Janus Henderson Group plc (JHG) Q2 2017 Earnings Report, Transcript and Summary

Good morning. My name is Lauren, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Second Quarter 2017 Earnings Conference Call. [Operator Instructions] In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in the 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. It is now my pleasure to introduce Andrew Formica, Co-Chief Executive Officer of Janus Henderson. Mr. Formica, you may begin your conference

Welcome, everyone. Today, we are pleased to be presenting the very first earnings presentation call for Janus Henderson Group. The presentation today has 3 sections. First, I'll take you through the business results for the second quarter 2017, covering the current sentiment we're seeing in the market as well as the investment performance and client flow results. I'll then hand it over to Roger to review our financial results in detail. And after that, Dick will give you all an update on merger integration and the progress we are making on realizing the benefits we laid out as part of the Janus Henderson merger. And following that, we'll be happy to take your questions. Now before I get started, just for ease of purpose, we'll be showing most of the numbers in my section talking about the pro forma adjusted basis, whether it's on the financial numbers or it's on investment performance or in flows, and it probably makes a better comparison for you all. With the merger having only completed at the end of May, it would otherwise make the numbers fairly difficult to follow if we didn't do it on a pro forma basis. With that, turning to look at the summary for the quarter's results. The story of the second quarter can really be considered in 3 areas: first, the key areas of both investment performance and net client flows are solid and showing improvement from prior quarters; second, the financial results are strong and demonstrate the leverage we have as a larger and more diverse firm; and third, integration efforts are proceeding successfully, and we're delivering on the cost synergy targets that have been established. Looking at investment performance. As at the end of June, 71% of firm-wide assets were beating their respective benchmarks over the 3-year time period, a notable improvement from where we began the start of the year. With respect to net flows, while total group net flows were still negative for the quarter, we were encouraged by the significant improvement quarter-over-quarter, driven by positive Equity flows and a moderation in redemptions, most notably in our Quantitative Equity business, INTECH. Total group assets under management as at the 30th of June was $345 billion, which represented a 4% increase quarter-over-quarter and 8% increase year-over-year. The second part of the story for the quarter is the strength of the financial results. Second quarter pro forma adjusted earnings per share of $0.68 compared favorably both in a quarter-over-quarter comparison and a year-over-year basis. This is driven by strong management fee growth, near-record level performance fees and good expense management. Roger will get into those details and explain the quarter-over-quarter change a bit later in the presentation. Additionally, we were pleased to announce that the board has declared the firm's first quarterly dividend of $0.32 per share. On a relative basis, this compared to a pro forma dividend of $0.24 per share that was declared by Janus and Henderson independently in the first quarter. The third thing to the quarterly story is the ongoing integration of the firms and the progress we are making towards realizing the cost and revenue synergies that we have previously outlined. I will note that 2 months ago, we announced the completion of the merger to form Janus Henderson Group, a significant achievement in our history. We are pleased that the integration so far has been successful, and this success has been a direct result of the strength of our employees, who have worked tirelessly over the past several months to bring our teams together. None of this would have been possible without the dedication, hard work, problem-solving acumen and the collaboration of our employees all across the globe. Whilst there's still much to do as we fully combine the businesses, I am very proud of what the teams have accomplished. In addition to the progress we've made on the integration front, we have also made good progress towards realizing the synergy targets we laid out when we announced the transaction, and Dick will speak more about that later in the presentation. So with that said, let's take a look at some of the elements in the market and across our industry that are having an impact on our business. As you all know, we've seen ongoing strength across the global markets, which has positively impacted managers across the industry, including Janus Henderson. Year-to-date, the S&P 500 was up 9%, reaching new record highs, and also many of the global and emerging market indices are experiencing similar and, in some cases, stronger results. In the U.S., one of the other trends that is playing out this year and positively impacting our business and investment performance has been the outperformance of growth versus values. As at the end of June, the Russell 3000 Growth Index was up 14%, and this compares to a 4% increase in the Russell 3000 Value Index. Lastly, in addition to the strength in the equity markets across the globe, we are seeing good returns in the fixed income market with the Barclays Aggregate up 2.3% year-to-date. Looking at broader flow trends that we are seeing across the industry. U.S. Mutual Fund flows continue to be dominated by passive funds as active equity flows among U.S. Mutual Funds actually posted annualized organic loss of 2% in the second quarter. However, despite this ongoing pressure, active funds with strong performance, distribution presence and a strong client focus are continuing to attract net inflows. At Janus Henderson what this means is that despite the strength of demand for passive funds, in the second quarter, we saw organic growth across a number of our largest equity funds, and these include the Enterprise, Global Tech, Global Equity Income, Research, Triton, Forty and our Emerging Market Fund. It's quite a diverse collection of funds, including funds from both legacy Janus and legacy Henderson. Lastly, it goes without saying that we, like the rest of the industry, continue to be evaluating the ongoing changes being laid out by the various regulatory bodies across the globe as well as monitoring the impact of the U.K.'s exit from the European Union. With respect to that and Brexit, with the end destination and arrangement still up in the air, it is a bit challenging to know what specific impact it will have on the asset management industry and, therefore, on Janus Henderson. However, we believe that we're in a good position on an operational basis, and we also have funds based out of both Luxembourg and Dublin so we do not have to start from scratch in order to continue distributing in Europe in a post-Brexit world. Second on the list is MiFID II, which is clearly top of mind across the industry, particularly in the U.K. and Europe, as companies evaluate the impact that this new regulation will have on our businesses, and particularly on the treatment of research commissions. At Janus Henderson, we have devoted a significant amount of resources over the last 2 years to evaluating new requirements under this change. Today, whilst we do not pay [ hire ] for research and the systems and processes allow us to continue that approach from the 1st of January, we will continue to evaluate the situation, and most importantly, we'll be listening to what our clients need. Third, the final findings of the FCA asset management market study were largely as expected, and we strongly support the FCA's objective of ensuring our clients are served in a competitive, accountable and transparent manner. We're analyzing and evaluating the proposals in the accompanying consultation paper from the FCA to assess the possible impact on Janus Henderson, though we don't expect any change to previous comments we have made on this. Lastly, shifting to the U.S. market. With the implementation of the DOL Fiduciary Rule currently midstream, our deep roster of intermediary clients will be significantly impacted by the standard, and it has been our intent the last 3 years to assist these clients as they navigate the proposed landscape. At Janus Henderson, we continue to evaluate products and [ adoptions ], primarily through [ shared cost ] enhancements, to suit the needs of our clients. So we move on to Slide 4, investment performance. On this slide, we have put together some new summary investment performance metrics that outline the percentage of our firm-wide assets under management as well as each capability that is outperforming its respective benchmarks over the 1-, 3- and 5-year time periods. Since this is the first time we're presenting this slide for Janus Henderson, there are a few important items here to note. First of all, this disclosure captures approximately 96% of total firm-wide assets, making up a very representative sample of the performance for the firm, and the results reflect performance [ growth of fleet fees ]. We have included the history of the investment performance in the appendix for your reference. Also in the appendix, we've included the breakout of the percentage of our retail assets under management that are in the top 2 Morningstar quartiles, which is done on a net fee basis. So if we turn to the results that are shown on this page, as I mentioned on the outset of this call, investment performance has improved on a firm-wide basis since the beginning of the year, and this is a testament to the strength of our investment teams. As at the 30th of June, 69%, 71% and 89% of firm-wide assets were outperforming benchmarks over the 1-, 3- and 5-year periods, respectively. This result compared favorably to the end of 2016 when we had 40%, 56% and 77%, respectively. Now let's look at performance by capability. In our Equity strategies, we saw some significant improvement. As at the 30th of June, 68%, 77% and 84% of firm-wide Equity assets were beating benchmarks over the 1- and 3- and 5-year periods. This compares to 30%, 57% and 74% at the end of December. The most pronounced change was on a 1-year basis, which saw an improvement of 38 percentage points, driven by outperformance in the Continental European Equity Selected Opportunities, U.K. Balanced Cautious, SMID Cap Growth and global research strategies. If we now look at INTECH under our Quantitative Equity business, the numbers on this slide do not quite tell the full story. But after serious underperformance in the second half of 2016, we're pleased to report that in the second quarter, INTECH had another strong quarter of investment performance. On a year-to-date basis, which is admittedly a very short-term period of time to consider, 100% of its strategies are outperforming their relative benchmarks. Six months of outperformance does not fully address the challenges INTECH faces, but it is a good start. One other point I'd like to call out on INTECH before moving on is the 3-year result. As at the end of June, 48% of the assets were outperforming their respective benchmarks over the 3-year period. Although this end result is not where we need to be, it is a meaningful improvement compared to the prior quarter when it was only 12% of assets beating their respective benchmarks. The marked change quarter-over-quarter was driven by the U.S. Enhanced Plus strategy, which is INTECH's largest strategy at approximately $10 billion, which is now outperforming its benchmark. We're pleased INTECH has posted a strong recovery so far in 2017, but recognize the need to consistently deliver results over the long term. We remain confident in its investment process and its ability to generate positive results for our clients. Now moving on to client flows. On Slide 5, we've laid out the historical quarterly growth and net flow results for the total group over the last 6 quarters. As you can see, in the second quarter, total group net outflows were $1 billion, which represented an improvement of nearly $6 billion from the last quarter and an improvement of $900 million from the similar period in 2016. As an organization, Janus Henderson is driving towards achieving outpaced organic growth and market share gains. So this aggregate result is not where we'd like to be, and we have more work to do. But we are encouraged by the near-term progress. As you can see in the graph, the quarter-over-quarter change was driven primarily by a 20% reduction in redemptions. We saw the biggest quarter-over-quarter improvement among our Equity and Quantitative Equity capabilities, and I'll get into further details around the driver of each capability on the next slide. On a regional basis, the strongest region of business in the second quarter was EMEA, which had $2 billion of positive net flows during the quarter compared to $1.3 billion outflows in the first quarter. The quarter-over-quarter change was driven by a 28% reduction in redemptions and continuing healthy gross sales. Looking at the total group flows by client type for the quarter, we had modest outflows in each of the 3 channels: intermediary, institutional and self-directed. Moving on to the flow picture by capability, which is set out on Slide 6. On this slide, we have outlined to you the second quarter flows by capability. As Janus Henderson, we'll be primarily using these 5 capabilities to discuss the business going forward, and further details on this can be found in the appendix. Looking at the Equity business, which is the largest capability in terms of assets with over $170 billion as at the end of June. In the second quarter, net flows saw significant quarter-over-quarter improvement, going from $2.4 billion of outflows in the first quarter to $1.2 billion of inflows in the second quarter. Quarter-over-quarter, this improvement was a result of a 28% increase in gross sales and a 13% reduction in redemptions. Strategies that saw the largest net flow improvement compared to the first quarter included the all-cap Global Growth, Pan European, Continental Europe and Global Life Science strategies. Net flows in the second quarter represented an annualized organic growth rate of approximately 3%, and this is encouraging given the pressures that active managers across our industry continue to face. During the second quarter, we were pleased we had positive Equity net flows among our intermediary clients in both the U.S. and in EMEA as well as institutional clients in EMEA. Looking forward at the prospects we see for our Equity business, we are seeing retail clients in Europe, particularly in Continental Europe, looking to increase equity exposure as election results from earlier in the year have removed some of the macro uncertainty from the market. And in the U.S., we are seeing growing demand among intermediary and institutional clients for more global, international and emerging market exposure. Moving to Fixed Income. In the second quarter, this business had approximately $900 million of net outflows, and this compared to $300 million of inflows in the first quarter. This quarter's result did include the loss of one large mandate from a U.S. client, which totaled $1.5 billion, and this has driven the majority of the quarter-over-quarter change. Outside of this mandate loss, we saw modest inflows across the U.S., Asia Pacific and EMEA into strategies, driven by net flows into the Absolute Return, Global Unconstrained and Strategic Bond strategies. Looking at the Quantitative Equity capability, which is made up entirely of INTECH's business, we saw a material improvement quarter-over-quarter in net flows. However, the business does remain in outflows. Total net outflows for the second quarter for INTECH were $1.8 billion. This compared to $3.7 billion in the first quarter. The improvement was driven by the absence of 2 large losses that we saw in the first quarter, which totaled $3.3 billion. Despite the absence of these losses, I do want to highlight that we did have one [indiscernible] opportunity in the second quarter that was $1 billion. Going forward, with a larger institutional base of clients, it is difficult to predict the future for INTECH's business as we know wins and losses will be lumpy. Today, the business is not where we'd like to see it, but investment performance has continued to improve, flows are following suit, and we're optimistic about the opportunities for this business. The Multi-asset capability had approximately $29 billion of assets at the end of June and, in the second quarter, had approximately $400 million of net outflows, which is a slight improvement from the $600 million of outflows that we saw in the first quarter. The Alternative capability, which had a little over $18 billion of assets at the end of June, had some very good growth in the second quarter, driven by some significant flows into the U.K. Absolute Return strategy, which has posted very strong performance, partially offset by some modest outflows from the property fund. In the second quarter, the Alternative capability had approximately $800 million of net inflows compared to net outflows of approximately $600 million in the first quarter. So summarizing what we saw in terms of business results in the second quarter, investment performance on a firm-wide basis is showing a notable improvement from the end of the last quarter and where we began the year. This improvement is most acute in our Equity business across the 1- and 3-year periods and also in the year-to-date results shown at INTECH. While total group net flows are still negative for the quarter, we are pleased that we have positive organic growth in the Equity and Alternative businesses, and we're encouraged by the significant improvement we saw in the flows at INTECH. With improving investment performance and the strength of our global distribution, we are optimistic about the opportunities we see in the pipeline for the balance of this year and into 2018. With that said, I will turn it over to Roger to take you through the financial results.

Thanks, Andrew. For those of you following along the deck, I'm going to begin on Slide 8. Now we've closed the merger, we know it's important to better understand how the firm's going to report its results and what those results will look like. I am to address this today. Given the requirements of U.S. GAAP, the second quarter's results are likely to be a bit confusing to get your heads around. So before diving into the results, I want to take a moment to orientate you all so that you can better understand the multiple pieces of disclosure. Our second quarter results contain 3 views of the financial results. The first is a disclosure of U.S. GAAP, which consists of 3 months of Henderson results and 1 month of Janus results. Remember, for accounting purposes, Janus was merged into a newly created subsidiary company at Henderson, and the holding company was renamed Janus Henderson, which is why only 1 month of Janus results were incorporated in this view. This view, in accordance with the U.S. GAAP, includes all merger-related integration and deal costs incurred in the period. The second is the pro forma U.S. GAAP disclosure. This view shows the combined results of Janus Henderson as if the merger had taken place at the beginning of the quarter. This view also includes all the integration and deal costs that were incurred during the second quarter. And third, the pro forma adjusted non-GAAP disclosure. This view starts with the pro forma U.S. GAAP figures and adjusts for certain items to present what we believe is the best way to think about the ongoing operations of Janus Henderson. The adjustments consist of the following items. First, operating expenses are adjusted to exclude the following: integration of deal costs related to the merger, intangible amortization of the investment management contracts, acquisition-related earn-outs and contingent consideration, and gains and losses on the disposal of operating business. And secondly, distribution expenses are netted against revenue. This is done because we believe that the deduction of third-party distribution expenses from revenues reflects the nature of these expenses as revenue-sharing activities as these costs will pass through to our external parties who distributes and perform functions on behalf of our products. So we call these adjusted results our alternative performance metrics. As Andrew said, this is the view we're going to use to discuss the financial results going forward. In order to provide you historical comparability, we published historical results from the last 5 quarters on this basis via an 8-K on the 19th of July, which I hope you found useful. So based on what I just outlined, Slide 9 provides a table of the second quarter operating results under the 3 views. I note that view 2, the pro forma U.S. GAAP results, includes deal-linked and field and integration costs of $101 million for the second quarter. I'll get into the line item details of that later in the presentation. Now turning to Slide 10, I'll look at a few of the financial highlights. As you can see on this slide, our second quarter adjusted financial results were strong. Buoyed by healthy market returns and strong alpha generation, average AUM in the second quarter increased 3% quarter-over-quarter and 5% year-over-year. Total pro forma GAAP revenue was $566 million, which was 16% better than the previous quarter. Adjusted revenue, so net of distribution expenses, was $482 million, which is 19% better than the previous quarter. I'll talk to the revenue drivers in more detail in a few moments. Adjusted operating income of $200 million was 39% over the first quarter results, and the adjusted operating margin for the quarter was 41.4%. Finally, adjusted EPS for the second quarter was $0.68, up 36% from the $0.50 in the first quarter. As I'll explain over the next few slides, second quarter revenues included near-record level performance fees and expenses that were running a little below normal levels. So unless those repeat, we wouldn't expect this level of EPS to repeat in the third quarter. On Slide 11, we have a look at the top line drivers. As I mentioned, total adjusted revenue increased by 19% over the prior quarter. This increase was driven by higher management and near-record level performance fees. The net management fee increase was the result of higher average assets, coupled with a higher net management fee margin for the quarter at 44 basis points compared to 43.6 basis points on a pro forma basis in the first quarter. The slight expansion in net management fee margin in the quarter was the result of a mix shift in the business. The other significant driver of the revenue increase was quarterly performance fees of $52 million, which represented a $51 million increase quarter-over-quarter. I've broken this out for you between the fulcrum fees on the U.S. Mutual Funds and all other performance fees in the table on the bottom left of the slide. Since we have a diversified mix of funds with performance fees, I wanted to give you a little bit more insight into what drove the fees in the second quarter, and I've done this on Slide 12. We have performance fees on a broad range of funds and accounts. In the second quarter, performance fees were generated on 72 different funds and accounts, which collectively have $65 billion in AUM. Before walking through the individual parts of performance fees, I wanted to point out that in the second quarter, we have a disproportionate amount of AUMs that pay performance fees, especially in the SICAV product range. So while the levels experienced during the quarter are not unrepeatable, they are much higher than you would expect for future quarters. Breaking the fees down into pieces. The performance fees from SICAVs for the second quarter were $30 million compared to $8 million in the first quarter. The increase was a result of second quarter seasonality in our long-only SICAVs, which pay annual performance fees in June and, this year, had a performance carryforward from 2016 as a result of performance being below their absolute high watermark a year ago. Additionally, this slide reflects strong performance from the Gartmore U.K. Absolute Return Fund, which has the quarterly performance fee cycle. Second, performance fees on the OEICs and Unit Trusts in the second quarter were $14 million compared to $3 million in the first quarter, driven by strong performance in the U.K. Absolute Return Fund. Third, performance fees in the Investment Trusts product range during the quarter were a little over $8 million compared to 0 in the first quarter. Again, this was driven by second quarter seasonality from funds that pay an annual performance fee in May. Private Account performance fees in the heritage Janus accounts were $5 million in the second quarter compared to the negative $500,000 of the prior quarter. Lastly, the U.S. Mutual Fund performance fees, which are fulcrum-based and can be positive or negative up to 15 basis points, depending on rolling 3-year performance relative to a benchmark. Reflecting the improved performance Andrew just talked about, we had a negative $8 million in the quarter compared to a negative $13 million in the first quarter. The improvement quarter-on-quarter was driven by several funds, but most notably, the Research, Forty and Mid Cap Value Funds. While still negative, the quarterly result is the best figure since the third quarter of 2015. Whilst we can't predict future performance fees as they are performance-dependent, the takeaway from this slide is that the third quarter and the fourth quarter do not have as much AUM subject to performance fees. So all things being equal, we'd expect to see a lower amount in the second half of the year. In the appendix, you can also see the historical performance fees for the prior 5 quarters. Moving on to operating expenses. There's lots to address on this slide, so let's start with the adjustments that have been made to the results. The second quarter had multiple adjustments coming out of operating expenses, which are associated with the deal and integration, as well as some non-deal costs, so let me walk you through each piece. Firstly, employee comp and benefits are $25 million of cost adjusted, which included $24 million of severance costs associated with the merger and approximately $1 million associated with earn-out payments for a prior acquisition and other non-deal items. Second, LTI was $13 million adjusted, which was the result of the acceleration in prior grants from departing employees associated with the merger. Marketing had $14 million of adjustments, largely associated with the proxies for the U.S. Mutual Fund merger. Fourth, G&A had $50 million of total cost adjusted, which included $49 million of costs associated with the merger, including legal fees, bankruptcies and other deal-related costs. And lastly, depreciation and amortization had roughly $8 million of adjustments, which are not deal or integration costs, but reflect intangible amortization of the investment management contracts. In total, and excluding the netting of distribution expenses in revenues, $111 million of adjustments, $101 million associated with deal and integration costs, which are part of the $65 million of deal costs, and $185 million of integration cost that we previously talked about, so $250 million in total. So far, we realized approximately $160 million of the anticipated $250 million in total costs. After these adjustments, adjusted pro forma operating expenses were $283 million, which is an increase of 8% over the first quarter of $262 million. Now looking at the pieces of the adjusted operating expenses. LTI was up roughly $13 million or 39% quarter-on-quarter. The drivers were the annual grant to employees of legacy Henderson at the end of March and the impact of the legacy Janus LTI as the firm changed its amortization approach to a graded basis from a straight-line basis, leading to larger upfront amortization amounts on grants. [indiscernible] for you, the adjusted pro forma compensation ratio for the second quarter was 43.2% compared to 47.8% in the prior quarter. The decline in the ratio quarter-on-quarter was primarily a result of higher revenue and relatively flat compensation, which reflects the impact of syncing up programs across the organizations as well as a slight shift in the cash/noncash mix. Noncomp operating expenses for the second quarter saw modest increases quarter-over-quarter as the organization gets back to a more business-as-usual effort following the closing of the merger. Looking forward, we'd expect to see noncomp expenses approximately 5% higher in the second half of the year than what's -- compared to what we experienced in the first half. Dick will discuss the cost synergies that we've executed thus far, but given that most of these were associated with the savings from the reduced combined headcounts, most of which took place following the closing of the merger on May 30, there isn't much impact in the second quarter's results from synergies. We expect to see that impact in the cost going forward. Turning to Slide 14 and a view of how the second quarter adjusted pro forma profitability results compare to recent quarters. As you can see, the current quarter represents strong relative results compared to prior quarters. Adjusted operating income in the second quarter was $200 million, a significant increase quarter-over-quarter and year-over-year. I do want to caution that this level of profitability is being driven by the 2 fundamental factors that I've already spoken about, which we don't anticipate repeating in the third and fourth quarters, at least to the same magnitude, that's performance fees and the artificially low run rate of operating expenses across the business due to the focus on the merger. What all this means for the balance of the year is that at our current AUM level, I'd expect to see our adjusted operating margin for the third and fourth quarter come down from the second quarter levels and will likely be in the high 30s. Second quarter EPS of $0.68 compared to $0.50 in the prior quarter and $0.47 a year ago. EPS growth was driven by the growth in the operating income, an effective tax rate of 28% on adjusted income and a weighted average diluted share count of 200 million. Shifting to Slide 15 and the balance sheet. One of the many benefits of the merger was the further enhancements of the already strong balance sheets that each firm had independently, and the chart depicted on this slide demonstrates that nicely. At the end of June, Janus Henderson had total cash and investment securities of $1.3 billion, and we are in a strong net cash position. Prior to the merger, both Janus and Henderson had similar views on maintaining a strong balance sheet, and the combined firm embraces that same belief. As a firm, we expect to operate with minimum levels of debt and we prioritize meeting contractual obligations and reinvesting in the business before considering the return of capital to shareholders outside of the regular progressive dividend. As we bed down the merger, we're at a near-term period of time in which cash needs are a bit elevated as we integrate the business. However, we know this business has the potential to generate significant cash flows over time. As we get through this period of near-term cash needs and begin generating excess cash, we will then evaluate and balance the ongoing investments that the business requires with the external opportunities we see and, of course, returning excess cash to shareholders. In this context, the Board of Directors approved a $0.32 per share dividend, which will be paid on the 1st of September to stockholders of record at the close of business on the 18th of August. With that, I'll turn it to Dick for an update of our integration efforts

Thank you, Roger. With 2 months passed since the close of the merger, I want to update you on how we're progressing. I want to address 3 areas: first, integration; second, progress against the cost synergy target we had laid out; and third, areas where we see revenue growth opportunities and future revenue synergies. Turning to Slide 17. Here, we present, on the left side of the page, preparations ahead of completion of the merger. And I think it's worth just going back and reminding ourselves how much extraordinary work was done in the months leading up to that date. We launched the brand, Janus Henderson, very effectively on day 1 across a huge range of communications, websites, et cetera, focused on the ethos of knowledge shared, which is, of course, the successor to that same concept developed by legacy Henderson, and we think it's terrific for the new company. We rebranded 10,000 items of literature, 4,000 fact sheets, 330 or more institutional client reports. We redid over 70 websites and, in a single weekend, rebranded and consolidated across 27 offices. It was truly extraordinary. And let me echo Andrew's comments at the start, thanks and tremendous appreciation for this excellence and giving our new company such a wonderful start. So thank you, all those employees who did that, really terrific work. So where are we today? On the distribution side, teams are engaging with clients around the world, leveraging the broadened product set. We've had exceptional training go out to teams in each region, and we're getting to work on educating our clients on the enhanced opportunity sets available to them. In investments, our investment professionals are collaborating daily, which will be incredibly important in creating a world-class investment platform. Our portfolio managers are roadshow-ing globally through the second half of 2017 to get out and meet our clients. Looking at our trading platform. By the first quarter of 2018, we're seeking to have a single, integrated trading platform for our investors. Looking at other infrastructure, also by the first quarter of 2018, we're seeking to finalize our middle and back-office platforms. So what's the takeaway? A tremendous amount of work has been done, but a lot remains. We're progressing well towards a fully integrated firm. Turning to Slide 18. Let's talk about cost synergies. As of June 30, we have already realized $57 million in annualized run rate cost synergies, primarily from reductions in headcount, as Roger mentioned. We now anticipate approximately $85 million of annual run rate synergies will be realized in the first 12 months following the merger, which is an increase from the $80 million we previously stated. We are reaffirming the at least $110 million in annualized run rate cost synergies by the end of year 3. Turning to Slide 19. Let's look at the revenue growth opportunities and the revenue synergies that we're hoping to realize in the future. We think of these opportunities in 3 stages. First, and coming most quickly, our great partners and owners at Dai-ichi Life have funded $350 million already into 2 legacy Henderson strategies, Global Growth and European Corporate Bond. Stage 2 is cross-sell opportunities, and this is what we're working on currently. Enhanced distribution strength is obviously at the heart of this merger. And with our nearly 600 distribution staff worldwide, we can leverage opportunities that didn't exist before. Some examples of this include: We can sell Global Equity Income or international opportunities more effectively through our enhanced U.S. intermediary channel than legacy Henderson was able to do previously. We're able to take existing products and launch them in alternative vehicles. For example, our Global Life Science strategy can be repackaged and made available to U.K. clients as a local OEIC. Third, the combined firm has additional sales resources where the legacy firms had gaps. As an example, we now have an enhanced European institutional sales force to be closer to our clients and build better relationships around Continental Europe. Looking at Stage 3. This is the stage that we would expect to take years, to take the most time, but the work that you do now creates those possibilities in the future. So we don't expect to have too much to announce too quickly, but rest assured, we're hard at work. An example of current developments, at INTECH, we're beginning to offer a new Absolute Return strategy, a long-short equity strategy, as a new product. So summing up Page 19, Slide 19, it's going to take some time to deliver on the revenue synergy aspirations that we have, but we're off to a good start, and we must say particular thanks to our great partner and owner, Dai-ichi Life. Turning to Slide 20. In conclusion, let me sum up the quarter as I see it. First, and most importantly, we're seeing improved investment performance, and the strength of our global distribution teams working with that improved investment performance gives us optimism around the potential for our very bright future in the second half of 2017 and beyond. Second, total group net flows have improved significantly. They're still negative and they're not where we need them to be, but we're pleased with the organic growth shown in the Equity and Alternative businesses, and we're encouraged by the dramatic improvement at INTECH. Third, the financial results are strong, and they demonstrate the leverage we have as a larger and more diverse firm. Fourth, we feel that we are in a good position to deliver on our promises that we made as part of the merger. We are realizing that cost synergies that we described. We are working well towards an integration, and the execution has been successful so far. And we're on track, we believe, and hope to realize revenue synergies over the coming years. We're very encouraged by what we're hearing from our clients. So we look forward to keeping you apprised of the progress we're making as we go forward. With that, let me turn it back to the operator for questions.

[Operator Instructions] Our first question comes from Michael Carrier with Bank of America Merrill Lynch.

Roger, maybe first one, I just wanted to make sure I heard you right on some of the things in the second quarter versus the third and fourth quarter. So I get the performance fees normalizing a bit and the non-comp expense normalizing a bit. I guess on the $57 million that you guys realized in synergies, was that mostly in like the second quarter in terms of a full run rate? Or is that going to be fully in like the third quarter? Meaning, is comp more of a downward bias or upward bias given that run rate?

Yes, thanks, Michael. Yes, the majority of it is the savings we made were, obviously, on merger, and people left us in -- at the end of May or in early June. So majority of that is still to come through.

Okay, got it. And just as a follow-up for any of you guys, I guess just on the flow picture, significant improvement quarter-over-quarter. I mean, you gave a lot of clarity there. I guess when you're talking then either through with the clients and just given that the integration is ongoing, any indication on the outlook either for demand on the positive side just given the improvement that we've seen in performance over the past 6 months, some increased demand on the European side, but maybe on the negative side, just as you go through integrations and clients being a little more hesitant? So I know it's always tough to predict, but just any insight on what you're hearing from the clients and then the distribution side given the progress?

Thanks, Michael. It's Andrew here. Couple of things. I think as we moved through the quarter with the merger actually completing, the noise about talking to clients about the merger, the proxy votes and all that passed and we moved into being able to talk about the investment process, the investment strategies and our outlook for the market. So that was sort of part of the improvement. The -- we had, had some redemptions where we effected investments teams that were more in the sort of fourth quarter or first quarter -- fourth quarter last year, first quarter this year. And obviously, we -- we're through the majority of that because we were very up front. We -- where there was any overlap in the investment teams. You also had, obviously, the improvement in investment performance with INTECH, and INTECH has been very good at communicating to their clients. So that's all -- that improvement. And you also saw a sentiment shift, particularly in Europe, where as you moved through the first half of this year, the fact that the election results have been much more towards the traditional parties or in pro-business, less extreme parties. You've got still greater confidence return to just people investing generally, of which we benefited through a number of our product sets. On -- in terms of the ongoing negatives, you obviously still have -- some of the consultants will probably wait through the rest of this year before they take off our -- any sort of watch that they have on the firm. That doesn't affect a lot of institutional clients we talk to. But it will infect some, and that will take a little while to be removed. And as we highlighted, the shift towards passive, particularly the U.S. market, continues to be at elevated levels. So whilst strong performance and good relationships helped in some products, it's still a tougher market in the U.S. for active versus passive flows still today.

Our next question comes from Andrei Stadnik with Morgan Stanley.

Just wanted to ask couple of questions. First one, just a quick one on synergies. The pathway from $57 million run rate to $85 million at the end of 12 months, is that likely to be in a straight line? Or is this still going to be accelerated with more of that pickup coming in the earlier quarters?

It's probably a relative straight line. And there's things we're continuing to do more on the non-comp side. But I think straight line is probably as good as anything else.

Good. And then just in terms of the feedback from Dai-ichi and [ Deutsche Bank's ] clients, can you talk a little bit about what kind of flows might have come in during this quarter? And also, the Henderson funds are new at -- to the Dai-ichi distribution vehicle. What kind of feedback are you getting on those funds and opportunity for them?

Andrei, Dick Weil here. I missed the second part of your question. Let me hope Andrew heard it and he can cover for me. I'll answer the first part around Dai-ichi. Dai-ichi's original investment, which we highlighted in the comments on this call, happened in the first quarter. And so they're not in this result. So there's no significant Dai-ichi investments in the flow results in this quarter.

And what do they like of Henderson products, Dai-ichi.

Oh, what do -- what do Dai-ichi like of Henderson products and -- is apparently the second question. I think we have to understand that for the most part, Dai-ichi invests kind of with an insurance general account. That's their biggest pot of money. And like most insurance companies, the combination of regulation and accounting means that their first instinct, their first need is always going to be on the Fixed Income side. So there's always a bias there. But they've been good about investing in some of our Equity products. And so those -- and even have started to take a look at some excellent return in alternative products. So I don't think we can be overly specific. But right now, as at the end of June, they had 45% invested in Quantitative Equity, 41% in Fixed Income, 14% in Equities and maybe 1% or so in Alternatives. It was their end-of-June mix. And they continue to be great partners and look at a lot of stuff, and so we'll just see how it develops.

Our next question comes from Kieren Chidgey with UBS.

It's Kieren Chidgey here from UBS. Roger, I just wanted to go back to some of the comments you made around costs. And just looking at the staff comp ratio in particular, it looks like it was about 43% in second quarter, down from around 47% last year and in first quarter. Is that largely a function of the performance fee outcome in the quarter plus, obviously, the initial staff-related cost synergies coming through? Or is there a slight downwards bias to staff comp ratio levels under the new combined entity?

Now it's 3 aspects. It's the first 2 you've talked about. So strong revenues obviously helped there. The synergies we're making in the business. And there is a slight true-up between Q1 and Q2. So putting -- the average of those is probably sort of where we're headed for this year.

All right, okay. And also, just on MiFID II, just can you confirm sort of the approach there? I think Andrew was suggesting the approach is to take it through [ CSIs ], running it through the P&L. But just interested in your commentary on where you see peers moving in that regard and sort of how confident you are that that's a sustainable position.

Yes, Kieren, it's Andrew here. The -- look, I think as it stands today, the rules and the way we can apply them and the systems we have mean that the policies and principles we've adopted in the past can be adapted to continue, which means that we can -- through transparency and disclosure, we can continue to use the [ research ] budgets that we set up and to pay that. There is a lot of talk out there about where the clients are demanding changes. Or somehow, you see some competitors come out with the decision that they will go [ hard ]. Obviously, we evaluate and watch this space. If there's any change that develops from that, we would let you know. But as it stands today, it's our belief and our working assumption that we can continue through the rules to adopt our systems, to take it [ hard ], and we don't intend to change the position we have.

All right. Is there any delta on the admin costs? Or just given the prep costs you've been absorbing over the last year or 2, should we expect sort of fairly minimal delta to come through?

Yes. Look, I think we've said in the past that the MiFID II implementation costs, which are just the research of the whole remit of reporting you have to do, we're quite -- we're around sort of GBP 10 million for the group level for this year. You -- so over the life of the -- yes, we'll -- that will continue into 2018, those costs. And if you think that all of that will lead to a reduction going forward, you have to assume those other regulatory changes will absorb that. So my working assumption is that whilst there has been an elevated level of costs associated with some of the regulatory changes, particularly MiFID II, I wouldn't see a drop-down in terms of run rate. That's just being prudent. [ It's the way to go ].

Our next question comes from Patrick Davitt with Autonomous Research.

It sounds like most of the performance fees this quarter came from absolute return funds, which were specifically called out by the FCA in their review. Could you give us the total AUM in these strategies across all of the vehicles and how you think they're positioned through the winds of what the FCA is most concerned about, which I think is benchmarking, how the benchmark is calculated and how the performance fee is calculated?

Patrick, we may actually -- maybe we just have to take that offline and get you the exact numbers because the FCA is obviously looking at the U.K. product lineup rather than global, and that's a subset of what we would have under our alternatives basis. But they are also looking at -- there's a benchmark of which they're measured over, which ours will typically have a LIBOR benchmark in there. It's too early to say as well, given the consultation and what the extent will be. There's some discussion about whether -- if you have a target, you can [indiscernible] above the target. So a lot of it is more around just transparency and clarity of what the policy is based on. And we believe that our -- that the disclosure that we have on the funds is appropriate and matches the needs that the regulator has. Where they've come out with some examples, they're not examples that would be consistent with our practices when they've talked about examples they need to change. But in terms of exactly how much we would see under the remit of what the FCA has in their market study, we'll come back to that and I'll get the IR team to come back to you later today.

Great. My follow-up is around the cash and equivalent number you gave today. How much of that would you consider kind of truly free? In other words, not needed for capital requirements or the fee program?

So you look at -- so it's really the -- I'll say that the big difference between the raw cash and the debt levels, I think that's your simplest measure there. So that's -- most of that's $684 million versus $439 million. Now the investment securities is largely out there. The big piece is obviously capital position. That's the largest piece in there. Obviously, that is variable, but that's an area where, as Dick talked about in his business, we will look to continue to invest in the business.

We'll take our next question from Dan Fannon with Jefferies.

Andrew, I was hoping you could expand a bit upon your flow commentary. In particular, you were rather positive on the kind of near-term outlook for retail flows, both in the U.K. and the U.S. And then historically for Janus, the institutional backlog was just INTECH. Just wondering if you can give a comment broadly about the institutional backlog for the combined entity.

Look, for the U.S. there, I think I sort of highlighted that the passive flows continue to sort of be the largest growth [ now has been ] in the U.S. marketplace. And so I think that's a trend that has been [ in place ] in the market, and it's probably been exacerbated by the introduction or the implementation of some of the DOL positioning that some of the advisers are doing. So I don't see that changing for the rest of this year. But obviously, one of the big improvements year-on-year has been the investment performance where, if you'll remember, we spoke at the beginning of this year that 2016 was a pretty tough year for active managers as a general industry, and I think that was really as the indices were pretty much top quartile and, in some cases, top decile. What you've seen so far is that 12-month rolling figure has now dropped with the indices now around the median. So there are far more active managers outperforming the benchmark and, therefore, demonstrating the worth of active management versus passive, which you'll also see in our investment performance numbers. So I think that will bode well for the future. But I'll say in the short term, the trend of passive flows being quite strong in the U.S. [ don't look ] abating. I think you point to the U.K. and Europe, we did see markets at the back end of last June and the first quarter this year really just [ feeling their hand ] given the election cycles and -- that we had where you had the U.K. election results or the European results. And the -- what you started seeing as those are now passing, that there definitely is a pickup in activity, which has reflected in our second quarter numbers. And for us as well, I think the added benefit of having the merger complete and rather than having to deal with the merger-related conversation with clients and talk much more on the business as usual is also benefiting us. So I'd say the picture is that the U.K. and Europe looks a more encouraging environment to just grow sales than it has for a little while. And the U.S. will continue to have passive penetration at relatively high levels for the foreseeable future.

Okay. And then just on capital return, understand the comments on the dividend in the near term, kind of priorities of seeding product and investing in the business. I guess is there still a belief to kind of offset dilution in terms of buybacks? Or when's a reasonable time period to think about a broader capital return with share repurchases?

Okay, I think we're a month into the transaction, and we do have a relatively sizable amount of cash outlay from the deal. So what we've laid out today is a -- the regular dividend, and we've laid out the broad categories for that. But as we said, these businesses are very cash and capital generative. And if we don't have a better use of -- better use for capital or true excess cash and capital going forward, then we'll be discussing at the board at the right time around how that should be returned. But that's not really a discussion for now.

We'll take our next question from Alex Blostein with Goldman Sachs.

As we kind of roll through the earnings season here, most of your larger global competitors talked about the increased need for investing. And obviously, that's in line with the whole idea of the merger and [ sale ] for you guys. As you think about the areas where you will you need to invest, whether in the technology, analytics, infrastructure, distribution side, et cetera, how should we think, I guess, about the [ gross ] pace of expenses -- of expense growth, I guess, over the next couple years, kind of pre-synergies?

I think, again, like I said, I'll reiterate, we're a month or so into the merger. And Dick and Andrew talked about where we might -- where we may find more savings and what to reinvest in the business, yes. And I've reiterated this is a merger that's done really for growth, and we will be investing in the business in the areas that we think we need to. And we'll generate good return over the long term. The work we're doing around the merger is also taking us some of that journey. So we're not just looking at one or the other, we're looking at improving things and taking those steps forward, so investing in technology and other areas as we go through the merger. So I wouldn't just view the merger costs as standing still. We are looking to advance as part of that. But I think, again, it's probably better for us to come back as we go through this year and talk about growth in next year more with Q3 and Q4.

Got it. And then on the organic growth factor, I guess 2 questions, sort of related. I guess, one, when you go through the integration and you talk to the sales folks on the products that, I guess, they feel they can get most traction in either channel, in the U.S. retail side or the non-U.S. retail side, I know you -- Dick highlighted the Global Equity fund. Anything else of note we should be focused on as we think about areas of kind of organic growth from this combination over the next kind of 12 to 18 months?

Well, I think we highlighted a few more things than that. The Global Equity dividend approach, selling in the U.S. is obviously an opportunity. Taking our life sciences from legacy Janus side and selling that in addition, through some of the Henderson relationships, I think, is an opportunity. I think Henderson has brought an exciting opportunity with their emerging markets management that has been gathering assets and hopefully will continue to do so. And I'm leaving off many more. When I get off this call, there'll be a lot of angry folks because I didn't say all of them. So I think there's a huge range of things that we have an opportunity to do more with and we're client led. So most importantly, it's where are the client appetites. And the good news is we have real strength in such a broad cross-section of things that it's quite likely we'll be able to match those up very well and be good partners for our clients. So we're optimistic about not just those named products but lots of others.

Got it. And then last one, I guess, just around the organic growth on the INTECH side. So clearly, performance improvement is very encouraging year-to-date. Do you guys think this is enough, just talking to your larger institutional clients in this business, whether or not that's sort of enough to kind of keep them put? Or the underperformance from last year could continue to weigh on redemptions?

Look, I'll say something about INTECH and then Andrew perhaps can talk about some of the other parts of the business. On the INTECH side, they built a pretty good sized hole in the second half of last year with underperformance. They put up 2 good quarters this year, digging, depending on the strategy you look at, 1/3, 1/2 or a little more than 1/2 out of that hole, and that's encouraging. But it's fair to say that those clients have experienced still net negative performance and more volatility than they would have preferred. And so you have to view that as they're continuing to work towards health and there's still exposure with that client base. So we have to still be doing our absolute best to continue to move forward and get past some of those problems that we've had. And I think that's going to go on for some time longer until we can totally put that behind us.

The other positive, Alex, is that INTECH is -- they've also been adapting their process to new areas of the market. And we're starting to see new success in areas like long/short alternatives on their process, where they've won a couple of mandates in that, they're looking to launch some vehicles that will enable us to capture more assets. And that will take a while to build. That's one of the things we talked about in the sort of revenue synergy areas is actually repackaging some of the processes in either the new markets or into new ways to access that. A lot of INTECH strategies are U.S. large-cap equities, which is a space that's getting hit pretty hard by passive. But actually, as they move into long/short equities, they're seeing some considerable interest in that. The work they've done on that looks like a very interesting product. And you wouldn't be surprised the margins in that are much higher than some of the margins they've had on their existing businesses. So it'll take a while for new products like that to kick in, but so far, we're actually able to make those investments and get those funds up and running pretty quickly out of the gate with the merger closing and that both -- they're about positioning them for future growth, notwithstanding the points Dick made about making sure the investment performance delivers for existing clients.

Our next question comes from Nigel Pittaway with Citi.

First question. Could you talk us through the impact that performance fees now has on the comp expense? And presumably, that's changed a bit as a result of the new compensation scheme that the merger has.

So, Nigel, some of those performance fees have slightly higher compensation aligned with them. But again, it's a smaller part of the overall pie now. I think performance fees represent about 11% of revenues this year and it's coming from a very diversified product set. So it's a smaller part of the overall.

So [indiscernible] comp expense, the impacts of that?

It's not a -- I wouldn't regard that as anything major, Nigel.

All right. Okay, fair enough. Secondly, just on the tax. The tax in the pro forma 2Q income statement doesn't seem to be a blended rate at all. It's up close to 35%. So why is it that high?

On the pro forma, it's at 35% because a large amount of the deal costs are nontax-deductible. On a pro forma adjusted basis, so the way we really describe in the results, so excluding the deal costs, the tax rate is 28%, which is pretty much a blend of the U.K. and U.S. rate.

Okay, it's the deal costs. Okay. And then, I mean -- and my understanding was that the $110 million synergies target was heavily influenced by the requirements for the merger documentation. It must be that, that requirement has probably dissipated a little bit now. So will you not attempt to update the target now that the requirement is no longer so stringent?

I think because in terms of -- we look at it -- yes, what we've done is promise that we will deliver at least $110 million to shareholders. And that's the -- so that's reduction in the expense. What we need to do is continue to understand where we might want to invest in the business. So yes, I think -- forgive us a little bit, but we want to work out where we want to take the business and where we might want to invest before increasing that number.

Okay. And maybe just finally, just on the [ DD ]. I mean, obviously, you used to be quite a bit seasonal with second half. You've obviously paid a much higher second quarter than first quarter. I mean, how should we think of the [indiscernible] between quarters moving forward?

I guess you may expect us to follow a more U.S. line of a quarterly dividend, which is equal through the year. It may change, but that's the norm for a U.S. business -- a U.S. [ dividend ].

Our next question comes from Robert Lee with KBW.

First question is maybe focusing a little bit in the U.S. on positioning for the DOL. I mean, one of the things that you hear pretty much across the industry is the importance that [indiscernible] put in place of having a -- the -- a good SMA business, model portfolios. So if you can maybe just update us on kind of in the U.S., how you think about your SMA business or your penetration in model portfolios? Or is that a place where you see a need to make some incremental investments?

Starting with the facts, I think our current SMA business in the United States is pretty darn small. I don't have the number right in front of me, but it's a pretty small segment of the U.S. business. Looking ahead, we've done some research on various ways to participate in the model business, providing models to various folks. We have some extraordinary asset allocation talent with Myron Scholes and Ashwin Alankar on the Denver side and others around the firm doing interesting things in asset allocation. And so we're going to, in the months ahead, take a hard look at where we think those opportunities are best in the U.S. and U.K. and Europe, but also in other countries, and see if there are opportunities for us to expand that business. I would say it's an area sort of under study currently, and we don't have anything to share at this moment. But hopefully, in the months and year ahead, we might have some more to say on that.

Okay. So maybe just as a quick follow-up, I mean, understand that Dai-ichi has been a good partner. They've clearly invested back, I guess, in the first quarter some more dollars in the Henderson products. But is there any the reason to expect that -- it doesn't seem like they have so far, but is there any reason to expect that they won't ultimately take their ownership up to their intended levels? I mean, it doesn't -- latest data doesn't seem to suggest that they've -- post-merger, they've [ stormed ] back to reestablish their higher stake.

Yes, they -- they are an insider. So when they buy, they will be making appropriate filings, the Form 3s, 4s, 5s in accordance with the U.S. Section 16 securities laws. And as far as we know, they haven't bought up since the deal. They have stated their intention that they will return to a 15% to 20% stake over time. And we hope and expect that, that will be true, but we haven't yet seen the buying coming through in the pipe. Just remember, they're a very, very large and successful Japanese insurance company, which has the pressure of long-term, very, very low rates in Japan and an aging population. So you can imagine their general account assets are under some -- there's competition for uses of capital. And so we expect they'll get around to buying some more shares as and when they can, but we likely will find out about that through the filings, and we haven't seen any come through.

Our next question comes from Simon Fitzgerald with Evans & Partners.

Just a question for Roger maybe. I just wanted to confirm that there was $101 million worth of adjustments. Was that in the second quarter? Or was that for the half? And if not, what was the number for the half?

That's for the quarter, Simon. And I think [indiscernible] that's $160 million inception to date. So the vast majority of that is in the first quarter this year. So that's -- there's a difference [indiscernible].

$160 million [indiscernible]?

Now the [indiscernible] -- oh, the -- yes. The biggest costs for the deal are obviously coming through in the second quarter and some of the larger amounts [indiscernible] the proxy process in the U.S. And obviously, severance around the changes made in [indiscernible] in the second quarter. So there's a significant amount in Q2. Smaller amount in Q1. And yes. So they're still within the -- it's fairly in line with the $65 million of deal costs that we talked about for the deal and $185 million of integration costs.

And Simon, we'll -- the $101 million for the quarter, we'll give you a breakdown of the previous 2 quarters on a pro forma basis [indiscernible].

That'd be great. Yes, perfect. And also, just a follow-up on the performance fees. Obviously, the fulcrum performance fees have come back quite significantly. Understanding that other performance fees outside of that have some timing issues, but what are your expectations of further reductions in those fulcrum performance fees?

They're a little bit easier to model because they're 3-year performance, 3-year rolling performance. So you've got good line of sight over the next 3 to 6 months. Three to 6 months because you've effectively got 30 or 33 months of those baked in. But obviously, you have got performance rolling off and performance adding on, which will change that. We've got a relatively mixed Q3 rolling off and a pretty good Q4 rolling off. So we've got to add some -- we've got to add a little bit of alpha to stay at the year -- to stay at the level we're at. But -- so you wouldn't expect it to move dramatically, but, like I say, a good Q4 rolling off. So we need to add a little bit of alpha to keep where it was in Q3 -- in Q2.

Our final question comes from Ken Worthington with JPMorgan.

And just a little one. You have a nice slide on the number of funds in AUM generating performance fees in 2Q, and I understand the comments about the expected direction over the latter part of the year. But was what does the AUM look like that pays fees in 3Q, 4Q and 1Q? I'm just hoping to get a better sense of the seasonality, all else being equal.

Three is the lightest. Q4 is a little bit heavier, particularly with some of the -- INTECH has a sort of bias towards Q1 and Q4. Yes, Q3 will be our lightest quarter of fees from a seasonality point of view. So probably run -- the quarters probably run Q2, and then Q1 and Q4. And then Q3 is the lightest.

And that concludes today's question-and-answer session. At this time, I will turn the conference back to our speakers for any additional or closing remarks.

Thank you, operator. Thank you all for taking the time to look at our maiden results of Janus Henderson. While there's still a lot of progress to do, I think you can see coming through the results the key reasons that we were so excited about the merger when we announced it and starting to make good progress on that. I guess the most pleasing thing for us is the investment performance recovery, which is a testimony to how well the investment teams are working together and how they were not disrupted through this. That will ultimately lead to an improvement in the flow picture. You're starting to see our quarter-on-quarter improvements, but still not where we need to get to and where we want to get to. But we're pleased with how the distribution teams are working. The third area that we're -- obviously, one of the key drivers of the merger was the financial strength of the business. And again, you can see you through the improved financial performance and the strength of the balance sheet and the ability for us to invest, that's starting to come through. So whilst there's still a lot more progress to make, we're very, very happy with the progress to date. And there's a -- there's definitely a good momentum to the business. The day 1 merger has gone as well as we could have hoped. We're getting the brand out there, and we've been able to accelerate a lot of the decisions we need to make and start to implement those. So still a lot to do, but I'm pleased with where we are to date. So with that, we'll hand it back, and happy to take any further questions you might have through the IR department over the coming days. Thank you.

And this concludes today's conference call. Thank you for your -- for attending.