Janus Capital Group Management Discusses Q4 2012 Results - Earnings Call Transcript

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 |  About: Janus Capital Group Inc. (JNS)
by: SA Transcripts

Janus Capital Group (NYSE:JNS)

Q4 2012 Earnings Call

January 24, 2013 10:00 am ET

Executives

Richard Mac Coy Weil - Chief Executive Officer, Director and Chairman of the Executive Committee

Bruce Lewis Koepfgen - Chief Financial Officer, Executive Vice President and Member of Executive Committee

Analysts

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Steven M. Truong - Barclays Capital, Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

William R. Katz - Citigroup Inc, Research Division

Matthew Kelley - Morgan Stanley, Research Division

Operator

Good morning. My name is Melanie, and I will be your conference facilitator today. I would like to welcome everyone to the Janus Capital Group Fourth Quarter and Full Year 2012 Earnings Conference Call.

[Operator Instructions] Before the company begins, I would like to reference their standard legal disclaimer, which also accompanies the full slide presentation located in the Investor Relations area of janus.com. Statements made in the presentation today may contain forward-looking information about management's plans, projections, expectations, strategic objectives, business prospects, anticipated financial results, anticipated results of litigation and regulatory proceedings and other similar matters.

A variety of factors, many of which are beyond the company's control, affect the operations, performance, business strategy and results of Janus, and could cause actual results and experiences to differ materially from the expectations and objectives expressed in their statements. These factors include, but are not limited to, the factors described in Janus' reports filed with the SEC, which are available on their website, www.janus.com, and on the SEC's website, www.sec.gov. Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made.

Janus does not undertake to update such statements to reflect the impact of the circumstances or the events that arise from the date these statements are made. Investors should, however, consult any further disclosures Janus may make in its reports filed with the SEC.

Thank you. Now it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Capital group. Mr. Weil, you may begin your conference.

Richard Mac Coy Weil

Thank you, operator. Welcome, everybody. Thank you for joining us for the fourth quarter and full year 2012 earnings presentation. As usual, I'll start and talk a little bit about the quarter and the year from my perspective, and then turn it over to Bruce Koepfgen to go into the financials in more detail.

From my perspective, if you look back on the full year 2012, the most important thing that we do is deliver investment performance for our clients. In 2012, we had, particularly on the Janus domestic platform, an exceptionally strong year. 100% of our Janus domestic equity funds outperformed their benchmarks in 2012 and finished in the top half of their peer groups, the Morningstar peer groups.

70% of the global equity Janus funds outperformed their benchmarks in '12 and finished in the top half of their peer groups. This was obviously a much-needed strong year from the Janus equity platform in the face of what is still some medium-term underperformance.

Looking back on how that played into our distribution in the marketplace, while we experienced net outflows in some of our largest strategies that were dragging some medium-term negative performance, the Janus Triton debenture and the flexible bond funds were all top decile net flow gainers in their respective Morningstar categories, confirming I think that when we gave our team strong results in important categories, they can deliver excellent flows.

I think we did a very good job remaining financially disciplined while continuing to invest in the long-term growth of our business. Despite challenging conditions, we continue to invest in our strategic initiatives. The full year operating margins were 25%. And while this is below our long-term aspirations, it represents our strong commitment to balancing financial discipline with continuing the strategic agenda, as we've talked about in prior quarters.

We continue to make progress in our long-term strategic vision in 2012. I think we did make strategic -- a significant progress on the strategic initiatives. And obviously, there's a particular happiness and some pride around the new relationship with Dai-ichi Life, which is a big step forward for us in a number of ways that we discussed previously.

Lastly, I want to reference the fact that our balance sheet continues to strengthen. Our liquidity position is as strong as it's been since the end of 2007, with nearly $390 million in cash and cash equivalents and another almost $340 million in marketable securities.

Over the last 5 years, we have reduced our outstanding debt by more than 50%, and our next meaningful maturity is about 18 months away.

During 2012, we generated approximately $209 million in cash flow from operations despite the difficult conditions. So I think our financial discipline is playing through into the balance sheet in a very positive way. And we're -- as you know, that's very important to us, and we're pleased with that.

With those comments done, I'll turn it over to Bruce Koepfgen.

Bruce Lewis Koepfgen

Thanks, Dick. Good morning, everyone. The key takeaways in the fourth quarter would include continued improvement in our 1-year investment performance, a decline in total company net flows, growth in revenue driven by separate account performance fees and increase in operating margin and year-over-year improvement on our balance sheet.

Starting on Page 6 of the deck, earnings per share for the fourth quarter was $0.17, compared to $0.14 in the third quarter. Fourth quarter earnings per share included a $5 million noncash charge, equivalent to $0.02 a share, due to an impairment of intangible assets related to the redemption of one sub-advised account.

Fourth quarter average AUM were $155.6 billion, was virtually flat to the third quarter driven by market strength, offset by net outflows. Revenue of $216.6 million increased 4%, mostly due to an increase in private account performance fees. Operating expenses of $158.6 million declined 2% due to lower compensation expense, offset by the $5 million impairment charge I just mentioned. Operating income of $58 million improved $10.1 million, reflecting higher top-line revenue and lower expenses.

Lastly, the operating margin for the quarter was 26.8% versus 22.9% in the third quarter.

Before I get into investment performance, you may have noticed that we switched to showing performance using Morningstar peers as opposed to Lipper. We have been using Morningstar performance in communications with our clients for a period of time, and we wanted to be consistent in all our external reporting.

During the transition quarter, we have provided the Lipper rankings as well on pages 24 and 25 of the appendix, and you will see that there are minimal differences between the 2.

As of year end, 68% of our fundamental equity assets were performing above medium, the Morningstar peers, on a 1-year basis represent -- this number represents continuing improvement, and is up from 47% of assets at the end of 2011.

While we're pleased with these results, we, of course, remained focused on improving long-term performance. Fixed income performance continues to be positive, with the majority of the assets in the top 2 Morningstar quartiles over 1-, 3- and 5-year time periods. And our mathematical equity strategies continue to beat their benchmarks' overall time periods.

Total company long-term net outflows of $3.6 billion increased from $2 billion in outflows in the third quarter. Taken in their respective parts, fundamental equity posted fourth quarter net outflows of $2.7 billion versus $3.3 billion in the third quarter. The improvement was driven primarily by lower redemptions.

We continue to see demand for passive and fixed income strategies, which is resulting in headwinds for this area of the business. Mathematical equity strategy has had net outflows of $1.6 billion, compared to net inflows of $300 million in the prior quarter.

As you may recall, the third quarter included a $1.7 billion mandate win. Please remember that quarterly variability poses typical in the institutional business. INTECH, along with many of its large cap and mathematical quantitative peers, continues to experience a challenging environment for active U.S. equity.

In our fixed income business, net sales remained positive for the 16th consecutive quarter at $700 million. The decrease in quarter-over-quarter flows was consistent with overall market trends. We saw aggregate industry bond inflows decline approximately 25% in the third to the fourth quarter. We continue to capture market share. We remain optimistic about the prospects for this business, in both the retail and the institutional channels.

Total revenue increased by 3.6% in the quarter due to higher private account performance fees. Revenue for private account performance fees was $8.3 million in the quarter, compared to $2.1 million in the third quarter. The fourth quarter includes $6.7 million in performance fee revenue from one institutional account.

At the end of this quarter, this account converted from a performance fee structure to a fixed management fee. Therefore, we won't see performance fees for this particular account in the fourth quarter of 2013.

Performance fees on our mutual funds were negative $21.9 million for the quarter, which was slightly better than last quarter. However, as we have said previously, due to the 3-year nature of the calculation, we expect this level of negative performance fees to continue for the next several quarters.

Fourth quarter operating expenses decreased by 2%, compared to the prior quarter. Employee compensation declined $5.7 million, primarily due to lower compensation for senior executives and management's decision during the quarter to pay a larger portion of variable compensation in stock versus cash.

The quarterly compensation-to-revenue ratio was 30% and the full-year ratio was 32%, both within the expected range we have discussed over the course of last year.

Marketing and advertising increased $1.9 million, mostly due to seasonal advertising spend. As mentioned earlier, depreciation and amortization increased versus the prior quarter as a result of a $5 million impairment charge related to the redemption of a sub-advised account.

Finally, let's just take a minute on the balance sheet. We generated healthy cash flow of $209 million from operations for the year, and our balance sheet is in the best condition it has been in, in 6 years. Additionally, we reinvested in the business by providing $58 million in seed capital to new products.

Lastly, over the past year, we have talked about our capital deployment. So it makes sense to summarize our capital planning process once again.

First, as a general principle, we believe preserving liquidity and financial flexibility is critical. Second, we set aside capital for contractual obligations. Third, we look to deploy cash strategically in the business to drive future growth. And finally, we consider return of excess cash to shareholders.

During the year, we returned a total of $137 million of capital through $65 million in early debt retirements, $54 million in dividends, including an acceleration of our fourth quarter dividend through December 31, and $18 million through the anti-diluted stock buyback program.

That's all I have, and I'll turn it back to Dick for a few finishing comments.

Richard Mac Coy Weil

On Page 13 of the presentation, just a couple comments on looking forward. It's very confusing with what I've told you before because our strategy hasn't changed. We continue to seek to pursue intelligent diversification, while strengthening the core of the company. Again, the most important thing we can and should do is deliver strong long-term investment performance that will remain our absolute #1 priority. As I said, we made some important progress in the past year, but there's still a lot of wood to chop there. Number two, we've got to build a more client-focused organization. We compete not only on the basis of investment performance, but also on the basis of reputation and client service, and we need to continue to raise our game in those areas. Number three, the intelligent diversification, expand and diversify our investment capabilities to be more useful and helpful to our client base. And number four, we have constant pressure on maintaining financial discipline, while continuing to fairly reward people and invest in our long-term strategic initiatives. We have excellent people here at Janus. I think we're on the right track. The results have not been what we would have liked yet, but I think if we continue to stay true to our past, we're positioning the firm for future success. And that's what we're going to continue to do.

With that, I would open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Robert Lee with KBW.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

First question I have is, I guess of my 2, is can you talk a little bit about at INTECH, I think you mentioned in the presentation that while certainly sales have further been tough that you continue to see more interest outside the U.S. and their strategies. Can you maybe give us a little bit more color on, if that has actually translated into any sales yet or how we should be thinking about that? Or I mean, is there an actual kind of RFP pipeline that's kind of built there? I mean, any kind of -- and of greater color on that, I think would be helpful.

Richard Mac Coy Weil

Thanks, Robert. I think that's a great question. INTECH is experiencing some pretty strong investment performance. I think 87% of the firm's strategies were outperforming their respective benchmarks on a 3-year basis, once again confirming something we've talked about in prior quarters, which is their investment process works. It's valuable because it is differentiated. It's risk-controlled and it's liquid and proven over decades, and not particularly capacity-constrained. So I think they have a very valuable process, and they're doing a good job. They've been through some tough waters. A, clients, institutional clients in their marketplace have been reducing their exposures to equities in general over the past couple of years. Second, there has been a particular focus on active equity. Third, there has been a particular negative focus on quantitative managers. And fourth, during some of that period, they had put a pretty modest, but medium-term underperformance for a little while in that period, and a penalty function for that was particularly severe. So they've been through some rough roads, and we haven't seen the turn yet in the net flow numbers that we're reporting. However, I think their process is coming back more into favor. I think people talked about this potential for a great rotation back in equities. We believe it's inevitable, but we don't believe we can predict when it happens. There were some green shoots in the first quarter of last year, there's some green shoots again in the first quarter of this year, but how those things grow and on what best is not something I can predict for you. But it is inevitable that there will be a great rotation back into equities, and I think INTECH is very well-positioned to capture a lot of its -- a lot more business in that environment. So we're not declaring a victory or success by any means. The numbers have still been bad on the net flow front. But it's an excellent firm with an excellent process, and we're very optimistic about its medium and long-term future goal.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

And maybe as my follow-up, could you maybe give us some color on this quarter, whether any kind of assets that you gained from Dai-ichi, and maybe remind us of kind of what your expectations are as it relates to lease -- no, asset gathering from Dai-ichi, whether it's off their balance sheet or different products that they sell over the coming quarters?

Richard Mac Coy Weil

Sure. Well, as you know, Dai-ichi committed to invest about $2 billion of its own capital with us in a range of things. They are about 25% of the way there, at this point a little bit more in equities than in fixed. And we would expect that they'd get fully invested over the next -- over this year essentially. That, with respect to the first part of your question, which is their own money. In terms of what they're able to help us do in the marketplace in primarily in Japan in the first instance, primarily through their 50%-owned affiliate, DIAM. We manage currently about $925 million in assets for DIAM. That has been a substantial positive that certainly Dai-ichi Life has made material contributions to already. We're looking forward to growing the size of that relationship on a go-forward basis, but it depends. It's not by any means entirely in our control or in Dai-ichi Life's control or even in DIAM's control because DIAM distributes through banks and other folks in Japan. And so, we're going to put our shoulder to the wheel and try hard to move that forward as well as we can, but it's not really possible to give you a prediction on how that looks going forward. It's only possible to say it's already a significant success, with $925 million of assets being managed for DIAM, and that we're looking forward to increasing that with Dai-ichi's help over time.

Operator

We'll go next to Dan Fannon with Jefferies.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

I guess just first on the expense side. Bruce, if could you remind us kind of, is the comp ratio that you kind of have laid out last year kind of similar as we look at going forward into '13? And then also maybe characterize your budget on the nondiscretionary side, if you can compare that maybe versus a year ago?

Bruce Lewis Koepfgen

Yes, let's start with compensation. I think during the course of the year, we pointed out that we are -- we basically run a compensation model relative to the financial results of the company. That can vary from quarter-to-quarter. But I think we've -- as you look at the percentages that we've had during the course of this year, that is a pretty good guide for 2013. So I wouldn't let the changes in the fourth quarter disrupt that expectation.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Okay. And then on the kind of more discretionary side of the business, as you look at kind of this year versus last year?

Bruce Lewis Koepfgen

No. That's a great question. I think we've made the point over the past number of quarters that the management team here, we believe, has been very disciplined in the containment of cost. And our primary focus is on making sure that we have the resources that are necessary to pursue the strategy that Dick and the executive committee have outlined for the firm. And so, I think we've seen a significant success in that regard. We've been able to continue to pursue that agenda and contain cost. There is still a great deal of vigilance on that. As we've mentioned, there is a limit to how far you can go in constraining some of these fixed costs, but we still have a keen eye for it, where we can delay or reduce expenditures in favor of our strategic agenda. So that's pretty much where we are.

Daniel Thomas Fannon - Jefferies & Company, Inc., Research Division

Okay. Then, I guess just one more on the cash and the building the cash -- you've laid out your priorities and kind of how you're thinking about your capital, but I guess would you anticipate this year being heavily shifted more towards one versus the other, given you continue to see your cash position build?

Bruce Lewis Koepfgen

I think our position there for the time being is unchanged. We think there's still a great many uncertainties in the marketplace. We've chosen to take a cautious approach to managing our balance sheet. As I mentioned before, we think it's in the best shape it's been in a number of years. And so, we will continue to manage that conservatively. I don't expect any changes in the way we've done it in the near future.

Richard Mac Coy Weil

If I can just jump in there. This is Dick Weil. We've talked about this, but not probably for maybe more than a year. Part of the reason that it's so important that we run a strong balance sheet is because we need to build long-term, strategic relationships with our clients. In that process, we can't have them worry about our stability; when there are markets gyrations they need to know that we are stable and focused on their needs, not unstable and focused on ourselves. So for clients and prospects, it's very important that we have a constant, stable presence as their partner. Second, for employees, you simply can't be a good partner for employees through the volatile market cycles unless you have a stable base from which to operate, that they can be confident in. They're trusting us with their careers, and we have to be good for that trust. So for these reasons, it's strategically very important to us to maintain a strong balance sheet. That said, we accept and believe passionately that it's our job to generate positive cash flow and ultimately start returning that to the shareholders. We've given you the hierarchy we used previously. We want to make sure we take care of the business needs first. We have some security, first. We invest in our strategic needs, second. And then, we go down into returning shareholder capital. And as Bruce outlined in his comments, we've done a lot of that in this past year, and we'll continue to look to that. But we do that looking from a conservative framework for the reasons I outlined.

Operator

We'll go next to Cynthia Mayer with Bank of America Merrill Lynch.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Maybe just to clarify a little bit on the sub-advised redemption. Can you give us some color on that? Was that an INTECH redemption or a fundamental equity, maybe a sense of the size? And overall, in terms of sub -- go ahead.

Bruce Lewis Koepfgen

No, it's -- it was a Janus sub-advised account. I mean, you may recall from some past comments going back to 2002, we ascribed intangible value to some of our sub-advised accounts and have been amortizing those amounts since then in the case -- in this case, and which was similar to the third quarter. We had a redemption of one of those accounts. And so, at that point, we realized the remaining balance. I think it was $2.5 million last quarter and $5 million this quarter.

Cynthia Mayer - BofA Merrill Lynch, Research Division

So no more to go on that?

Richard Mac Coy Weil

Well, so the remaining amount is relatively small, about $2 million. So the bulk of that is behind us.

Cynthia Mayer - BofA Merrill Lynch, Research Division

And if we look at your overall assets at this point, can you give us a sense of how much is still sub-advised, and which strategies those are focused in?

Bruce Lewis Koepfgen

We -- Cynthia, we really don't provide that level of detail on the accounts, sorry.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Okay. So maybe just stepping back and asking a question on your alternatives platform and seed capital. If you look at new products like low volatility, global flexible bond, alternatives, how aggressively can you market these? How many of these have 3-year performance records at this point? And should we think of these as products in waiting for say, 2014, or things that you will be marketing right away?

Richard Mac Coy Weil

Thanks. Cynthia, this is Dick. Thanks for the good question. The path for each is pretty different. The strategic or the competitive context for each is pretty different. So in global bonds, we have more of a track record, but it takes more of a track record in that space. It's an established asset class with established competitors, and it takes some time for that to build momentum in most of the channels, particularly institutional channels. So we're further down the road there, but it also is a longer road. In the case, for instance, of our new diversified alternatives fund, it's a pretty new asset category. It's a pretty new opportunity set. There aren't many folks in the world that have long-established track records. And what it is also is essentially an asset allocation across component parts. Each of the component parts can be analyzed separately with pretty well academic -- pretty well-known academic and practitioner research around what those track records are. So it's probably a faster takeup than the traditional 3 years plus for a product like that. Similarly, INTECH's low volatility, it's a newer asset category. It builds off the same consistent expertise and approach they've had for decades. We think that's a faster takeup. So these things are hard to predict, and they're quite different on a product-by-product basis.

Operator

We'll go next to Ken Worthington with JP Morgan.

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Maybe first, Dick, I'd love to hear your thoughts on retail investor engagement in equities. And maybe, is there data that you're seeing either in the industry or Janus that leads you to believe that either investors are migrating back to reengagement or maybe not heading in that direction just yet. And then you mentioned kind of green shoots, I think with regard to INTECH. But are you seeing kind of any green shoots or leading indicators on the more plain vanilla equity side of the business?

Richard Mac Coy Weil

Ken, I guess I was referring to green shoots, not just with respect to INTECH, but with respect to equities in general. I think there are green shoots appearing with respect to increasing equities in retail and institutional increasing interest in equities. And that wasn't specific to anything in particular. That was a general comment. That said, there were also green shoots a year ago and look what happened in the second and remainder of the year, the second quarter remainder of the year. So we're cautious about calling the great rotation. What we're not cautious about is describing the fact that it's absolutely essential and it's going to happen. Given where bonds are, people simply cannot meet retirement needs. Institutions and individuals need more equity investing to get where they're going. So it's going to happen. The question is when. And again, I don't have my magic 8 ball to answer that one.

Steven M. Truong - Barclays Capital, Research Division

Can you just flesh out what the green shoots you're seeing, just to give us a better sense?

Richard Mac Coy Weil

Yes. I'd rather not get too specific. I think we all probably read most of the same publications. We see most of the same industry data. We see -- I don't think that I have a particularly uniquely insightful data set compared to the rest of the world. There certainly has been increased interest on the retail front and in meetings, consultant interest, et cetera. I think we see institutions expressing increased interest in that. That's not just vis-a-vis our firm. I think that's marketplace information in general. I don't see that I have a particularly special data set. I think we all see the same things. I'm just cautious about drawing lines from small number of data points. We'll just have to wait and see whether that persists. I think the road forward looks better, but we live in a world where there are potential upsets from broken political processes in the U.S. and in Europe that have the potential to derail the current kind of nicer road.

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Okay. And the on INTECH, just can you talk about RFP activity since Jennifer's departure? Has that had any impact? Are things kind of consistent with before her departure or has RFP activity slowed down? Like is there any reaction to her leaving?

Richard Mac Coy Weil

To my knowledge, we haven't lost any clients due to that change. But certainly, the clients are watching us carefully to make sure that they understand the change and the impact, and that the firm remains stable and productive as it has been. But we haven't noticed any significant disruption in the business as a result of that. I guess, sorry, just to finish my answer to that last question, the main point of that transition is it doesn't affect the investment team or the investment process. There's been no change in the way -- in the folks we're managing the money or the way that they're managing the money, and that is the primary concern properly of those clients. So far, it hasn't been a major disruption.

Operator

And Mr. Irizarry, your line is open.

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

So just on the comp break, how should we think about the level for '13 here, sort of 32%? Is that sort of the right range to think about? And then also how are deferrals playing into the way you're thinking about compensation? And how should we think about maybe the way the LTI sort of rolls into the comp line?

Bruce Lewis Koepfgen

Okay. So not to cover old ground, in the fourth quarter, we -- there was a decision that was taken, that the compensation for some senior executive should be reduced in alignment with economics of the business. And what was the other point that I was going to make here? And so, for comp rates for -- oh and I'm sorry, then there was one other component of that, which was the decision by management to reward some in the firm with stock as opposed to cash. As you think about the comp ratios going forward, I think the ranges that have been established in 2012 are probably appropriate guideposts. So those have been firmly within the range of 30% to 35%. Based on everything we know today I would suggest that those are probably good working numbers.

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Okay. And just can you just remind us on the LTI? How that sort of folds into the comp mix, if you will?

Bruce Lewis Koepfgen

Sure. Without specific guidance, I think we've provided an appendix page here that kind of identifies the existing LTI awards, Page 21. As a general statement, I would say that the current levels of LTI are indicative of what they will be going forward. Although I think you will probably see a slight reduction going into 2013 just because there will be slightly fewer awards that are being expensed. And if I had to frame that, it would probably be, I think, the $14 million to $15 million range. So if that helps you think about LTI going through 2013, that's kind of the answer.

Operator

And we'll go next to Roger Freeman with Barclays.

Roger A. Freeman - Barclays Capital, Research Division

I guess my 2 questions, just around performance fees. One, how -- regarding the one that you mentioned, it's been converting from performance fee to fixed management fee. How easy is it for clients to do that? Are those predetermined agreements or can they just kind of come upon you? And then the second question would be, just looking through the performance fee detail, I'm just curious on Perkins' mid-cap value. The relative performance versus peer has been improving, but the negative performance fee increase in the quarter is -- looks like that is the function of the benchmark that deteriorated versus that?

Richard Mac Coy Weil

On the first point, the private account side of the business, we're happy to serve clients in a fixed fee or performance fee framework depending on their needs and interest, and we offer both. And we structure them in a way that we're quite pleased to have the relationship in either format. So it is easy for a private side client to come to us and say, "Gosh, I'd like to talk to you about converting from one kind of fee format to the other." And there isn't a big hurdle or impediment to that process. It's better to do it at the end of the performance measurement period rather than deal with step periods. But other than that, it's pretty easy to do. On the mutual fund side, obviously, it's much more structural-institutionalized. It's determined by the mutual fund trustees and cannot easily be changed, which leads to the next part of your question around performance fees at Perkins. There hasn't been a significant change in the math around the performance fees at Perkins. It varies a little bit with the trailing asset calculation, and that's primarily the source of change. But the rate, the fee rate that they are experiencing is pegged at the bottom end of that range pretty clearly, and has been and will continue to be until they demonstrate better performance fees at the index in line with the formula for performance fees for that fund.

Bruce Lewis Koepfgen

Just one other point on that is because of the 3-year nature of that look-back calculation, you won't see the changes take place quarter-to-quarter that you might expect, just based on 1 quarter performance change.

Operator

We'll take our next question from Michael Kim with Sandler O'Neill.

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

First, just to follow up on the capital management front. Some debt that comes due next year, I know it's still a ways off, but just wondering how you're thinking about potentially just wanting that roll-off to continue to strengthen the balance sheet, like you talked about, versus maybe refinancing, just giving the kind of the current rate environment?

Bruce Lewis Koepfgen

As we sit here today, Mike, I would say that our expectation is that we will just pay that off when it comes due. We clearly have the balance sheet strength to do it. It's one of the things that we contemplate when we determine how we should manage our balance sheet. And so, my expectation is that we will just pay that amount in ordinary course. The opportunities were -- we've bought in as much of that as we really can at reasonable rates. And so, my expectation is that the best way to do that is just let it mature.

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then second, any kind of change in thinking as it relates to investment spending now that the macro environment seems a bit more constructive? Any initiatives from a product standpoint or on a distribution front that may have been kind of set aside in the past that you're maybe starting to come back to at this point?

Richard Mac Coy Weil

I think our first priority is to adequately resource and invest in the existing businesses rather than grant new projects. We want to make sure that we're given the team that we have, the best tools and the best opportunities to deliver the goals that we've set out. We're not currently contemplating major investments in sort of new expansion areas. That said, that's as of this moment. That's the snapshot, and these things change with time, and we analyze these things on a regular basis. So we don't know how that will look in the future. But as we sit here right now, we don't have any big investment plans other than maintaining a good level of resource for the existing work.

Operator

We go next to Bill Katz with Citi.

William R. Katz - Citigroup Inc, Research Division

On the $7 million benefit from the account conversion this quarter, was there any expense against that?

Bruce Lewis Koepfgen

Bill, no, I don't believe so.

Richard Mac Coy Weil

Compensation, a little bit, but no. Compensation would be the only significant one.

William R. Katz - Citigroup Inc, Research Division

And would that be a typical 30-somewhat percent against that or no?

Bruce Lewis Koepfgen

I think we haven't given a specific percentage, so we probably can't answer that. But it fits into our regular compensation framework.

William R. Katz - Citigroup Inc, Research Division

Okay. Second question for you, so a 2-part. One is as you look at the performance improvement in '12, is there anything that you could point your finger toward that was really driving that? And then the board question is, let's just say those green shoots turn to a more pronounced turn, do you think you're positioned to capture any of that share?

Richard Mac Coy Weil

On the first one, I think it's a combination of factors that led to better results in 2012 looking first at the external factors. In the post-2008 period, we had and have talked about with you on quarterly calls, really high correlation amongst U.S. stocks. In an environment where correlations amongst U.S. stocks, and we define that as sort of the number of stocks moving the same direction on the same day, when that reached sort of 1937 level highs, it's a terrible environment for active management not just for what we do, but for others. But in particular, for high conviction, high active share managers, that's a really rough environment. So the post-2008 crisis period was particularly unfavorable for active management. That's changed. Correlations amongst U.S. stocks come way down. And in the past year, it's been a much more constructive environment for active management. That has some, and we expect that, candidly, going forward. As we discussed last year, we didn't think that correlations were going to stay at extraordinary high levels because, a, it hasn't in history; and b, there's a logical reason why pressure builds up the longer that persists. And eventually, individual company results drive stock prices. So we have seen an improvement in the environment, which we expected, but we carry around this legacy that passive looked really good for the past couple of years, and I think that's going to be a challenge for all active managers. For forward-thinking investors, I think there's a lot of reason to believe that active managers are now going to have a really good period, vis-a-vis the past of indices because of these correlations. So that's the external environment. The internal environment, as Jonathan Coleman and the team at Janus made some significant changes to focus people on a more rigorously defined set of tests and style definition, product-promised definitions, better alignment with analysts. And these sort of internal more technical steps, I think, contributed to the outcome as well. So it was a combination of factors that led to better results. We think we have great people. We think they're very capable, particularly in markets that have reasonable correlation levels of generating consistent outperformance over the index. And we're very optimistic about continuing to build on the success we had in 2012, but there's still a lot of wood to chop.

William R. Katz - Citigroup Inc, Research Division

And just in terms of positioning, if it flows to where -- recover one of your peers, who saw a spike to track record as well, so hoping that bit of delay in that recovery. But if recovery's here and now, where would you see the greatest lift to your franchise? Just give me some of the short-term trends?

Richard Mac Coy Weil

Hard to predict, but our Janus Forty platform, our concentrated growth platform at Janus had a particularly strong year last year, and I think would benefit in one place. But all of our domestic equity products would benefit in that environment, institutional and retail. INTECH would benefit in that environment, also Perkins. The whole complex has a heavy weighting in equities. And I think broadly speaking, they'd all benefit from that kind of a more constructive environment.

Operator

And we have time for one more question. We'll go next to Matt Kelley with Morgan Stanley.

Matthew Kelley - Morgan Stanley, Research Division

Dick, if I can just quickly come back to the investors getting more interested in equities again. I guess I'd ask a 2-part question. A, is -- are institutions ahead of retail is your sense? And I know we're only 3 weeks into the year. And b, what sort of funds, fund categories are you seeing most in demand among equities for either of those subsets?

Richard Mac Coy Weil

I don't think I could call a leader in the race back to equities between institution and retail. I think it's happening. There are green shoots on both sides, but I don't think I'm well enough informed to really articulate which one's moving faster. Retail tends to move in smaller jumps on daily basis, and institutional tends to move in bigger lumps on quarterly basis. And so, there's some of that difference between the cycles and the business that you can see in industry data. I don't think I have a particularly great insight into the answer to that question. I think it's happening on both sides. And the question is, does it continue and gain strength or does something happen, which disrupts the past? Probably, in my estimation due to the fact that modern western democracies can't deal with pension liabilities very effectively. And it's hurting Europe. It's hurting the U.S. It's hurting the public versus private debate. And the dysfunction in the political system around that issue has the potential to be really disruptive. And we hope it isn't. I think it probably won't be, but there's a significant minority case risk that the U.S. government or what happens in Europe gets disruptive again. And so, we're just going to wait and watch. Our path is the same in either case. We don't change our plans due to some macro prediction on that scale. What we do is focus on the things that I mentioned, and we'll see how it plays in whatever environment occurs.

Matthew Kelley - Morgan Stanley, Research Division

Okay. And then 1 quick follow-up for me. Just coming back to the compensation point. Given your strong 1-year performance on the complex, just I guess how is that communicated to employees? And is there any sort of surprise factor in there? Obviously, the -- some of the bottom line numbers have been challenged by performance fees, but what do think the sense is internally from a strong 1 year, but more challenged kind of 3-year, 5-year rolling through versus your comp decisions, both in aggregate dollars and then the shift from cash to stock?

Richard Mac Coy Weil

Well our employees are well-informed about the financial realities of our business. They're adults. They get it. They spend -- a lot of them spend their lives analyzing companies, so they're experts. They understand what's going on. They understand that we've gotten ourselves onto a much better path. And that if we can sustain that path going forward, you will see eventually really material improvement in performance fees, but it won't happen immediately because of the 3-year nature of that calculation. I think our employees are pretty expert on how that works and how would it likely roll through to profits. And as Bruce said, our employees are in a compensation system, which is driven primarily by profit results. And our commitment to them is if, as and when, you deliver those much better profits through better investment performance and improved performance fees, our employees are going to benefit substantially from that improvement. They get that, and it's our job to deliver that and make it a reality rather than a prospect. And then, they understand they'll be sharing significantly in that outcome. And so, that's motivating for all of us.

Richard Mac Coy Weil

Thank you, everybody. Thank you for joining us on the call. We look forward to talking to you next quarter. Thank you, operator.

Bruce Lewis Koepfgen

Thanks, everybody.

Operator

This concludes today's conference call. Thank you for your attending.

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