Janus Capital Group Management Discusses Q4 2013 Results - Earnings Call Transcript

Jan.23.14 | About: Janus Capital (JNS)

Janus Capital Group (NYSE:JNS)

Q4 2013 Earnings Call

January 23, 2014 10:00 am ET

Executives

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

Jennifer J. McPeek - Chief Financial Officer and Senior Vice President

Analysts

Craig Siegenthaler - Crédit Suisse AG, Research Division

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

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

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

William R. Katz - Citigroup Inc, Research Division

Daniel Thomas Fannon - Jefferies LLC, Research Division

Cynthia Mayer - BofA Merrill Lynch, Research Division

Matthew Kelley - Morgan Stanley, Research Division

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

Operator

Good morning. My name is Kayla and I will be your conference facilitator today. I would like to welcome everyone to the Janus Capital Group Fourth Quarter and Full Year 2013 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 circumstances or events that arrive after the date these statements were 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, to the fourth quarter and full year 2013 earnings presentation for the Janus Capital Group. Let me start today as I do with an executive summary and then I'll hand it off to Jennifer McPeek to go through the numbers in more detail and then we'll address some special topics at the end of the call and finally take your questions.

So executive summary. Clearly, the most important piece to address is net flows. For the full year of 2013, we had $19.7 billion of net outflows, which were obviously very, very disappointing. And we're primarily driven by some challenging fundamental equity performance coupled with the effects of portfolio manager changes, primarily on our Janus equity platform. If you look at the fourth quarter, the number was $6.2 billion in net outflows.

Taking that head on, that's a little bit worse than the prior quarter. And you can fairly ask, does that represent some sort of accelerating trend or deterioration? From what we can see, this represents a continuation of prior trends coupled with the absence at INTECH of some major institutional wins in the third quarter that did not repeat in the fourth quarter. So again, we look at the fourth quarter outflows as being consistent with prior trend, coupled with the fact that there was a major $2 billion of sort of lumpy institutional flows in the third quarter, which did not repeat in the fourth quarter.

And candidly, we look at that, as Jennifer McPeek will talk about a little later, as regular variation. We can't count on those major institutional wins in every single quarter. And we'll talk a bit more about the fact that remain very optimistic INTECH can continue to win business in that space, but in one of our special sections, we'll go through those questions and more detail.

So look, that was disappointing also in the sense that it wasn't better than the prior quarter, but we don't look at it as worse either. It's a continuation of that disappointing trend. And that brings us to sort of the reflection on our 2013 and where we go from here. Clearly, it's our job to make those numbers better.

The main way to make those numbers better is to improve investment performance and continue to build from that strength and platform. We believe in 2013, we were very benefited, like the rest of the industry, from a strong equity market, which gave us the flexibility and the time, candidly, to make some very important changes in the leadership and on our portfolio management team, primarily at Janus.

We believe those changes have been very positive and we think they'll pay dividends into the future. So we think we're positioned to continue to strengthen our investment track records and make the necessary substantial improvements on these flows. But it doesn't happen overnight, and it hasn't happened yet. And so we accept that these net flows are disappointing, but we believe we've taken important steps to make them better in the future.

And that's the main message. Obviously, the second message that I'd just like to call your attention to is around our net cash position. Since 2008, we have improved our net cash position by over $1 billion. And as we sit here today, and Jennifer, again, will go through this in much greater detail for you, we have a very strong positive net cash position. In fact, it's the strongest it's been in more than a decade and it covers all of our short and long-term debt and gives us a nice cushion for operating and those sorts of things.

And so, we feel good about our conservative policy that we've been pursuing, which is to have a strong balance sheet which allows us to be a strong stable partner for our clients through what will undoubtedly be some volatility in market cycles. And that has been our commitment. I think it's the right plan and I think we've executed it well, and the balance sheets in terrific shape.

And with that said, let me turn it over to Jennifer to go through the numbers more specifically. Thank you.

Jennifer J. McPeek

Thanks, Dick. Good morning, everyone, and thank you for your time today. I hope you'll find today's discussion interesting and informative. If you're following along in the materials, I'm going to go ahead and start on Page 5. Let me begin by highlighting the firm's operating results for the quarter and for the year, which were strong results they reflect the impact of positive market conditions.

Fourth quarter average AUM was $170.3 billion, driven by market gains of $13.4 billion, which more than offset outflows of $6.2 billion. Total revenue was $226.2 million, an increase of 4% from the September quarter. Full year results show revenue up 3% versus 2012.

Operating income also increased, reflecting operating leverage in our business model and lower compensation expense. Quarterly operating income was up 14% versus the third quarter. In 2013, overall results improved 12% in operating income versus the prior year. The margin came in this quarter at 29.6%.

These results contributed to earnings per share of $0.21 for the fourth quarter compared to $0.17 in the third quarter. Annual results also improved with a 13% growth in EPS compared to 2012.

So in sum, we saw operating results that has financial improvement really across-the-board, which reflects the growth that was realized by the industry overall during a full market year, particularly in a very strong market in the most recent quarter.

Turning now to Slide 6. This is our standard summary representation of investment performance. Our strategies across our advisers generally did well in the fourth quarter and most of the figures on this page have improved from last quarter's presentation. As an active manager with independent investment teams, you would expect to see more variation in the short-term return statistics than you see in the long-term statistics.

Internally, our investment focus is more weighted towards the long-term, and I'll draw your attention first to the statistic on the bottom of the page, which is the complex-wide Morningstar ratings. This, as you may know, includes 10-year results, as well as risk-adjusted performance. So it is the longest term statistic we provide. Industry-wide, only 32.5% of funds have 4 and 5 star ratings. So we see that our performance here at 56% of funds speaks quite strongly to our long-term risk-adjusted performance track record. It really reinforces our conviction in our investment processes.

Briefly looking at some of the more recent short-term performance trends, we are encouraged that the fundamental equity strategies finished the year with pretty strong performance as a whole. While there's still more work to do, as Dick mentioned, you can see that the improvement is beginning to impact the 3- and 5-year company-wide metric.

Fixed income team, not surprisingly, continues to deliver with some very impressive short- and medium-term performance numbers. INTECH's performance shows the biggest change from last quarter in the 1-year number. We went from 29% to 59% in that 1-year outperformance versus benchmark. The process discipline that INTECH's investment team employees will sometimes result in mild underperformance versus the benchmark in any given quarter. That's expected to happen. Dick will talk a bit about INTECH's performance, their long-term track records and get some more clarity in our topics of intersection in a few minutes.

Let's turn to Page 7, talk some about flows. We did experience a pickup in outflows quarter-over-quarter, $6.2 billion compared to $4.2 billion in the third quarter. The biggest change was in our mathematical strategies, which is INTECH. In the third quarter, we had approximately $2 billion in lumpy, non-U.S. mandates in INTECH. And these did not repeat in its size in the fourth quarter. And you can see that impact in the chart in the lower left-hand corner of this page.

In fundamental equity, which is in the upper right-hand corner, again this represents both Janus' equity and Perkins', we had fourth quarter net outflows of $4.9 billion, which was flat from the prior quarter. What you can't see in that flat number is that there was a very lumpy outflow in the fourth quarter, which was $2 billion from a Janus' equity strategy.

So the overall trend was affected by a couple of positive large inflows in the third quarter and a very significant large outflow in the fourth quarter. As Dick explained earlier, these lumps that we see are variations. They're not one-time events. We expect that variation to continue to occur. We plan that positive lump outnumber negative ones over time. I'll continue to try to call out the larger size inflows and hopefully, fewer outflows in these quarterly results.

Slide 8 is our revenue breakdown. Management fees increased in line with higher average assets. The weighted average management fee for the current quarter was 48.5 basis points. Performance fees on our mutual funds were negative, $21.3 million for the quarter, which is slightly better than the third quarter. The performance fees on mutual funds were offset by positive separate account performance fees.

Slide 9 breaks down our operating expenses. Operating expenses were essentially flat from last quarter as higher variable AUM base distribution expense, as well as the seasonal lift in marketing and advertising, was offset by a decline in compensation. LTI increased $2 million during the fourth quarter. That was due primarily to higher mark-to-market adjustments on our investments and mutual fund awards. We're going to start providing more specific guidance on LTI expense, and that's because we've gotten some feedback from the analyst community that our previous approach of giving grand detail in our appendix tables was insufficient for some of your modeling purposes.

So for 2014, our current outlook is approximately $65 million in LTI expense. We're going to keep providing that current year outlook. I think we'll just keep doing that in a footnote to the standard page. Please keep in mind that a small part of that expense line moved with the market, as it is in the form of those mutual fund awards. That estimate of, again, $65 million, assumes flat markets. Corporate curates can also differ from historical levels, which would impact that going forward.

Our investment gains in other income, which is not detailed on this page, was $2.8 million in the fourth quarter. That was driven primarily by mark-to-market and dividend income in our seed book.

Let's talk a second about taxes. Our expected tax rate in the fourth quarter was 35%. That's lower due to a benefit related to expiration investing of certain equity-based compensation awards. I'd like to give everyone a heads up for some modeling purposes that we have options, previously granted options that are expiring in the first half of this year of 2014. And those options are currently very far out of the money. So the impact, assuming that they do expire out of the money, of that expiry, will be a much higher effective tax rate during the first half of the year. Based on our sight lines right now, it looks like that will be likely in the mid-40s.

Turning now to Slide 10 and a look at our balance sheet. Total cash and marketable securities increased by 5% quarter-over-quarter, and that was driven by cash flow generation. We had cash flow from operations of $92 million in the quarter. As we've discussed in the prior quarter, we have roughly $100 million of debt in converts that are going to be maturing in 2014. During this past quarter, we specifically set aside some cash and put it into match-funded short-term fixed income portfolio, really setting it against those upcoming maturities. That's why you'll see in our balance sheet what appears to be a shift in cash into marketable securities this quarter.

Now as we've gone over the course of the year, we're going to address a few frequently discussed topics in our special section. This quarter, we're going to talk about an update on INTECH's business investment process, talk about the change in compensation and a little bit about capital planning in balance sheet.

I'll turn it back over to Dick.

Richard Mac Coy Weil

Thanks, Jen. When looking at the net flow number and we are seeing $1.8 billion out in the fourth quarter net for INTECH, we thought it was fair for you all to have the question, hey, Dick, you've been talking about how much confidence you have in INTECH and what a good process they have for a while now, what's going on with their flows? And to try and give you a sense of that answer, obviously, in light of the fact that they're an institutional process, which is perhaps less public and less well understood than some of our public mutual funds, we thought we should do a special section addressing those questions here with you today.

The first page, Page 12, is the annualized rolling 3-year performance of all of their composites. Each dot represents a 3-year period of time, and dots in blue above the diagonal line represent outperformance, and the degree of outperformance is represented by the distance from the diagonal line. The dots in red, below the line, represent 3-year periods, which were beneath benchmark in each of these composites. I think, as you can see, INTECH's process represents some very positive elements and has through the course of its long and successful history.

The first element is, with 73% of the rolling periods above benchmark, the process works. It adds value net of fees across all that it's done over its history. The second thing to notice, look at the red dots. They're not far from the diagonal line. This indicates that their risk control process is also working. They have very good risk control and given the 3 years, if they do happen to underperform, it tends to be a very modest level of underperformance. To me, this chart is a powerful statement that INTECH's investment process and it's risk management processes work very well.

Turning to Slide 13. The upper left of this slide shows a pie chart, which gives the AUM breakdown at INTECH by strategy. The message here is that almost 80% of their current stock of business is in a handful of composites that are focused on the U.S. large-cap equity market.

Now there are a couple of things we need to say about the market for these products. The clients are largely U.S. institutions who have recently, I think it's well known, faced 2 trends: number 1, they had been reducing their exposure to large-cap U.S. equities; and number 2, a great many of plants have considered whether to shift their allocation model to using passive rather than active for the more-liquid, large-cap U.S. equity segment. These 2 trends clearly create some challenging competition for INTECH in this stock of their business.

Looking at their performance, which is detailed a bit in the lower left-hand corner, you can see that while their performance has not been bad, it has been approximately the index in the U.S. segment. And as a consequence, it hasn't been quite strong enough to successfully defend against some of these outflows. It's worth noting against that sense that: number one, a lot of times when they've had outflows, it's been part of a whole plan restructuring rather than them individually being replaced as a manager, and that's probably even more difficult to defend;

The second thing is despite this pressure on their business, INTECH remains the #1 firm in market share for mathematical strategies in the U.S. institutional spaces reported to us by investors. So they continue to be a very successful firm in this space, but competition is tough. And their performance hasn't been bad, but it needs to get a little better to strengthen their defense in this area.

The other message of the chart on Page 13 in the upper left is this green section, which is a little north of 20% of their current asset. This is a growing segment of their business. This is largely their global, non-U.S. benchmark products for which the buyers are largely institutions outside of the United States. We have reported to you transparently on some lumpy flows in this area and we hope to continue to do so in the future.

The performance in this area has been quite strong with good alpha, and there is a lot of interest in non-U.S. institutional circles for this element of their product. And so looking forward, you can see that the existing stock of business is spread across these 2 areas, one under some significant competitive pressure and the other experiencing some significant organic growth.

I also want to call your attention to a third part of INTECH's business, which, we believe, is exciting not necessarily on a quarter-by-quarter basis, but certainly, over the next 3 to 5 years. Through recent research and development and through their long and sustained history as volatility experts in equity indices, INTECH has been able to develop and deliver a excellent sweep of new products, which focus on emerging markets, which focus managed volatility, which focus on low volatility, targeted volatility and these are very customizable around the interest of an individual institution. These ideas and products are beginning to gain traction already and we're optimistic that over the next 3 to 5 years, they can grow to become a significant part of INTECH's business success.

So overall, I think the message for INTECH is their process works and is doing reasonably well. In the U.S. segment, they face very tough competition on a continuing basis. In the global segment, they have experienced growth and should continue to experience growth opportunities. And some new product development has offered exciting additional upside for the medium-term.

With that said, I hope that makes the story of INTECH a bit more transparent for you all. And I'll turn it back over to Jennifer McPeek.

Jennifer J. McPeek

Thank you, Dick. Compensation in this quarter, we're sure to generate some questions so we have provided a quarter-over-quarter bridge on Slide 14.

As we've described in the past, the bulk of our employees are paid their year-end variable comps out of a number of different processes and tools that we have throughout the company. So since the operating profits did increase quarter-over-quarter, all other things being equally, we, of course, expect to see an increase in that variable cash compensation. The amount you would expect to see quarter-over-quarter is about $2.5 million or on the slide, it's $2.6 million. However, offsetting that increase, at the year end, we make real decisions on how that variable comp is going to be paid out. And as a result, there were adjustments in the split between cash and LTI in the variable comps.

Essentially, we decided to take some key leadership with a heavier portion of LTI. The full year impact, which includes an adjustment for prior accruals that take place in this quarter, results in a $6.2 million reduction in our cash compensation line versus the prior quarter. Cash comp per revenue in the quarter was, thus, unusually depressed. It's down at 31.2%.

Going forward, we're going to be discussing and reporting not only on that cash comp-to-revenue ratio, which we talk about every quarter, but we're also going to be revealing our total comp-to-revenue ratio and discussing that. That ratio includes LTI. It's a metric that we managed, too, internally, not on quarter-to-quarter basis, but it's something that we track and manage, too, over the long run. In 2013, that figure ranged from 39% to 42%, and we expect it to remain in the low '40s in the near future.

Let's next move to Slide 15, where I wanted to take a moment to talk about our balance sheet and capital planning. We have consistently delivered a message to our shareholders and also to our bondholders that we intend to take a very conservative stance. You can see on Slide 15 that the conservative approach combined with strong underlying cash flow dynamics has resulted in a really strong net cash position.

Overall, our net cash has improved by almost $1 billion over the last 6 years. We're now in the strongest net cash position we've been in, in the last decade. At the end of the year, net cash is $270 million. And just to put that in context, that is more than enough to run all of the operating capital needs, the regulatory capital needs and also a reasonably sized seed capital book for a company in our size. So what I think you can reasonably take away from that is that we have set aside cash that's sufficient to pay down all of our liabilities.

Going forward, what does that mean? Well, before I answer that question, let's look to Page 16 so we can talk about what we've done in the past with our capital planning. You can see on the left-hand side that what management has done is really tried to balance debt pay down with a gradual increase in returning capital to shareholders.

We've increased our dividend in 2012. We also initiated an anti-dilutive stock repurchase program. As a result, you can see on the right-hand side, we have increased our payout ratio. And while we've increased it more than tenfold, but it really started as a position close to 0 just post-financial crisis. We'll be looking at our overall payout levels going forward in the context of a very strong balance sheet, of course, while weighing that against any investment opportunities that we have to further strengthen our competitive and financial position.

And with that, I'm sure we'll have a lot of great follow-up questions. Let's turn it over to the operator.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from Craig Siegenthaler with Crédit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

I'm wondering if you can go through the tax rate one more time. First, maybe give me just a little more detail why it's kind of jumped in the mid-40s. I believe you said there's an acceleration now, the money options. And then from a modeling perspective, should we sort of assume kind of mid-40s, first quarter, second quarter followed by back down the kind of the traditional rate of 35% to 38% by 3Q?

Jennifer J. McPeek

Thanks for that question, Craig. Yes. Let me answer the second part first. Yes, that is probably the best modeling assumption you can make for 2014, is that in the latter part of the year, we don't have any options expiring of note in the latter part of the year. So you wouldn't see that happening. You go down to more of our typical tax rate. I think it's 37.25%. A little bit of detail on why that's happening, we issued options back in 2004 and 2007 that are currently way out of the money. Those expire in the first and second quarter of this year. And so when that happens, there's a tax adjustment that we took a deduction for in our GAAP income statement, when those were issued at the value at the time. Since they're expiring worthless, there's a tax expense. It's a set dollar tax expense, but as that flows through the effective tax rate, it's going to be higher.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. And then, just my follow-up. As I focused on the $4.9 billion of redemptions from the fundamental equity franchise, how much do you attribute to the funds where there was a change in manager in 2013? And then, among that buckets, how much would you kind of directly attribute to the fact that the manager was changing in outperformance? I know it's a difficult question, but maybe you can give us some percentages or some color there?

Richard Mac Coy Weil

Hi, Craig, it's Dick. We haven't broken it out exactly on a fund-by-fund basis. But it -- the quarter included a $2 billion withdrawal that was definitely impacted by the combination of some challenging performance and portfolio manager change. And so the -- while we can't separate precisely the effects of one element versus the other, the combination there was clearly -- had a big negative effect in the quarter. We are optimistic that given the strong performance of the new team over the last 6 months, we think we have worked through a lot of the effects of those portfolio manager changes and some of the effects of the challenging performance on that Janus platform with respect to those affected funds. I think that's probably the best answer I can give you.

Operator

And we'll take our next question from Robert Lee with KBW.

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

Maybe sticking with the last question a little bit. I know, Dick, you mentioned, just mentioned that you think maybe your through it, but could that -- maybe give us a little bit more color on where you are seeing kind of outside that one big redemption, some of the larger redemptions, or is out of -- which channel it may be? Is it out of kind of the, I guess, I'll call it the supermarket channel? I mean, is there any kind of -- is it from the more sub-advised business? Any color on kind of which channel is maybe experiencing relatively more pressure than others?

Richard Mac Coy Weil

Thanks, Robert. The lumpier flows are institutional relationships. And certainly, we've seen some lumpy outflows in those funds that we're affected by the combination of portfolio manager change and some challenging performance. I can't give you a channel-by-channel breakdown of that, but I can say that the new sort of restructured portfolio manager team has put on a strong start and I think the clients have worked through those elements. And so on a go-forward basis, it's more likely that any future changes would be driven by ongoing performance and those sort of things than the special effects of this past year.

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

Okay. And maybe as a follow-up on expenses. If we look ahead to 2014 and just think about the impact of the negative performance fees, so as performance-based better on some products and you roll-off some tougher months and quarters, possibly those starts to decline. How should we think about that flowing through on the expense side in terms of operating expenses outside the comp? I think it's been generally been pretty well-controlled. Is there some latent spending that we can see come through if you start seeing some easing of the revenue pressure from the performance fees, that maybe there's some catch-up spending on distribution or marketing or infrastructure that you think can kind of pushing off for a while?

Jennifer J. McPeek

Thanks, Robert. I would not expect to see anything very significant. We don't have, as you describe, a backlog of spending initiatives that we're just waiting to spend on. We've been really changing where we're spending money to the areas that are driving growth. So we've already made a lot of our initiatives. We just funded them with cuts in other areas. So there's not a loaded spring of spending here at the firm. I think we're -- you may see very small single-digit percent increases in G&A over the next year, but that's probably all I see right now.

Operator

And 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, I know it's still relatively early days, but it does seem like risk appetites appear to be rebuilding, at least on the retail side of the industry. So just curious how much of an opportunity that could be, assuming higher interest rates for sustained period and lower correlations across asset classes. So just assuming investors continue to put more money into equities, broadly speaking, how do you see that playing out for your funds in light of some of the relative performance trends?

Richard Mac Coy Weil

Thanks, Michael. I think the strength in equity markets provides momentum to active equity management and flows where performance is strong. That's encouraging for us in -- where we have strong performance. I think we'll continue to be able to capture benefits supported by those really favorable equity market conditions. I think it is essential in a long-term sense, away from sort of the shorter-term ebbs and flows that investors recognize that they can't get to their retirement goals without significant equity investing. And indeed, without some significant alpha included in their equity investing, and that makes us optimistic as well in a longer-term basis. But in the short-term side, clearly, this very favorable equity market is going to support increasing flows for equities in general and active equity management in particular. And where we're able to put up a very competitive performance, we expect to be able to take advantage of those favorable trends.

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

Okay. And then maybe one for Jennifer, just to follow up on the payout ratio discussion. Now that you've sort of pre-funded the senior notes and converts that are doing the first part of the year, how are you thinking about a potential step up in the payout ratio looking beyond that -- as you mentioned, cash continues to build and the seed capital needs seems to be sort of leveling out. So just any color there. And then also any guidance in terms of sort of the underlying mix in terms of share repurchases versus dividends.

Jennifer J. McPeek

Well, Mike, I don't have anything specific to telegraph or disclose today. But I think you hit on the right point, which is that going forward, we do not need to set aside future cash for debt retirements. So that's -- you got that covered. We wanted to acknowledge it. And then the obvious change in our thinking is what are we going to do with the cash? We're looking at everything. We look at our peers. We talk to our shareholders. Depending on the fundamentals in the business, that will be a big driver of how quickly and in what form we're able to raise the payout ratio. And we haven't made those decisions yet, but I will continue to keep everybody updated on that as we move forward.

Operator

And we'll go next to Kenneth Worthington with JPMorgan.

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

I was hoping to get just an update on Dai-ichi. So maybe 2 parts. One, what were the kind of the DIAM and Dai-ichi sales for the quarter? And then two, as we come to the end of the mandatory investment period for the Dai-ichi general account, do you expect additional investments from, again, the Dai-ichi general account, or do you think that phase of the relationship is over and the future sales are really coming from the new products at DIAM?

Richard Mac Coy Weil

Thanks, Ken. Let me start with the DIAM piece. At year end, I think we finished with slightly over $1 billion of client assets under management through our work with DIAM in Tokyo. So that's been a big success so far and we look forward to continuing to grow that base. With respect to the Dai-ichi general account funding that we've talked about so much, they have essentially completed their commitment to invest $2 billion with us. And we're optimistic that over time, as their business grows and we do a good job for them, there are opportunities to grow it. But it's fair to say that they've been terrific partners and that they've fulfilled that commitment and really all other commitments they made as part of the relationship.

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

And then just on INTECH, you guys had a bunch of comments in the prepared remarks, but what is the pace of RFPs looking like? Are you seeing a greater pace given that performance just kind of bounced back, not just for mathematical but for quant, more broadly? Are you making it to finals? How are things looking as we think about leading indicators for the acknowledged lumpy sales that we saw last quarter?

Richard Mac Coy Weil

Well, as you know, I can't really give you a forward guidance on flows. But I can tell you that, particularly in that slightly over 20% of their business, which is the global, and also with respect to the third element of their business I mentioned, a lot of their new product development, there's significant interest, particularly outside of the United States. And so as I've said before, they're a terrific team. They're doing a really good job and we're optimistic about their future especially in those areas.

Operator

And we'll go next to Bill Katz with Citi.

William R. Katz - Citigroup Inc, Research Division

Okay. If I take the $6 million of the cash adjustment, the compensation adjustment from cash to long-term incentive compensation, and just look apples-to-apples, quarter-over-quarter, I calculate an incremental margin of about 21%. Can you help me understand, A, is that correct? And B, if it is, what are some of the moving parts underneath that, particularly given the higher equity market? I'm just trying to get the impact of incremental growth versus attrition?

Jennifer J. McPeek

I'll try to address that, Bill. The incremental margins that we get on revenue, they range from 50% to 70%. So I'm not sure what your 21% calculation is. I don't know if you could explain that a little bit further?

William R. Katz - Citigroup Inc, Research Division

I'm looking at the change in your operating income divided by the change in your revenues on a sequential basis adjusting for the $6 million adjustment in your comp line.

Jennifer J. McPeek

Well, why don't we try to kind of take that off-line because I'm not seeing the same calculation? But I think maybe getting to the heart of your question, we do have pretty healthy incremental margins on revenue in our business. And so that change that you see in the cash compensation line, the reason that we're trying to also include total comp-to-revenue ratios going forward is that it's really just a currency choice on management's part. And total compensation-to-revenue over time will be something that you'll be able to model and see as being pretty stable.

William R. Katz - Citigroup Inc, Research Division

Okay. All right. And then just -- I think you've had some turnover in institutional channel again. Can you talk a little bit about maybe the impact of Ms. Beery leaving the firm? What paced that? And then what the replacement cycle be and what the consultants are saying about that turnover?

Richard Mac Coy Weil

Sure. Thanks. This is Dick. I think you've related 2 things that are unrelated. The first element of what you said was institutional turnover. I'm not sure exactly what you're referring to, but we tried to be transparent about the various lumps in retail and institutional in and out that are really large. And so I don't think there's a particular message there. Robin's transition, I think, is really an unrelated topic. She's transitioning after almost 20 years here. She's looking forward to spending some more time with her family. She's done a terrific job and she's going out with the proverbial 21-gun salute. She's been a fantastic leader and partner for our firm and she leaves with our gratitude and respect. But not -- she hasn't left yet. She'll be working with us here through until end of the summer. And so we're grateful for all she's done for us and continues to do for us. And there is no linkage between that and whatever you may have been referring to in the first part of your question.

Operator

And we'll go next to Dan Fannon with Jefferies.

Daniel Thomas Fannon - Jefferies LLC, Research Division

I guess just a follow-up on that last question. Do you anticipate a search process on kind of the timing for her replacement, kind of -- I think she's there till August or so. I guess, what is the time period you're looking to, to fill that position?

Richard Mac Coy Weil

Well, Robin has had a huge role for us over the years. And what we've done is restructured a bit in anticipation of her retirement from Janus, first by promoting Drew Elder internally to run our retail businesses, which is a very large part of what Robin has been doing for us. And Robin has mentored Drew and he's been together with Robin for years. So that's a smooth and a wonderful transition from our perspective. Second, during the interim period, until she retires at the end of summer, Robin has agreed to lead our marketing and communication. And we are looking for an executive. It's an internal and external search that we're looking for, a new candidate. We hope to fill that role in good time so that we can complete it in an orderly and smooth transition with Robin in that area of communications marketing product.

Daniel Thomas Fannon - Jefferies LLC, Research Division

And then to follow up, I guess within the fundamental act of equity component, can you disclose what percentage of those assets are institutional versus your traditional retail products, excluding obviously INTECH?

Richard Mac Coy Weil

I don't have that number, I'm afraid, at the tip of my fingers. Obviously, INTECH's assets are predominantly institutional, and you can see those. And Janus' and Perkins' assets on the equity side are predominantly retail, and you can see those. And that's most of the answer. But I don't have precise figures for you.

Jennifer J. McPeek

I'll add on to that. I think some of that question may have come from the surprise in the $2 billion outflow in Janus that wasn't in the Sims on data. That was a separate account that is in the retail channel. That's why you didn't see it in the numbers.

Operator

And we'll go next to Cynthia Mayer with Bank of America, Merrill-Lynch.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Just to clarify on the comp. I guess with the new year, just the mix and cash versus equity revert to the old mix? And then, should we expect, depending on how the year goes, that there would be another adjustment in 4Q?

Jennifer J. McPeek

Thanks for the question, Cynthia. So the reason you see the large adjustment in the fourth quarter is because we've been accruing throughout the year for this year-end compensation at a different mix. And so the fourth quarter number has a catch-up from the prior 3 quarters as well embedded in it. That's why it's an unusually large number. Going forward, we accrue, at our best guess of, what we're going to do for the full year of 2014. So we would not expect there to be a catch-up. We're always adjusting our accruals with our best knowledge at the time.

Richard Mac Coy Weil

Cynthia, this is Dick. The exact mix of cash-to-LTI is actually set in a detailed process in conversation with our board and the compensation committee of our board. And in this past year, obviously, one of the big effects on results was a very positive external market environment. That presented us with an unusual outcome, where our profits were substantially supported by external results. As a consequence, in conversation with the compensation committee and the board, the decision was made to reflect that benefit with a relatively heavier mix of LTI. That's hard to predict on a future basis. But in general, we believe that's a very unusual circumstance. Not to say it couldn't be repeated, but it's not something we'd predict on a go-forward basis.

Cynthia Mayer - BofA Merrill Lynch, Research Division

Got it. Thanks. That helps. And then, G&A also appeared a little bit lower than usual but pretty flat on an annual basis. Was there anything lumpy in that? Or is that a good level to think about to start off this year?

Jennifer J. McPeek

There's a quarter-to-quarter variation in the G&A. And I think what you saw this quarter is nothing outside that normal periodic variation. But as I comment, I think on an earlier question, you might see a slight increase for the full year in 2014.

Operator

And we'll take our next question from Matt Kelley with Morgan Stanley.

Matthew Kelley - Morgan Stanley, Research Division

I just wanted to come back to INTECH for a second. It will be helpful if you guys could tell us -- you've talked about some Asia client demand in the past. It would be helpful to hear what kind of clients are your cornerstones for INTECH and where -- what types of clients you've seen represent that new demand. Who exactly are these institutions are, just so we can get a sense for what they're looking for?

Richard Mac Coy Weil

Sure. Thanks, Matt. INTECH has success with the largest and most sophisticated institutional client base outside the U.S. with a special focus of success in Asia so far. But there's a challenge, which is to continue that drum beat of success. And also to broaden it, to include more middle-market institutional success in those same markets. Obviously, we're hoping that some of these sovereign wealth funds and market leaders will be bell cows, behind which, other more local institutional clients can and will follow. And so we're optimistic about taking those headline client wins and building them into a broader base of institutional success in some of these non-U.S. regions. But the names -- obviously, we'd never disclose the names, but the names involved would be very well-known world leaders in non-U.S. institutional space.

Matthew Kelley - Morgan Stanley, Research Division

Okay. Thanks for that. And then my follow-up, maybe this is for both of you, but whoever wants to answer, that's fine. But I'm just, coming back to comp a little bit, just -- I'm sure you have various planning scenarios internally. But when you're looking at compensation policies for both the senior executive team and the investment teams, how do you think about market performance or just the markets being up versus your fund outperforming versus revenues versus earnings? Like what is the actual metrics that you're looking at for different pieces of the employee base there?

Richard Mac Coy Weil

Sure, thanks. We generally believe that profits are a good measure over the long-term for employee contribution. However, over the short-term, they can reflect a lot of things which are diverse elements, and including in this past year, very strong external markets. And so the leadership here and the board have to make management decisions around currency reflecting some of those elements. Obviously, internal organic growth is the desired state and would be the most valued outcome. And when, as in this past year, we have, really, results driven much more by the external market factors, we have made the decision to reflect that with a relatively heavier dose of LTI, which, I think, is reasonable under the circumstances. But it's not something we look to and repeat on a -- necessarily on a go-forward basis. But the account -- but the board and the leadership have to take it into account what is the mix of factors, which is driving the results and then try and reflect that fairly. But really, I'll go back to my first sentence. We believe that, over time, a profits-based compensation plan really makes partners out of the employees. That's the right culture. It rewards people fairly. But in any given period, you can experience some substantial variation.

Operator

And due to our time constraints, we only have time for one more question. We will take our final question from Marc Irizarry with Goldman Sachs.

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

Dick, can you just talk about your strategic imperatives for 2014 when you look at distribution and product? What are the couple of things that, if you think about your outlook on what needs to happen from a distribution perspective or product perspective, what are the couple of things that are that you're focused on?

Richard Mac Coy Weil

Well clearly the elephant in the room is improving first flows and second, financial results. And the tools for that are: First, we need to support our investment teams to deliver continuously improving and strong investment results; and then our distribution teams need to be very effective in capitalizing on those and building successful, long-term relationships. So our priorities really fall out of that. They are to make sure we're doing everything to support better investment performance and then driving that relationship building of sales through each of the channels and sort of understanding that sales is a process, perhaps even torturing a bit some of the sales processes to make sure that we're getting the most out of our resources.

We've invested recently, over the past few years, heavily in better data to support primarily our retail efforts to make sure we know where sales are coming from and that we can logically link outcomes with the inputs that we provide into the selling process. So we've -- we are getting better data and we will continue to improve and learn in the use of that to help target and support more effective sales efforts.

And then of course, we have talked about a lot, our strategic initiatives include investing and building of U.S. institutional and investing in building our non-U.S. sales. We've experienced some significant success with our non-U.S. sales. We're looking forward to that, continuing to build positive momentum. And we've acknowledged that U.S. institutional is perhaps slower to develop, driven by the consultant community. But we think we're making the right steps in building progress in that area, too.

Fixed income, clearly, has done a terrific job and will be a leader in some of the development of our newer relationships and newer areas. They've been a big help in institutional and there's a big market for it outside the United States. We're optimistic. And INTECH, as well, we've talked a lot about in this call. And then we have a new product area, liquid alts, which we're hoping, over time, can become -- in the next 3 to 5 years sort of timeframe, can become a significant contributor to some success, particularly in the institutional space. But that remains to be proven.

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

Okay. And then just a quick follow-up. Dominate [ph] retail side. Do you have any visibility? I understand that you can have some lumpy outflows. But are there any sort of indications from the channel that maybe you've been put on watch or hold or -- that we should expect some additional lumpy outflows on the retail side?

Richard Mac Coy Weil

I can't tell you we have any specific expectation around that. I can tell you that I think the Janus equity platform has been making strides forward and is moving ahead. And I can tell you that I think the defensive elements at Perkins are going to continue to be under pressure if the markets continue their sort of one-way-up ride. But exactly, what that leads to in terms of lumps or no lumps is impossible to forecast.

Everybody, thank you very much for joining us, once again, on this quarterly conference call. We look forward to speaking with you again next quarter. Thank you, operator.

Operator

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

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