Morning, everyone. Welcome, and thank you for joining GAM's full year results call today. My name is Pete Sanderson, CEO of GAM, and I'm joined today by Richard McNamara, our Group CFO. Before we start, please note that there will be time to ask questions at the end of the presentation. In order to do this, you must be logged in via Webex, and you'll need to use the Q&A chat function to submit your question. I'll start today by giving an overview of the business highlights and results from 2021. I'll then take you through our updated financial targets. I'll then hand over to Richard, who'll give you more detail on the financials. I'll provide you with an update on our plans to deliver growth, our strategic priorities, and the outlook for 2022. We'll then take your questions.
2021 was a pivotal year of strategic progress as we continued to actively shape GAM for the future. Our investment performance, which is obviously key to the success of our business, has remained strong. I'm really pleased with how our teams continue to deliver for our clients. We saw a strong recovery in investment performance from our fixed income strategies and continued strong performance from our equities and multi-asset strategies. Over the past three years, 68% of our assets under management outperformed their benchmarks, and 70% outperformed their Morningstar peer group. 2021 was also the year that we put all the historic regulatory matters behind us when we reached a settlement with the U.K. Financial Conduct Authority in December. One positive legacy of those matters is the strong focus that we bring to managing the firm today.
GAM's governance has once again been recognized by Inrate as number one for listed financial services firms in Switzerland. GAM's strong culture continues to attract and retain excellent talent, particularly across our investment and client-facing professionals. I'm always humbled by the excellent talent that we have and the excellent talent that we're able to attract. This has given the firm both great stability and also great energy. We've been seeking to diversify our overall AUM mix at the firm, noting the concentration we have with certain individual fixed income strategies in particular. Our equity and thematic offerings have now enjoyed five successive quarters of net inflow, albeit still offset by outflow from some of our dominant fixed income funds. More to do, but our diversification effort is beginning to work.
During the year, we launched a number of sustainable investment offerings and continue to focus on further product innovation to support future growth. We delivered on our savings target of CHF 15 million. Over the past three years, we've now reduced our total expenses by almost 40% and our head count by more than 1/3. Restructuring our cost base has been a critical deliverable, and we will continue to manage costs tightly going forward. I'm pleased that we've been able to achieve a large cost reset while at the same time strengthening the firm to ensure that we're fit and flexible for the future. As part of that transformation, we now operate a single platform across equities and most of our fixed income strategies, which provides enhanced client service and operational synergies.
We'll complete the platform project in 2022, but the results already achieved are fundamental to provide both the flexibility and scalability needed in the future. Turning to our financial results. Although we saw a slight reduction in the underlying loss this year, our financial performance is visibly lagging our strategic progress, and there's clearly more for us to do. Looking at each of our businesses before turning to our updated financial targets. As I mentioned, investment management has seen an encouraging five successive quarters of net inflows into our equity portfolios across a broad range of equity and thematic strategies, which shows that our strategy of diversification is working at a strategy level as well as an asset class. However, this growth has been offset by outflows from some of our larger fixed income strategies.
These outflows reflect both asset class weakness and the relative underperformance of some of our strategies, leading to net outflows of CHF 4.4 billion. This reduction in assets under management also reflected our successful return of money to clients following the closure of our supply chain finance fund and the closure of some of our long-short strategies. During the year, we increased our focus on wealth management with new leadership based in Switzerland and have added resources to increase our global reach in key client locations such as Singapore. Our private label funds business, now renamed fund management services, since we think this better describes the business, is also under new leadership and seeing renewed energy and client interaction.
The reduction in AUM in fund management services during the year was largely as a result of one client's decision to transfer their business to another provider as part of a broader strategic relationship. Despite this, we would maintain our view that we're well-positioned to grow this business. Our overall underlying loss reduced slightly from a pre-tax loss of CHF 14.9 million in 2020 to a pre-tax loss of CHF 9.6 million for the full year 2021. Richard will cover this in more detail in a minute. Although we are yet to achieve our desired financial results, I believe that we are delivering strongly for our clients and are in an excellent position to meet client demand through GAM's offerings, particularly in the new paradigm which is emerging from the pandemic.
We are confident that GAM can deliver sustainable returns for our shareholders over the longer term, but in view of the current levels of assets under management, we believe that it is appropriate to adjust our financial targets for the full year 2024. As you can see from this slide, we're now targeting at least CHF 50 million of underlying pre-tax profit and an operating margin of between 20%-30%. The target for our compensation ratio remains at 45%-50%. We believe that we can achieve this by winning market share and delivering above average net new money in investment management and mid-single digit growth in fund management services. I'll address why I believe GAM can grow at this rate later in the presentation.
Our investment in our single platform gives us both scalability and operating leverage to support growth, as well as the future flexibility to manage our cost base through further efficiency gains. Both these dynamics will support improved profitability going forward. This slide shows the main contributors to our asset flows in investment management. At the top, you can see that our diversification strategy is beginning to work with net inflows into a wide range of funds. Most of these were into equities, but we also saw positive flows into cat bonds, the sustainable version of our local emerging market bond fund, and our MBS Total Return funds. Our Swiss Sustainable Companies fund saw inflows, and so it was great to see two sustainable offerings attracting inflows alongside the thematic and regional funds.
These inflows reflect strong investment performance, the differentiated nature of these products, and the realignment that we've made to our distribution strategy. The main outflows are shown on the bottom half of the slide, and were primarily in three strategies: two fixed income and one in alternative risk premia. As I mentioned earlier, these outflows were driven by a combination of both market headwinds and performance factors. Looking at the blue bars on the left of this slide, you can see that 68% of our AUM outperformed their respective benchmark over the three-year period to December, compared with 23% at the end of 2020. This improvement was primarily driven by a strong recovery in fixed income performance, which saw the three-year number improve to 56% outperformance and continued strong performance from our equity strategies with 91% of AUM outperforming their benchmark.
Many of our funds were top quartile across time periods. Over five years, 60% of our AUM outperformed their respective benchmark at the end of last year, compared to 70% at the end of 2020. 70% and 62% of our AUM outperformed their Morningstar peer groups over three and five years respectively. Investment performance is the key ingredient for our future growth, and although short-term performance challenges should be expected from time to time, I'm pleased to see the long-term value that's been achieved for our clients through our active management. Richard will now take you through the detail of our 2021 financial results.
Thanks, Pete, and good morning to you all. Today, I'll start by giving an overview on the 2021 financial results. I'll then focus on management fee margins, performance fees, our expenses, and our progress in driving inefficiencies. I'll then cover the IFRS numbers and our cash and capital position. Starting with the financial summary. Pete has already talked about our net new money and AUM movements. The reduced level of AUM in our investment management business impacted our overall net management fees and commissions, which reduced 10% to CHF 208 million compared to CHF 230 million in 2020. Performance fees were mainly driven by our Disruptive Growth, Core Macro, and non-directional equity strategies. This resulted in net performance fees of CHF 19.3 million.
We continued with our efficiency program, meeting our fixed personnel and general expense reduction target, which I'll touch upon later in the presentation. Our underlying pre-tax result was a CHF 9.6 million loss, compared to the CHF 14.9 million loss in 2020. Although we achieved our savings target, this was not enough to offset the declining revenues and to move us back into profit. This obviously impacted our underlying operating margin, which was a -3.2%, albeit slightly better than in 2020. Our post-tax IFRS number was a CHF 23.3 million loss. This was driven by the underlying loss and items such as the fine agreed between GAM and the FCA. I'll go into this in more detail later. Now turning to management fee margins. Our blended investment management fee margin declined slightly to 51.3 basis points.
As stated previously, the largest impact on margins is the impact of net flows and asset mix. In 2021, the main driver for this decline were the outflows from a higher margin strategy such as Credit Opportunities and Local Emerging Bond. This was partly offset by net inflows into our equity products, which are generally higher than our average margin. Our exit margin for investment management at the end of 2021 is in line with last year's average at around 51 basis points. We continue to see some frictional pricing pressure of up to 1 basis points per annum. The key driver for future movements in our margin will be flow and asset mix. The average margin in fund management services was stable at 4 basis points.
As Pete mentioned earlier, we're focused on growing revenues in this business based upon full range of services GAM can offer to clients. Now performance fees. As you can see on this slide, we had a strong rebound in underlying performance fees, generating CHF 19.3 million in 2021 compared to CHF 2.8 million in 2020. As I mentioned, this rebound was primarily driven by a Disruptive Growth equity strategy, which delivered exceptional returns to our clients. In addition, our Core Macro strategy produced good performance fees in 2021. This is the highest level of performance fees our investment teams have delivered over the past three years, clearly driven by their strong investment performance. Our performance fee eligible assets have increased slightly to CHF 3.2 billion compared to June 2021.
This level of performance fees in 2021 is a pleasing result and demonstrates our strong investment performance and our ability to continue to produce performance fees. Of course, future performance fees are notoriously difficult to predict. Now looking at expenses. Our fixed staff costs reduced by 11% to CHF 104.8 million in 2021 compared to 2022. This was primarily driven by the reduction in headcount from approximately 700 at the end of 2020 to approximately 600 at the end of 2021. This is a demonstration of how well our efficiency program has been progressing. Our variable compensation increased by CHF 6.1 million, mainly due to performance fee bonuses.
In addition, after paying all discretionary bonus awards in 2020 to our employees through fully deferred stock, we moved back towards a more normalized approach in 2021 with a mixture of cash and of course, deferrals. Just to highlight, the formulaic compensation agreements with our investment teams have remained fully in place this year and prior. Our compensation ratio improved slightly to 63%, reflecting the decline in personnel expenses being marginally greater than our decline in revenues. As set out by Pete, our target compensation ratio of 45%-50% by full year 2024 remains unchanged. Our underlying general expenses came in at CHF 73.2 million, with lower marketing and administration costs driving this. On the next slide, I want to illustrate the steps we have taken over the past few years to reduce GAM's cost base.
As you can see here, we have reduced our total expenses by some CHF 140 million since 2018. This is a reduction of approximately 37%. Of this decrease, approximately 2/3 has been driven by the reduction in fixed costs. In 2021, we set a target to reduce fixed staff costs and general expenses by CHF 15 million. We achieved this. As a reminder, this was on top of a CHF 71.6 million reduction in total expenses in 2020. Since the end of 2018, we have seen our headcount reduce from 925 to now 605, a reduction of approximately 35%.
We have achieved these reductions mainly in our operational IT and support functions as we deliver on the One GAM platform, which essentially enables all investment teams and other functions to operate more efficiently. At the same time, our investment teams, investment strategies, and distribution footprint have been aligned to evolving client demand and where we see growth opportunities. We continue to manage costs rigorously with our efficiency initiatives continuing into 2022. The completion of the One GAM platform will further support this. Pete spoke earlier on our revised financial targets for 2024. These future efficiencies will assist and support us in meeting these financial targets. I would expect to see our fixed costs to continue to decrease despite inflationary pressures, but also expect to see some increases in our variable costs as we start to achieve our top-line growth targets.
Now turning to the IFRS numbers. We recognized the CHF 23.3 million after-tax loss compared to the CHF 388.4 million after-tax loss in 2020. The 2020 loss was dominated by the CHF 374 million goodwill impairment. Let me remind you that the goodwill was fully written off in 2020. As always, we deduct two items from the underlying numbers, acquisition-related and non-core items, which was previously labeled non-recurring items. The non-core items include the CHF 11.3 million fine in relation to the settlement with the FCA, as announced in December last year. The other main item is a CHF 10.7 million reduction in our deferred tax assets as certain tax loss carryforwards expire over the next couple of years and are not expected to be fully utilized.
Our underlying effective tax rate is less meaningful, given we are loss-making. In addition, the underlying tax credit in 2021 has benefited from the future increase in the U.K. corporation tax rate by virtue of the revaluation of deferred tax assets previously recognized. Please note that our effective tax rate will only become more meaningful once our profits normalize. Now turning to cash and capital. It's important to highlight that our balance sheet remains debt-free. Our cash position reduced by approximately CHF 15 million compared to the first half. This was primarily driven by the timing of receivables and payables and our investment into the One GAM platform. We continue to ensure our capital structures are the most efficient they can be through the optimization of regional capital allocation and simplification of our legal entity structures. Further legal entity simplification is on course for 2022.
Our adjusted tangible equity was CHF 174 million, down slightly from 2020, mainly driven by the profitability impact. Our dividend policy with a targeted payout ratio of at least 50% of underlying net profit remains unchanged. However, as we reported an underlying loss, the board is not proposing to shareholders to pay a dividend for the financial year 2021. Finally, we remain focused on organic growth and on strengthening our capital buffers. Thank you. With that, I'll hand it back to Pete.
Thanks, Richard. We're focused on growth through our three businesses, which are supported by a global distribution footprint and strong local client relationships. In investment management, we see high single-digit growth being driven by strengthened product platform, driven by carefully aligning to client demand for differentiated products. In particular, we're planning further thematic, alternative, and sustainable high-conviction strategies. We will leverage our global footprint, benefiting from local expertise to deepen our relationships with clients and to selectively form strategic partnerships. In wealth management, we aim to grow in Switzerland, where we believe we can benefit from the expected regulatory changes, in the U.K., where we plan to deepen our relationships, particularly with advisors and trustees, and in Asia, where we will focus on ultra-high-net-worth individuals through our Singapore office in particular.
Our growth in wealth management will be supported by our new scalable client platform and enhanced digital offering, and strengthening our brand to recapture our strong heritage in this space. In fund management services, we're aiming for mid-single-digit growth in our AUM by leveraging all of GAM's capabilities and increasing awareness of our offering in key markets. We'll focus on key locations in Switzerland, Luxembourg, and the U.K., and plan to expand our offering by offering unbundled services to maximize flexibility for our clients. Before we finish the presentation, I wanted to briefly summarize our strategic priorities for 2022. First and foremost, we will continue working hard to maintain the high levels of client engagement that we're seeing.
Second, we plan to drive growth in assets under management through our broad access to global markets, through our strong local client relationships, and by carefully aligning our product offering to client demand. We will launch additional investment strategies to address clear client demand for alternative, sustainable, and high-conviction products, especially thematics which speak to real-world issues today. We're exploring further opportunities to leverage the full suite of GAM capabilities for our fund management services business, and we'll implement our growth plans for wealth management based on our deep knowledge and history in this segment. Key to delivering on our plans is to continue to attract and retain a diverse, talented team and to continue to leverage our single operating platform to help drive further efficiency.
Finally, to demonstrate that as a firm, we understand the world is changing, and so we will continue to embed sustainable thinking more deeply into everything that we do. Finally, turning to outlook. In the context of increasing inflation and central banks shifting to a new paradigm with tighter monetary policy, we think that our active high-conviction strategies will be well-positioned to help clients protect and enhance their financial future. In that context, we expect client demand will strengthen for the strategies that GAM is well known for. Finally, I'd like to reiterate our financial targets for the full year 2024. These are an underlying pre-tax profit of CHF 50 million, an underlying operating margin of between 20% and 30%, and a compensation ratio of between 45% and 50%. Thank you all for your time and attention today.
That concludes our presentation, and we'll now open up the Q&A. Please use the Q&A function in Webex to submit your questions. Thank you. Okay, thanks very much. First couple of questions coming in. Thank you for those. One question is around whether we can offer any indication in terms of flows year to date. We're not gonna provide any commentary. We'll update that as we normally do in the Q1 IMS. In terms of rising interest rates is the second question. How do we think that will impact the business? Actually, you know, I think inflation and rates and the overall volatility being driven at a macro level plays well to a lot of the strategies that we run.
Certainly our fixed income book is positioned in a way that we don't see too much strain from rising rates, certainly relative to the market. I think we're well positioned there. Thank you. Just a question coming in on margins. Matt, do you want to pick that one up?
I think in terms of the margins on systematic, they have reduced fairly substantially as we close some of the really high margin systematic strategies in the second half. I think that's had a little impact on the differences between margins in the first half, second half. I'm pretty sure they will normalize themselves out in 2022. As I say, there's another question here in terms of just generally the movement in margins. Yeah, the margins are all really dominated by the flow and asset mix. To the extent that we have a particular inflow or a particular outflow into a particular product, that will cause margins to shift around.
You know, particularly if you look at say, the fixed income, the impact of the large outflows in LEBF and in the Credit Opportunities funds, you know, then get offset by the inflows and some of the other fixed income strategies. It's really just a blend. There's no particular one driver. It's just the overall flow and asset mix.
Thank you. Just another couple of questions. One specifically on flows into our Local Emerging Market Bond fund and Credit Opportunities funds, which are the two large fixed income funds that we drew attention to in the presentation. Certainly for Local Emerging Market Bond, you know, the asset class, I think at an industry level, has fallen slightly out of favor. I'd say that our flows quite honestly have been compounded because we had an uncharacteristic period of softer performance. Really that is all attributed to Q1 2021. You may remember events in Turkey and some other market events during Q1, which we did not foresee. Otherwise, we do see performance normalizing in that fund, but Q1 has certainly been painful.
I think, unfortunately made it those outflows somewhat exaggerated for us, which is a shame because that is a really strong long-term strategy for us. With Credit Opportunities, performance has actually been very good. You know, certainly seeing the recovery that we saw across the fixed income book, from the difficult period we had during the real sort of COVID drawdowns, so they have recovered well. I don't think there's any one particular driver that I'd point to in terms of flow there. But it is a strategy that we think certainly has the capacity to grow. Richard, do you wanna pick up the next questions on fixed costs?
Yeah. Thanks, Pete. We're not providing a fixed cost target for 2022. What I wanna highlight is, of course, we're still driving through efficiencies across the business, you know, managing our costs rigorously through that process. The key here is that those driving those efficiencies are gonna support the financial targets we have set out for 2024. We're not providing a specific fixed cost reduction target for next year. I think it was important that we did that over the last couple of years as we've gone through on the impacts of the ARBF matters and the COVID impacts. It's important now that we focus on those 2024 financial targets.
Just a question here on FTE numbers. I'm really asking for an indication of sort of how we think about the regional positioning of our employees, and in particular, asking, you know, whether we are growing the U.K. relative to other locations, and if so, you know, is there a strategic reason for that? I think the answer is no. You know, we've been managing our costs quite carefully in terms of global footprint. That is really important, and I think it's one of the defining characteristics of the firm. Specifically, I do see a real value to being close to clients.
You know, we talked a little bit in the presentation about local relationships, and I do think that GAM has really strong client relationships that have endured the last few years and I think are in a position to regrow, so that local footprint is important. In terms of some of the work going on that might be slightly more U.K.-centric, a lot of the platform transformation that we've driven also involves a significant amount of decommissioning work, and that is where there is again more value for us in terms of future efficiency gains. We haven't yet sort of seen all of the cost reductions play through. There is obviously a lot of
lot of work goes into both establishing the go-forward platform and then carefully decommissioning the legacy platform. That's some of the work that's going on, but certainly there is no strategic rationale to overweight in the U.K. versus anywhere else in our footprint. Richard, do you wanna take the question on flow and mix?
Yeah. I mean, I think we've got a question here around, you know, what sort of level of flows will be required to help meet those financial targets in 2024. As we set out, we would expect to see, you know, high single-digit growth, and that clearly will mean winning market share on our investment management business, and mid growth in our fund management services business. The flows will be the key driver for driving the top line. We have assumed sort of just normalized markets in our financial targets. We're not expecting the markets to deliver any abnormal return for that. Of course, as we said, we'll continue to be managing our costs tightly, as another driver to supporting us meeting those financial targets.
Just as a follow-up question, again on FTE and location, and just sort of questioning, you know, where we've seen reduction in headcount in Europe in particular, are there any specific drivers of that? The only one that I would point to there is that, again, we talked about some of our AUM reduction during the year and talked about closing some of our long-short strategies. You know, these are strategies that we have had in the firm for a long time, but you know, looking carefully at their sort of performance track record and whether we felt they were gonna be best placed to meet client needs, we determined that they wouldn't, and so decided to close that fund range.
With that decision, we also closed our office location in Lugano, which is where those funds were managed from primarily. There was, you know, a more meaningful headcount reduction from that closure. Beyond that, you know, no specific driver that I'd call out in terms of, you know, anything from a regional perspective. Follow on question around headcount again, just looking for a sense between sort of client-facing and investment staff versus admin. You know, I think we break that out typically, but as you'd expect, from a firm this size, you know, we do have a significant investment presence and also distribution, which are about equal in size and both are, you know, large.
Also with the global footprint, the range of fund ranges that we have in particular, and some of the functions that are outsourced versus insourced, you know, we've got a very able and scalable operations platform. You know, I think when you look at GAM, and obviously, as we said, we haven't achieved the financial results that we'd want, you know, this is a platform that can scale and grow significantly from where it is. I certainly understand the questions and the direction of travel in terms of headcount.
What I would say is that, you know, for GAM to achieve its growth potential, we definitely need to balance the avenues to growth, and to make sure that we're not closing or losing that value that the firm has with their client relationships. Also, frankly, you know, alongside strong investment performance, which is obviously critical, GAM has continued to score very highly in terms of the client service we deliver, and that differentiated service is also, you know, really important.
In all of the efforts to reshape the firm, and to make sure that we're efficient, and flexible, there's certainly a balance between reshaping in a way that I think has been fairly significant to date, but we've been very careful to make sure that we really prioritize and keep our eye on that client service, and the investment performance delivery. Okay. Well, thanks so much for the questions submitted. Really appreciate those. Thank you again for your time and for attending the call today. If you do have any further questions, please contact members of GAM's investor relations team, so Charles and Jessica or our media relations team, Charles, Ute, and Kathryn, who'll be more than happy to help you. Thank you again for your time today, and I wish you all a very good day.