All right, we'll go ahead and get started. I'd first like to say thank you for joining us today. We have Rob Falzon of Prudential Financial, Vice Chairman. Thanks for being with us. I guess maybe a higher level one to start out with, over the past year, there have been some changes at Prudential in terms of management team, I think some on the growth strategy, investments in the business, et cetera. You've been around Prudential for a long time.
Yeah.
I thought it'd be interesting to kick it off with just your views around what is changing at Prudential, and how you see the company evolving over the next few years.
Yeah. I have been with the company a really long time, I'm about to say something that you should take in that context, which is probably, and it may not be visible from the outside, but from inside the organization, there's probably more change going on in the organization today than there has been at any point in the past, with the possible exception, I would say, of when we demutualized and took the company public. It's a lot. Before I jump into that, let me actually emphasize what isn't or hasn't changed. First, the commitment that the company has to the strategy that we articulated around how we're expanding addressable markets with each of our three principal businesses is a constant. We remain very much committed to that.
To execute that in a way which we have operating outcomes that then marry up with financial outcomes that produce good results for investors is something that we're highly committed to. As we think about that, the things that are changing are around how we execute against that strategy, and in particular, some of the cultural aspects of the organization that need to change in order for us to be able to do that. This is about a strategy where you're trying to be responsive to the customer needs, both with regard to experience and with regard to sort of the type of product and the value of the product that we're providing to them. As we've, in the U.S., increasingly focused sort of our growth on penetrating the middle market, that's a very different set of demands that are coming from that marketplace.
We need to organize ourselves in a way, and conduct business in a way, that allows us to get to that market in a cost-effective basis that gets them the kind of products that they need, and does so efficiently enough that we can get them the right value exchange and make a return on that as well. I'd give an example of that in our life business, Alex. As we look at our current levels of sales, what's happening is 70% of our sales are only generating about 30% of our revenues. That's because as we're pivoting to things, both the combination of a low interest rate environment and middle market needs, you're pivoting to term products, and term products that are going to have lower notional amounts associated with them. The premiums on that are lower.
If that's how the business is shifting, unless we change how we deliver that, we're going to be challenged to either provide that cost effectively to the customer or provide that with the appropriate margin and return to us. As we look at our life business, we've had to look at how do we deliver that type of a product into that marketplace in a completely digital way. Right? That we take costs out of the equation, but also enhance the experience for the customer. If you look at the very front end of that experience for the customer, it's how they buy from us. Today, we have something we call Fast Track, and we introduced that about a year ago.
It allows us to take an application and, virtually instantaneous, we say within a couple of hours, but it's really instantaneous for the vast majority of these things, where 31% now of our applications we can process on that basis. It's artificial intelligence. It does the underwriting, and it approves or disapproves the application right there and then. That's at 31%. We have a capacity to bring that up to about 40%, and what we're investing in then is a capability to actually bring that, in the course of 2020, up to 70% of the sales that we're making. If you sort of think about the implications of that on business system, we need a lot less underwriters. We need more people who are doing data analytics and algorithmic programming. That creates a better experience for the customer because they get immediate response.
We deliver a product that's more cost-effective to them, and we actually earn a good return on that. That's an entire redesign in how we work, both in terms of how we're using talent and how we organize and design around our talent.
Okay, I guess along those lines with the Financial Wellness Expense Initiative, which I think is fueling some of what you're talking about. I think when you talked about it earlier in the year, there was a range of investment that was going to be made, as well as a range of margin expansion benefits
Yeah
that would accrue to you. I would just be interested if you could provide an update on sort of where that stands, how you think the range of outcomes is shaping up, whether it's more accelerated, more back-loaded, and maybe how Assurance IQ plays into that.
Sure. First is just to emphasize the point that the connection to the first part of what I was just talking about, those initiatives are around customer experience and around product delivery. How do we get the right products into the hands of customers, where as we're looking to penetrate the middle market, we need to look at doing that very differently than we've historically done it.
As we talked about that on Investor Day, what we said is that's a program that will incur expenses over the next three and a half years at the point at which we talked about it, so through 2022, that would aggregate to around $600 million-$700 million. That would produce a margin improvement of about half a billion dollars. They would be along the kinds of initiatives very similar to the one that I just gave an example to earlier, but a number of other things as well. Around improving the customer experience, but by virtue of doing that, creating operating efficiencies which lower costs and improve margins for our businesses as well. I think in terms of your question of how we feel about that, I think our level of visibility and confidence for that has only been going up.
In the course of the third quarter, we announced that we had put into place a Voluntary Separation Program. That program wasn't distinct and meant to be separate from anything that we've talked about before. In fact, it was directly linked to that Financial Wellness initiative, that set of initiatives around redesigning business and creating efficiencies. With the idea of that being that we could accelerate the identification of areas where we could create operating efficiencies and therefore get more of the expenses behind us more rapidly, and there have better visibility into the profits that are then emerging to that earlier than what we had originally anticipated.
Not changing the composition, we still think that it's $600 million-$700 million of expenses, it's a half a billion dollars worth of margin improvement, we'll create more visibility on that and the trend line to getting that margin improvement will be a little bit more rapid. Our expectation is that in the next couple of weeks, we'll file an 8-K, as we promised that we'd provide more information that'll give people visibility into sort of how is that plan intersecting with what we talked about on Investor Day in a way that'll create sort of more specificity and visibility on what we talked about back in the first half of the year, and how that's being affected. What I'd say, without previewing the numbers that are associated with that, we're feeling as if we have better line of sight.
We'll have an opportunity to accelerate and create more visibility around the payoffs that are associated with that. With Assurance IQ, that's quite distinct from that initiative. Assurance IQ is our retail now platform, direct-to-consumer platform. We talked about cost synergies that may be what you're alluding to there, Alex.
Mm-hmm. Yep
That are associated with that. That's on top of the half a billion dollars we talked about. As a part of that acquisition, there were probably $25 million-$50 million worth of investments we would've had to make in our financial wellness platform that will now be avoided. That's in addition to the half a billion dollars of margin improvement that we had already identified.
Got it. Okay. Maybe while we're on Assurance IQ, I just wanted to get a feel for how you'd expect this business to improve your retail sales platform, sales over time. Is there any update you can provide around how the integration's going, the timeline over which we'd expect to see financial results that are leading to better sales and progress there?
Yeah. Again, to emphasize, when we looked at that platform, we looked at it as a direct-to-consumer way to get at the middle market in the way that we were getting at the middle market through our workplace platform. Strategy hasn't changed.
Both with respect to Assurance and with respect to what we call financial wellness, with financial wellness being workplace, Assurance being direct-to-consumer, both targeted at being able to get to the middle market. Assurance, frankly, given the cost effectiveness of that platform, we can get not only to the middle market, we can get to the mass market with that platform as well. As we think about that platform, it's sort of the do no harm adage is one that we've put out there. It's doing extraordinarily well on its own. As we're managing it, the last thing we want to do is actually get in the way of the execution against what they've been doing very well to begin with.
What we want them to do is fully earn their earn-out, because if they do that's going to be a good experience for us and a good experience for our shareholders. We're being very conscious of not actually interrupting the growth of the business and the management of the business. Now, having said that, when they first approached us, before we actually began discussions about acquiring the platform, they approached us about getting our products onto their platform. They felt as if their life component of their platform was not as robust as they would like it to be, and they thought someone like us with the brand that we had and some of the capabilities we have would enhance that. We want to fulfill that sort of original desire from both their standpoint and our standpoint.
Our expectation would be that in the first half of next year, we'll have a life product, a life term product on their platform. That'll accomplish, I think, something very significant for them in terms of having that capability. The other part of that is what we have, that PruFast Track capability that I alluded to before, that instantaneous underwriting, we're going to be able to put that onto their platform. Part of what they've suffered from in their life sales is the way it works now is they'll get a customer who buys, but the execution of that purchase doesn't occur for months later because it then goes to one of their insurance providers.
They have to do their underwriting, they have to do the approval, and then it comes back, and they have a large dropout rate between when the customer first says yes, and then by the time they actually get to issuing the policy, the customer sort of changed their mind or walked away.
By being able to put that into their platform as an execution capability right up front, that's going to, we think they believe, substantially enhance their ability to sell more term product on their platform.
Okay. Maybe if I could pivot over to capital deployment on sort of the go-forward basis. Investors are increasingly dependent on cash flow based analysis rather than a lot of the GAAP metrics. Can you discuss the way Pru looks at its capital generation, its cash flow, how much capacity it has to bring cash up to the holding company, and what your strategic priorities are for deploying it going forward?
Yeah. As I think about cash flow and capital deployment, what I would say is past is very much prologue here. If you look at our history, it's one where we've articulated about two-thirds of our earnings translates into free cash flow. As we look at that free cash flow, we've distributed that out in the form of dividends. Stock buybacks, to the extent we've had interesting things to do, like acquisitions or growth opportunities within our business, we've done that. I think that going forward, we have a pretty well, I hope, understood by our investors philosophy with regard to that, and we'll continue to execute against that. With respect to dividends, expect to see our dividends continue to grow in line with how our earnings are growing. We increased it 11% last year.
If you look at the last five years, it's been a 16% compound annual growth in our dividends. It represents about half of our free cash flow, so we have an ability to protect that dividend should things turn down. We don't have to cut it if earnings turn down because it's only a fraction of our total available free cash flow. We've 11 years in a row now increased our dividend. I'd ultimately like to get to 20 years so you qualify for that Dividend Aristocrat index thing or something. It'd be sort of nice. I don't know that I'll be around that long. From a stock buyback standpoint, I think what we've always expressed is that with the remainder of our free cash flow, we look for opportunities to create shareholder value, and sometimes there are opportunities to invest in our businesses to do that.
Sometimes there are opportunities to acquire something in order to be able to do that, like Assurance. Many times it's by returning that free cash flow back to our investors in the form of stock buybacks. If you look at the last five years ending 2018, because I haven't updated my numbers for this year yet, obviously. We've redeployed about $15 billion worth of capital. $13 billion of that would've been a return to shareholders over that period of time between dividends and stock buybacks. That $13 billion, $15 billion is a big portion of our roughly $40 billion of book value. It would've been around two-thirds of our earnings over that period of time as well. As I said, past very much being prologue with what you should expect us to be doing.
Okay. Shifting over to PGIM. Flows there have been pretty strong, pretty stable over a period. Can you discuss the outlook for this business, some of the initiatives that are in place to further this distribution, whether more of that is going to occur domestically versus international?
Yeah. First, to understand PGIM, you have to understand we have, in talking to this audience in particular, we have as an investment management platform, sort of a unique approach to the business. We try to be thoughtful in each of our businesses about strategy and business design, hopefully execute well against that. In the case of PGIM, it's a multi-manager platform. It's a multi-manager platform where we own 100% of the multi-manager. You get the benefit of being a multi-manager in that performance execution well-aligned with compensation and reward, and interface with the investors, combined with having it all wholly owned, and therefore we get the operating efficiencies associated with from a distribution standpoint and from an operations standpoint of having a $1.3 trillion asset under management platform, one of the 10 largest. Within that multi-manager model, it's particularly focused on fixed income.
We're number four globally from a fixed income standpoint. Alternatives, we're number three globally from an alternatives standpoint, with a particular focus on real estate, both debt and equity, and private fixed income. The result of that model, and that particular mix of execution has meant that over the last 16 years, what we've seen is consistent positive third-party cash flows consecutively coming in over that period of time. If you look over the last five years, the fees that we're earning off of our AUM have been pretty steady at 21 to 22 basis points. It's not that we don't see some of the same pressures that everyone else sees in terms of flows. We're an active manager, there's the challenge of active management versus flows going into passive.
What we've been able to do is put into place and continue to put in place a number of initiatives to sort of continue to attract flows into the platform. I would describe those as, one, around distribution. If you look where we continue to invest in our institutional distribution. We've added staff in Europe, and we've added staff in Asia to complement what we're doing in the U.S. From a retail standpoint as well, we now have, I think, 28 UCITS in place and half a dozen ETFs in place. Obviously, the UCITS can be used for both retail and institutional. That's a big investment in the platform from a distribution standpoint. The second aspect of that would be we've invested in and continue to think the growth opportunities from a flow standpoint will be becoming an increasingly global platform.
Today, 70% of our AUM is from the U.S., 30% of it is from outside the U.S. In the U.S., we're doing business with 80 of the largest pension funds in the country, public and private pension funds. If you look abroad, if you look globally and you look at that number, you take the top 300 global plans, we're only doing business with about 160 of them. I say only, that's still a lot, but we have an opportunity to grow that pretty significantly. As we're looking at the growth in the business from a distribution standpoint, we're particularly focused on being able to do that abroad in Europe by virtue of what we've invested in both in retail and institutional, and in Asia, where we have a large presence in Japan, one of the leading actually institutional managers in Japan.
We've got I think $20 billion or something of assets under management in China now as well. We're looking to grow in Asia and grow in Europe. I think the last component of that is as we look to marry that, the idea of enhanced distribution and getting an increasingly global investor base as a way to grow further, we've got to have the right products to do that. We've been introducing funds that generally tend to be higher returning funds, both particularly in the private asset class areas, the alternative asset class areas, but also in fixed income, including hedge funds within fixed income. What we're finding is our appeal to many of those non-U.S. investors is around the higher returning strategies that we can introduce to them.
Our success at doing that not only adds to flows, but frankly, it also is what has contributed to being able to maintain that 21 to 22 basis point AUM fee because while we're getting compression on some of the core things that we've been doing, we've been tracking new flows in that are higher returning and higher fee funds. I think we feel pretty good about the opportunity for us to continue to be a net attractor of flows into the platform, despite some of the macro things that are happening in the industry.
Got it. Maybe sticking with the PGIM. I think you've talked about core margins of around 30% for this business.
Yeah.
I think that is, at least, probably depends on how you calculate it, but a couple points, maybe two, three points better than you've been running in recent quarters. I'd just be interested to hear about is that still the target? How quickly do you think you can get there?
Yeah. I think, as David Hunt has articulated our asset management platform, you have to recognize we're not a passive manager. We're not going to be a 40% margin business, but we can very realistically be a 30% plus kind of margin business, and I think he's been pretty public about that aspiration. If you look over the last several years, we've moved up our margins by 200 basis points over that period of time, while we've been very active in investing in capabilities. As we're getting the payoff of those capabilities, many of the things that I just talked about from a flows standpoint, they're also adding from a margin standpoint.
The combination of scale as we continue to get more AUM and the profitability of the higher return strategies that we're particularly focused on, both in terms of the alternatives we have and the hedge fund fixed income strategies. That's a way in which we could, through both scale and margin, we're able to, I think, continue to realize some upside on our operating margins.
Okay. Maybe changing gears here to the variable annuities business or even fixed annuities. There's been transactions that have occurred to free up capital. Seems like there's a pretty robust supply of reinsurance capital on the sidelines still. Is that something that you consider at Prudential? Is it something opportunistically that you could consider to take advantage of that situation and potentially give yourself more capital to deploy?
Yeah, I guess two headline thoughts on that. The first is, as we look at that annuities book that we have, it's an extraordinarily attractive economic book for us. It's producing high returns. The question I get sometimes in these one-on-one meetings is, "Yeah, but is it real?" And my response is, "Look at the free cash flow that we're throwing off of it." Yes, it's very real. You can see it in the cash flow that's coming off.
It's a high return, high free cash flow, and a very stable business for us. You don't see a lot of volatility in capital and earnings as markets move because of the way in which it's constructed and hedged. We feel really good about that business. That's point one. Point two would be that having said that and every business that we have are ones where we constantly look at how can we optimize our use of capital in a way that can be more accretive to shareholders. Would we be open to a transaction either with any part of our annuities blocks or frankly, our life blocks or our long-term care blocks? We get questions along any of those. The answer is yes, we would be absolutely open to those kind of transactions. We're not driven by things like accounting.
Those are things that are, we've already pretty much advance adopted the accounting. We've already had the accounting that looks substantially like what's coming-
Yeah
at the market from an annuity standpoint. We don't have a particular urgency around either a burning platform or an accounting concern that would cause us to want to accelerate something like that.
It is something that we think we have a responsibility to look at all the time and part of our BAU as we evaluate how do we optimize ROE.
When I think about the growth of the annuities, and just the flows, could you talk about some of the things you're doing to, whether it's on the distribution side. I know a lot of companies have been focused on the wholesaling different channels. Are there things you're doing that make you believe you can get back to positive flows here for variable annuities or just annuities overall?
There are a number of things that we're doing. I'm not sure I'm at the point where in this interest rate environment, I'd put a stake in the ground and say that we can get to positive net flows. Let me break those into two pieces. As we think about our VA platform, we have introduced more diversity in the products that we have there. In addition to the variable annuities and the HDI product that we've been known for, we have a significant now component of our sales that are sort of not equity linked in the same way, or where the returns on that don't have equity risk associated with it. That's been a growing part of our platform. If you look at our overall sales, I think the market in 2018 grew by 12% or something like that. We grew by 40%.
We had very significant growth in our sales. That is, in fact, the benefit associated with having been able to introduce a more diversified product lineup, and expanding our distribution so big into RIAs and IMOs as a way to expand Wirehouse and our captive distribution. I think that those investments have paid off well for us. Now, having said that, from a flows standpoint, what you would see is we have a legacy block of business, a cohort of business, which is very profitable business for us, but we sold it after the crisis, and through that period of time where it's coming off its surrender charge period. What you're finding is that as that surrender charge goes away, we have the combination of higher withdrawals and lapses that are causing headwinds from a standpoint of a net flows.
In 2018, if you look at our quarterly net flows or our sales net of that dynamic, what you would see is that we had net outflows of about, despite the growth in sales, we had net outflows of about a billion and a half dollars a quarter throughout the course of the year. This year, through the first three quarters of the year, we've managed to shrink that, but it's still about $1 billion a quarter in net outflows. That dynamic in terms of the cohort that's coming off, the higher level of sales cohort that's coming off the lapse guarantee period, that goes through the end of 2020. We still have some headwinds in front of us in terms of one more year of that cohort that's coming off of its lapse protection period that we'll probably see some elevated level of lapses.
That'll be mitigated by sales, but I'm not sure we're at the point where we would say we can entirely offset that during 2020.
I guess along the same lines in retirement, how are interest rates affecting the environment for pension risk transfers, and how do you see the pipeline for the full service business?
If you look at our retirement business, we've got a very robust full service business that's doing quite well. We had record levels of flows into that business in 2018, had the largest single case we've ever won in the history of the business in the second quarter of this year, and we continue to see good momentum from a flow standpoint. I think we have a very robust franchise there that only gets better competitively as I think the stakes around scale and commitment go up in that sector. We continue to be a market leader on the pension risk and longevity risk transfers. We were an early innovator in that market. We have a distinctive track record around execution, and that helps us both win business, particularly in the segment that we focus, which is the larger transaction end of the market.
With regard to each of those, on pension risk transfer, what we're seeing is that the immediate pipeline there actually still looks pretty robust. Most companies that are planning to do something like this plan well in advance. It's a year-long type of a process that they undertake, and as they go into that process, at some point early enough in the process as they get committed to it, they in one way or another hedge out the liability. The fact that rates have dropped down fairly significantly has had less of an impact on them, and therefore is not causing them to sort of revisit whether they should proceed forward with the transaction. We see a pretty robust pipeline in the near term associated with those companies that have been in the market and continue to have an interest in executing.
If rates stay where they are, it's less clear what'll happen in, think about it as the second half of next year, in terms of whether that pipeline will continue to recharge, because funding for pension plans went down pretty significantly as a result of the drop in interest rates. That could then cause some hesitation to go into the market when that gap is still that wide until you kind of wait it out to see whether the gap would close or decide that it's not going to close, it could get worse, and so proceed forward. We don't know how that's going to play itself out, so we're a little cautious about the longer-term pipeline, but feel pretty good about what's out there near term. On the longevity risk transfer business, that's being driven for us primarily out of the U.K.
Surge of activity in advance of Brexit. The only thing I can say is everyone's trying to reduce whatever risk or variability they can from outcomes from Brexit, so we've seen a heightened level of activity associated with that. Pension schemes in the U.K. are actually quite well-funded, and so we expect that pipeline will continue to be quite robust. While we've seen some elevation as a result of Brexit, we don't think that it suddenly drops off post-Brexit because there's continued demand and they're well-funded, so they don't have some of the hurdles of lower interest rates that we have here in the U.S.
Okay. Maybe if I shift over to international, I guess Japan specifically. I think some of the spend that occurred this last quarter, it was referenced that there was some infrastructure that was built out and maybe some of it had to do with regulatory oversight, et cetera. I'd just be interested to hear general regulatory update, if anything that was kind of fueling that spend will flow through to what we'll see in terms of sales. Then if there's any kind of update around capital and what drives your cash flow in JFSA.
I would say that if you think about the JFSA's activities, they have been going across the industry, and I think doing a more in-depth review of sales, both products and practices. We have always maintained an extraordinarily good relationship with the JFSA. We've been role model in many areas, and we want to continue to enjoy that kind of relationship. We're making investments in order to stay in front of the curve on that and to continue to be sort of representative of best in class in that from a sales standpoint. I think from that standpoint, we wouldn't expect that to have any material impact on how we think about actual sales. It's more about the investments we're making in infrastructure and controls around our sales.
On the capital side, what you've seen is the JFSA is looking very closely at what's happening on the international landscape with the IAIS, so the International Association of Insurance Supervisors, and something called the ICS. Everyone may be aware of that, so the International Capital Standard. What we're seeing is that Japan has an interest in putting in a more economically sensitive capital construct in lieu of the current solvency regime that they have. They're going to do that very slowly and very carefully. They're taking guidance from the ICS. We expect that they will adopt some version of the ICS as a group capital construct, and we also expect that that will have some not insignificant influence on what they do from a local solvency regime as well.
The timing of that is likely to trail the IAIS as opposed to get out in front of it, one. Two, it's likely to also have adjustments that reflect the way in which insurance is written and managed in Japan as well. They have different mortality and morbidity risks. They have a different capital markets than like we have here in the U.S., and all that needs to get reflected in that regime. The JFSA has been very vocal about pointing these things out in the international community. Many of the things they have pointed out have actually been adjusted in the latest version of the ICS that was exposed in Abu Dhabi just in this last month. Not all of it. It's hard to say exactly what's going to happen there other than I think they will move to something that's more economically motivated.
I think the takeaway for us is simply that we've always managed our business from a capital standpoint with an economic model in mind, and that we would expect that whatever they come up with, so long as it's some sort of regional regime, would reflect sort of the robust way in which we're already managing to an economic model. We don't feel threatened in the JFSA shifting to a more economic model. We think actually the strength of our reserving and capital would be as transparent under that regime as it is under the existing regime.
Got it. Maybe I'll stop there and see are there any questions from anybody in the audience?
Can I ask a couple of follow-up questions on pension risk transfer? One is, what are the most important skills to be able to do this business? Is it on the investing side or is it more about analyzing the particular characteristics of the pool of pensioners in terms of longevity or whatever?
Yeah.
The second question is, has competition in this business changed and is the expected return dependent on the size of the deal? Presumably, as the deal size gets bigger, there are fewer people you're competing against. That's the sort of second question.
Yeah. In terms of the skills and analysis that's differentiating there, what I would say is in the segment in which we compete, which are the larger transactions, the ability to underwrite is critical because what we do is Smaller transactions, you're going to use tables to approximate what the experience is going to be for that, and you see that happening all the time in the smaller transactions. With the larger transactions, the benefit is that you actually get real data and the equivalent of hundreds of years worth of data in many instances, and that allows you to build your own actuarial models around that experience in order to be able to price it appropriately.
The underwriting for larger transactions becomes significant and can be a competitive advantage to the extent that you have insights under that underwriting that others do not, depending on what the nature of the employee population looks like. Equally important is the ability to invest and to match that up with a class of assets that can then fund that in a competitive way. We think that it needs to be high quality. We continue to maintain the portfolio there. If you look at the portfolio that backs our pension risk transfer, it looks much like the portfolio that backs the full general account. It's a single A on average. The ability to put things like private placements and mortgages that seem credit quality but get higher yielding make you more competitive in the marketplace.
The third piece of that that I think is important is also the ALM discipline outside of just the construction of the portfolio from a credit composition standpoint. It's being able to be very disciplined about how you match up the early year cash flows and then the key rate durations of the liability against the asset portfolio. It's a business in which you can remove a lot of interest rate risk if you're smart about how you manage it. It's also a business in which you can assume a lot of interest rate risk if that's the way in which you're going to try to get competitive in the marketplace and to take that risk. We've always taken an approach of fully immunizing to the extent possible the rate risk that's embedded in that block of business.
There was a second part to your question that I've now forgotten. We believe that our ability to differentiate on the larger deals is significant. What Phil Waldeck, the former leader of that business, now he's heading all of our U.S. businesses, as I said before, is that, I think when he gave this quote, he was referring to 2018, but I think it still pertains today, 80% of the business that we looked at, we got last look. We didn't win all of that business, but we got last look. We got last look because we were viewed to be highest quality provider counterparty on it. 50% of the business we won, we did not win because we were the lowest cost provider.
We know that in half the business we booked, there were actually a competitor out there, one or more competitors that were out there with more aggressive pricing than we provided. I think the answer is that it's competitive. We've seen the returns we earned on our earlier deals versus the returns we're earning today, all still above our target rates and above our cost of capital, but we earned excess returns, obviously as a first mover in the market than what we're earning today. It has become more competitive. We're able to continue to differentiate ourselves and get attractive returns based on the quality of the platform that we have. That hasn't entirely gone away. I think as you go down the spectrum of deal sizes, it gets increasingly commodity-like and some of that differentiation is less compelling to the counterparties.
Okay. Well, we'll stop it there. Thank you everybody. Thanks for joining us.
Thank you. Thanks very much.