capital allocation framework and how we're thinking about capital returns in just a moment. So let's start by looking at how that 21% growth in underlying PBT has been achieved. So there's a few complexities in our results this year, which I'll try to make clear and help you think about the future. The first is the impact of Merian, which only contributed half a year in 2020 as we completed the acquisition in July. To annualize this, we simply doubled the Merian H2 contribution before performance fees to get a more relevant comparison. As I've said before, Merian is fully integrated into our business, so we can't separate out the profits anymore. But what we do know is that the AUM that we acquired has increased in line with the group as a whole. There are additional cost savings, which continues to demonstrate the value of the acquisition. We had strong performance fees, again, which added GBP 16 million to the increase in profits, and I'll cover the details of the movements in revenue and costs in just a moment. Last year, we reported gains on financial instruments. That's primarily the seed capital portfolio net of hedging. This year, we're reporting losses for the period, reducing some of those earlier gains. And that has reduced the growth in profits year-on-year by just under GBP 8 million. Finally, there's a full year of interest costs on our debt. All of this results in an increase in underlying profits of 21% to GBP 217 million. High performance fees this year and last make it a little more difficult to follow the underlying trends. So I'm presenting the performance fee profits separately, both in the announcement and on the slide here. Performance fee profits contributed GBP 52 million and other profits were GBP 165 million. I'll come back to operating margins and how you should think about performance fee profits in just a moment. But before we do that, let's look at the main driver of our business, the movement in AUM. Okay. This slide shows the AUM progression over the last 2 years. Firstly, the Merian acquisition added GBP 17 billion on the 1st of July 2020. But of course, only half of that was in the average AUM for that year. Andrew has covered this year's flows picture, but those were more than offset by investment returns, which added GBP 5.6 billion to our AUM. So with only half a year of Merian and strong investment performance, our average AUM has increased by 25% to GBP 59.7 billion. So this picture leads us to the movement in revenues, including those performance fees. We reported GBP 448 million of net revenues for 2020. If we exclude performance fees and at a full year of Merian, we reach an adjusted revenue of GBP 441 million. As we saw on the previous slide, there's been a negative impact from flows more than offset by a positive impact of investment returns over the past 2 years. And that has driven the change in revenues. So revenues, excluding performance fees have increased by 19% and I know you're all interested in our net fee margin and where that that's going from here. Last year, I reported a run rate of 76 basis points for 2021 at the start of the year, which had declined as a result of business mix. And that's not really changed much through the year with strong investment performance in higher-margin areas, offsetting outflows. Historically, and excluding the Merian related rebalancing we've been tracking at a 1 to 2 basis point decline per annum for some years. We're investing for growth in a number of key areas. In some cases, those command a lower average fee margin, such as building our presence in the institutional channel. Success in these areas would lead to a decline in the average fee margin as a consequence, but I'm more focused on the increase in revenue earned through growing our AUM rather than simply the average margin. So although the fee margin was flat this year, I think the decline over the next few years could be at the upper end of our range or maybe a little higher than we've seen historically. So we may see a 2 basis point decline this year if we are successful in achieving growth in those key areas, along with maybe another 0.5 basis points for other factors such as underlying fee freshers. Finally, we have GBP 113 million of performance fees this year, that's up from GBP 64 million last year. As you all know, most of this year's performance fees came from Chrysalis with some contribution from other mandates. As we've done before, your pack includes each of the funds with performance fee capabilities, and we currently have in total, 16 funds and mandates that could deliver performance fees in the future. When you look at these later, I would particularly draw your attention to GEAR, which paid a small fee on one of its share classes this year and demonstrates its performance has really come back over the past year or so. But of course, predicting performance fees in the future is very difficult, and I will not expect fees at this year's level to repeat in 2022. I'll update you at the half year, but I will be thinking about GBP 10 million to GBP 20 million fewer models this year. So all in, that takes us to a 27% increase in revenues for 2021 to GBP 569 million. So moving on to costs. This slide has a lot of data there's a few areas I want to focus on. Firstly, I've included 3 years of information as there's been a lot of change over this time. That's the Merian position, the impact of COVID, restructuring ongoing cost headwinds and some investment in growth areas. Secondly, I've pulled out performance fee related costs, and you can see more on overall profits from performance fees in our announcement today. You know that accounting for bonus awards where large parts are deferred is a little complicated, with cost charge in the future relating to this year's and previous year's awards. And like last year, we've included a schedule in the appendix that sets our future deferred bonus costs for rewards we've already made. That deferred bonus accounting is particularly important to understand when we have revenues that can vary significantly year-on-year like performance fees. And with high performance fees again this year, you can use this data to update your models for those costs. Next, before I get to the ratios and margins. The picture on the right shows how our compensation mix has changed over time. That's excluding performance fees, that shows that in 2020 because of the transition and integration of Merian, we had a greater weighting towards fixed half costs. This year, we've moved back to a more balanced weighting towards variable compensation. Given the volatility of the performance fees, I've included the underlying compensation ratio, that's 33% this year and is down by 2 percentage points. That's the net impact of the synergies and restructuring that I highlighted this time last year, partially offset by investment for growth and the need to reward to ensure our total reward packages are competitive to both attract and retain talent in a market that's seeing a fair degree of inflationary pressures. Looking forward, we can probably expect this underlying compensation ratio to be around 36%, excluding any performance fee impact. That reflects some investments we are making to drive growth. I would then expect that ratio to come down as growth begins to build. And turning to operating margins. I've shown this, including and excluding performance fees. Excluding performance fees, the margin has reduced from 39% to 38%. That decline is due to movements on the seed portfolio as well as some one-off costs this year but has benefited from the lower compensation ratio. But including performance fees, the operating margin is 39%. So let's look at the cost progression in a bit more detail, starting with staff costs and the fixed cost component. So that Merian annualization again takes us to adjusted costs for 2020 of GBP 85 million. I've talked to you before about our focus on cost discipline. I think you can really see that here. Between the synergies derived from the acquisition and the savings we made elsewhere, we've reduced fixed staff costs by GBP 12 million. And if I bring in variable compensation, you can see that split of fixed variable being weighted towards the variable element. And that trend continues to be our focus, but it obviously depends on the performance of the business. I've already touched on investment for growth, which continues to come through in 2020, and Andrew will go through the key elements in more detail in just a moment. Most of this investment comes through as compensation costs as we have resource to the key areas of sustainability, institutional and our international businesses. Given the investment we've been making and the industry-wide inflationary pressures, we would expect the fixed-off costs for 2022 to be at least GBP 80 million, but lower than the 2020 adjusted total of GBP 85 million. Turning to noncompensation costs. Once again, you can see the Merian annualization here, which takes us to an adjusted noncomp cost base of around GBP 116 million for 2020. We've delivered almost GBP 5 million of synergy savings and we continue to look for opportunities to reduce costs where we can across the combined business. And the other cost movements on this slide are also in line with our expectations and the guidance we gave you at the last 2 presentations. Firstly, admin fees, these move generally in line with average AUM as a lot of the charge is driven by that. Other AUM related costs are principally data and research, including targeted investments for our data science team to support our fund managers in delivering alpha. The other increase is largely due to that planned spend on marketing as we come out of the pandemic. Finally, you'll recall the one-off costs I highlighted at the half year for FX and historical indirect tax. And of course, that hasn't changed. So total non-compensation costs are GBP 126 million. Looking ahead, I mentioned earlier that most of our investment for growth is coming through our compensation costs as we add some resources in key areas. There are inflationary pressures in our non-comp costs, but our focus on being disciplined along with the benefit of our operating platform mean that we expect our non-comp costs to be marginally lower than 2021. And there will be also be exceptional costs of GBP 26 million for 2022, which is just the acquisition-related items that I've mentioned before. So although we have guided to increase fixed staff costs, driven by inflationary pressures and some investments, our non-comp costs will actually be lower this coming year. Combined, the total of these costs is in line with market expectations for 2022. Turning to capital. You can see from this slide that we continue to maintain a strong capital position. At the first -- at the half year results, I talked about the impact of IFPR. That's a new Prudential regime which came into place in January 2022. That has had the impact of reducing our capital surplus by around GBP 50 million, which is broadly as we expected back in July. Looking across our capital allocation framework, there's a clear order in the way in which we think about capital. Of course, our regulatory requirement and applying a prudent buffer are the first steps in this. Next, we consider the use of seed capital to build track records in new strategies. We currently have a seed capital portfolio of just over GBP 140 million, and the Board has approved this can be increased up to GBP 200 million. The key aspect here is that we continue to be very disciplined around our product strategy. The products on this slide are some of those which we have recently invested seed capital all of which are in strategically important areas of growth. And crucially, we are very efficient in taking money out at the right time and recycling it in some new growth areas, which is testament to the much improved, much more efficient approach to product strategy and development. In recent months, we have taken seed money out of products, which have built a track record in attracting client investment and recycled that into key new products, including the strategically important Global Ecology bond fund. Moving back to the framework. Next in our capital allocation framework is organic and inorganic investments. We've been very clear that we do not have any current plans for M&A. We're confident in our strategy and that we have the right products, performance and people in place, which will drive growth. So there's no requirement for additional capital from an inorganic perspective. We've discussed some investment for growth, which is largely directed towards additional people in key areas and comes through our income statement rather than the capital base and which we expect will drive growth in gross flows in those areas in the future. We will continue with our ordinary dividend policy, after which, we still maintain a strong capital position, which enables us to make additional returns to shareholders. We review our capital position regularly. And as I said before, we've made a commitment that every 2 to 3 years, we return excess capital to shareholders. That will come up next at the end of 2022. Historically, we've done this through special dividends but our expectation is the next and any foreseeable future returns will come in the form of share buybacks. As we work towards the next additional return of capital, we'll continuously monitor a number of factors including external market volatility through geopolitical events and internal capital requirements as we transition from the ICAAP to the ICARA. So to wrap up, and before I hand you back to Andrew. The financial results were strong this year, 10% increase in EPS, 21% increase in underlying profits. We have a robust capital base, and we are on track to look at additional returns of capital again for the 2022 year-end, which we expect will likely be through a share buyback program. Our focused cost discipline in the past means we're able to target investments in key growth areas. And with that, I'll hand you back to Andrew, and we'll have to take questions at the end.

Thanks, Wayne. Wayne has highlighted the investment for growth that we've been making, which is lucky focused in 3 key strategic areas. Before we move on to questions, I wanted to spend a little more time focusing on these key areas and why they're attractive to us as a business. Those areas you can see here on the slide; firstly, our commitment to sustainability from both an investment and a corporate perspective; the second one there, the work we're doing to build out our institutional channel to diversify our client base; and thirdly, our targeted international expansion to offer our products to a broader range of clients. Turning to this slide, I'm conscious this won't be the first time nor the last, you'll hear an asset manager talking about the value they place on sustainability. It's at the top of many clients deliberations and as it should be, incredibly GBP 1 in every GBP 3 went into ESG equity funds last year and GBP 1 in GBP 10 into sustainable bonds. Jupiter has a proud heritage as an active participant in helping find solutions to era defining challenges. It's worth remembering we were the first asset manager in 1988 to offer a unit trust dedicated to finding solutions to the world's environmental problems, the Jupiter Ecology Fund. Today, Jupiter looks at sustainability in terms of both investment and corporate lenses. This slide looks at the first of these, the integration of ESG principles across our strategies, investment processes and the broadening of our sustainable offering to clients. I won't talk you through every point here, you'll be pleased. But as you can see, we are driven in this area by our commitment to providing our clients with a genuine sustainable offering where there is clear accountability. And you can only achieve that by investing in your capability, and that's why we now have 20 investment professionals dedicated to sustainability. It's also why we have built up one of the best data science teams in the industry, supported by people right across the business in areas such as technology and change and corporate sustainability to help underpin the quality of our offering. Clients are recognizing our expertise in this area. In 2021, we saw over GBP 200 million of net inflows into our sustainability theme products. And just this week, Brunel announced that they have added the global sustainable equity strategy as 1 of only 6 underlying managers in their sustainable equities portfolio. This bodes well for our expectation of an acceleration of flows and it's supported by recent launches, including the Global Oncology Bond fund, the SICAV for our Global Sustainable Equity strategy and an ESG version of our very popular dynamic bond strategy. The final lens through which we view sustainability is our corporate commitment. I don't believe you can be seen as a leader on the investment side without strong credentials at the corporate level. So as a company, we want to be fully engaged in the environmental, social and government issues that matter to all our stakeholders, to our clients, to our shareholders, our employees and to wider society. It's about making a commitment as a firm that we hold ourselves to no less higher standard than we would expect from the companies in which we're investing. And as you can see on this slide, we have signed up to a number of ESG initiatives as because, as a firm, we want to be held to account for our actions. To ensure that we continue to make progress in this area, we have pointed this month, Sandra Carlisle as our new Head of Sustainability, who will assume leadership of a new corporate sustainability team. She will be responsible for further developing and implementing an integrated and cohesive sustainability strategy for Jupiter across both dual corporate and investment footprints. And it's pleasing to note our efforts in this space are increasingly being recognized externally. Morningstar was the latest firm to award us an advanced rating for our corporate level ESG commitment we were only -- 1 of only 5 managers to receive this accolade. And we were also awarded an A+ rating for strategy and governance by UN PRI. Our second area of focus for the business is our institutional channel. Institutional clients currently only account for 8% of the group's assets under management, but our strategic objective is to bring this closer to 20% over the medium term. Developing an institutional business is not just a case of targeting new clients. It requires investment in our talent, our products and our platform. And in 2021, we invested across all 3. Consultants are the gatekeepers of this market, and we've been working hard to build stronger relationships with them and showcase our expertise and commitment. And that hard work in 2021 has begun to pay off. We now have 15 buy ratings across 9 strategies from 9 different consultants. 7 of those strategies are newly rated in last year. These ratings also reflect a product range at Jupiter that is ideally suited to the institutional market. This includes our Global Sustainable Equities capability, U.S. partner, NZS Capital's Global Growth strategies, our Unconstrained Global Fixed Income strategies and Emerging Market capabilities to name just a few. We've also put people in the field to support our efforts. We've appointed senior regional heads in the U.K. and Asia to drive growth, and we've expanded our team in the U.S. We are currently looking to recruit a new Head of Institutional for Continental Europe, and we have ambitious plans for Australia, which I'll talk on more in the next slide. These new hires, combined with an ongoing focus on delivering the best possible experience to our clients are key to our future success. Institutional level client service is increasingly becoming the norm across the industry, regardless it's just institutional clients but also for our traditional wholesale and retail client base. So it's important that we continue to rise to that challenge. When I first joined Jupiter, I mentioned that reinforcing our market-leading position in U.K. retail had to be a priority after several years of focusing on expanding our international presence. This successful acquisition and integration of Merian has fulfilled this objective, allowing us to widen our perspective and take a fresh look at our global footprint. Clients from outside the U.K. accounted for almost 30% or GBP 17.5 billion of our assets under management in 2021, and that's up nearly 70% since 2018. They represented nearly 50% of our gross flows last year and have contributed nearly GBP 200 million in net inflows over each of the last 2 years. So there is real momentum in our international business, and we've set out to capitalize on that by investing for growth in key new markets. Last year, we expanded our distribution team in the U.S. as well as opening an investment office in New York. With the acquisition of Merian, we inherited a strong relationship with Chinese asset manager, Ping An. We represent them internationally for the distribution of their highly regarded Chinese Equity strategies, and we're currently exploring how we can work with them in the Chinese market. I've already mentioned Australia as an untapped opportunity for our institutional channel. We've received regulatory approval to operate in this country late last year, and we're now in the process of adding on-the-ground resource. Going forward, our efforts will now focus on consolidating our presence in the international markets that we now operate in, having achieved the rebalancing we outlined in our Capital Markets Day in 2019. As a firm, we've always been passionate in our belief that high-conviction active asset management helps our clients achieve their long-term objectives. And right now, with the high levels of volatility we're seeing over the last few days, it is even more important that active managers help their clients to navigate these challenging conditions. In addition, our clients are also telling us that their objectives are best served by investments which make a positive impact with their money. Jupiter, with its strong commitment to ESG at both a corporate and an investment level is well positioned to fulfill our clients' requirements, and in another support to the active management industry. We've also been able to deliver another year of robust financial results, as Wayne has highlighted, and we continue to tailor our product offering to meet client needs, leading to a second year of record gross flows. Continued inflows into newer products offer cautious optimism for the future. We remain committed to investing in those areas of the business that will drive future growth and to deliver the benefits of that investment to all of our stakeholders. So with that, I'd like to thank you for your time today, and I'll open the floor to questions, and then we'll go over to those on the lines.

Hubert Lam from Bank of America. I've got a few questions. Firstly, can you talk about the institutional pipeline? I think, Andrew, you hinted that you already had some institutional wins this year. If you can kind of quantify that and the pipeline, that would be great. Second question is on -- just on flows again. I guess there's been a lot of focus on European U.K. stocks because of their value gearing, higher interest rates, inflation and there's speculation about more rotation into these type of assets. This makes you well positioned. Just wondering, why, if you expect to be benefiting from this, why hasn't happened, is it due to performance or distribution? Or do you think just flows got to pass the first before going to active funds, just thoughts about that? Another question on costs for Wayne. You gave guidance on both the comp as well as the non-comp costs. How fixed are those in, let's say, the markets continue to be weak, do you have any flexibility around those investments? And the final question is on the excess capital distribution, I guess, the special dividend. Can you remind us what the formula is or if that's changed I know you're switching to more buybacks now, but did that formula change?

You know we do 3, Hubert. You've gone up to 4. You've been busy in the last few years. I'll pick up the first 2 and Wayne will pick up the second 2. In terms of institutional pipeline, I don't want to quantify the pipeline. We are definitely seeing an elevated level of RFPs and conversations in that area. The institutional channel is quite hard to turn on in the sense, and it's something we've been working on for a number of years. And it's fair to say that Jupiter was not seen in the -- probably the best eyes for the institutional channel given its strong retail focus when I joined. And it was a concerted effort from me and others in the organization to change that. So what's really pleasing is that consultant support that we highlighted has really changed its shift in the [ scene of seed ] change in the appreciation and the understanding of how much Jupiter is able to, both willingness and also able to deliver the client in that space. So just a doubling of the buy ratings that we achieved in just 12 months. Now buy ratings alone don't generate inflows, but you need them to get to that point. So how we sit there and capitalize from a buy rating into inflows it could take up to 2 years in some cases. You will see evidence of that this year. We're already seeing some of that. As we mentioned, we've seen positive flows in our segregated mandates already. I also mentioned the Brunel win, those in the public domain this week. So whilst we don't -- we can't quantify that pipeline, we do have confidence given the work we've done and given the conversations that over the next -- over 2022, 2023, we will see inflows of that. That's also at the heart of some of the points that Wayne made around the margin impact. It is fair to say that the institutional channel will be at lower margins generally, but they will have much, much longer duration. So the present value of a successful win in the institutional channel, it will be more stable, more long-term assets in the business. So we think that is beneficial to the business and to our shareholders. So I can't give you any more, but our confidence is clearly a lot increase given the progress we've made and the hard work put in last year. And that's why we're also increasing the distribution head count. There's no point having distribution salespeople representing you if you don't have the capabilities, the ratings, the support to do that. We feel confident that, that's been addressed. And therefore, we're adding those resources in the U.S., in Europe, in Australia. In terms of where flows sort of are in some of our products set, you're right, there are a number of areas that have been out of favor and then rotation in markets and some of that is stalled by us. So for example, value strategies where I'd say the value team we have here is certainly one of the preeminent in the team in the marketplace, if not the best, in the marketplace. And then also markets that have been out of favor, U.K., Europe, for example, because of some of their biases could come back into favor. I think to sit there and see are you seeing any evidence that with what's going at the moment, it's just a risk of market quite frankly, and understandably. And if I was a client, I'd be doing the same thing, I'm just sitting on my hands and trying to work out what does this all mean? I do think, however, it bodes well as we move -- see a shift in that. And even in these sort of conditions, remember, we've also got a number of well-performing absolute return strategy. So GEAR, for example, had over 18% return last year, its best every year, and it continues to be positive through January and February. It's up year-to-date, doing exactly what it should be in that area. 18% return last year was great for the strategy in some ways was overshadowed by what markets did. When you now look at it in the context of this, it really, really stands out. So that could help that. Our strategic absolute return bond -- funds well has also sat there and delivered a strong performance through these volatile market conditions. So I think we do have areas where if clients are concerned about further decline either in fixed income or equity markets, we've got a number of capabilities that have got good long-term track records to support that as well. So look, I think the institutional side looks positive. I think that on the mutual fund or the retail book, it's really around at the moment. It's just about working with clients, seeing where -- helping them through the navigation of wherever they are and just on sentiment and then see once we come out of that, hopefully, to be able to build upon those relationships and take that forward.

Okay. And I'll pick up your next 2 questions. The first one is on costs. And just if I break that down into how much variability there is in our cost base now. And I think your second element was in terms of where we're investing for growth. If you look at our cost base as it stands today, the staff costs, I set out that they're broadly 50-50, and that's where we're targeting the future. Now from a non-comp cost perspective, actually, the -- about 50% of those costs are linked to AUM. So they move in line with our average -- it includes data research. There's an element of judgment there for us in terms of how much we want to allocate to those costs. And the remaining 50%, again, half of that is variable and to a certain degree fixed. In terms of going forward, I haven't given you precise numbers on the guidance for 2022, and that's because we are looking at now how those costs are going to come through. I'll give you a minimum number for the fixed staff cost. That is where most of our investment is coming through. But clearly, there's an element of judgment there about how quickly we move to that investment for growth. On the second question, you asked about the formula for the payout ratio. So just to remind you, the last time we paid an additional return of capital was for last year. And at that time, we announced that what we would do from then is look for a 2- to 3-year cycle, and we said that we would look at the cumulative underlying EPS and target a minimum return of 70%, and that includes the ordinary dividend, so 70% is the ordinary plus any additional returns on capital over a 2- to 3-year cycle.

I think we said it would be probably kept at 90% if there wasn't other need for it. So we mentioned the seed capital. We've also mentioned that M&A is just not something we're currently considering. So the minimum is 70%, it could be up towards 90%. Mic? The mic, I'm sorry, go ahead.

Dave McCann from Numis. Two for me, please. First on performance fees, when you gave us some tentative guidance, I guess of GBP 10 million to GBP 20 million for this year. Just wanted to dig into that a bit, what gives you the confidence in making that prediction range obviously with the caveat you gave, given if you look at Page 7 of the deck, if I'm reading this correctly, the vast majority of these strategies look quite well below the high watermark at the year-end, and I suspect some, if not all of them, have maybe suffered a bit this year. I know Chris' list isn't on that page, but that's obviously done quite so well since its last watermark, is that? Why do you -- how do you get to GBP 10 million to GBP 20 million with that backdrop, if you like? That's the first question. And the second question, kind of more strategically. Obviously, a number of the big, more mature bits of your business have some well-noted headwinds. I think we all know that. You've articulated some of the strategies that I guess you're putting in place and we hope to alleviate some of those stresses. How quickly do you think those new strategies are really going to start to bear fruit? And is there anything you can do to, I guess, accelerate some of that given those headwinds don't appear to be going away in the more mature bits of the business?

So on the performance fees side, I mean, I think, hopefully, you took from my words as I am cautious about it. So there is -- I've gone from a relatively low number there. I think what we've disclosed in the pack there is the funds with performance fee capability. There's also segregated mandates, which clearly we can't set out those in the pack. So I think if you look across the whole range of 16 arrangements we have, within both the segregated mandates, some of the performance we're seeing in some of those funds then I think gives me some confidence towards the GBP 10 million to GBP 20 million range.

In terms of anything we can do to accelerate the success in some of the new areas, One of the things that Wayne mentioned was the Board increasing the upper limit on seed capital up to GBP 200 million. And the reason for that is 1 inhibitor of new strategies is the size of the fund. So when the fund has achieved sort of track record, but the critical mass is holding back client interest because they just needed certain fund sizes, it gives us flexibility for a short period of time to get them over that critical line in terms of investments, say, GBP 100 million in the fund, and then we can reduce that seed relatively quickly. So rather than see to launch new capabilities, it's actually more of use, what we would call, a catalyst to do that. So it's exactly for that sort of reason. Obviously, we're -- we can identify and see our whole marketing campaign sort of support these initiatives, client engagement. The thing about success in any new area is a multiple year and multiple conversation before you see that success. The good thing is those conversations have been going on for a number of years now, the performance continues to hold up. They continue to be in areas of demand. So we continue to be able to engage strongly on that. A good example of that is NZS capital, they've reached a 2-year track record. They're still within 1 year of hitting 3 years there over next week. And we've got a very, very full diary and every one of the people who are seeing them have at least met the team at least once. And in some cases there's multiple opportunities and the first time given travel restrictions have been able to meet them in person. So that's the sort of opportunity that is literally 4 days, back-to-back meetings pretty much every hour for them over that 4-day period. So they're the sort of things where we've built the understanding through a number of years. And now as they hit certain critical points, we're able to sit there and really hopefully accelerate and drive that forward.

Mike Werner from UBS. Two questions, please. First, on page, I think, it's 73 here. You have a very helpful chart on your seeding portfolio in terms of the duration and the percent of funds held. Just thinking about this and how this progresses going forward, we should assume that as these funds achieve 3- and 5-year targets, that ultimately, the seeding numbers should decline? Or -- again, I see a bunch of funds there around the 3-year level, and you do have a large portion of the total funds through your seed capital. So just thinking how that progresses going forward. And then second, going back to the institutional side, we saw the gross flows that you have seen over, say, the past 12 or 15 months. Are there particular strategies that are resonating with institutional clients? Are there particular institutional clients that you're resonating with in terms of the type of client that they are?

You pick on that, I'll pick on the...

So let's start with the seed portfolio. I mean, what I was trying to make clear in the presentation that we recycle that money. So I don't see this as seed portfolio that comes down over time. I see it as us looking at new opportunities. In terms of the timing of that, it can be very quick. If you think back to the Pan-European small companies fund in 2020. We seeded, I think, for less than 6 months. Client interest was there. We started to see client investment coming into the portfolio. So there was no need for the seed portfolio to continue to be invested there. Other funds, it takes a little longer. So I would typically expect that for a start-up seed capital to be somewhere between 18 months and 3 years and sometimes a little longer than that. But where we're putting money as Andrew touched on, to accelerate growth, and that could be a very short time frame, such as we have with the Pan-European fund.

In terms of institutional clients, one of the things happening in the institutional market, which is it's sort of dovetailing with our commitment on that is the institutional market is -- I don't want to pay for beta. So they're going -- they've had the continued drive towards passive. And where they are looking for alpha, they're looking for much higher conviction and higher active share in that regard, which plays really well into the strength of Jupiter. Historically, we would have been seen as having too high risk, 2 high fully concentrated portfolios and smaller investment teams. Actually, the institutional market is recognizing sometimes the larger the investment team, sometimes you dilute the investment ideas, and they're looking for -- if they're going to pay some and they'll pay for higher conviction. So actually, the trend of us becoming much more able to demonstrate our ability to service that market and commit to that market. At the same time, they themselves are coming towards us as well. So I think that's sort of on -- and that's not all institutions are doing that area. It resonates much more with some of the more -- both the more sophisticated institutional clients who are really sort of separating the way they look at their portfolios, but then also some of the smaller ones like endowment, family offices and the like who are really quite focused on that high conviction asset to it. So we're not going to be -- we would look at it and say there's probably 10% to 20% of the market -- institutional market that would really appreciate what we do. That may look like it's a small part of the overall market, but it's a huge market with Jupiter and its size that's quite a big market, addressable market to vary in. So we don't need to attack the entire institutional market. We just need to be ready in those. And that's where from the consultant part, we've also sort of been targeting some of the -- in the U.S., for example, some of the mid-tier consultants who are looking for that manager that others haven't seen or that clients haven't seen before and bringing that into it.

Bjorn Zietsman from KBW. Just 2 questions from my side, please. Firstly, could you give us an update on current trading? Obviously, there has been a very rocky start to the year. And I guess, fund managers are seeing sort of having different experiences in terms of net flows. Have you seen a net flow -- acceleration in net outflows for the first month or 2 of the year? And the second question is around sustainability flows. FY '21 saw a significant wave of inflows into sustainability and ESG type strategies? Are you seeing a slowdown going into this year?

Yes. Thanks for that. In terms of current trading, I don't really want to comment too much, particularly in short-term trading. We don't tend to do that. I think you can track our do a pretty good job of tracking our mutual fund flows. So you'll have a fairly good handle of how that's looked. And then on the segregated side, as we mentioned, we've actually seen inflows in that. So that sort of offsets some of that. Around sustainability flows. Whilst we saw positive flows in that ourselves, it was coming from a very small base and starting to build. So where others may have seen quite strong flows in that. And are they -- the question for them are they continuing to see that level of flows or to reduce. Our position is actually we're seeing a continued increase in sustainability flows, but that's really recognizing the effort we put in and started from a much more smaller base. So I wouldn't say that what we're seeing is necessarily representative at an industry level, I think is more representative of the size and efforts we put in. But we are more hopeful that we've seen an acceleration in sustainability flows for our strategies and where we are. I'm not sure at the industry level, where there's a shift yet. It's just too early to say. I could understand why there could be a bit of a shift just given the very shift away from growth to value, which may limit some [indiscernible] on that. But that's not an evidence we're seeing.

It's Gurjit from JPMorgan. A couple of questions for myself. So firstly, in terms of the growth in the sort of overseas markets, is that linked to institutional? So are you focusing more on the institutional markets in U.S., Australia, et cetera? That's the first question. Just on ESG and sustainability. When we look at SFD obviously, that's developed in Europe, and there's obviously standards out there already, U.K. is not quite there yet. How are you thinking about that? And if you were to sort of do an overlay in terms of your existing funds. Are you there? Do you have Article 8, Article 9 type funds? And then just finally, on the equity flows within the U.K. that feels like you're aware, I guess you're suffering the most in terms of performance in third quartile and also the outflows. Is there any changes you can make there? Or is it just waiting for the market to be back in favor with the strategies you have?

Yes. Thanks, Gurjit. Firstly, taking your first question around the overseas markets. Certainly, the newer markets, we see that as a wholly institutional focus. So the U.S., Australia, for example, we see ourselves entering that market at an institutional level only. We're not looking to put in place a retail proposition and a mutual fund range or [indiscernible] range or anything. And that's a combination both of our confidence in our capabilities, those consultant ratings now, which often have a universal or a more global appeal in a number of those consultants, but that's the way we're going at that. And interestingly, it's actually easier to start in a new market with that clear focus. So a challenge in the U.K. has been, but aren't you retail? How do we believe your institutional way in the U.S., Australia? It's very easy to say, no, this is your who we're after. This is how we service you, and they've got no preconceived perception that you've got to overcome. So that's definitely how we're seeing those overseas expansions there. In terms of the -- the second question was around the...

The ESG.

The ESG fund range, the ESG elements there. The -- what we've done, we've done a very comprehensive review of all of our portfolios. It is important. The first thing I would say is that every portfolio does embed the principles of ESG principles into it. But to what degree do they do that and how do they look at it? When you look at the definitions, Article 9, Article 8, for example, if you use the European taxonomy. The -- what I would say there is one of the things we've been very, very cautious of is making sure that we're quite strict around how we would classify that and how we would prove that to external validation. We talked earlier in the slides about accountability in that sense. That's really, really important because you see a lot of people talking about, is there a greenwashing going on? Is this going to be the next big scandal or the fund managers have just jumped into there? I don't know if others have gone through the same rigor we have, but I can assure you it's been a very, very rigorous process. And what that means is some of our strategies do satisfy the high hurdle we would set to be classified, say, as Article 8. Obviously, something like Global Sustainable Equities is already there. But our European growth strategy, for example, can pass the high hurdle we would set around accountability, around audit, around proof for that. Our Dynamic Bond strategy, however, to get to that level would require to divest from certain investments or markets that it sees as critical both to its historical performance and potential future returns. So rather than sit there and limit it to investment universe, we've created a very separate capability, which we believe in the long term, won't be materially different on price, it's clearly getting the exposure to the same management team and the same investment process, but it has a very clear accountability around those areas. We've also hired a dedicated ESG Investment Director Anna Karim to support that strategy to really make sure that the team is challenged at every investment against that criteria. So we've been very cautious in how we've done that. That's why you've seen us launch new funds. I think for us, it's fair to say that we would have a much lower proportion of assets in sustainable strategies if you looked very clearly around that, but we've now got a product set that actually covers all aspects in both fixed income and equities and balance that we see could really benefit with track records and supporting evidence for that. So we feel we've got the right funds in that. And on the U.K. range, some of our small and mid-cap funds have definitely a growth bias to them. I think that's the right way in small cap strategies. What you're looking for is the next -- looking for the next future large cap. And so that is about looking for companies that grow. Obviously, at the moment, that's having a tricky timing in more immediate time, but the long-term track record is really, really strong in that regard. They're very well regarded. I think it is a matter of just people sort of recognizing and coming back to that. Are there any other questions from the floor? In which case, we'll go to those on the line. I think you're feeding your questions in through the Q&A section. And Alex is going to read them out to us.

Thanks, Andrew. We've got one question in 3 parts from Samarth at City. The first one is around geographical revenue split, noting that a lot of the revenue growth came from the U.K. and revenues outside the U.K. actually declined slightly last year. And a comment on what the drivers were for that. Second part being on fee margin guidance and whether you could provide any sort of details around what level of success of the strategy you're talking about to build into that and sort of what AUM growth, to what extent you can give details on that? And thirdly, just a clarification on the share buyback, whether that be considered after the full year 2022 results all before?

Do you want to do it? I'll throw these all to Wayne.

So geographical revenue is just about mix. So we're seeing some growth in institutional business there are great mandates there and also the mix of products that have done well in that region. So I wouldn't read anything into that other than that. From a fee margin perspective, I mean it is obviously very difficult to predict to what fee margins are going to look like in the future. What the guidance I've given today is expecting that to come down over time, at a higher rate than we've historically seen at 1 to 2 basis points. But that is really dependent on making sure we deliver on those growth in the institutional position...

Do we -- are we giving any guidance as to what level of flows...

What level of flows we're going to give. Sorry, I missed it -- I guess I missed the question. We're not giving guidance on that at the moment. We're obviously looking at modest flows in the short term but expect that to grow at the time. So I'm not going to give any particular numbers at this stage. And the final question was about the buyback. Our intention would be, I think, to -- our expectation at this stage will be to be announcing the results at this time next year.

That's it from the webcast.

Well, look, I think we've covered all the questions we've had, and thank you for your time today, particularly to those who've come in the office is really appreciated and great to see people face-to-face. Obviously, in terms of the results, there's a number of key points there. And obviously, we've hopefully tried to give you some confidence around the areas of work and focus we're doing on that. We know the flow picture has not been where we'd like it to be and where you'd like to see. But I would say there's been a lot of foundational work in the business that has happened over the last couple of years, notwithstanding COVID has made some of those changes slower and harder than we would have liked. We really are quite pleased with the progress we've made across so many areas. And we're just -- in the final piece of the puzzle will be seeing that turn into a net flow position, which not surprisingly is a key focus for us as I know it is for you, you and your clients. But we'll keep you updated and abreast to that as we work through this year. And if you have any further follow-up questions, please do reach out to Alex and the Investor Relations team, and we'll address those as well. Thank you.

This presentation has now ended.