Good morning. My name is Emily, and I'll be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group Q4 and full year 2022 results briefing. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. In the interest of time, questions will be limited to one initial and one follow-up question. In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements due to a number of factors, including, but not limited to, those described in the forward-looking statements and risk factors section of the company's most recent Form 10-K and other more recent filings made with the SEC. Janus Henderson assumes no obligation to update any forward-looking statements made during the call. Thank you.
Now it is my pleasure to introduce Ali Dibadj, Chief Executive Officer of Janus Henderson. Mr. Dibadj, you may begin your conference.
Welcome, everyone, and thank you for joining us today on Janus Henderson's Q4 and full year 2022 earnings call. I'm Ali Dibadj, and I'm joined by our CFO, Roger Thompson. In today's call, I'll start with some comments on the year. Roger will then go through the results, and after that, I'll provide a strategic update. We'll take your questions following those prepared remarks. Turning to slide two. 2022 provided one of the most challenging market backdrops in history. As you undoubtedly know, since 1928, 2022 is one of only four years where stocks and bonds had combined negative returns. US Treasuries suffered their worst losses since 1788 and had back-to-back annual losses for the first time in over 60 years. This market backdrop translated into a difficult flow environment.
For example, in the U.S., 2022 was the first time mutual funds and exchange-traded funds experienced combined net outflows. Janus Henderson certainly wasn't immune to the tough market conditions, which our results suggest. As I reflect upon the year, though, despite the industry headwinds, there are several tangible signs of progress at Janus Henderson. There was a tremendous amount of work done, and we have the foundation to achieve our ambitions over time on behalf of our clients, their clients, shareholders, employees, and all our stakeholders. Over the summer, we brought together people in the firm representing different backgrounds, parts of the business, and regions to create the strategic leadership team or SLT, as we call it internally. This group is responsible for establishing the strategic direction of Janus Henderson, and members of the SLT will be leaders and partners in the implementation and execution of our strategy.
We've also been successful elevating and adding to our talent across the organization in areas such as investments, distribution, operations, and ESG, including seeing exceptional former employees return to the firm. To highlight a few of the additions in distribution, we hired Michael Schweitzer, who has extensive leadership experience in the global asset management industry as our head of the North American Client Group. Michael will also be responsible for leading our strategic initiative in the US intermediary space. In investments, we brought in an emerging markets debt team in September. Remember on our last quarterly earnings call, we said that we expected to have $500 million in EMD AUM by year-end. I'm pleased to share as of today, we have now crossed the $1 billion in committed capital in less than six months mark.
$0 to $1 billion in such a short period of time is a testament to what Janus Henderson can do with renewed energy, focus, and process. Additionally, we launched an EMD hard currency CCAP in December, making the EMD team even more accessible to a broader range of investors. There are many other examples on slide two that demonstrate we are not standing still when it comes to building top talent and creating opportunities for existing and new employees. Our board also experienced a significant refresh with six new members, including our chair. That means six of 11 or 55% of board members were appointed in 2022, bringing new energy and world-class and varied expertise. The new members provide backgrounds in client experience, strategic execution, ESG, and culture change.
We are also proud of the gains we've made improving diversity on our board, as 45% of members are women and 30% are from racially and ethnically diverse backgrounds. We spent a good deal of 2022 reviewing the business, seeking ways to drive efficiencies, and identified $40 -45 million in savings so that we can use those savings to provide the Fuel for Growth to reinvest strategically in the business. The execution is on track. Finally, we simplified our operating model, which included the sale of Intech in the Q1 of 2022. We also made great progress on upgrading our order management system, which we expect to go live during the H1 of 2023. With that, I'll now turn the call over to Roger to run you through the details of our financial results.
Thank you, Ali. Thank you again to everyone for joining us on the call today. Starting on slide three, a look at our Q4 results. Volatility in global markets continued to impact our flows. However, investment performance, ending AUM, and revenue all improved over the Q3. Our long-term investment performance remains solid, with 67% of our assets beating their respective benchmarks over three years. December ending assets under management were $287 billion, up 5% from September due to better markets and US dollar depreciation against other currencies, which is partially offset by net outflows. Net outflows were $11 billion, which includes $7 billion of previously communicated institutional redemptions. Adjusted financial results are flat to the prior quarter. Finally, the board declared a $0.39 per share quarterly dividend.
Turning to slide four on investment performance. Longer-term investment performance results versus benchmark improved compared to the prior quarter, with 67%, 70% and 75% of assets beating their respective benchmarks over the three, five and 10-year time periods. The one-year number is being impacted primarily by the fixed income and multi-asset capabilities. In multi-asset, the Balanced Strategy, which is the vast majority of these assets, switched to underperforming the benchmark on a one-year basis. This is due to short-term underperformance during the H1 of 2022, especially Q1. The Balanced Composite outperformed its benchmark during the H2 of 2022, and as we sit here today, is back above its benchmark on a one-year basis. Absolute and relative fixed income performance was impacted by this historically tough year for bonds. The longer term time periods remain very strong.
For a few of our larger strategies, such as Core Plus and Absolute Return Income, the level of underperformance to benchmark was minimal. Shorter-term periods of underperformance will happen. Our investment teams remain professional, they stick to their knitting, and they're disciplined in their approach and process, with a focus on delivering positive long-term outcomes for our clients, which you can see delivered in our long-term track records. Longer-term investment performance compared to peers continues to be competitively strong, with at least 60% of AUM in the top two Morningstar quartiles over the three, five and 10-year time periods. Slide five shows company flows. For the quarter, net outflows were $11 billion compared to $5.8 billion last quarter.
This included the previously announced $7 billion of institutional redemptions and the impact of market uncertainty on the retail business for Janus Henderson and the industry as a whole. Turning to slide six for a breakdown of flows by client type. Net outflows for the intermediary channel were $3.4 billion compared to $2.5 billion in the Q3. The decline is attributed to higher net outflows in the U.S., while EMEA improved compared to the prior quarter. The U.S. outflows were roughly in line with the industry. According to Simfund Data, Janus Henderson's Q4 annualized growth rate for US Mutual Funds was -11.6%, compared to -11.1% for the industry as a whole, which speaks to the difficult flow environment that we saw last quarter.
We did see some pockets of early wins with our JAAA CLO ETF gathering $1.5 billion in flows in 2022, putting it in the top 2% of over 1,000 active ETFs. Additionally, Global Equity Income and the Overseas strategies accumulated significant inflows during the year. Institutional outflows were $6.6 billion, which were primarily driven by the EMEA region and include the two previously announced low-fee redemptions of $3 billion in the Sterling Buy and Maintain Credit strategy and approximately $4 billion of equity AUM. Institutional flows were flat outside of these two large redemptions. We did have good gross sales this quarter from several mandate fundings. In fact, two of the last three quarters have been amongst the highest institutional gross sales results over the past five years.
We are winning new business in institutional. Ali will talk about our growth plans for institutional later in the presentation. Whilst last quarter, I had to inform you about $7 billion of known losses, I have no new large redemptions to tell you about today. Finally, net outflows for the self-directed channel, which includes direct and supermarket investors, was $1 billion. Similar to the intermediary channel, gross sales have slowed as retail clients remain on the sidelines. Slide seven is flows in the quarter by capability. Equity net outflows for the Q4 were $7.5 billion, compared to $4.1 billion in the Q3. As I mentioned on the prior slide, the results include $4 billion from the previously announced institutional redemption.
The remaining outflows were primarily driven by US Mid and SMid Cap Growth strategies and US Concentrated Growth. Pleasingly, US Mid and SMid Cap Growth have both seen very strong performance in 2022. Q4 net outflows for fixed income were $1.9 billion, reflecting the $3 billion Sterling Buy and Maintain institutional redemption that I just mentioned. We're pleased that despite the challenging environment for bonds, our fixed income capability had positive flows elsewhere. Several strategies contributed to these positive flows, including Australian Fixed Income, US Buy and Maintain Credit, Multi-Asset Credit, and JAAA. Finally, Emerging Market Debt, which Ali mentioned as one of our early wins in diversifying the business. Total net outflows for multi-asset were $1 billion, driven by the Balanced Strategy within the retail channels.
Whilst the net outflow is in part due to short-term performance, the medium and long-term performance remained very strong. As I said, the one-year metric is now back above benchmark. Finally, net outflows in the alternatives capability were $600 million. Moving on to the financials. Slide eight is the US GAAP statement of income. Before moving on to the adjusted financial results, I do want to call out a few items impacting the GAAP results in the Q4. First, during the quarter, we recognized a $36 million non-cash, non-recurring impairment on certain intangible assets. Second, there was a $19 million in non-recurring charges related to the implementation of the Fuel for Growth cost efficiencies that were part of the $30 -35 million that we told you about last quarter.
These two items represent the main difference between our U.S. GAAP and adjusted financial results. Now turning to slide nine and to talk about those adjusted financial results. Adjusted revenue increased 3% compared to the prior quarter, primarily due to higher performance fees offset by lower average AUM. Net management fee margin for the Q4 was 50.7 basis points, which is higher compared to both the prior quarter and the same period a year ago and makes Janus Henderson stand out from its competitors. Q4 performance fees of $14 million include $31 million of annual performance fees generated primarily from the biotech hedge fund and a U.K. small cap equity segregated mandate. Significant outperformance in the Q4 generated these annual fees. Partially offsetting this revenue was negative $17 million in US Mutual Fund fees. Continuing on to expenses.
Adjusted operating expenses in the Q4 were $282 million, up 5% from the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, was flat compared to the prior quarter as higher profit-based variable costs were offset by lower fixed compensation as Fuel for Growth cost efficiencies were running ahead of the investment in our new strategic initiatives. Adjusted LTI was up 17% compared to the prior quarter due to mark-to-market. In the appendix, we've provided the usual table on the expected future amortization of existing grants, along with an estimated range for the 2023 grants for you to use in your models. The Q4 adjusted comp to revenue ratio was 46.4%, up slightly compared to the Q3, primarily due to the mark-to-market on LTI.
Adjusted non-comp operating expenses increased 7% compared to the prior quarter, primarily due to higher seasonal marketing and G&A expenses. Compared to the Q4 of last year, non-comp expenses decreased 12%. On a year-over-year basis, adjusted non-comp expenses declined 1% compared to our original guidance at the beginning of 2022 of a percentage growth in the low teens. The quarter and the year-over-year comparisons show our commitment to strong cost management. Adjusted operating income in the Q4 of $123 million was down 2% over the prior quarter. Q4 adjusted operating margin was 30.4%. Finally, adjusted diluted EPS was $0.61, flat to the Q3. Skipping through slide 10 to slide 11 for an update on cost efficiencies and our outlook for 2023.
Recall from our last earnings call, our philosophy has always been to maintain strong financial discipline and invest in the business where it strategically makes sense whilst looking to operate more efficiently to provide the Fuel for Growth. Last quarter, our executive committee reviewed the business and has line of sight to $40 -45 million in gross run rate cost efficiencies, which will be equally split between compensation and non-compensation expenses. We're on track to deliver those saves. Our intent is to reinvest all of these savings back into the business to fuel growth. Regarding expectations for 2023, ending AUM for 2022 was 13% lower than the average for the year. All things equal, you should therefore expect management fees will be lower by this amount in 2023.
We anticipate a compensation ratio in the mid-forties range, which reflects lower revenue, the denominator in this calculation. For non-compensation, we expect to increase our marketing and advertising, where we have an opportunity to capitalize on good investment performance, especially in our US intermediary business, that we want to not only protect but to grow. We also want to make investments supporting our other strategic initiatives. We anticipate non-compensation percentage expense growth will be in the mid to high single digits. Of course, as we reinvest for growth, we'll continue to be mindful of our discretionary cost base. In addition to this effort to capitalize on areas where we feel there is real opportunity, it's important to note that roughly 40% of the year-over-year increase in non-comp expense will be non-cash.
This primarily relates to the order management system transformation project that is anticipated to go live in early 2023, at which point we will begin amortizing the previously capitalized costs of the project through our P&L. We expect the firm's statutory tax rate to be in the range of 24%-26%. The increase from the previous range is related to the U.K. corporation tax rate increasing to 25% from 19%, effective the 1st of April 2023. Moving to slide 12 and a look at our liquidity. Our balance sheet remains very strong during this period of earnings volatility. Cash and cash equivalents were $1.2 billion as of the 31st of December, which is roughly flat to the end of last year, as excess cash flow generation has been used to fund dividends and buy back shares.
Given current market volatility and to maintain that balance sheet flexibility, we've been conservative and purposeful in our approach to capital management and elected not to buy back stock in the Q4. We have a strong liquidity position and continue to balance the capital needs and the investment opportunities of the business with returning capital to shareholders. The board has declared a $0.39 per share dividend to be paid on the 28th of February to shareholders of record as of the 13th of February. I'd like to turn it back over to Ali to give an update on our strategic progress.
Thanks, Roger. Moving to slide 13, I want to remind you of our discussions on strategy from prior earnings calls. First, we introduced our three strategic pillars of protect and grow Janus Henderson's core businesses, amplify our strengths that are not fully leveraged yet, and diversify the firm where clients give us the Right to Win. Second, our Strategic Leadership Team, along with input from clients, identified a broad range of opportunities which align with the three strategic pillars. The opportunities were filtered through a process designed to capture those opportunities that provide the best possible outcomes for our clients and will lead to organic growth and attractive operating margins over time.
Third, the reduced list of opportunities was then evaluated along two dimensions: Janus Henderson's Right to Win and how the opportunity measures against future client and industry importance to arrive at the final list of initiatives that we will look to execute on. I want to spend a few minutes walking through how we think about implementing and executing the strategy on slide 14. On that slide, you can see the different steps of our strategic roadmap. The steps aren't entirely linear, as each will have short and long-term elements with varying time horizons. Having done this before, one does need to create an environment for change before one puts a change plan in place. One of the first actions I took after starting was to assemble the strategic leadership team, which I talked about earlier.
It was an important step in getting the best thinking and buy-in on our strategic direction. We've increased our communication, particularly to clients and employees, to provide transparency on the path forward for Janus Henderson. More accountability has been introduced at the senior levels of the firm to drive the right behaviors and measure progress. The cost efficiency efforts have provided the Fuel for Growth so that we can strategically invest in the business. With the elements for change in place, we identified and developed the strategic plan, including initiatives that fit within the framework of our three pillars of protect and grow, amplify, and diversify. Implementing the plan will happen over time. Our leaders are empowered to drive these initiatives, and progress will be measured.
On the bottom of the slide, you can see some of the metrics we will track to measure progress that are aligned with clients, employees, shareholders, and other stakeholders. Over time, financially, we want to deliver consistent annual net new revenue growth with attractive operating margins. For our clients, results are measured with an investment performance and their experience with Janus Henderson. Organizationally, we will measure the ability to attract and retain top talent and the level of engagement from employees. Delivering early wins will provide proof points that the plan is taking hold. Although we are seeing some successes like Emerging Market Debt, JAAA, talent improvements, Fuel for Growth, client activity levels, or our biotech hedge fund and more, it will take time to deliver consistently, and results won't be linear.
For example, over the next one to two years, we'd expect to deliver intermittent quarters with neutral or positive net AUM flows, which will evolve to more consistent net inflows and then net new revenue growth over the longer term. As we said before, we expect to see even more tangible progress during the course of 2023. Institutionalizing winning will be done by improving, updating, and automating systems and processes around metrics, measurements, talents, and more. I'd like to give you an update on one of the initiatives we discussed last quarter of US intermediary, as well as introduce a few more initiatives that we'll be focused on. Turning to slide 15.
On last quarter's earnings call, we talked about the importance of protecting and growing our US intermediary business and listed out five areas of investments to re-energize the channel, support the team further, and capture market share. As I mentioned at the beginning of the call, in November, we appointed Michael Schweitzer as the new head of our North American Client Group. Since then, Michael and his team have already implemented several leadership changes and reorganized the US intermediary business that we believe has positioned us very well for growth in our North American retail business over the long term. Lastly, we started the process of properly aligning people's incentives with our growth strategy. On slide 16, a business we want to amplify is the institutional business. Our institutional business represents just over 20% of our assets, and we are under-penetrated in global institutional markets, particularly in the U.S.
In addition to differentiated insights and disciplined investments, there are several factors that gives Janus Henderson the Right to Win. We are seeing gross sales momentum in the business. Unfortunately, it's been masked by a few large client redemptions in 2022, not related to our investment performance or our client service. Our gross sales have increased more than 35% in 2022. We are winning mandates from sophisticated institutional clients. Consultant engagement is expanding. Meetings with consultants are up 40%. We have a great and growing consultant relations team. The institutional business is also complementary to other initiatives, including one that I will talk about in a moment, which is Diversified Alternatives.
To capture market share in the institutional space, we'll focus on areas including restructuring sales teams and coverage models to meet client needs better, improving consultant support, utilizing data for business development, elevating brand awareness, and developing new products and solutions. As I mentioned, another business that we want to amplify is what we describe as Diversified Alternatives on slide 17. Some of you know about this business, many of you and many of our clients don't yet. This grouping of approximately $20 billion in assets includes Multi-Strategy Hedge Funds and Equity and Commodity Enhanced Index Funds. Long-term investment performance has been excellent, with a Sharpe Ratio of 1.7 since inception, this performance has translated into growth with $2 billion of net flows in 2022 and a strong pipeline as we enter 2023.
We believe that with investments in this area, we can improve our market share, which is currently less than 1%. There's also client demand to expand upon our existing capabilities, such as taking a sleeve of a multi-strategy capability and launching as a single product. An example of this is our successful Dynamic Trend strategy. Areas of investment that we believe will position these strategies for growth are building out the investment team to improve and diversify the investment capability. By the way, if any of you on the phone are looking, give us a call. Developing more scalable infrastructure and globalizing marketing and distribution functions for our broader alternatives business. Wrapping up on slide 18. As I look back on 2022, I'm proud of the progress we made in repositioning Janus Henderson to meet our clients' and their clients' needs and thus for future growth.
We established the strategic leadership team that created and will now implement our new strategy. We welcome new talent to the firm and open up opportunities for existing employees with new and expanded roles. We enter 2023 with a refreshed and highly driven board with exceptional breadth and depth of experience, which will be critical in leading Janus Henderson into its growth phase. We've created Fuel for Growth to allow us to reinvest in the business, and we have simplified our operating model. As I said previously, we are still in the early days, and the path will be a market-dependent one, not linear, whether we like it or not. We have a strong balance sheet, good free cash flow generation, and our focus will be on controlling what we can control to deliver desired outcomes for our clients, shareholders, employees, and our other stakeholders.
Let me turn the call back over to the operator for your questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now. If you do change your mind, please press star followed by two. When preparing to ask your question, please ensure that your line is unmuted. Our first question today comes from Ebrahim Poonawala from Bank of America. Please go ahead, Yuyan. Your line is now open.
Hey, good morning, Ali. It's actually, Craig Siegenthaler from Bank of America.
Hey, Craig.
My first question is on capital management. You know, just looking at what the stock did in the H2 of 2022, and also how much excess cash Janus has today and how it's grown. You know, we're just wondering why not buy back more stock?
Hey, Craig. Let me. It's Roger. Let me take that first. I mean, I guess first, most important thing is there's no change in our capital management philosophy. The board takes a very active approach to the management of cash and capital, and balancing those capital needs against, you know, the investment that's needed in the business, and returning cash to shareholders. The focus is to use that excess cash generation to reinvest in the business organically first, potentially then inorganically. We talked on that a little bit, may talk about that a bit more in Q&A.
Where we don't have a need to return cash to shareholders, as we did in 2022, in the H1 of 2022 through buybacks. Given the current market volatility, the opportunities we see, we were conservative and prudent in the H2. Again, over the year, we repaid $358 million in dividends and buybacks.
Thank you, Roger. Just for my follow-up then, you know, if you're not using excess capital for buybacks and you're building it up, I'm just wondering, you know, can you update us on your thoughts behind M&A, both kind of larger scale deals that may possess some redundancies and also smaller strategic transactions that can potentially fill in product gaps?
Sure, Craig. Let me take that. Look, our philosophy on M&A has not changed either, and nor has it changed for me for a number of years. Remember, our view is that M&A, where there's a significant amount of overlap and, you know, cost savings is the vector of driving value, is typically unsuccessful. The markets have said that. You have said that. Others have as well. We agree with that. That's unlikely to be the major thrust of M&A that we do.
On the flip side, M&A that brings in a new set of skills, large or small, is, you know, at a higher chance of being successful, and that's what we're gonna look at, and there are plenty of opportunities out there, and we'll continue to look, but we're gonna be disciplined. The reason we're focused on the complimentary type M&A, the puzzle piece type M&A, is that that's client-led. We are gonna be client-led in the way we bring on teams. The way we buy, build, and partner with others will be driven by bringing something new and better to our clients, and that's part of our diversify strategy prong.
it's very importantly not a strategy unto itself, but we wanna buy and build partner to deliver what our clients' needs are, and that will be more complementary.
Thank you.
Thank you. The next question comes from Patrick Davitt from Autonomous Research. Please go ahead, Patrick. Your line is now open.
Good morning, everyone. First question. Reading between the lines, I think this has been confirmed by some headlines we've seen, there does appear to be quite a bit of portfolio management and distribution changes going on. You highlighted some of that in the deck, I'm sure this is all an upgrade from a longer-term perspective. Historically, so much disruption in fund management and distribution has led to accelerating outflow for asset managers. I guess firstly, is this a fair observation from the outside? Secondly, why or why not should we be concerned about accelerating outflows as a result of all these kind of rapid changes you're making?
Yeah. It's a great question, Patrick. Thank you. You're right that we've made a lot of change in 2022, which we'd characterize as a transition time. I would argue that from the outside in, it's tough to see your hypothesis. I hope is right, I think is right, is that it's also a year of tremendous progress. Tremendous progress and repositioning Janus Henderson to meet our clients' needs and meet their clients' needs and set up for the future. Whether that be, you know, bringing in new talent, whether it be developing the Fuel for Growth, doing the reorg, simplifying our business, adding new teams.
You're correct, where it doesn't serve the client and our current teams, changing those teams, that was part of our Fuel for Growth. Building strategic leadership team, creating a strategic roadmap, which we're now executing. We're doing a lot. When we speak to clients, to your point, they want stability, but they understand that stability does not mean stagnation. They want improvement, and we are improving for them. We are improving along all those dimensions. You know, honestly, I couldn't be happier with my colleagues at Janus Henderson. I'm very grateful to the efforts that they've made and the steps forward that we've made. The changes are well thought out. They're well thought out to deliver better for our clients.
We don't see any of these changes driving the outflows that we've seen so far, and I feel pretty comfortable saying that we're on track.
Pat, if I could just add to that just a couple of facts as well, because, you know, we're excited to talk about the changes.
Sure.
We're excited about the people joining and rejoining. Again, I do want to make sure that, yeah, we're very clear. We've got some very strong established teams and particularly portfolio management teams. Our global portfolio management team's got an average of 23 years in the financial industry, 13 years of which are at Janus Henderson, and our analyst team is 14 years in the industry, and seven of those with the firm. We've got some really strong, you know, roots in the team. Yeah, we're pretty excited about some of the joiners across the organization as well.
Thanks. That's helpful. A quick follow-up on the expense savings. I think last quarter you expected a third of that to be realized in Q4, but maybe you hinted it was more than that. As we try to peg maybe how much that acceleration helped the Q4 result, where did you come out on that number, and how should we think about the cadence through the rest of 2023?
Yeah. Yeah. Yeah, thanks, Pat. Yeah, we're on track for that delivery. I think as I said on the call, you know, the delivery of, you know, we've been very clear that we're excited about the opportunities we've got, and we're investing, reinvesting that Fuel for Growth. As I said on the call, that ran slightly ahead, i.e., the savings ran slightly ahead.
Okay
of the investments we're making in Q4.
You know what, Patrick, just to add a little bit to Roger.
Got it. All right.
It's more of a timing question than being ahead.
Yeah
... or behind track.
Got it.
Timing investment.
Thank you.
Thank you. The next question comes from Ed Henning from CLSA. Please go, Ed, ahead, Ed. Your line is now open.
Thank you. Thank you for taking my questions. Can I just the first one, can I just have a follow-up on the first question on the call, just a clarification. Are you saying, you know, despite the strong capital position, you know, while you're doing stuff organically and potentially looking at doing stuff inorganically, but it's gonna be disciplined, you know, we shouldn't think about you restarting the buyback anytime soon, and even future buybacks, you're really focused on both organic and inorganic opportunities. Buybacks are really off the agenda at the moment?
I think it's just a priority. Sorry, Ed. Hello. I think it's a priority of is all we're talking about. Again, that hierarchy has never changed. You know, we're always looking at how can we get a bigger return in terms of investing in the business, either organically or inorganically. And the buyback is from excess, you know, from once we've satisfied all of those things. No, buybacks are not off the agenda, but we're, you know, we're pretty excited about some of the things we can do organically and inorganically at the moment.
Maybe just to clarify that a little bit further, I understand what you're saying, but is this just, you know, obviously we're talking about the 23 strategy? Is that the time frame we should think about and you potentially look at this in 24?
Yeah, I think again, we will continue to give more clarity on the strategy as we go through further calls. Again, this is a Q4 call. We'll, you know, update on capital with Q1, and you'll, you know, buyback as part of that.
Okay. Okay, all right. Thank you. Can you just touch on, you know, you talked about obviously changes in the industry. You know, you've seen markets very strong at the moment. You know, are you seeing any change in flows coming into different segments of the market? From there, can you just talk a little bit more about your pipeline? You know, what you're, what you're excited about or any spots that you're concerned about for potential flows going forward, please?
Sure, Ed. Let me start that and Roger can chime in. Look, it's clearly a very dynamic marketplace right now. Dynamic from a pure stock and fixed income markets perspective, but also from an industry perspective. Things are changing. And look, that offers opportunity for us. That offers opportunity for us to deliver better for our clients where they have needs that aren't met, and we'd like to capitalize on that. We're putting investments, to the earlier question, significant investments, to try to capitalize on some of the movements that are there. I wouldn't say we're seeing massive changes in the channels right now, just from what's happened in the markets recently.
Maybe if you squint a little bit, the intermediary markets are a little bit better, again, that could be quite volatile quite quickly, depending what happens in the markets. I'd say in the institutional channel, there's clearly more activity. Part of the reason we highlighted it today is that a lot of our clients and potential clients are putting more money to work in that area, we're investing to be able, again, to support them in those endeavors. A little bit more activity in institutional. Particularly I'd say around the fixed income area. Not unanticipated by all of us that when rates change, fixed income becomes a lot more interesting, and there is money in motion there. We do see similarly some opportunities within equities, obviously.
We are seeing some signs of a shift away from passive in some institutional businesses to something more from an enhanced index view. Those are some of the areas that we're looking at, clearly institutional, always intermediary. You've seen it be a very big focus for us, globally and certainly in the U.S. Again, we want to invest and make sure we can capitalize that by delivering for our clients.
Thank you. Our next question comes from Kenneth Worthington from JPMorgan. Please go ahead, Ken. Your line is now open.
Hi. Good morning. Thanks for taking the question. I wanted to dive a little bit into Asia distribution. You highlighted in one of the earlier slides in the deck, you appointed a new head of Asia distribution, and we're seeing success by some of your peers in the industry. Maybe as a region, how is Asia performing in terms of net sales to Janus? Was it an inflow or outflow in 2022, and can you give us a sense of magnitude? As we look forward, what are the opportunities for you to grow your presence in Asia, and what products may be most interesting? Maybe lastly, life after Dai-ichi. Since they sold their stock in 2021, what impact has that had on your business in Japan and Asia more broadly?
Thanks for the question, Ken. Let me start and Roger can chime in and redirect. I'm glad you pointed out Asia. Asia is something that we have had presence in more broadly from a very long time ago. We think it's a great opportunity to upgrade and invest in that region. If you think about it, our strategy is really based on delivering on clients' needs. There are two prongs effectively for that strategy when it comes to Asia. The first one is that many of our clients are going into Asia more and more. Think of our intermediary clients, think of our broader private bank partners, et cetera.
Serving them in that region is one of the things that we think is a great opportunity for us, and that's one of the areas that we're investing. The other opportunity, obviously, is to provide investment capabilities from the broader APAC region to the rest of the world. That is the other prong that we're investing in as well. Effectively, an export of local investment skill sets that we have that in some instances are actually quite unique. We put that in the amplify category of our strategy to the rest of our client base and future client base. Those are the two prongs that we're really focused in on. You know, you focus in on Ken, the distribution changes that we've made there.
That obviously helps with both of those, both the inbound and the outbound. We see enormous opportunity for us to continue to grow. It's not, as you know, an overnight success region. The good news is, we haven't been there just overnight. We've been there for quite some time, but we need to continue to invest in that region to make sure that we deliver on the expanding client needs around that region, both locally and externally. From a Dai-ichi Life perspective, gosh, they are a great partner of ours. I've gotten to know them a little bit, and I will say that the interactions there are very, very strong and we have great relationships in thinking through the needs of that client base and of their Japanese clients, and more broadly, their global presence.
It really is a global firm. Great relationships there. Thinking about how we can serve them better and thinking how we can, collectively take advantage of the industry's changing dynamic, as I mentioned at the outset, and try to, deliver best for them as a client and their clients as well. Roger, I don't know if there's more you want to add.
No, just again, adding some meat to the bones there. It was not a great year for flows for Janus Henderson. We were $30 billion out. Asia Pacific as a whole was slightly positive, it's just there. Within that, Australia has seen some very strong growth, both in the intermediary and the institutional channel. We've got a great business that's growing well in Australia. Ali and I visited Japan. I think we mentioned it on the call, the last one we had. We got some real opportunities in Japan, are excited there.
Ali, I think, Ali's going to Japan, going to, going to Asia in a couple of weeks, because again, we've got a business there that, as Ali said, we've been there for a while, but our business there is relatively small. We'd like to see that grow significantly. Some of the investments that we're talking about in the SLT investments that we've, that we've mentioned on the call and before, one of those is growing the Asian business. I look forward to telling you more about that in the future.
Thank you. Just a quick one. You wrote down intangibles this quarter, I think $36 million. Can you give us a little more information on the nature of those writedowns?
Okay. They're non-cash, you know, accounting adjustments for intangibles on prior acquisitions. We can take you through of that offline if you want any more details. Like I say, non-cash accounting.
Okay. Thank you.
Thank you. Our next question comes from Alex Blostein from Goldman Sachs. Please go ahead. Your line is now open.
Hey, guys. Good morning. Thanks for the question. Ali, I was hoping we could maybe dig into a little bit more in your comments regarding intermediary distribution. It's a fairly competitive channel as, of course, we all know, understanding that it's growing, so you guys would like to add incremental resources there. Maybe talk a little bit about which products you expect to really lead in this channel that you think you could really sort of lean into to drive incremental net flows. Does that also expand beyond the existing intermediary channels into new ones or kind of doing more with the platforms that you already have?
Yeah. Thanks for the question, Alex. We understand it's competitive in that marketplace, and that's good because we're pretty strong competitively, and we are a big believer. I am a big believer in the US intermediary market. Our brand, our team, our products, your question I'll get to, and our partners, current ones and ones that we're developing over time. We feel very comfortable that we can, over time again, build that business even more strongly than it is today. I mentioned a new hire to lead that group, North American Client Group, a gentleman by the name of Michael Schweitzer. You may have heard his name. He came from a very strong competitor in the space. He just arrived in November and already changes are happening.
Changes organizationally, changes to particular people. One of the ones that we're most excited about is that we've brought marketing right into the operating unit of the North America Client Group to be integrated in the way we go to market with our clients, for our clients, to improve accountability, collaboration, urgency, all those things that we talked about almost back to day one for me. We've also spent some time to realign the incentive structure. If you think about that structure, it's a sales force-heavy structure for us. We have people all over the country delivering our products and supporting our client base and our advisor clients and their clients in a very active manner. We've changed the incentive compensation there.
Incentive compensation, looking at market share, looking at what assets are stickier and delivering on those, activity levels. Again, it's all gonna be about having the metrics, measuring them and paying on that. That's tied to our strategy. All those changes on a very, very strong foundation make us feel quite comfortable. When you think about what we've seen successful from a product perspective, look, it's our bread and butter, right? It's our bread and butter US equities platform to begin with, whether it be the US Mid-Cap range or SMid-Cap Growth or Overseas or Core Plus or Multi-Sector, Contrarian, Global Life Sciences, and go down the list. These are all names you know. These are all names others know.
We have more things beyond just protecting and growing those businesses, whether it be the biotech hedge fund, whether it be property. We think there is a future for diversified alternatives in the U.S. as well. From a product perspective, we have a gamut of things to deliver, especially again in our core business in the U.S. equities. But I would note that it's not just about the product, right? It's about the form factor, what's digestible by the client and our client's clients. Think about JAAA, which is a pretty good success, I would argue, AAA CLO ETF, where we've done quite well. We're on the league tables relatively high. It's about delivering things in SMAs and CITs for the right spaces and the right clients.
It really is to a little bit the earlier question, a dynamic marketplace, and we think with what we have as a foundation, and the changes that we're making, we're gonna be over the time, again, not tomorrow, but over time, well-positioned to continue to deliver and gain market share in this competitive market.
Got it. All right. Thanks for all that added color. A quick one, Roger, for you on the expense guide and particularly the comp rate guide. Sorry if I missed it, but are you assuming sort of year-to-date market performance, or what kind of beta assumptions do you guys have baked into the comp rate?
That is all set at year-end markets. Obviously, markets pleasingly have started the year well, but what I've given you in terms of guidance is based off 12/31 market levels.
Got it. Great. Thanks so much.
Thank you. Our next question comes from Elizabeth Miliatis from Jarden. Please go ahead, Elizabeth. Your line is now open.
Good morning, thank you for taking my questions. The first one is just on the non-compensation growth rate. You said mid to high single digits. Obviously you also mentioned that a big chunk of that is in relation to some amortization step-up
You know, if it is a challenging market, and you do pull back on spend again, in 2023, are you at all concerned that you're sort of under-investing in the near term? Or do you feel that, you know, the cost efficiencies that you'll generate will sort of really help you know, invest in the business near term, despite, you know, whatever's going on in the market?
I think there's a number of things in there, Liz. Let me try and pick it up and, if there's bits that I miss then please follow up and Ali chip in as well. Yeah, I think there's a number of pieces in there. First is, you know, we've always looked to run the business efficiently, and we had another good hard look in Q4. As we said, we had lined aside on $40 -45 million of savings. And we're on track for those. As I've just said, you know, those savings probably ran a little bit ahead of the investments we're making. Where are you investing? Or where are you spending that money?
I put that into three categories. The first one... Those three categories are sort of intentional, non-intentional, if you like, and accounting. You know, the intentional stuff is the exciting things. That is where we believe we have real opportunity to grow, to see flows for the future, to grow in some of those areas that Ali's just talked about. That's primarily, you know, there are people pieces in there. We're investing in new people. There is certainly marketing in there. There is getting out and seeing clients. Our T&E will be higher. It'll be lower than it was in 2019, but higher than it has been over the last two or three years. We're excited.
You know, we'll be doing more conferences, more higher quality conferences, things like that, where we, you know, where we're seeing real interest in talking to our portfolio managers and our broader teams. That's the exciting piece. Like you say, there are, there are two other pieces. One is the sort of unintentional. That's inflation, which is real. You know, particularly in some areas like technology, where you've got contractual contracts, with inflationary uplifts in them. FX as well.
You know, some of that is, you know, as the US dollar has weakened a little bit relatively from its real strength, then that's benefited our AUM and our revenue, but that will increase some of our sterling and euro costs in dollars. So that's the sort of unintentional piece. Like you say, that accounting piece, which is about 40% of the increase, you know, that's real. That's unavoidable. It's good. That again is a very important piece of work that we've done over the last couple of years, that will go live shortly. So we're excited by that, but we have to pay for it now through the P&L, so it's being capitalized.
That unintentional piece and the accounting piece, yeah, they're, you know, they're fixed, if you like. You've got to be even more careful. We really wanna make those investments. We're excited by those investments. We'll continue to look at how we can make sure we're doing those right and how we can be more efficient, in everything else that we're doing.
Liz, I just want to assure you that we're not gonna under-invest.
Yeah. Yes. Thank you. Just the second question is just on performance fees. I mean, obviously we're only a month in, but are you able to sort of characterize how you think the business is placed from a performance fee perspective, whether it be around high water marks or, or, you know, that sort of stuff? Just because the last couple of years we've gone from some pretty sizable performance fees to, in FY 2022, negative. Getting a sense of where we might be tracking potentially in the next year would be helpful in terms of where you're placed.
Yeah. I can help a little bit, but not a lot there. Because as you say, it's very early in the year, and a lot of those are either mid-year or year-end crystallizations. You know, again, to give you the facts, you know, there's two pieces of performance fees to look at. There's the US Mutual Funds, which is about $50 billion of assets, which are subject to performance fees. There you can see they're three-year rolling. You can see what's dropping off. You know, we've got a couple of areas and they're these fulcrum fees. They're negative at the moment. We'd have to add some good performance to improve those.
With flat performance, so you know what's dropping off, you don't know what's adding, but with flat performance you can calculate that we would, or we would expect to see, about $63 million of negative performance fees in 2023, without any alpha. Outside of that there's about $29 billion of AUM with performance fees on it. As I say, that's difficult to predict what's gonna happen. You know, we are in a range of products, and a good number of those are at or above their high water marks. Sorry for not being able to help fully.
Hopefully as we add some good alpha, then those numbers can come in. That will depend on what we do in the year.
Thank you. Our next question comes from Bill Katz from Credit Suisse. Please go ahead, Bill. Your line is now open.
Okay. Thank you very much. First of all, thanks for moving the time of the release for us. That's helpful. Thanks for squeezing me in today. First question, just maybe picking up on the non-comp. If I think about your gross savings and then your net increase in your year-on-year non-comp of mid- to high-single digits, it would sort of impute to a high-single, low-double gross spend rate. A, is that a right way to characterize it? B, if that's correct, I know it's early obviously for 2023, but where are you in the spending cycle, maybe on the sort of intentional spend as we start to think about 2024 and beyond in terms of that non-comp growth rate? Thank you.
As I said, Q4 we were running ahead on saves over spend. Those things will start to materialize more in Q1. That will normalize that. As Ali said, that's really timing. I wouldn't. I think Q4 is a little bit artificial probably is what I'm saying, which is why, you know, you should look at the full year, and that's a mid to high digit growth rate. As we just said on the call with Liz, who probably doesn't agree with you with the call moving by an hour to an hour later. Sorry for our Australian friends. 40% of that is accounting.
As I said, you've got to split that into three pieces. There's the accounting, there's the inflation and FX, and there's the investment. That investment piece, yeah, we're, you know, we've got plans for those. We'll we're trying to get out of the blocks in the right places as soon as we can.
Bill, just to the pure math of how you're describing it, I think that makes sense. If we didn't have the cost savings, our investments would be significantly higher. You mentioned low double digits. That's probably in the right range.
Okay. Ali, just to follow up for you, and thanks for taking the extra question. Now you've had another three months in the seat and making nice progress. As you think about some of the shape-shifting that's going on in the industry, sort of the acceleration of the retail democratization, fixed income over equity, et cetera, maybe non-US opportunity set, how is your thinking between sort of the footprint that sits today and the improvements you can make versus the bolt-on opportunities? What I mean by that is the... The mindset here that M&A may be more important, all else being equal, or is it so you need to see what's under the hood first or a combination of the two? I'm just trying to get a sense on how you're thinking about using that free cash flow.
Thank you.
Yeah. Thanks for the question, Bill. Look, the industry is dynamic, but it's never dynamic in the same direction, or else it'd be easy to predict. I don't think coming under the hood I've seen anything different than what I saw last time we spoke. In fact, if anything, I feel much more confident about our ability to deliver for the current client and the future client needs. Whether it be having delivered the Fuel for Growth savings so far, whether having it be bringing in really strong talent, whether it be some of the early wins we've had in, you know, Emerging Market Debt or JAAA or what have you. I feel much better actually now that I have more comfort with what we have that we are very well positioned.
That solid foundation I talked about way back when is absolutely here, and we're able to grow from it. That doesn't mean that we have everything that our clients want from us, exactly as you described it. We are looking to buy, build, and partner across the board to find areas where we can deliver better service for our clients and our clients' clients, and that may be, you know, investment strategies that we have gaps in. We've talked about some things in the private world, for example. That may be other tools that we can bring to bear to our clients within client service or distribution more broadly. I wouldn't say that the importance of M&A has gone up or down.
I'd say that my confidence in the foundation that we have to buy, build, or partner on top of has certainly gone up.
Thank you. Our next question comes from Nigel Pittaway from Citi. Please go ahead, Nigel. Your line is now open.
Good morning. just wanted to return, if I could, to the comments you'd made on SMid and mid. Obviously you're saying that it was very strong performance in 2022, yet it's still a big contributor to equity outflows. Is that just a matter of time, or is there something else going on that's sort of not really connecting the performance with the flows?
Look, you know, having a product that is a very high quality product does not always mean that you'll be successful financially or from a P&L or growth perspective in those products.
Okay.
There are different drivers, obviously, the two most important of which is that it has to meet up to client demand, and you have to be able to deliver to those clients. Think about step number one. Over the past 10 years, deciding between haves and have-nots, particularly in small and mid-cap, maybe wasn't quite as important because money was free and the have and have-not companies that one would invest in had a pretty good shot of doing okay. The differentiation skill set that we have as Janus Henderson, our portfolio management teams, our analysts, our associates spend all their time understanding which companies are haves and have-nots, kinda less important in the past 10 years.
Now, where money is not free, and doesn't sound like it's gonna be free for a while, differentiating between the good companies and the not so good companies is a skill set that we are extraordinarily good at and will be in high, high demand. It just hasn't been for the past little while. In this location that you've seen in the marketplace, I'm not surprised that our flows would be impacted negatively because it's effectively a baby with a bathwater, so to speak, from a sayings perspective, that you've seen. Going forward, feel very, very confident, very comfortable that our investment teams know how to differentiate the haves and have-nots, and that the market going forward will see even more differentiation between those two groups and create real alpha.
My view is that the client demand will be there. It goes to the second point, which is, can we deliver from a distribution perspective, these products to those clients? Some of our products, certainly the ones in the U.S., were actually closed for a while. They're at their limit from a capacity perspective. They are not at those limits anymore. We have opportunity to deliver them, and we have a distribution force as to some of the earlier questions, in US intermediary and EMEA intermediary, APAC intermediary, that are very, I guess, thoughtfully targeting which clients to bring this to, and can deliver those to our clients that want them. It's both of those prongs. It's a very good question.
Hopefully gave you a little bit of color how we think about things.
Great. Yeah, thank you for that. Just maybe as a follow-up, just, I mean, obviously the fulcrum fees did get raised before, but obviously there are two funds there that are causing the main negative. Is there any sort of hope that alpha will start to be delivered in those funds and reduce the negative, or is that just a matter of wait and see?
Well, your guess is a little bit as good as ours, right? We certainly will try to continue to improve our performance. That's what we're focused on. You can't win every day, every time on every portfolio, but certainly over time, we'd like to improve the performance there. That should fulcrum it back from a fulcrum fee perspective. To be clear, that's nothing that we model or put into our expectations.
Okay. Thank you.
Thank you. That concludes our Q&A session for today. I'll hand you over to Ali Dibadj for closing remarks.
Well, thanks, Emily. Thanks everybody for joining the call today and for your interest in Janus Henderson. I hope you get the feeling that we believe we have a great foundation to work from. We're making thoughtful changes to reposition the firm to deliver better for our clients and their clients, for our employees, our shareholders, other stakeholders. This will take time, but we are on track. Thank you for joining.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.