Janus Henderson Group plc (JHG) Q1 2021 Earnings Call Transcript

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Janus Henderson Group plc (JHG -1.96%)
Q1 2021 Earnings Call
Apr 30, 2021, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Janus Henderson Results Briefing Conference Call. All participants will be in listen-only mode. [Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Mr. Dick Weil, CEO. Please go ahead.

Richard Weil -- Chief Executive Officer

Welcome everyone to the first 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, we take a long-term view of our business versus the short-term view that's inherent in our quarterly reporting. To that extent, we use the first and third quarter calls to run through quarterly results and we use the second and fourth quarter calls to give you a deeper update on business and strategy. In line with this thinking in today's presentation, I'll start by giving a brief summary of the quarter and then I'll hand it over to Roger who will take you through the results in more detail. As always following our prepared remarks, we'll take your questions.

Turning to slide two. Our investment performance remains solid with 62% of our assets beating their respective benchmarks over three years. Our investment teams are first class. They've continued to perform well in volatile markets and through what was a very difficult quarter for bonds. In fixed income, we continue to have over 90% of our AUM outperforming benchmarks over one and three years. In equities, we're seeing pockets of strength, in European equity, in particular. And we're also seeing improved performance in our US mid and SMID-cap growth strategies, which we've talked about on recent earnings calls.

With the benefit of markets, our AUM rose 1% to $405 billion offsetting negative net flows of $3.3 billion. Underneath the headline flow result, we're seeing important underlying positive trends. For example, in our Intermediary business, we're seeing positive results with strong gross sales and we're seeing improved flows across a diverse range of strategies and capabilities. As I've told you in prior quarters, our path to organic growth starts with flows, excluding our quant equity business. We're aiming for consistent growth and we achieved that growth in the last quarter, but this quarter, we ended up $1.2 billion negative in the first quarter, which is disappointing. Our path is not going to be linear, not for this year, but setting our Intech quantitative business aside, we should be more consistently delivering positive flows and that's our aim.

Our financial results for the quarter were very strong and up year-on-year, but down compared to the prior quarter because of the strong performance fees earned in that prior fourth quarter just passed. Our adjusted EPS decreased compared to that prior fourth quarter but was up 52% year-on-year.

Finally, as we continue to evaluate opportunities to strategically grow our business both organically and inorganically, we remain committed to returning excess cash to shareholders. In the quarter, we completed 230 million of share buybacks at Dai-ichi secondary market offering. Today, given strong earnings in our progressive dividend policy, we're pleased to announce a 6% dividend increase to $0.38 a share.

Let me now turn it over to Roger to take you through the results in more detail.

Roger Thompson -- Chief Financial Officer

Thank you, Dick, and thanks everyone for joining us. Turning to slide four for a deeper look at investment performance. Investment performance remained solid with 67%, 62% and 70% of firmwide assets beating their respective benchmarks on a 1, 3 and 5-year basis as at the 31st of March. Relative performance compared to peers reflects 37%, 67% and 68% of AUM represented in the top two Morningstar quartiles on a 1, 3 and 5-year basis. The decline in the one-year performance compared to the fourth quarter was primarily from the balanced strategy, which is ahead of its benchmark over all time periods, but as you can see on the page, the 3 and 5-year comparative performance is very good and balanced continues to be one of our best flow generation strategies.

At the total level, the longer-term Morningstar metrics, which tend to be better indicators of flows are very strong and as you can see in the appendix that, that 44% and 42% of the AUM is represented in the first quartile on 3 and 5-year basis.

Now turning to total company flows. For the quarter, net outflows were $3.3 billion compared to $1.1 billion last quarter. As Dick just said, this marked some significant strengths and improving trends. Over the next couple of slides, I'll talk you through these as well as provide clarity on where we've seen outflows. In summary, we saw strength in the Intermediary channel, especially in EMEA, and then in our Fixed Income and Multi-Asset capabilities, as well as within Equities European Equities, Real Estate securities, Life Sciences and Sustainable Equities.

The full quarter result was impacted by quantitative equity outflows, along with outflows related to the short-term underperformance of our US SMID and mid-cap growth strategies, the reopening of UK Property Fund, and outflows at Perkins.

Now let's move to slide six, which shows the breakdown of flows in the quarter by client type. Net inflows for the Intermediary channel were $1.1 billion. Intermediary gross sales of $16.5 billion represent the best quarter ever and reflects our global distribution footprint and a strong range of products. By region, Intermediary flows were positive in EMEA, LatAm, and Asia-Pacific across Equity, Fixed Income and Multi-Asset capabilities. These inflows were partially offset by equity outflows in the US.

Institutional net outflows for the first quarter were $3.5 billion resulting from lower gross sales compared to the fourth quarter. We're confident with the steps we've taken and continue to take strengthen and globalize our Institutional team will lead to growth. After a strong fourth quarter, the pipeline has a broad and diverse range of opportunities across the regions, but the results will be lumpy quarter-to-quarter. Finally, net outflows for the Self-Directed channel, which includes direct and supermarket investors were $900 million for the quarter.

Slide seven shows the breakdown of flows in the quarter by capability. Equity net outflows in the first quarter were $1.5 billion. The quarterly outflows were driven primarily by US mid and SMID-cap growth as well as the restructuring of value strategies managed by the Perkins team in Chicago. These outflows were partially offset by non-US retail flows led by several European strategies, two of our dedicated ESG strategies in UK Responsible Income and Global Sustainable Equity and finally Life Sciences.

Regarding Perkins, during the first quarter, we made the strategic decision to rightsize our product portfolio and better align with the changing needs of our clients. Therefore, we announced that we were liquidating the Global Value, International Value, Value Plus Income and US Large Cap Value strategies as at the end of April. The AUM in linked strategies totaled approximately $440 million as at the 31st of March.

Flows into Fixed Income were positive $400 million in the quarter. Fixed Income continues to see positive flows in retail across a wide range of strategies including Global High Yield, Multi-Sector Income, Buy & Maintain Credit and Tactical Fixed Income in Australia. Total inflows from Multi-Asset were $800 million driven by continued strong inflows into the Balanced strategy.

Positive equity outflows for the first quarter were $3.1 billion. And finally alternative outflows were $900 million in the quarter, of which $840 million came from the UK Property Fund, which we opened during the first quarter. 80% of the property outflow was realized within the first week of reopening and the run rate outflow has slowed significantly since then.

Elsewhere in Alternatives, we're pleased that our Absolute Return products have performed well and have turned back to positive flows. We're seeing flows into the Multi-Strategy product, which we talked about previously, as a promising opportunity.

Slide eight is our standard presentation of the US GAAP statement of income. Moving to slide nine for a look at the summary financial results. Our financial results are strong and up significantly year-on-year. The comparison to the prior quarter is influenced by the very strong seasonal performance fees in the fourth quarter. Average AUM in the first quarter increased 7% compared to the prior quarter, primarily from market gains. Total adjusted revenues decreased 2% compared to the prior quarter as higher average assets, and higher net management fee rate was more than offset by the prior quarter's seasonally strong performance fees.

Adjusted operating income for the first quarter was $202 million, down 13% from the prior quarter, but up 22% from the same period a year ago. First quarter adjusted operating margin was 39% compared to 43.8% in the prior quarter and up from 37.2% a year ago. Finishing up the financial results, adjusted diluted EPS was $0.91 for the quarter compared to $1.04 for the prior quarter and $0.60 a year ago, representing a 52% increase year-on-year.

On slide 10, we've outlined the revenue drivers for the quarter. The biggest drivers of the quarterly change in adjusted revenue, the higher average assets, and strong management fee margins, which drove up our management fees by 7% over Q4 and strong but lower performance fees in the seasonally strong Q4. Net management fee margin for the first quarter is 46.8 basis points, which was up from 45.9 basis points in the fourth quarter and 45.1 basis points a year ago. This marked the sixth straight quarter of higher net management fee margins during a period of compression of fees in the industry. I must state that the first quarter rate does include approximately 0.3 basis points of positive impact related to some accounting adjustments made during the quarter, which will not repeat.

Performance fees was $17 million in the quarter versus $59 million in the prior quarter and $15 million a year ago. The first quarter results was primarily driven by the Absolute Return strategy. For Mutual Fund performance fees, the first quarter results was negative $4 million compared to a negative $2 million in the prior quarter.

Before moving on, I wanted to provide an update on second quarter performance fees. Many of our European SICAV funds, particularly in Horizon range, pay annual performance fees in June. And performance which is publicly available in some of these strategies has been very good. Whilst the measurement period is ongoing and second quarter performance fees are therefore unknown, as we sit here today with a good investment performance that we've seen over the prior few years, there is a potential to earn fees in the upcoming quarter, which is significantly higher than the prior three years.

Turning to operating expenses on slide 11. Adjusted operating expenses in the first quarter were $315 million, which was up 6% from the prior quarter. Adjusted employee compensation which includes fixed and variable costs, was up 8% compared to the prior quarter primarily as a result of the seasonal payroll taxes and retirement contributions coupled with a higher variable compensation. Adjusted LTI was up 20% from the fourth quarter, largely due to payroll taxes triggered by annual vestings in the quarter.

The first quarter adjusted comp to revenue ratio was 44.3%. But higher ratio compared to guidance results from seasonally higher expenses primarily from those payroll taxes on wages and LTI vestings. For the full year, we still anticipate a range of 40% to 42% in line with our prior audience.

Adjusted non-comp operating expenses were 3% lower compared to the prior quarter primarily from lower G&A, which is partially offset by higher marketing expenses. For 2021, the expectation of non-comp operating expense growth of mid-single-digits remains unchanged. Finally, our recurring effective tax rate for the first quarter was 22.5%.

Turning to slide 12, which is a look at our liquidity. Cash and cash equivalents were $824 million as at 31st of March, a decrease of $273 million resulting primarily from the payment of annual variable compensation and our participation in the secondary offering by Dai-ichi. The first quarter cash position is typically our lowest given seasonal cash needs.

Please note that following feedback from several of you, we've begun excluding cash and investments related to VIEs and VREs from the slides, as we agree that this more accurately represents our true liquidity and it also aligns with how we discuss our liquidity and capital resources in the MD&A section of our 10-Q and 10-K filings.

Finally, given the strong profitability and liquidity position of the firm, I'm very pleased the Board has approved a $0.38 per share quarterly dividend, an increase of 6% from our prior payout level. This increase aligns with our capital philosophy of returning cash to investors and paying a progressive dividend that grows with profits.

Lastly, slide 13 is a look at our capital management. As we said previously, we remain committed to returning excess cash to our shareholders. And on this slide, you can see those results over the last eight quarters. During the first quarter, we paid approximately $62 million in dividends to shareholders. And as I've just mentioned, the Board has declared a 6% increase in the quarterly dividend. We also purchased 8.1 million shares of our stock for $230 million through the Dai-ichi secondary offering.

Over the last 12 months, we distributed $588 million of cash via buybacks and dividends. That's over 10% return based on the average dividend yield over that period, plus the reduction in our shares outstanding. Since starting the accretive buyback program in Q3 '18, we've reduced our shares outstanding by 14%. Regarding additional buybacks for the remainder of 2021, we'll provide updates on future earnings calls as we evaluate our cash position and cash flow generation.

Now I'd like to turn it back over to the operator for Q&A.

Questions and Answers:

Operator

Thank you. I would like to remind you that 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. [Operator Instructions] Your first question comes from Ken Worthington from J.P. Morgan. Please go ahead.

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

Hi, good morning. Thank you for taking my question. Maybe first on your comments on performance fees, they've ramped and while investors tend not to ascribe a lot of value to them, cash flow is cash flow. So how do you think about leveraging this increasing performance fees and driving the greatest shareholder -- greatest value for shareholders from this rising revenue stream?

Roger Thompson -- Chief Financial Officer

Hey, Ken. It's Roger. Thanks for the question. I think the important thing is the diversity of performance fees that we've got. We saw very strong performance fees in Q4. In Q2, it's largely the SICAVs that come through. And the other thing is we're adding -- we've got -- some of the business we're winning, we're adding with performance fees on it. So the opportunity for performance fees is broad. And I think, yes, I'd agree with you. It doesn't -- yeah, it doesn't merit the same multiple probably as the management fees. But with that diversity I think comes strength and I think it is to be to be valued. We do expect to have performance fees on a regular basis over these levels. In Q2, we would expect to see some stronger performance fees. Investment performance, as I said, hasn't -- obviously, we haven't got the final numbers for Q2 yet, but we look -- as we sit here today, we would expect to see some quite significantly improved performance fees over the prior three years. And as you know from looking back, that's sort of where we were in the years before that, these have been some strong numbers for Janus Henderson in the past.

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

Okay. Okay, thank you. And then just Self-Directed has been a stable source of maybe outflows for some time. And you guys have taken the step of opening the distribution channel to new investors. What are the next steps that you think you could take here to improve the results in this channel, and maybe slow the pace of outflows further and possibly even turn that channel back to inflows?

Roger Thompson -- Chief Financial Officer

Yeah, we opened -- we reopened that only in the summer last year. And I think primarily, it is exactly as you say it is to add some flow and therefore stem that outflow. It's a sizable book of business and it's a very strong business and something that we've got a brand for. So we have got ideas around that. We have started some advertising, for example, for that channel. But I think it's still very early days, Ken. And the bigger drivers of growth are going to come through Intermediary and Institutional.

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

Okay, great, thank you so much.

Operator

Thank you. Your next question comes from Dan Fannon from Jefferies. Please go ahead.

James Steele -- Jefferies -- Analyst

Hey, good morning. This is actually James Steele on for Dan. Thanks for taking our question. So just firstly, following on the divestment of Dai-ichi, I was just curious if there is any impact this quarter on flows or anywhere else. I know that they had provided some seed for you?

Roger Thompson -- Chief Financial Officer

Hi, James. Thanks for the question. I think the -- I guess the first thing is, yes, that the divestiture was I think regarded as a success and we were pleased to welcome some new shareholders onto the register. As we said on the call, Dai-ichi is an important price, or I should say, Dai-ichi is an important client for us and exactly that and we don't divulge any individual client's holdings. But I can say that our Japanese business, it is about $19 billion. It's slightly up on the quarter.

James Steele -- Jefferies -- Analyst

Okay, thanks. And then just kind of wanted to dig into your goal of getting to net flow positive ex Quant. I know that you've done a few things, the investment performance has improved, you've hired Head of ESG, doing some stuff with technology. So just curious, what is -- which initiative do you think is most likely to bring you back to that net positive or what are you most excited about?

Richard Weil -- Chief Executive Officer

Yeah, I think it's a combination. This is Dick here. Thanks for that question. I think it's a combination of those things. It isn't just one sort of magic trick that will deliver the answer to that question. We need to have really strong investment performance, really good risk management in investment performance and then excellent client experience. We've been investing, as you say, in the technology that underpins the system. Suzanne Cain and the teams have been working hard on improving how they're facing off the clients and the client experience. The investment team continues to work through these volatile markets to deliver the right sort of risk adjusted investment returns. And it's not one thing. The difficult part of this business is you have to deliver that suite of things and and that's what really makes the difference. And that's our mission in life.

Roger Thompson -- Chief Financial Officer

Yeah, to go into some of the sort of facts, we're pleased with another positive quarter of Intermediary. We've had some really strong flows in Intermediary in Europe. The growth rates in our SICAV business and our Dublin Fund range is 30-odd percent and 20-odd percent annualized in Q1. So some real strength there across a range of capabilities. We've got positive flows in Australia and Asia. We've got some positives in US, but we are seeing some outflows, as we talked about in certain areas of US equity. So Intermediary, the acceleration there as a continuation of what we are seeing there is hopefully already there to be seen.

In Institutional, we had a good Q4. As you can see, our Institutional flows in Q1 were much more minimal. And that's just the lumpy nature of that business. So we need all those things. As Dick said, it's a little bit of everything as opposed to one thing on its own.

James Steele -- Jefferies -- Analyst

Understood. Thank you.

Operator

Thank you. Your next question comes from Elizabeth Miliatis from Jarden. Please go ahead.

Elizabeth Miliatis -- Jarden -- Analyst

Good morning and thank you for taking my questions. I've got a couple of specific ones on numbers. Firstly, the tax rate was much lower in the quarter than what you've indicated previously. How should we think about it for the rest of the year? And is there any sort of services analogy that might come into that?

And then secondly, on the non-controlling interest, the adjustment this quarter is sort of contrary to what you previously have, so I think you're reversing out a loss. Could you give us a bit of color on that because it does swing the numbers around a little? Thank you.

Roger Thompson -- Chief Financial Officer

Hi, there. Yeah, the tax rates -- yeah, no change to our guidance on 23% to 25%, while tax rates are where they are. So we know we've got a UK rate of tax, it's increasing in a couple of years' time. Once that comes into the statute books, then we'll get a change in our deferred rate, but not our underlying rate. And obviously, I think everyone is expecting an increase in the US tax rate as well. But given current tax rates, our guidance of the tax rate for the year of 23% to 25% stays the same, slightly lower this quarter with vestings for the Life, which can move that rather a little bit in the quarter, but like I say, just stick with the same guidance.

On NCI, yeah, you're right. What normally happens is you get a -- NCI is largely clients investing in funds that we've got seed in, which we have to consolidate and then back out. So you'd normally see something going the same way of our investment guidance. You then see a reversal coming out in NCI. They both go the same way this quarter, largely because of one fund, which has got a pretty significant clients investing in, which has performed incredibly well over the last 12 months. But this quarter was slightly negative in investment performance or in its overall performance. So there is a reversal in NCI, but across our entire seed book, our numbers were positive. We can take you through that in more detail if you'd like, Elizabeth. That's why it moves -- that's why they move in the same direction this quarter.

Elizabeth Miliatis -- Jarden -- Analyst

Okay, thank you very much.

Operator

Thank you. Your next question comes from Andrei Stadnik from MS. Please go ahead.

Andrei Stadnik -- Morgan Stanley -- Analyst

Good morning or good afternoon. I wanted to ask two questions. And my first question is around -- is in Sustainable investing. It seems like JHG doesn't quite -- Janus Henderson doesn't quite have as many strategies in Sustainable space with some of the competitors. Is that something that's worth accelerating instead of doing additional buybacks given such an area of potential opportunity?

Richard Weil -- Chief Executive Officer

Andrei, Dick here. Yeah, we are going more cautiously down the ESG road than some of our competitors to be sure. We're concerned that some of the methodology used to take sort of large existing parts of people's asset management business and convert them into qualified sort of ESG assets is -- some of that exclusion and methodology looks to us like it's maybe very likely to be challenged and may not be in the fullness of time proved to be the exact right road to take. So we are -- we've hired a Head of ESG Investing. We are building out teams to support a better ESG research and infrastructure and data collection. We are moving some of our product line in accordance with European rules into their proper categories. And you'll see that trend accelerating on a go-forward basis. We're not off to quite as quick a start as some. That's a little bit uncomfortable, but we think it's the right path because we think we want to do it at the highest possible quality level. And so we're moving as aggressively as we can down that path subject to that sort of quality limiter.

Roger Thompson -- Chief Financial Officer

Again, let me add a little bit to that, Andrei. Yeah, we already -- we've got one article now I don't want articulate from, again, they are funds that we are very confident with. You will see us adding to that during the course of the year. But again, as Dick said, in a cautious way. We are interested in how some others are declaring things in ESG. And as you'd expect probably from Janus Henderson, we've been, as Dick said, a little bit more cautious. We are investing across our business as well. As Dick said, Paul LaCoursiere has joined. We're building out the team under Paul. We're also adding ESG resource into our client space. We're working on technology and data, which is critical around this. So there are investments there and you'll see some products and product extensions over the course of the year.

Andrei Stadnik -- Morgan Stanley -- Analyst

Thank you. And my second question, I wanted to ask around -- [Speech Overlap]

Roger Thompson -- Chief Financial Officer

No, I was going to say one last piece. We do have an absolutely exceptional global Sustainable product which has been in existence for 30 years. We're not new at this. That fund has just gone through $4 billion, that was -- sorry, the strategy has gone through $4 billion. That was $1 billion a couple of years ago. So we are growing in some specific areas as well. Sorry, Andrei. Go on.

Andrei Stadnik -- Morgan Stanley -- Analyst

Thank you. That's important. I wanted to ask around Fixed Income flows, there were some positives in the quarter, but there were substantially lower than the net inflows you had in the December and September quarters. Was anything specific or was it just the movement of rates that slowed down the momentum there?

Roger Thompson -- Chief Financial Officer

Yeah, nothing specific. We're still taking market share in the US. We've taken market share for the last year or so in Intermediary and Fixed Income, continuing to take market share, but obviously it was quite a changed quarter for bonds and the overall market growth in the US, particularly where everywhere was slower. We didn't have any substantial institutional wins in Fixed this quarter, rather. So nothing particular to write about with -- as you can see our performance in Fixed Income is exceptional and we look forward to continue to grow that business.

Andrei Stadnik -- Morgan Stanley -- Analyst

Thank you.

Operator

Thank you. Your next question comes from Mike Carrier from Bank of America. Please go ahead.

Mike Carrier -- Bank of America -- Analyst

Hi. Good morning. Thanks for taking the questions. Probably just on the performance fees, can you provide some context of how the European SICAV strategy with performance fees are calculated, just to get a sense, the magnitude of the opportunity with that quarter?

Roger Thompson -- Chief Financial Officer

Hey, Mike. Yeah, I mean they're all listed and they're all public funds, so you can see it, but there is a mixture of quarterly funds and annual funds with performance fees and some of those performance fees have got high water with carry on them. So like I say, it is -- it can come through over multiple years, because of those high watermark carries, but it's a mixture, let's say, of quarterly fees and annual fees and annual fees with carries from the past. Again, we can talk you through where to look for those things to help if you want to model it, but that's the short answer.

Mike Carrier -- Bank of America -- Analyst

Okay. And then [Indecipherable], just given some of the weaker shorter-term performance mostly on the equity side, yet it sounds like you guys are noticing some rebound in the SMID cap area. Just want to get your sense on how that's likely to impact maybe the trajectory or the timing, the inflows that's won, given that you're still seeing the strength in Fixed Income, Multi-Asset, Intermediary, just curious how much of an impact maybe that's happening and how much performance you need to kind of recoup to get back to where you want to be?

Richard Weil -- Chief Executive Officer

Well, in terms of the timing, you're seeing that our flows -- we've definitely seen some pressure in mid and SMID and small cap growth out of the US after the significant underperformance in those strategies during last year and particularly around the month around the COVID crisis in March, April last year. And where -- the question is can we build in other places more than enough to offset that outflow and have done on the Intermediary side. But the mid cap growth strategy, in particular, run by Brian Demain has been super-strong for a long time. It went through this very difficult period and now has made some significant ground back. But obviously we're sensitive to where the path goes from here and it's a little hard to predict. But right now, what we're seeing on the Intermediary side is, the rest of the Intermediary business has been strong enough and more than strong enough and with the exciting comeback of a lot of the European assets which have historically been strong, but frankly have not been over the last couple of years since the Janus Henderson merger. They're coming back now quite well and so that's given us the Intermediary channel strength to more than outweigh the challenge in that US mid and SMID cap growth space so far. But it's sensitive to the performance right now month by month, but that is mitigated by the fact that these are strategies that have been really superb for 20 years plus and have a strong sort of educated, successful client base that is pretty loyal. But there are limits to that. And we'll just have to see. It's sensitive to future performance, but overall the Intermediary channel is quite strong.

Mike Carrier -- Bank of America -- Analyst

Great. Thanks a lot.

Operator

Thank you. Your next question comes from Ed Henning from CLSA. Please go ahead.

Ed Henning -- CLSA -- Analyst

Thanks for taking my questions. Firstly, do you believe continued growth in the Intermediary channel can hold up or even continue to improve your margin going forward is my first question, please?

Roger Thompson -- Chief Financial Officer

Is that on management fee margin or?

Ed Henning -- CLSA -- Analyst

Yes, on management fee margin.

Roger Thompson -- Chief Financial Officer

I guess. The answer is the same for both. It is, yes. If we continue to grow the Intermediary business, our management fee margin will increase. And if we grow that business, yes, we should see that fall to the bottom line as well, so yes.

Ed Henning -- CLSA -- Analyst

And you're confident you can grow the Intermediary business?

Roger Thompson -- Chief Financial Officer

Yeah, [Speech Overlap] sorry, a part of -- yes, a part of that is what we're selling as well. I mean we're selling good product at good prices. We're selling at market neutral. We're selling out to distributor and we're selling strategic bond. We're selling high yield. These are -- and we're selling a lot of European equity, as Dick just said. Our European equity growth in the quarter was 23% annualized. So, yes, we can grow and, yeah, we can sustain or continue to increase that fee rate, which again I think is a differentiator. Now, that is something you're seeing across this business, flows are not where we want to be at. But what we are selling is very good product. So we do expect that to continue. There is fee pressure in the industry, don't get me wrong. And we expect to see that continue, but we are building and selling good fee product and clients are very happy with the performance and the pricing of that.

Ed Henning -- CLSA -- Analyst

Thank you. And then just the second one, you talked about the progressive dividend policy. You haven't increased dividends since the first quarter of '18. Can you just remind us do you have a target payout ratio? It obviously varies a little bit from quarter to quarter, how should we think about that?

Roger Thompson -- Chief Financial Officer

We don't have a payout ratio. That's a result as opposed to a target. As you say, we've got a progressive dividend. You should expect to see that rise with earnings rise and earnings have risen last year and we're expecting earnings to rise again this year with markets where they are at the moment. We view it very much as part of our capital return and effectively you've got an accordion of the buyback on top of that, which as we said we've done consistently over three years. Our yield is pretty -- in comparison with other stocks in our competitive set, our yield is pretty healthy. So we -- I think the Board took the decision that a $0.02 increase this quarter was the right increase. That is very well covered. Again, we run a very conservative balance sheet very deliberately. There is enough leverage and enough beats are in the stock without a lot of debt. We've talked about that in the past. And the dividend is very well covered obviously at market levels where they are, but would also be covered at lower market levels. And again one of the intentions of a progressive dividend is that you can not -- you would not have to cut it except in extremis. So the Board are comfortable with that $0.02 increase. And we'll talk further about capital return and hopefully get further increases in progressive dividend in years to come.

Ed Henning -- CLSA -- Analyst

Okay. Thank you. I appreciate the time.

Operator

Thank you. Your next question comes from Alex Blostein from Goldman Sachs. Please go ahead.

Ryan Bailey -- Goldman Sachs -- Analyst

Good morning. This is actually Ryan Bailey on behalf of Alex. I was just wondering if we could come back to Institutional. Roger, I think you mentioned there was a pretty healthy pipeline and I was just wondering if you could speak to what are the products in the pipeline and sort of the fee rates associated with it? And then I guess just more broadly, within Institutional, what have being some of the sources of outflows recently excluding quant?

Roger Thompson -- Chief Financial Officer

See, the pipeline is -- let me start, my morning started this morning with a tattle for our Institutional team by Nick Adams, who runs our Institutional business globally. When I came out -- I was actually supposed to be there for 20 minutes, but that's taken an hour and a half because it was just great to hear what's going on and the learnings from the past couple of years. So the pipeline is growing. It's diverse, both by geography and by product. Your question around fee mix, it's a pretty broad church. There are some higher-fee opportunities as well as some lower fee product. We talked about in Q4 we won a big index mandate here in the UK, which is obviously at the lower fee end. We've been adding some other areas as well. So that Nick is looking to build. We talked a little bit about some of the areas where we were bright made in over the last 12 months and what we've learned from that and how we can win that last phase. Coming second isn't something you want to do. So, yeah, a really positive feel, but we've got work to do. Richard Graham joined us as Global Consultants Relations Head a few months ago. We're building out those relationships with consultants. So this -- but there's still work to do, but we've done an awful lot in Institutional. We've still got work to do.

In terms of outflows, I don't think there is anything really specific that comes to mind, I'd say. Intech is a $2 billion of outflows this quarter, which is probably the biggest driver. Outside of that, it's fairly well spread.

Ryan Bailey -- Goldman Sachs -- Analyst

Got it. Okay. Thank you. And then maybe just so I understand correctly, coming back to the Perkins rightsizing. A, that sounds like it's a 2Q event. I kind of just wanted to confirm that. And then B, of the $440 million, were you able to recapture any of that into your other Perkins products?

Roger Thompson -- Chief Financial Officer

I guess, at the outset, the first part is it's both quarters. We had about $700 million out from Perkins in Q1. And this $440 million in the strategies we are closing as we rightsize those areas and focus on the real strengths that we've got in the US value businesses. So this $440 million that you should expect in Q2, but included in, though, the outflows in Q1 is about $700 million from Perkins. Sorry, what's the second half of your question, Alex -- sorry, Ryan?

Ryan Bailey -- Goldman Sachs -- Analyst

Just if you're able to recapture any of that incremental $440 million into other products and platform?

Roger Thompson -- Chief Financial Officer

I don't think --

Richard Weil -- Chief Executive Officer

Not that we're aware of.

Roger Thompson -- Chief Financial Officer

Not that we're aware of.

Richard Weil -- Chief Executive Officer

We made some strategic changes around skinning that team and focusing them where we thought they could be really successful. And that shift involved changing some of the personnel and caused some of the product closure and so that's the effects that Roger is talking about which spread across. Started in this past quarter and you're seeing some of those results and then we'll carry on into next quarter as he described. But we weren't able to move those to different Perkins products.

Ryan Bailey -- Goldman Sachs -- Analyst

Got it. Perfect. Thank you.

Operator

Thank you. Your next question comes from Nigel Pittaway from Citi. Please go ahead.

Ryan Bailey -- Goldman Sachs -- Analyst

Hi, guys. Just first of all, I was hoping to delve a little bit further into the retention of the guidance on non-comp cost, despite the 4% drop in first quarter. That basically means it's going to be sort of on average 8% higher than 1Q in the remaining three quarters. So is that all going to come through G&A and can you be any more specific about where that's being spent on?

Roger Thompson -- Chief Financial Officer

Hey, Nigel. Yes, I think that is what we're saying. Part of that is obviously our expectations of a continued unlock from COVID. So we are seeing some, particularly in the US, more clients -- more client visits, which we view as positive, but we're starting to see some T&E come through, which again is good. I think -- again, we're not expecting to go back to 2019 levels, but we would expect to see that accelerate over the course of the year. We'd expect marketing to increase. Again, we've developed better ways of communicating with clients, which again we'll be leveraging to get us to those positive flows that we've been talking about. So I think they are the biggest drivers that will drive that. But yeah, you're right in the math for us to get to mid-single-digit, would mean us being about 8% higher than -- in Q2 to Q4.

Nigel Pittaway -- Citi -- Analyst

Okay, thanks for that. And then I was just sort of -- obviously, you've mentioned the sort of drop-down in quartile in the Balanced fund. I mean that has obviously come as you sort of changing PMs on that fund. So you're still pretty comfortable that, that's going to be a smooth transition with nothing much to worry about in terms of that, despite the sort of drop-down in the quarter level at that time?

Richard Weil -- Chief Executive Officer

Yeah, I think we're confident in the team. We're confident in the process, but -- and I think we've executed the transition as well as can be done. But we're still accountable for the performance, and we're still subject to that accountability in the marketplace. Right now, that fund continues to run ahead of index, but it's less ahead of index than many of its peers at the moment. It's probably a little more valuation sensitive in some ways than some of its peers and that hasn't always served it well in recent history. So, we're confident that we've gotten through the portfolio manager transition as well as can be done. We think it's a model case for that. We're very grateful to Marc Pinto and his leadership in executing that transition. But now, look, we own the performance and we're accountable and that will affect the future PIM.

Roger Thompson -- Chief Financial Officer

But as Dick said, that fund is ahead of benchmark over all time periods. It's 3, 5 and 10-year numbers are I think top decile across the board. So I think we're in a good space, Nigel.

Nigel Pittaway -- Citi -- Analyst

Okay. Thank you.

Roger Thompson -- Chief Financial Officer

And it continues to sell well.

Operator

Thank you. Our final question comes from James Cordukes from Credit Suisse. Please go ahead.

James Cordukes -- Credit Suisse -- Analyst

Hi, guys. Just a quick one circling back to Japan. Can you just talk about that the new cooperation agreement with Dai-ichi and has that -- that has impacted your distribution efforts in Japan? Not so much the Dai-ichi money, but where you've worked within distributing into that region. Are you still working on new products there? Is there anything changed? Do you still view that as an opportunity?

Richard Weil -- Chief Executive Officer

Yeah, hi. Yes, we do view this as an opportunity. We had a senior executive from Dai-ichi, Mr. Aizawa start as a new Chairman of our Japanese office and company very recently. He has talked to our whole senior management, done a review of the product lineup and talked to us a lot about the ways we can work together to deepen the partnership that we have with Dai-ichi, but also to expand it out to other possibilities in Japan. So I would say the relationship is very healthy. And it's not so much based on the written words of the agreement. It's based on the trusted relationships built between the people and the addition to our leadership team of Mr. Aizawa is very welcome and he is a very honored and respected senior member of the Dai-ichi team who has come across and that's nothing but good news for us.

James Cordukes -- Credit Suisse -- Analyst

All right. Thank you.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Richard Weil -- Chief Executive Officer

Roger Thompson -- Chief Financial Officer

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

James Steele -- Jefferies -- Analyst

Elizabeth Miliatis -- Jarden -- Analyst

Andrei Stadnik -- Morgan Stanley -- Analyst

Mike Carrier -- Bank of America -- Analyst

Ed Henning -- CLSA -- Analyst

Ryan Bailey -- Goldman Sachs -- Analyst

Nigel Pittaway -- Citi -- Analyst

James Cordukes -- Credit Suisse -- Analyst

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