Perpetual Limited (PPT) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Perpetual's market update. My name is Cathy Buckmaster, Senior Manager of Investor Relations. Before we begin today, we would like to acknowledge the traditional owners, the Gadigal people of the Eora Nation, as the custodians of this land, recognizing their connection to land, waters and the community. We pay our respects to Australia's first peoples and to their elders past and present. We would also like to extend our respects and welcome to any aboriginal people who are listening in today. Presenting today are Rob Adams, Perpetual's Chief Executive Officer and Managing Director; as well as Chris Green, Perpetual's Chief Financial Officer. There will be an opportunity to ask questions at the end of today's presentation. Over to you, Rob. Thank you.

Thanks, Cathy, and good morning, everybody. Thank you for joining us at short notice for this morning's discussion. I'll spend the first 10 or 15 minutes talking about our announcement this morning on our acquisition of 75% of Barrow Hanley and hand to Chris, who will take us through some numbers, both in terms of an update in relation to Perpetual's last financial year and the transaction itself. So let's get to it. The market participants will remember back in February of last year, at my first results presentation, how I talked about our desire to add world-class investment capability at Perpetual, our need to have more platforms for future growth and need to add globally relevant investment capabilities. We've been searching far and wide. Since that time, I think we've looked at over 200 names. More recently, we announced the acquisition of Trillium Asset Management back in February, and we completed the acquisition of Trillium successfully on the 30th of June, which has been a tremendous addition to the Perpetual group of companies, and we're very excited about the prospects of Trillium. And even in the first few weeks post completion, we've seen some very positive responses from our distribution effort in the U.S. and here in Australia, in particular. At the same time we announced the Trillium acquisition, we announced the appointment of Chuck Thompson as our Head of U.S. Distribution, and Chuck has been working with the Trillium team to get the business refreshed and ready for effective relaunch under our brand name. Importantly, the distribution effort that Chuck is building for Trillium is now going to play a very important role in our acquisition of Barrow Hanley as I will describe. We, late last year, began discussions with Barrow Hanley, Cory Martin, the CEO of Barrow Hanley, and the broader team and pre-COVID, had a number of site visits. And in fact, we were probably 80% to 85% complete on our due diligence pre-COVID, which is really the only thing that allows us to be here today because I think absent of that pre-COVID due diligence work, we would not have had an ability to be announcing this transaction this morning. With markets settling down, we reengaged with BrightSphere, the seller of the 75% interest in Barrow Hanley and are just thrilled to be today announcing a transaction that we see as being transformational for Perpetual. It's transformational in that it provides us with a platform for Perpetual to complete -- compete globally. We are acquiring in Barrow Hanley a trusted proven brand, an institutional grade business with 40 years' worth of investment heritage, particularly in the U.S., a very well-known brand with a real desire for the Barrow Hanley team to expand their reach beyond the U.S. We are bringing to Perpetual, through this acquisition, a range of world-class investment capabilities across global equities, global emerging market equities, U.S. equities and a range of fixed income capabilities. So this is a significant moment for Perpetual as an organization as that range of world-class investment capabilities expands. And importantly, within each of those capabilities is a significant capacity for us to grow into in the years ahead. As touched on, the acquisition of Barrow Hanley will provide us with a global distribution footprint. It seriously accelerates our distribution efforts. In the U.S., of the 95 staff at Barrow Hanley, 26 people are directly associated with the task of servicing and distributing the Barrow Hanley capabilities. Working with Chuck and team, we -- that serious acceleration of our distribution effort in the world's largest addressable market is a really important feature of this transaction, as is the fact that it gives us a footprint in other critical markets. It brings with it, this acquisition, a distribution footprint based in London and also in Hong Kong from which to expand over time. So moving into some further detail in relation to the acquisition. As described, we are acquiring a 75% interest in Barrow Hanley. We're acquiring that interest from BrightSphere Investment Group, listed in the U.S. As mentioned, Barrow Hanley provides Perpetual with serious scale and multiple world-class investment capabilities. Currently, the team at Barrow Hanley manage around USD 44 billion in assets under management, which is around about AUD 64 billion. As mentioned, significant acceleration of our distribution efforts outside of Australia for Perpetual. Importantly, the Barrow Hanley team, who have long held around 25% equity in their own business, will continue to hold that equity, and that is a key retention mechanism, which will stay in place. So Perpetual's ownership will be stable at around 75%. We do expect to complete the acquisition before the end of this half. Of course, we have announced concurrently this morning an equity raise, where we have a fully underwritten $225 million institutional placement, and alongside that, we have a share purchase plan for our retail market to raise up to $40 million. As Chris will take you through, in addition to the funds raised through the equity raise, we are taking on board an appropriate amount of acquisition debt and using cash facilities at hand. Again, Chris will take you through that in more detail, as he will the fact that through the transaction, we are raising, obviously for the acquisition, but we also are raising for other opportunities that exist in our pipeline, smaller opportunities, of course, that -- which are quite well advanced as well. So in summary, we see this transaction as being truly, truly transformative. We are converting Perpetual from ostensibly a domestic-focused firm to a firm that now will have a true global footprint with global capabilities that are of importance and relevance to the 4 key markets of the world: the U.S., Europe, Asia and Australia, and we have focus points now through this acquisition in each of those key markets. A little bit more to Barrow Hanley as a business now. The next slide takes you through the key things that were attractive to us about Barrow Hanley. As I mentioned, we have scoured the globe, looking for the right organization that has the blend of world-class investment capabilities, the right cultural match and fit for Perpetual and businesses where we can add value to what they do over time. And we certainly see all of those things in Barrow Hanley. I've mentioned the multiple world-class investment capabilities that have plenty of capacity for future growth. We clearly spent a lot of time with each of the investment teams late last year and early this year, and we are incredibly impressed by the skill and experience and the unique natures of each of the capabilities and the growth potential from within. The investment performance history across capabilities is solid with outperformance versus value benchmarks over most time frames for most capabilities. And the fixed income businesses, which account for around 1/4 of the asset base of Barrow Hanley, have exceptional performance over all time frames. As mentioned, cultural alignment is always critical in any asset management transaction. And we have through, as I said, multiple site visits and spending literally hundreds of hours with the teams there, we are culturally aligned in terms of the way we think about business, the way we think about money management and our aims and ambitions for the business going forward. And that alignment, I think, is represented in some of the things that we're doing to improve the way the equity mechanism for employee shareholders operates. We believe this transaction is financially compelling for shareholders and for prospective shareholders, the underlying profit after tax EPS accretion in excess of 20% in the first year and double-digit DPS accretion. More importantly, over the long term, the growth profile that we think we will be able to generate in partnership with Barrow Hanley, we think will deliver exceptional returns as we deliver that growth over time. I've touched on the importance of key management alignment, which we have. By way of example, embedded in the employee shareholder agreements for Barrow Hanley exists a right for employee shareholders to put their stock to the buyer in a change of control event. Within a 2-day time period, every single Barrow Hanley employee equity holder provided us with a signed waiver to that right, which I think is an enormously strong indication of our alignment and of the Barrow Hanley team's desire to partner with Perpetual to add value and work together over time. So that's exciting to get that alignment. Okay. Further on Barrow Hanley. I mentioned that the Barrow Hanley team run around USD 44 billion in total assets under management. As mentioned, around 1/4 of that is fixed income, U.S. equity strategies and a range of global equity strategies. The team is almost solely based in Dallas, 95 individuals working in the Barrow Hanley team, of which 55 people -- 54, beg your pardon, people are investment professionals. I've touched on the significance of the brand, particularly in the U.S. institutional marketplace. Barrow Hanley run around 21 investment strategies. So you can see how -- what a positive addition it is to Perpetual to have access to further 21 strategies, all with significant capacity to grow over time. The Barrow Hanley brand is a storied brand in U.S. institutional circles. And I think representing that is the longevity of many of Barrow Hanley's clients with currently 43 institutional clients who have been invested with the team at Barrow Hanley for more than 20 years. That is exceptional. As mentioned, the business will seriously accelerate our distribution presence in the U.S. and provides great platforms for the U.K., Europe and indeed in Asia and beyond. And of course, we will leverage Perpetual Australia's distribution capability across both retail and institutional channels. We have a fully resourced team here under the leadership of Adam Quaife, who joined the business -- Perpetual in December of last year, he's Global Head of Distribution. And Adam and team are chomping at the bit to be able to access the Barrow Hanley capabilities to inject them through our local networks over time. I think I've probably touched on most aspects of this slide. You'll see at the bottom left there a split of the assets under management by sector and then by channel. Whilst we mention the intermediary channel in the center pie chart there, as mentioned, Barrow Hanley is largely an institutional business. Its intermediary channels are typically through sub-advisory agreements on behalf of other product providers, such as American Beacon or John Hancock. Consultant relationships at Barrow Hanley are important to the firm, and they're deep and broad across most capabilities. And in terms of domicile of client, the vast majority of the client base of Barrow Hanley is, of course, in the U.S. But increasingly in recent years, the reach has started to be positive outside of the U.S., and we certainly look forward to expanding that wedge over time. We do see the combination of the 2 businesses as being strategically compelling and financially compelling as well as importantly compelling for our clients. This acquisition will lead Perpetual to have assets under management increase from the current $28 billion to over $90 billion in terms of combined assets under management, managed across 54 different strategies. As a business from a geographic perspective, Perpetual, as mentioned, will now materially expand into key markets across the world, and we now will have 13 locations across the world from which to distribute our 54 investment strategies. I've touched on the investment heritage at Barrow Hanley and it's important to note that interestingly, many people will know that within our Perpetual Private business, we have a bespoke range, proprietary range of multi-manager products that we provide to our private clients and our institutional clients within the private client business. We have a team that makes independent manager selections on behalf of those multi-manager funds. And back in 2016, our team appointed Barrow Hanley to a -- I think at the time, a $300 million mandate to manage global equities. So we have been a client of Barrow Hanley now for 4 years. So we have seen what it's like to be on the other side of the table, and we've been nothing but impressed by what they've delivered in terms of investment returns and the way they've managed themselves in terms of information supply and management of risk through difficult times. So to have that history in our relationship and that other lens is not only unique but an important factor that I think is worth mentioning to you. Just bearing in mind time, so I'll move on to show you what the pro forma looks like for the businesses, Perpetual on the left, Barrow Hanley in the middle of the page in terms of asset sectors and then, importantly, what the pro forma or the combination of the 2 businesses looks like from an asset allocation perspective in terms of underlying assets managed. And you'll see the terrific diversification benefits that we will be gaining through this deal. Australian equities has long been the stalwart of Perpetual for the last 25 years and beyond. And it continues to be, and will always be, a very important part of Perpetual's business. And whilst we see in the combined pro forma assets under management Australian equities falls to around 14% of the book, that does not diminish its importance as a critical sector for Perpetual. It will always be that. However, I think from a risk management perspective and a growth opportunities perspective, the combined asset base that this business gives us is a far superior platform for Perpetual for the next 5, 10, 20 years and beyond. I'll go over this slide quickly. For some reason, I felt compelled to have a map in this slide deck to just give you an idea of, I guess, the geographic reach and expansion that the Barrow Hanley acquisition will provide us with. On the left-hand side of the page -- and you will see us talk about this post acquisition or post completion, from a distribution perspective, we will focus on the 4 main regions of the world. And we will report to you on the 4 main regions of the world: the U.S.; the pan-European market, pan-Asian market; and the Australian marketplace, which, of course, is our home, fourth largest pension marketplace in the world and will always be a key focus of ours going forward. I think the next slide I've touched on, and we're happy to expand on in Q&A, keen to move to Q&A quickly after Chris' session. A really critical message for the Barrow Hanley acquisition, just as it was for the Trillium acquisition: we have no intention of changing the key people in the business, the investment process, the investment teams nor the brand of the business. Cory Martin and his team run an exceptional unit, and we will allow them to continue to run an exceptional unit. It's really important to stress that Cory and team have actually been part of a multi-affiliate business model where there's an institutional owner for the majority of the equity for the last 20 years. And so the operating model that they currently operate in is an operating model that provides Perpetual with the right governance framework in order to provide the balance between the team continuing to run their business as they usually do but having the appropriate sort of governance in place for Perpetual as a listed company. Retention arrangements. Obviously, the key focus point is the fact that the team at Barrow Hanley will continue to hold their 25% in equity in the business. We have a range of other key principles associated with remuneration, which we are keeping in place that are critical to the team. And importantly, key investment professionals have very willingly signed up to a set of restrictive covenants in relation to their employment over the short to medium term. And I've touched on the alignment mechanisms that sit in place, particularly led by ownership of stock in their own company. I think on that basis, that's hopefully a decent summary of the acquisition and its intentions. I'll hand over to Chris to give you an update on our FY '20 numbers and to talk about the numbers associated with the acquisition. Thanks, Chris.

Thanks, Rob. Obviously, we need to give you all an update on our numbers to give you the full information you need to look at the transaction. We came out with a fourth quarter update on the 15th of July. Since that point, we have done a lot of work to bring forward our end-of-year processes, to be able to give you guidance on both NPAT and UPAT. So NPAT will land at this point is $82 million and UPAT of $93.5 million. In the guidance a couple of weeks ago, we talked about expense growth coming in at between 1% and 2%, and we can take -- confirm that the estimate is going to be 1.4% for FY '20. We have significant items. Many of you will be aware of the operating model review that we've undertaken during the course of FY '20. And so there'll be a significant item of $11.5 million coming through for the implementation costs of that operating model as well as some transaction costs for the Trillium acquisition. Importantly, subject to Board approval, the FY '20 dividend will be paid in accordance with our current dividend policy, which is to pay 80% to 100% of our annualized NPAT number. As far as the businesses themselves are concerned, the numbers are really driven by market linked revenues in Perpetual Investments and Perpetual Private being impacted by COVID-19 market volatility and lower average FUM balances, particularly in the second half of FY '20. Corporate Trust has maintained its positive momentum and will have another year of double-digit profit -- PBT growth. And in Perpetual Private, it has been impacted by its nonmarket revenues, particularly in Fordham, which relies heavily on consulting work. Particularly at the end of the financial year, there has been an impact there in relation to COVID-19 restrictions. So with that, I might go to the next slide. I should remind everyone that our results will still be coming out on the 20th of August. So what does this transaction mean in terms of our revenues? Well, today, prior to the transaction, we sit here with Perpetual Investments generating around 36% of our revenues, 38% in Perpetual Private and about 1/4 of our revenue is in Corporate Trust. Once this transaction comes on board, the Perpetual Investments business will represent over half of the revenues, PCT will drop to about 20% and PP will reduce to around 27%. What we like about this is it does deliver scale and it does expand the number of investment strategies we have in the PI business for in-demand asset classes. And I should say that we remain committed to all the businesses in which we operate today. I might now move to the next slide, which talks to our current dividend policy, the changes to our dividend policy that are going to occur as a result of this transaction and what that means for dividends. So as mentioned, our current dividend policy is to pay out 80% to 100% of NPAT, and that will be the case for our FY '20 final dividend. In relation to -- and we obviously report both NPAT and UPAT. This transaction is a pretty key milestone. It does change our P&L and it does mean a lot of our revenue will now be derived offshore. So accordingly, we are going to amend our definition of UPAT to reflect those changes in our group operating cash flows coming out of this transaction and, more broadly, just to align to the strategic imperatives of this group. And I think we've been forecasting that for some time and letting you guys know that may be coming. The key change is to adjust NPAT for significant items that are material in nature and do not reflect the normal operating activities and to exclude noncash tax-effected amortization of acquisition intangibles. So we did consider calling this NPAT A in terms of adjusting for amortization, but we have landed on keeping the UPAT driver and amending that definition. In terms of those revised dividend settings, we will be trying to strike a balance between maximizing return to our shareholders, ensuring we have sufficient cash flows to fund our operations and to pay down our debt but also keeping enough cash reserves in place in case the world gets a bit worse. The Board will be allowed now to consider looking through noncash transactions impacting our statutory impact that don't reflect those ongoing operations. And the main one there will be acquisition intangibles. What this transaction also means is, in time, our dividend will no longer be fully franked, which is a natural outcome from more income being generated from offshore operations. And finally, from a DPS perspective, this will be DPS accretive. I do like Rob's thinking about double-digit DPS accretion. I think it's probably going to be slightly shy of that. What we have tried to do here is balance. We have paid a high dividend payout ratio to this point. And many of us -- many of our shareholders rely on that dividend. At the same time, we are investing here for growth and to provide further growth engines going forward. And so we've had balanced those needs for dividend as well as investing in the business for future growth, and we think we struck that balance appropriately by growing DPS on an absolute basis while at the same time, completing a transaction of this sort. Moving on to the pro forma P&L. I'd like to make the point that what this shows is pro forma information for Trillium and Barrow Hanley, had they been acquired on the 1st of July and all the way through to 30th of June. The numbers for Perpetual, obviously are under IFRS, and the numbers for Trillium and Barrow Hanley are under U.S. GAAP. I should note that there have been no material changes or adjustments as a result of that transition from U.S. GAAP to IFRS. For Trillium, we have used their audited numbers for 1st of July through to -- from 1st of January through to 31st of December. And for Barrow Hanley, we have used the first 6 months, 1st of January to 30th of June numbers, annualized. And we've done that because we did want to make sure that in looking at that P&L, we took into consideration the impact of COVID-19. Our view is that that's not over yet, and we want to ensure that the 12-month view of the world included that as part of the numbers. In terms of the pro forma adjustments, we've included the full year impact of Trillium as if it had been acquired on the first of July 2019. The impact of amortization of the acquired intangibles and other related debt and funding costs have been taken into consideration. You'll see there a 25% noncontrolling interest adjustment to reflect the 25% equity interest retained by Barrow Hanley employees. We also include estimates of items that don't reflect the operating activities and are material in nature, as I discussed. These include the post-completion transaction costs, integration costs and other nonrecurring acquisition costs for Barrow. In terms of the amortization of those acquired intangibles, that reflects noncash tax-effected amortization of those intangibles from the 1st of July on a prospective basis, including for Barrow Hanley and Trillium. And finally, in terms of EPS accretion, the definition and dividend payment settings to take effect, as we've talked through. In terms of the pro forma balance sheet, again, it includes Trillium from the 30th of June. We closed on the 30th of June. The information is there to show the impact of Barrow Hanley had they been there on the 30th of June. I've talked about the translation from U.S. GAAP to IFRS. I also make the point that the Perpetual balance sheet excludes EMCF for the purposes of the pro forma. We've converted over at USD 0.69. And the Barrow Hanley balance sheet information has been prepared on unaudited information on trial balances as at the 30th of June 2020. In the pro forma adjustments for the balance sheet, we reflect the net change in cash after receipt of proceeds adjusted for the cash consideration of the deal. And importantly, the proceeds that come out of the SPP have not been included in that cash pro forma. In terms of liquid investments, that includes cash set aside for seed investments in line with what we've agreed in the share purchase agreement. For goodwill and intangibles, it reflects preliminary and provisional purchase price accounting, including assignment of value for acquired intangible assets, brand names, client contracts, et cetera, preference shares and any residual goodwill expected. And we'll obviously true that up once the deal closes. There's, importantly, corporate debt facility of USD 195 million that comes on to the balance sheet and also to provide flexibility for further transactions and identified strategic initiatives. On that, with that note, I might move over to the next slide and talk about the metrics of the deal. We think we've acquired this business at attractive valuation multiples at about 8x pro forma. It's going to be EPS accretive of more than 20%. I should note there as well that we have -- we are raising $225 million in an underwritten placement, of which $205 million will be used for this acquisition, which is an over raise of $24 million. We've done that because we are in advanced discussions with 2 other bolt-on transactions: one in Perpetual Private, an advice acquisition; and one in Perpetual Corporate Trust, which is an acquisition to provide some further scale to our Singapore business. Importantly, the earnings associated with those acquisitions are not included in our numbers. Gearing will start at about 1.1x. We expect that to be below 1x within 12 months. And assuming we were to do nothing else, which is not the right assumption, but assuming we would not invest any further in the business, that facility would be paid down to 0 within 5 years. So we think we've struck the right balance and have really got our balance sheet optimized for the strategy that we have, and we think we also have flexibility for further investment in both organic and inorganic initiatives. With that, I might pause and pass back to Rob.

Thanks, Chris. In summary -- and we'll go over to Q&A in a minute. In summary, we believe that our acquisition of Barrow, Hanley, Mewhinney & Strauss is transformational for Perpetual. As described, it provides us with a totally new business mix, a totally new geographic mix and far superior potential for growth opportunities from the 4 key markets of the world. We're thrilled to be partnering up with world-class investment teams across multiple capabilities, and we look forward to investing in distribution across each of those key regions in order to provide sustained quality growth for Perpetual from around the world. The distribution footprint seriously accelerates our efforts in the U.S., and we believe that Trillium will be a beneficiary of this expanded distribution footprint from around the world as well. With that, I think it's probably opportune now to hand to Cathy, who is going to emcee our questions. Thanks, Cathy.

Thanks, Rob, and thanks to all those listening on the line. We've got a few questions that have come in. So if I can ask you to announce your name and where you're from, I'll kick them off.

Firstly, I think we have Ed Henning on the line from CLSA. Ed, can you ask your question?

Yes. Firstly, if you can just flip to Slide 33, and you look at the fund profile over time, it's been trending down. Can you just run us through this? What's driven this? And also, if you look at BrightSphere, it's obviously a much bigger organization, 20 offices globally. What did they get wrong with Barrow Hanley? And what do you think you can do better?

Thanks, Ed. I should have actually touched on the flows profile of Barrow Hanley, and I'm glad you have. So thank you for that. Yes. You'll see the flows profile has been poor over recent years. There's probably 2 things worth talking about. One, I need to isolate what's happened with them, what was formally Barrow Hanley's largest client for a long period of time, Vanguard, and then talk about flows more generally. The Vanguard relationship for Barrow Hanley -- sorry, this will be a slightly long answer, but the Vanguard relationship for Barrow Hanley was a very long-term relationship. Vanguard had a fund -- have a fund called the Windsor II Fund. It's probably one of the most well-known retail funds in the U.S., and Barrow Hanley and another manager were appointed as sub-advisers of that fund, I think, more than 25 years ago. The Windsor II Fund grew incredibly large over time and, therefore, so too did the mandate for Barrow Hanley. I think I'm right in saying that, that mandate peaked out for Barrow Hanley at USD 40 billion in size. At a -- more recently, Vanguard started to change their manager allocations because I think it was out of whack towards Barrow Hanley. And so Barrow Hanley saw funds coming out as a result of that. And then, again, more recently, with value and growth, the dispersion between value and growth, the Windsor II Fund itself was reducing. So flows were hit for Barrow Hanley in 2 ways from that Vanguard account. And in November of last year, the account was down to USD 20 billion for Barrow Hanley and Vanguard terminated Barrow Hanley as an underlying manager and appointed another manager, who I think most independent judges would describe was not as a pure value manager. And the Vanguard mandate was at an extremely low fee rate. And in many ways, my view would be it probably created a bit of a shadow over the organization. So I think the termination, whilst it was a sensitive moment for the firm, actually removed that shadow and released capacity for Barrow Hanley. What's been pleasing to see -- I'm not sure if that was a U.S. equity mandate. What's been really pleasing to see of late has been some positive new wins for Barrow Hanley. And in fact, the same week that they were terminated by Vanguard, they were appointed for a blue ribbon pension fund. The Apple pension fund made a $350 million allocation to the U.S. equity team and since there's been several important wins for the U.S. equity team, obviously, at far superior pricing to the pricing with that very large Vanguard mandate. I think for flows more generally, there's probably a number of contributing factors, which would include a movement away from value, some movement from active to passive, but bearing in mind, this is an institutional business. So that's been less of a driving force. And I would say, yes, as an independent observer looking into the business, yes, we believe, in many ways, the investment in distribution has not probably been to the depth and breadth and style that it should. So we think in a forward-looking sense, working with the Barrow Hanley team and under the leadership of Chuck Thompson, who, people will recall, worked with me at Henderson for many years, built Henderson's business from scratch to north of $20 billion over a long period of time, yes, we believe we can add some pretty serious value to the distribution effort in the U.S. as well as offshore. In terms of your question in relation to BrightSphere and their offices, again, as a listed entity, I mean, that's probably -- I probably need to be slightly cautious in the comments I make about another firm. However, yes, I would say that the Barrow Hanley team have seen in recent years a reduction in focus of BrightSphere employees for international distribution. And more recently, BrightSphere made a specific announcement that they would no longer provide those international distribution services.

Great. The next question is from Lafitani Sotiriou from Bell Potter. Laf, if you'd like to ask your question.

I do have 2 questions. One is just a little bit more follow-up on the net flows. That is quite an extensive answer. But just outside of Vanguard, can you just give us sort of more specific idea as to what the last, say, 4 quarters of net flows were for the firm? And then secondly, buying 75% of the business may bring some added complexities, particularly given that you're looking to integrate the distribution with the whole business. Can you just give us some color around how you intend to manage the distribution in the networks and potentially future acquisitions with how you're going to split the costs and how you're thinking about that?

Yes. Sure. Thanks, Laf. Further on flows, more near-term flows, yes, it's been a volatile time. And so there's been volatility in flows associated with that. I did touch on some of the very positive new wins in U.S. equities. Yes, I think another one to mention would be American Beacon, who appointed Barrow for a $490 million sub-advisory mandate; Russell Investments, who made a $300 million investment of late, so some very good wins. In the last quarter, flows -- so first quarter of this year, I think it was slight positive flows; second quarter, negative flows, driven by just over $1 billion of outflows in fixed income as corporates were making some asset allocation shifts. Yes. The other thing I would say from a flows perspective is that I think in terms of some of the global capabilities that the Barrow Hanley have, which are of immense appeal to us, we see very highly differentiated approaches and differentiated portfolios that I think, with additional distribution effort in both the U.S. and around the world, we can get far better positive sales traction in capabilities such as global equities, global emerging market equities and international equities. International equities from a U.S. institution and a retail investor perspective is a far larger category than global equities. In the U.S., most investors still take a U.S. and ex U.S. approach. The ex U.S. is the international capability, which has terrific numbers. And so we think all of those categories have material capacity, and I think we can invest more and more front-foot, hunter-like sales activities in order to get better traction. Yes. I'll use global emerging markets as an example. The team has been running money there for 7 years. Their portfolios are highly differentiated. Yes, when you compare the underlying portfolios in the GEM product at Barrow Hanley versus the portfolios of the top 10 asset managers and global emerging market equities, the stock commonality is less than 20%. This team is doing something different, and they're doing it in a high-quality manner and delivering good outcomes. But yet, there's only $250 million in assets under management in the seventh year. Having built a couple of global emerging market equities businesses and the distribution to support that in the last 20 years, I'm incredibly bullish about our ability to do just the same gain for the Barrow team with the right investment in distribution in the right places. Same applies to global equities. Same applies to international equities, and I would say the same applies to the fixed income business as well. So yes, I think the ability to build the right sort of distribution, front-foot distribution activities will support that. Given I've just rambled on so long, I forgot the second question. Oh, it's in relation to how we're going to manage the distribution team. We own 100% of Trillium. We own 100% of Chuck Thompson. Embedded in that -- we don't own him. He's an employee of the business. Sorry, Chuck. Yes, embedded in the Trillium transaction was a build-out of a distribution team for Chuck, that will continue. Embedded in the Barrow Hanley transaction is a build-out of distribution effort, both in the U.S. and elsewhere, and Chuck will oversee that. So the senior people in the Barrow team will have a reporting line through to Chuck, and he'll manage it. And the financials that we have, the conservative financials that in Chris' model have that investment embedded within it. Sorry, very long answer, Laf.

No, you're all right. But can you hear me? I'm not sure. Hello, are you there?

Yes. We can.

I'll just -- in relation to the second part, I wanted to better understand. Usually when a business buys a controlling stake with 75%, it often sits alone and runs on its own. But this one, it's almost going to be a large part of you building out your infrastructure. And I'm just trying to get a better understanding as to how are you going to manage on the costs split between, for example, using Trillium's funds, selling it through Barrow's network and vice versa with products being sold into Australia. And then potentially, if you buy another business, would you buy another one that's less than 100% and then how would that work in integrating it into what it looks like is becoming a global distribution?

Yes. Our absolute focus needs to be embedding down Trillium and growing Trillium, embedding down Barrow Hanley and growing Barrow Hanley. Bear in mind, I've mentioned the number of investment capabilities that this brings to us. I think we're going to be pretty busy doing that. So I think it's unlikely we'll be doing anything material in investment management beyond that in the U.S. I think -- yes, I'm not really sure I can answer your question more than I have, Laf. At the end of the day, there will be a team embedded in Barrow Hanley, there will be individuals embedded in Trillium. Chuck will have management oversight of the distribution effort across both.

Next on the line is Russell Gill, representing JPMorgan. Russell, would you like to ask your question?

Two questions. First, just on the transaction itself. Could you just confirm, I guess, it was a listed company selling it and it sold another business as well, but it was I guess a competitive tender process. And then also on the transaction, you've got $45.5 million after tax of adjustments. $31 million after tax relates to the transaction itself. It seems a very large number relative to the size of this business, certainly, if you're not doing much integration of the company. So maybe you could just give a bit more detail on, I guess, the size of that one. And then the second, just on the FUM, just give us some confidence around exposure from large customers, so I guess, the diversity of the customer base. And then also on performance fees, it doesn't look like through BrightSphere's accounts that there are much performance fees coming through. But whether there is capability around performance fees through these current arrangements?

That's a lot of questions in one question. I'll hit 1 or 2 and then hand to you maybe on the cost side, Chris, the $31 million. This was not an open process held by BrightSphere. We approached BrightSphere to acquire the business, so no open process. Performance fees, you're right, very little -- very few performance fees. I think it was less than 1%. And I think over time, that's something that we would be wanting to grow. I think it's -- I've always thought it's sensible to have a certain percentage of your book exposed to the potential to earn performance fees. I think it's important to back your portfolio managers. Yes, we have 54 investment professionals at Barrow Hanley who are exceptional at what they do. And I have no issue with backing them and having a sensible exposure to performance fees. So that is something we'll consider doing over time. And then there's a question on costs. And what was the last question?

Yes. Yes, on the costs. Yes. So the $45 million, obviously, has the $31 million in transaction and integration costs, which is a high number, but we are investing pretty heavily in this deal. This is not a deal driven by expense synergies. We see a lot of growth opportunities here, and we're investing for that through integration. There's about $10 million of retention, amortization in there, representing both cash and shares there. About $3.5 million of it is for Trillium, including integration and transaction costs associated with that transaction and then some costs on our side here as well. So it's not just those transaction integration costs. There's a couple of other buckets there, too.

Great. And I'll just -- if I could just sneak one final one, just more of an overall thematic, I guess, strategic perspective. Rob, when you started, you made a big focus saying that the Perpetual group is not necessarily just a value manager per se. And I'm not trying to make a comment on value via growth or the like, but it seems like it's almost a doubling down on the value part of the business. Can you just talk through, I guess, the reasoning for that, I guess, the opportunity set? And is the original comments that we're looking through all different asset classes and all types of investing still and holding true?

Yes, it's a good question. I should have commented on that myself upfront. Yes, back in February last year, I did make that comment. I said -- but I think I said words to the effect that Perpetual's not -- we're not going to limit our potential opportunities by just hanging our hat on value, that I wanted to be agnostic from a style perspective in order -- and the search was on to find world-class investors. That was all true. When we cast the net, we cast the net across every different type of investment approach you could imagine, which probably more than quadrupled our opportunity set if we hadn't just restricted ourselves to looking at value companies. We found 54 world-class investors at Barrow Hanley, and it just so happens that they're a value manager. To me, that's, in many ways, almost a secondary thing if we're taking a long-term view here. I guess the other thing that sort of helps is the fact that they -- that Barrow Hanley are a value manager, and they're one of the few in the U.S. who have actually stayed extremely true to their value principles. Is that given where we are, growth versus value, 10-year run and where we might sit in the cycle, probably has 2 impacts: One, the business is probably, yes, more affordable than it might have otherwise been. And secondly, I think as we see the green shoots starting to appear, yes, in value both from a performance perspective but also and in fact, equally interestingly perspective, from an RFP perspective, tenders and RFPs from around the world for value managers are on the increase. And some of the positive sales action at Barrow Hanley that I just referred to earlier is good evidence of that. So we're not trying to be geniuses here and time that turn. We've found a collection of world-class investment capabilities that needs help with distribution, both in the U.S. and globally. Yes, we're good at that. We've proven it over many years. We have the right distribution leadership to drive that, with Adam and Chuck leading the charge. And I guess you cannot time these things. So yes, we've grabbed the opportunity. We think this is a truly world-class operation, and we can make it better.