Okay, good morning, everyone. Welcome to our full year results presentation for 2022. I'm joined today by Wayne Mepham, our Chief Financial Officer. Together, we will talk you through our financial results as well as the flow dynamics we saw last year. I wanted to spend more of our time today talking about our strategy and how I believe we will drive the future growth of Jupiter. I will build on a lot of the topics that we discussed in October in our Q3 trading statement webcast. I'll update you on the progress we've already made, and I'll give more insight on the strategy we're implementing, and also give some details as it relates to some of the metrics that we'll be using to judge our own success. We'll of course have time for questions at the end.
You'll already be aware of these headline figures. As Wayne will be covering much more of this in detail, I won't dwell on these for too long. It has clearly been a challenging year for the whole industry. What started with a degree of optimism all changed exactly a year ago today with Russia's invasion of Ukraine and all the resultant turmoil that has followed. As an asset management CEO, there are lots of things that you don't control. Macroeconomic shocks are clearly one of those things. However, we as a management team are laser-focused on the things which we can control, and we'll talk about how we've responded to this and other challenges in the coming slides. Our net revenue and profit figures are down from last year, but are perhaps a little bit better than market expectations.
Part of that is due to the GBP 10 million of performance fees which we earned in the latter part of the year. I'll talk about flows for the year in more detail shortly. We finished 2022 with GBP 3.5 billion of outflows. This is not what and not where we want to be. There was a significant improvement in the second half, with flows very slightly positive for this six-month period. In line with our previous guidance, we've announced we intend to return just over 70% of the last year's earnings to shareholders through both a 0.5 pence final dividend and a GBP 16 million extension to the share buyback program. Now let's look at investment performance in more detail.
As per the left-hand side of this page, while 40% of our assets under management are in the top performance quartile over the three-year period, the aggregate figure above median is not where we want it to be. This, however, is the nature of being a high-conviction active manager. At times, our managers' views won't align with other consensus or less active managers. This is, of course, an opportunity from a long-term performance perspective and one of the reasons we believe in active management. We believe we have a wealth of very talented investment managers with processes that will, over time, deliver superior investment outcomes for clients. The main driver behind the change in both the one-year and the three-year figures is that a small number of funds, which happen to be some of our largest, were previously above median but have moved below median in the recent period.
One of these is our Dynamic Bond Fund. This is an active fund with a differentiated investment approach, but the team's long-term high-conviction view can lead to periods where its positioning, and consequently its performance, can differ materially from its peer group. Over the fund's long history, we've seen such periods of dislocation in performance before. Now, as on previous occasions, we are starting to see clients understand how and why this fund is positioned as it is and proactively reallocate to it. On the equity side, the European Fund moved below its median in its peer group as the market rotated towards a value style of investing. Our U.K. Mid Cap Fund has also moved below median. Although it does not have quite the same innate style bias, more recently it has invested in more growth-oriented stocks, and this has had a negative impact.
The performance of these three funds alone have brought the overall figure down by some 25%. There is good news here too. Apart from these three funds, we have nine others, each with over GBP 1 billion of AUM, and all but one of these have first or second quartile performance when measured over one and three years, which could bode well for future flow trends. As you might expect, our value range has performed very well this year, and those funds are first quartile pretty much across the board. Our alternative strategies have also had a very strong year, helping preserve investors' capital in a difficult period. GEAR, our Global Equity Absolute Return strategy, and SARB, our Strategic Absolute Return Bond fund, have both performed exceptionally well, delivering positive absolute returns in a period where most major asset classes were down double figures.
They are both second or first quartile across all time periods and are attracting net inflows from clients. While performance is not where we want it to be overall, it is more nuanced than the headline figures imply. Moving on, let's look at our flows this year in a little more detail. Gross sales continued to be strong this year at just over GBP 15 billion, which, given the enormously challenging period we've lived through, is a testament to the endeavors of our client-facing teams. As you might expect in this market environment, gross flows from retail clients dipped a little this year. You can really see the success in institutional channel coming through here. We generated over GBP 3 billion of flows from institutional clients this year, which is a record for Jupiter and a sign of our improving momentum in this important channel.
That improvement in gross sales is mirrored when we look at the net picture. Unsurprisingly, given the risk-off nature of both equity and bond markets, which themselves were both volatile and unusually highly correlated, there were outflows to contend with from retail clients. Despite this challenging backdrop, it was encouraging to see that our efforts and our focus on building relationships with institutional clients is starting to pay off. We've talked a lot in the past about building that support team, our success through RFPs, consultant ratings, and pipeline, but it's really pleasing to see that come through in net flow too. We generated GBP 2 billion of net sales for institutions this year, which again, is a record for us. To really get a view on what's happened across the year, it's worth taking a look at the quarter-on-quarter picture.
Despite the market environment, retail gross flows actually held up relatively well across the year, institutional flows increased quarter on quarter. On the net side, you can really see the improvement through the year, with retail outflows slowing to less than half of what we saw in the first two quarters. The real driver here was the success in our institutional business, which saw really strong flows, including GBP 1.3 billion in Q4, these were also pleasingly diversified by investment capability. These strong institutional flows and the slowing down of retail outflows meant that we were net positive in the second half of the year for the first time since the second half of 2017. However, success, particularly in the institutional channel, will not be linear.
We won't see straight line growth as institutional fundings and also redemptions when they occur are by definition larger and therefore progression here will be lumpier. More widely, I would urge you not to extrapolate these flow trends into 2023. While we are confident that we have a range of strongly performing investment capabilities that neatly align with clients' needs, we face an uncertain year ahead. You're all clear, in our internal budgeting, we are forecasting modest outflows in the year ahead. That all said, we do now have everything in place to continue to drive growth from the institutional channel, and our late-stage pipeline is bigger today than it was at the end of the first half. This is a chart which you all have seen before, but I wanted to update you on the areas where we have previously seen outflows.
Some of these are Jupiter specific, and where there are challenges with performance, we're working hard to address that. Others are more structural, where client demand has moved away from certain types of strategies, such as single country or regional strategies or a multi-manager approach. Where that is the case, we are focused on making changes to ensure that our investment capabilities are fit for those evolving client needs. This can't always happen immediately, but it is a process that is underway. Despite some positive news here, such as the U.K. equity institutional mandate funding, strong performance across the Merlin range, and an improvement in systematic flows, we have again seen outflows across the capabilities on the left-hand side of this slide. As we seek to transition the business, it's absolutely key that we make sure we are launching the right products that align with clients' needs.
I'll talk more later about how we're thinking about new product launches and where we want to get to. If we look across our launches over the last five years, you can see that we are still generating good inflows from these new funds. These products saw around GBP 700 million of inflows last year, which cumulatively is GBP 2.9 billion since 2018. I'll come on to talk about some of these strategies shortly. AUM from this group of strategies has also risen to just under GBP 4 billion, and that rise is despite both market falls and the fact that we've had to close down two funds from this group which are not performing and have not attained critical mass. This is part of the rationalization program that I talked about at Q3.
We will always continue to innovate and to seed new strategies, but inevitably, not all of these will work. When they don't, we will take the appropriate action, and we'll take it quickly. Our growth is not just going to come from these brand-new strategies. There are exciting opportunities from more established capabilities too. We have a range of investment strategies well diversified across region, style, and asset class that we hope and we expect to play a role in driving our future growth. Not all of these will align with clients' needs at all times. When clients' needs change, as we know they will, we believe we will be well-placed to help. Some of these are already at scale, such as the value range and unconstrained fixed income, but neither are capacity constrained.
Although the latter has had a challenging year, we're starting to see clients once again invest in this strategy. Others are subscale but are newly developing strategies in areas of long-term client interest, such as the global equity portfolios of Global Sustainable Equities and NZS. Importantly, most of these strategies are globally focused or where not, invest in Asian or emerging markets where there are structural growth opportunities. There are opportunities across the range, and we'd want to grow all of these strategies over time. We look to the flow picture and our product range. I want to take a broader view and revisit what we talked about at Q three. Back in October, Wayne and I ran through a number of actions we were in the process of taking to move the business forward.
I'm now going to update you on the progress of these actions and detail what we've achieved to date. We discussed our restructuring program to rightsize the business and to remove complexity. While we want to be relentless in our pursuit of efficiency, this discrete program is now complete and our headcount is 15% lower than it otherwise would have been. We described our fund rationalization process, which is well underway and which we expect to be completed later this year, by which point we will have 25% fewer funds. Through both of these actions and a wider review of our cost base, we said we would deliver efficiencies. Wayne will talk you through the guidance for the year ahead, but as a result of these actions, costs in 2023 will now be GBP 20 million lower than we had originally budgeted.
We said we'd be exploring new investment capabilities too. Much of this is still ongoing, but I can formally announce today that we'll be launching a range of thematic funds later this year. These will be run by the systematic team, and there'll be 5 funds in total, one of which will have a short component to it. This is a great example of us addressing unmet client needs, believing that we can innovate to produce both an active approach, but also one that is highly differentiated and all by leveraging existing internal investment expertise. Finally, we said we would honor our commitment to returning 70% of the last two years' earnings, which we have done through a combination of the final dividend and share buybacks.
Before we move to strategy, I want to look at where Jupiter is today and revisit a version of a slide that I used back in October. Jupiter is a fantastic business with deep, strong foundations and talented and committed employees. We've always been a truly active asset manager focused on high conviction, active investment excellence. Our U.K. business is very clearly our core and very important to us. It accounts for just under 70% of our AUM, and it's what we've been known for to many of our clients. This has historically been through the retail channel, but we're also growing with institutional clients while building out our capabilities across sustainability. With these strong foundations in place, what do I think we need to do to drive Jupiter further forward and faster? In October, I discussed our current strategy.
I said that I believe that everything we were doing was absolutely necessary, but if we really wanted to fulfill Jupiter's medium-term growth ambitions, it simply would not be sufficient. Today, I want to talk you through how we're going to go about pushing that growth forward through our four key strategic objectives. Everything that we do as a group, every decision taken, is based around driving improvement across these four objectives. Firstly, we want to increase scale. We want to be focused on targeted select geographies and channels where we have the most significant opportunities and not simply opening new offices or creating unnecessary product proliferation. We want to decrease undue complexity. We want to be relentlessly focused on efficiency, whether that's on our approach to cost management, how we use technology, or how we work with our suppliers. We want to broaden our appeal to clients.
This doesn't simply mean more investment capabilities, but rather ensuring that we have a clear client proposition that is fully attuned to our clients' needs, both for today and for tomorrow. Finally, we want to deepen relationships with all of our stakeholders. That's not just our clients, but our people, our shareholders, our regulators, and the wider society in which we operate. Let me talk you through each of these in a bit more detail. Of our four key strategic objectives, our need to increase scale is arguably the most important one. If we really want to drive sustainable growth for Jupiter, we are not going to do it through cost cutting. We must always be focused on efficiency, the real challenge for us relates to our top line. It's critical that we focus on increasing scale.
If you look at our business from a regional perspective, all of the foundations are set, but we need to be much more targeted and selective on the regions, but also the channels and strategies where we have the best opportunity to drive growth. To take an example, if we look at the contribution margin of two of our larger overseas offices, Italy and Germany. On a combined basis, it's 15 basis points. While we've been physically present in Germany since 2010 and in Italy since 2016, there is so much more we can do to rescale our presence in these two markets. We have less than 0.5% share of each of these two countries' wholesale market, with designs on being a significantly larger and much more scaled player in these countries, but also in other geographies too.
We already have high-quality local expertise in place, and we absolutely do not need to make significant investments that would be required if we were entering into a new market afresh. I referenced contribution margin a few moments ago, but this isn't the only performance measure we're using. We're also tracking flows, assets, client longevity, market share, amongst others. We might not see consistent growth in all of these metrics, and it might not be this year, but we should in aggregate and over the medium term also see these measures track upwards. I've touched on institutional as well already and the record flows we've seen there. We've now got just under GBP 7 billion of AUM from institutional clients, and we're well-placed to build on that success with a strong pipeline and our 18 consultant buy ratings across a range of investment strategies.
Success here is unlikely to be linear, but we expect over time to increase our scale here too. We also want to increase scale within existing investment capabilities and new franchises as well. Nearly all of our investment teams have capacity to manage significantly more assets without the need to incrementally add fixed costs. There's a real operational leverage opportunity for us here as well. While scale is undoubtedly important, in a world of falling revenue margins, rising inflation, and regulatory cost increases, it is absolutely crucial that we decrease undue complexity in our business wherever and whenever we can. Wayne and I both talked about the importance of cost discipline in October, and it remains key. This is about embracing a zero-based budget mentality across the group.
It's about being lean, running at the highest efficiency that we can, and ensuring that we are disciplined and considered if we need to hire and add costs. Wayne will talk in more detail about this and how much of our current cost base is invested in driving growth. He'll also touch on what our actions mean in terms of guidance for this year. So far, we've done what we said we were going to do in reducing headcount and driving savings. As we look forward, we'll continue to review our operating model. We will look to reduce the number of key suppliers that we're working with and explore whether there are additional opportunities to outsource. We'll also be looking at our use of technology and how we can automate some of the repeatable processes that are built into our business.
I also strongly believe that we need to broaden our appeal to clients. Of course, this means delivering active investment excellence, but it also means ensuring that our range of capabilities is differentiated and well suited to our clients' needs. I've already talked about the fund rationalization program, which is now well advanced. I said in October that the total assets under management in scope of these changes was around 4% of group AUM. Pleasingly, the attrition rate that we've seen so far is actually only around 0.3% of AUM, which is actually GBP 140 million. As you'd expect, we're keeping our clients informed of these changes, and they are welcoming of our efforts to bring clarity and focus to our product lineup. You may wonder why I'm talking about fund closures and mergers on a slide about broadening appeal.
Well, I talk internally about this process being one of making space for growth. That is, we needed to rationalize what it is that we do to allow us space to innovate and then grow. We will look to innovate. I've already talked about our thematic fund range coming this year, but we're also exploring whether there's more we can do with some of our absolute return strategies or whether we can be more tailored, more personalized in our strategy and product design for both new and existing capabilities. All of this is part of our focus of broadening our appeal to clients. Finally, we want to deepen relationships with all of our stakeholders. At Jupiter, we care deeply about our impact on society. Purpose and sustainability is embedded in everything that we do.
There is not one single metric we can use to measure success here, but we continue to see inflows into sustainability labeled products last year, despite the market rotating out of their style. We can also look to external third parties for their views, such as Sustainalytics, Morningstar, MSCI, where we have some of the best ratings of our peers, or to the Stewardship Code, where we are T ier 1 signatory. It's crucial that we attract and retain talented employees and build a diverse workforce that is representative both of our clients and the communities in which we operate. We conduct an annual employee survey, which our engagement score improved year-over-year. We also track the diversity of our employee base, and this is improving when you consider not just gender, but also ethnicity and socioeconomic backgrounds.
We, like the rest of our industry, still have a long way to go here. Of course, we want to continue to build and deepen our relationships with our shareholders, understanding what they want to see from the company which ultimately they own. In turn, we want to deliver for them strong returns through a healthy share price and a clear capital allocation framework. I'll come back briefly to cover the outlook, but for now, I'll hand over to Wayne.
Thank you, Matt. Good morning, everyone. Matt is taking you through how our strategy is adapting and the changes we're making across the business. I just want to focus for a few moments on the financial results for 2022 and touch on how those four objectives have already started to play a part in our outlook. As usual, let's kick off with a few headlines. Net revenue is GBP 397 million, including GBP 10 million of performance fees. With high deferred compensation on prior year performance fees, underlying profits were GBP 78 million. Exceptional items were lower this year, resulting in statutory profits of GBP 58 million. Our underlying EPS is GBP 0.113. That's GBP 0.147 before performance fees.
As a result of the change in the capital allocation framework and the transitional arrangements we announced in October, we've today proposed a final dividend of 0.5 pence. We've also announced an extension to our share buyback program of up to GBP 16 million. Let's start by looking at how that profit progression has emerged. As you recall, we reported GBP 217 million of net profit in 2021, which included performance fees. Underlying profits excluding performance fees were GBP 165 million. Management fee revenue reduced, driven by wider economic conditions and the impact of those on market and investor appetite. That revenue was down GBP 69 million. Of course, as you all know, we took action to reduce costs, and they were lower by just over GBP 10 million.
We also had some losses in our seed portfolio, resulting in underlying profit before tax for the year before performance fees of GBP 101 million. We earned over GBP 10 million of performance fees in 2022, which came through right at the end of the year. This was mostly as a result of very strong performance over the last two years in the GEAR Fund. As Matt touched upon, it is performing well over all the main time frames, and we are seeing strong client interest again. We also earned performance fees from SARB, both important products for us in the alternative space and both performing well. Accounting for deferred compensation on performance fees means some of the cost comes through after the performance year. We've provided information in the pack that will help you model future costs.
As you know, we can't predict the exact timing due to valuation changes. That resulted in net costs on performance fees for the year of GBP 24 million, reducing our underlying profit before tax to GBP 78 million. Exceptional items are mainly the amortization of intangible assets and some deferred compensation costs, both relating to the acquisition in 2020. We expect they will be a little higher next year at around GBP 21 million, and that's simply some timing of deferred compensation. That takes us to statutory profits of GBP 58 million. In a moment, I will look at these movements in a little more detail and share some expectations for the next 12 months. First, let's look at the movement in the main driver of revenues, AUM. As usual, I've shown the movement over the past two years.
We reported growth in AUM in 2021, with markets performing well through most of the year, we continued to see outflows. Coming into the last year, inflation was already emerging at higher rates, the geopolitical and wider economic concerns really came through in the first quarter. As you know, our AUM fell significantly in the first half, both from market movements, but also the associated impact on investor sentiment, which resulted in outflows. We did see some recovery in the second half, both in terms of markets and strong flows, particularly in the final quarter of the year, pushing up our AUM as we moved into 2023. How has this impacted our change in management fee revenue, and what is the outlook? Well, clearly, it had a significant effect. Those last two years of outflows combined have reduced revenues by some GBP 40 million.
The market growth in 2021 increased revenues, that was more than offset by falling markets and other movements last year. Overall, net revenue, excluding performance fees, was down at GBP 387 million. Our net management fee margin moved broadly as expected, which for the year as a whole was around 73.5 basis points. That's just over 2 basis points down from the prior year. Looking forwards, I continue to expect fee margins to fall. That is obviously challenging for us with current economic conditions, but in the long term, it's a clear sign that we're positioning the business in growth areas, which come with lower headline fee rates. Given outflows across the year, the high-margin business and the institutional flows in Q4, our run rate fee margin at the year-end was just under 71 basis points.
If our expectations of flows come through and of course, no significant market rebalancing, we might see that fall a further basis point on average across the year to 70 basis points. Our focus remains on broadening our appeal to clients, which will ultimately deliver scale. Whilst lower average fee margins are a reality, we can still grow revenue through the focus we have today. I've already mentioned the GBP 10 million of performance fees. In total, including institutional mandates, we currently have 15 arrangements that could generate performance fees in the future. It's always difficult to predict these fees, particularly at this time of the year, but maybe GBP 5 million-GBP 10 million is sensible for your models.
With revenues down in the short term and our absolute focus on building scale and broader client relationships, let's cover how we've been thinking about costs. This is the normal summary of total expenses, including performance fees, along with some key ratios. I'll go through the costs in more detail, but the key message is here. Fixed staff costs are GBP 82 million, but includes over GBP 4 million relating to the restructuring program. Our split of fixed to variable staff costs has moved away from our target of around 50/50, and we expect that to remain broadly the same for a while as we focus on building scale in a number of important areas.
Non-compensation costs are just under GBP 115 million, a little better than I guided to due to further cost savings we identified late in the year. All in our total expenses are down over GBP 37 million of which GBP 27 million is performance fee related. Our cost ratios continue to be an area of focus and getting this to lower levels requires us to manage costs well, build scale and ensure we remove any undue complexity. That's exactly what we are doing. I'll come back to this in a moment, but let's first, let's break down costs into comp and non-comp. Total compensation costs for 2021 were GBP 213 million, but nearly GBP 61 million of that was due to performance fees. Looking at underlying costs, that was around GBP 152 million.
Staff inflation is a factor, as we all know. We targeted some hires in growth areas. We announced a restructuring program in other areas, and that had one-off costs in 2022. With management fee revenues down 15%, we reduced variable compensation spend by over GBP 10 million. That's around GBP 153 million of total underlying compensation costs, excluding performance fees. The action we have taken has reduced costs going forwards, but we still have some inflationary headwinds and areas of targeted investment. We expect fixed staff costs for 2023 of around GBP 77 million. That's around GBP 10 million lower than we had previously planned. We will continue to manage costs carefully, challenging every new or replacement hire, as well as supplier spend across the business.
We do not see the need to grow the cost base. We recognize the inflationary challenges and the need to ensure we use technology to help us deal with complexity and not put further pressure on headcount growth. Based on run rate revenues at the beginning of the year, that's a higher compensation ratio for next year of maybe around 40, 41%. That ratio is in line with many of our peers and some investment in areas where we believe we can build scale in the short to medium term, and is necessary to attract and retain talent. Coming into 2022, we will focus on balancing strong cost management with continuing to invest in key growth areas and absorbing the return of some non-compensation costs that have been held back during the Covid years.
We expected costs to remain flat on 2021, but at the half year, we guided to lower levels, driven by some savings we identified as well as lower admin costs. How have our costs evolved across the year? Firstly, with average AUM levels down around 12%, admin fees and some other AUM related costs have come down this year, further than we expected at the start of the year. The majority of the cost reduction you see is not due to falling markets, but changes to supplier relationships, which has driven cost savings. That's around two-thirds of the decline. That has allowed us to maintain investment in important areas such as data and research, although at lower levels than we budgeted. Secondly, we had some one-off costs in 2021 relating to FX and indirect taxes, so those weren't expected to recur.
We have had some modest increases in some other areas, such as travel, where we restarted face-to-face meetings with clients as we came through COVID. Of course that comes with a cost. That takes us to less than GBP 115 million of non-compensation costs for 2022. That's a little lower than I guided to in October. Looking forward from here, how will our costs evolve? Well, we're keeping that strong cost control focus on holding most of our costs at the same level or lower. Admin fees are linked to AUM, so are difficult to predict. There are inflationary pressures as well as some targeted investment to reduce complexity, including the use of technology. My current target, subject to AUM levels, is for non-compensation costs of GBP 116 million.
That's only very slightly higher than this year is around GBP 10 million lower than our original plans for 2023. Let's bring that back together with compensation costs just for a moment. We've been focused on ensuring our cost base is appropriately sized with some investment for growth. I wanted to share with you some more insight into our costs. Firstly, 58% of our total cost base is variable, with the remaining 42% being fixed. Overlapping both of these, around 18% of our total costs represent ongoing investment to support our organic growth. A lot of that is the cost of our overseas businesses, which started many years ago. Almost every region is contributing to profits. Our offices across Europe have a combined cost ratio of over 90%, of which two-thirds are direct costs.
Those ratios are obviously much higher than the group as a whole, but are still contributing to profits. It does not make sense to exit regions which are already profitable and have the potential for real growth going forwards. Building scale in select areas is an absolute focus for us, and the quickest way we can achieve profit growth and move the group's cost ratios back to lower levels. Of the fixed costs, nearly three-quarters of that is salaries. Our total headcount has been a focus, and we have removed 80 roles through the restructuring program. Some 50% of current employees are in client-facing roles or are the investment management teams. We outsource a lot of our operations, and around half of the remaining employees support oversight or our activities we do in-house, including our technology team.
Matt and I are very focused on ensuring our headcount is managed carefully. We are confident our teams are the right size today. Of course that continues to evolve with new technologies and new client needs. Finally, of the variable costs, there's some flexibility. That does not mean that they all can be removed. In some cases, it moves broadly in line with revenue. We make decisions on how much to spend based on a range of factors, including financial performance. Around 22% of our total costs are linked to AUM. We have many of those activities outsourced where we seek to get competitive deals. We also have some investment in areas like data and research, which help us generate alpha for clients. This also includes some fund-related charges.
We have a single fee structure in most of our funds, which means we take fund-related costs through our income statement. This means our ratios may appear higher compared to some of our peers, but it's just a pass-through, as our fees include these services. Of course, as we grow our institutional business, some of these cost categories will not be affected, which is again why you can see lower cost ratios elsewhere. Today, we are confident we are balancing tightly controlled costs with investment for growth, including areas where we can deliver scale, along with some investment in areas such as technology will help remove complexity or inefficiency. Of course, as our business evolves, we will continually reassess that. Let's move on to our capital position. As you'd expect, we continue to have a healthy regulatory capital surplus at around GBP 114 million.
In October, we said that we were honoring our commitment to target a return of at least 70% of underlying earnings over the last two years. As you know, we already announced a share buyback program of GBP 10 million, which completed in January. The board has considered how best to return the remaining capital in line with our commitment. Today, we announced a final dividend of 0.5 pence per share, and that we will extend the share buyback and cancellation program by GBP 16 million, which will commence in due course. That brings total ordinary dividends to 8.4 pence for the year and share buybacks, once complete, to GBP 26 million. We also updated you in October on our capital allocation framework. As a reminder, our dividend policy going forward is very simple.
From 2023, you can expect ordinary dividends to be 50% of pre-performance fee underlying profits. Unlike our previous policy, that does mean dividends can go up both up and down and will no longer be set at a minimum of the prior year. Of course, this recognizes that whilst our commitment to long-term growth in shareholder returns, there are always factors outside of our control, which may impact us in the short term, which can clearly be seen in our results today. We'll always target a healthy regulatory capital surplus, but on a periodic basis, we will consider whether this has become in excess of our needs, in which case we are committed to returning that additional capital to shareholders as we've done in the past.
As you know, one of the areas where we put capital to work for organic growth is in our seed portfolio, where we have a board-approved limit of up to GBP 200 million. We ended the year with GBP 73 million of seed portfolio, which is lower than last year, but it's just a question of timing after a lot of movement during the year. We removed GBP 74 million of funding through some fund closures and mergers, but also being able to reduce some of our positions as strategies attracted new client money and reached critical mass. Some of that has been recycled into key growth areas, including a new Delaware-domiciled vehicle for our successful Global Sustainable Equities range, opening up the strategy to U.S. clients. This leaves us with plenty of capacity to seed new products.
Matt has already mentioned that we'll be launching a range of thematic funds this year, and we are likely to deploy seed capital here, as well as in a variety of other capabilities to broaden our appeal to clients. Seed capital continues to play an important part in the strategy to deliver future growth. To sum up the year, the financial results have clearly been hit hard by broader economic conditions. We are focused on all the controllable aspects of our business to manage that impact, while maintaining our focus on the longer term growth opportunities. We have a healthy capital position, which is important. Our new capital allocation framework means our process of returning capital to shareholders is on a sustainable basis.
We have performed vital work in ensuring our business is structured for growth, supporting the opportunities that exist today and that we are focused on for the future. On that note, Matt is now going to share with you our aims for Jupiter going forward.
Thank you, Wayne. Before I hand over to questions, I wanted to briefly come back and revisit our strategy slide. I've entitled this slide Jupiter 2030, but what I'm really trying to get across here is, What do we want Jupiter to be? If we are to be successful in our four strategic aims, what would Jupiter look like? Well, we would have increased scale in the key areas we've been targeting, whether that's a specific region or client channel. We would be making better use of technology to make our business more efficient, decreasing undue complexity. We would be a valued and innovative partner to a broader array of clients.
Our range of investment capabilities will always be evolving, but it will always remain differentiated, and our client proposition would be clear, allowing us to build deeper relationships with all of our stakeholders. We have got to where we are today thanks to the dedication of all of our talented employees, but there is a long way to go and much hard work to be done. Achieving all of these aims rely on the efficient execution of our strategic plans, and this will be our focus. With that, I'm gonna invite Alex onto the stage, who will help with Q&A, first on the floor, and then also from those in the webcast. Thank you.
Thank you, Matt. We've already got a number of questions through from the webcast. A reminder, we can continue to send those through, but we will go to the floor first. If you could state your name and firm when the mic reaches you, that would be fantastic. First, Hubert. The mic.
Hi. Good morning. It's Hubert Lam from Bank of America. I've got three questions. Firstly, on the institutional side, congratulations, you've done a good job in terms of improving that business. What do you attribute to that turnaround? Would you say it's due to your process, performance or the strategies that you have within institutional? Can you just talk a bit about that and also about the fee margins you are having for the new institutional mandates you're getting? That'd be helpful. Second question is on client sentiment year to date with markets up. Have client sentiment improved upon the institutional retail side? Can you just talk about how things have changed year to date, and how does that tie in with your forecast for modest outflows for this year?
The last question is on your possible target for a medium-term cost income ratio. I know cost income is high at 69% for this year. That's probably the, it's probably a high that you're probably gonna have. It's probably gonna improve going forward. Just wondering what your target is going forward for cost income. Thanks.
Thank you, Hubert. If Matt, if you want to cover the institutional flows and our year to date. Perhaps, Wayne, you can cover the cost income ratio and the fee margins on the institutional please.
Yeah, sure. On the institutional side, very simply, I think we've got a range of investment capabilities that clients in the institutional channel have hitherto not been aware of, are now as we, you know, broaden out our reach, spend more time engaging with these range of clients via a range of different investment consultants, but also directly, again, across a range of geographies, are simply finding that we have investment capability that is relative and useful given the needs that they have. We spent many years building the right infrastructure to allow us to understand those clients, to engage with those clients, to service those clients, and that's now being seen both in the strength of the RFP pipeline that we have, the 18 consultant buy ratings that we've gathered, and that record pipeline that we talked about.
I think this is a result of all of that multiple years of hard work, and there's, you know, more hard work ahead, but I think we're really on track there to build out our institutional business consistent with the aims that we previously articulated. Of course, the fee margins in institutional businesses are typically lower. You know, the money that we get from institutional clients, it tends to come at a lower price point, but the amount of money that we get allocated tends to be higher. Most importantly, the longevity of those relationships is typically higher than it is for the average retail client.
As we look at the profitability overall, through a life cycle of an institutional client relative to a retail client, they end up roughly the same, but just with a very different shape to them. Hubert, in terms of your second question in terms of client sentiment, I would still describe it as fragile. You know, we have a range of investment products. We strongly believe that we are now, through the curation of our product shelf, building a range of investment capabilities that are truly active and truly differentiated. Some of those investment capabilities are in asset classes where client interest is less than it was or is fragile. That's changing in some cases.
I called out in the speech, our Jupiter Dynamic Bond, for example, where performance has been softer, over a very short period of time, relative to that longer term strong track record that it's built. Clients are starting to find fixed income more interesting again, given what we know has occurred in fixed income markets and the yields and the credit spreads, that we've seen are attracting clients into fixed income, and we're seeing some of the benefits of that through our dynamic bond strategy, for example, just as one example. Ultimately, it still remains fragile, and it still remains susceptible to, you know, the challenges that we know exist in the global economies, but also therefore in the fragile state of markets.
In terms of cost ratios, I mean, you're clearly getting to cost ratios that we would have experienced some years ago are not realistic and certainly not in the short term, and I would argue probably not in the longer term either. You know, we are clearly looking to improve our cost ratios from here. They were in the 50%-60% some 10 years ago. I think in the 60%-70% is probably realistic for the future. As we've touched on throughout the presentation, there's an opportunity to build scale in a number of areas which will help us support that.
Thank you, Matt. While we're still covering institutional flows, perhaps a question from the webcast, whether you can comment on the breadth of institutional flows in the fourth quarter, particularly in terms of geography and clients, and any more detail on the pipeline there.
Yeah. Look, I'm not gonna give more detail on the pipeline. I'll just say that it's, you know, it's at a, it's a record level. You know, that may or may not all come to fruition. The timeline over which it may or may not come to fruition is also, you know, uncertain. It's the nature of how these things work. We want to be very clear about that. In terms of the Q4 institutional flows, look, it's encouraging that it is broad. It's not just about one or two strategies. It's a range of different strategies. You know, some of those are, you know, in equities. You've also had an interest in some of our non-equity based products as well. It's clients sourced from different geographies as well as in different asset classes.
you know, with those 18 consultant buy ratings that we referenced, again, that's another sign of the breadth of the attraction that we are building in this important channel.
Thank you. Bruce.
Thank you. Bruce Hamilton, Morgan Stanley. maybe just a question on the sort of overseas offices and the comment on the contribution margin. Just so I've understood, you think you're profitable in all the kind of overseas offices, so no need to trim. In terms of the contribution margin, sorry, I wasn't quite clear on what.
0.15 basis point or whatever the number. What does that actually represent? In terms of trying to grow in Italy and Germany, is there any risk from this whole inducement ban debate in that it could end up with, you know, perhaps people looking to push more captive product? Do you think that's low odds? Second question on the excess capital. Is the way to think about it then that you'll use that to increase seed in new products and probably look at team hires? Those would be the most likely areas in terms of sort of non-organic build? Is there scope to do other things with that? Thank you.
Wayne, if you wanna cover the contribution margins, then we'll come back to you for the capital.
Yes. The contribution margin, Matt mentioned 15 basis points in two areas, and that's the contribution, direct contribution of those locations over their average AUM. It reflects that amount. I also reference a part of the presentation a more broader look at Europe, which gave you a cost ratio of over 90%. Those two facts I think are important. You also mentioned a profitable in every region. I did mention we're profitable in almost every region. There are clearly some areas where we started relatively recently, so those are still building momentum. Obviously we're focused on making sure that does turn to contribution in the near term.
I mean, on the same question, but Germany and Italy, you know, we call them out as two of our larger offices. Say Germany, we've been there since 2010, so you know, a significant amount of time. They're both different markets. In Germany it's a much more fragmented market relative to, say, Italy, where, you know, some strategic relationships are much more important. You know, clearly in the way that we've seen some challenges to, and some changes in terms of how product is distributed in the U.K., you know, there's a chance we see some changes elsewhere. You know, I don't think that makes a difference to our ambitions. What's encouraging about both those two markets, which we happen to have called out, is the breadth again of the products that clients find attractive in those markets.
It's not just about one or two funds, it's about multiple funds where we believe we are doing something in a very active way, in a very differentiated way that is seeming to resonate with clients. They see what we're doing as something that potentially can be additive to their current manager lineup. That's why we want to bring that focus to bear, on those two geographies.
In terms of capital, yes, we have as you noted, around GBP 140 million or so of surplus capital. You're quite right, we do use that capital to support our C capital portfolio. As I mentioned, we have a board-approved limits of up to GBP 200 million, so it's used against that. In turn, I also mentioned our investment for growth. As you know, most of investment for growth goes or to our income statement, so there isn't generally a need for capital. It does, however, give us some potential for uses of capital in things like, as you mentioned, team lift outs. You know, clearly we look at that quite carefully. If there are no needs for that capital, then we will return it.
As I mentioned, we'll do that on a periodic basis.
Wayne, on the slide when you talked about investing for growth, you also talked about the costs that were linked to AUM.
Yeah.
I had a question for you on the webcast, whether you have a view on the sensitivity of that to market levels. If the market levels go up 10%, would that be similarly?
Look, I would say roughly half of that number is almost directly completely directly linked to AUM. There are various factors that drive the cost, so about half of it is quite closely linked. The other half is broadly, more broadly linked, but is definitely aligned in quite a sharp way. you know, it does take into account those other factors that I mentioned, which is looking at a range of impacts, including our expectations of financial performance. I would expect that to move broadly in line with AUM. I think that's the right way to look at it.
Okay. From the floor, please.
Thank you, Matthew and Wayne. A question from me on performance fees. Is that model you're gonna be leaning into continuing into the future? Or has there been consideration to go to sort of less volatile revenue model? Flip side of that, any sort of views from clients on, you know, their acceptance of that? Are they moving towards it, away from it?
We are absolutely here to serve our clients, and where we have performance fee structures, it's typically because clients have requested it. You know, there are certain types of products, you know, more absolute return strategies where performance fees are considered, you know, more of a normal based approach. Typically, we are responsive to what clients expect and what clients want from us, whether it's, you know, publicly available, you know, daily traded funds or institutional accounts where sometimes performance fees also accrue. In all cases, we're responsive to, you know, to client needs in that regard.
A couple of questions on slides on decreasing complexity. Firstly, on a headcount decrease and then on a fund closure rationalization program. Firstly, for Wayne on the headcount one. We talked about a 15% headcount reduction. Can we confirm whether that's just actual headcount or that involves the because of cancellation of some planned new headcount? For Matt, a question around fund closures. Do we have capacity to launch new ranges or do we need to finish that program first?
I'll start with the headcount. Yeah, we've set out that it was a 15% reduction in planned headcount. Clearly there are some of those which were roles which we were intending to hire for, but there are also roles within the business that unfortunately we did remove. It's a combination of both.
In terms of fund closures, I think as most people appreciate, governments around making changes to fund ranges are increasingly complex, especially when funds are registered in multiple jurisdictions. The nature of the process, as it should be, is that these things take time and we obviously consult with shareholders as we go through these processes. This doesn't mean that we are constrained in our ability to launch new funds. We want to be careful and targeted in what it is that we do in that regard. We talked today about the five new systematic, thematic-based approaches and capabilities that we're going to be targeting for launch at the end of this year.
There are other fund launches also in the pipeline for this year, and we're not held back by the changes that we're making. We still want to be much more careful and considered in those changes that we make, and really focus on making sure the product line-up is fit for current as well as future purpose.
Thank you. Any more in the room at the moment? Few more from the webcast. I'll follow up. This is for Wayne on management fee margins. Firstly, more broadly, can you reiterate full year guidance for 2023? If you could talk a little bit about the underlying movements that we've seen through the second half, in terms of retail versus institutional and the run rate on new mandates we've seen coming in.
For management fee margins, for the year as a whole, they were 73.5 basis points, actually what I guided to at the beginning of the year. It moved in line with my expectations. We get to the end of the year and the run rate margin on the closing AUM was just under 71 basis points. That movement down to run rate has been driven by a number of factors. Some of it, and a large part of it actually is to do with rebalancing of the book as we came into the year end.
Of course, we also funded some institutional mandates in the third and fourth quarter, and that had a limited effect on the average, but did impact the run rate. Going forward from here in 2023, I'm currently expecting that to be one further basis point down, so around 70 basis points. That does take into account our expectation of flows, but it also doesn't take into account any change in market rebalancing. If market rebalance does move this year, then that would have an impact. At the moment, my guidance is 70 basis points.
Thank you. Those are all the questions for the webcast at the moment. Do we have any more in the room? If not...
Well, look, on that basis, look, I thank you all for joining us today here in the room but also on the webcast. Thank you for your questions, thank you for your engagement, thank you for your support. We look forward to updating you all on the progress we make later in the year. Thank you all. Have a nice day.