Good day, welcome to the Amundi third quarter and nine-month 2018 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Anthony Miller. Please go ahead, sir.
Yes, good morning to all of you. Thank you to be with us. Our CFO, Nicolas Calcoen, will present the results. We will then hand over the floor to Q&A as usual. Nicolas, up to you.
Thank you, Anthony. Good morning to everybody. We are here to present you the year-to-date results of the third quarter. Just to introduce, I would say that these results are very satisfactory, showing continued strong increase in our net results and a resilient business performance in a market environment, which is clearly less favorable than what it used to be. Main indicators being formed, of course, the increase in the net results, 41% for the accounting results on a comparable basis, plus 11% compared to last year, and the strong net inflows of EUR 48 billion for this nine first months of the year. To enter a little bit more into detail, I would start, I would say, as usual, with a few words about the environment. As I said, clearly less favorable.
The equity markets, in average for these first nine months, are more or less stable compared to last year. You can see the stock is plus 1%, again, in average, nine months to nine months. Interest rates are still low, but probably what is more important is since the beginning of the year, since the first market correction of February, March, we are in a much more volatile environment with rising risk perception of political or geopolitical risk, higher risk aversion, which is clearly visible on the market. Just to illustrate, if you look at the market of the open-ended funds in Europe or the whole of Europe, last year, the net inflows for the full year, which was a very good year, was around EUR 800 billion, more or less EUR 200 billion every quarter.
This year is around EUR 150 billion for nine months, and almost all of this being done on the first quarter. Over the last five, six months, the net inflows in Europe, at least on open-ended market, are close to zero. In this environment, Amundi continue to grow, and on the following slide, page eight, with asset under management that reach, at the end of September, EUR 1,475 billion, so an increase by 0.6% compared to June and of a bit more than 5% on a yearly basis with, as I indicated, EUR 48.5 billion of net inflows since the beginning of the year and a bit more than EUR 6 billion for the last quarter. Following page, an important element which is noticeable is the fact that this net inflow was primarily driven by long-term assets.
As you can see, out of this EUR 48.5 billion on the first nine months of the year, EUR 42 billion were on long-term assets. For the last quarter, we had almost zero flow on Treasury products, so almost all the inflows were on long-term assets with one exceptional one-off, which we already discussed at our last conference call, is the fact that Fineco, an Italian distributor, decided to internalize the management of some mandates, a range of fundamental funds, represented an exceptional outflow of EUR 6.5 billion. Except this element, we had positive inflows over the quarters of more than EUR 12 billion, almost 100% on long-term assets. Following page, in terms of clientele, you can see that these solid net inflows were generated both by the retail and the institutional division, with a strong momentum in retail over the first nine months of the year.
They represented a bit more than EUR 36 billion of inflows, excluding Fineco, but also with a good level of activity in the institutional segment, especially on the last quarter, with a bit more than EUR 10 billion of inflows just for the last quarter on the institutional business. If I run now into more detail on first on retail, page 11. As I indicated, strong inflows since the beginning of the year. What is interesting, they were driven by all distribution channels with the French networks, but also the international networks, and especially the Italian network. Third-party distributors, if you exclude the Fineco mandate and the joint venture, all posted positive inflows since the beginning of the year. If you look more precisely at the third quarter. It shows a good resilience of the business on long-term assets in a more unfavorable environment.
What we have started to see on the second quarter in Europe, as indicated, net inflows close to zero in Europe, and to some extent at Amundi, is clearly a slowdown of inflows compared to what we used to see last year due to an increased risk aversion. Despite the environment, we managed to continue to post positive inflows. Again, if you exclude the internalization of the Fineco mandate, the net inflow on retail amounted to a bit more than EUR 2 billion for the quarter. If you look just at long-term assets, positive inflows of EUR 3.5 billion generated by the French networks, still EUR 1.5 billion on long-term assets. Italian network, a clear slowdown, but it's still positive, including in Italy. The Italian networks of UniCredit and Crédit Agricole Italia posted EUR 0.7 billion inflows despite the environment.
Third-party distributors, again excluding Fineco, EUR 1.8 billion inflows over the quarter. Decent good level of inflows considering the market environment, despite the fact that on this quarter, the contribution of the JVs was minimal. You remember that we have very strong inflows on the first half of the year. On this quarter, the flow is limited. Not any source of worry. We continue to have positive inflows in India. In China, after very strong inflows, we know that the market is more volatile. We have some inflows, but nothing worrying. If I come to the institutional business, page 13. As I indicated, a good level of activity, EUR 18 billion since the beginning of the year overall, a bit more than EUR 10 billion just for the third quarter. What is interesting is that this activity has been generated mainly by long-term assets.
Page 14, if you will look at expertises. As I said, most of the inflows coming from long-term assets. What is interesting is that it continued to be generated by more or less all our main expertise, all our asset classes. Global asset classes all posted positive results, both on nine months and for the third quarter. Again, if you exclude Fineco. We continue to grow both on active and passive management, administration on passive management. You know that in Europe, we are the fifth asset manager in term of asset under management. On inflows, we are the second one in Europe since the beginning of the year. We continue to gain market share. Final last element on activity, page 15. The continuation of what we have seen over the recent quarter on recent years, most of the inflows continue to be driven by activity outside France.
In Asia, of course, very strong inflows in the JVs, but not only. Also continued positive inflows in Italy. Regarding France, limited net inflows, but with two different movement. Positive inflows of more than EUR 9 billion in medium to long-term assets coming from retail, coming from employee savings scheme and so on, offset by some outflows on Treasury products. Move now to the net results, I am page 17. Important element, our accounting net results over the first nine months of the year is an increase of 41% compared to the first nine months of 2017 due to, of course, the integration of Pioneer. Remember that they started to be integrated in our account on the third quarter of 2017, but also due to the good business momentum.
This good business momentum is visible if you look at the combined and adjusted net results, which allow us to give an indication of the increase in our net results on a comparable basis. We see that our adjusted net results increased by 11% on nine months compared to last year. For the third quarter, an increase of 5.8% compared to the third quarter of 2017. What are the elements explaining this increase in our bottom line? Page 18. First element is, of course, our net asset management revenues, an increase by 3.2% globally on nine months compared to last year. Coming from net management fees increasing by 3.5% on nine months and performance fees slightly decreasing compared to last year in a more difficult environment. When it comes to the financial income, of course, a strong difference compared to last year.
Just to remind you, last year, we posted strong financial income due to the fact that we basically sold most of our portfolio to finance the acquisition of Pioneer and realized some capital gain. This year, first, we have the cost of the debt issued to finance the acquisition. The portfolio is much more limited. Under IFRS 9, the mark-to-market variation of the value of this portfolio goes to the P&L, continuing the market conditions, this mark-to-market evolution is slightly negative. That's for the revenue. On the cost, we continue to see clearly the impact of the integration of Pioneer, with costs that are decreasing by 4% compared to last year. Thanks to the rapid implementation of the synergies related to the integration of Pioneer. You have the indication by page 19.
Can consider that around EUR 70 million of these synergies are already taken into account in our P&L. Regarding the head count reduction, around 85% of the staff reduction are already done. Quick and efficient implementation of the integration, delivering quickly the synergies. One last element maybe to notice on the cost, remember that from the beginning of the year, we accounted on our P&L the cost of external research related to MiFID. That is the element explaining that the non-staff costs are not decreasing, are stable compared to last year. Revenues that are increasing, excluding financial income, costs that are decreasing. The consequence is that our cost-income ratio is decreasing by close to two points compared to last year, at 51.2% for this first nine months of the year.
Given also the increased contribution of the joint venture, our net result increased by 11% compared to last year. Maybe a word more specifically on the third quarter. Main element to notice is that the net management fees continue to increase in line with our assets. An increase in net management fees of 3.6% compared to the third quarter of 2017. Well in line with the increase of assets under management. Regarding performance fees, EUR 3 million, clear decrease compared to last year, due to the fact that given the market environment we are facing since the beginning of the year, the capacity to generate over-performance is clearly lower. The costs are still under control, decreasing by close to 3% compared to the third quarter of last year, decreasing by 3.5% compared to the second quarter.
As a consequence, our operating income amount to EUR 293 million, and the cost-income ratio is at 52.8%. The noticeable element here is that despite the fact that we are on a quarter where the performance fees are low, they are low because we tend to have generally a lower level of performance fees on the third quarter. Additionally because this year is especially challenging in term of capacity to generate performance fees. Despite the fact that we are in a quarter where we have basically no financial income and a very low level of performance fees, we managed to have a cost-income ratio which remains below 53%. All of these elements explain the fact that compared to the third quarter, our operating income is stable. Main element are the performance fees and the decrease in the financial revenues.
Considering the other element of our P&L, our bottom line is still increased by 5.8% compared to the third quarter of 2018. To conclude, we can consider that these results, both for the first nine months of the year and the third quarter, demonstrate a solid business activity on the rising level of profitability. We consider them as a satisfactory result. We continue to be, I would say, in advance compared to our medium-term target, and believe that the results demonstrate that even in a more unfavorable environment. This result demonstrates the robustness and efficiency of our diversified business model. We can switch to Q&A.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll take our first question from Pierre Chedeville from CM-CIC. Please go ahead, sir.
Yes. Good morning, good afternoon, I don't know. Two questions for my part. Regarding performance fees, which clearly are disappointing this quarter, we have seasonal effect. Do you think that we have entered, I would say, a new paradigm regarding the fact that, as you said, the environment is less bullish for asset management industry? First question. Second question, could you go a little bit deeper in your explanation regarding net outflows in China? Of course we clearly understand that it was a huge performance during the first half. You also understand that the market today is not judging the first half, but the Q3. Probably there's a concern regarding this aspect of JVs, which was clearly a very good trigger for your company.
My last question relates to a speak done by the CEO of BlackRock, saying that he would like in the three coming years, I think, that Aladdin, which is the equivalent, I would say, of Amundi Technology, would represent 30% of revenues versus 10% today, because he wanted to stabilize, I would say, his business model. Is it something, considering the current environment, that you would like to accelerate in terms of development? Thank you very much.
Thank you. First question, are we entering in a new paradigm, new environment? The answer is clearly that the environment has been very favorable over the last two years. The environment is more challenging, more difficult. If you remember, beginning of the year when we announced our result and our targets, both in terms of inflows and results for 2020, many commenters were saying that we were too cautious. Why should inflows be lower than what they were last year and so on. A few months later, we probably are proven to have been right, to be a little bit more cautious. What we said at that time is, we didn't take any positive market effect.
We consider that, of course it would be good to continue to have EUR 70 billion or EUR 80 billion of inflows, but we could not count on it on a medium-term perspective. We don't change our view. The market is becoming more challenging. It's been going for more challenging for asset managers. We believe that in a more challenging environment, considering our model, the diversity of the model, the level of operational efficiency as measured by the cost-income ratio, we are more able to face this environment. We have opportunity to grow and to gain market share in most of the market, or almost all the market, or the business where we operate. Even if the environment is more challenging, we are still fully confident in our capacity to meet our medium-term targets. Second question.
Excuse me.
Yeah.
On the first question, my question was not about net inflows. My question was more specifically on performance fees. In the past, performance fees represented more or less 7% and sometimes much above, 12% of net revenues. My question was, do you think that in the new context that you have described, we should see, for instance, performance fees represented less portion of net revenues? Do you think that it's too conservative to see things like that?
Well, as I said, clearly it's more easy to have a good level of performance fee in a positive market environment. Yes, in the past we have years where it was, I think it reached 180 some years in good environment. In bad years, much less. I would say, yes, it's impacted by the market. There will be positive years, there will be negative years. In average, there's no reason why it shouldn't, in average, we should not have the capacity to generate the same proportion of performance fees that we did in the past.
Okay.
Thank you. Regarding-
China.
Sorry, yes. Regarding China, again, we had very, very strong inflows on the first half of the year. There are limited outflows this quarter. It's just linked to the character of the market, which is very volatile in term of inflows. The way it works in China is you launch a new product, in a few weeks you can have very strong inflows measured in billion of euros. When the product is not attractive anymore, you can have strong outflows, a new product will launch and there are inflows. Overall on the JVs, a reminder, our target was to have around EUR 10 billion of inflows per year. On this quarter, the net inflows is EUR 0.3 billion, I think. On nine months, it's still EUR 24 billion. Clearly, let's not extrapolate just on one quarter. Third element, yes. Aladdin and so on.
Well, I will not comment on what BlackRock intends to do, clearly for us, what we launched only two years ago, Amundi Technology, is something very important for us. It's still small. We are still in, I would say, the take-off mode. Of course, we cannot say that we target this activity to represent 30% of our revenues in the foreseeable future. We clearly intend to develop this activity to generate more revenues. Progressively, this activity to become, I would say, a third business, along the retail business and the institutional business. Again, we are still in the take-off mode. So far, the take-off is going well.
Thank you very much.
Thank you. We will now take our next question from Michael Werner. Please go ahead, sir. From UBS.
Thank you. It's Michael Werner from UBS. Two questions, please. We saw a very good mix shift towards those medium and long-term assets and away from treasury assets. I think what was missing from my perspective in the presentation, which you had put in in Q1 and Q2, was in Q1 you had put in the mix between active and passive flows, and in Q2 or the first half, you provided total ETF flows in the first half. I was just wondering if you could give a little bit more color when it comes to these medium and long-term asset inflows as to what portion was going into active products versus passive products, particularly for the retail segment. Then second, we typically see a bit of an uptick in costs in the fourth quarter for Amundi, and I assume this has to do with the variable compensation.
I was just wondering, should we expect kind of normal seasonality when it comes to costs in the fourth quarter of this year? I also know that you'll be using equity as part of the variable compensation for the first time, really, for a large number of fund managers, 200, I believe. I was wondering if that's going to have an impact as to that typical seasonality. Thank you.
On medium- to long-term assets, globally, as I said, we had positive inflows both in active and passive management. Let me give you the indication. I'm sorry. Passive management, I think we are around more than EUR 10 billion of inflows. It means that it continues to be a good contributor. The majority of the inflows are still on active management. When we're talking active management, it's also quite diverse. Equity, fixed income, but also multi-asset that are of course still very attractive in retail. If you take out the impact of the FinecoBank exit, which was in multi-asset. It's also a structured product, and it's also real asset. For example, we had, I think, EUR 2 billion of inflows for just real estate and for private debt infrastructure and private equity, more than EUR 1 billion, if I'm correct. Regarding your second question, variable remuneration.
Well, overall, our target is to have a variable remuneration to represent between four, and the internal rule that we are applying is between 14% and 20% of the gross operating results pre-bonus. On average, clearly close to 17%. This line of the cost should more or less evolve like the pre-bonus operating income.
Thank you. I guess, guys, just a quick clarification. On the EUR 10 billion of inflows that you had mentioned on passive, is that nine months or is that Q3 only? Is that for the group overall? Or is that for retail? Thank you.
Sorry. No, it's for nine months, of course. It's for nine months. I think it's close to $13 billion, in fact, and it's both retail and institutional, probably relatively evenly split. Maybe a little bit more institutional than retail.
Okay, thank you.
Thank you. We'll now take our next question from Jacques Gaulard from Kepler Cheuvreux. Please go ahead, sir.
Yeah. Hi, guys. It's Jacques-Henri from Kepler Cheuvreux. Just two small questions for me. The first one is, you have a EUR 12 million positive on your cost of risk another, so I was wondering if you could just tell me what that is composed of, and if there is any sort of, I would say, cyclicality or seasonality or any way we can effectively forecast this, or if it's just an adjustment line. B, while we're in questions like that, it's very interesting, Nicolas, what you mentioned about the mark-to-market impact on what's left of your securities portfolio. Could you give us roughly a sensitivity to equity market evolution? And how much this portfolio evolves for, say, a 5% going up or down in the equities market.
I guess it's not part of your whole sensitivity to the equities business, just to have an idea for this line in particular. Thank you.
Okay. On the cost of risk on the third quarter, it is just a retrieval of some provision for professional risk. It is really just an adjustment, and there are no cyclicality or, I would say, rule regarding this kind of line. Regarding the portfolio, a minor part is composed of seed money, and the majority is still, I would say, voluntary investment. The vast majority is invested either in Treasury funds or fixed income funds. The share that can be invested in equities also depend on the composition of the seed money, and it can differ from time to time, depending on the kind of products that are launched. Overall, the sensitivity to equity is small, because the majority is in Treasury or fixed income.
Okay. Very clear. Thank you very much.
Thank you. We will now take our next question from Hubert Lam, Bank of America. Please go ahead, sir.
Good morning, everybody. Just three quick questions. Firstly, on the management fee margin, it seems like it fell quarter-on-quarter. I was wondering if there is some seasonality around that or some mix shift on that, and whether or not we should expect the fee margin, everything else being equal, to come up in Q4 because of that. Second question, just some clarification also on performance fees. I just wanted to check. Did you also say that performance fees are also seasonally weaker in Q3 because of fewer funds crystallizing the fees in the quarter? Maybe that would naturally depress performance fees in the quarter as well. The last question is on excess capital. Maybe you can give us an update in terms of how much excess capital you currently have. Thank you.
Okay. First point on management fees, there is a little bit of cyclicality, marginally, I would say, in the revenues. Typically in Q3, we have a little bit less of some revenues coming from transactions or advice on mandate. Important thing is, if you look at the number for the Q3 compared to Q3 2017, you can see that the revenues excluding performance fees are increasing by 3.6%, which is pretty much in line with the increase in the assets. I think the average assets under management, excluding, of course, the joint venture, increased Q3 to Q3 by a bit more than 4.2%. Can say that increase in revenues excluding performance fees is pretty much in line with the increase in the assets. Regarding second question on performance fees.
Clearly here it's of course more variable, because from one year to another year, it's not necessarily the same funds that perform. Sometimes it will be funds that have their anniversary date in the first half of the year that will perform well, and sometimes it will be on the second half. It's difficult to make a rule. We know that in Q3, we have a bit less funds that do come to their maturity date in the third quarter than on some other quarters. That's why I was mentioning that usually, but again, no rule, usually Q3 is on average a bit lower. This is accentuated this year because, again, continuing the market evolution since the beginning of the year, the capacity to generate performance fees were lower, and maybe also performance for managers were not that good compared to last year. Excess cap.
Yes. As you know, following the acquisition of Pioneer, we didn't have any excess capital when we closed the deal. It was one year ago. Progressively we reconstitute a capital base, basically, thanks to the results, which is not distributed. Which, let's say over the next three years, should represent EUR 300 million per year. We are just one year after the acquisition, so we can consider that we have at least reconstituted around EUR 300 million of capital. Is it excess capital or not? That's the judgement ballpark, since we are still in limited margins compared to the regulatory requirement. Well, it's a beginning of reconstituting an excess capital. The idea is, basically within three years, we should have reconstituted around EUR 1 billion.
Great. Thank you.
Thank you. We will now take our next question from Haley Tam from Citi. Thank you. Please go ahead.
Afternoon, gentlemen. Just two quick questions, please. Firstly, on the Pioneer cost synergies. It looks to me that the EUR 71 million you did at the end of Q3 is around 47% of the EUR 150 total target. It looks bang in line with your previous guidance to get 60% by the end of this year. However, it does look as though you are running behind your guidance on the EUR 190 million pre-tax cost to implement the synergies over 2017 and 2018. I just wondered whether that is something you haven't done yet, that you would have thought, and whether we should interpret there is perhaps some scope for more cost cuts at this stage. The second question was just on the sensitivity to markets.
I know it's not something you've done for a while, I did actually see a Reuters report this morning where I think Monsieur Perrier said that a 10% fall in global markets would have an EUR 80 million to EUR 85 million impact on revenues, I just wondered if you could give us your thoughts on that or any more color by asset class. Thank you.
Okay. First on cost synergies. Yes, EUR 70 million, EUR 71 million for nine months. Of course, it's a pre-tax, it represents a bit less than the target of EUR 160 million. Which means that, yes, we are in line. If you annualize that, it should represent a bit more than 60%. We are clearly not behind what we indicated. Regarding the sensitivity market, yes, at exact decrease in all equity markets, I would say of 10%, represent a decrease in our net management fees on an annual basis of around EUR 80 million, EUR 85 million. On the top line, our revenue line.
Okay. Thank you. Is there any comment on the fact that you seem to be running behind your implementation cost of synergies?
Behind? No, not behind. As I said, slightly in advance, EUR 47 million on nine months if you annualize. Sorry, the question is on integration cost. Is it, Haley?
Yes, on the implementation associated, the cost of implementing.
Sorry. My mistake. I thought you were mentioning synergies. Not exactly. On a cumulative basis, 2017 and 2018, we booked EUR 135 pre-tax, EUR 135 million last year. On the first nine months, EUR 29 million. We are today at EUR 164 million, pre-tax again, and we guided for EUR 190 million. We are in line. Let's say we should be in line or maybe slightly below. Clearly we want integration cost. I'm sorry for my mistake in the understanding. As I said, we should be in line or maybe slightly below.
Great. Thank you very much.
Thank you. We will now take our next call from Arnaud Giblat from Exane. Please go ahead.
Good morning. I have got three questions, please. Firstly, on the management fee margin, I will ask the question a bit differently. Sequentially, your management fees have dropped to EUR 28 million. Roughly it looks like EUR 5 million-EUR 6 million of that drop can be explained by FinecoBank, but there is still a drop. Then when I look at your evolution of your AUM over Q2 and Q3, AUM went up across the board, and especially in the high margin retail and in equities, alternative, multi-asset, the high margin businesses, grew faster than your low margin businesses in many markets and in the euro contracts. A positive mix shift in AUM. AUM up in absolute term in the high margin products, yet management fees drop. I am struggling to understand. Can you give us what are the moving parts we might be missing to understand the volatility in management fee margins?
Thank you.
Okay. As I said, they are limited, but there is some sort of cyclicality in the revenue. You can look at this last year or I think even the previous year. That's why we always tend to look at it on a more long-term basis than purely on a quarterly basis. As I said, if you compare this Q3 to last year Q3, the increase is 3.6%, as I said, more or less in line with the assets under management. I think that's the main element. On Q3, we have a bit less of transaction fees. You have probably this year also a bit less of number of days or accounting the revenues, which explain the slight decrease compared to the second quarter.
Can I check what proportion of total management fees are transaction fees? If you can give us a rough idea.
No. We don't disclose that.
Okay.
It's part of overall the fees that are globally disclosed and charged to the fund and disclosed to the client, but we don't provide details.
Okay. I've got two quick follow-ups as well. On performance fees, can you tell us what the cost to income associated to performance fees are? Do the performance fees drop all to the bottom line, or is it just like a 17% payout to staff and no more? FinecoBank, last quarter you said when you announced the loss of the contract that this would be broadly P&L neutral because you would provide services to FinecoBank instead. At which point should we be expecting these revenues to kick in? Thanks.
On the cost income of performance fees, there are no properly cost income performance fees because there's no automatic link between performance fees and bonus. What we have is globally a bonus pool which is set globally for the company at a level, as I said, between 14 and 20% of the pre-bonus operating income. If we have less revenues, we have performance fees or other kind of revenues, we have less operating results. We'll have a bonus pool which is slightly lower, but that's it. Regarding FinecoBank, the way progressively the loss of revenues generated by the end of the mandate will be progressively compensated by new businesses. To follow the first one is that FinecoBank is using Amundi services as its IT platform. It's already started, but it's of course small in term of revenues, but still a positive impact.
We'll progressively generate new activity which we, by the way, already started to generate new activities with FinecoBank, which will delegate some funds to us. It will be progressive and probably in, I would say, between one and two years to more or less compensate the loss of revenues coming from the end of the mandate.
Okay, thank you.
Thank you. We will now take our next question from Flora Bocahut from Deutsche Bank. Please go ahead.
Yes, good morning. Three questions from me as well, please. The first question is regarding Italy. You mentioned in your slide pack that Italy represents 12% of assets under management, but can you tell us also how much it represents of your profit? Also, run us through how the activity has been for you in Italy over the past few weeks after the recent events. The second question is regarding cost, and more precisely, the cost flexibility. You've talked obviously about the variable compensation. If your revenues were to disappoint, given the current difficult environment, are there some other costs on top of the variable remuneration that you can potentially work on? The third question is just whether you would be ready to provide us with an update on the activity, especially in terms of flows since the beginning of this quarter. Thank you.
Thank you. Regarding Italy, in term of activity distribution, it represent roughly EUR 180 billion. Around 12% of assets under management. We don't disclose the profit. The only thing I can say is the mix is slightly more geared to retail compared to the rest of Amundi business. Activity over the last few weeks, it's too early to tell, clearly. Important to notice is that since the beginning of the year, the inflows in Italy, if we exclude the FinecoBank exit, represent a bit more than EUR 9 billion, and the flow were on a continued basis positive for the last quarter. The net inflows, excluding again, FinecoBank, were EUR 2.5 billion on the third quarter. Regarding cost flexibility, yes, of course, as you mentioned the first element is the variable remuneration line.
For the rest of the cost structure, there's no, I would say, automatic link between revenues and cost, but we have the capacity to adapt our cost structure by adapting, for example, the salary increase, monitoring the new investment we made on the recruitment, renegotiating some fees and so on. I think we have demonstrated it in the past. Of course, in case of a more difficult market environment, we don't necessarily immediately adjust all the cost structure. It depends on the view we have on the continuation of the business. That's why we said that our target, when we announce our target, that the cost-income ratio should be below 53%.
Again, target is not for it to be 53%, but we have the capacity to keep it below 53%, even in a more difficult environment, or for example, in the quarter where the level of performance fees is limited.
Okay, thank you. Just on the October performance in terms of flows, you don't want to comment on that?
Okay. No, same comment. Too early to comment. The month is not even finished.
Okay, thanks. Thank you.
Thank you.
Thank you.
We will now take our next question from Mr. Campbell from J.P. Morgan. Please go ahead.
Hi. Good afternoon, everybody. Most of my questions have actually been answered. Just maybe a sort of high level question in terms of sort of flows. In terms of sort of joint ventures, I think you sort of highlight that the flows here can be quite lumpy. What sort of gives you confidence looking forward? Is there any sort of new agreements you're looking at or anything in the pipeline you can discuss around that?
Nothing specific in the pipeline. The confidence comes from the fact that even if there's a slowdown, economy is still growing in India and China, with people saving. We have a good partnership. We have a good product manager. We continue to expect to have a positive momentum in those JVs. Possibility to open new JVs, why not? It's a model that works well in some cases, in some countries, as long as you have the right partner. If there is a possibility to open new partnerships, of course we will look at it, but nothing specific in the pipeline.
Okay, thank you.
Thank you. We will now take our next question from Angeliki Bairaktari. Please go ahead.
Thank you for taking my question. Two questions on my side. When I look at your medium to long-term flows in international networks, it's worth EUR 0.2 billion, of which EUR 0.7 billion in Italy, pointing to outflows in the other international networks. Could you please provide a bit of color on the geography where the outflows are coming from? Are they in the UniCredit networks in Germany and Austria, in Resona or somewhere else? My second question is a bit more general. Have you perceived any change in client behavior month to date or in the last couple of months in terms of asset allocation, for example, a preference to hold more cash or a pull out of equity funds? Thank you very much.
Thank you. On the first question, on the international retail network for the third quarter, yes, positive inflows in Italy, slightly negative in other geographies. Mainly, Japan, Resona and HVB. Resona, it's a context which is a bit difficult. We are working with them, but at the same time, we have positive inflows with other distributors. Regarding HVBs, they are still in the process of some restructuring of the offer and of the network. Here again, for the quarter or years to come, we are positive on what we can do, and there are good leads in term of new offers to be delivered to HVB network. Your second question regarding change in client behavior. For what happened over the last few days or weeks, it's a bit early to tell.
What we have seen, if I take a little bit more perspective, is more risk aversion, especially in retail. That's been visible in the inflows. Again, positive inflows, slowed down. From institutional investors, they come to us to discuss what are the opportunities, and so on. They have the money to invest, they continue to invest. A bit early to say, what we can say is for some of them, the market correction we just saw over the recent years be considered by some of them as a good, sorry, a good entry point.
Thank you. If I may just follow up on Resona, you said the context is a bit difficult. Could you please elaborate a bit further on that?
No, it's fine. There's nothing specific. It's just the inflows have been limited over the recent quarters with Resona, which is a network with, we believe, has some potential. It's also restructuring its network, absorbing some new regional banks. That's just a question of the context of the network itself.
Thank you. We will now take our next question from Anil Sharma from Morgan Stanley. Please go ahead.
Hi. Morning, guys. I just have two questions, actually. In the passive and ETFs, pretty strong market share numbers there. Just wondering, what is it that's driving you to increase the market share there? Is it that you're cutting prices, or is it something's changed on the distribution side there? Similarly, in equities, again, a very strong quarter. I'm just curious as to what products you're actually selling and how sustainable you think that is, especially given what's going on at the moment. If you could just help us think through that'd be helpful.
Sorry, on the second question, in which area?
With equities.
Equities. Sorry. Regarding passive on ETF, yes, we are gaining market share, obviously. Not by cutting fees, and there have been no initiatives, but we continue, of course, to monitor our positioning and can remember the motto of the ETF business line when it was launched was smarter, cheaper, and we continue, of course, to monitor our pricing to ensure that it remains, I would say, competitive edge, but no specific initiative to be mentioned in terms of cost-cutting. I think we continue to benefit from, first, the fact that we are competitive. We have the good range of products, and we have also an increasingly powerful sales force to promote these activities. By the way, when I mention passive on ETF, I would say passive ETF on smart beta, which is also developing well. Second question, in terms of equities.
Of course, part of it, which is done through passive ETF and smart beta, especially, but also some active. It's relatively well-balanced.
Okay. Just a quick follow-up then. Does that explain some of the margin pressure that's been going on, the fact that the equity flows are actually into lower margin products?
No. It's both active and passive management. If you look at overall on margins, they are more or less stable globally, very slightly decreasing compared to last year, with again, different element. We have continued to feel pressure both on retail and on institutional due to the market context, due to the competition, due to the low interest rate environment. Partially due to a mix compared to the stock which is slightly more geared to passive management. It's still compensated by the fact that the overall client mix is improving with no or very limited inflows in the insurance mandate and positive flows in retail and in the rest of the institutional business.
Okay. Very last question. Could you give us a sense as to how much of that equity flow, what % is active, what % is non-active?
Frankly, I don't remember. Again, it's both active and passive management.
Okay. All right. Thank you.
Thank you. Again, if you'd like to ask a question, it's star one. We'll just pause for a moment. Thank you. It appears there is no further questions at this time. I would like to hand it back to the host for any closing remarks. Thank you.
Okay. Thank you to all of you. The next results publication will be the full year 2018 release, which is scheduled on the 13th of February 2019. Thank you. Bye-bye.
Thank you. Thank you to all. Bye-bye.
This concludes today's call. Thank you for your participation. You may now disconnect.