Good morning, everyone. Good to see you all. This is Craig Siegenthaler, North America Head of Diversified Financials at Bank of America, and welcome to our 33rd Annual Financial Services Conference. I'm pleased to introduce Roger Thompson from Janus Henderson. Roger is CFO and Head of the Asia-Pacific Client Group. He's also a member of the Executive Committee. Prior to joining Janus in 2013, Roger was at JPMorgan Asset Management as Global Chief Operating Officer and worked at a broad range of locations across Asia, including Tokyo, Singapore, and Hong Kong. Roger, thank you for joining us.
Thanks, Craig. Seems a long time ago.
Quick background on Janus Henderson: Janus is a global asset manager that spans across North America, Europe, Latin America, and Asia, servicing both the retail and institutional channels. Janus manages over $380 billion of assets under management across mostly active strategies. Last year, Janus's net flows inflected positively, showing the team's continuing efforts and ability to attract talent. With that, let's get started. I'd like to get started on the macro front. We've essentially entered year three of the bull market. The yield curve has steepened. Money market AUM is at record levels. What are you expecting for industry net flows in 2025?
It's a big one. I think real rates are interesting, so we expect to see continued flows into fixed income. With the yield curve steepening a little bit, we would finally expect to see money being put to work out of cash and money markets. That moves potentially a lot of money. It could be a lot of money in play in fixed income. In equities, I probably would have said the same thing last year. You would expect to see or hope to see a broadening of the equity markets. That creates a number of opportunities. The potentially more dovish tone also means that we think there could be finally an improvement in the prospects of small caps and also of international stocks. We expect to see a broadening of that whole market, and we're well placed to play there. I'm sure we'll talk about alternatives.
We think there's a lot that continues to be a lot going on there as that market continues to develop and democratize across the intermediary channel. People are doing things differently. I think that's the other piece. Where it will be, we'll see during the year. But I think one of the things we're most confident on is that how people invest is continuing to change. You've got a more tax-aware environment, particularly here in the U.S. Delivery through different vehicles is becoming increasingly important. We will continue to see moves into SMAs, into active ETFs, into alts. We expect to see the growth be predominantly in those areas. That gives us a start to talk about where do you want to go?
I want to hone in on fixed income a little bit. Your fourth quarter is good, but if you look at industry flows, there was building momentum in fixed income. But in the fourth quarter, when the 10-year went up, it sort of faded a little bit, not surprising. But now we do have that sort of steep yield curve. What metrics or leading indicators are you looking at to give you confidence that bond flows may pick up?
Again, like you say, ours were a little bit different. We had, I think, $2.2 billion in positive flows in Q3 and $5.2 billion in Q4. Public data shows January was a very strong month. We haven't seen a slowdown. There was a slowdown pre-rates being cut. But actually, as soon as rates were cut in the middle of last year, flows started to increase again. Again, I think there's that range of fixed income product that remains very important. Even in our securitized suite, which is where we've been very successful over the last year, there's a real range of product from short duration, very high-quality product to longer duration, moving down the credit curve.
People want different things, but we're seeing that the discussions with clients are about, like I say, we do expect as rates normalize, possibly, then there is money in play in multiple places in fixed income, and that's very attractive to us.
Roger, first, congratulations on the positive flow year and strong finish in 4Q. I look back in history. I think it was the strongest flow year at least legacy Janus since before the financial crisis. I wasn't sure about Henderson. I didn't check that one, but you finished on a really strong note. Now, if we do get duration extensions and re-risking into things like alts or active ETFs, what does your net flow outlook look like, considering you didn't have a money market business and you managed to get inflows despite not having a lot of the pieces that were grown last year?
Yeah. We're excited about a number of things. Take that in pieces. What's happening in ETFs is really exciting for us. We've created ourselves a lovely niche. People will focus most quite rightly on JAAA because it's just gone through $20 billion. But it's a suite of securitized products. There's now four of them over a billion. JMBS is about $4 billion. We'll continue to add to that over time. What is it that clients want and where can we match it? That's an area that we've become market leaders in. We will do everything we can to make sure we continue to be market leaders. What we're seeing is that that market is broadening. The client base is diversifying at both ends. We're seeing self-directed investors buying ETFs at one end and insurance companies starting to buy at the other end.
That's an interesting new development, insurance companies buying into that securitized space. Where do we go next? Two versions of that. Europe, as often happens, is behind and following the U.S. We're probably five plus years behind in how ETFs are becoming a bigger part of the market. We think that is really happening fast. We think that whereas the U.S. market, ETFs started, was almost entirely passive. The active part is still the smaller part of the market, but it's the faster growing part of the market in the U.S. now, on percentage terms at least. Europe, we'd like to think, and the research we've done, that active is going to play a bigger part from the beginning of that. It was very important to us to get going quickly with active ETFs in Europe because there is an advantage of being an early player.
The success we've seen in Europe is something we obviously really want to replicate in Europe. The success in the U.S. is something we want to replicate in Europe. We're out of the blocks quickly. We bought a business called Tabula in July last year. We've now launched three or four ETFs, both equity and fixed income. The one we're most excited by, unsurprisingly, which we launched in January, is a European version of JAAA called JCL0. That's something you can sell in Europe, you can sell in the U.K., you can sell in Latin America, you can sell in APAC. That European development of ETFs is something that we very much want to leverage the success we've seen in the U.S. The other side of it on ETFs is our success has been in fixed income. But we're probably better known for our equity prowess.
We've launched some equity ETFs. We're very excited to launch last week a concentrated U.S. equity fundamental large-cap equity ETF, JXX, a 20- to 30-stock portfolio. Again, if you think about that broadening of the market, we think there's a lot of stocks that are underappreciated in the U.S. We've got the reputation to find them for that to be a very interesting portfolio for people. How the equity part of ETFs develops for us, I think, is going to be very interesting. We're just as excited about that as we are about fixed income.
That's great. Roger, since Ali Dibadj was appointed CEO, you've consistently beat expectations of the institutional channel. The trajectory there was sort of stronger. My simple question is why? I was wondering also if you could highlight what the unfunded win pipeline has been tracking, because that's generally a leading indicator for where flows are going.
I think that's very kind of you to say, Craig, because I'm not sure we've exceeded what we wanted to do in institutional. We set out the strategy just over two years ago into these three categories of protect and grow, amplify and diversify. The institutional business is very much in the spotlight of that amplify piece. It's a segment of the business. It's about 20% of our assets, which should be a lot bigger, particularly here in the U.S. Yes, we've made a lot of progress, but like I say, I think you're being quite complimentary in saying that we've overachieved. We had two positive quarters of flow in institutional in 2024. The pleasing thing about that is not it's easy to have a positive quarter if you get one big sovereign mandate or something like that.
Both of them were about 10 fundings in what we refer to as the missing middle, the cake, if you like, before you put the icing on the top. $1 million- $500 million mandates and in multiple products, in thematics, in global, in income, in adaptive, in fixed income, both regional and global. We're making progress. We thought it would take us time. It's taken us even longer than we would have liked. The reason I say that is we are not yet at the position that we've got a big enough pipeline to be able to guarantee those 10 or 15 mandates every quarter, that that cake's going to be growing, and then I can put the icing on the top. There's a lot of improvement. Our consultant rankings are up, our interactions are up, our RFPs are up, our early stage pipeline is up.
But it's not yet big enough such that as we progress through that, as I've been describing it through that digestive tract, that if we do see another successful quarter, then I've got the next one behind that and the next one behind that. There's still a lot to do. We're pretty confident we're moving in the right direction. We're seeing a lot of interest. But like I say, I think we've got more to do in institutional. The opportunity there for us around the world, but like I say, particularly in the U.S., to take us from where we are to where we believe we can and should be in institutional is pretty dramatic. Part of what we've done around the diversification piece is to continue to increase the relevance. Victory Park makes us more interesting to institutions and particularly to insurers.
Let's talk about the EPS algo. You have multiple levers to drive double-digit EPS growth. I'm thinking positive organic growth, beta, your fee rate is relatively stable, which is nice because a lot of traditionals don't see that. You have operating leverage, you have efficient capital management. Maybe talk about how those pieces can get you to consistent double-digit EPS growth. Then nobody knows what the market's going to do. But if the market's really strong or really weak, tell us what you can do to sort of flex the model to protect investors on downside.
Yeah. I think 2024 was a really good example of the leverage in the business. We can and probably will talk about costs and where we're investing and how we're trying to fund a lot of that. But last year, our operating margin improved 350 basis points. Our incremental margin was probably in the mid-50s of what dropped through to the bottom line. That's that leverage coming through. Yeah, some of that's market. But what we've not got anymore and what the future of an asset management company is something that is growing, not growing assets, growing revenue and profit. We're not interested in pure asset growth. It's about growing revenue and profit. If you can then manage your capital and do a buyback on the way through as well, then your EPS growth is even bigger and you get even more multiple on that.
The last few years, we've gone into the following year with a headwind of outflows from the previous year. I can't tell you what flows are going to be this year, Craig. I can tell you that we've got some tailwinds coming from last year and we start the year in a good place. That brings through that leverage. Will we add 350 basis points forever? No. It's a curve that slopes. It's not just an exponential curve that goes up forever. It's a curve that slopes down. But margin can continue to improve a little bit from here. The guidance we gave was that comp ratio should improve a little bit without markets, to your point. You get markets on top of that in this industry. But it is about growing the business. You're unlikely to see a 5% or 10% growth in the core business organically.
That's a stretch. This is a tough industry. We've got a business, the U.S. equity mutual fund business particularly, this is a tough market. We're in other markets that are difficult. The U.K. is a really tough place. October was the worst month on record. There's all of those things to balance as well, but if you can grow, if you can see some growth organically, if we can do some things inorganically, like you say, over time, I've got no idea what it'll be this year, but over time, hopefully capital markets work and markets go up, then we see that leverage. We manage our costs carefully. There's investment we'll make and we'll continue to make and we're not shy of making it.
We'll try and manage that efficiently on the other side so that we can take money off the table in order to put it in areas that we think we can grow faster in and clients want us to be active in. Then, like I say, capital management provides you an extra kicker on EPS.
Roger, you've been really active on the M&A front, Victory Park, NBK, Tabula. What is your current M&A strategy and has it now evolved or changed at all past announcing and closing several deals?
No, we're not trying to be all things to all people. We're listening to clients, what makes sense, what's relevant. The acquisitions in the private credit space were where clients were talking about that made sense. It follows through in what we've got, whether that be fixed income through emerging market debt, through securitized into private credit. When we looked at private credit, the bulk of that is direct to middle market. But as my Canadian boss would refer it, we think we're skating to where the puck's going. The clients were looking at asset backed as a really interesting area. That's why Victory Park fits in. Emerging market private credit, again, it's not the biggest business, but an area that we think will grow and gives us some interesting contacts in the Middle East. We will continue to do that.
Tabula, as I say, I've talked enough about the opportunities for ETFs in Europe. Over the last couple of days, I've been asked, have you carried on with my digestion story? Have you digested those deals? We have in some aspects. We've done them, we've put them on systems, we're well linked up. Could we do another deal tomorrow? Yeah, we could. We're capable of it. The most important thing in 2025 is helping those businesses grow. You grow something in order to grow it. You buy something in order to grow it quicker than it can grow itself, otherwise it doesn't make sense. We've got to do that. VPC is in market now. We want to make that very successful. The ETF strategy I've talked about, getting what was NBK business in the Middle East to grow. I'd say the most important thing is leveraging those.
There are things we're looking at, and doing those three deals has made us even more attractive. We've become an attractive company. It's a nice place to be because the culture's recognized and we're winning and Ali's leadership is showing through. But until you've done deals, people wonder if you're ever going to do them. Having done deals and done them quickly, deals are destructive to the seller. Oh, no, sorry, they're destructive to the seller. They take time and effort. People want to know that you're genuine and you can move fast. We've shown that, which means that we're seeing a lot of interest. We're seeing people come to us. There are still things we'd like to do. We're certainly capable of it. We've got a very strong balance sheet. There are areas that we'd like to move in.
They're in all sorts of different pieces, but we'll be incredibly disciplined in it as we were for a number of years. We found three great deals last year. We've also built the Privacore business out from scratch over the last sort of 15 months- 18 months. There's a lot going on. Someone said, "Would you be disappointed if you didn't do anything this year?" We'll be disappointed. It means we haven't found the right thing or we haven't found the right thing and agreed the right deal. People absolutely critical, culture absolutely critical. We won't do a deal for deal's sake. We've done three, happy with those three, but yes, there are definitely some other opportunities.
You hit on culture. I wanted to talk about talent. We've seen an influx of high-quality talent into Janus over the last couple of years. Marc Pinto is a highlight, Bent Lystbaek, maybe the two best examples. I saw recently a portfolio manager from a competitor, Fran Ra dano joined too. What is attracting them to Janus and have you noticed a change in the culture? Because you've been at Janus Henderson for a while.
Yeah. Yeah, I think there's a lot of things in there. We're attracting people, we're also attracting people back. Something like Marc coming back. He's seeing something which is like, yeah, I want to be part of that again. This is a great company with great PMs and a great business around it and Marc wanted to be part of that. It's great to have him back. Yeah. We're hiring and we're hiring back. I think success, it also means that people are looking at us. Our people are probably more at risk as well on the other side because Janus Henderson people are being recognized as being good. You've got to be, there's two sides to that trade. We just hired a great new head of U.S. institutional to go back to that, Kelly Cavagnaro. Some great talent joining. Why are they joining? Because they see something.
What's going on? The culture's an awful lot of things, but the biggest thing is we've got a mentality of things that let's do stuff, let's try it, why can't we do it? Which is possibly a little bit different than it was for a while. Like I say, I've been there 12 years. It's always been a great company, but we're getting more done now. Part of that is you've got to be lucky as well as good in this industry. We're seeing a lot of success and success breeds success. If you're seeing success, I want it. The success we've seen in U.S. ETFs, well, we want to see that success in Europe. The success we've seen in fixed income ETFs, well, we want to see that in equity.
But I think people come mainly because they want to work in an environment which is dynamic, that people want to do things, but people want to work together. The strategy was not created by a consultant. It wasn't created by Ali. It was created by this group of 40 people that we put together, which means that they're all bought in and they're all getting their teams bought in. It's the same with our MVP. It's the same with our brand and marketing. It's very much bottom up. We're trying to get 2,500 people walking in the same direction. Nothing's perfect. We've still got work to do, a lot of work to do. But yeah, it is a place that we're attracting some very good talent.
You mentioned ETFs and I've watched Janus emerge as one of the leaders in the active ETF space. Can you talk about which specific products have been driving that?
Yeah. We've launched products in multiple areas, but the vast majority of it is in our securitized fixed income business. That's now a $30 billion ETF business. About $20 billion of that is JAAA, the AAA rated CLO ETF. But that is a suite of five or six ETFs from vanilla at one end to JSI, securitized income broad ETF at the other end, JAAA, JBBB. The interesting thing I think about it, I can't tell you what the future is going to hold. But the newer ETFs are setting off faster than the older ones did. That doesn't mean that we expect JBBB's early days are faster growing than JAAA was. I'm not saying that JBBB is going to be a $20 billion product. To my earlier points around, we're not trying to grow assets, we're trying to grow revenue and profit. It's a higher fee product anyway.
We're seeing early growth in that. We've launched things in the quant space, JMID, and now JXX is our first fundamental equity ETF in the U.S. We're playing in multiple parts of that. The success so far has been dominated by securitized and we've become synonymous with that space. We own about 90% of the market. As I say, we want to do the same thing in Europe. We've launched equity and fixed income ETFs, all active with active fees in Europe, which again, we hope to sell around the world. That's a, we'd like to think we've just started. It's been a great start. That ETF franchise doubled, more than doubled last year. Public data shows January was a good month as well. That's an exciting piece. As I said earlier, there are also bits which are headwinds to fight against. We've got outflows in other areas.
It's not all rosy. It's hard work. This is a tough industry. It's a tough industry.
Roger, I know it's tough to choose which child is your favorite, but as you look at your ETF products today, which ones are you most optimistic about in terms of forward growth?
We've got momentum in one area. Yeah, and whilst you're therefore there to be shot at with a market leader in an area that's growing, it's a very good place to be. I'm delighted we're there. I'm proud of that child. To your first question, I think around the yield and market dynamics in fixed income, that looks like it could have legs. Again, as I said, the diversification or the broadening of the client base there, that looks like it could have legs. It's like if that's your proudest older child. The babies are potentially very interesting. JXX is something that, that's Janus's heritage. That's the Denver equity team at their best. That's what we're known for. If people want to buy something which is a transformational, it's looking at specific areas for a broadening of that market.
We think there's a lot of companies in the other 433 names in the S&P 500 that have been overlooked. Which are they? They are tough to find. That's what our team does. That's what they do and that's what they've done for a very long period of time. That's the one that you go, okay, well, that's exciting, but it's been launched for a week.
Let's talk about the alts platform. You guys have been upgrading this platform via several acquisitions. What does the offering look like today? How do you expect it to impact your net flow trajectory and more importantly, your revenue trajectory given the higher fee rate? I know that's important.
Yeah. It's a number of things. Like you say, it's both acquisitions and organic. Again, I guess go back to your favorite child analogy. One of the favorite children over the last couple of years because it has delivered so much for clients has got to be the Biotech Innovation Fund. It has been spectacular and that therefore has seen great flow. It's reaching capacity. But you've got to be proud of something like that. That's us taking a world-leading life sciences team who said, hang on, we'd like to do something a little bit different. We think we can run long, short, and privates. There's not many people who can do that, but they've proven that they can do that and they can do it and perform incredibly well, which benefits clients most importantly and it benefits us as a firm and it benefits them. Great. Everyone's happy.
Where else can we do that? Not many, but there's a few ideas we've got around that. That will broaden our alts from an internal perspective, from a hedge fund type perspective. Our absolute return franchise in Europe is firing really well. That's something that, again, if you go back several years, that was a much bigger franchise and had some great numbers and generated some great fees. It's had a fairly lean time in a zero rates environment, which probably doesn't surprise anyone. It's done nothing wrong, which means that people look at it because an awful lot of people have blown up. It's done nothing wrong. It was just a bit blah for a while. It's now producing some really good numbers. It's growing. That adds. Then on top of that, there are areas that we don't currently participate in yet.
VPC, NBK, and not alts, but things like the team lift out. We did a private emerging market debt a while ago. Like I say, we've been very specific. There are areas that we think clients are moving to. There are areas of growth. They're, importantly, they're teams and people that we know that we think fit with that culture that we've talked a little bit about, that want to work with us, that want to grow. They're not looking to sell their company and run away. They want to grow and that's what we're doing together. We're adding pieces to it to try and make us, to try and fill some of those gaps, to make us more relevant for clients, to be able to answer the clients' questions, feed into solutions, et cetera.
It's tough to talk about alts without talking about Privacore.
Absolutely.
It's a very interesting, unique business. You don't own the whole thing yet. Maybe in the future you will, but it hits that intersection of retail alts, which is a really big theme. Given I work at BofA next to Merrill, it's a big theme at our firm too. Maybe talk about what you're doing there, how it's differentiated, and how do you monetize this if it's successful?
Yeah. This is something, this is the other way of doing it. We're willing to buy, build, or partner. Privacore is a de novo build from getting office space, first person through to about 50 people now. We built that out to do, again, just so people are aware. This is about taking private markets, alternatives, products into private wealth managers. There are a few people who can do that themselves, but most people can't in that space. We're a marriage agent between the wealth manager and the GP. We're signed up on three of the largest warehouses. We've got a couple of products in market from GPs that are brand names. We're in a lot of discussion with a number of others. Some of those will be signed up pretty shortly. I spoke to Brendan Boyle, end of last week.
We were talking about what, when, when are they happening? We're still early days, but this is about taking something into a Merrill's where the exposure to privates is dramatically lower than it is in the institutional, the endowment space. One's 20%, 30%, 30+plus% and one's 4%, 5%. We're not saying it's going to go from one to the other, but the growth, the demand is there. Most of these GPs can't, and quite frankly, don't really want to service that big private wealth space. They need help and that's what Privacore is built to do. We own 49%. We have a right to buy in the rest of it. At some point, on the assumption that it's successful, you'd expect us to buy it. We'll bring it on. That's something that we're pretty excited by.
Running out of time here, but I just want to look at the audience and see if anybody has a question. Please raise your hand. We have one up here in the front.
I was just wondering about any opportunities that you foresee maybe in digital assets or tokenized funds, maybe?
Yeah. We're investing, again, sort of in that same. This is going to be one of the most interesting places to be. I don't know when, I don't know how, we don't know when, we don't know how, but we want to play. We have just done a, we've just launched a relationship with Anemoy and Centrifuge to manage their fully on blockchain treasury fund. That is something that we think is really interesting, but could just be the beginning. Innovation is part of the strategy. We're investing in it both internally and through partnerships such as this. Internally, we talked earlier about the growth in institutional. If you're doubling the number of RFPs, a few years ago, I had to double the number of RFP writers. We've used AI to fill in the first half of the RFP.
But you're doing that at one end and then to your point around tokenization and digitalization, where we could end is fundamentally different for the industry where we are now. Why will there be a difference between public and private? Everything's on the chain. But the question is, when will that happen? What we want to be a bit like making sure that we're ahead of the game in ETFs in Europe is we're ahead of the game in that space. This is a relatively small investment, but yeah, we're pretty excited by it.
Roger, let me just ask the last one and we'll bring it back down to the Janus stock. The stock's outperformed, even beating expectations kind of on all the key metrics, but there's still some headwinds in some of the active equity traditional side of the business. What do you think the markets are underappreciating at this moment?
Thank you for increasing your price target, Craig. I think the price has largely gone up because E has gone up. Earnings have gone up. You change the value of a company like ours when the P moves as well as the E. I think that is getting people to believe that we can be consistently organically growing. That's the piece. That's a fair challenge. We were in outflow until quite recently. The bet now is, is the story that Ali and Roger are telling something that I really believe can be replicated, can come through over a period of time? If that's the case, then we're still in very early innings. You've seen the success we can have. It can be quite big. There are headwinds. There are challenges in the industry, but we think we're quite differentiated in what is a tough market.
Great. We will end it there. Roger, Jim, on behalf of all of us at Bank of America, thank you for joining us.
Thanks, Craig.
Have a nice day.