Good morning. My name is Nicole, and I will be your conference facilitator today. Thank you for standing by. And welcome to the Janus Henderson Group Third Quarter 2020 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. And now it is my pleasure to introduce Dick Weil, Chief Executive Officer, Janus Henderson. Mr. Weil, you may begin your conference.

Welcome, everyone, to the third quarter 2020 earnings call for Janus Henderson. As usual, I'm joined by our CFO, Roger Thompson. Let me start by saying that I hope all of you, your friends, your family continue to be safe and healthy. I am really pleased to be back physically in our London office, taking this call at a safe distance alongside Roger. As we've said on previous calls, we'd like to take a long-term view of our business as somewhat at odds with the quarterly reporting cycle. So, to that extent, what we've done is to say on the first and third quarter calls, we'll run through quarterly results, and then we'll use the second and fourth quarter calls to do a bit of a deeper update on the business and strategy. In line with this, in today's presentation, I'll just give a brief summary at the start of the quarter from my perspective. And then I'll hand over to Roger, who will go through the results in some more detail. Following our prepared remarks, we'll take your questions. So, turning to Slide 1. Our third quarter results were strong. AUM increased 6%. Our long-term investment performance was solid. Adjusted EPS of $0.70 was better compared both to prior quarter and to a year ago. Our balance sheet and cash flow generation remain very strong as we continue to return capital to shareholders during the quarter, both by dividends and also repurchases. Roger will take you through the financial details in more depth. But what I'd like to do is just try and tell you how I think about the quarter sitting in the context of our broader story, which really is about our strategy. If you turn to Slide 2. It's a reminder of our strategy, which is…

Thank you, Dick, and thanks, everyone, for joining us. Starting on Slide 4 with investment performance. Investment performance remained solid, with 58%, 61% and 73% of firmwide assets beating their respective benchmarks on a 1-, 3- and 5-year basis as of the 30th of September. The 1-year performance result in our equity capability is primarily from segments of our U.S. equity business, which we previously noted. We're encouraged by INTECH's improvement in its one year performance, as Dick just mentioned. However, the longer-term performance will take longer to turn and hence remains a concern. Relative performance compared to peers is strong, with 68%, 74% and 78% of the AUM represented in the top two Morningstar quartiles on a 1-, 3- and 5-year basis. Now turning to total company flows. For the quarter, net outflows were $2.9 billion compared to the $8.2 billion last quarter and $12 billion in the first quarter, and they're the best they've been in the time series that we show here. The quarterly flow number reflects lower redemptions primarily from the institutional business, which were partially offset by lower gross sales in the intermediary channel as we typically see seasonally lower retail sales during the third quarter. We remain encouraged by the institutional outlook, given our diverse pipeline across strategies and regions. Additionally, we're optimistic that we're through the majority of the redemptions that were likely as a result of the changes in the investment management teams that we made over the last 18 months. The intermediary business saw positive flows in our fixed income and multi-asset capabilities, while outflows continued in our U.S. mid and SMID cap capabilities due to short-term underperformance, which we identified as a risk on last quarter's call. We're pleased with the improving flow trends and the broader business momentum as…

Thank you, Roger. Before handing over to the operator for questions, I'd like to briefly address the elephant in the room, China's recent investment in our firm. As you know, China has made a significant investment holding approximately 9.9% of our shares. Look, we value input and good ideas from all of our shareholders. If China has specific views or suggestions to share with us, we certainly will consider them as part of our broader thinking and take that seriously. We are deeply committed to driving shareholder value creation. Like most public companies, we can't really comment on market rumors or speculation. Our Board and management team will act responsibly and will act in the best interest of all our Janus Henderson shareholders. Our plans and focus, though, remain centered on delivering Simple Excellence, which we believe is the right path forward. We're making progress against the five planks of our strategy, and we're moving toward fully unlocking the growth synergies from the Janus Henderson merger. Achieving excellence takes time, and that can be frustrating, but it's the right path that we're on, and our priority remains to deliver Simple Excellence and growth. As we turn to Q&A, please keep your questions directed on the quarterly results as there really isn't that much more we can say about this trying situation. We appreciate your understanding. With that, let me turn it over to the operator for your questions.

Thank you. [Operator Instructions] And we'll take our first question from Ken Worthington with JPMorgan.

Hi, good morning. Thank you for taking my question. Thank you for your prepared remarks. I think consolidation remains the same today for the industry. When Janus merged with Henderson, you indicated that you had the size and scale at the time to compete. But if you looked at over the next few years that you might not be in a position or your position would be dramatically enhanced by the merger with Henderson. So as we think about Janus' size and scale today, do you think you have the size to effectively compete in the global asset management business over the next decade at your current pace of growth? Or does Janus benefit from pursuing acquisitions to better position the company again for the next decade?

Hi, Ken. Dick here. Thanks for the question. Size by itself helps a few things, right? It helps your ability to capture economies of scale, it helps your ability to invest in a breadth of ideas, and it helps your ability to invest in your infrastructure, and it probably also helps you build a broader brand with key clients. So, there's some really good things that happen with size. But there are some challenges with size. It typically doesn't help alpha, and it typically doesn't help excellence. And getting through consolidations or size accumulating inorganic transactions involves a huge amount of disruptions, which frankly, clients penalize very heavily. So, I think our priorities are clear. Our highest priority is to deliver excellence for the existing clients that we have. Our second priority is to drive growth organically. And if we have the excellence and the platform well-established through those two things, there probably will be inorganic things that may well fit that could enhance the scale and add qualitatively to our business in a way that more than offsets the disruption. But the key is you've got to be delivering that excellence. Size without the excellence is just a bigger problem. So, we're pursuing that appropriate level of excellence, first is our highest priority. We'll keep trying to drive to get to organic growth. And I think that firm that has established itself in that space is frankly a better acquirer and is more ready to take on the challenges of some future consolidation. But right now, our focus really more is delivering on the excellence. If you think about how pressured we are to consolidate in the near-term future, we have a margin this quarter of 36%, that's pretty good. So I don't think we're desperately missing out on economies of scale at the moment. And I think our priorities are correct, focused on delivering on the existing Simple Excellence strategy, getting to organic growth. And with that said, we always have an ear open to opportunities. We're always listening and talking to people about potential ideas. And if we find something very special that would more than offset the disruption that it brings, we'd certainly be interested in something like that. But the odds of something like that coming along that's such a great fit, that doesn't happen very often.

Your comments are very helpful. Thank you very much.

We'll take our next question from Nigel Pittaway from Citi.

Great. Thank you very much. Just first of all, obviously, with the flows that you're trying to sort of get organic growth in, I mean, what do you think is going to be the biggest driver of that? Is it going to be sort of equity outflows diminishing? Is it going to be stronger growth in fixed income? Where do you have the sort of greatest hope that the improvement will come to push you into a growth situation?

Hi. It's Dick again. Thanks for that question. I think it's -- with us, we're a complicated story when it comes to something like that. We have so many products operating in so many parts of the world, and they're moving in different directions against different market backdrops, it's hard to give you a really simple pithy answer to your question. We've seen our traditionally extremely strong Denver equity franchise to face some challenges through this market environment this year, particularly small and mid-cap investing, which has been right at the heart of the very best of our investing has taken a challenge. On the other hand, fixed income, European investing, some of our absolute return strategies have all taken the opposite tack and have demonstrated really substantial outperformance during the period. And so I think we're going to be a bit of a complex story in all periods with some products moving better than others in different market environments. And it's the balance. But if you wrap those things with excellent client service, with excellent client experience, with a really strong infrastructure that delivers the right information at the right time to the right people internally and externally, then I think you have the opportunity to be resilient through those different parts of the market cycle. And if everything you're doing is excellent, I think you'll win across time with that hand. And that's what we're trying to accomplish. And so there'll be parts of our business that will go through challenges in every market environment. But hopefully, we can consistently more than offset that with all the good stuff we're doing. And I think we're on the right path to delivering that, we're just not quite there yet.

Hi, Nigel. It's Roger. If I could add a couple of specifics. Dick has mentioned fixed income. We are -- the fixed income performance you can see is in a totally different place than it was a few years ago. It's very strong across the board. And in a market where fixed income is growing, we're taking market share. So that's around the world. We're seeing outsized market growth -- outsized flows against the market in the U.S. and also around the world. In equity, the pipeline for growth in institutional equity, there's a number of interesting things there. Nothing funded in Q3, but there are things there that we would hope and expect to come in the future. And in new products, our ETF franchise is growing really well and really fast, continued growth in VNLA and JMBS, as Dick mentioned earlier, and we've shown that we can be a real player in that space. The JAAA that we launched a couple of weeks ago, the largest 11th largest fund ETF launch over the last decade. So, we're pretty excited about what we can do in that space as well. So there are a plenty of areas where there are -- that we're seeing growth. There are a couple, as Dick said, and there will be in a business as diversified as us, which have challenges short term, but they're fantastic investment teams.

Okay. Thank you for that. And then maybe just as the follow-up. Obviously, you seem to have deferred sort of further detail on the sort of cost efficiency program by a quarter. And you obviously mentioned the need to balance off investment with actual savings. I mean, how are you feeling about that balance currently? Is -- do you think that most of the savings that you're going to generate are going to be reinvested? Or will there be some sort of relatively meaningful impact on the overall cost base?

Yes, I don't think anything nothing's changed there, Nigel, is with three, four years through the merger. And as we said on the last call, it was time to the right time to be looking at our business, how we do it. And obviously, COVID has given us an opportunity to look at things in a different way. So, we've done we're working through a detailed piece of work. As Dick said, this business, it's really important to do this right and not to disturb the momentum that we've got because we are on the right track. So there's -- we're working through that. We'll give you updated guidance as we normally do around Q4. We are investing, we've been investing in our business, we will continue to invest in our business, but there are efficiencies that will drop to the bottom line, yes.

Okay, thank you.

And we'll take our next question from Brendan Carrig from Macquarie.

Hi. Just a first question for me. Dick, just a clarification on the comments you made just around the flows to INTECH. Is it fair to assume that the reason you're sort of alluding to the potential troubles in those business isn't necessarily that there's a pipeline of outflows or redemptions that have been requested. But it's more that it's probably more likely that you do get a normalization back into outflows over the quarter, just given the performance track record?

Yes, I think that's a fair thing to say.

Okay. And then the second question I had, just on the buyback. So obviously, there's a fair bit of capacity left that passes -- capacity left to get done in the quarter. Is it possible to get through the entire amount in the quarter? Or could we expect that there might be some capacity that was left, as the year ends, of that $200 million?

Yes, Brendan, it's Roger. The -- well, I think we're $103 million through the $200 million that the Board authorized through April next year. We'll likely continue with the same structured buyback program that we've had before looking at market volumes and the like. So, I wouldn't expect us to do it in one quarter. But we'll -- and you can see -- at least in Australia, you can see what we're doing on a daily basis.

Okay, thank you.

And we'll take our next question from Ed Henning from CLSA.

Thank you for taking my question. Just two from me. Can we just start on equities and the gross sales, if you look at the last four quarters on Slide 17, they've been trending down. Is this a concern for you that the sales aren't coming through as strong as they were?

There are two pieces to that yes, there's two pieces to that, Ed. And partly, one of it is what I just referred to on institutional. Q3, there was nothing big that funded in institutional, but there is equities is part of that institutional pipeline I talked about. So, I think that's just timing. Two, on the intermediary side, it's more in line with where we were Q3 last year. And we are a little bit slower in the U.S., given that short-term underperformance in part of the U.S. strategy. So, I think not certainly, not concerning on the institutional side and not concerning -- we're turning the corner, as Dick mentioned, in what's been a very powerful franchise in Europe. Our U.S. equity capability is a very powerful engine. That has seen poor performance over the last six months, which will slow us down for a little bit there. But as I said, that's a great team doing great work, and they'll come back strong, I'm sure.

Alright. And just a second question, if we look at both the near-term and the medium term, you talked about a mix shift that's been helping margin as you push more into and get more flows into FX and ETFs. Can you just touch on how that will shift your mix on your margin going forward?

Yes. I think that's very fair, Ed. We've been winning more in higher fee and some of the assets we've been losing, as we've mentioned before, have been lower fee assets. We have got a very broad church of product, and the pipeline is across that. So we've always said, there is, we're not immune to fee pressure. So you shouldn't expect that fee margin to improve forever. The fact it's improved 1.4 basis points over the last year, I think, sets us apart from a significant amount of the competition. But over time, you should see that flatten out, and probably over time, we'd expect to see that fee margin come down a little bit, and that's why we need to run an efficient, effective, excellent business to look for some of those efficiencies to maintain and possibly further improve the margin. But yes, if we win significant mandates in some of our enhanced equity, some of our buy-and-hold fixed income type products, they're obviously at lower fee.

Okay, thanks.

We'll take our next question from Andrei Stadnik with Morgan Stanley.

Good morning, or good afternoon. I just wanted to ask two questions. Firstly, on the operating margin, it improved to 36% in the quarter, is that some of the early wins on the cost transformation coming through? Or is that better market conditions helping out as well?

Yes. What you've got in this quarter, you've got a market that's improved. We've got less performance fees than we had in Q2. Q3 is a very light performance fee quarter. We're still relatively light in some areas from low COVID-type spending, I guess you'd just find it as T&E. Our marketing is up from Q2 but still below where it was a year ago. So, it's a real mix of things. But no, sorry -- and yes, it's us running an efficient business. We're not -- this isn't -- I guess what I want to differentiate on is we're not doing something that we weren't doing anyway. We are constantly looking at running an efficient business. So, there is a how do we fundamentally look at doing things differently, that's right. But we are, so there are things that have come through this quarter, yes, I guess, but there will always be things where we're looking and driving efficiency. But yes, 36% is the right margin for the quarter.

Thank you. And the second question, I wanted to ask about progress in Japan. And what would it take to accelerate the progress? Do you think there needs to be more product that's tailored or more popular with the Japanese market? Or do you think your partners in Japan would need to push harder on sales and distribution? Because it seems like the Japanese progress outside the institutional mandates has slowed recently.

Hi. Yes, this is Dick. Thanks for that. Yes, I agree with you. I think we had more momentum in Japan and it's slowed. There's still some good things happening there. But I think it's a fair observation to say we need to reenergize and dig deeper on how we're pursuing that business because we had more growth earlier on and it slowed a bit. So, I don't have a simple magic answer for you on that one. We're aware of it. We're focused on it. And we're asking ourselves the questions about what do we need to do to reenergize and reinvigorate some of the stuff going on in that space. It's not an easy business, and it's very competitive in Japan. They're very well informed and sophisticated client base. But we need to keep pushing to do better, and we are. I don't know, Roger, do you have any more to add on that?

Yes. I think there's a couple of things, I think, which are relevant. What we haven't had is a sort of blockbuster launch, $1 billion in it at a single go. There's a couple of things we've talked about over the last few quarters that I think that are more flow product. And as I always describe those things, they're more sort of the CFO's friend because that's money that just comes in, in the classic river of nickels over time and is probably quite possibly even more valuable. So, we launched a year or so ago in the summer of '19, we launched our adaptive allocation strategy in Japan for Dai-ichi Life. And at the end of last year, we launched a product for Dai-ichi Frontier Life which we talked about. Those two have been raising money a little bit every day, every month. They're now around $1 billion between the two of those. So, things like that are great to see coming through on that regular basis, but they're not -- they don't stand out. So there's some positives there. And I think the other piece, which remains very positive from Dai-ichi is obviously the growth of the business in Australia with TAL, which has happened over the last 18 months or so. So, some real growth down there.

Thank you.

We'll take our next question from Patrick Davitt with Autonomous Research.

Hi, good morning. Thanks for taking my questions. I appreciate your candor on kind of the risks at INTECH. Could you remind us of the concentrations there? I think a few quarters ago, you mentioned a handful of making up a plurality of the assets and also remind us kind of the seasonality of that? And are those decisions more of a 4Q event or kind of spread throughout the year?

I don't think the decisions aren't necessarily -- yes, clients are looking at mandates over the course of the year. So I don't think there's any real seasonality there. But you're right, there are INTECH is an institutional business with some substantial mandates. And should any of those should we -- yes, this quarter, we won a $1 billion mandate, but we have several multibillion-dollar mandates in the existing book. And the five largest strategies of INTECH make up almost 60% of their business. So yes, there is a concentration there.

Great. And then as a quick follow --.

Does that help, Patrick?

Yes. It does, very helpful. Thank you. And then the U.K. real estate strategy has been getting some press. I don't know if you can give us an idea of what the pipeline of redemption is there or any kind of view to when that might reopen?

No. We've said that, that is unlikely to reopen until the first quarter of next year. We're still building liquidity in it. The material uncertainty clauses that were across the industry have been raised. The fund is top quartile in what it does and how its -- sorry, its performance and the asset mix in there, I think, is pretty strong. But we are cautious about opening that fund and seeing outflows. And therefore, we want to make sure that, we need to make sure that we built the right amount of liquidity in it. What there is at the moment, despite the material uncertainty clauses being released, withdrawn is that there is there are very little, there are very few transactions going on in the market. So, selling properties is taking time. So that's what's going on there. So, that's -- yes, so there will be some outflows when that reopens in Q1 next year, or likely Q1 next year, because at the moment, it is still self-closed. The fund is about $2.5 billion.

Yes. Thanks, very much.

We'll move on to John Dunn from Evercore.

All right. Thank you. And can you talk a little bit about some of the investments you're making in the intermediary channel, potentially looking at new vehicles, and also how those relationships are evolving?

I think we're, the product launches that we've made over the last few years and continue to make, particularly around getting the right instruments in the right vehicles around the world, and we've seen success there. Interestingly, looking at -- when we were at the Board yesterday, we were looking at where flows have come from. And they've actually a lot of flows are from products that didn't exist a few years ago. So, the products we've launched over the last few years, whether they be vehicles of existing products, so take something like strategic income is a great product that's been sold in Europe. We launched it in the U.S. a year or so ago as Developed World Bond. That is now the third-largest selling fund in the U.S. We've talked about our ETF franchise, which is growing from a low base, but I think we've now got around $3.5 billion in ETFs. And JAAA, we're pretty excited about being -- that being another substantial product. Getting our global sustainable product launched in the U.S., obviously, where there is a lot of interest there on multi-strat products. So there is plenty of work going on both in terms of new product, but also making sure that we've got the right vehicles in the right places. Q - John Dunn Got it. And then kind of a corollary to that. You mentioned customer experience, which is becoming more and more important. Could you give us a flavor of kind of what differentiates you guys in the different distribution channels in that vein?

Yes. I think customers want, they want investment excellence consistently. Second, they want the right information at the right time. Third, they want access to the real thought leadership of your firm that, in a convenient and easy format, that makes them better at their jobs, that enriches how they engage with their bosses and their clients and makes them better. And if they have a problem and a question or a complaint, they want you to deal with them as efficiently and friendly and effectively as is humanly possible. So, at every stage of that, we've been investing in improving the technology to enhance our ability to do that, improving [Technical Difficulty] to make sure that we are getting progress without disrupting the building momentum that we're feeling.

Got it. And then the increase in G&A and professional services quarter-over-quarter, did that have to do with this efficiency plan just because some of your peers we've seen been flat-to-lower in the COVID environment. So, just wondering if we could get a little more detail on what drove that.

No. Sure. There's a couple of things in there, partly that's FX. So sterling strengthened in the quarter against the dollar that comes through the revenue line and the cost line. So a part of that is that and a part of it is some one-off consultancy that we've that's around there, but not really around the investments that Dick's talking about. Now, we've been investing and we will continue to invest in the business that's built into the guidance we've got around us being lower than last year. And again, like I said, we'll continue to update guidance and we'll give you that at the end of the year.

Great. Thank you.

And we have no further questions at this time. Ladies and gentlemen that brings us to the end of our conference today, we do appreciate your participation today.