Janus Henderson Group PLC (JHG) 2010 Q4 法說會逐字稿

Thank you for joining us today as we present the Henderson Group's 2010 full year results. In addition to the information in the presentation that I will just cover, there is also more detail in the results announcement which includes the ASX Appendix 4E. Both documents are available on the Group's website.

In 2010, we made significant progress to the financial results of the Group. I will start by covering the improving trends in our key financial metrics and then discuss our asset on the management and fund close. Thereafter, Shirley will cover the financial results. I will wrap up the presentation with an overview of strategic initiatives currently underway including an update on the Gartmore acquisition and highlight our outlook for the Group. We are happy to take your questions at the end of this briefing.

A 20% rise on average in global equity markets, together with good investment performance in our key funds and the success of the New Star acquisition resulted in the Group's underlying profit increasing by 37% to GBP100.7m.

We continue to drive forward our higher margin businesses as can be seen with the GBP2b of net inflow throughout the year. This contributed to a 12% increase in higher margin assets under management. The mix effect of higher margin inflows and lower margin outflows had a favorable impact on our margins. Total assets under management at the end of the year were GBP61.6b, 6% higher than in 2009.

In addition to our existing dividend payment formula, the Board have now adopted a progressive dividend policy and in keeping with this, is recommending a final dividend at 2010 of 4.65p per share. This brings the total dividend for 2010 to 6.5p per share, 7% higher than the 2009 total dividend. We will pay this dividend on May 27 assuming shareholders approve it at the AGM.

I will now briefly touch on the key financial metrics we focus on in running the business. The first is investment performance which remained strong in 2010. With 70% of funds being benchmarked over one year, and 62% over three years, we continue to be well-placed with our suite of products to generate good net flows in the year ahead.

Looking in more detail at our investment performance, over one year and three years respectively, 77% and 63% of equity funds and 62% and 82% of fixed income funds were achieving or beating their benchmarks. Our rise in performance improved significantly in the year with 83% and 88% of assets outperforming over one and three years.

Our US retail fund range has disappointed with 11% and 16% outperformance over 1 and 3 years. This is due to the Henderson International Opportunities Fund representing approximately 65% of US retail assets underperforming. We have seen a marked improvement in this fund year to date and is currently first quartile.

The institutional business continued to perform well over one and three years. In property, based on our estimates derived from monthly data, the one-year performance numbers should improve to around 65% for 2010, a significant improvement from 2009 and reflecting the successful positioning of the fund through the recent downturn.

Over one year, hedge fund performance was impacted by our Asia Pacific Absolute Return Fund being behind its benchmark by less than 1%. Taking this into account, 90% of assets under management would be at or above benchmark. Over longer periods, performance in our hedge fund range is good.

Although investment performance in New Star Institutional Managers has improved significantly, it experienced a sharp decline in assets under management in 2010. Shirley will say more in the financial impact of this later.

Turning now to fee margins, they continue to trend in the right direction with improving total and management fee margins driving a 24% increase in the net margin.

Looking at flows, our higher margin business continued the recovery seen in 2009. I will go over that in more detail in a few slides. Our lower margin funds however, saw outflows due to redemptions from our liquidity fund and New Star Institutional Managers. These outflows offset good progress in institutional where we saw GBP400m of net new business during the year.

Turning now to our operating margin, this is improved and reached 30% for the full year and despite increasing competitive pressures, we have been able to maintain our compensation ratio at the 2009 level. The combination of these improvements has seen underlining earnings per share improve significantly in 2010, up 36% on 2009.

In our higher margin business, we had good net inflows into retail products with GBP1b into our Horizon funds, and GBP300m into our UK Retail fund. The GBP1.3b of net inflow in Property includes GBP900m relating to the purchase of 50% of Westfield Stratford on behalf of two clients.

We also generated GBP100m of inflows into Hedge Funds. The inflows were partially offset by outflows from the investment trust and structured products. In Investment Trusts, a combination of fund transfers and fund buybacks by the funds themselves resulted in net outflows in 2010.

In Structured Products, the outflow was a result of certain managed CDOs maturing and we have a few more maturing in 2011 which are expected to amount to approximately GBP130m. Pearl continues to withdraw assets, which as you know, doesn't have a material impact on our revenues.

In the next three slides, we highlight three of the business areas we place a particular emphasis on to drive flows and profitability in our business.

As you can see here on slide 10, the increasing importance of our Retail business across all geographies, Retail now represents 37% of the Group's asset under management and will increase to 45% post the acquisition of Gartmore.

UK Retail continued its recovery which started following the acquisition of New Star in 2009. Our investment in the broader distribution reach, increased brand awareness and strengthened product lineup, implemented since the New Star acquisition, provides a strong foundation to take the business forward.

In our Horizon fund range, we have built on the positive momentum generated in 2009. Flows in this channel have historically been volatile especially during the global financial crisis but our strong investment performance and improved fund lineup offer comfort in this regard.

The US Retail business has been very successful in the past in generating good net inflows on the back of our top performing fund and a trend toward greater international investing. However, more recent market and economic events such as the eurozone concerns have seen US investors switch out of equities into bond funds and from international to domestic markets resulting in a lack of appetite for our international equity funds. We expect that as risk appetite returns, we will see positive net flows in this part of the business.

Absolute return is a key part of the future of our business. 2010 saw the beginning of the improvement we would like to see. We expect assets under management to grow not only in our existing fund range but there are great opportunities as part of the Gartmore acquisition to extend this part of our business. Overall performance has been solid with over 90% of our funds at or within 5% of the high water mark. Also note that for Gartmore, this figure is near 95%.

Looking at Property, since 2005, we have doubled our Property assets under management and have enjoyed steady net flows in addition to a healthy pipeline of client commitments. We continue to see good opportunities to grow our property assets under management especially in Asia and in parts of Europe.

In 2010, we invested GBP500m of previous client commitments and invested a further GBP900m out of a total of GBP1.3b of new client commitment to raise in the year. We also sold around GBP100m of property on behalf of clients as we rebalanced portfolios and which we expect to reinvest. Our pipeline of client commitments as of the end of December stood at GBP1.4b.

Moving on to slide 13, we have seen continued net inflows into UK Retail, Hedge, and Horizon funds so far in 2011. But these have been offset by outflows from institutional predominantly due to one client rebalancing its portfolio away from assets managed by us. The net revenue impact, however, is positive,

Pearl currently has notified withdrawals of GBP1.3b but as I've mentioned, that has no material impact on our future revenue. And there will be roughly a GBP2.8b outflow at the end of this month when the Henderson Asset Fund is merged with Deutsche Bank's Managed Sterling Fund. The impact in revenues and profit will be minimal.

As stated earlier, client commitment in property stayed at GBP1.4b. We expect to put between a third to a half of this pipeline to work in 2011. I will now hand over to Shirley to take you through the financials.

Thank you, Andrew. Can I have the next slide? I will focus on the underlying profit before tax on this and the next few slides and talk more about nonrecurring items, tax and EPS later.

Underlying profit before tax was GBP100.7m in 2010, 37% higher than 2009 whilst our recurring profit before tax was GBP87m, 38% higher than the previous year. The GBP13.7m difference between underlying and recurring profit is the charge in respect of amortization of investment management contracts and void property finance charges, both a consequence of the New Star acquisition. The Groups made GBP76.5m profit before tax and after nonrecurring items.

Looking in more detail at the underlying profit number, starting with income, management fee income was 25% higher, primarily due to higher equity market levels, a full year of New Star and the impact of higher margin net inflows. The largest contributors to management fees were UK Retail, Property, Horizon and US Mutual Funds.

Transaction fees were 48% higher than 2009 principally due to earning more fees on our UK retail funds and also fees earned on property transactions. Around 60% of transaction fees relate to fees earned on our UK retail funds which are AUM based.

Performance fees were 35% higher and I will cover this in more detail on the next couple of slides.

That takes total fee income in 2010 to GBP362.1m, 28% higher than in 2009. Finance income decreased by GBP3.5m primarily due to an impairment of a property seed capital investment and lower cash balances and interest rates.

The 28% increase in total fee income or to put it another way, the 8.2 basis points increase in the total fee margin was mostly due to improving management fees. Our strategy of growing higher margin assets, which now represent nearly 60% of assets under management, has paid off. Transaction fees accounted for 15% and performance fees for 14% of the increase in total fee income.

Turning to performance fees, performance fees in 2010 were GBP11.2m higher than 2009 at GBP42.8m. The increase in performance fees from Institutional clients, Private Equity and Horizon, was partially offset by a decrease in performance fees from Hedge, Property and Investment Trusts.

The performance fees on our institutional client mandates, of which most of are fixed income, are subject to relative benchmarks agreed with each client. The performance fee from private equity represents carried interest earned on one of our Asia and Pacific funds, HAPEP I.

The number of funds generating performance fees in 2010 has nearly doubled since 2009 from 37 to 65. We expect to continue generating performance fees and to give you a sense of the performance fee potential of our business. We have provided a detailed breakdown on the next slide.

Half of our assets have the potential to earn performance fees, up from 2009 and mostly due to new institutional client mandates. On Hedge Funds, around 77% of funds were above their high water mark and a further 14% were within 5% of their high water mark.

In the case of Horizon and Investment Trusts, 45% and 15% respectively were at or above their high water mark at December 31. As I'm sure you will recall, these funds have to beat their benchmarks and also have to post a positive return since the last performance fee was earned.

Moving on to costs, overall, operating costs increased by 24% largely due to higher variable staff costs and an increase in other expenses. Variable staff costs were suppressed in 2009 due to difficult market conditions but in 2010 returned to more normalized levels. We will look at the stability of the compensation ratio on the next slide.

The increase in other expenses was mostly the result of the investment in our brand in the UK retail business, an increase in irrecoverable VAT and the cost associated with our potential purchase of RidgeWorth earlier in 2010.

We expect other expenses to be broadly similar in 2011 compared to 2010 before the impact of Gartmore as we continue to invest in our brand in the UK Retail business. The operating margin rose from 27.6% to 30% due to an increase in market levels, a full year of New Star revenue, higher performance and transaction fees, and our continued cost control. Without the GBP3m RidgeWorth aborted deal costs, this margin would have been closer to 31% in 2010.

On this slide, we show the trend between operating costs and total income, i.e. the top two lines. Within the expense totals, you can also see the mix of fixed and variable staff costs, the bottom two lines. The compensation ratio, the dotted line, has remained stable for the past three years at approximately 44%. We expect our compensation ratio to be around these levels before taking into account the Gartmore acquisition.

The nonrecurring charge before tax of GBP10.5m in 2010 relates to the following items. The Financial Services Compensation Scheme Levy of GBP7.6m, this levy has been charged to a large number of financial services companies. In 2009, there were several failures of intermediary firms. The FSCS has raised an interim levy to cover the cost of these claims. Although this interim levy is being challenged by various industry bodies, we have recognized a nonrecurring charge based on the invoices received.

Second, as part of the New Star acquisition, we had agreed an earn-out deal with New Star Institutional Managers. The goodwill of GBP8.7m allocated to NSIM which is less than 6% of New Star total intangibles has been impaired in full as a result of a 50% decline in the assets under management since the acquisition. We continue to work with the team on how we transition this business.

And third, the majority of Towry Law International mis-selling provision relating to legacy products is no longer required and has been released. So a GBP5.8m credit there.

There was also a tax credit affecting our nonrecurring tax during the second half of 2010, HMRC closed inquiries into certain tax filings up to 2006 resulting in a release of tax provisions of GBP16.4m.

Looking at tax, the total tax charge on recurring profits for the group was GBP16.1m, generating an effective tax rate of 18.5% for the Group compared to 21.2% in 2009. The main reasons for the ETR being lower than the UK tax rate, our group profit is being subject to lower tax rates in international subsidiaries and restating the Group's net deferred tax liability for the upcoming reduction in the UK corporate tax rate to 27%.

Basic underlying per share increased a healthy 36% to 10.2p from 7.5p in 2009.

The Group's balance sheet is in a strong position, cash balances were up by GBP57.6m to GBP176.6m, resulting in the group being in a net cash position as of December 31. As you can see, our gearing rations have improved and remain strong. For example, interest cover is now 13 times. As part of our ongoing balance sheet management and taking into account the Gartmore transaction, we are reviewing the structure of our balance sheet.

I will now hand you back to Andrew.

Thanks, Shirley. So I would just like to recap the key points in 2010. We have strong investment performance which resulted in GBP2b of net inflows into our higher margin businesses. Fee margins and our operating margin are trending in the right direction whilst our compensation ratio has remained stable.

We have seen strong growth in the profitability of our business, and we have generated good cash flow. This, together with a healthy balance sheet has enabled the Board to recommend a higher dividend to 2010 and also introduce a progressive dividend policy.

During 2010, we continue to review the strategic positioning of the business. We are well positioned as an active manager and our focus is to expand our business in higher growth products. Our assets under management are diversified by asset class, client and geography and this has proven to be beneficial in uncertain and volatile markets. We have product strength in traditional long-only and absolute return products, and growing both remains our strategic priority.

Following a review of our liquidity business, and in the best interest of our clients and shareholders, we appointed DB Advisors as investment manager of the Henderson Liquid Asset Fund in October 2010. Early this year, investors in the fund approved the merger of HLAF into the Deutsche Managed Sterling Fund. As a result, our assets under management in liquidity fund will reduce.

We announced a proposed acquisition of Gartmore in mid-January. The acquisition is consistent with our growth strategy and will reinforce our position as a diversified fund manager and will significantly enhance our presence in UK retail asset management. Gartmore meets our acquisition criteria and we believe it will have significant accretive financial benefits.

To better reflect how we manage our business, we will be changing our assets under management disclosure from the first quarter this year. In the appendix to this presentation, we have included a breakdown of the assets under management on the new basis as of December 31.

As you may have seen, Gartmore also released their 2010 full year results today. Since December 31, where their assets under management were GBP16.5b net of notified flows, they have had net outflows of GBP792m. These outflows have been partially offset by positive market movements. These outflows of less than 5% of assets under management are in line with our expectation and continue to support our assumptions on the operating margin of which we can bring on the business.

The acquisition is subject to shareholder and regulatory approvals. As with regard to the first set of approvals, Gartmore will be posting their Scheme document to their shareholders at the end of this month and our circular and prospectus will be available shortly thereafter.

Shareholder meetings are scheduled for March 21 for Gartmore and March 22 for Henderson and if all approvals are in place, legal completion is expected to occur on April 4.

We are working closely with everyone at Gartmore to ensure that the integration process goes as smoothly as possible. I have been impressed with the level of cooperation we have received from those at Gartmore and we are well on track to meet our integration timetable. We will update clients and the market further on integration plans as we move towards the completion date.

Turning to outlook, overall, as we look to 2011, we are optimistic about the outlook for markets and for the business. Given our strong investment performance, we are pleased with the momentum in our core retail and absolute return products and this bodes well for flows in these fund ranges.

The Gartmore acquisition accelerated our growth strategy and we are confident that this acquisition will deliver good return to shareholders. By continuing to combine the organic growth opportunities at the firm with opportunity to accelerate our strategic goals, we are able to make this a more efficient and profitable business.

Above all, our clients' needs are at the center of everything we do. Ultimately, we believe that this will be the key to our continued success.

Now that concludes the formal part of the presentation and we will take questions from the floor and then I will hand it over to the operator.

Good morning, Nick Burgess from RBS. Just on the Gartmore acquisition, Andrew, the net outflows to February 18 represent about 4.8% of funds under management in six weeks, that perhaps seems a little disappointing. How does that make you feel in the context of the overall 20% sort of budget implied by your 50% margin guidance for the Gartmore business?

Thanks, Nick. To say that the outflows are always going to be concentrated more at the early end of the process where until there is certainty with the fund managers bedded down in our business, Gartmore really is seeing very, very little gross inflows into their business. So they have a natural outflow or redemption profile that isn't able to be offset at the moment.

I have had a number of conversations with key clients both on the institutional and retail side where -- which have actually been very encouraging in terms of their support for the acquisition and I would expect that once the acquisition is able to be completed in early April, we will be in a position to be able to get inflows back into a number of their products and clients will hold off until they see the approvals all done.

In terms of the shape of those flows, the ones that are hardest to predict are the institutional accounts just because they typically have a quarterly cycle in terms of when trustees or board would meet looking at those flows so they are the hardest thing to sort of predict timing wise.

In the retail side, both SICAV and OIECs saw much heavier outflows in January than they did in February and we would expect to see continued improvement as we move through towards completion in those books as well and hedge has seen very, very little outflow reflecting the fact that the majority of the hedge fund managers have been signed up at the time of announcement and clients there have been very confident.

So I'm actually, not concerned about the outflows we have seen, it is in line with the expectations that we all have had so there is nothing there that bothers me.

Thanks.

Thank you. Catherine Heath, Canaccord. Two questions please. First, regarding the balance sheets, you have mentioned that you may be reviewing the structure. And I wondered if you can give us some thoughts on what you are considering, please?

Yes. As we all have seen, the Gartmore acquisition is an all-equity deal. We put in place bank facilities to ensure that we have sufficient funding for the combined group's debt obligations and ongoing working capital and it's that that I'm referring to that we will look at bank facilities in particular.

Thank you. And the second question, Andrew, you mentioned at the time the deal was announced that you have signed, I believe, the heads of teams at Gartmore and I just wonder whether any -- you've got a sort of a further layer within the organization to secure some people? Thank you.

Yes. We continue to have very good discussions with the key people there and working through all our integration plans in relation to both funds' structures and employees. It is too early at this stage to give you any further update on that but we have made very good progress and I would say we're in line to ahead of schedule on where we are on that.

We'll certainly be in a position at the time of completion to be able to announce the full range of lineup as well as the fund managers and we'd expect to be actually able to do that earlier than that as well if we can. And we will announce that when we can but as we said today, we are still going through that process but it's all going very much on track or probably even above the expectation we have.

Thank you. And a final question. Is there any way of linking the, let's say, who you've signed up with to the level of revenues you've discussed please?

Sure there is. I have done it. Well, obviously, it relates to 85% of the assets and looking at them, there is a mix of hedge fund managers, retail managers and managers who are predominantly institutional so I don't think there is any bias in there that the revenue should be any different to taking 85%.

We can try and say we can do that, if it isn't materially, different, we will come back to you but I will probably work on this related to the revenue as well.

Thank you very much.

Good morning. Daniel Garrod from BarCap. If I could ask a couple of questions on your standalone Q4 flows, the GBP0.9b in the Q4 seemed a good number, it's mainly concentrated around inflows into the property area from what I can see. Could you just remind us, you've mentioned the GBP1.4b property pipeline but how did that sort of move in the quarter in and out and what are your expectations for further vesting of that pipeline in 2011?

And outside of the property, what are your sort of expectations in 2011 of inflows into UK Wholesale, Horizon performance does seem good. Could you comment on those?

Yes, taking Property, what we saw was GBP500m throughout the year put in place in terms of the client commitment we had at the beginning of 2010 which were around GBP1.4b at that point. We raised an additional GBP1.3b of new client commitments of which GBP900m were put to work and predominantly relates to the money put to work, predominantly relates to the Westfield Stratford acquisition that we highlight there.

In addition, we have sold money or sold properties on behalf of clients of around GBP100m which because of the way that accounts for it, it is seen as an outflow but we retained the ability to put that back into work in the market as we see products and that will come back in as investments as we put that to work.

The net effect of all of that means that we have at the end of the year, the GBP1.4b of pipeline of which we would expect somewhere between a third and a half to put to work into 2011. It really just depends on getting both the quality or product available and 2010 probably surprises and disappointed us a bit but there wasn't more product available so obviously, if the right products at the right prices become available, we will take account of that.

We do feel some of the -- particularly in Western Europe, some of the prime areas such as the UK Prime, say France, in Paris and Munich, say prices have probably moved ahead to where we think is reasonable value, so that is one of the reasons for the precaution of putting that pipeline to work.

In addition to that client commitment however, we have also got a number of new fund launches we are looking at doing. Last year, we raised the Central London Office Fund Number 2, we raised around GBP100m of that. We will be looking to go back to the market for a second close in that this year.

Our successful CASA range in the US, we will be looking to launch CASA V throughout this year having been able to successfully invest CASAs I to IV over the last several years which have performed very well and has good client support.

In Austria, we are looking for an Austrian income product and again, making decent progress in launching that, and in Germany, German Retail Fund is also on the plans for us.

So there is a lot going on in Property in terms of the existing commitments that we have got but also raising new commitments through new fund launches that we are working through at the moment.

In regard to other areas, I think it's fair to say so far this year that Horizon's continued its strong showing that it did in 2010. That's on the back of very good performance and the positioning of our funds. So, so far it bodes well for how it looked in 2010.

UK Retail continues the recovery that we have seen in that business that has begun in '09. So we expect to see that continue. It's the one area of business given the overlap with Gartmore that has risk of flows being held back while the integration goes through. At the moment we haven't seen a heavy evidence of that, but that's a risk to us as we move through the completion and the early stage of any fund merges that might come about associated with the Gartmore acquisition. So we need to keep an eye on that.

Hedge, I guess we were probably disappointed in last year with -- given the performance we had in the products that we didn't get greater growth in that. And I actually think the evidence to date and what we're seeing bodes well that that will improve. And certainly the -- we've had some very encouraging noises talking to clients who have previously been invested in Gartmore or who have been looking to invest in Gartmore that, post the acquisition, are completing. I expect we'll be able to not only grow our existing range of hedge funds, but also in the Gartmore range. Does that cover the key areas?

Thank you.

Morning. Stuart Duncan from Peel Hunt. Can you just give us any indication of how you think the effective tax rate will pan out post Gartmore?

Yes. On a standalone basis, I think an effective tax rate for Henderson of sub 20% is sustainable. Gartmore's tax rate is obviously higher than ours as they're predominantly in the UK and in higher tax-paying jurisdictions. So it's too early to say where the number will settle, but it is likely to go up from where we would be on a standalone basis, but still well below the UK corporate tax rate.

Hi. Carolyn Dorrett from Deutsche. Two questions, if I may. First of all, can you give us a bit more color in terms of which products or which asset classes you're seeing good inflows into so far this year within each of the areas you mentioned in terms of UK Retail, Hedge and Horizon? And could you give us any indication of how that's differing from where we were this time last year?

Yes. Well, definitely I'd say there's a shift towards Western market versus away from emerging market. So our European equity funds, whether being bought from US retail clients or European retail clients have been an area of positive flow for us, both from investment performance, but I just think people feel in the eurozone having been beaten up last year. So there's definitely that shift happening in there.

There is a shift away from bonds towards equities. Evidence in our UK retail numbers we've definitely seen the back end of last year and turning to this year people becoming more cautious on the outlook for bond funds, moving towards equities.

Other products, technology's been a very good performer for us. It was actually probably one of our best performing funds in 2010 and continues to be well supported this year.

In regard to Hedge, interestingly Japan's probably been the area of most interest in the back half of last year. We'll be -- we'd expect to be able to get our Japanese hedge funds back to their capacity in the first quarter of this year, where they'll probably close for a period. Interestingly, Gartmore will also have a very strong Japanese hedge fund business.

And I think between the Gartmore range and the Henderson range, we've probably got two of the most renowned managers in that space. There's been a lot of people leave that -- the Japanese hedge fund space over -- given the performance in that market over a number of years. So we are two of the best managers left there. And we'll be keeping the teams quite separate. And clients who are invested in both seem very comfortable with the fact that as long as we don't integrate the teams that they're comfortable to keep the assets there.

And moving from Japan in hedge funds, we're seeing a lot more interest in our European absolute return range under Stephen Peak. Stephen had a fantastic year last year. He was up over 40% for the year, which followed a strong recovery in 2009 and up over 100%. He won Euro Hedge Manager of the year as well just recently. And we're seeing a lot of interest in his funds and hope to be able to take him back up to the capacity he saw prior to the financial crisis in 2007.

So they've been probably the key areas. I'm trying to think if there's anything else. And obviously I'd say property has been an area for us where there's continued interest in property, probably over and above what we would have expected. Clients are definitely looking to allocate towards that. So it's definitely more risk assets of equities and property and also more developed market over developing markets is what we've seen. But you've got to remember that we haven't had much exposure to the emerging market space prior to Gartmore. So we wouldn't necessarily see if there's a big shift out of that because it's not somewhere where we're seeing; it's only anecdotal.

Thank you. And can I ask a second question, if that's okay? Just on the structured products, the GBP1.2b of AUM that you've got the end of 2010. You said you expect net outflows of about GBP130m next year. Can you give us the rest of the maturity profile for that book, please?

Not today.

No. I don't think -- I don't -- we can try and update you later. It's not something I have with me. It would go out probably towards '14, '15, but I don't know what the profile would be between '12, '13, '14 and '15, but we can come back to you on that.

Nitin Arora from HSBC. Just a couple of questions. Firstly on GBP800m of outflows from Gartmore, could you quickly drill into how much outflows have been into various asset categories, retail, hedge funds and institutional?

As I said earlier, the hedge fund outflows were very modest, very, very small of that. In terms of the retail assets, there's been greater outflows from the SICAV, the offshore SICAV book of business and the onshore UK retail book. That's not surprising and would be consistent with our pattern in terms of persistency that they tend to be higher turnover in that book, probably of the order of 2 to 1 for SICAVs over retail.

And then on institutional, it's probably more -- it's probably equal to around what we're seeing in OEIC side of the business, but it's hard to necessarily get visibility of how that may come about. There've been two large mandate losses that contributed to most of that in the business, which would have been regarded as high risk at the time of the acquisition just because of investment performance in their business anyway so it wasn't necessarily a surprise on that side.

Right. Okay. And then just going back to the cost synergies, at the time of announcement, you talked about the marginal cost to income you could generate. Could you put a figure on in terms of pound millions how much cost synergies are you looking to generate from the deal and which areas?

No. We haven't disclosed that. What we tried to do to help you with that is you know what the AUM were at December 31 and we talked about the operating margin that we would get if all of those assets came across being just above 60% and that we expect, by the time of completion, that we wouldn't drop below 50%. So that's as far as we're prepared to go on that.

Okay. And in terms of your further acquisitions plans, you have talked about US. Any further thoughts on that? Where do you stand there?

Certainly the priority for 2011 is the completing and then integrating the Gartmore business. So that's by far a long way of what we are doing. I've also said that I wouldn't expect to do an acquisition of this size or scale for the immediate future. Would we do small bolt-on deals that are available and fitted our infield and particular part of our business? Possibly. But there's nothing on the agenda or horizon at this stage. The focus is on the Gartmore acquisition and integrating that.

Let's say even 12 months down the line, if you're looking at the US, would you be looking at something more interesting, something like Gartmore or New Star or would you be looking at performing no-problem assets?

Sorry, what was the last --?

It's the last acquisitions, New Star and --.

I thought that was the very last thing you said about.

Would you be also considering the performing assets or performing fund managers, i.e. fund managers with no issues at all?

Look, I think in the US, should we do something, and it is right to say that the Gartmore acquisition strengthens us in a number of areas, including Asia, given their Japanese distribution, but does very little for us in the US. Because we don't have the overlap in the US, so anything we would do there would tend to be much more around a standalone business that was already performing strongly, whether it was strong investment performance or/and good flows.

The Gartmore acquisition clearly actually they had very strong investment performance. They've had difficulties in regard to client relationships, just because of some of the concerns hanging over them. New Star clearly had poor investment performance. And that was because there was a huge amount of overlap with our existing business for New Star we're able to do that. In the US, where we really have nothing on the ground for investment management, we'd be looking to acquire a strong team. So you wouldn't expect something like New Star to be a criteria.

What I'm doing in 12 months' time we can ask next year and I'll see where I am. But at the moment, I wouldn't be expecting us to do too much over there, so don't have that too high on your priority list.

Thank you.

Any questions from those in the -- on the phone lines?

We have a question from the line of John Heagerty. Please go ahead and announce your company name.

Thanks. Yes. It's John Heagerty from Credit Suisse. Just a couple of questions, if I could. Firstly, just on the write-down to the New Star investment management, maybe I'm misunderstanding this, but it looks as though you've basically had 50% of the funds within that have disappeared. Can you just explain us through that and what the implications are then for the new acquisition?

Yes. This -- you'll probably recall we set up two cash-generating units when we acquired New Star. One was New Star itself and the other was New Star Institutional Managers, which was the part of the business that was subject to an earn-out deal, the intention being that they would effectively generate the profits to enable them to buy the business from us.

Their investment performance when we inherited them was pretty poor. It's actually been, as you can see from the numbers, good in 2010, but maybe not good quickly enough to stem the outflow of the assets, and so they have lost 50% of their assets. The test for goodwill impairment is you need to look at the future budget and forecast. Looking at that, we couldn't justify keeping that goodwill on the balance sheet. But that's why I also referred to we are still looking at ways of how to transition that business.

So in terms of implications looking forward, it doesn't have implications looking forward. We wouldn't have a similar sort of deal with any teams in the Gartmore business.

I'd also add, John, that when looking at it, you're looking at only one part of the New Star acquisition there. And looking at it in the round, the New Star acquisition has been incredibly successful for us and probably exceeded the expectations we had at the time and the announcement for it. It is part of the business.

We had always identified it as really non-core because of the overlap it had with an existing team in our business and had been looking to move towards a management buyout of that over a protracted period. That would still be the case. That would be the intention that at some point our ownership would transfer to management and I expect that continues to be the case.

The team themselves are very focused on restoring the assets to the business. They started well with 2010 seeing good performance. And they're working very well with their clients. They're going to need to see that performance sustained for a period before institutional clients start to come back, because, as you know, institutional clients tend to have a lag between investment performance and flows coming into the business.

Yes. Fair enough. Just following on from that, just on the latest acquisition, probably asking a similar question to somebody else in a slightly different way, but obviously you're looking at if you had 20% outflow, you're talking about mid-teens EPS accretion. Just at the moment you're saying initial outflows are going to be higher, then should soften from there. Are you implying at the moment you're expecting slightly less than 20% so we can talk about maybe around 20% EPS accretion coming through, or is it too early to say?

I think we'll update you at the time of -- it's only six weeks away before we hope to complete the deal, so if we can update you on the AUM then. I'd say that the 20% was a fairly conservative number and I'd say that the outflows you've seen to date are comfortably within that, moving towards that level. I also believe there are significant opportunities to grow assets in their business post the completion of a deal, so once the uncertainty's out of the way.

In terms of the accretion that we'd be expecting to see at this stage, I won't change the -- what we've given you from the first announcement. There's certainly nothing as we work through the integration plans that have led us to cause for concern or to change any of our assumptions. If anything, we're probably on track or slightly ahead of where we'd expect to be and there's been nothing found in the business in the last six weeks that would change -- cause us to change any of the operating cost assumptions that we had assumed. So we'll update you as and when we're in a position to do so. But I don't see anything causing us to downgrade any of our expectation there.

AUM in terms of outflows remains probably the biggest driver of what accretion will be. I'd have to say the people at Gartmore have been incredibly professional and working very, very well with us and I'm very, very comfortable with where the positioning is with clients and the outlook for things. So the possibility of having the accretion being higher than mid-teens is definitely there, and that's one of the prizes that we are all collectively working towards to achieve.

That's great. Thanks very much.

Okay, John. Any other questions from the phones?

Our next question comes from the line of Nigel Pittaway. Please go ahead and announce your company name.

Hi, Andrew and Shirley. It's Nigel Pittaway here from Citi. My first question, I just wondered, Andrew, whether you could give us a feel for how you're viewing your investment performance in UK wholesale relative to your nearest competitors and whether or not you feel that's conducive to a continuation of the momentum in terms of those flows?

Yes. Sorry, I paused there because I thought you were going to do your usual three questions, Nigel.

Well, I've saved them for you. I'll come back.

In regard to the flows actually, I think we're -- in the areas that we're seeing good flows for us, particularly, say, multimanager, performance is very good. A lot of funds that have performed well, the competitors have been in the fixed income space. And we think that's going to be a tougher space. UK clients are starting to move away from fixed income, I would say.

On the equity side, there've been a number of very strong performers for us. Stephen Peak on UK Alpha, for example, is performing top quartile, even top decile. Our technology fund continues to perform well, which again is a growing interest for clients in that sense. And increasingly UK retail clients are also buying our Horizon range. There are not that many restrictions for it. And there are some product ranges in the Horizon range that aren't in our UK retail range such as our property securities funds, which also perform well.

So relative to competitors, I think that our numbers look good. Our equity income numbers look good. Our UK growth numbers look good. Technology, as I mentioned. So I'm pretty comfortable. Sometimes to knock someone off above you, however, you need to see their performance slip for a protracted period. Some of the competitors above us have had some tough years in 2010. If that continues into 2011, clearly there's an opportunity for us. And that's -- we've just got to keep plugging away, talking to clients and demonstrating to them the worth of our products and our managers and the time will come when people, where they've stuck with us for a long time, they realize now might be the time to change.

So I'd say relative to some of the bigger peers in a number of key channels, we're performing as well if not better.

Great. Okay. Thank you. Second question just then on the -- just on the Westfield business, the GBP0.9b of property inflows. Are the margins similar to the rest of the property book or perhaps a little shy of that?

It's fair to say, given the size of that transaction and the clients that we're working on, that the -- on behalf of, that the margins for that are, I would say, significantly lower than what we would get from the average book of business. So it reflects the nature of both that acquisition and the work we're doing on behalf of that.

Okay. And then finally, because you did want us to -- sorry. And finally, because you did want a third question, just on question on the seed -- sorry, there's an echo on the line, but seed capital. Am I right in thinking that the seed capital write-down was about GBP2m? Is that about right?

Yes. Slightly less than that.

Slightly less. Great. Okay. That's great. Thanks very much.

Thanks, Nigel. Any further questions from the line?

Our next question comes from the line of Ross Curran. Please go ahead and announce your company name.

Hi. It's Ross Curran from Commbank. Just got a very quick question on staff retention rates at New Star since the acquisition. I was wondering if there's -- you could talk us through that and whether there's any read-through you can take from that to the Gartmore deal?

And then secondly, if you could give us a bit of a feel for major regulatory risk we should be aware of coming up for the next year or so.

Yes. Thanks, Ross. In terms of staff retention from New Star, I'd say it's been very high. The main area in New Star that we were attracted to was the sales and distribution team who came in and pretty much took control of our area in that space. And I'd say turnover's been very, very low. I can only really reflect on probably three or four people that might have left over the last 18 months and the majority of those left in the early phase of the period and so it's been very, very stable of late.

The key fund managers, again, we lost one or two at the very early stage, but apart from that, the main managers are still in situ here. So that's been stable. And in other parts of our business, such as ops and finance and other support functions, we've had a little bit of turnover. Nothing different to the turnover we would have seen in our business, and again have considerable number of people here.

Is there any read-through of that to Gartmore? Not sure. It's certainly a different time from when they all came over. I would say actually New Star itself got itself into probably more difficulty before we bought it than what Gartmore had got itself into. So the emotional impact that people had with the business and what they've seen happen was going to be different at New Star to Gartmore. So I'm not sure if there can be much read-through.

I'd say Gartmore's got quite a similar approach, both in the investment side but just the overall business in terms of culture and how the business is configured. So I'd expect people coming over from Gartmore will find it very easy to fit in and I wouldn't expect there to be any increased turnover once they come in. The opportunity for them is to not come now rather than to come and then have that happen. So I wouldn't expect there to be regional turnover, but it's probably hard to get a read through.

Your second question was on --?

It was on just regulatory risks that you might be expecting, yes.

Yes. Sorry. The regulatory condition. Yes, I think the -- well, you've heard me talk about, over the last six to 12 months, probably three areas. The first one was on the UK imposition of bonus rules and regulations. With the release of the rules and that at the back end of last year, very late in December, with our existing rem structures and also the fact that we've been classified in the T4 category, which is the lowest of the categories, the impact for us is actually fairly negligible.

We're actually very well placed and we've been able to continue with our existing rem practices without really any amendment to either any individuals or the firm in whole. So whilst that may have some impact for some of the tier-one firms that are seen as much more risk to the financial system, for us it's had a negligible impact. And as long as nothing changes from here, that's probably okay for us.

In terms of the AIFM directive, which is the EU directive around hedge funds or alternative managers, that's gone through a number of iterations and we're now getting close to the final stage of being signed off. And actually, if anything, it's probably -- it's certainly more benign than it had looked at many stages in the past. And to some extent we could be a big beneficiary of it as we're already in the EU, we're already operating here. A lot of what they're requiring are structures we have in place. And they have, through that, significantly increased the growth of onshore-type structures in absolute return which both ourselves and Gartmore were already targeting to take a good position in and I think we'll be -- we'll continue to benefit as that comes into place.

The biggest -- there's still one or two items outstanding there around depositories, which won't necessarily affect us. It just affects the management of the funds. But a lot of the changes in that are areas that stick within the existing operating model of us. So that's been fairly probably a positive outlook from where it could have looked this time last year.

And then the final one, I would say, is the retail distribution review which moves into starting at the end of this year. And we still haven't got the full guidelines. Some of the issues around platforms are still being decided and they've been pushed back. They're expected to be out by now. Now they're being pushed back to June.

The industry continues to look at how -- what it will mean. It's probably too early to give you a definitive answer. I'd say that it'd be a marginal negative to us in terms of margins on future flows but it shouldn't affect the existing book. But it really -- in terms of future flows, and I'm saying there several basis points of impact on the margin on future flows rather than wholesale change from that. But it's a little difficult at this stage to give you much more definitive until we've come up particularly on the platform side and impact on that.

Thank you very much.

That's okay.

Our next question comes from the line of [Mark Conlin]. Please go ahead and announce your company name.

Hi there. It's Mark Conlin from Citi. Just a hopefully really simple, quick question for you. I was just hoping to get the breakdown of equities between UK equities and international equities.

So you want to know what the breakdown is between UK equities and international equities?

Yes. You've disclosed it quite regularly in the past. And (technical difficulty).

Well, we haven't this time for -- only because we're going to the new asset class disclosure. I'm not sure it makes a big difference, but can we come back to you?

Sure.

Are there any other questions from --?

Our next question comes from the line of Mark Hancock. Please go ahead and announce your company name.

Good morning, Andrew. Mark Hancock from Precept.

Hi, Mark.

Just two questions, one in relation to dividend policy and one in relation to performance fees. Firstly, on the dividends, can you just talk a bit more to the progressive dividend policy and how much higher could you see that payout ratio trending? I calculate it roughly at 68% at the moment. But subject to virtually no net debt in the balance sheet, could you see that going much higher and how high?

Okay. Taking the dividend policy, the Board adopting a progressive policy is by its flagging that it's focusing on the dividend increasing through time but is not stipulating a set payout ratio. And that's as much to do with the fact that there are a number of opportunities a business has to deploy the cash -- the strong cash generation that the Group has and it doesn't want to be beholden to a dividend payout ratio. So I think you should just expect to see dividends, as the business grows, continue to grow. But in what proportion will be determined by other opportunities for us.

You're right in terms of net cash position of the Group at the year end. Obviously the Gartmore position does have some debt and we've got the integration of that business to spend some cash on in the first year. So there'll be a bit of utilization of cash through to 2011 before we start to also deliver strong cash generation again in 2012. And any dividend that the Board decides to announce will come really looking at other opportunities for the Group in terms of what it can do with those cash resources.

And you had a question on performance fees?

Yes. On performance fees you had this unusual one on the private equity. Could you talk to that? And also just where do you -- which area would be you're most optimistic on for performance fees for 2011?

Yes. I wouldn't say it was unusual. It's the carried interest related to our Asia number one fund, HAPEP I, which is a fund coming up towards the end of its life. So it had a strong return since it was launched. And this is the carried interest related to that. There still is a number of investments in there that will be realized over the coming years, and probably in the next two years, I'd expect. And that will probably deliver additional carried interest.

There's carried interest in other funds that we have in those businesses. We have an Asia number 2 fund. We have some fund of funds, for example. But private equity funds typically have an eight- to 10-year life so they tend to be long-term before they crystallize. So in the immediate future, the only one that would see any carry interest probably in 2011 would be HAPEP I should the remaining investment be disposed during the year. But again, we'll be picking the right time to do that.

In regard to other areas of performance fees, yes, I think the hedge side of our business has continued to see a recovery from the sort of depths seen in 2008, so I'd expect to see an improvement in that. In terms of the Horizon fund range, just because markets being higher means we get over one of the hurdles there, which is the market level since last performance fees, so we should be able to hopefully see an improvement in performance fees coming from the Horizon range.

Institutional clients over the last two years have been probably a very strong performance and the performance fees and been probably the biggest driver. I think it'd be difficult to match that in 2011, so I wouldn't be expecting institutional to carry the same level of performance fees as it did last year, though it will still be a meaningful contributor.

And then finally I'd say that the Gartmore acquisition increases the opportunity again, predominantly in the hedge fund side, where they have a number of hedge funds which were above the high water mark. And should they continue to perform well should lead to performance fees coming from that side of the business.

Thanks very much, Andrew.

Okay.

(Operator Instructions).

Okay. We might go -- take questions back from the floor as well, if there's any further questions from the floor. Okay. And no further questions on the -- from the lines?

Well thank you all for coming along. If there's any follow-up questions you have later in the day, obviously feel free to contact us via the Investor Relations department. Thank you.