Janus Henderson Group PLC (JHG) 2022 Q1 法說會逐字稿

Good morning. My name is Seb, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group First Quarter 2022 Results Briefing. (Operator Instructions)

In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in forward-looking statements due to a number of factors, including, but not limited to, those described in the forward-looking statements and Risk Factors sections of the company's most recent Form 10-K and other more recent filings made with the SEC. Janus Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you.

Now it is my pleasure to introduce Roger Thompson, Interim Chief Executive Officer and Chief Financial Officer of Janus Henderson. Mr. Thompson, you may begin your conference.

Good morning, and welcome, everyone, to the first quarter 2022 earnings call for Janus Henderson Group. I'm Roger Thompson, CFO and Interim CEO.

Before I discuss our quarterly results, I'd like to start by giving a few updates. First, as we announced back in late March, we're extremely pleased that Ali Dibadj has been named as the next CEO of Janus Henderson. Ali is highly regarded and well respected in the asset management industry and the feedback we've received, both internally and externally, has been overwhelmingly enthusiastic and positive. I've had the chance myself to meet with Ali, and I echo that feedback. I, along with the rest of the Executive Committee, I'm excited to work with Ali, and we look forward to meeting with clients and shareholders and employees when he begins the CEO next month.

As we transition to a new CEO, it's important to emphasize that in the interim, the firm continues to operate as business as usual, and we continue to make progress in delivering our strategic initiatives. In that context, I'm pleased to announce that we have completed the previously announced sale of INTECH as of the 31st of March. The closing of the transaction was a culmination of the efforts by dedicated teams on both sides, and we wish INTECH all the very best for the future.

We also continue to grow our active ETF franchise with assets now exceeding $5 billion. During the quarter, we launched 2 ETFs, a BBB CLO ETF in the U.S., further capitalizing on the back of the success of our AAA CLO ETF, which raised $800 million in the first quarter and now has $1.1 billion of AUM. And in Australia, we launched a net-zero transition resources ETF, which was also one of the 5 U.S. sustainable ETFs that we launched in September 2021.

With that, let me turn you to the quarterly results, starting on Slide 3. Our investment performance remained solid, with 62% of our assets beating their respective benchmarks over 3 years, which is up compared to 58% of assets last quarter. Assets under management are down due to the closing of the INTECH transaction at the end of March due to effects of markets and net outflows. Excluding INTECH, net outflows were disappointing at $6.2 billion, driven primarily by outflows in equities and the institutional redemption in the balanced strategy that we communicated to you all in the last quarter's earnings call.

Our financial results remain solid but are down compared to the prior quarter, primarily from weaker markets and lower performance fees. And finally, we remain committed to returning excess cash to shareholders. In the quarter, we completed $43 million of share buybacks and the Board has authorized a new buyback of $200 million to be completed prior to the 2023 AGM.

Additionally, given strong earnings growth in 2021 and our progressive dividend policy, we are pleased to announce a $0.01 increase in the quarterly dividend to $0.39 per share.

Moving to Slide 4, and I look at investment performance. While 1-year investment performance reflects the very challenging environment, long-term investment performance remained solid, with 62% and 74% of assets beating their respective benchmarks over a 3- and 5-year time period as of the 31st of March. Performance of multi-asset and alternatives is excellent across all time periods. Equity is more mixed, but with continued improvements in strategies such as US Mid Cap Growth, which is now above benchmark over all periods presented. And fixed income investment performance is doing well despite an extremely challenging quarter for bonds in the first quarter.

Switching to relative investment performance compared to peers, this remains solid with over 60% of AUM represented in the top 2 Morningstar quartiles over all periods.

Slide 5 shows company flows, excluding INTECH. For the quarter, net outflows excluding INTECH was $6.2 billion compared to $1 billion last quarter. Over the next few slides, I'll provide insight into the outflows. But in summary, the quarter saw continued outflows in equities coupled with the outflow in the multi-asset capability previously disclosed.

Let's turn to Slide 6, which shows the breakdown of flows by client type. Net outflows for intermediary were $1.7 billion. By region, intermediary flows were negative in the U.S., EMEA and Latin America and positive in Asia Pacific. In the U.S., the outflows were dominated by our US SMID and Mid Cap Growth strategies due to the performance challenges we saw in 2020. But with the strongly improving performance that I previously mentioned, we're optimistic that we're beginning to see the pace of outflows slowing. In looking at the first quarter highlights in the U.S. intermediary channel, the SMA channel had $800 million of net inflows coming primarily from the concentrated growth strategy. And net inflows into ETFs were $800 million, with the majority coming from the -- from the AAA CLO product. As I mentioned, our ETF business is now over $5 billion in assets, and we're well positioned with our AAA and BBB CLO strategies in a rising rate environment.

Similar to trends across the industry, EMEA growth inflows slowed compared to the fourth quarter due to a risk-off sentiment caused by the Russian invasion of Ukraine, inflation and tightening monetary policy. Institutional outflows were $3.6 billion, which was primarily the result of the $2.2 billion redemption of the balanced strategy. The pipeline has broad and diverse range of opportunities, but results will be lumpy quarter-to-quarter as we saw this quarter.

Finally, net outflows for the self-directed channel, which includes direct and supermarket investors was $900 million.

Slide 7 shows the breakdown of flows in the quarter by capability. Equity net outflows for the first quarter were $3.8 billion compared to $3.2 billion in the prior quarter. The outflows were primarily driven by US SMID and Mid Cap Growth strategies in US Retail and Institutional. Areas of flow strength included U.S. concentrated growth, global equity income and the biotech innovation hedge fund. Flows into fixed income were flat in the quarter, which is a good result against the tough backdrop of bonds during the quarter. In the U.S., our fixed income strategies captured retail market share and were led by inflows into the fixed income ETF strategies.

Total net outflows from multi-asset were $2.2 billion, entirely made up by the one-off redemption in the balanced strategy that I told you about in the last quarter. Alternative flows were negative $200 million for the quarter.

Before moving on, I do want to call out 2 redemptions that will impact 2022 flows. First, a long-standing European insurance client has made the decision to bring the management of a Sterling Buy & Maintain Credit mandate in-house. This was unrelated to either Janus Henderson's investment performance or client service and due to an internal decision to build their own investment management capabilities to support their growth. The mandate was low fee with total AUM of approximately $7.3 billion and $2 billion has already been redeemed in April. The balance will redeem over the remainder of 2022 in tranches yet to be confirmed.

Secondly, we recently announced the sale of our UK Property Fund, which will result in an estimated $1.4 billion outflow in the second quarter.

Moving on to the financials. Slide 8 is our standard presentation of the US GAAP statement of income.

Slide 9 is a look at the summary financial results. Before diving into the financial results, note that the sale of INTECH closed on the 31st of March. Therefore, INTECH's financials are included in the entire quarter. However, as I stated last quarter, INTECH's impact to the consolidated results is not meaningful. Adjusted first quarter financial results were down compared to the prior quarter and prior year, primarily from lower average AUM and performance fees. Adjusted revenue in the quarter decreased 13% compared to the prior quarter due to lower average AUM, performance fees and fewer calendar days. Adjusted operating income in the first quarter of $180 million was down 25% over the prior quarter, principally driven by lower revenue. First quarter adjusted operating margin was 37.4%.

Before moving on, I wanted to clarify the difference this quarter between US GAAP and adjusted diluted EPS. The primary difference was a $33 million noncash tax adjustments on the impairment of goodwill that we recognized in 2020, with other small adjustments, including the loss on the sale of INTECH and LTI accelerations on departed executives.

On Slide 10, we've outlined the revenue drivers for the quarter. Net management fee margin for the first quarter declined to 46.8 basis points, compared to 47 basis points in the prior quarter. However, it's flat to a year ago, highlighting the strength and stability of our fee rate. The quarterly decline is due to the mix shift resulting from weaker markets. Excluding INTECH, the net management fee margin for the first quarter was 49.4 basis points.

First quarter performance fees were lower compared to the prior quarter due to US mutual funds and seasonally higher performance fees from segregated mandates in the fourth quarter. Regarding the US mutual fund performance fees, the first quarter was negative $14 million compared to negative $7.7 million in the prior quarter.

Looking at 2022 performance fee revenue. Based on current investment performance, we expect full year performance fees to be negative in aggregate. US mutual fund performance fees are projected to be approximately negative $60 million if we assume benchmark performance for the rest of 2022. Based on current investment performance, these negative fees would only be partially offset by performance fees generated from segregated mandates SICAVs, UK OEICs, and Investment Trusts.

Turning to operating expenses on Slide 11. Adjusted operating expenses in the first quarter were $299 million, down 3% from the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, was up 3% compared to prior quarter, primarily as a result of annual merit increases and seasonally higher payroll and retirement costs, which were partially offset by lower variable costs given the lower pre-bonus profit. Adjusted LTI was down 10% from the fourth quarter, mostly due to mark-to-market. In the appendix, we've provided the usual table on the expected future amortization of existing grants [for you to use] in your models.

The adjusted comp to revenue ratio was 42.5%, which is in line with the guidance we've given and less than the 44.2% ratio in the first quarter of last year. For the full year, we anticipate a comp ratio in the low 40s. Adjusted non-comp operating expenses were down 10% from the prior quarter, primarily from marketing and general and administrative expenses. For 2022, the expectation of non-comp operating expense growth in the low teens remains unchanged.

Finally, our recurring effective tax rate for the first quarter was 26.1%. For the full year, the firm's statutory tax rate is still expected to be in the range of 23% to 25%.

Finally, Slide 12 takes a look at our liquidity. Cash and cash equivalents were $782 million as of the 31st of March, a decrease of approximately $324 million, resulting primarily from the payment of annual variable compensation. The first quarter cash position is typically our lowest given seasonal cash needs. We returned $107 million to shareholders via the dividend and share buybacks. We purchased 1.3 million of shares of our stock for $43 million, and we paid $64 million in dividends. And as I previously mentioned, the Board has approved a 3% increase in the quarterly dividend to $0.39 per share. This increase aligns with our capital philosophy of paying a progressive dividend that grows with profits.

Finally, the Board has approved an accretive share buyback authorization of $200 million to be completed prior to '23 AGM.

I look forward to Janus Henderson continue on its journey of organic growth in Q2 and by being joined by Ali in our Q2 earnings call in late July.

Now I'll open it up for Q&A. Operator?

(Operator Instructions) Our first question today comes from Daniel Fannon from Jefferies.

So I guess I just wanted to follow up on flows. You mentioned a broad range of opportunities within kind of the institutional pipeline. So just hoping you could expand upon that. And then if you could clarify just the timing of the redemptions, just so I understand, I think $2 billion is already left in April on the total of $7.3 billion, but the timing of the property fund. And I guess just in general, in the context of consultant, asset allocator and kind of intermediary conversations, how has the change within the ranks of the management team at Janus as well as having an activist potentially impacted those conversations, if at all? So -- sorry for the multipart question, but I wanted to get some broader context.

Thanks, Dan. That hopefully covers quite a few things. So -- but let me take them sort of one at a time and see where we get to. So the first one is the buy and maintain mandate in the U.K. As I said, that's a $7.3 billion mandate. It's very low fee, but that will come out in the course of all during 2022. Just over $2 billion came out in April, and we're working with the clients as they in-source that money. But we don't have the full details of when the remainder will come out. So that will be $7 billion coming out over the remaining 3 quarters of the year starting with [$2 billion] in April.

The real estate transaction, we completed (inaudible) last week. So very pleasing to get that done. It's at a small premium to the NAV. So given the ongoing changes and review by the FCA of open-ended or real estate open-ended funds, we believe that is a very good outcome for investors. That will happen over the next month. So again, that will be within our Q2 results.

In terms of the pipeline, there are a number of things in there that have taken a little bit long to fund than we wanted or expected. They're things we're working through with clients, mainly on clients, the ability or the needs of clients to be able to do their reporting and regulatory returns. So some of these things are quite complicated and taken a little bit longer than originally thought by the client. We're pleased to be working through those. It's a range of things, and it's a range of fee rates as well. So again, we've got some higher fee product that is lower assets and some bigger things at a lower fee. So I recognize that I've been talking about this pipeline for a number of quarters now and we've got to deliver it. So that's something that I recognized hasn't come through in the last quarters, but it will be bumpy and this outflow from buy and maintain will sort of dominate a flow picture in institutional. But again, it's more important to look at revenues rather than flows, and we'll see that coming through over the next few quarters.

And then finally, in terms of the feedback we've received on Ali's arrival has been sort of universally positive, both internally and externally. He's a very well-respected investment professional with the background as an analyst, as a portfolio manager and then in strategy and CFO. Those who work with him have very strong feedback in either directly working with him or in a professional capacity across different firms. So that is -- and Ali joins us next month, as I said. So that's going to be very soon. Client feedback has been very positive so far. So I don't think there's anything that's changed in terms of our outlook. If anything, I'd say, hopefully, it's going to be positive rather than negative in terms of client reaction, and we look forward to getting Ali on the road, seeing shareholders, analysts, clients and staff as soon as he joins -- say in late June.

So I think I've covered -- sorry, you mentioned trying -- there's no change there to (inaudible) been investors in Janus Henderson for almost 2 years now. So I think it's an ongoing relationship, which, again, I think that's settled down quite nicely.

So you've asked one question, Dan. I guess you allowed the second one. I'm not sure whether that was really one or any follow-ups.

Yes. No, I'll take that. Appreciate the longer -- the detailed response.

Our next question is from Liz Miliatis from Jarden.

I might just get on the cost management and capital management side of things. Obviously, you've maintained your guidance on the cost side and have announced another buyback. I suppose it is early days with Ali [hasn't] officially landed yet. But is there any sort of anticipation that you might sort of reassess those targets at all? Or do you think that might be quite a steady ship going forward?

I think you got 2 quite separate things. The one is around capital management philosophy, which I think, is settled in terms of a regular progressive dividend, which we've increased by $0.01 this quarter and a consistent buyback if we have true excess cash. So the buyback of $200 million that we've announced, $200 million that we've announced today is pretty consistent with what we've done over the prior years a little bit more last year. So that's a consistent philosophy around capital. But again, that's really a [bold] decision. But again, hopefully, that's well understood in terms of capital.

In terms of costs, we're going to have to look at the year as it plays out. We've been investing in the business. We're excited about the future. We always manage the business as tightly as we can from a cost point of view. There are -- I am guiding to higher non-comp costs this year. Again, as we talked about in Q1 results, that's a combination of 3 things. That is a return to normal in areas such as tier travel and entertainment and marketing, which were low in '20 and '21. A return to normal and maximizing some of the opportunities we've got in -- by increasing marketing spend, again, that was low in '20, '21 with COVID.

We have a number of major infrastructure upgrades that we've been working on for the last few years. A couple of those will go live in 2022, which is great news. That means we start to amortize the work that's been done over the last couple of years. And then there is inflation, obviously, in the system. So we will continue to manage that. There are (inaudible) to turn, and we'll continue to be as efficient as we can. But I guess I'll come back to you in Q2 results should any of that guidance change.

Okay. Got it. And then just quickly also on the investment gains and losses, I mean, obviously, it's really hard to sort of help us out with that, but that number tends to sort of bounce around quite significantly just in relation to the seed asset. Is there any way to think about that in a better way to get that number, right? Because it does sort of have a fairly meaningful impact to the bottom line.

Yes, there's an accounting piece in there. So you've got to look at it net of NCI, the noncontrolling interest part. So you net those 2 numbers, we have to show it gross. So in a quarter, where seed and therefore consolidated seed has gone down with the market. There will be losses or bed losses are offset in NCI. That's the first reason. Obviously, we don't hedge the client positions, which we need to consolidate in that line. That this quarter will still result in a relatively significant loss. We see -- sorry, we hedge what we can efficiently in our seed book, but there are certain seeded instruments that we don't hedge, and we don't hedge or we can't hedge as efficiently as we'd like. So this quarter, there is a net fee loss of around $10 million, which is a bigger gross number offset by a hedge, but the hedge is not perfect. So we'll continue to look at that. That number, I'd like to be as little as possible. It obviously includes (inaudible) as well. But where we've got things like hedge funds, they are unhedged in terms of those results. So hopefully, that helps Liz. We're happy to take you off that -- take you through that offline as well.

Our next question comes from Ken Worthington of JPMorgan.

Maybe following up on Dan's question on the institutional business. So how do we think about that institutional franchise? I recall that INTECH was the single biggest part of the U.S. institutional business. So does that divestiture impact your broader franchise overall? You were more scaled with INTECH, you're now less scaled without INTECH. You had big outflows this quarter, even without the balance one, there's bigger redemptions to come, I'd say, $7.3 billion is also bucketed as institutional. So what does this shrinkage mean for the outlook for that franchise? And can you further flesh out the steps that you're taking to stabilize the platform and really write the ship?

Yes. Thanks, Ken. It's a good series of questions. So first of all, our institutional business in INTECH is $82 billion. So it's a sizable book, and that is global and is well diversified. It is an area that we've been investing in, making sure that we've got the right products, the right people and building the client relationships. So we've talked a little bit in the past about the investments we've made. New consultant relations team, which is working really well. Again, these things do take time, but the team underneath Richard Graham, who joined last year, I think, really establishing much better relationships with consultants globally. The institutional team in the U.S., we've upgraded that team over the last couple of years. And we've got products around the world, which we believe, is of interest to institutions. So we are having a lot of good conversations. I talked a little bit about the pipeline. And like I say, I realize that I've been talking about that for the last few quarters, and we need to deliver that. So -- no, that's obviously the intention there. And we believe we're seeing some -- we believe we're seeing some good results.

You're right. The large buy and maintain mandate that I've just told you about is in the institutional book. So that will be a sort of headline loss from an AUM point of view. Again, I continue to point you towards revenue rather than just assets. Some of the business that we -- that is in that pipeline is significantly higher fee product. It's a mix. We'd like to say we've got some bigger mandates, which we hope and expect to fund at the lower end. And we've got some business, which, again, we hope and expect to fund at higher fee. But no, the institutional business is very important to us. It's been successful. We've seen success in various areas. Our Australian institutional business has done very well over the last couple of years. We've got a growing business in the Middle East. We've got some great relationships on the Continental Europe. We've got an established U.K. business. The U.S. is where we've consistently -- both before the merger and post the merger, our institutional business is sort of too small for the size of Janus Henderson. And that's something, as I say, we've made a number of investments there, and we'll continue to push there and hope and expect that to continue to grow over time.

Okay. I think that's fair. And just maybe a follow-up to call it out. I don't think the results were all that impressive and the outlook is sort of more challenging here. You've got a 20% owner. I assume the pressure is going to be going up meaningfully. You have plenty of cash. You announced the $200 million authorization. You sort of called out that, that's sort of the authorization level that you guys have been looking at for the last couple of years. Given the weakness in the business and the downturn that we're seeing in the stock, I'm sure you anticipated that. Why not go bigger than the $200 million authorization? You've got plenty of cash, you've got a clean balance sheet. It would seem like you're in a very powerful position to take advantage of sort of near-term inefficiencies. Why not substantially bigger than the authorization that was made here?

Again, I think that's really -- that's part of our -- we are conservative in our balance sheet. We recognize that and that has been -- that is deliberately cautious. We see opportunities for the business going forward. We want to maintain that ability to act. So we're not looking to leverage up the balance sheet in any way. There is -- as you've seen in this quarter, there is a lot of beta in this industry and a lot of -- and Janus Henderson is a high beta stock. So we don't -- (inaudible) overleveraged. The $200 million authorization is something that we could work through. And should we be confident we've got true excess cash going forward, we can add to that in the future. That doesn't mean that's the only thing we do this year equally. We may find other opportunities over the year and spend the money the other way. But our expectation would be to do that $200 million buyback. And when you look at that, that's really the increased dividend and the $200 million buyback would represent around the vast majority of this year's earnings. So we're paying out -- our expectation is to pay out this year's earnings. You're right, we're well covered on our starting position. But like I said, that is a deliberately conservative policy.

Our next question comes from Alex Blostein from Goldman Sachs.

A little bit of a bigger picture question as well, and I'm not sure if you're able to answer before Ali ultimately starts. But -- how do you think the firm's strategy could broadly change over the next year or so? What will be the same? What will be different? And I guess what is sort of kind of like the near-term plans for the company in the interim as he joins and kind of get his feet wet in terms of what he wants to do?

So let me say, I think that's -- that will evolve over time. What will not change is our focus on delivering consistently strong investment performance and client service for clients. So that is the bedrock of what we look to do. There has been -- we've made a lot of progress over 5 years in delivering a combined business and an improved chassis, if you like, on the car. We've made some what we would say is some real tangible progress there, but I accept it's not really come through yet in the financial results. So obviously, we're going to be working closely and particularly me, working closely with Ali as to what that looks like and how that evolves over time.

Strategy that we've been on has been the right strategy, but no doubt that will evolve with a new CEO on board. But I think that's probably an evolution rather than a revolution. Ali joins in a month. He's met quite a few people in -- over the last couple of months just to say hello, that just gives him a great start and be able to be off and running as quickly as he can when he gets here as opposed to putting names to faces. So I think he's off to a great start. He's gone down very well with the people he's met. But obviously, we'll come back to you over the course of the next few earnings calls as we evolve the strategy and push the business forward.

Got it. Great. And a quick question just on the numbers. The management fee rate on the net fee rate margin, the way you guys describe it, I think it was 46.8 bps this quarter, down a little bit. It seems like due to mix. A number of moving pieces happening here, obviously, with INTECH out of the run rate, the large insurance mandate, albeit it sounds like it's a very low fee rate business, but also equity markets are coming down, and it's a high business. So any way to frame the jumping-off point for the second quarter on this net management fee margin?

Yes. So ex INTECH, the jump-off point is 49.4 basis points. So as you said, it's higher ex INTECH. And you've got all the pieces there, Alex. Our fee rate will be influenced by equity markets given that equity fees are higher. So should equity market continue to fall, then our fee rate will come down a little bit with that just because of mix. The buy and maintain mandate, yes, as I said, is large assets like very low fee, so that will actually improve the fee rate. And yes, we're starting to see some improvements coming through in. We've seen some sizable outflows in US mid and SMID over the last couple of years, as you've seen. The performance of particularly the enterprise fund, which is the Mid Cap fund, has been excellent, really excellent over the last, I guess, all of '21 and the first 4 months of this year. And we're starting to see those flows turn, again, that's high fee business. So that's an important one to come back. The European intermediary business, also higher fee business. That did slow in Q1, as I said, gross flows slowed on the back of multitude -- a multitude of reasons, as I said, that's an industry phenomenon. Should that continue, then we don't get the kicker from a higher fee European intermediary business. But again, that's been a real strength over the last year or 2. So hopefully, things settle down and we start to see positive flows again coming out of European intermediary.

Our next question comes from Robert Lee from KBW.

Maybe just a little bit on -- first one on the expense guidance and the comp ratio. So when we think about what's this quarter -- year-to-date, quarter-to-date returns, the comp ratio guidance still in that kind of low 40s range with -- how much flexibility do you really have in that? Obviously, there's variable comp related to profitability and performance. But should we really be expecting that the pressure just stays that we've had so far that, that comp ratio is going to -- at least will be towards the high end, the low 40s? Or should we really think that there's -- that this continues, it's going to really get to more towards mid-40s? Just trying to -- how you guys think about the real flexibility you have in managing that?

Yes. So you're right. A significant part of our comp cost is variable. About 40% of our total cost base is variable comp. So that naturally flexes. So that piece sort of looks after itself. The comp -- in Q1, you have to remember that there are some -- there's sort of some lumpy pieces U.S. payroll taxes, stock vesting -- that -- Q1 is always a higher fixed cost base and that works itself through to the other 3 quarters. So I think we're at 44% last year, we're at 42% this year. So the guidance of 42% comp ratio, given where we are with markets and what I've talked about, yes, I'm pretty confident with that as a comp ratio. We'll continue to manage the business tightly. So that comp ratio does stay.

Non-comp, as I said, Q1 was the other way around, Q1 was actually a relatively light quarter. We do expect to see increased non-comp in the remaining 3 quarters. But again, we will be reviewing that and being careful with it, but there are things that we want and expect to come through in the remaining 3 quarters.

Our next question is from Ed Henning at CLSA.

Just the first one. Look, you've talked about a strong balance sheet today. You've also talked about reducing scale of your institutional business. Can you just talk about the appetite for acquisitions to accelerate growth and gain some more scale in your institutional business? I know you've been growing ETFs and growing organically, but just interested to start with just about acquisition appetite?

Okay. Thanks Ed. I guess the first piece is the -- the most important thing for us is maximizing the value of what we've put together and what we've been building over the last 5 years. And we haven't fully done that, obviously, yet. But there are -- and we are a truly global firm and have the right geographic footprint in all client channels. But I guess you were asking specifically around the institutional channel. We've got an institutional business, which is established around the world, and we've been investing in that over the last 5 years. We're not short of capabilities or products, and we've got some really strong performing capabilities and products.

There are -- and we talked about this in Q3, I think it was. There are areas that we continue to look at, and you shouldn't be too surprised if over time, we do more in those areas. So they're more in investment capabilities rather than in distribution. So we've talked about potentially different -- some other areas in fixed income that we're not fully in yet. So we've talked about some other -- moving into some areas around in alts. So -- but again, that's all -- as Alex asked earlier, I think, that's all going to be part of an ongoing strategy. I think the most important thing for now is its very much business as usual. We continue to -- we're always looking at things. We look at a lot of opportunities. There are very few that are very, very good, and we only want to do the very, very good ones. So it's business as usual. We're looking at things as we always are now. And we'll continue to look at them when Ali joins in a month. So -- but like I say, the most important thing is maximizing the value of what we've got, and we'll continue on that road.

Okay. And just some mechanical questions just on the numbers. You talked about performance fees likely down year-on-year. Will that likely just trend through each quarter? Or is there a lump that potentially comes through in performance fees if status quo stays as it is?

Yes, we had a very strong Q2 last year. So that was -- that's -- again, it's difficult to project forward performance. It obviously depends on what performance is in the time period. But given what we see today, if we cut that today, Q2 would be a weaker -- a significantly weaker performance fee quarter than we had last year. There's 2 pieces in that. The first is the fulcrum fees we have on the US mutual funds. And as I said, we've got a couple of -- again, you can calculate this straight through, and we can take you through it. But we would expect that to be -- given current performance, if it was 0 (inaudible) between now and the end of the year, the fulcrum fees would be $60 million negative. And as I say, we -- again, just looking at what we see now in terms of performance fees, again, if we cut them today, the positive performance fees from our segregated accounts, from our SICAVs, which were very strong in Q2 last year, from our absolute return funds, from our OEICs would not offset -- not fully offset that $60 million. So again, it will be what it will be. Hopefully, performance is very strong over the rest of the year, and those numbers are a little bit better, but that's the -- that's what we can see, given the performance of where we are today. And as I just said, there was no (inaudible) between now and the end of the year.

Yes. And that's an absolute number, the dollar of performance fees is negative, not just down year-on-year?

Correct.

Our next question comes from Patrick Davitt from Autonomous Research.

One more on the expense. As we look kind of beyond this year, is there an opportunity for that to then step down when some of these big infrastructure buildouts are finished? Or is that kind of the new run rate once we get to the end of the year?

You always wanted to -- you always want that. So I'm -- yes. There are things we're certainly turning off. So as we modernize our infrastructure, there are systems that we're able to turn off and there are savings there. But the truth is we're continuing to -- there is more you need. There is more data, there is more cloud cost. So I think you probably -- this is really around leverage. As I said, we will continue to try and squeeze where we can be as efficient as where we can turn things off, et cetera. But I think really, we're talking about this being the run rate. And therefore, that's why it's so critical for us to grow this business organically because this is about leverage.

Got it. And then in the $82 billion institution number you gave, are there a lot of these kind of $5 billion plus mandates in that number? Just trying to frame the risk of this if it becomes a more common theme.

There are -- no, that's probably one of the biggest ones. I think we do have a -- we do have a sort of barbelled institutional business. We have a number of larger clients. This being one of them, like I said, probably one of the biggest and we have a very long tail of small mandates. One of the things we're looking at is trying to make sure that we're filling the piece in the middle as well. But yes, this will be one of the biggest. There's probably a couple of others in the 5 category, but with a very long tail.

Our next question comes from Nigel Pittaway from Citi.

Roger, just first of all, maybe just delving a little bit more into SMID and Mid -- you partly answered this already. But obviously, we've -- what was the quantum of outflows from those 2 strategies in the first quarter? And with the sort of Mid Cap turning (inaudible) in the month of March. I mean how confident are you now that those sort of flows are going to improve? Because it's something you've said before, but obviously, it's taking a while. So can we just sort of maybe delve into sort of a level of confidence as to where you're at with those 2 strategies?

Thanks, Nigel. So yes, it's -- we've seen some sizable outflows over the last 5 quarters. I think probably is when those outflows started at the beginning of '21 probably. I think in Q1, it's about $2 billion of outflows across Mid and SMID. That is -- and like I say, that was a tough performance period in 2020. The team have made back and a bit more, particularly on enterprise. The numbers are very strong. And we're now into positive territory over all time periods. So we're starting to have some -- you're always still concerned that, that is a great franchise and is starting to look really interesting for clients. So you've got to flow the outflows before you get to inflows. You've got to go through 0. That's something that hopefully will happen in the short run. But now the team are working hard on that, both the client relationship teams as well as Brian and Jonathan and the team is working on the investment side of that, who, like I said, delivered some fantastic numbers over the last 5 quarters. So we're pretty confident that's been a painful outflow over the last year or so. But I think we're seeing like at the end of the tunnel.

Okay. And then I mean it's been a common topic over the Q&A, but just back on the expenses. I mean, obviously, you've got lower expenses first quarter. So as you've highlighted, there's a fair bit of catch-up in the last 3 quarters. Yes, obviously, there's sort of mild average AUM headwinds and the markets are down, say, a bit already in 2Q. So at what point do you actually have to reassess that and say we really can't invest so much this year, given what's happening on the revenue line?

Yes. I think there's 2 sides of investment. There are things that we really need to do and want to do to ensure that we've got the best business going forward. And then there are things which are a little bit more discretionary. The discretionary pieces are things that we'll look at much quicker. Are there opportunities for us to be winning business? If the market environment is such that the opportunities are less, then we will spend less money in those discretionary pieces. But we don't -- we take a long-term view of the business. So a short-term market change, we will look at things tactically. If we believe that this was very strategically longer term, then we'd be taking a longer and deeper look. Sorry -- and that's what I say, we'll update that over the next quarter's call.

Our next question is from Brian Bedell from Deutsche Bank.

Great. And I appreciate you going through all of the (inaudible) Roger. Maybe just a couple of questions, so I'll try to keep it on the quicker side. Just back on the conversations with distribution partners, I mean your intermediary sales did hold up really well in Q1. So just trying to get a sense of is sort of there a risk to that sales number as we move into 2Q ahead of when Ali comes on board? And maybe what are those conversations? How are those conversations going? Or do you think it might be just maybe coming into 2Q, we may have just a headwind on the growth to value rotation in the market generally?

Yes, the conversations with clients are very good. The depth of relationship is really strong, particularly around our key and larger clients and the sort of focused list of products. So I don't think there's any -- there's no concerns there. As you say, we're pretty pleased. This is a large outflow quarter. It's painful. But there are areas where we're relatively pleased. Our fixed income franchise being flat in the first quarter is pretty strong. Europe has slowed down, but it's gross flows, and that's a market impact. If we can turn around US Mid and SMID, then that would be a strong answer going forward. So I think -- and the conversations we're having with clients about the firm and Ali joining are actually all very positive and gives us opportunities to talk to people. And we're starting to see some conversations which were defensive conversations, you were concerned about losing something and that conversation ends up with more money coming through the door. So again, that's -- I'm picking the positives obviously there. As I say, it's been a painful quarter. But we're continuing talking to our clients, that's the most important thing and delivering investment performance. So I don't think there's any change. But yes -- but obviously, we are very cognizant of the market environment and investor sentiment, and we are -- that obviously has a significant impact on our ability to deliver positive flows.

Okay. That's great color. And then just on -- maybe just on growth initiatives. You mentioned obviously the active ETF franchise continues to ramp up over $5 billion. Can you talk a little bit about -- I know you've also been growing your sustainable products. Maybe just give us an update on the ESG dedicated product lineup. And then any other organic growth initiatives, as you said, everything is sort of continue to the same playbook, obviously, as you wait for Ali to join. But maybe if you can just talk about any other major organic product development growth initiatives as well as the sustainable product?

So I think on the second piece first, we launched a lot of products in 2021. So as that matures, that's the real growth opportunity for 2022 is things we launched in '21. So we launched a suite of sustainable ETFs. We launched things like AAA and now a BBB CLO. That's -- the AAA is now $1.1 billion, raised $800 million in the first quarter. BBB launched in March, something like that in the Q1. It's seeing inflow. So there's some good areas there. We'll continue to look at that product pipeline. There are things we'd like to continue to do in '22. I think we launched 21 new products in 2021. So we've got a lot of things which are starting to mature.

On sustainable. We're doing a lot of work there. We've invested pretty heavily in our investment team, the core group around ESG has gone from 4 people to 15. In terms of product, we've got about 50 -- but that's still driven by Europe, although we are seeing -- we're seeing regulatory change in ESG is probably the fastest area of change at the moment, and you're working to some uncertain or moving -- or uncertain regulatory environment. So sort of level 2 pieces in Europe, which we need to be embedded by the end of the year. The actual rules are not going to come out until the end of June. So it's -- there's a lot of work going on. We've launched a number of Article 8 and Article 9 funds in Europe and expect to launch or convert some more over the remainder of the year. About 55% of our (inaudible) in Luxembourg is now either Article 8 or Article 9. Again, we've been pretty cautious on this, as you'd expect from Janus Henderson. We want to do this right and make sure that we've got the infrastructure and the reporting behind it to make sure that we're really confident that in exactly what we say we're doing, we are doing. And we have seen a couple of people being caught out on that. And I think the rules will continue to move, and we want to make sure that we're doing the right thing. So we're being cautious, but we're making some pretty significant investment in the [themes] and in the data and in the systems and reporting to make sure that our sustainable products are there. It's obviously a growth area. We've got a very long-term track record in that. We've got a global stainable product, which celebrated its 30th anniversary last year, Group Sustainable Equity. We launched that as a US fund over the last couple of years and in Australia last year. It's now about $3.8 billion. That's doubled over the last 18 months, probably. And we see that obviously is a specific strategy around ESG. But we're looking to make sure that we're doing the right thing across a broader range as well.

Our final question today comes from John Dunn from Evercore.

Maybe just a quick check-in on the strategy for growing all specifically. And earlier, you talked about maybe some inorganic ways to do it. So maybe just potential areas of interest and maybe how the competitive environment is winning those is currently?

Yes, there's certainly things that we do. So we're seeing some real success in a couple of areas I'd call out. So our biotech innovation hedge fund has grown pretty significantly over the last year or so since it was launched. Our multi-strat product is one of those ones which is not going to offset in AUM terms that buy and maintain mandate, I told you about. But in revenue terms, it's a very different pricing point. So winning $50 million and $100 million tickets in multi-strat is something that moves the dial on the revenue side. So we've got all the capabilities. We've got a long tenure and successful absolute return fund range in Europe as well that is continuing to do what it's supposed to do. And again, we hope and expect that to gather assets over time.

So we've got an alts business. But there are areas that we continue to look at where we may do -- where we may add to that over time. So nothing specific to talk about here. We're not about to close anything. But there's always interesting things to look at, particularly probably in the less liquid end of fixed income.

Okay. Well, thank you all for your time today and for the questions. If there's any follow-ups, then please do let me or the IR team know. Good to talk to you today. I very much look forward to doing this call with you with Ali in 3 months' time. Thank you.

That concludes today's conference call. Thank you all very much for joining. You may now disconnect your lines.