Janus Henderson Group plc (JHG) Q2 2021 Earnings Report, Transcript and Summary

Good morning. My name is Andrew, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group Second Quarter 2021 Results Briefing. [Operator Instructions] In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in 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. Now it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Henderson. Mr. Weil, you may begin your conference.

Welcome, everyone to the second quarter 2021 earnings call for the Janus Henderson Group. I’m Dick Weil, and as usual, I'm joined by our CFO, Roger Thompson. As we’ve said on previous calls and in line with taking the long-term view of our business, we use the second quarter call to run through a more robust discussion on our business as well as our strategy. We also include the usual updates and quarterly flow performance and financial results. In line with this and today's presentation, I would like to start with a summary of our second quarter results, and then I will touch on progress we are making toward delivery of our strategy of Simple Excellence. And then as usual, I will hand it over to Roger, who will take you through the results with some more precision in detail. As always, we will follow our prepared remarks with taking your questions. Turning to Slide 2. Here is the story of our quarter as I see it. First, investment performance. It's solid with 66% of our assets beating their benchmarks over 3 years. Second, net outflows of $2.5 billion is an improvement over the first quarter. Markets were strong and lifted our AUM 6% to a new high of $427.6 billion. Third, our financial results. These are very strong and better than our strong prior quarter. This is mainly driven by a combination of higher markets and extremely strong performance fees. Roger will take you through that. Adjusted EPS was up 27% to $1.16 compared to $0.91 a quarter ago. We generated more than $260 million of cash in the second quarter, and we remain committed to returning excess cash flow to our shareholders. As a consequence, we declared a second quarter dividend of $0.38 per share. And today, given strong earnings and cash generation, we are also announcing the Board has authorized a new $200 million accretive share buyback, which we expect to complete by April 2022. Looking a bit deeper at the net flow result, let me call out some positive underlying trends to highlight. First, net flows in our intermediary channel were flat with positive flows in EMEA and LatAm and Asia Pacific regions. This was offset by U.S. intermediate outflows, particularly in Mid and SMID Cap Growth equities from our team in Denver, which has experienced some pockets of underperformance that we've talked about in recent quarters. Second, looking at institutional, we are continuing to win business from across a very diversified list of strategies reinforcing the breadth of our investment capabilities. Quant Equities remains challenged. Next, as I’ve told you in prior quarters, our path to organic growth starts with net flows going positive outside of our Quant Equity business. We are aiming for consistent growth, which we achieved in the fourth quarter last year, but in the first and second quarter of this year we’ve fallen short, and that's not okay with us. However, the underlying trends and the pipeline make us confident that we have a good chance to deliver our goal of more consistent positive flows outside of the Quant Equity in the second half of the year. Turning to Slide 3. We’ve continued to make significant progress executing our strategy across the first four planks that you can see on this page. For example, we've continued to hire excellent talent and strengthen our already first-class teams. Last week, we announced the appointment of James Lowry, who will be joining our Executive Committee in a newly created role of Global COO. This will help strengthen our leadership team. He will contribute on building the infrastructure as well as firm-wide leadership and hopefully, strategy. We've also continued to significantly enhance our risk and control environment, moving toward our best-in-class approach. Importantly, this has been evidenced by lower regulatory capital requirements, which are assisting us in delivering this further return of capital to shareholders as we’ve announced today. Looking ahead, we remain fully focused on the first four planks of our strategy, which remain key to strengthening and running our day to day business and ultimately delivering organic growth. But with progress in those first four planks, we are now able to develop new growth initiatives with greater energy and focus. And this is going to include some additional investment over time, both organically and potentially inorganically as well. Turning to Slide 4. We lay out the five areas on this slide that are in focus for us as we think about our growth initiatives. Within those areas, let me call your attention to some of the recent highlights. In ETFs, we’ve a small but successful franchise particularly in active fixed income ETFs, such as our short-duration vanilla and our mortgage-backed securities JMBS ETFs. The first half of 2021 marked the 10th consecutive half of positive net flows in our active ETFs. We’ve an innovative pipeline of products, such as the AAA CLO ETF, JAAA, which we launched at the back end of last year. In June, we launched the U.S. real estate ETF, JRE, which is a natural extension of our existing U.S. real estate equities strategy. We also filed a preliminary registration statement with the SEC for five sustainable active ETFs for investors in the U.S., which we expect and hope to launch in September. This includes three equity and two fixed income sustainable active ETFs. Again, if approvals are granted, we expect to be the only firm offering active sustainable ETFs, including both equities and fixed income in the U.S. Turning to ESG. I just mentioned some of the sustainable investing products we are developing and you should expect to see more ESG-focused product launches in the coming quarters, including in Australia. We’ve already an excellent track record in our dedicated sustainable equity strategy. For example, our global sustainable equity strategy is celebrating its 30th year anniversary next month, and it's ranked in the top Morningstar decile over both three and 5 years. We have a strong background in ESG, but we recognize there's an awful lot more work to be done. We are excited about where we are in our growth phase in ESG. We are making investments in our central ESG support available to investment teams, growing from 4 people to a team of 15 people. We are also building a cloud-based approach to ESG data management ensuring delivery of consistent central data standard to support all of our front office applications. We are also targeting more than half of our Luxembourg domiciled fund range measured by AUM to be an Article 8 or 9 designation by January 2022 under the EU Sustainable Finance Disclosure regulation. As you can see, we are making great progress in ESG. Finally, in Asia, we’ve recently further strengthened our leadership in Japan. This is really important to us. Earlier this year, we welcomed Shinichi Aizawa, as we’ve talked about before, a very senior Daiichi executive, and he is now Chairman of our Japanese business. Last week, we also announced the appointment of Tomoyasu Tanimoto, who is a new Head of Distribution in Japan. We think these two leaders have the chance to really energize and strengthen our efforts in Japan, along with the continued excellent support from our partners at Dai-ichi Life. Before handing it over to Roger, let me briefly wrap up. We continue to focus on excellence and growth in our business. We are confident that we are on the right path and that Simple Excellence is working to deliver a stronger, organically growing, more profitable and more resilient business, but we have an awful lot of work left to do. Let me now turn it over to Roger to take you through the results with some more precision.

Thanks, Dick, and thank you, everyone for joining us. Turning to Slide 6. Investment performance remains solid with around two-thirds 3 of the firm-wide assets beating their respective benchmarks on a 1, 3 and 5-year basis as of the 30 of June. Relative performance compared to peers reflects 33%, 67% and 55% of AUM represented in the top three Morningstar quartiles on a 1, 3 and 5-year basis. As called out in the bullet at the top of the page, 42% and 41% of our AUM is in the first Morningstar quartile on a 3 and 5-year basis. These longer term metrics tend to be the better indicators for flows. Now turning to total company flows on Slide 7. For the quarter, net outflows improved to $2.5 billion from $3.3 billion last quarter. The outflows mask some good underlying trends that we are seeing in the business, which I will talk about on the next few slides. Slide 8 shows the breakdown of flows in the quarter by client type. Net inflows for the intermediary channel were flat. By region, intermediary flows were positive in EMEA, Latin America and Asia Pacific, and these were offset by outflows in the U.S. And looking closer at the regions, for EMEA and Asia Pacific, second quarter flows reflect an annualized organic growth rate of 6% and 11%, respectively, and mark the 5th consecutive quarter of positive flows in each region with momentum carrying into Q3. Within EMEA, Continental Europe saw $1 billion of net flows in the second quarter, equating to a 17% growth rate. It's important to note that the management fee rate in the EMEA, Latin America and Asia intermediary business is higher than the other areas of the business, and these flows are contributing to our strength in net management fee rates that I will talk about in more detail later. In U.S. intermediary, we are seeing a diverse set of products in inflow, including multi-sector income, contrarian and Developed World Bond offset by the impact of the performance challenges in our SMID and Mid-Cap Growth strategies. Moving to institutional. Here, we saw $1.8 billion of outflows in the second quarter which was primarily driven by Quantitative Equity outflows, masking some smaller but significantly higher fee wins. As we've said previously, Quantitative Equity flows will take longer to heal, but elsewhere, we're encouraged by the progress being made in globalizing the institutional team and a solid diversified pipeline. Finally, net outflows for the self-directed channel, which includes direct and supermarket investors, was $700 million in the quarter. Moving to Slide 9 and the breakdown of flows in the quarter by capability. Equity net outflows in the quarter were $1.9 billion. The quarterly outflows were driven primarily in the U.S. by the small and mid-cap U.S. growth as well as the liquidation of certain value strategies managed by the team in Chicago that we talked about in the prior quarter. Outside of the U.S., equity flows were slightly positive, driven by European equities and global real estate. Flows into fixed income were negative $100 million in the quarter compared to a positive $400 million in the prior quarter. Whilst the overall result was negative this quarter, we continue to see positive flows in retail across a wide range of strategies, including multi-sector income, global strategic fixed income, U.S. buy and maintain credit and tactical fixed income in Australia. Total inflows from multi-asset were $500 million, driven by the continued inflows into the balanced strategy across North America, EMEA and Asia Pacific. Quantitative Equity outflows in the second quarter were $1.3 billion. Finally, alternative inflows were $300 million compared to $900 million of outflows in the prior quarter. The inflows were primarily driven by the absolute return strategy and in our multi-strategy product, which is one of our hedge funds, which is seeing momentum in several geographies. It's really pleasing to see the positive flows in our higher fee alternatives business, which shows another benefit of our diversified product set. Slide 10 is our standard presentation of the U.S. GAAP statement of income. Moving to Slide 11 for a look at the summary financial results. As you can see on this slide, our financial results are extremely good with metrics up strongly quarter-over-quarter and year-over-year. The second quarter results reflect strong seasonal performance fees and higher average assets. Average AUM in the second quarter increased 4% compared to the prior quarter and 30% from the same period a year ago, primarily from market gains. Total adjusted revenues increased 17% compared to the prior quarter, mostly due to higher average assets, seasonal performance fees and a further improvement to our net management fee rate. Adjusted operating income in the second quarter of $269 million was up 34% from the prior quarter and 95% from the same period a year ago. Second quarter adjusted operating margin was 44.6% compared to 39% in the prior quarter and 33.5% a year-ago. And lastly, adjusted diluted EPS was $1.16 for the quarter compared to $0.91 for the prior quarter and $0.67 a year-ago, representing a 73% increase year-on-year. Before moving on, I wanted to clarify the difference this quarter between U.S. GAAP and adjusted diluted EPS. There were two noncash items behind the difference. First, our proposal to increase U.K. corporation tax to 25% from 19% with effect from the 1st of April 2023 was enacted, and this requires the deferred tax liability to be remeasured at the 25% rate. We recognized an income tax expense of $31 million related to this remeasurement. And secondly, we recognized a $40.8 million impairment on intangible assets related to certain investment management contracts. Turning to Slide 12, which outlines the revenue drivers for the quarter. The biggest drivers of the quarterly change in adjusted revenue were higher average assets, strong seasonal performance fees and an increase in net management fee margin. Net management fee margin for the second quarter was 47.1 basis points, which was up from 46.8 basis points in the prior quarter and up from 45.7 basis points a year ago. This marks the 7th straight quarter of high net management fee margins. The increase in the margin is due to both positive markets and changes in the underlying asset mix. We continue to be focused on high quality assets, and that's showing up in the fee rate. Inflows are coming into higher fee margin areas such as EMEA and Asia Pacific intermediary and our multi-strategy products that I’ve just talked about, and with outflows being in relatively lower fee margin areas, including quantitative equities. Performance fees for the quarter were $77 million, versus $17 million in both the prior quarter and a year-ago. Given this exceptional second quarter performance fee result and the diversified mix of funds, which have delivered it, I wanted to give you a little bit more insight into what drove this, and I'll do that on Slide 13. Performance fees from the SICAV range in the second quarter were $50 million compared to $12 million in the first quarter and $9 million a year-ago. The increase compared to the first quarter was the result of second quarter seasonality as our SICAV's pay annual performance fees in June. And additionally, this reflects strong performance in the absolute return strategy, which has a quarterly measurement period and payout. Second, Q2 fulfillment fees in the U.K. OEIC and unit trusts were $15 million compared to $4 million in the first quarter, driven by strong performance in the Absolute Return fund. Third, performance fees in U.K. investment trust during the quarter were $13 million compared to 0 in the first quarter. Again, this was driven by seasonality from trust that pay annual performance fees in the second quarter and the trust earning performance fees for the smaller companies and European growth investment trusts. U.S. mutual fund performance fees were negative $3 million in the quarter compared to negative $4 million in the last quarter. Finally, I want to point out that the absolute return strategy has already or will be switching from a quarterly measurement period to an annual measurement period, in line with regulation. The U.K. OEIC switched that payout on the 1st of June, with the last quarterly payout in May. The SICAV will payout, if earned, one more quarterly fee in the third quarter and will then switch to an annual measurement starting on the 1st of October. In the appendix, we've provided updated AUM eligible to earn performance fee by quarter, which reflects this change, and I’m happy to talk you through that offline. Turning to operating expenses on Slide 14. Adjusted operating expenses in the second quarter were $334 million, which was up 6% from the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, was up 10% compared to prior quarter primarily as a result of higher variable compensation on higher profits. Adjusted LTI was down 7% from the first quarter, largely due to payroll taxes on annual vestings in Q1. The second quarter adjusted comp-to-revenue ratio was 40.1%. For the first half of 2021, the ratio was 42%, and for the full year, we still anticipate a range of 40% to 42%. Adjusted non-comp operating expenses were 6% higher compared to the prior quarter, primarily from higher G&A. For 2021, the expectation of non-comp operating expense growth of mid single digits remains unchanged. And finally, our recurring effective tax rate for the second quarter was 22.4%. Turning to Slide 15, which is a look at our liquidity. Cash and cash equivalents were $965 million as of the 30th of June, an increase of $141 million, resulting from the strong cash flow generation from the profits we just mentioned. As a reminder, we now exclude cash and investments related to VIEs and VREs from this slide as it more accurately reflects our true liquidity. It also aligns with how we discussed our liquidity and capital resources in the MD&A section of our 10-Q and 10-K filings. During the second quarter, we paid approximately $65 million in dividends to shareholders and declared a $0.38 per share dividend to be paid on the 25th of August to shareholders of record as of the 9th of August. Finally, as Dick has previously mentioned, with our strong balance sheet, significant cash flow generation and reduced regulatory capital requirements, the Board has authorized a $200 million buyback, which is expected to be completed by the next AGM in April 2022. The $230 million buyback completed in the first quarter, the quarterly dividend, including a 6% increase announced last quarter and the additional $200 million of buyback that we've announced today demonstrates our commitment of returning excess cash to shareholders. Now I would like to turn it back over to the operator for Q&A.

[Operator Instructions] The first question comes from Dan Fannon with Jefferies. Please go ahead.

Thanks and good morning. You both mentioned a diversified list of strategies that are taking inflows on the institutional side, and I think you mentioned a solid pipeline. So just hoping to get a little more color either at the fund level or maybe sizing some of that so we can think about some context.

Hey, Dan, it's Roger. Let me try and answer that. I think it's a mix, as we say, and it's also a mix of a continuation of the things we’ve just called out. So some smaller fundings in higher fee areas. So I think we’ve talked previously about the expectations and hopes we had in multistrat as an important area, and we've seen some wins in that and expect to see continuation there. And that’s a good high fee product. The -- on the other end of that barbell, if you like, we’ve got some good opportunities for winning some bigger fee -- bigger AUM assets in some lower fee products as well. So there should be a good mix, both in terms of size, we expect to come through. But the most important thing for us is obviously the growth in revenue and profits. So that mix of product coming in, in fixed income, continuation of flows in equity in different areas and in areas like multistrat gives us -- give confidence of both growth and that sustained management fee rate.

Great. And then as a follow-up, Dick, the focus areas of growth, those five segments that you highlighted, you mentioned organic and inorganic and some of the things that are already happening. So could you maybe -- alternative seems like an area where inorganic might be a potential opportunity. Could you talk about your appetite for M&A in this backdrop and maybe within the context of these segments where inorganic might make more sense?

Yes. So we first think about organic in these areas, and I think we are doing a good job of adding alternatives, adding to our alternative suite with organic efforts, extending some of the strategies like our health care life science strategy in the U.S. and adding versions of that strategy that focus on the less liquid end of the spectrum and push us a bit more into the alternative space from the base we already have, and that makes a lot of sense for us. We are looking for opportunities to do that both in equities and in fixed income. As you do that, you also look in the marketplace and take a look at the inorganic opportunities that are out there. But like always, when we talk about inorganic opportunities, it's hard to find a culture match. It's hard to find compensation that fits. It's hard to find people who want to be part of an organization as opposed to be in their own little self directed area. And so finding the right fit is a nontrivial exercise, it's difficult. It's especially difficult probably in alternatives these days with very high prices for a lot of different parts of that business. So we are actively looking at opportunities, both organic and inorganic. We very much intend to grow our presence in alternatives. We will push more into liquid alternatives. We will also have some more less liquid elements, but those will be smaller, and that’s how we are looking at it. I don't think I can be more specific than that.

Okay. Thank you.

The next question comes from Ed Henning with CLSA. Please go ahead.

Hi. Thanks for taking my question. Two questions also just on the areas of growth. Can you just run through how you're measuring success here, and how we should think about the key milestones? And then also just within that, if you look at the opportunities you highlighted, what do you think is the biggest near-term opportunity? And then also what's the biggest medium-term opportunity?

Thanks, Ed. Taking the second part first, the biggest near-term opportunities, clearly, we are most active in launching new products, as I think Roger mentioned in his comments. We filed a registration statement for five new ETFs in the U.S. We are looking at additional things we can do down in Australia. And so ETFs is, I think probably in the near-term, one area that we are very active. We've talked a bit about what we are pushing forward already within alternatives, that continues to be active. In ESG, we are putting an awful lot of effort to taking the right steps forward in ESG, which includes strengthening the approach across the whole firm, but it includes adding new products, it includes focus on existing product. Our equity product in Europe focused on ESG is coming up on its 30th year anniversary and it's a remarkably excellent effort. And so we've got things happening across the board. But like a farmer, you need to plant for different reasons. And so you want to do things that are paying today and you want to do some things that are planted today and hopefully pay tomorrow in the medium and then in the long-term. So we are trying to act across time frames both to do things that are more immediate, but also think that lay the foundation for future success.

I think on the measurement side, Ed, there's nothing super clever about that. For us -- the important thing for us, and we've talked about -- is about growing our business. And we talked about how we get there. So, yes, it's flow, but for us, it's really -- it's revenue growth and ultimately, profit growth. So we look at all the areas we are investing in. Are they delivering what we wanted them to do? Things run at different speeds. As Dick just said, some things you need to plant seeds now for and nurture those. But ultimately, it's about delivery of flow leading to revenue and profit.

Okay. Thanks.

Just to close on that, I'm sorry to go back and forth on you, but these areas are areas where we are looking at additional investment. The great thing about having the strong financial results that we are having is it enables us to make the appropriate investments in delivering growth. So in each of these areas, we are taking a hard look at organic and inorganic opportunities, and we know we have the capability to make some additional investment in our business.

Okay. That’s helpful. Thank you.

The next question comes from Patrick Davitt with Autonomous Research. Please go ahead.

Hey, good morning, guys. First question kind of on the -- this idea that you see all these opportunities to invest and kind of gone through a pretty good period of you guys being pretty good at finding ways to offset that investment need with expense savings. How should we think about the tenor of expense growth in -- through the lens of all these investments you want to make and perhaps even without having the offset at more expense saves kind of beyond this year?

I think in our core business, Patrick, what we are doing, we are always looking to be more efficient. But there is always investments to make, and we are making a lot of investments in the business. I’m hating to add, that’s included in the guidance I’ve given on where we are headed on margin and comp ratio. So that is a constant challenge to look at how we become more efficient to allow us to continue to make those investments in the business. I guess if you -- if we were to go and launch something sizable or buy something sizable, obviously the expense base is going to grow but that's going to come with the expectations of revenue and revenue growth over time. So they would change the size of the business, but we would obviously be looking -- again, we are constantly looking at growing the business and growing the bottom line of the business. So I think that's probably the best way of thinking about it. We are constantly looking at trying to run a more efficient ongoing business. If we make investments, you'd expect those to be adding to the revenue and the bottom of the business as well.

Okay, fair enough. And then on the performance fee, it doesn't really look like there was much of a comp accrual at all. Is that correct? So could you -- and if that is correct or it's not correct, is there kind of like a core compensation that's much lower than what you were running at this quarter?

You can see our comp and benefits is up 10% quarter-on-quarter. So as we've talked about before, we've got a relatively formulaic payout at the top of the house. So obviously, higher profits results in a higher comp pool. And you can see that in the 10% increase quarter-on-quarter, so that's there, Pat.

Okay. Thank you.

The next question comes from Liz Miliatis with Jarden. Please go ahead.

Hi. Thank you for taking my question. I do have two. Firstly, it seems -- it's fairly evident that you are really focusing on ESG and heavily investing in that strategy. I find it to be a little bit at odds with some of your commentary at last results where it seemed like you were taking a more cautious approach to ESG. Has something changed there? Are you going into that a bit more aggressively? And then my second question relates to tax. Your tax rate again seems to be quite low across now the first half. Should we assume that you should be falling in maybe the bottom end of your guidance, given that the tax rate so far has been sort of outside of that guidance range?

Hey, Roger, I will take the first part from Liz and leave you to talk about the tax rate. But on ESG, no, and apologies if you have the sense that we’ve changed the tone. We haven't really intentionally done that. We continue to work and develop and make progress and strengthen our approach to ESG and that’s been consistent in recent quarters, and we are not signaling a turning point, we are signaling a continuation on the path that we’ve been on. And so apologies if we haven't communicated that perfectly, but that’s the intent from our side. And Roger, on the tax?

Yes. We were very slightly under our guidance in the quarter. I think the tax rate -- empiric tax rate of 22.4%. The guidance is 23% to 25%. Yes, we pay tax in the places where we earn profits. So the guidance stays the same at 23% to 25%. But you are right, we've been at the lower end of that in the first half.

Okay. Thank you.

The next question comes from Simon Fitzgerald with Evans & Partners. Please go ahead.

Hi there. I will just stick on the ESG side of things for a little minute. Obviously, you've highlighted the sort of growth potential from that. Do you see -- just looking sort of forward a few years or even sort of medium term, do you see this as being a fully fledged independent style such as sort of Intech is or do you see this as being just another sort of addition to your equity strategy sort of looking more broadly?

Thank you, Simon. We are not thinking about it as a separate thing away from the rest of the firm. We are thinking about it as integrated into the core of the firm. And a lot of it is formalizing things that people have been doing for a long time and then gathering the appropriate data and making sure that the documentation and the evidencing of that is clear, and that’s part of it. Part of it is adding new resources, doing new research to strengthen the approach, and we're really doing both. But we see that as part of the core franchise and part of who we are, not as a separate and distinct investment style. We are not -- we think about it both in terms of products, but also in terms of overall investment process and then also in terms of overall company and core identity. We want to be at all those levels at firm, at investment process and at product.

Okay. Thank you. Maybe I had …

Simon, the only other thing I would add to that as well as you said equity, but it's actually -- it's totally across the firm. So our fixed income business is very engaged with ESG. Our Quant Equity business is very engaged with ESG. Some of our old products, you will see some of the absolute return products moving to Article 8 over the next couple of quarters. So again, I just wanted to clarify that it's not just equity, it's across the entire business.

Yes, that’s clear. And then just final question, just on the performance fee in terms of the restructure around sort of dates. Should we then think that the, I guess, strongest sort of seasonal pattern will be in those sort of June year end in the future?

So you will add the annual performance fee from the OEIC version of the Absolute Return Fund will now be in Q2 and the annual performance fee from the SICAV version of the Absolute Return performance fee will be Q3, actually. So again, should that come in, that will smooth us a little bit, I guess, because Q3 is normally our lowest quarter in terms of what's eligible. So that will smooth a little bit.

Okay. Thank you.

Next question comes from Alex Bolstein with Goldman Sachs. Please go ahead.

Hi. This is actually Ryan on behalf of Alex. I was wondering if you could speak to the strategic hire, James Lowry, as Global COO, as you mentioned. What are your hopes for him to look at, particularly given his experience at State Street Alpha? And then is this more of an aggressive hire to focus on investments or to focus on expenses and finding efficiencies?

Hi, Brian, Dick here. I haven't done as good a job as I should do from my seat in uniting all the different parts of the firm to push forward in infrastructure, in data stewardship and architecture and a lot of that side of the firm. And in order to be excellent in investing, in order to be excellent in client experience, we need to have ourselves really aligned and tied together and executing very efficiently in those infrastructure areas. And so the first responsibility that our new COO will have is to take all the different pieces and parts of that effort and make sure that we're being efficient and effective and aligned and urgent in how we deliver those things. Of course, he will also be welcome to contribute across broader firm leadership strategy and other things as he spends time, and I know he brings a lot of scale and is capable in those areas as well. But initially, first and foremost, the job one will be really making sure that everything we are doing, all the investments that we are making across the piece and infrastructure that we are doing that in the most effective and aligned way possible so we can have the strongest, most simple, most excellent, most aligned infrastructure to deliver excellence for our clients and our internal investors and teams.

Got it. And maybe just a quick one for Roger. Just wondering if you could help us think about what was the driver of the impairment of the asset management contracts? And just if there are any implications from that going forward?

No. As you probably know, Ryan, we recognize intangibles in a number of different, very specific places. So some things grow and some things don't grow as fast as you would originally thought when you write those things up. You can never write up a balance. So when things go better than you expected, you never take the upside. When things are not -- when individual pieces don't grow as exactly as you thought they were going to start with, you need to look at those and look at the fair value of that intangible. So there's just one particular area that we needed to look at the intangible. But when we did that fair value, the intangible wasn't backed up, so that's why it's taken off. But as you know, that's a noncash item.

Got it. Yes, thanks. Thank you.

The next question comes from Nigel Pittaway with Citi. Please go ahead.

Hi guys. Just first of all, a question on the SMID and Mid-Cap strategies. I mean they have been underperforming for a while now, and there is a big chunk of thumb there. So just wondering how worried are you about those strategies, if you don't see a sort of turn in performance in the near future?

Hi. Thanks. Nigel, Dick here. How worried are we? In the sort of in the short-term, we are concerned. In the short-term, we see that performance isn't where we would like it to be, and that’s clearly going to have effects on flows and revenues. It's a high fee wonderful business. And so obviously, it has the potential to cause some pain and is indeed causing some pain. But these teams have been stable and strong and performed super well for decades. And they are some of our absolute best investors. And I don’t mean to heat more pressure on them by saying this, but when you look across Jonathan Coleman and Brian Demain and the folks who are really leading and managing those products, they are as good as anybody in the world. So do we have long-term concern? No, we don't. We are really long-term, very confident. But in the short-term, the results have been weaker than we would like, and we will just have to see what market effect that has, and it certainly has created some pain and will create some more. But those are absolutely the best in the world at what they do, and that will turn out in the long run.

Okay. Thanks for that. And then sorry to sort of hop on the poor areas, but also, obviously, the balance fund still looks as if it's in the slightly lower quartile. My understanding is that may have turned slightly negative recently. Is that sort of -- are you sort of fairly relaxed about that or is that another area where there is some concern?

Well, the balance fund is one of our largest growers and strongest things, and so we watch it very carefully. It had some softer months, and then it had some stronger months. I don’t actually know where it is as of the most recent public data, maybe Roger does. But no, we are not -- we are very pleased with the transition. We are pleased with the leadership. We like the process, we like the manager. It's going to move around a little bit as these things do. It's not an easy job to manage that fund. But we have a superb manager and a superb team, and we're really confident. And it's been really our biggest business driver for a while now, and we don't see signs of that abating. Roger, anything you want to correct or add on that?

No. Like you said, it's -- yes, it's strongly outperformed its benchmark even over one year. It is -- I think you're right, Nigel, it is I think third quartile over one year, but it's top decile over 3 and 5 and probably even better than top decile over 10. So it's in a very good place, but the very short-term relative performance is a little weaker, agreed.

Okay. Thank you.

The next question comes from John Dunn with Evercore. Please go ahead.

Hi. Thank you. Since fund launches are priority, do you guys have kind of a rule of thumb for average number of launches per year? I would guess that five would be at the higher end.

I don't think we -- we don't have that. We are constantly looking at what clients are looking for, what we can deliver and making sure we've got that in the right place. So we've done a lot of work over the last few years of making sure that we are fully leveraging the product set that we've already -- or the capability set we've already got by making sure that we've got vehicles around the world. So we've been launching things like Global Sustainable, which originally was only a U.K. OEIC, we've been launching that around the world. We just -- as Dick said in his comments, we've just filed for five new ETFs, having already done one. So we have a lot of capacity. The teams are working hard. There is a lot of capacity around the world for us to launch multiple products in multiple places. So there isn't a number. We probably haven't done as much new product over the last few years because we've been making sure that we're leveraging the vehicles around the world and making sure we've got the right things in the right place. And we've seen some real success with that. So sustainable would be a good example. Strategic bonds that was, again, a U.K. fund that we're selling around the world and balanced obviously, we just talked about, that was something that we're selling in the U.S., and now we sell very successfully in multiple markets. So we've probably done more in the last few years of launching vehicles of existing products. We've now got -- we now have a number of things that we are looking to launch in the future. But yes, we will do -- we will try and do as much as we can to satisfy client demand if we've got products out there. And I guess the final part of that is seed capital. We will continue to put seed capital to work. So there are probably some -- there is probably some seed capital, which will add in the remainder of this year and next year as we launch some more products.

Makes sense. And then what are some of the products that you might anticipate catching some more demand in a rising rate environment?

I guess it depends on sort of what kind of rising rate environment is. There are rising rate environments, which caused equities to be repriced lower. You'd expect value and more valuation kinds of strategies to do better in that environment than the more growthy strategies. You could see a rising rate environment, which is part of a bullish cycle where it doesn't really cause a big downdraft in equities. There's all kinds of rising rate environment. If you go back and look at history, you can see up and down equity markets with rising rates. So I don't know exactly. We've got a pretty good mix of conservative and more aggressive, more value, more growth on the equity side. Similarly, I think we have a pretty good mix on fixed income, and our alternatives should offer some nice protection from some of the cycles as well with some absolute returns. So that third part of the business is obviously a place where we're focused on increasing our presence. But I would expect that we would have parts of the business that could be well in equities, parts of the business can do well in fixed and our alternatives could continue to grow.

Got it. Thanks very much.

We will take our last question from Andrei Stadnik with Morgan Stanley. Please go ahead.

Thank you. I just wanted to ask one question. Can you talk a little bit about the kind of investments you're going to be making in Asia, particularly around China? And what kind of results outcomes do you expect over time?

Yes. We’ve looked hard at China and our view is we don't think we are capable uniquely as a small company of just hiring 5 or 10 people in Shanghai and taking on the Chinese market. We probably need the right sort of partnerships and relationships with the right folks on the ground. We’ve looked at that over the years, and we haven't found the right thing to do. We've come close actually a couple of times, but we continue to be open to that circumstance. But I don't think we're going to make a huge investment and just go in alone ourselves in China. And so we will probably continue to service that market as we’ve been consistent with past practice for the most part until such time as we can identify the right opportunity to go in with a partner, who makes sense to us, which may or may not happen. But it's a part of the world, it's a market that we've looked at a lot. We continue to be interested in it, and we will see whether we get the opportunity to make a big step forward there or we don't. It is a great interest to us, but also to every other company with whom we compete, and so there will be no guarantees given about our ability to find that right opportunity. But we are certainly interested in it and have done a lot of looking.

Thank you.

This concludes our question-and-answer session and the Janus Henderson Group second quarter 2021 results briefing. Thank you for attending today’s call. You may disconnect your line at this time.