Good morning, everyone. Welcome to Schroders twenty twenty Annual Results Meeting. I'm joined today by Richard Kears, our Chief Financial Officer. Even though we're doing this via Zoom, it'll be exactly the same way as we've run it in previous years. I'll talk briefly about the business last year and add a bit more color on some of our strategic initiatives.
Richard will then go into more detail on numbers, give some guidance on the forward looking numbers. I'll come back and talk about outlook and take questions. Now we all know 2020 was an extraordinary year. And for us, it was more important than ever to demonstrate how robust and resilient our business is. And against this backdrop, I'm glad to report that both our established business and our strategy held firm enables us to deliver a resilient set of results.
This was only possible last year because of strategic choices we made several years ago, and I wanna come back and talk more about that later. We're pleased with today's results, starting with net income, which was up 3%. As a result, profit before tax and pre exceptionals was slightly higher than last year at just over £702,000,000, and basic EPS was 200.8p. Now let me highlight this stage, what we said five years ago about our long term commitment to growth. We launched our invest to grow strategy, and it's at the half with the six things we said.
Accelerate growth, invest in data science, build a scalable platform, increase the number of strategic partners, diversify towards the fast flowing waters of wealth and private assets, and see opportunities in North America, Asia, particularly China. And we also want to be purposeful and ESG led. And I think all of these made an important contribution last year. We hit record assets under management of £574,000,000,000, up 15% during the year. And what's really important is we achieved this despite the headwinds, and we're growing faster than traditional asset management industry.
Over five years, we've grown our assets at a compound rate of 13%, and over ten years, it's still 11%. We achieved this because we pivoted the growth towards areas where we're seeing high client demand. And that's my mind. It was absolutely key to the strategy. Now from a flow perspective, I'm pleased with what we've achieved.
£42,500,000,000 of inflows, that's 8.5% of our starting assets under management. Now, obviously, we have the last basis chance of Swift in that, but even ex Swift, we achieved new business flows of £14,300,000,000. Solutions was obviously a big driver, and the nice thing about solutions is they're much less dependent on market sentiment. The one thing to note that they are large and lumpy and by by the nature, hard to forecast. The Scottish Widows mandate is now fully onboarded at £71,200,000,000, and we expect that, to drip out a little over the coming years.
Mutual funds ended the year with net inflows of £3,100,000,000. Sorry. The mutual funds with net outflows of £3,100,000,000 after the pressures of March and April, but institutional was flat. Wealth contributed £1,700,000,000 of inflows, and private assets contributed half a billion pounds of inflows. The geographic flows aren't on this slide, but it's worth mentioning.
All areas were positive apart from Asia where we saw 5,600,000,000.0 of outflows, particularly Australian institutional in the first half, which we spoke about. The UK generated £33,000,000,000 of inflows. Continental Europe, £4,000,000,000. And The US, £11,200,000,000. And if you look at it from an asset class lens, we've added 42 bill billion into multi asset, 1,800,000,000.0 into fixed income.
Equities saw net outflows of 3,900,000,000.0, but actually stripping out quant, our fundamental equities saw inflows of 2,000,000,000, which was really pleasing. Our JVs also had a really good year generating 12,400,000,000.0 of inflows, primarily China and India, and I want to come back to that. So if you aggregate all that together, our flows totaled £54,900,000,000. Now this chart demonstrates the power of active management, and I'm really pleased with the strong investment performance from our clients. It's after all what we're about.
Over three years, 72% of our assets under management outperform their respective benchmarks. And over five years, it's 81%. And for the really performance sensitive areas, equities, 83% outperformance, and fixed income, 95% outperformance over five years. So really excellent outcome for our clients. Yeah.
What made the difference to my mind is the strength of our investment culture blended with the power of the data insights team, which we set up, six years ago and has been incredibly valuable during the pandemic. Now to understand the investment performance in more detail, I've I've given you a a different set of data here. This is our 25 largest benchmark relative clients, and the chart shows the performance of those over one, three, and five years. And to give you an idea, it's about £65,000,000,000 of assets. Now these funds generated 4.9% outperformance over one year and 9.2% over five years.
And I think if you ever want an advert for active management, this is it. Now I want to talk more about sustainability because it's absolutely key in the industry right now. And I think as we as we look forward, it will become ever more important. We've been active in this space for many years, but I want to talk a little bit about recent progress. We are aiming to be the leader in the transition to a sustainable world.
It makes both social sense, but it also makes very good investment sense. We've got an extensive range of sustainable funds, and a lot more in the pipeline. Given high current demand, I expect these products to continue to grow in the coming years almost
with
with a very high level of of confidence. To support our development, we've been obviously taking a number of important steps. Most importantly, we built our own proprietary tool, Sustainex. It's an award winning tool. It measures the impact on our clients' assets.
So to give you an idea, so it showed us Sustainex score is 3.1% or put a different way. We create 3.1 units of social value for every 100 units of sales. And the average financial services business has a score of minus naught point three. We're a founding member of the NetZero asset managers initiative, which is really important in the run up to COP twenty six. And we're one of a very small number of active managers who's adopted a science based target for our own reduction in our corporate emissions.
And, again, what we say to others, we want to do to ourselves. That alignment is critically important. Now I think sustainability is also important to attracting and retaining talent. And despite the challenges of 2020, our employee engagement survey was a source of great pride for all of us. 98% of our people said they were proud to be associated with Schroders, which I was absolutely delighted about.
Now turning to wealth. Wealth year end assets were 72,000,000,000, representing 18% compound growth over the last five years. Net inflows, as I said, were 1,700,000,000.0, of which 1.2 was from Casanov, naught 0.7 from Benchmark, and a small outflow of naught 0.2 from SDW. Despite the challenging year, I think the business is growing nicely, and Richard will talk more about it. We you you recall, you saw the announcement we acquired Sander, a a multifamily office in The UK.
And whilst this wasn't a big deal in terms of AUM, it was strategically important. It gives us a compelling proposition now in the ultra high net worth family office business, the high net worth business, and with adviser networks run by Benchmark and the affluent sector with SPW, we've got all areas of The UK wealth market covered. Quickly on SPW, all the clients have now transitioned onto the Benchmark platform, which is fantastic. We can now deal with them in a much better way. The level of referrals from Lloyd's, now they've been through the the the branch closures, etcetera, at the middle of the year through COVID, actually, the levels of referrals are now 30% higher than pre COVID levels and eight times more what they were at the low point.
So really pleased with that. Very pleased with the leadership of SPW getting to grips, with that. We aim this to be a top three financial planning business by 2025, and I'm optimistic about that outlook. People need a financial plan more than ever now, and we're in a very good position to help with that. Now coming to our next strategic focus, private assets.
Assets have reached 46,000,000,000 at the end of the year, which is 21% compound growth over the last five years. We talked about pound fleet acquisition at the half year, but in the second half, we've been building organically in real estate debt and in private credit in Australia, both of which we see as attractive subsectors. Looking at flows, private assets end of the year at naught 500,000,000.0 in aggregate, but actually our private assets business was 1.7 and the alternatives saw an outflow, particularly emerging market debts and our Gaia platform. So we but we did see strong levels of growth in real estate, private equity, and infrastructure totaling 1,700,000,000, which is important. We will be having a Capital Markets Day in June to give some more color on that.
Now I thought it'd be helpful to talk you through product innovation because I think this is absolutely critical. As our industry gets disrupted and changed, we need to pivot. Over the last five years, we've launched about 300 new funds and closed about a 150, liquidated and merged and etcetera. You can see we've invested heavily. We've deployed about a billion pounds of seed capital over the last five years, and just that has generated 11,200,000,000.0 of assets under management.
But if you look at the strategies we've added over the last three years, these now contribute 16% of our assets under management and nearly a 180,000,000,000 sorry. 16% of revenues and then 180,000,000,000 of assets under management. I'm pleased with the change in products, and I think it's it makes us very relevant for our clients. I want to just touch on the performance of our joint ventures. Both JVs had a good year.
BoCommShoda generated net inflows of 7,700,000,000.0, and their assets are now £68,400,000,000, which is assets grew by 25% and profits doubled. So a good year there. And, again, Axis joint venture with Axis Bank in India, assets grew 42% to 19,000,000,000 and £4,400,000,000 of inflows. We're now the seventh largest mutual fund business in India and second largest equity manager. So, again, pleasing progress.
We've talked about our strategic diversification in the past. Here's the chart is of how our asset mix has changed. Five years ago, 39% came from the growth areas we highlighted. Now we're at 54%. And that, to my mind, is is just a continuation of the strategy as we as we diversify further and further into fast flowing waters.
If you look at that from a revenue perspective on this chart, you'll see that we last year, we increased from 40% to 43% of revenues from these areas. Private assets and alternatives has grown particularly well with a compound growth rate of 20% over three years and 18% over five years. So pulling all this together, you can see we're making good progress in executing the strategy we've talked about. We we want to be strong, diversified, growing business that's pivoted towards wealth and private assets. I think we're well on our way in all of those areas.
We've made a big investment in technology, and I I have to say that was particularly valuable in 2020 as you can imagine. And importantly, we were ranked first for our digital engagement with clients, which if ever there was a year to to be in that position, I think last year was it. Now before I hand over to Richard, I just wanna give you a little bit more detail on a couple of strategic initiatives. Starting with wealth, I've mentioned previously we want a compelling proposition in all segments, but one of the one of the areas of opportunity is is a regional rollout in The UK. We currently got a relatively small footprint despite the amount of money that there is in the regions outside of London.
So we've aligned with the Lloyd's commercial regional network, and we'll be opening offices in Manchester, Leeds, Birmingham, Bristol. Recruitment's well underway, and I I think that's gonna be an important driver of future growth. Again, The US business we've talked about, but this year, The US reached an important milestone of a 100,000,000,000 of assets under management in terms of dollars, and Hartford also crossed $10,000,000,000. We generated £11,200,000,000 of of new flows in The US last year. And just to put that in context, this ranks us fifth out of 200 firms over $10,000,000,000 in The US.
And if you look of the as a percent of assets under management, the firm's over 50,000,000,000, we've reached those 68 firms, we were ranked number one for our speed of growth, which I think was a great great achievement and really speaks for the team we put together in The US. And finally, China. I I think it's important to talk about this market because it's it's already the second largest market in the world. It's probably one of the largest and fastest growing opportunities in the asset management world. The China onshore market is hard to navigate.
A new license is there are really only available to those managers who've committed to China for the long term and know the market. And given our strategy, you won't be surprised that we are well positioned in in the region, but also in China specifically. And we've we've been in China now for over twenty five years. And, really, there are three there are three ways of thinking about this market. There's the inbound opportunity of people investing into China.
There's the outbound opportunity of official institutions and others investing outbound, And then there's the local to local flow. Now we're active in all three channels. And overall, we're ranked fourth in China amongst our global peers. Outside of the BoCom joint venture, we've got about 60 people on the ground today just to put it in scale. But looking forward, I think it it's even more exciting.
You've seen in the media that we have been granted, new ways of accessing the market. Now, today, we're the only UK domiciled manager who've been able to successfully submit an application to obtain a fund management company license. And this allows us to access the vast onshore retail market. The key here for me is that because of our JV with BoCom, our brand isn't starting from scratch, and BoCom Schroders is is an important brand in the market. Our competitive advantage is going to this market with our investment DNA and a robust governance framework.
We'll transfer our existing onshore business into the new FMC and plan to begin operations mid twenty twenty two. Now what I'm also particularly pleased about is that we've also won an ability to set up a wealth management company JV with BoCom, and we'll own 51% of this. It'll provide us with direct access to the bank wealth management market. As you saw in the previous slides, one of the largest sectors with £3,000,000,000,000 of assets under management, and we'll bring our global expertise with BoCom's substantial wealth management book. And I think that that will be a a powerful combination.
So bringing that together, what does this actually mean? We we now have access to each of these important sectors, most notably the wealth management JV and the wholly owned access to the 2,600,000,000.0 a trillion assets in the FMC market. China's clearly a long term opportunity, but it has got great potential. I'm really delighted with the progress we've made this year. We're the only firm with this configuration of licenses, and I think we've made a really major step forward.
Now, I've covered a great deal and some stuff you've you've not heard before. I will come back and talk about the outlook at the end, but thank you for your time, and let me hand over to Richard now. Thank you.
Thank you, Peter, and good morning, everyone. To echo what Peter has just said, we have continued to deliver on our strategy in what has been an exceptional year. Today's results show the benefit of the actions we have taken to address the industry headwinds and the value of our diversified business model. Together,
they
have enabled us to deliver pre exceptional profit before tax of GBP702.3 million, a small increase on 2019. That's a good performance given the market disruption this year. You can see the key movements on the slide. But first, let me give you a bit more detail about the increase in net income. It is impossible to talk about 2020 without referring to COVID.
There are three areas that have been affected. First, net banking interest. This reduced GBP 10,000,000 following the interest rate cuts that were announced during the year. Second, real estate transaction fees. These decreased GBP 16,000,000 due to the slowdown in property deals.
And lastly, the market volatility itself. This impacted the mix of our assets with higher margin products particularly affected. Together with FX and margin attrition, mix changes reduced net income by around GBP 23,000,000. But what's important is that despite this headwind, we still grew our net income by 3%. We closed the year with record AUM of GBP $574,000,000,000, that's up 15% from the start of the year.
A key element was the net new business we generated and Peter has already talked about. It helped increase revenues by GBP41 million. That's the combined impact of 2019 and 2020 net flows, and it reflects the benefits of the steps we have taken to develop our solutions, private assets and wealth management businesses. The chart on the right shows the profile of those flows and importantly, the impact on annualized revenues. You can see the positive momentum we built up in the second half of the year, which has continued into the first two months of twenty twenty one.
Now let's look at the breakdown by business area, starting with Wealth Management. Wealth continues to be an area of growth, and here is a summary of what has been happening. This year, we have seen the benefit from SPW, which launched in October 2019, and as Peter said, the acquisition of Sandair, which contributed GBP 2,400,000,000.0 of AUM. These developments helped grow our average AUM 27% to GBP 65,000,000,000. You'll remember that SPW is proportionally consolidated in our segmental results, and it has helped drive the increase in net income of GBP 73,000,000.
Revenue margins, excluding performance fees, were 56 basis points, that's a bit lower than at the half year. As we said at the time, we expected this decrease due to the impact of lower net interest margins and changes in asset mix. For 2021, we expect the margin to increase by around one bp. So overall, this is a strong performance, and we continue to see significant growth opportunities in this space. Now let's move on to Asset Management.
Average AUM increased 17% as we benefited from the strong net new business Peter has talked about. Despite this increase, management fees fell slightly as a result of the mix changes and margin attrition I already referred to. This reduction was partly offset by GBP 95,000,000 of record performance fees and carried interest as we benefited from our strong investment performance. As you know, performance related fees are always difficult to predict. But looking at a three year average, I would expect to see performance fees and net carried interest of around GBP 70,000,000 in the future.
Net income includes profit from associates and JVs, which increased significantly, and I'll come back to this shortly. But first, let me show you the breakdown of net operating revenue across the four business areas that make up asset management. Beginning with private assets and alternatives, we continue to expand our capability here, both through acquisitions, such as the purchase of our stake in PAM fleet, which contributed GBP 600,000,000.0 in AUM and organically, for example, through the development of our real estate debt team and our private debt capability in Australia. Peter has already talked to you through the net inflows, and you can see from the chart that these were weighted to the latter part of the year, providing good momentum as we go into 2021. Net new business, together with acquisitions this year and last year, notably Blue Orchard, helped increase average AUM by 14%.
You can see the benefit of that growth in our management fees, which increased GBP 29,000,000 to GBP $280,000,000. Clearly, market conditions had some impact. And as I mentioned, real estate transaction fees decreased GBP 16,000,000. Together with a small reduction in carried interest, this meant net operating revenue decreased a little to £293,000,000 Net operating revenue margins excluding transaction and performance related fees reduced to 62 basis points. That's a bit lower than the guidance we gave at the half year, mainly due to changes in mix.
We expect the margin to remain at that level for 2021. Looking forward, we have a good pipeline of commitments that are yet to be recognized. Now on to Solutions. Average AUM increased more than 60% to GBP173 billion, driven by strong net new business. Net operating revenue increased 12% to £253,000,000 while the net operating revenue margin was 15 basis points.
That's a bit higher than we guided to at the half year. For 2021, we expect margins to drop a bit as the full year effect of the lower margin business we won in the first half comes through. As I said before, the nature and size of these assets means that whilst they typically attract a lower revenue margin, the incremental costs are low. This means the profit margin is similar to the group's overall margin, and the assets have significantly greater longevity. When you put these factors together, you can see why this is an important part of our growth strategy.
Next, on to our mutual funds and institutional business areas. Both of these areas have, of course, been more exposed to the market wide pressures we've been talking about for some time, but they have shown good momentum in the second half of the year and into the start of 2021. You saw at the half year, our mutual funds business was impacted by the risk off environment at the start of the year. Since then, it
has
rebounded, helped by the strong investment performance that Pete and I have described. The net outflows in the first six months were partly offset by good demand in the second half, where we generated GBP 1,700,000,000.0 of net inflows, and that momentum has continued into the first few months of 2021. Notwithstanding this performance, net operating revenue decreased by 7% to GBP686 million, mainly due to lower average AUM, together with the effect of mix and attrition that I referred to a moment ago. Excluding performance fees, our net operating revenue margin was 71 basis points, which is around a bit higher than the guidance I gave at the half year. We expect margins to remain at this level in 2021.
Our institutional AUM grew 11% year on year as we delivered £16,000,000,000 of investment returns net of currency movements. Reflecting these strong returns, performance fees were up £35,000,000 to £74,000,000 This increase more than offsets the impact of lower management fees and resulted in net operating revenues increasing £13,000,000 to $515,000,000 The net operating revenue margin, excluding performance fees, was 13.5 basis points. That is a touch higher than the guidance I gave at the half year. We expect margins to remain at this level in 2021. Returning to the net income slide now, you can see the positive contribution from net new business, together with a GBP22 million increase in performance related fees that I've just taken you through.
Acquisitions also had a positive impact as they increased net operating revenues by GBP 35,000,000. That's mainly driven by the acquisitions we completed in 2019. The acquisition of Sandair, on the other hand, was completed at the end of the year and so the benefit will only come through in 2021. Peter has already described the increasingly important role of our global partnerships. Our existing associates and joint ventures again showed good growth, with our share of profits increasing 77% to GBP 51,000,000.
That excludes SPW, which I have already talked about as part of the Wealth Management business. Given the growing importance of these businesses, you will hear us talk about them more. Going forward, we will show our AUM both with and without these assets and provide you with more detail to help you understand their contribution. Peter has explained the significant opportunity in China in some detail. And building on that, I'll talk you through the strong performance of our existing BoCom JV.
AUM increased 25% with significant growth in higher quality equity products. That has translated into the fee margin increasing 11 basis points to 35 basis points. Combined with the strong growth in AUM, this has driven an increase in profits of over 100%, with our share of profits increasing £23,000,000 to £43,000,000 Now to finish our net income. Other income increased GBP 21,000,000 due to the strong gains on our financial instruments. This largely represents the returns on our seed capital, co investments and investment capital.
We continuously look to develop new products for our clients. Eighteen months ago, we seeded a new fund called Gaia Helix. This is a market neutral fund that brings together the best of Schroders in order to deliver robust returns with low correlation to equity markets and a focus on alpha generation. It has delivered strong returns for both our clients and the group. Having initially invested £150,000,000 of seed capital, it generated £22,000,000 of returns in 2020.
So bringing all the components together, our total segmental income for the year was up 4% at just over £2,200,000,000 I now move on to costs. We continue to maintain strong cost discipline, but we balance that with important role we play as a responsible employer. We took the active decision not to furlough any employees and have not accepted any government assistance. In parallel, we reduced our travel and marketing spend as we adjusted to new ways of working and leveraged the investments we have made in our digital platform. As a result, we have delivered non comp costs of GBP502 million, which is lower than the guidance I gave you last year.
I have previously highlighted that you should expect to see our non comp costs trend downwards as a percentage of our average AUM. You can see that reduction in this year's results. The ratio has fallen from 11 basis points in 2019 to close to 9.5 basis points this year, including the savings I just mentioned as a result of the pandemic. I would expect non comp to remain similar in basis points to last year, but this depends on AUM growth and FX. Our comp costs were GBP $975,000,000, which is slightly below the 45% comp ratio I guided to at the half year.
We are continuing to invest in the business, both in our people and in our infrastructure to support our strategic ambitions. Peter described the opportunities in China, The U. S. And regional wealth. We expect to invest a further 1% of net income in these areas.
Finally, turning to our capital position. We continue to maintain a strong balance sheet with total capital of 4,100,000,000.0 We have a capital surplus of GBP 1,200,000,000.0, up GBP 200,000,000 from last year, which means we are able to continue to invest in our future and execute on the strategic initiatives we have talked about today. So in summary, I'm pulling everything together. We have delivered a strong performance with profit before tax and exceptional items of GBP702 million. We had exceptional items of GBP92 million, which, as you know, principally relate to acquisitions, including amortization of intangible assets.
In 2020, we also had £16,000,000 of costs as we exited two property leases, enabling us to bank some of the efficiency gains of remote working. For 2021, we expect exceptional items to be at a more normal level of around GBP70 million. This resulted in profit after exceptional items of GBP611 million. The tax rate after exceptionals was 20%, which gave us profit after tax of GBP486 million. Reflecting this performance and the strength of our balance sheet, we have declared an unchanged final dividend.
So overall, a strong set of results. I now hand you back to Peter.
Thank you, Richard. I just want to talk quickly about the outlook and then we'll go to Q and A. We talked a lot about the strategic choices we've made over the last five years, and I think these these are continuing to pay off. I'm I'm confident that they they will do. Yeah.
Let's let's take a step back. Our two big advantages are that we take a very long term perspective, and we're very diversified. And that long term perspective allows us to invest behind things like China, which will will pay off handsomely over the long term. And the diversification allows us to stick with things when the going gets tough. And I think the breadth of our breadth of our product range and and the ability to keep on bringing new things in has has really been incredibly valuable during the last twelve months.
Looking forward, we've entered 2021 with, strong investment performance, a very relevant product range, and we'll continue to invest behind that for the long term, but very much with a focus on the long term. With that, I'll stop, and we'll move over to questions. If you could raise a hand on Zoom in a in a normal way, and the moderator will unmute you. Thank you.
Our first question is from Nicholas Herman. Nicholas, we've invited you to unmute yourself. Please say where you're calling from before asking your question.
Yes. Good morning, and thank you for taking my questions. I'm calling from Mr. Nicholas Hammond from Citigroup. I have three questions, please.
One or two on wealth management and one on private assets or on wealth. Just curious, first of all, the guidance around net operating revenue margin. Can I just clarify some of the moving parts driving your expected higher wealth management margin in 2021? I realize that asset performance or recent market performance should be accretive to margin. But equally, I would have expected some dilution from onboarding Sandair from the ongoing mix shift towards ultra high and generally more wealthy clients.
And even, I guess, also benchmark capital as well to some extent. So curious in terms of what is driving the wealth management margin higher, That's question number one. Question two, on the wealth management JV that you've just announced this morning, I realize it's quite early on, but I'm just kind of curious if you could just give us some details on your expectations for the wealth management JV. Certainly, Amundi, which has also launched a wealth management JV in China, they're targeting GBP 60,000,000,000 of assets within five years at about 25 basis points gross margin and about a 50% operating margin. So I'm just curious if you would expect broadly similar, albeit with a lower operating margin closer to your group's average?
And then final question on private assets. Actually, two questions, you don't One, I was just a bit surprised to see negative market performance in the second half. If you could just provide a bit more clarity there. And also, the first half, talked about outflows from liquid alternatives. Just could you give us an update on where we stand there, please?
Thank you very much.
Thanks, Nicholas. I'm going to ask Richard to take the first one on Wealth Management margin.
Thank you, Peter. As I guided, we're expecting a one bp increase. Largely, that is down to a full year of benchmark platform fees for the SPW assets as they've been onboarded. Broadly, everything else is more or less offsetting each other, so that's really driving one basis point improvement.
On wealth management in China, we we base we're basically we're we're I think we're not we're not gonna make a a long term asset forecast, but I think what I what I would say is that that a Monday that doesn't seem, you know, an unreasonable set of assumptions, but I think it's very early days to be doing that. We know that this is a vast market. It's developing quite significantly. And BoCom's got a very good place in it. So but we're not we're not going to put numbers on that, I'm afraid.
And just on on private assets, the split between so if you like, the less liquid private assets, all of those areas saw inflows. So private equity infrastructure, real estate, insurance linked securities sore inflows, and the less liquid, particularly emerging market debt and the GAIA fund range. So I think private assets was a little over about 1,500,000,000.0 of of sticky flow, and and the balance out was from less liquid strategies. The negative markets in the second half was partly a reflection of the fact that for private assets, you have to strike your NAVs for year end reporting in September, And there's a little bit of a lag in that. And I think what you what you didn't do was pick up the very strong end to the year.
So I think there's a there's a bit of latency in in those numbers.
Our next question is from Gergit Kambo. Gergit, we've invited you to unmute yourself. Please say where you're calling from before you ask your question.
Hi. Can you hear me? Yes. Yes. It's Gergit here from JPMorgan.
So just a couple of questions. Firstly, on The U. S, congratulations on obviously making a good success of that. Just in terms of how much of that is coming from the Hartford business and how much is coming from, I guess, outside that? And what's selling in
The U. S? What are
the sort of key strategies that clients are buying controllers in The U. S? That's the first question. Secondly, just on the cost side, just Richard, just a bit of clarification. On the comp ratio, I know you said there's a one percentage point increase from sort of investments you're making.
So do we still go for like a 45% comp ratio for 'twenty one? That's on comp ratio. And then just on the non comp, the 9.5 basis point, is that a percentage of the average AUM for 2021? Or is it like the year end number, just so we know where to strike that non comp numbers? Those are the three questions.
Thank you.
Thanks, Kajit. Hartford in The US was was just shy of of a billion of of pounds of inflows. So the balance was was in institutional and sub advisory. So all all three channels contributed into that, but Halford was naught point seven, which in the context of US mutual funds, you know, we were we're very much focused on emerging market equities, global equities, ether equities, which is where there was some positive movement last year. Those are the main channels.
Richard, do want Yes.
Good. I'll pick up non comp first. The 9.5 basis points is on average AUM. The reason I haven't guided to a specific number this year is there's obviously a lot of moving parts. We don't know when the world is going be turned to normal, and marketing and travel in some ways, we hope we can pick up some of that activity.
Sterling is strengthening, and broadly onethree of our costs are outside of The UK, so there's a depressing factor there. But increasingly, a larger part of our noncomp is attached to levels of AUMs, Laddin and market data costs. So there's a market and FX assumption within AUM growth as well. So I think the fairest the best estimate I can do is 9.5 basis points on average AUM. If you look at the guidance I gave last year, this is I was guiding to GBP $525,000,000, and it came in at GBP $5.00 2,000,000.
So I'm just worried about giving a specific number, which is why I veered away from that. In terms of the comp guidance of 45%, I need to clarify that comp guidance is 45%. But on top of that, we are making a larger than normal organic investment into China, into U. S. Distribution and UK regional wealth.
And in aggregate, that is likely to add 1% of costs on a net income basis. There will be an element of comp costs within that. There's an element of non comp, but there's a sort of an exceptional override of accelerated organic build out in those three areas.
Next question is from Hubert Lam. Hubert, we've invited you to unmute yourself. Please say where you're calling from before asking your question.
Hubert, we can't hear you.
Yes, we seem to be having a few
Yes, can you
hear me? Yes. Hi, Hugo.
Yes. Hi, Peter. It's Albert Lam from Bank of America. I got three questions. Firstly, on China, you talk about your new a new FMC license.
How does that fit in with the existing BoCom joint venture? And do they compete against each other? Is it addressing a different client base? That's the first question. Second question is on SPW.
Can you give us an update on the number of advisers you currently have, what your target is, and when do you expect to achieve that number by? And lastly, on M and A, do you expect to do more bolt on deals this year? And in which areas are you looking at for these type of deals? Great.
Thanks, Hubert. So first of all, on the FMC, that it is broadly in the same sector as the BoCom JV. It's a £2,600,000,000,000 sector, so it's a it's a massive piece of the market. Slightly different product set. I mean, BoCom is a a very locally driven product set.
So we think there's a there's a lot to there's a there's a lot of white space to go at in that space, and we've obviously been working closely with BoCom to make sure that that that that the two sits alongside each other appropriately. But it's it's an area of the market where I think you should expect to see good growth and also where there is, you know, there's a lot of opportunity. And you and you saw that in last year's numbers. And if you look at the detail of of how the those market dynamics are working, I think there's a there's a lot of attractive features in there. STW has got just shy of 300 advisers.
We've started the training program to bring through more academy advisers and bring bringing them in, and we may we may see if we can add more more mature advisers. But we think actually the nature of the Lloyd's referral business lends itself really well to people coming through Academy. As you know, Mark Duckworth, who runs that business, long history of open work where he had a very successful academy process, and we'll bring the academies through. We're not start targeting numbers. What we're targeting is meeting demand through the Lloyd's network.
So as the Lloyd's network ramps up, we'll we'll basically bring through people as we need them. So there isn't there isn't a a a target number, but I would underline both our ambition and Lloyd's ambition to make make that a meaningful business. So we're we're not we're not talking ones and twos. M and A, really hard question to answer. Look, we we've we've always managed to find businesses where we can find a good cultural fit and where we've got a gap.
Last year, we've we've found Pamphlete and Sander. I think, you know, the areas where we're attracted is more more in private assets where particularly on the loan side, the space in real estate to do more. There's there's lots in in in private debt is obviously it cuts across a number of different sectors. Some of it we decided to do organically. So we've just had a real estate debt team.
We're doing some further work in Australia on the private debt team there. But if we could find something in that space, private assets and also in wealth, I mean, I think there's there's a there's a lot going on there both on the advice side, but also in the high net worth side. So those are the two spaces. It's we're we're found that it's key to make sure that the cultural fit is right and that the people you bring on board do so because they wanna stay with you and grow the business. This is about investing for growth, not about consolidation.
So those are the segments we're looking, but, you know, we're we're we're pretty active. And we'll we and price sensitive. And we've missed a couple of things last year on the back of price, but I think that's, you know, probably right that we should.
Our next question is from Nicolas Fussellier. Nicolas, we've invited you to unmute yourself. Please say where you're calling from before asking your question.
Can you hear me? Yes. Hi, very good morning to you. I'm calling from Exane BNP Paribas. I just have two questions.
On your JV, the contribution from JV has been I've seen quite a step up from 2019. I was wondering if there are any one off items or maybe seems more related to performances there. Or, yeah, what what what can we expect on on on this from for 2021? And if you could maybe elaborate more on what you see on flows for BOCOM and AXIS in 2021. My second question would be on ESG.
I was wondering if you can give any numbers on the flows you have seen in 2020 on your ESG products.
Richard, do want to take the one on
JVs? Yes. So the Bochum JV in terms of profit step up, there's no one off exceptional items in there. What's really driving that number is the quality of the net new business that's coming in. This is a much higher margin.
It's largely equities. And the business that has been lost, it was relatively low margin, more traditional wealth management product. So it's a positive mix increase. So the assets we're managing at the end of the year are richer than at the start of the year.
Nicholas, the the thing I the thing I think we look looking forward to flows, I think we should bear in mind that China last year was a very strong mutual fund IPO market. So mutual funds get IPO ed, and that market was very strong. So, yeah, I'm we we don't forward forecast future flows, but I think it would be wrong to you you saw the the strength of Chinese equity performance. It would be wrong to put a straight line through that up forever. You know, we we've all realized the world doesn't quite work like that.
So that would be my only my only one off element of it. There's nothing in numbers, but there is in the in the market just slightly. On ESG, look, I I think for us, we we we come in in a slightly different way that we we need to integrate ESG thinking into all of our all of our funds and and have, you know, those considerations taken right from the ground. So it it for me, it's about how do how do we green the the whole piece of making sure that we've got considerations when we're looking at oil companies as well as when we're when we're looking at resource companies. And that that is, I think, the way where this is going.
So, yes, some of our thematic funds in this space, you know, saw saw good asset flows. But for me, we we think this is a is a is a broader based shift. And, you know, I think you should we, as you know well from from BMP's experience, you know, there's to be much more flow into this area. So it was it was a decent positive, but I it's it's I I think we need to look at it across the whole range rather than in isolation.
Next up is Mike Werner. Mike, we've invited you to unmute yourself. Please say where you're calling from before asking your question.
Thank you. It's Mike Werner from UBS. Three questions, please. One, on the mutual fund momentum that you saw towards the end of last year and in the first two months of this year. Can you
just give us a
little bit color with regards to which products or which asset classes you're seeing kind of the greatest momentum? Second, in terms of the JV businesses, I'm just thinking about this. I was just wondering the cash flows from these businesses in terms of the dividends. How should we think about that as a percent of the reported earnings? And then finally, we see corporate tax rates will be rising in The U.
K. In 2023. I was just wondering if you could provide what percent of your group earnings is generated in The UK and is taxable by those rates?
Mike, let me take the first question on flows. So you'll you'll see from the numbers that the the first half, second half experience in mutual funds was really very different. And and and even that was a much more coming through in q four rather than q Big areas in UK, Europe were around Europe, Asia, a lot of the thematics, sustainability, but all of those say say, you know, big funds like global sustainable growth, climate change, soft flows, but also non mainstream European funds. But that that it was fairly fairly broad based. And we've we've seen that continue into into the the early part of of twenty twenty one as well.
Richard, do want to
take a second? Yes. So in terms of associate profits and cash flows as we've seen those as dividends,
In
China, historically, we have seen very strong cash return to us as a parent in The UK because we are investing very significantly organically in building out the WMC and FMC license. More recently, we've been retaining that capital in China to build out those new businesses. But on a assuming no changes in the political environment or taxation rules, we would anticipate profits equating to future dividend flow in China. India is at an earlier stage and slightly less developed, but certainly in China, where we've seen significant historic profits, has been remitted back to The UK. Thanks.
Kat, if you have any more questions, please raise your hand.
Nope. Well, listen. Thank you, everybody. It would have been lovely to see you in person, but I look forward to next time whenever we can. Stay safe.
Stay sane. And thanks ever so much for your important questions. Thank you.