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

Okay. Good morning to those in the room, and good morning to those on the webcast. Welcome to our 2023 full year results presentation. So as the usual format this morning, I will provide a brief update on our results and comment on our flows before handing over to Wayne to talk about the financials in more detail and also to discuss guidance for this coming year. I'll then come back to update you on our strategic priorities and progress before taking questions from those in the room and then from those on the webcast. We believe these are a robust set of figures, given the challenging macroeconomic backdrop as impacts on both investment performance and the ability to gather assets. Client sentiment, particularly on the retail side, was fragile throughout the year and indeed worsened into the autumn. But in spite of this industry trend, Jupiter fed relatively well, and there are reasons to be optimistic looking forward. We continue to invest in future growth and to build scale. We remain relentless in our pursuit of efficiencies even after having already made significant progress in lowering on compensation costs. I'll provide more detail later on, but over the last year, we have made progress against each of our 4 key strategic objectives, that's of increasing scale, decreasing undue complexity, broadening our appeal to clients and deepening relationships with all of our stakeholders. So overall, it's been a year of real progress. Now not all of that progress will be immediately visible in our financial results. But nonetheless, we published a robust set of numbers against a challenging backdrop due to the proactive management actions we've taken. Revenues are down year-over-year, primarily as a result of lower average AUM but also because of the success that we've had in building scale in our institutional business, which typically comes with lower margins. But as a result of our direct management actions and our focus on efficiency, our cost base is down too and down more than revenues by some 12%. This has all led to underlying profits of just over GBP 105 million and EPS of just under 15p, both more than a 30% increase on the year before. Year-end AUM is up some 4%, although average AUM was actually down over the year. Outflows were a little greater than we'd expect at the half year point, but still good within an industry context. I'll come on to cover this in some more detail in a short while. Consistent with our capital allocation framework, we are returning some 50% of pre-performance fee earnings to our shareholders in the form of an ordinary dividend payment. We will discuss this more fully later, but this leaves us in a very strong, very well capitalized position. Importantly, investment performance has also improved. As a high conviction, truly active asset manager, delivering investment performance for our clients is, of course, absolutely key to our ongoing success. I'm pleased to report we delivered an improvement in the percentage of our mutual fund AUM that is ahead of the median across all of 1, 3 and 5 years. Our key measure, the 3-year figure has risen 8 percentage points to 59% outperforming. Of our mutual funds, 41% are top quartile and almost 30% of these funds are top decile related to their peers. This is not just good investment performance, but in many cases, really outstanding investment performance. The biggest change -- the biggest driver of this change is the European growth fund moving above its median along with the U.K. Income Trust. The largest move here is also over 1 year where we saw a 16 percentage point shift in 65% of fund AUM now outperforming. This is driven by our 3 largest funds moving above their median, so dynamic bond and strategic bond, which have moved from fourth to second quartile while the European Unit Trust is now first quartile. The performance of our largest funds remains very strong, too. We have 12 funds that are each over GBP 1 billion in AUM. Nine of these funds above the median over 3 years, and the 3 that are not are now outperforming over 1 year. Four of these 12 funds are all top quartile over all time periods. Now short-term performance does not, of course, guarantee flows and the overall number is still not where we wanted to be. Nonetheless, performance is often seems a leading indicator of flows and it's greatly encouraging to see this key metric improve across all time periods. So let's move on now to look at our overall flow picture. We generated gross flows in the year of a little over GBP 13 billion. Gross flows from institutional clients were again strong at over GBP 3 billion, which is pretty much the same as we saw last year. Retail inflows in the first half of the year were trending at a run rate comparable to 2022 but in line with much of the rest of industry, we saw a drop off in the second half. And this fall in demand was also reflected in the net view. Now we released these figures back in January. So you'll all be aware that we saw a GBP 2.2 billion worth of net outflows this last year. Again, this is not where we want to be. But you can see that outflows are moderating. And we're seeing a steady year-on-year improvement on the GBP 4 million of outflows in 2020. These outflows are a little greater than we expected and certainly more so than we reported -- when we reported slightly positive net flows at the half year stage. However, at 4% of opening AUM, this is probably a comparably good position relative to some of our peers. Overall, retail demand for any sort of risk asset was weak throughout last year, given the degree of macro uncertainty in the attractive yields on risk-free government bonds or the high returns available simply from having money on deposit. But this already weak demand really fell off in the second half and most notably in the fourth quarter. On top of this, fewer institutional mandates funded in the second half than we might have expected. However, our pipeline remains strong. In terms of what drove these flows, the trends we've seen are the ones that you know well, unconstrained fixed income saw outflows despite improving performance. U.K. and European equities continue to be out of demand. More positively, however, value and income strategy saw good net flows, particularly those focused on investing in Asia. Specifically, Asian income, Japan income and our India equity funds all saw inflows. Global Equity Absolute Return, or GEAR, as we know it, also had another positive year both in terms of investment performance and also client asset flows. Now I'll cover the institutional side in more detail later on. It was another good year and momentum continues to build. The first half was very strong, and we saw GBP 1.8 billion of net flows over the year. Pleasingly, flows are well diversified by region and by investment desk and gross flows were split roughly in half between new clients and additional fundings from existing clients. The second half is broadly flat, but always said that flows will be lumpy and we won't simply see continual straight-line growth. A 6-month period of flat flow in no way changes our view as it relates to exciting growth opportunity ahead in this channel. So overall, net flows continue to moderate year-on-year. At the half year, we suggested we would see only modest outflows for the year and indeed, we were on track for that result until the fourth quarter. This year, however, has so far seen a marked change in tone by client. At the end of last week, flows year-to-date were marginally positive. However, overall AUM has been boosted by the transfer of the U.K. Equity Income Fund from GAM, which will be reflected when we report our Q1 numbers. This shift in sentiment could quickly reverse but with natural momentum in some of our growth drivers continue to assert themselves and with the overall improvement in investment performance I detailed earlier, we are budgeting for broadly flat underlying flows for the year ahead. Now when I say underlying, I mean, excluding the impact of the change of the Christmas management structure and outflows from the value desk, which we may see as a result of the major changes we announced in January's trading update. The value book is about GBP 10 billion of AUM in total, of which around GBP 8 billion is externally managed money. If we exclude the GBP 2 billion or so, which is part of the Merlin fund-of-fund portfolios. Of the remainder, about GBP 4.5 billion is across various segregated mandates, both institutional and wholesale. Now of course, it is always difficult to make predictions on client flows and is certainly too early to be anything close to definitive in this case. We'd certainly expect to know more about client intentions here by the time we publish our interim results, and we'll, of course, update you then. But what we don't know what decisions our clients will make around their allocations, I do see some cause for optimism. We've made excellent hires in Alex Savvides who will join later this year and Adrian Gosden, who along with Chris Morrison, joined at the start of the year. These individuals each have fantastic track record, both in terms of investment performance but also in gathering assets. And their joining really demonstrates our ability to attract top-class talent to Jupiter. We've seen 'limited outflows from the value team's retail funds to date and so not seen any material spike in redemptions. This may yet come but has not been our experience yet. On the institutional side, clearly, these flows will be lumpier, and there may be some that decide this is an opportunity for them to change their manager. But I do hope and expect that we'd at least have the opportunity to try and retain some of these institutional mandates. And this is something that I've been very focused on, along with the senior management in our client group. So clearly, some big unknowns here, -- but to reiterate, on an underlying basis, our current expectation is for broadly flat flows in 2024. So I'll now hand over to Wayne, who will run through some of the financials.

Thank you, Matt. Good morning, everyone. Following our trading update in January, I'm sure you already have a good feel for the driver of some of our results, which we have delivered today. But there are a few parts, which will be new and others that I want to explain a little further. So we'll cover the normal presentation on profits, guidance and capital and it will also explore the opportunity we see if we can deliver disciplined growth in scalable areas. So let's start with some key headlines. Net revenue is GBP 369 million which includes GBP 13 million of performance fees. With lower costs and higher other income, underlying profits were GBP 105 million. Exceptional items were in line with guidance with the addition of the goodwill impairment we referenced in January, and I'll cover this further in just a moment. And this results in statutory profits of over GBP 9 million. Exceptional items are outside of our standard measure of performance, underlying EPS, which was 14.8p or 13.8p, excluding performance fee profits. In line with our capital allocation framework, the Board has proposed a final dividend of 3.4p, which brings total ordinary dividends for 2023 to 6.9p. So let's start by looking at how that profit progression has emerged. Underlying profits for 2022, excluding performance fees, were GBP 101 million. Management fee revenue reduced by GBP 31 million as a result of lower average AUM and lower revenue margins from changes in business mix. Costs were down GBP 9 million, primarily driven by noncompensation cost reductions and overall are better than market expansions. We delivered strong performance in our C portfolio as well as higher interest income which we are now earning on our liquid assets combined and received losses in 2022 that explains GBP 90 million of the movement year-on-year. That resulted in underlying profit before tax before performance fees of GBP 98 million and GBP 105 million, including the net impact of performance fee associated revenues and costs. Exceptional items for 2023 were GBP 96 million and were mainly the noncash impairment of goodwill that we highlighted as being expected in January, along with the amortization of intangible assets. Goodwill impairment has arisen from the lower asset valuations, the muted demand from retail clients we are experiencing at the moment and our assessment of short-term flows. And of course, we are all aware of persistently high interest rates that has led us to increase our pretax discount rate to 17%. And that higher discount rate reduces the present value of any future returns leading us to an impairment of GBP 76 million. That is not linked to a particular part of our business, but simply that some of our larger scaled areas are currently contributing lower amounts. But importantly, the impairment has no impact on either regulatory capital or distributable profits and therefore, does not affect our ability to make distributions to shareholders. Accounting standards require us to test goodwill regularly, at least every year, so I will update you if necessary. So that takes us to statutory profits of GBP 9.4 million after those noncash items. Looking forward at this stage, I'm only expecting exceptional items of GBP 9 million for 2024, which is the amortization of intangible assets and which ends in June. Let's now move on to how AUM has developed. As we know, 2022 was a challenging year for the industry, and this has continued into 2023. Retail investor sentiment did not improve materially and was particularly weak in the final quarter. Nevertheless, after steep market declines, particularly in the first half of 2022, we saw some recovery in '23 at the end of the year. We generated positive net flows in the 12 months to June '23 and net outflows for the calendar year. There was weaker retail demand throughout the period that was offset in the first half by institutional mandates funding. This slowed down in the second half but the pipeline remains strong and is simply a matter of timing. Strong investment performance resulted in closing AUM being up 4% on 2022, but the timing of market movements and flows meant that our average AUM was down 3%. Our net revenue margin was a little higher than guidance at 70 basis points. As a result, net revenue before performance fees was GBP 356 million, driven down mainly by net outflows, along with a change in mix towards lower-margin institutional business. New for this yearend, I've included in your packs, the net revenue margins for 2023 between the institutional and retail channels. That's around 29 basis points for Institutional and 78 basis points for the other business areas. Although institutional business demands lower average fee margins compared with the retail business, our analysis continues to show that lifetime earnings and profitability from institutional clients are at least as good as from the retail business. I'll update -- continue to update you on this client channel split going forward. Finally, we have generated GBP 30 million of performance fees. That's a little higher than guidance, as we indicated in January. This results in total net revenues for 2023 of GBP 369 million. At the year-end, we have run rate revenue margins of just under 68 basis points. That's the year-end mix impact compared with the average of 70 basis points for the year as a whole. And looking forward from here, the average revenue margin is reducing due to that tiered pricing we announced in October. With my estimates of changes in the business mix overall throughout 2024, I think a reasonable expectation is for average fee margins of a little over 66 basis points for the year. And in performance fees, as I always say, they are really difficult to predict. So I'm simply going to repeat my guidance from last year of maybe GBP 5 million to GBP 10 million for 2024. So we have guided to a few known changes, and there are some unknowns, too, but that gives you a sense of where we see total revenues moving in the short term. That's it for revenue, let's look at costs and my guidance here. You all know that Matt and I have been focused on optimizing our cost base. That means getting the best value from necessary expenditure, ensuring high quality service and investing appropriately. We have previously demonstrated our successes here and 2023 continues to follow that trend. Starting with a few key ratios before I explain where we are and where we expect to be in 2024. Our total compensation ratio, excluding performance fee costs is a little higher this year. We carefully consider the balance of short-term profits versus the need to continue to attract and retain the very best talent for the long term. Back in 2022, we took decisive action to resize our teams against the backdrop of difficult industry-wide challenges. So we're ahead of this compared to many of our peers. And although our ratio is up this year and is expected to go further next year, we are still below many asset managers despite the competitive compensation arrangements we offer to our teams. So a compensation ratio of 42% is a little higher than I guided but that is more than offset by lower noncompensation costs, which were down over GBP 7 million compared to both guidance and prior year. Focusing on our fixed staff cost progression. We saw net savings in 2023 from the restructuring program we announced the year before. So our normal costs were around GBP 78 million despite the well-known inflationary pressures. And that includes some GBP 16 million of ongoing costs in what we've defined as investing for growth, building scale in areas of strategic importance. Looking to 2024, I expect our fixed staff cost to be a little higher -- I'm sorry, a little under GBP 79 million. That's the combined impact of inflation, some targeted investment and delivering on our ongoing drive to reduce undue complexity. Our balance of fixed variable cost continues to be skewed towards fixed costs. That trend is likely to continue in the short term but will be reversed to a more equal split as we achieve greater scale in more parts of our business. Matt has already spoken about some uncertainties for us this year in terms of flows. And we also continue to have volatile market conditions, so both of these may play a part. However, my best estimate at this stage in the year is that the ratio will be around 47% and that is within the range I gave in October. Finally, performance fee-related costs are just over GBP 6 million and are broadly at normalized rates now. I'm pleased to report that in 2023, we have delivered a 6% reduction to noncompensation costs. Some of this reduction is through that lower average AUM, some through business mix and there were an number of smaller one-offs. But a large part of that reduction was also through direct management actions of driving value from suppliers, finding efficiencies and lower discretionary spend. So GBP 107 million of noncompensation costs for 2023, that's lower than last year and lower than guidance, but is a higher ratio to revenue than I believe we should be able to achieve for a fully scaled business. Looking ahead to 2024, earlier in the year and at these AUM levels, I expect our total non-compensation costs to be around GBP 111 million. That includes some targeted investment in discretionary areas, including the operational change agenda, Matt mentioned in October, and he will cover this further later on. The total cost guidance will be lower than most of your models and is a clear indication that we're being balanced on strong cost control while still being able to invest appropriately. Last year, my cost analysis focused on the proportion of our cost base that was assigned to investment for growth. That proportion is largely unchanged through this year. So today, I want to focus on the growth potential of those investments and the operational leverage they could deliver. So this chart shows the allocation of net revenues between the principal stakeholders based on the results we have reported today. We know that we are highly scaled in some areas, such as in our core U.K. retail market. But there are others where we have not yet achieved that and our cost margins are therefore higher in those areas. Of course, we have a highly scalable platform, which means that growth will only require marginal incremental costs when it is delivered. But without that scale in more areas of our business, our cost ratios are higher than I believe we can achieve in the future. But let's think for a moment about cutting those costs and removing that growth potential. As those areas are already contributing even if they are subscale, it would result in a worse position on profits, very little difference in the allocation of returns and the need to sacrifice clear growth opportunities. In our view, a better way to look at this is what the growth potential could deliver. This chart is just an illustrative example of what the business could look like if we added 50% onto our AUM, with the same client channel split that we have today. Now this shows 2 things. Firstly, it clearly demonstrates the operational leverage opportunity within the business with 2x our 2023 operating profits, that's double the assumed increase in AUM. And secondly, this will deliver a more balanced return of broadly 1/3 to each of our principal stakeholders with improved relative and absolute returns to shareholders. This is an illustrative example only, and I've included additional examples at 10% and 25% AUM growth in your packs. But it really shows the opportunity from our platform as we focus on subscale areas but also the necessity to maintain that investment. That's it for this year's analysis of the income statement. Let's take a brief look on our very strong capital position. Our regulatory capital surplus is GBP 177 million and results in 3.5x cover for a regulatory requirement or 3.2x excluding subordinated debt. We have today proposed a final dividend of 3.4p, taking ordinary dividends for 2023 to 6.9p. That's in line with our capital allocation policy. As a reminder, in September, we paid a special dividend of 2.9p, which is the return of capital we announced for 2022. Our capital allocation policy states who will make additional returns of capital on a periodic basis and that is not expected to happen every year. We will continue to assess our options for the benefit of long-term shareholder returns and consider any additional return for 2024. Looking at the use of retained capital. At year-end, our [indiscernible] portfolio was GBP 79 million, and we have accumulated GBP 9 million of net gains. And that portfolio now includes funding of a new thematic range in Q4. Since then, we have continued to put our capital to work, providing catalyst funding of around GBP 52 million into specific opportunities where we expect funding to quickly support client interest as we've built sufficient scale. We will carefully consider further options to invest where we see strong opportunities to drive future growth. So in summary, we have delivered good underlying profit performance despite the market conditions. We are resolutely focused on cost discipline, removing undue complexity. We have a scalable platform and a clear opportunity to deliver growth through our focus on key areas of strategic importance. And our capital position is very strong providing us with stability and flexibility to consider our options. And I'll pass back to Matt to expand more progress in delivering on that strategy.

Thank you, Wayne. Before we hand over to questions, I wanted to give you all an update on our strategy and the progress we've made this year and where we are focusing in 2024 and beyond. Now this is a slide that you'll all be very familiar with by now, which I first presented this time last year, showing our 4 key objectives. Given that all decisions we make as a management team are made through the lens of the strategic objectives, I wanted to quickly run through inch-in-turn, starting with increasing scale. Of our 4 objectives, I mentioned in the past that increasing scale is the most important. Finding efficiencies and running a lean business are, of course, crucial but the only way we want to drive real sustainable long-term success. And as Wayne as demonstrated, the only way we're going to unlock that operational leverage in the business is through top line growth. The 2 main areas of focus that we have had have been on clients in institutional channel and in our international business. I've touched upon this already, but we continue to see success with institutional clients and the pipeline remains the level that is consistent with that previously disclosed. We had GBP 1.8 billion of net inflows this year, which is GBP 3.8 billion over the last 2 years. We now made GBP 10 billion of assets on behalf of institutional clients, which is now 19% of group AUM. What I find particularly pleasing is that our institutional book is not dominated by any one strategy or any one client. And as our presence and our reputation of channel grows, we're also working with larger and more sophisticated clients. Our average mandate win this last year was around GBP 500 million compared to GBP 100 million a couple of years ago, for example. We're also seeing good momentum in what we would classify as our international business, so that which is outside of the U.K. Despite challenges with retail investors in Europe, particularly those invested in Dynamic Bond, we generated net positive inflows of over GBP 1 billion from clients based overseas in 2023. Assets under management from our international offices are now 34% of the group have been rising steadily from 25% in 2018. To build on this success, we've been carefully adding incremental resources to key markets where we see the most significant opportunities. I've highlighted Germany and Italy before, but these are not the only markets we're focusing on, but we have added additional client-facing headcount to these 2 geographies as well as ensuring we are prioritizing and focusing central resources appropriately. So looking forward, and obviously, notwithstanding any of the unknowns I've already mentioned, we continue to be excited about the growth opportunities here. The late-stage pipeline remains strong and crucially, it remains well diversified. There are meaningful opportunities across multiple investment desks from clients based in 9 different countries. And pleasingly, it is a roughly equal split between opportunities from new clients and want some client from whom already we manage a portion of their assets. Wayne has touched upon some of this already around our cost base, but our focus on efficiency and where possible and appropriate, lowering cost has been relentless and it will continue to be so as part of our focus on decreasing undue complexity. And we have delivered on cost savings. Despite the challenging inflation environment, our non-compensation costs are down 6% in 2023 compared to 2022 and down 15% since 2021. The fund rationalization program that I talked to you about before is now largely complete, resulting in a clearer, more defined client proposition with around 25% fewer funds. At Q3, I talked to you about our investments in technology and how we've been taking a close look at all the many manual processes across the group, seeing what role automation can play. As for example, we've successfully automated over 100 institutional client reports. Now there's a lot more we can do here, but it's a positive start and reflects the cultural shift in our business as we seek out efficiencies everywhere. Crucially, our purpose for this objective is not simply cost cutting for the sake of lowering cost, but rather to make space for growth. We have sufficient scale to allow us to invest in new growth areas. But at the same time, this is also reinforcing our ability to be nimble and agile and to move the business to quickly respond to increasingly bespoke client needs. You'll hear more from this -- from us on this throughout the year as we work through our data projects, our technology platform and rationalizing our corporate structures. All of this is part of our relentless pursuit of efficiency. We continue to also contract on broadening our appeal to clients. In our Q3 presentation last year, we discussed how the needs and the expectations of our clients are undergoing a fundamental shift. They're becoming more technical and more sophisticated than ever before. They're much more technology-driven, making use of a much wider array of data and analytical tools in their own decision-making and due diligence processes. And once clients are onboarded their expectations are for more bespoke timely content and reporting are growing too. For Jupiter to continue to be leading in the way we are delivering exemplary client service it was crucial that we changed the whole mindset of how we interact with clients, how we engage with them and the nature of our relationships. And that's why we created the client group towards the end of last year replacing what used to be called the distribution function. Our endeavors here should ultimately lead to deeper and stickier client relationships and higher AUM persistence. But as a nonnegotiable imperative, we do, of course, need to ensure that the investment expertise we offer our clients is relevant and differentiated, and the fund metalization process had allows us this space to grow and to broaden our appeal. This last year, we've launched new strategies and existing teams such as the thematics range within our highly successful systematic equity team and a lower-cost Merlin select range of funds. Each of these launches comes with very little incremental cost from a P&L perspective. We've also launched new vehicles for existing strategies, such as an offshore version of the Asian Income Fund bringing this excellent track record to European and Asian clients. And as Wayne has discussed, we've also used some of our surplus capital to provide catalyst funding to some subscale products that will be performing well like global high yield that just need to get critical mass to allow clients to invest. Looking forward, we will continue to look for ways to broaden our appeal to client, whether through new product opportunities, bringing in new investment talent or actively exploring new methods of delivery. You've heard from Wayne about our strong capital position, and we're actively looking at ways we can deploy that capital. And lastly, our final objective, deepen relationships with all stakeholders. Our people are clearly a key stakeholder group, and I'm passionate about building and maintaining a strong diverse culture. One based around inclusivity and one where there is constant 2-way communication between our management team and all of our employees. We regularly conduct pulse surveys, which give us the chance to understand what our people are thinking. We made great strides this last year in deepening the relationship with our people. In our most recent survey, we achieved a 78% engagement score, which is up 7 percentage points from last year and above the financial services benchmark. So when you consider the challenges the business and the industry has been facing, that's a real testament to the strength of our culture and how it has developed. Our clients are, of course, at the heart of everything we do as well as delivering improved investment performance, we've also introduced tier pricing on our U.K. fund ranges, allowing us to share economies of scale as each assets -- as each fund's assets grow. And of course, our shareholders. Our capital allocation framework is clear and it has resulted in our returning GBP 53 million to shareholders, while also giving us optionality to explore other uses of capital. So to briefly wrap up before we move to questions. We know that the industry faces challenges, and there are some unknowns, most notably around client flows, which will become clearer as we move through the year. But when I look at our underlying business, I'm really encouraged by what I see. I see real momentum in institutional channel and amongst our international businesses. I see investment teams who are delivering for our clients. I see an ongoing range of transformational change projects that we will drive forward throughout 2024 and beyond, making real progress against each of our strategic objectives. We don't know what markets will bring in 2024, and we don't know what decisions our clients will take, but we are in a much stronger place to take advantage of the opportunity ahead and to drive growth going forward over the medium term. And so with that, Wayne, I'll be happy to take any questions. We'll start with those in the room, and then we'll go on to the webcast. Thank you.

Thank you for the presentation and congrats on the results. It's Mike Werner from UBS. I've got 2 questions, please. First, in terms of your guidance in terms of flattish underlying flows for 2024. What gives you, I guess, confidence in that? And is it possible to break that down between retail and institutional? And then second, you've done a great job of rebuilding that capital base over the past 12, 18 months. At what level are you comfortable with the excess capital position? Is it 1 or 2x the capital required by the regulators? Or -- how should we think about that?

Well, thanks, Mike. And maybe I'll start the first question and Wayne can deal with the second one. Look, we take out on the flat underlying flows for the year ahead. We clearly have more visibility into our institutional pipeline, the nature of the long lead time of those conversations. I made the comment in my prepared remarks about the pipeline being broadly similar in size to the last time that we detailed that pipeline. The retail side is clearly harder to see. I would say, over that the last 2 or so months have seen a marked shift in sentiment from that retail client base. As we possibly near the end of a rate rising cycle, so we see a peak in the rate cycle. So clients are naturally starting to think less about cash or cash-like instruments and more about risk assets. And so the tone of sentiment of those conversations has changed markedly. But of course, it can change again. And it's really hard to know how that's going to play out the year ahead. I'd also observe as well that I think we're moving into a much more fertile environment for active management more broadly. As I look at the decreasing correlation amongst various asset classes, increasing dispersion returns and higher intersect volatility, these are all typically very helpful for active asset managers. And then lastly, I look at some of the strategies that we are managing and the improved investment performance that we have. Investment performance says it's not always, but often, it can be a lead indicator of flows. And so I put these 3 things together, albeit with the caveat that, of course, it's very early in the year and much can change, we feel relatively optimistic about the year ahead, certainly relative to last year, hence, the guidance that we've given today of flat underlying flows as best we see it as we look to 2024.

On capital coverage, you're right. Look, for many industries, there's clearly ratios that people target banking, Tier 1 ratios, et cetera. Typically, what I see in the asset management space is the coverage is normally around 1.5 to 2x and I think that's the sensible range to be within clearly across the cycle. But importantly, those should note as I mentioned today our allocation policies do that periodically. So not every year. So we look to the use of that capital where there's opportunity to invest for further growth and if there -- if we feel it's better to return capital, and I target around that 1.5 to 2x coverage.

Okay. If no more in the room, we'll start. We've got a number of questions from the webcast, which I will attempt to group. Start with a couple on flows. I think you've answered some of these, Matt. Firstly, we've got a question whether we could clarify what you meant by underlying flows? And then secondly, a question of what your view around the investment trust business over the next 3 to 5 years, especially given the Chrysalis changes.

Yes. So in terms of underlying. So we use that phrase underlying because we want to exclude the change to the Chrysalis Investment Trust, but also to recognize that the value book of assets that we manage is clearly uncertainty about how it's going to progress over the year. So obviously, I detailed our thought process around that. We will update you all as we go through this year but underlying is to exclude those 2 different parts of our business. For the investment trust business, it's still a business that's very important to us. We have 2 other investment trusts with inside the Jupiter umbrella and we'll be keen to manage more. We recognize the value of investment trust as a vehicle structure. It clearly works very well for a number of retail clients and as a part of our asset mix that we're committed to.

And appreciating that it is still very early days. Is there anything you can share around initial client conversations, not just following the departure of the upcoming value departure, but also the hiring of Alex, Adrian and Chris.

In terms of the -- a bit more color, I mean that the hires that we've made been extremely well received by the clients we've engaged with. What's really important to emphasize is that both Alex Savvides who will join us later this year and Adrian Gosden, who with Chris Morrison joined us at the start of this year, each of the individuals have really strong investment track records. But more than that, they've also got really strong proven records of raising client assets as well and we'd expect a number of clients who have been invested with those individuals previously to contemplate and likely invest with them going forward here at Jupiter. But these conversations, of course, take time to materialize. The nature of the very smooth succession process that we put in place is affording clients to be carefully considered in terms of how they make those decisions. And that's, of course, why as we sit here in February, it's really hard to know how those -- your conversations are going to manifest themselves in terms of fund flow throughout the year. I think it's fair to say that we expect to lose assets as a result of the change in some of these fund management funds -- but equally, over the medium term, we think we'll likely grow assets given the strength of those individuals track records and their proven money-raising capabilities.

A question for Wayne around performance fees. You reiterated your guidance at GBP 5 million to GBP 10 million for 2024. If you could give a little bit more sort of color around what's driving that. And relatedly, do you have a comment on how the biz performed through 2023 on excluding performance fee basis?

Yes. So a lot for guidance. I mean I think I said it in my remarks. It's really difficult to predict, particularly at this stage in the year, it's difficult to predict at any point between -- before the crystallization date. I mean we have a range of funds that have performance fee opportunity. And importantly, as we're growing our institutional business, that also generally comes with performance fee capabilities. So I am obviously cautious at this stage. It's a long way from the crystallization date. We generated GBP 13 million of performance fees this last year 2023 at this stage. I think that same guidance I gave last year of GBP 5 million to GBP 10 million is valid. In terms of the underlying performance, so that's excluding performance fees for 2023. I mean I set that out in the presentation. It is slightly down on 2022. That's driven principally by those revenue declines that we've seen through the average impact on AUM and also some change in business mix. Clearly, we've offset that to some degree by a careful management of costs.

Let's move on to cost. We've got a number of questions around costs. Firstly and I'll read some of these together, how much of the savings in the [ nonconside ] is due to net direct management actions and then how much towards lower AUM? And then what type of costs are linked to that lower AUM? So relatedly, what's the sort of sensitivity to levels for inflation in AUM levels? And what -- do we have any expected seasonality going forward?

Yes. Okay. A few points there. Look, I mean there was a roughly GBP 7 million reduction in costs -- noncompensation costs through 2023. But the whole of that reduction was to be attributed to discretionary areas we chose to manage costs carefully during this environment. And clearly, there were other savings as well, but of course, offsetting that, we have some targeted investments, and we have some inflationary pressure. So that is the change. I mean the AUM impact for the year was about GBP 2 million of linked to average AUM. Those are things like administration fees, custody fees, that sort of aspect that is usually charged on a basis point or a large part of it on basis points of AUM.

And you've given cost guidance for 2024. But on a more qualitative basis, do you have a view towards cost savings going forward through '24 and '25?

Yes. I mean so we obviously -- the costs are -- the guidance was to go up for 2024, GBP 107 million going up to GBP 111 million. Some of the -- we'll see 2 factors. One, I think some target investment. We've identified areas that we are looking to invest behind. Those are about driving future growth or reducing undue complexities, clear targets for us. But we are also having some inflation pressures coming through and offsetting against that. Clearly, there will be some savings that we have done through the year. So clearly, at this stage, GBP 111 million is the right guidance. Matt and I will continue to focus on making sure we manage that judiciously. That includes taking cost reductions where we can, but making sure we do invest appropriately.

And finally, on the cost side, clearly, they are moving in the right direction. There's a question around staff costs and how -- any of that was achieved through lower numbers of staff and what we sort of staff levels this year compared to last?

Yes. I mean, we announced in 2022 that we were taking decisive action on our headcount. And we continue to monitor our headcount needs very, very carefully. So the reduction in -- in compensation costs was partly driven by that. I pulled out the fixed off cost. You can see that in the slides -- in the presentation slides today. And going forward, we obviously manage that headcount level very carefully. We consider every year hire that we make in the organization. Well, of course, make appropriate hires where those are necessary for the business but that's managed carefully. Sorry, the second part of the question was?

The second part of the question was around numbers of...

Numbers, yes, sorry. Yes, I mean, our headcount at the end of the year, was just over 500 -- I think 512 heads. That's down quite considerably compared to the beginning of 2022 was obviously before we took those decisive actions. There is a degree of timing differences there. There will be additional heads from time to time where we are putting investment behind growth areas. So removing the undue complexity, we've got a program that we're focused on here. So that will be changing on a period basis, but I think that sort of level is appropriate for our business at this stage.

A couple of questions around sort of product distribution point of view. Firstly, how do you currently see active ETF as a product, whether it's a viable option for Jupiter in the short term? And secondly, a question around the comment on the nature of relationship with NZS Capital going forward.

So I mean, we previously flagged that we are looking at whether activities are potentially interesting structure to share investment expertise with our clients [ Avaya ]. It's something that we continue to look at. We continue to see the trends around the [indiscernible] ETF market across Europe. And it's something that we will work through and continue to evaluate as you go through 2024. Noting we have some investment capability that might be better suited to that structure than others. In terms of the [indiscernible], it's a business that we own a minority stake in. They're a U.S.-based global growth manager. We distribute and face off the clients on their behalf across a range of geographies globally. It's been quite challenging for them from an investment performance perspective, given the very nature of their particular asset class, but it's a business that's grown really strongly over the last few years and one we continue to be excited about given their very differentiated investment proposition that they have.

A couple of more areas. I'll just double check with you got any more from the floor before we finish. Okay. So we've got a couple of questions on capital and then some on the other gains lines. I think both of these for Wayne. Firstly, on capital, 2 questions here. And given the strong capital position, would we consider doing more buybacks? And then secondly, relatedly on the goodwill, what was the [indiscernible] of the total impairment figure?

Okay. Yes, from a capital perspective, buybacks, I mean we spoke about earlier last year about the buyback position. So we're not in a position today to make any further buybacks. That could only change through a shareholder vote with the Annual General Meeting later this year. So at the moment, our focus will be making any additional returns of capital through special dividends. Clearly not looking to make any additional returns before the AGM. So once that votes through, we'll consider whether buybacks could be part of the future. In terms of goodwill, look, goodwill is assessed, which required by accounting standards to be assessed on what we call cash-generating units. And for Jupiter, we have one single cash-generating unit. So that's all of our business, all the returns of that business. So they contributed to either Knightsbridge, which was -- the largest part of the goodwill actually and came in 2007 through the management buyout or Merian, which as we know, was the acquisition in 2020. But what I can tell you is that -- both of those businesses have generated strong -- contributed strong profits of this business over the period since we -- the goodwill was created. So some of that goodwill has effectively been realized. What I can also tell you is that the Merin acquisition did bring a considerable scale to our business. Of course, our platform is a scalable platform. So both of these things, I think, are important, but it's not attributed to either acquisition.

On the other line, the question can we expand on the 3.2% of seed capital gains, what drove that? And then also, if you can expand a little bit more on the cash -- the interest rates?

Of course. Yes. Look, as you probably know, we do hedge our RC portfolio, but for beta and not for alpha. So the gains we see in there are a combination of dividends and the alpha gains that we've made over the period. From a cash perspective and the interest rate, I mean clearly, interest rates are in the press regularly at the moment. And we are, of course, putting our cash to work as well. I've mentioned the GBP 52 million of catalyst funding that we made post year-end. So look, my best estimate at this stage in the year is to assume that our finance -- net finance position is 0, so interest charges [indiscernible] on our subordinated debt will be largely offset by interest returns while making or managing our cash carefully.

One last follow-up on the active ETF question, Matt. When you talk about concept more suited, is there any particular strategy you're thinking of and where you're thinking of the systematic strategies, particularly...

Look, it's just too early to comment there. When I made that comment obviously I was thinking more about it. So equity strategies typically are more suited and have been more in demand from clients that find out ETFs appropriate and useful rate to fixed income strategies. But look, it's just still too early. So we're still working through and understanding both incremental client demand as well as whether maybe cannibalized related to your client demand and whether that trade-off is appropriate. And obviously, operationally, how we would do this as well given all the things that we're focused on strategically. So we recognize this is an opportunity, but something we want to think through and be careful before we commit.

Thank you very much. That's all the questions for the webcast.

Well, just read for me just to say thank you very much for being here today, both on the webcast in the room and for all your ongoing support. And we, of course, look forward to updating you on our progress later in the year. Thank you.