Janus Henderson Group PLC (JHG) Q4 2020 Earnings Call Transcript

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Janus Henderson Group PLC (JHG 1.31%)
Q4 2020 Earnings Call
Feb 5, 2021, 9:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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 Fourth Quarter and Full Year 2020 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.

Richard Weil -- Chief Executive Officer

Welcome everyone to the fourth quarter and full year 2020 earnings call for the Janus Henderson Group. As usual, I'm Dick Weil, the CEO; I'm joined by our CFO, Roger Thompson. Let me start by saying, I hope all of you and your loved ones are having a safe and healthy start to 2020.

In today's presentation, I'll give a brief summary of our 2020 results. I'll then touch on progress we're making and delivery of our strategy of Simple Excellence and a bit on how the business is starting at 2021. I'll also provide an update on our relationship with our strategic partner Dai-ichi and then I'll hand it over to Roger as usual who will go through the results with some more precision and following our prepared remarks, we'll take your questions.

So let's turn to Slide 3, which takes a high level look at our 2020 results. Investment performance is solid and has held up well despite really difficult market conditions in 2020, particularly in the first half of the year. 68%, 65% and 72% of our assets beat their respective benchmarks over the 1, 3 and 5-year time period. Our fixed income teams did extremely well with at least 90% of our AUM beating respective benchmarks over the same time periods. We had more mixed results in some of our equity strategies, in particular our mid and SMID cap growth US strategies managed out of Denver faced some really tough times in the first half of the year. But overall, our teams have been terrific, they have been resilient and they're doing their jobs and we're proud of their results.

Next, despite disappointing outflows particularly in the first half of the year, with the benefit of markets, our AUM ended up over $400 billion and we're pleased with that mark. This is up 7% on last year. It's up over 35% from the market sell-off from the bottom in the first quarter. And so that's a good mark for us we're pleased with. The headline flow result for the year masks a really important trend of progress building through the year. We had a really tough first half, but we've seen strong and growing momentum in our flows and are optimistic as we entered 2021 that we can continue on that better path. The first half net outflows of $20 billion, over 80% of the net outflows of the year, the back half was much better, it reduced to $4 billion of net outflows in the second half. And so that's the momentum I was talking about, which even got better in the fourth quarter as US$1 billion of net outflows were the mark in the fourth quarter. We were basically flat or positive across all of our capabilities, except for our quants equity capability, which as we previously talked about is going to take some more time to heal.

Finally, our financial results for the full year were very strong. Our adjusted EPS increased 22% over last year, we generated over $600 million in cash, which allowed us to return $394 million in dividends and buybacks to shareholders. If you turn to Slide 4, it's a reminder of our strategy, which is Simple Excellence. Despite the unprecedented events of this past year, I'm delighted that we've continued to make significant progress on delivering our strategy across each of our strategic pillars, building a strong and resilient foundation for our future. Our path to achieving Simple Excellence is founded on five planks referenced on this page. I previously said that delivering on Simple Excellence builds upon positive client relationships, which will drive organic growth as well as increasing profitability.

Looking ahead, Simple Excellence forms a very strong foundation for a stable and resilient business and it supports sustained growth in the long run. This means organically scaling operations and profitability across our existing core franchise, delivering on the benefits of operating leverage, but it also means in time it would enable us to remain alert to inorganic opportunities, which would complement our strategy and operating model. We're taking the right steps as a firm to create value for all of our key stakeholders for our clients, our employees and our shareholders and we're entering this new year with a lot of optimism.

Slide 5 takes a look at some of the progress we've made in the strategic priorities across investments and distribution. Despite the market volatility and challenging conditions, which we've already talked about for our investment team, our near-term investment performance has strengthened throughout the year. We've seen some mixed pockets of performance since the market sell down in the first quarter, but our investment teams have done a really good job, they've remained disciplined and true to their promises to the clients and their investment strategies. We've taken steps also to strengthen our investment teams during the year. We've recruited some excellent talent and filled key roles. We filled a new US head of fixed income. We added a new director of research early last year. Those are crucial, crucial seats for us and we're really pleased with the talent that we were able to attract. More recently, it was exciting to fill a new head of ESG for our investment team who will be leading our ESG approach across all of our investment capabilities.

We've also continued to invest in our technology for our investment teams. We're doing a major upgrade to our OMS and portfolio risk systems and these are really important investments to enable our teams to set our business up for future growth.

On the distribution side, we finished the year with real momentum. The global distribution roadmap from our Head of Global Distribution, Suzanne Cain, brought real energy and focus to our efforts. We saw double-digit growth across our global focus products, which is our list of products where we see the best competitive positioning and high growth potential and that program is working really well for us. We also strengthened senior leadership across distribution, client relations, product team including appointing new global heads of consultant relations of product and product strategy and ESG, which will further support our articulation and delivery of our ESG solutions to our clients.

In line with our conviction and the importance of data across our firm underpinning everything we do, we've significantly expanded our distribution intelligence and client analytics capabilities.

Next, let's turn to Slide 6 and let me talk you through some of the accomplishments in the year, delivering on Simple Excellence. We continue to make significant progress in the execution of our strategy. During the year, we completed some major projects that simplify the way we operate our business and that also served to free up capacity so we can add energy and resources not only to delivering DAU but also to delivering generational steps forward in our infrastructure. In addition to those things, we've also done good work targeting new growth initiatives. During the year, we extended some of our strongest product capabilities to new regions and vehicles. We launched new products like a biotech hedge fund, a multi-strategy fund, a European-focused asset-backed security strategy as well as a number of new ETFs that are doing well in North America and Australia. We've expanded our presence in key growth areas including in Latin America. This list of achievements underlines the progress we're making to continuously improve our firm. We feel like Simple Excellence is working and we're proud of the progress we're making.

Let me turn last on this page just briefly to cost control. We owe you an update as we've mentioned from prior quarterly calls on cost control. Roger is going to take you through that cost management in more detail but I just want to set a framework from my perspective. As we think about cost control, it's really important and we want to be as efficient as we possibly can. But there are boundaries to that, even more important than that efficiency is we have to make sure that we're delivering excellence and we have to deliver the growth that we promised as well both in terms of AUM and in profitability. So for us, that creates sort of a hierarchy. We need to be as efficient as we can without sacrificing that Simple Excellence and that growth. And so that boundary is important and while Roger will take you through the cost savings that we found and they are important and material, we've also found that we need to make some continued investments in our infrastructure in order to deliver that Simple Excellence in growth.

So what we're doing as a management team is living in that framework and in that balance and Roger will talk to you more about that a bit later.

Let me turn to Slide 7. One last thing I want to cover before I hand it back over to Roger. I need to give you an update on our relationship with our strategic partner Dai-ichi. Dai-ichi has made a strategic decision to separate its operational partnership with Janus Henderson from its Board and capital positions. It's decided that it needs to focus its capital on its global insurance business and so while they continue to be an exceptional partner for us, they're going to change the capital relationship, they are going to sell their position and step off the Board. Now we're disappointed because they've been a wonderful Board member, but we're also pleased we have a new cooperation agreement that underpins what we believe will be a strong and growing operational relationship into the future. And so while disappointed that we won't have the benefit of their participation in our shareholder register and on our Board, to us the most important thing is that the wonderful operational relationship that we've developed is going to continue and grow and we look forward to that going ahead. As a result of this, we have today announced the commencement of a secondary offering of common stock through which Dai-ichi intends to exit its investment in Janus Henderson through an underwritten public secondary offering. We've agreed Janus Henderson will participate in the offering and will purchase up to $230 million of stock using cash. Our participation is expected to be immediately accretive to our shareholders. We're pleased to demonstrate our ongoing commitment returning excess capital to our shareholders and delivering on this commitment in an accelerated and disciplined manner.

Just as a little background to that, we currently manage about $10 billion on behalf of Dai-ichi and its subsidiaries and affiliates. This was $2 billion at the onset of our relationship back in 2012. It's grown nicely to $10 billion today and we're looking for opportunities to continue to support that and even grow it further in the future, and we look forward to collaborating on the development of new investment products as well. Our relationship will also continue to be supported by an exchange of human resources. We remain absolutely committed to expanding in Japan. We look forward to welcoming a senior Dai-ichi executive to share in the leadership of our Japanese business going forward. Dai-ichi has been our largest shareholder for 8 years and while we're disappointed to lose their involvement in that regard, we really do understand the competing needs and the pressure on their capital and we look forward to continuing our strong operating partnership and growing it in the future.

Today's news will reshape our share register; it doesn't change the path we're on with Simple Excellence and across our business. So with that, let me turn it over to Roger to give you some more precision in the results.

Roger Thompson -- Chief Financial Officer

Thank you, Dick, and thanks to everyone for joining us. Starting on Slide 9 with the fourth quarter results. As Dick has already discussed, our solid investment performance and our stronger AUM at the end of the year, I'll touch briefly on flows and on EPS. Net outflows continue to trend better at $1.1 billion in the quarter as a result of net inflows into intermediary and strong gross sales in institutional. The financial results were exceptionally good with EPS of $1.04 compared to $0.70 a quarter ago. The significant increase was primarily due to higher average assets, very strong seasonal average annual performance fees and investment gains on our seed capital.

Moving to Slide 10 and investment performance. Investment performance remained solid with 68%, 65% and 72% of firmwide assets beating their respective benchmarks on a 1, 3 and 5-year basis as at December 31. The one-year performance improvements compared to the third quarter was primarily from the US concentrated growth strategy within equities. Performance of fixed income multi-asset, which is dominated by balanced and alternatives is excellent and very competitive. Additionally, we are encouraged by INTECH's significantly improved one year performance. Relative performance compared to peers is strong overall with 57%, 66% and 71% of the AUM represented in the Top 2 Morningstar quartiles on a 1, 3 and 5-year basis.

Now turning to total company flows. For the quarter, net outflows were $1.1 billion compared to $2.9 billion last quarter and continues our significantly improving quarterly flow trend. The quarterly flow number reflects the best gross sales figure since the merger. This gives 2020 our two highest gross quarters ever and speaks to the momentum we're seeing in the business. The flow results while negative are not yet where we expect it to be, is the best quarterly number in over 3 years.

Looking deeper, net flows were flat or positive and strengthening across all capabilities except quantitative equities, which as we said will take time to turn even with that solid one year investment performance.

Now let's move to Slide 12, which shows the breakdown of flows in the quarter by client type. Previously, we've provided this view of flows as a one-off in earnings presentations. However, it is an important way in how we look at and think about our business and as such beginning this quarter we'll present and discuss the flows in this manner regularly. So let's look at the quarterly detail. Intermediary net inflows for the quarter were $1 billion. Across regions, net flows in EMEA, Latin America and Asia-Pacific were all positive spread across fixed income, multi-asset and equity strategies. These inflows were partially offset in the US from certain US equity strategies experiencing short-term underperformance. The intermediary result shows our breadth of product and our global distribution footprint.

Institutional net outflows for the fourth quarter were $1.2 billion, which included some strong wins in the UK and EMEA, offset by net outflows in quantitative equities of $3.4 billion. Gross sales of $8.8 billion were the best result since the merger and reflects converting some of the strong pipeline that's been building in institutional. Finally, net outflows for the self-directed channel, which includes direct and supermarket investors, was $900 million in the quarter.

Slide 13 shows the breakdown of flows in the quarter by capability. Equity net flows for the fourth quarter were virtually flat compared to $5.1 billion of outflows in the prior quarter. The improvement in quarterly outflows included a $2.1 billion funding from a large insurance client in the UK into our UK enhanced index strategy as well as positive non-US retail flows led by European small cap, global life sciences and global sustainable equity, which is one of our dedicated ESG strategies. Flows into fixed income were positive $1.2 billion in the quarter. Fixed income continues to see positive flows in retail across a wide range of strategies including our short-duration ETF VNLA, our developed world bond European investment grade credit and global high yields. Total inflows from multi-assets were $1.2 billion, driven by inflows into the balanced strategy.

Quantitative equity outflows declined in the fourth quarter to $3.4 billion. We're pleased with INTECH's improving short-term performance but as we said previously, it will take time for flows to turn. Finally, alternative flows were break even.

Slide 14 is our standard presentation of the US GAAP statement of income. Moving to Slide 15 for a look at the summary financial results. In summary, adjusted revenue, operating income, margin and EPS are all up strongly quarter-on-quarter and year-on-year.

First, quickly looking at the full year's result. Despite the extreme market drop due to COVID in the first quarter, the market recovery and strong cost control thereafter enabled increases across our adjusted financial metrics even with a 1% drop in average AUM compared to 2019. Although, average AUM was down over the prior year, a higher net management fee margin and better performance fees led to a 5% increase in adjusted total revenue for the year. Full year adjusted operating margin improved 2.2 percentage points over 2019% to 38% and adjusted diluted EPS for the year was $3.01 compared to $2.47 in 2019.

Now looking at the quarter-on-quarter comparison, our fourth quarter adjusted financial results primarily reflect good market conditions and exceptional seasonal performance fees during the quarter. Average AUM increased 6% over the third quarter, driven by positive markets and currency movements. Higher average assets and seasonal performance fees resulted in an 18% increase in total adjusted revenues from the prior quarter. Adjusted operating income of $232 million was up 43% compared to the third quarter as a result of the higher revenues and our continued strong cost discipline. Fourth quarter adjusted operating margin was 43.8% compared to 36% in the prior quarter. And finally, adjusted diluted EPS was $1.04 for the quarter compared to $0.70 for the third quarter.

On Slide 16, we've outlined the revenue drivers for the quarter. Higher average assets, and particularly high seasonal performance fees were the biggest drivers of the quarterly change in adjusted revenue. Net management fee margin for the fourth quarter was 45.9 basis points, which is up marginally from the third quarter and up from 44.9 basis points a year ago. This marks the fifth straight quarter of higher net management fee margins and demonstrates our resiliency during a period when the industry is seeing fee margin compression. We have provided the 2020 net management fee margin by capability in the appendix. We'll continue to disclose this metric on an annual basis and we hope that you find it useful. Performance fees were $59.3 million in the quarter compared to $7 million in the prior quarter. The fourth quarter was an exceptionally good result with many strategies outperforming and was primarily driven by annual performance fees on segregated accounts within our Global Life Sciences and Global Tech strategies but also supplemented by several smaller amounts spread across multiple strategies. For mutual fund performance fees, the fourth quarter improved to negative $2 million from negative $5 million in the third quarter. Now because the performance fees I think are important to understand more fully, on Slide 17 we've provided some more details on the change in performance fees year-over-year.

Performance fees in 2020 were $98 million compared to $17.6 million in 2019. And looking at the 2 years, 2019 was on the lower end of what we'd expect in a given year while 2020 was one of the better years for performance fees. The biggest factors in the increase were the performance fees earned from global life sciences, global technology, core plus fixed income and INTECH in segregated mandates. The UK absolute return in the UK, OEIC and SICAV, a global market neutral real estate, European equity strategies also earned performance fees in the SICAV fund range. As you can see, it was a wide range of outperforming strategies that drove the increase in performance fees, which is great to see.

Turning to operating expenses on Slide 18. Adjusted operating expenses in the fourth quarter were $297 million, which were up 3% from the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, was up 5% compared to the prior quarter, primarily as a result of higher variable costs, given the higher pre-bonus profit, partially offset by the impact of year-end adjustments in our cash and noncash payout mix. Adjusted LTI was up 5% in the third quarter, largely due to mark-to-market. In the appendix, we've provided further detail on the expected future amortization of existing grants, along with an estimated range for the 2021 grants for you to use in your models. The fourth quarter adjusted comp-to-revenue ratio was 39.2%, which reflects the leverage in our business. For the full year, the total comp-to-revenue ratio was 42.9%. Adjusted non-comp operating expenses were flat compared to the prior quarter. For the full year 2020, non-comp operating expenses were down 1% compared to 2019, which is in line with guidance.

And finally, our recurring effective tax rate for the fourth quarter was 22.1% and for the full year, the firm's effective tax rate was 22.9%. On Slide 19, we give more details on our expense discipline, the specific exercise we went through in the summer and our thoughts on 2021. Our philosophy has always been to maintain strong financial discipline, while reinvesting in the business to deliver against our strategy of Simple Excellence and position us for growth. This disciplined approach allowed us to take out $125 million in costs post merger, which was ahead of schedule and to keep expenses well controlled over the last 3 years. However, with the onset of COVID coupled with the passage of time since the merger, we felt like 2020 was the right time to take a fresh look at our cost base. Alongside engaging an outside consultant to help us, we took a real wide brush to our expenses and are delivering on $40 million of additional cost saving opportunities, which we expect to realize over the next 2 years. The savings will offset the investments we're making in the business.

A few examples of those investments are retooling[Phonetic] our client-facing technology and reporting, implementing an upgraded order management system and streamlining our data architecture. These are all critical things for us to do. These investments will improve our operational efficiency and support a growing business and enable us to do that cost efficiently by keeping expenses relatively flat.

With all that said, I wanted to walk you through what that means for 2021 and our expectations around expenses. Given how we run our business with tight cost controls and the higher AUM entering 2021, you should expect to see increased operating leverage. At current market levels, we anticipate the adjusted compensation ratio to decline further to the low-40s and by that I mean in the range of 40% to 42%. This results from a higher AUM and our ability to keep fixed comp expenses relatively flat year-over-year even when considering annual pay rises and the impact of a weaker dollar entering 2021. For non-compensation expense, we would expect to see an increase in the mid-single digits but over half of the expected increase is due to currency rates given the higher sterling to US dollar as we entered 2021 compared to the average rate over 2020. The majority of the remaining increase is from higher marketing expenses as we take the learnings from the new way of interacting with clients and potential clients that we learned in 2020 and apply that knowledge in 2021.

Marketing spend will be higher than 2020 but still below 2019. And finally the firm statutory tax rate is expected to remain at 23% to 25%, which is similar to 2020 but it could, of course, be affected by future changes to tax laws and the overall tax rate will be impacted by various differences, which arise quarter-to-quarter.

Lastly, Slide 20 is a look at our balance sheet. Cash and cash equivalents were $1.1 billion as at December 31, an increase of $182 million resulting primarily from operating cash flow generation during the fourth quarter. The strength of our balance sheet and the cash flow generation has allowed us to complete $131 million of accretive buyback in 2020 and will also allow us to repurchase the $230 million of our stock in the registered secondary offering that was announced earlier today. Assuming the successful completion of the offering, our participation effectively accelerates our buyback for the current year. Our capital philosophy is unchanged and we will provide updates on future earning calls regarding our thoughts about any future buybacks as we evaluate our cash position and cash flow generation.

Turning back to the fourth quarter, we paid approximately $65 million in dividends to shareholders and today have declared a $0.36 per share dividend to be paid on March 3 to shareholders of record as at February 17.

Now I'd like to turn it back over to Dick for a few comments before we begin Q&A.

Richard Weil -- Chief Executive Officer

Thank you, Roger. Before handing it over to the operator for questions, let me just briefly wrap up. Most importantly, our investment teams performed over this past year with discipline and excellence across really challenging market conditions. We've improved results in many important areas that have been impacted by difficult and volatile markets and even where we've seen difficult results, the teams are doing a really good job sticking with their discipline and their strategies and over the long term, we're confident that those very talented people will continue to deliver on their client promises. We've also further strengthened our global distribution and product platform. We've made really good senior new hires and we've refreshed our product focus, we've modernized our client experience, and we're investing in the underpinning technology and data. We're seeing important improvements in flows in the second half of the year and into the fourth quarter that demonstrates the resilience and the diversification of our platform and capabilities. We've continued to maintain our focus on cost discipline while also making the appropriate investments in significant technology and data and the operating platform enhancements needed to strengthen our future and deliver Simple Excellence and growth. Dai-ichi will continue to be a very valued long-term strategic partner for us and we look forward to continuing our tremendous relationship.

Looking ahead, our focus is on delivering excellence and delivering growth using the momentum we have entering this new year to continue our progress and to deliver strong, profitable resilient business through our Simple Excellence strategy. We're confident we're on the right path. Simple Excellence is working. We're going to deliver for our clients, for our owners and our employees and we're also going to continue to make positive contributions to all the communities in which we operate.

As we turn to Q&A, I'd like to remind you that as we are in the market with a live secondary offering, we're subject to certain securities laws that limit our ability to discuss the Dai-ichi transaction. This also limits our dialog with you outside of the earnings call during this period. So please be sure to get your questions included in this call now and we kindly ask that they remain focused solely on our earnings today.

With that operator, let me turn it back to you for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ken Worthington of JPMorgan. Please go ahead.

Kenneth Worthington -- J.P. Morgan -- Analyst

Hi, good morning and thank you for taking my questions. I'll do my best to honor your comments on the Q&A, but I would like to flesh out Dai-ichi a bit more, so hopefully I can do this in a way that allows you to answer. How much did Dai-ichi contribute to Janus sales in say 2020? And as we think about the Dai-ichi contribution, I know some of this came from sort of those retail products which would seem to be ongoing, so what portion of the sales are coming there versus the direct insurance company?

Richard Weil -- Chief Executive Officer

Thanks, Ken. Roger may be able to find the precise numbers for you. The biggest sales we've made with the help of Dai-ichi's very strong partnership more recently were down in Australia where their TAL, an insurance company in Australia, partnered with our fixed income business and we managed $3 billion or $4 billion of assets down there for TAL, which is a Dai-ichi affiliate and that's the biggest change most recently, and again that was fixed-income assets. We also have some more retail products sold through their insurance company in Tokyo, that's much smaller numbers, but sort of a steady drumbeat coming in through that way. And so they've helped us in both those ways and probably other ways that aren't right on the top of my head, but they've been a terrific partner. But if you look across the size of our gross sales with the exception of a lumpy TAL commitment in the quarter, it's not a regular feature that it would be big enough to stand out from the rest of the business. As we've said, we started in 2012 with about $2 billion of their assets that we managed and it's grown to over, I think, it's about $10.4 billion now. So it's grown very nicely. They've also obviously been a supportive partner in lots of other ways, but that's the basic frame. Roger, can you fill in?

Roger Thompson -- Chief Financial Officer

No, I think you summarized it perfectly. I mean, it's grown $8 billion over the 8 years. And TAL will be the biggest contributor in the last couple of years.

Kenneth Worthington -- J.P. Morgan -- Analyst

Great. And then your equity sales improved significantly. Can you help us understand -- and you called out like a number of funds that are doing better, as we think about this quarter versus maybe quarters last year, so ignoring the weak first half of this year, to what extent are the improvements seen in this quarter due to kind of lumpy, kind of, one-off versus really things that you think are sustainable? Thank you.

Roger Thompson -- Chief Financial Officer

Let me start on that one. And then perhaps you can add it. As I said, there was one large institutional mandate in the UK, which was $2.1 billion of flows. And then a very long, a long tail of funds performing well through Europe, our European Small Cap growing well, life sciences, including a biotech hedge fund. So it's a pretty broad suite. On the other side, we've seen some outflows from our US mid and SMID cap capabilities, which we talked about in terms of its short-term performance challenges this year, obviously, has had a very long standing and excellent record there. So, again, we're not concerned about that in any way, but that's the other side of the equation.

Kenneth Worthington -- J.P. Morgan -- Analyst

Okay. Thank you very much.

Operator

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

Edmund Henning -- CLSA -- Analyst

Thank you for taking my questions and they pretty much follow on from before. Firstly, can I just start with Dai-ichi, you mentioned you're managing about $10 billion, a new agreement has a minimum of $2 billion for a period of 3 years. In the old agreement, was there any minimum and why the $2 billion, obviously, it's well below the $10 billion. That's the first question.

Richard Weil -- Chief Executive Officer

Yeah, the $2 billion was the same number in the old agreement and it's never really bounded our relationship in the past and that number got carried forward into the new agreement. But you know, we have the opportunity to continue to grow the relationship with them if we do a really good job. But it's not guaranteed, but the operating relationship remains strong.

Edmund Henning -- CLSA -- Analyst

Okay. Now that's good. And the second one is also on equities. Just a follow-up. Can you just run through, one, on the gross sales side, you, obviously Roger, you talked about, there was a number of funds that contribute to the performance there. Can you just touch on some of the capacities in those funds that are doing well? And then on the outflows, you touched on the US and SMID cap contributed to the outflows there. Can you just touch on how much of the outflows came from those two strategies?

Roger Thompson -- Chief Financial Officer

So in terms of -- yeah, we've got a -- as you know, we've got a very broad range of funds. We've got a couple of funds that are still soft closed. So Triton, for example, is soft closed and we've obviously got significant capacity in our large cap capabilities like the Forty Fund and research in the US and global. Our European strategies have got strong capacity as well, something like life sciences is growing very significantly. So at some point, that will then get tighter. But we've got good capacity across equity to continue to grow. In terms of the SMID and mid, in terms of the outflows there, it's about $2 billion in the quarter. You can see in terms of from the fund flow data.

Edmund Henning -- CLSA -- Analyst

Okay. Thank you.

Operator

The next question comes from Dan Fannon of Jefferies. Please go ahead.

Daniel Fannon -- Jeffries -- Analyst

Thanks. Good morning. So just thinking about the Simple Excellence and some of the evaluation you guys have been putting forth across your business. You did mention kind of inorganic growth potential, so just thinking about in the backdrop of a consolidating industry, how you think about the plans, you've put forward your outlook and the scale across the various kind of businesses you're in?

Richard Weil -- Chief Executive Officer

Sure. So I think we've been very clear and consistent. Scale for us isn't really an answer. The answer is excellence. So if you're a below average asset manager, the proper price for you in a world where passive is available at basically no cost is low to zero, alright? So the first goal isn't scale, the first goal is excellence. And then if you do that job, that will be confirmed through AUM growth and profit growth. And so that's our plan. And so when you think about Simple Excellence, it's about delivering on the Janus Henderson merger. It's about delivering for our clients and it's about delivering the AUM and profit growth, that will be the confirmation of the success of driving that strategy. But if you think about it in a slightly brander time scale that builds a company with an extremely strong foundation and that company with that foundation is potentially a better participant in inorganic ideas because you're building on a very strong foundation.

So right after the Janus Henderson merger, we said we really want to make sure we build the right foundation, we're not looking to add more complexity until we get the foundation right and Simple Excellence is getting that foundation right. And then as you do that, I think you become a more capable participant in potentially adding complexity. But when we think about those ideas, we're humble about it because we think Janus Henderson is a really good merger and it's taken years and a lot of hard work to deliver on that potential.

Nobody should think these things can be done without that sort of commitment even when they are the right partners. And so we have a real humility and caution about thinking about inorganic ideas. But if you look across our business, we've had success adding our ETF business through an inorganic transaction. We've added fixed-income assets, we've added other pieces of alternatives and things in London. If you look at the history of both Janus and Henderson and now Janus Henderson, we've had success doing transactions inorganically of different sizes and we certainly haven't turned our back on that, but establishing Simple Excellence builds the right foundation which when that's well done, that gives you more options to think about more things.

Daniel Fannon -- Jeffries -- Analyst

Got it. And then, Roger, just with regards to, the cost efficiencies that you announced, I think the concept of keeping things flat or balancing spend versus the efficiencies coming out. So over what time period are we talking about the $40 million coming out and then, again, could you be a bit more specific around where those efficiencies might be coming from?

Roger Thompson -- Chief Financial Officer

Sure. That's over 2 years. And we looked across the whole of the business. The majority of it is non-comp, part of that is things that we've learned during the year, so an expectation that our T&E spend continues to be lower. I talked about marketing consolidation of our TPA is another example there of where we've been improving our structure there and there's some cost efficiency of it. So across the organization the bulk is in the non-comp line and delivery over 2 years.

Daniel Fannon -- Jeffries -- Analyst

Great. Thank you.

Operator

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

Nigel Pittaway -- Citigroup -- Analyst

Thank you very much. Just first of all to follow up on that, that cost saving, I mean you're saying most of it is on the non-comp line. But if you do look at LTIP, yeah, you had revenue up this year, LTIP down in '20. It looks like if we take your sort of guidance and what's going to happen in '21, literally the same thing could happen again. So can you just explain exactly why we're seeing that trend in LTIP over this period?

Roger Thompson -- Chief Financial Officer

That's because comp has been lower the last couple of years. Yeah, so that's following through effectively. You've got a 3-year amortization of that comp coming down over the last couple of years. This comp level is hopefully improving in the future. The LTIP sales, it will end up coming as well. So I guess that's a separate thing, but is relatively formulaic of the variable comp we pay over the 3 years previously. And as we've laid out in the appendix, you've got the current expectation of what LTIP is of those various grants over the vesting period going forward.

Richard Weil -- Chief Executive Officer

Said another way, Nigel, the cost savings that Roger is talking about are not a reframing of the compensation or the LTIP that we've been doing. Those programs are continuing consistently within the past -- with the past. That's not part of how we are saving the money.

Nigel Pittaway -- Citigroup -- Analyst

Okay, fair enough. And then changing tack but perhaps going back to some of the earlier questions. I mean, obviously, as part of your sort of strategy, you've got this return to consistent net inflow as the target. I mean, if you were to sort of roll out INTECH, how close do you think you are to achieving that goal? I mean, it looks like we still have to expect some volatility moving forward but how far do you think you are away from consistent net inflow?

Richard Weil -- Chief Executive Officer

I think when you're pretty close to the line, it's really hard -- the world assigns a huge importance to being a little above the zero line or a little below the zero line and when you're pretty close to that line, it's pretty hard to predict. And we have lots of parts of our company that are doing really well and gathering momentum and we see opportunities. There are other parts of our company that are challenging. And it's always the net combination of those two things that gives you the net result and you know it's really hard to predict. We're very close, maybe on the upside, maybe at zero, maybe a little bit on the downside ex-INTECH. We put up a quarter which was positive ex-INTECH. Hopefully, we'll do that consistently, but I wouldn't want to guarantee it, it's not something we know for sure, but it's what we aspire to. We've said previously and we believe, the path to organic growth for us is first organic growth ex-INTECH and then INTECH is going to take a little more time to continue its healing process. And then we'll get to organic growth with no asterisks about any part of it and that's the plan. We think we're on the plan, we think we're making progress, but quarterly -- monthly and quarterly outcomes are, there is a lot of noise in that data and it's not linear or perfectly predictable.

Nigel Pittaway -- Citigroup -- Analyst

Okay, thank you.

Operator

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

Patrick Davitt -- Autonomous Research -- Analyst

Hey, good morning guys. So it's a pretty big lumpiness in INTECH again. You mentioned I think last quarter there were five mandates that made up 60% of the assets. Is that still the case? Or did one of those come out to drive the outsized outflow number as we kind of think about what could come out this year.

Richard Weil -- Chief Executive Officer

No, that's still the case, Patrick.

Patrick Davitt -- Autonomous Research -- Analyst

Okay. And then I guess more broadly through that lens, any known big wins or losses in the pipeline coming through this quarter?

Richard Weil -- Chief Executive Officer

Nothing to tell you about this quarter, again, we don't normally guide in intra-quarter, but there's nothing major that we need to tell you about today.

Patrick Davitt -- Autonomous Research -- Analyst

Okay. So on the expense guide, how should we view that -- [Indecipherable] we view that vis-a-vis markets, how much would markets have to move up or down for that guide to change meaningfully in your view?

Roger Thompson -- Chief Financial Officer

Yeah, it is very market dependent. I mean, that's the biggest determinant on our revenue line is the level of the markets in the short run. So the guidance I've given you today is at market levels at the beginning of this year and should markets come off from where they are, then it will be difficult to achieve that comp ratio. But we've got, as I said, we've got considerable tailwind effectively going into this year with a 14% higher AUM level than the average at last year. So you got a little bit to play with before you get to a lower number than this year. But as we stand at the moment, that's why I'm giving you the low-40s on the comp ratio. And as I said, I've guided to that -- clarified that as 40% to 42% at current market levels.

Patrick Davitt -- Autonomous Research -- Analyst

And the G&A margin could be more sticky?

Roger Thompson -- Chief Financial Officer

Yes.

Patrick Davitt -- Autonomous Research -- Analyst

Got it. Thank you.

Richard Weil -- Chief Executive Officer

Yes. Let me just jump in and go back just one more comment on INTECH. Make sure I get these numbers right, Roger, but just so you all can size it, INTECH is something like 10% of our AUM but it's something a little less than 5% of our revenues. So that's just to give you a sense of the scale that we're talking about, when we talk about that part of our business.

Operator

Okay. The next question comes from Andrei Stadnik of Morgan Stanley. Please go ahead.

Andrei Stadnik -- Morgan Stanley -- Analyst

Good morning. Good afternoon. I wanted to ask two questions. Firstly, just on the operating margin for this fourth quarter. It seems particularly strong and it doesn't seem to be just performance fees because despite my stronger performance fees and good base, the staff costs were almost flat versus several prior quarters. So was there anything else happening in this quarter that supported the operating margin?

Roger Thompson -- Chief Financial Officer

No, not really. I mean, it's a strong management fee, our assets have obviously increased significantly. As I talked about, our management fee margin is up slightly on Q3 and is the fifth consistent rise in management fees. In part, that's obviously due to the strengths in equity markets coming through and moving the average upwards of our fee rates. In part, it's also what we're selling. And as I always say, we talk about assets on this call, but that actually is not the important measure. It's revenue and it's profit. And we're selling some interesting products at prices that clients are very happy to be paying for an interesting product. So our fee mix continues to improve slightly. So that comes through in that management fee and performance fees we've talked about.

On the cost side, no, we're flat quarter-on-quarter. I don't think there's anything really in there. So I don't think there's anything else. Below the line, we've got some strong investment gains. That's really -- you've got to net that against the NCI in terms of what's actually ours. So you should look at those numbers net. But net there is a strong gain and that's partly because there's some strong gains on our SICAV portfolio in terms of some of that, which is less perfectly hedged that has come through with some very strong gains.

Andrei Stadnik -- Morgan Stanley -- Analyst

Thank you for that. And my second question, I just wanted to ask a more strategic question about ESG. Are you happy with your ESG progress at the moment? And with the new ESG head coming on, what are some of the new targets that you're setting for them?

Richard Weil -- Chief Executive Officer

Yeah. We're really excited to have a new head of ESG on the investment side and we've appointed one on the product and distribution side as well and the two of those folks will partner together to strengthen our response to ESG. Are we happy? No, I mean, we've got a ton of work. We want to go faster. We're impatient. There's more data to pull together and articulate what we've actually been doing for a long period of time. So the first step is to be clear about all the good work we're doing and communicate it better. And the second step is to strengthen the processes across the firm and be accountable and transparent in a better way to our clients about all the different social values and things that they care about and how those play into our investments.

So we're going to offer more choice in the future. We're going to offer more transparency and better data in the future. There's a lot of work to do to get there. We think we have some great new people to help us get there. But mostly, our sense is impatient. We want to go faster.

Roger Thompson -- Chief Financial Officer

I guess, if I just add some color on some of those things that Dick said. We have a very long established specific equity global sustainable fund. That's $2.7 billion of AUM now. That was a UK and European fund only. We launched that in the US in 2020. So that's now established. And, obviously, we hope to see that grow. And Andrei, we'll launch that -- I would imagine we'll be launching that in Australia in 2021 as well. But that's -- and we hope to see that continue to grow. It's a fantastic product, to be managed by the same manager for more than a decade. I think it's been in existence for something like 15 years. But that's only a tip of the iceberg around what ESG means across $402 billion INTECH as an ESG product.

Our fixed income business is pretty strongly. Jim Cielinski runs our fixed income business. He's incredibly passionate about how ESG is. Across the organization, we've been involved for a very long period of time. We're a founding member of UN PRI. As a corporation, we've been carbon neutral since 2007. We've got a very long established diversity and inclusion strategy. We've had a foundation set up for multiple years. We're a supporter of FASB. We will work to look at more things like TCFD. On the investment side, what Paul LaCoursiere has come in to do is critically important in terms of articulating what we do as well as to continue to develop it. But I think it's very important to understand that this is an evolution of where we are as opposed to starting something afresh.

Andrei Stadnik -- Morgan Stanley -- Analyst

Thank you.

Operator

The next question comes from Mike Carrier of Bank of America. Please go ahead.

Sean Colman -- Bank of America -- Analyst

Hi, guys. This is actually Sean Colman on for Mike. Just a couple of quick ones on Dai-ichi. So have they provided you guys with seed capital for new investments in the past? And if so, is that expected to continue in the future? And then also do they receive a preferred fee rate on the assets that you guys manage for them?

Roger Thompson -- Chief Financial Officer

Yes. So we think that -- sorry, Dick, go forth with what you're saying.

Richard Weil -- Chief Executive Officer

No, you can go ahead Roger. Apologies.

Roger Thompson -- Chief Financial Officer

Hey, Sean, yeah, they do provide some seed capital for products. And again, that's where there's been some very good partnership over the years in terms of them providing some seed. We'd expect that to continue. But, obviously, we're going to have to see how that works out over time. Perhaps there may be a little less going forward. We don't know that. But again that's no big change to our business. If that does -- if there is a lower number, that very strong balance sheet that we've got will allow us to see more if that's a requirement for us. So not concerned at all. In terms of preferred fees, no, they paid the correct price for the size of the product and the type of the product that they invested.

Sean Colman -- Bank of America -- Analyst

Okay. Thank you.

Operator

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

Simon Fitzgerald -- Evans & Partners -- Analyst

Thank you for taking my question. Two really quick ones. On the performance fees, Roger, you gave a breakdown in terms of the delta. And I think you mentioned four funds. I was interested to know what the largest one out of that delta was of the $42 million. I'm talking about the change between 2019 and 2020.

Roger Thompson -- Chief Financial Officer

So, two of the funds -- so as I said, global life sciences and technology have been two very successful areas for us, but they dominated the performance fees in Q4. But there were also more than $5 million in terms of performance fees from our European small-cap and our UK absolute return. So there is depth and some sizable numbers across the board, but dominated by life sciences and global technology.

Simon Fitzgerald -- Evans & Partners -- Analyst

Okay. Second question then, and related to the project spend or at least the investment spend that will offset the $40 million of cost savings. Can you elaborate a little bit in terms of what some of those projects are trying to achieve? Or is it related to people costs?

Roger Thompson -- Chief Financial Officer

Dick, do you want to pick up on the investments that we're making and then perhaps I can just -- well, actually, why don't I start? In terms of what we're talking about and I think the important message from a financials point of view is, those costs are embedded in the guidance that I've given. So as we've said, our job is primarily about being excellent and growing this business profitably, but also doing that efficiently. And the cost savings we're talking about allow us to continue to invest in the business. And that as we invest in the business and hopefully grow the business, that will continue to provide that leverage that we've talked about today. So, again, I just want to make sure that people are aware that when we're talking about investing in the business, that is included in the guidance that we're giving. Dick, do you want to talk about the types of things that we're doing?

Richard Weil -- Chief Executive Officer

Sure. So I think we've talked about previously the fact that when we brought Janus and Henderson together, we took two infrastructures and tried to knit them together to make a single global infrastructure. Sadly, we couldn't go straight to stage two, which is that really upgrade that global infrastructure to make it simple and excellent. And so we had a two-step. And so we're now hard at work on the second step, which is upgrading and trying to reach for that standard of Simple Excellence. That includes a major new OMS order management system, which is the heartbeat of our portfolio management side. It includes risk engines attached to that for portfolio risk management and attribution and those sorts of things. It includes a new data group, new data governance and data architecture. It includes a whole rewrite of the way we're doing technology and cloud-based technology on the distribution side to make sure that we're efficient and accurate and excellent in how we're communicating with our clients and prospects. So it's a lot of very unglamorous plumbing projects all across the firm that costs tens of millions of dollars and will go on for years.

And we're making really good progress against those things but it costs some dough. And that's why it's really important that we've made the savings that we've made, so that we can continue to afford to properly invest in the business and the excellence and the growth and still give good margins and returns to our owners.

Simon Fitzgerald -- Evans & Partners -- Analyst

Thank you.

Operator

The next question comes from Craig Siegenthaler of Credit Suisse. Please go ahead.

Kareem Afifi -- Credit Suisse -- Analyst

Thank you. This is actually Kareem Afifi filling in for Craig this morning. My first question is on scale. You have nearly $402 billion in AUM. Do you believe you have enough scale today to compete with other large asset managers? And would you see a large global distribution effort as helpful to your organic growth?

Richard Weil -- Chief Executive Officer

So I think excellence is the challenge not scale. And so scale is only helpful if it comes with excellence. And if you can have scale with excellence, more of it's better, but it's a rare thing. In terms of do we have enough scale and excellence to compete? Well, if you look at our results, I think they say we do. I think we're doing a really good job taking care of our best clients and we do have a strong global distribution team. And so I think the results are unequivocal that we do have the scale to compete but it's a constant challenge. And as we continue to have to invest to fund excellence and fund global distribution and those continued business pressures, we're going to keep grinding on becoming more efficient so that we can keep answering this question in the affirmative going forward. But as you look at today, there's no question we're -- I think we're on the right path and making progress.

Kareem Afifi -- Credit Suisse -- Analyst

Got it. Thank you. And then for my follow-up, I believe it's a follow-up for one of the other questions that was asked earlier. It's on capacity. So you have some very large funds that run with high active share including concentrated growth and mid-cap growth. Besides I believe like the Trian Fund, could you remind us what other funds are closed? And if we could see additional fund closed if the AUM keeps growing? Thank you.

Richard Weil -- Chief Executive Officer

I think our only two funds that are closed are Triton and Venture. And as I said earlier, there is plenty of capacity in the vast bulk of our funds. So it's a nice problem to have if we do get to the level where we need to soft close funds, but we've got heaps of capacity across the firm.

Kareem Afifi -- Credit Suisse -- Analyst

All right. Thank you for taking my questions.

Operator

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

John Dunn -- Evercore -- Analyst

Thank you. You guys talked about almost $9 billion of sales in the institutional channel. Can you give us, kind of, a flavor of what strategies are driving that? And maybe could you characterize like where the institutional pipeline stands at this point?

Roger Thompson -- Chief Financial Officer

Yes. So as I said, the biggest sale in Q4 was the significant insurance client in the UK, which was a $2 billion -- $2.1 billion UK enhanced index mandate. So that's the one, sort of, significant deal there. There's a long tail of others. I think the biggest of those was about $1 billion. We don't disclose exactly what the pipeline is but we've talked about that increasing in the past. And I guess there was some frustration that that wasn't coming through. So we're pleased to see that pipeline starting to come through in Q4. We've got plenty of opportunities to hopefully continue to build that pipeline as we go forward.

John Dunn -- Evercore -- Analyst

Got you. And then --

Roger Thompson -- Chief Financial Officer

The other thing on institutional, and Dick mentioned it earlier is, now that's an area that we've got a lot to do in institutional and we've got a great team working on it and we've continued to add and strengthen that team and strengthen the understanding between that team and investments. So this quarter, we've hired a Global Head of Consultant Relations, which is an important position to hire in addition to make some other investments in the team. So we continue to hope and expect that our institutional business gets bigger over time.

John Dunn -- Evercore -- Analyst

Got it. And then you guys got two mutual flows in all this quarter. What's that look for that business? And what kind of products could maybe push it into positive territory in 2021?

Roger Thompson -- Chief Financial Officer

I guess, there's probably been some outflows before we have some inflows. Some of you know, we have a property fund in the UK, which has been gated for the last sort of 11 months, post the dislocations in the property market with COVID coming in in March last year. We announced recently that that fund will reopen, having raised liquidity over the last year in a very controlled and pleasing way. The fund is actually performing very well. But we have had clients locked up for 11 months. So we know and expect that when that fund reopens, which I think is February 24, that we'll see some outflows there.

So that will come through in our -- in the old number, the biggest -- there are several other things in there, the biggest strategy in there is the UK absolute return fund, which again has performed well in 2020. It had had some outflows for the first time in a long time at the beginning of last year I think, but it's pleasing to see that going back into small inflows in Q4. So hopefully that will continue to grow going forward.

John Dunn -- Evercore -- Analyst

Great. Thank you very much.

Operator

And the last question today will come from Liz Miliatis of Jarden. Please go ahead. Liz Miliatis, your line is open. Is your phone muted accidentally? Please go ahead with your question.

Liz Miliatis -- Jarden -- Analyst

Hi. Can you hear me?

Richard Weil -- Chief Executive Officer

Yes, we can hear you.

Liz Miliatis -- Jarden -- Analyst

Sorry about that. My first question is on the cost efficiencies and associated investments you'll make using those efficiencies, is there any timing differences with sort of the inflows and the outflows there? Is the cost savings sort of front-loaded and the spending is back-loaded? Or should we assume it's sort of spread across the two years?

Richard Weil -- Chief Executive Officer

They're pretty spread across the two years.

Liz Miliatis -- Jarden -- Analyst

Okay. Great. And then a follow-on question on cost as well. You made a comment earlier that some of the savings will be T&E. Obviously, COVID impacts that quite significantly. Beyond the two years, should we expect some of that T&E to sort of come back? Or have you sort of adjusted your numbers, I suppose, and your efficiencies there for a new way of doing business in a post-COVID world?

Richard Weil -- Chief Executive Officer

Yeah. It's the latter. So we've built in an assumption that we spend more than we spent last year, but not as much as we used to spend pre the learnings that we've had over the last year. Obviously, we're all learning as we go through this. But we expect that our T&E budget will be lower going forward than it was in 2019. But we're not saying that it will remain as low as it was in 2020. It will come up a little bit from there obviously.

Liz Miliatis -- Jarden -- Analyst

All right. Okay. Cool. Thank you.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Richard Weil -- Chief Executive Officer

Roger Thompson -- Chief Financial Officer

Kenneth Worthington -- J.P. Morgan -- Analyst

Edmund Henning -- CLSA -- Analyst

Daniel Fannon -- Jeffries -- Analyst

Nigel Pittaway -- Citigroup -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Andrei Stadnik -- Morgan Stanley -- Analyst

Sean Colman -- Bank of America -- Analyst

Simon Fitzgerald -- Evans & Partners -- Analyst

Kareem Afifi -- Credit Suisse -- Analyst

John Dunn -- Evercore -- Analyst

Liz Miliatis -- Jarden -- Analyst

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