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Janus Capital Group (NYSE:JNS)

Q2 2011 Earnings Call

July 21, 2011 10:00 am ET

Executives

Bruce Koepfgen -

Gregory Frost - Chief Financial Officer, Executive Vice President, Treasurer, Vice President of Janus Capital Management LLC(JCM) and Controller of Janus Capital Management LLC(JCM)

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

Analysts

William Katz - Citigroup Inc

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc.

Jim Shanahan - Wells Fargo Securities, LLC

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

Michael Carrier - Deutsche Bank AG

Jason Weyeneth - Sterne Agee & Leach Inc.

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

Kenneth Worthington - JP Morgan Chase & Co

Marc Irizarry - Goldman Sachs Group Inc.

Steven Truong - Barclays Capital

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Cynthia Mayer - BofA Merrill Lynch

Operator

Good morning, my name is Michael, and I will be your conference facilitator today. I would like to welcome everyone to the Janus Capital Group Second Quarter 2011 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 Investors Relations area of janus.com. Statements made in the presentation today may contain forward-looking information about management's plans, projections, expectations, strategic objective, 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 expectation and objective 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 arise 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 Weil

Thank you, operator. Good morning, everyone. Welcome to the Janus Capital Group Second Quarter 2011 Earnings Call. In the second quarter of 2011, we delivered earnings per share of $0.23, up $0.21 from the prior quarter, up from $0.21 in the prior quarter and from $0.17 a year ago. Our margin remained above our long-term target of 30%, at 31%. And assets under management declined 2.1% versus a quarter ago. Long-term net flows for the company were $3.1 billion compared to $2.7 billion out in first quarter 2011. I think I misstated that. We're negative $3.1 billion compared to negative $2.7 billion out a quarter ago.

The big issue for us in the quarter was the mix in those flows, and we'll talk to you a little bit about that later. But obviously, we saw a shift in favor of strengthening at INTECH, and we saw some performance-related challenges in the Janus fundamental equity flows. Further on that, subject on Page 2. We note That 8%, 58%, and 79% of our fundamental equity mutual flows are outperforming on a 1-, 3-, and 5-year basis, respectively. As a result, of this shorter-term underperformance, we are seeing accelerated outflows. And based on current performance, we'll feel some pain in performance fees going forward.

Let me take a minute because I think this is an issue of concern to all of our owners, to talk a bit more about our performance. In 5 key funds, performance has been very disappointing for us in the last 12 to 18 months. The time period depends a little on which fund you're talking about. We've obviously taken a very careful look at this underperformance. Some of it has been driven by an unfortunate run in our large-cap stock picking, which has not been up to our historic standards. It's atypical versus our history, and it's driven some of this disappointment.

Some this has been driven by the fact that our, you could say, our alarm clocks have gone off early or we were too pessimistic about the strength of the global recovery, which drove positioning in the larger cap stocks versus mid-caps which hurt us. It drove sector choices to a certain extent which hurt us, and that's damaged performance. It's also worth pointing out, I think, that we as a high conviction and sometimes, in some of our portfolios, concentrated equity manager. When we make those mistakes, even over a reasonably short period of time, they can be quite painful in their effect on your track record, and we've seen that.

That said, this is a shorter-term investment challenge. It does not reflect the true strength of our process or the 40-year history of Janus or the shorter history of the individuals involved. We've seen this sort of underperformance before both as a firm and our individuals involved are very experienced portfolio managers who have been through periods of underperformance, and we remain confident that we'll come back. That said, we are not doing nothing.

What are we doing? I guess I want to emphasize the biggest mistake you can make in this business is to overreact to shorter-term data. We are not changing our process in any fundamental way. We continue to believe that the process is strong and that our talent is excellent. However, we have been studying each individual element of our investment process, looking at how we're doing our research, how those ideas are translating into our portfolios, and all the elements in our process to make sure that we have made every improvement that is merited based on the lessons learned through this underperformance.

Visible to you, we've changed some PM assignments. We've reallocated some of our analyst time. And we changed some of the meeting processes and other information flow that support the system. In many of our investment positions, I should point out though, we're not changing. We're standing our ground. And in a number of cases, they have been increasing the bet. In this business, you have to be willing to be early in some of your most important calls and we are. We strongly believe our portfolios are well-positioned for the future, and we're looking to a much improved performance going forward. I think that's enough on the investment performance for now and if you have additional questions, we'll cover those in the investment section.

It's also important to note one other thing, which is, as we turn the page to Page 4 in the presentation, the Janus of today is not the Janus of 10 years ago. We're a much stronger and more diversified company. Right now, while we are facing these challenges on the shorter-term fundamental equity investment performance, we have an outstanding fixed income franchise that is gaining momentum. We have INTECH, whose taken the recent period when there hasn't been so much interest in mathematical strategies and used that time to deliver excellent investment returns, and we believe they stand in the front of the line as interest will be returning into that sector.

Perkins continues to deliver on its promise to its clients, and it remains a very strong franchise. And there are number of other things I'll get to later perhaps in the summary that I'd like to call your attention to. But in the full balance story of Janus, it's important to keep in mind these other elements as well. With that, I'll turn it over to Mr. Frost.

Gregory Frost

Thank you, Dick, and good morning. Turning to Page 6. Total company outflows, as Dick mentioned, were $3.1 million out. This is fairly consistent with the prior quarter, but obviously the mix was quite different between investment disciplines. While fixed income continued to post solidly positive flows, we saw a significant improvement in the INTECH flow story, which was more than offset by the acceleration of fundamental equity outflows. The primary force impacting our fundamental equity business is clearly the underperformance in our large-cap growth strategies, although we also saw our sales activity slow from the first quarter consistent with the industry, as investors moved away from actively managed equities.

At INTECH, we are pleased to see that improving performance is moderating redemptions, while sales, although the still slow in the U.S., are starting to show showed signs of life especially outside the U.S., as evidenced by the second quarter funding of a $1.3 billion sub-advised mandate from a large non-U.S. client.

Turning to Page 7 on the performance side. I think Dick has covered a lot of these points, although longer-term performance remain strong. Albeit, the short-term challenge remains for some of our large U.S. equity funds. On the positive side of the ledger, fixed income continues to put up very strong performance numbers over the short and long-term. And INTECH continues their positive performance story, with 94% of their strategies beating their respective benchmarks on a 1-year basis compared to only 35% one year ago.

Turning to the earnings story on Page 8. Second quarter EPS of $0.23, up from $0.21 last quarter. Remember that last quarter included a $0.03 charge related to the early retirement of our 2012 senior notes, which we completed in January. On the operating front, the second quarter was marked by slightly lower average assets and revenues and a 1% uptick in expenses, primarily from certain payments to distributors related to prior periods that are flowing to the distribution line, as well as higher marketing and sponsorship costs. It's important to note that we don't expect the higher distribution costs to repeat in future quarters. And effectively offsetting these nonrecurring costs, from at least from an EPS perspective as a lower effective tax rate that we had in Q2, which was driven primarily from an unexpected state income tax refund.

With respect to revenue, we have discussed in prior calls the effective mutual fund performance fees on our revenue yield, as more and more of our funds moved to performance fee schedules. Recall that the schedule is an unchanged base management fee, plus or minus 15 basis points, which is just up or down based on each fund's performance relative to an improved benchmark.

Over the next 2 quarters, performance fees and an additional $30 billion of assets will be reflected in our financial numbers. Because of the relative underperformance of those assets coming online today, if we were recording fees on those funds today, the pro forma impact of these additional funds would mean a further revenue reduction in the second quarter of around $14.5 million or $16.4 million in total, if you add that to the $1.8 million negative performance fees that we did record.

For the sake of transparency and to help our owners, we have updated our appendix slides to reflect the new funds coming online in this pro forma calculation, which we will continue to do over the next couple of quarters. Obviously, the ultimate numbers that is recorded is highly volatile and will depend on assets and performance, which obviously can be quite different than these pro forma numbers. And it goes without saying that if our performance doesn't improve, but we'll have a significant impact on our revenue yields and our profitability in 2012. And with that, I'll turn it back to Dick to wrap up.

Richard Weil

Janus today, on Page 9. Obviously, our #1 priority at the firm is improving performance and our underperforming fundamental equity strategies. That's the single most important challenge, and we're very focused on it. We'll also note that we have a number of other things that are working well, and large parts of our strategy are succeeding and we're proud of that. INTECH, we were very encouraged by their large mandate win this quarter. We're starting to see a greater interest in mathematical equity strategies, particularly outside of the United States. Now admittedly, inflows are going to be lumpy and hard to predict. But I think their better performances has produced a sustainable moderation in their redemptions, reflecting their really good performance.

Our Fixed Income business remains strong across the board, with 100% of AUM in the top 2 Lipper quartiles over 1, 3 and 5 years. They're seeing strong net inflows, great interest from clients and consultants, and that business continues to gain a very positive momentum, and we're very proud of that team.

In retail intermediary distribution. During the first half of '11, you may be interested to know that placements were up 31% on platforms from the end of 2010. The increase, primarily driven by some of our good high-yield Triton, our research and our balance funds. John Eisinger, one of our portfolio managers, was named Investment Week's U.S. 2011 Fund Manager of the Year, for the Janus All Cap Growth Fund, which was excellent news and we congratulate him.

Perkins continues to be a very strong and valuable franchise, as I mentioned earlier. They are keeping their promises to their clients and doing what they've done for their multi-decade history, and they're a very strong franchise.

In our global distribution, under the leadership of Augie Cheh, who's recently joined us, we're seeing meaningful and progress there. It's early days but we're very optimistic about the opportunities in that business. We have successfully launched some important new products, our Protected Series Growth fund, our Real Return Fund, long-duration fixed income among them. We think that these products will be meaningful contributors for us in the medium-term.

And last, so let me just turn to the balance sheet. As you all know, we spent some time over the last couple of years significantly strengthening the balance sheet, including a buyback of debt early this year. As a result, we're in good financial position. We generated approximately $100 million of free cash flow year-to-date this year. And we continue to see opportunities to add to free cash flow growth going forward.

At the end of the second quarter of 2011, our leverage and coverage ratios were 2x and 6.8x, respectively. Our total cash and marketable securities is about to exceed the total debt. It's just under and going forward, and that should grow to exceed the amount of total debt. As a consequence, I think we're in a very strong financial position as a company to withstand some of the challenges we face. And that is something that the last few years of work have provided for us. We're quite happy with that. I think with that summary, we'll stop and turn it over to all of you for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question today comes from Michael Carrier from Deutsche Bank.

Michael Carrier - Deutsche Bank AG

First, just on the performance fees and maybe just looking forward, given that some of the color that you provided. How should we think of it just in terms of what you can manage on the cost base? And particularly as it relates to compensation, just how much can that pull back, and obviously, as these new funds that have a shorter timeframe or performance history, that can fluctuate when before performance starts to pick up in a quarter or 2 quarters, and so looking at it from now, 2 or 3 quarters ahead, things can change. But I just want to try to gauge like any color around that on how that can be managed?

Richard Weil

I think the performance fees are driven primarily by our larger funds with longer track records. So I would just amend slightly what I think you said in your question. In terms of how much we can balance the negative effect that we may experience going forward from performance fees, we have recently strengthened the alignment between our profits and our compensation. And as a consequence, as performance fees might negatively affect the profits, we should see a reflection of that through the compensation line. Outside of that, we'll obviously try and act with a very strict financial discipline. That said, that we'll continue to work to grow our fixed income business, our non-U.S. businesses and make the key investments that provide for future growth, and we won't starve those. As a consequence, we can moderate a meaningful percentage of any negative effects through the compensation line. But beyond that, the opportunities are more limited.

Michael Carrier - Deutsche Bank AG

And follow-up would be on the capital levels, the cash levels. You mentioned the net debt position, you're nearing 0, it's been a while since you guys have been there. And so, when you think about it, you guys have increased the dividend, obviously, you've got some pressures on the P&L right now. But over the next couple of quarters, if the cash continues to build, is there a certain level where you can be thinking of buybacks or is it -- you still want these pressures to kind of, at least, moderate before you go down that path?

Bruce Koepfgen

Yes, Michael. This is Bruce Koepfgen. I think the answer is that we'll continue to look for opportunities to buy back the stock. But in the order of things, we would be looking to invest in our business in ways that would create outsized return to our shareholders. Dick has already outlined a few of those. And that strategic math for us is one that we're all very enthusiastic about. High on that last will be fixed income, our international platform and then seeding new products that we think will be important for our clients. In the second quarter, I think we put $95 million into new products, and we're very enthusiastic about the potential for those. And then lastly, of course, as Dick mentioned, we'll look for other ways to provide returns to shareholders. We bought back debt last quarter. You mentioned the dividend which will put $40 million I think back to shareholders on an annual basis. And after that, we would continue to look at share buybacks. At this particular time, given the investments that we have in front of us in the business and the headwinds that Dick has described, we don't think it's the right time to be buying back stock. It will be something that we continue to consider as we go forward.

Operator

And our next question comes from Roger Freeman from Barclays Capital.

Steven Truong - Barclays Capital

It's Steven Truong here for Roger. I'm just wondering if you can talk a bit more about the investment process? It sounds like you're still very much committed, and what do it take to close the gap, if you will, against these benchmarks, so that the performance fee headwind will abate going forward?

Richard Weil

I'll be happy to arrange some time with you with our CIO to talk about this in more detail. Jonathan Coleman is obviously the man in charge of the process and can give you a more detailed view. From my perspective, I think we're doing what we need to do, which is make sure we have the right people in the right seats. We need to make sure that we have taken a hard look at what we're doing on the analysts and the portfolio management and the risk management side and that we're comfortable with our buy disciplines and our sell disciplines, and we need to earn it back one stock at a time. I'm quite optimistic because I know the strength of our team and I know the strength of our process, I know the 40-year history of our performance of Janus, and I also know that these individuals, involved in these portfolios, have individually made great contributions to their clients over the years. And so, we remain confident in all those things. And it's not going to turn on a dime, it doesn't and it can't, but we're confident that we'll be producing much better returns going forward based on the steps we've taken.

Steven Truong - Barclays Capital

And my follow-up is I want to hear a bit more about the sort of sales pipeline, the level of consultants perhaps going through the organization, and perhaps some of the success recently with INTECH, and is that going to be lumpy in nature? Or can we see a positive trend from here?

Richard Weil

I'm not sure I heard that whole question, I'm sorry.

Steven Truong - Barclays Capital

I was just wondering about the sales levels and the trend going on currently, and consultants going through the organization, perhaps, and perhaps some of the positive momentum we're seeing here in INTECH?

Richard Weil

Obviously, INTECH's gone through an industry challenge. The industry challenge is around mathematical or quantitative equity, and the entire industry had a rough go of following 2008, and the investor demand for that sort of service fell off significantly. During that period of time, INTECH continued to do its excellent job. It continued to maintain its long-term and very successful process. It returned its track records to significant health, it built on its relationships with consultants and with its existing client base. And I think that's what you'd expect it to do, and that's what they've done. On each of these quarterly earnings calls in one way or another we are called to forecast or look forward for the rate of return of demand to mathematical or quantitative equity strategies, and I consistently tell you and will again today, I can't predict that. I don't know. We are seeing increased interest, but it's up from a low level. We saw a terrific success in Australia this past quarter, and we're very proud of that. But those sorts of wins will, of course, be lumpy, and I think INTECH continues to do a very good job. It's an extremely, it's an excellent and valuable franchise, and they're going to win in the medium and long term. But the short-term predictions, I just can't give you.

Operator

Our next question comes from Ken Worthington from JPMorgan.

Kenneth Worthington - JP Morgan Chase & Co

I wanted a little more flavor on the new compensation policy and the thought here is in the say on pay, I think shareholders rejected the board proposals. Does new compensation structure impact just the investor and professionals or is it more broadly based? And if it's more broadly-based, can we see anything in the second quarter numbers? Because it seems like sales are down, performance is down, and excluding payroll taxes, it seemed comp still seems high or not high but at the same level as it was in the first quarter?

Richard Weil

No, the new program is being implemented beginning after the second quarter. And it encompasses all the employees not just the investment folks, but you can't see it yet. And it is designed to align our employees with each other and with our owners in their alignment with profits, and you should see that effect going forward as profits change.

Kenneth Worthington - JP Morgan Chase & Co

And then just for Greg. On the hedges, on the investment portfolio, are those hedges still in place? Are they being allowed the roll off? Has anything changed there?

Gregory Frost

Ken, nothing's changed specifically. I think we'll find, as some of these new products come online, they are either more difficult to hedge or too costly to hedge, but we continued the program that we started a number of years ago. And for the most part, it's been effective. You are seeing an investment loss in the quarter, which really relates more to our mutual fund awards and the economic hedge we have on those, as we talked about, I think, last January. But the hedge and the C capital are still here and largely effective.

Operator

And our next question comes from Bill Katz from Citigroup.

William Katz - Citigroup Inc

Could you talk a little bit about the profit dynamics between the business won and the business loss? And specifically interested in some of this the shift in impact and some of the sub-advisory mandates versus some of the fundamental equity outflows. Is there any kind of overcharge here, if you will, between the fee rate and/or margins based on the full dynamics?

Richard Weil

I think it's -- we don't disclose the individual fee arrangements around those elements. But I think it's fair to say that, in general, fixed income and some of the mathematical strategies come on at a lower fee rate than the fundamental equity strategies, and that's true.

William Katz - Citigroup Inc

I was really more concerned on the profit side.

Gregory Frost

Bill, we just -- we've never disclosed that level of detail. And given the different cost structures in the business, I think it's safe to say there's certainly a revenue impact, as Dick said, but the expenses, I think will be pretty uniform. So I don't know that you're going to see a huge difference there.

William Katz - Citigroup Inc

Okay, that's helpful. And the second question is, just as you talked with -- I mean you may have addressed this before, I apologize, I was just wondering, maybe one more time, as you talked to both the institutional consultants, as well as the retail gatekeepers, how comfortable are they with some of the changes or fine-tuning you're doing here relative to the performance issues and has there been any sort of structural shift in terms of platform being on platforms, if you will?

Gregory Frost

We talk to those folks every day pretty much. And their concern is aligned with our concern, and of course, that's not by accident. We are all focused on improving the performance in these important fundamental equity strategies. That said, the relationships are much bigger than individual products. And it encompass multiple products, multiple platforms and their multi-decade long relationships. And so, it's important to think about those 2 things, I think, on different levels. The relationships remain good. The take-up of our new products is good. We're delivering good performance. We're seeing good reactions and take up from clients and from distributors. So I think that maybe as close to answering to your question as I can get, I hope that's helpful

Operator

Our next question comes from Cynthia Mayer from Bank of America.

Cynthia Mayer - BofA Merrill Lynch

Since you gave the pro forma impact of the performances for 2Q and you said that the --- that would, unless the performance improves, it would impact the comp, I'm just wondering if you could keep the pro forma impact, on what comp would have been in 2Q?

Richard Weil

I'm afraid, we can't do that. I'm sorry, Cynthia.

Cynthia Mayer - BofA Merrill Lynch

Okay. And also fixed income and INTECH continued to outperform would that in some ways, offset the comp savings on the fundamental growth side due to the performance fees, or is or when you talk about an impact, you're talking about net?

Gregory Frost

Obviously, we believe in performance, and those folks who are performing should see significantly better pay results. But overall, the net needs to be more aligned with the profits.

Cynthia Mayer - BofA Merrill Lynch

Okay. And given the pro forma performance fees, do you think you could still make the 30% margin goal?

Gregory Frost

To me, Cynthia, that's always been our long-term goal, I suspect that there's going to be some short-term pressure on that number.

Operator

And our question comes from Marc Irizarry from Goldman Sachs.

Marc Irizarry - Goldman Sachs Group Inc.

Just following up on the question on the operating margin. You talked a little bit about I guess about expenses and being able to control them in the future, performance fees come in light. Is the operating margin here becoming more volatile? And can you talk maybe about what sort of expenses, where the controllables are, should we be thinking the operating margin volatility increasing, given the lower performance fees?

Gregory Frost

I think it's a mathematical outcome of the role and size the performance fees that we'll see some volatility in operating margin. We can't compensate for that, as fast as it might change. And I also think, compared to other variable costs that we have in the business which vary with assets because this is a performance fee account which impacts only revenue, that you're not going to see the same variable impact in other cost that we do and things like distribution costs. And so, the effect is going to a little bit harder for us to mitigate as we go forward. But as Dick has said, as Bruce has said, we're going to do our best to manage expenses tightly and try to offset that, but you're not going be able to get all the way there.

Marc Irizarry - Goldman Sachs Group Inc.

And then just in terms of your global distribution, can you give a little bit of perspective on where you see some success and then also, you know what sort of the path of investment in that look like, i.e. what's the sort of expense structure and investment sort of supporting the growth overseas?

Richard Weil

Obviously, this win in Australia was a significant win for our non-U.S. team, and we're seeing some smaller successes in other countries. In terms of the size of the investment, at the moment, I think we're in the marketplace for about 9 new sales people. But a lot of that is reallocation of existing resources from management heads that we leaned out in order to make, to reallocate towards being in the field. And so, that shouldn't be a big net investment. Going forward, we're going to work with our leadership team in our non-U.S. business to assess the opportunities. And it's pretty hard at this point to give you a more specific picture of how that investment might look. Entry into some new markets might require some more significant investment, at this point, we just don't know. I think what we do know is we have a philosophy that we want to be very responsible with our shareholders' money. We have very long-term target of 30% plus margin, and we're going to work really hard to deliver those things. But I can't be more specific about build-out in non-U.S. It's a complicated question, and Augie has only been here 3 months or so. So we've got a little more work to do before we can get specific on those plans.

Gregory Frost

And we've also -- we've talked about in the past that the 2011 kind of investment in the business budget was fairly very consistent to '10. Any further investments like Dick was talking about would be included in that number. It wouldn't be incremental to that.

Operator

And our next question comes from Jeff Hopson from Stifel.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc.

Could you update us on the potential level of INTECH performance fees, especially if the performance improvement continues? And then, perhaps you can address kind of the marketing and promotional and distribution costs moving forward in a more challenging environment?

Gregory Frost

In the second quarter, we show an overall negative performance fee of 0.2 on the P&L in the appendix side. That's comprised of $1.8 million of negative fees on the fund side, as we talked about, which obviously has the pro forma effect much larger and a positive performance story primarily at INTECH of about $1.6 million. So there is opportunity at INTECH, especially with their better performance, to gather in performance fees. Whether or not that can offset what we may face on the Janus side, it's too early to tell. There is opportunity for them to earn better performance fees, but likely not at the level that we may see the negative side on the Janus side.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc.

And historically, I believe in the fourth quarter, there was higher performance fee historically, did that come from INTECH?

Gregory Frost

That was a onetime, kind of an annual payment that was made, and that was a Janus account. But we do not expect that to repeat. And then on your distribution question, there were some onetime, as I mentioned, there were some onetime costs kind of running through the distribution line this quarter. We don't expect those to repeat. As I mentioned, the EPS impact of that was effectively mitigated by the lower effective tax rate. And the marketing side, I think we saw some seasonal sponsorships and things pick up in Q2. As Dick mentioned, there's a lot of good things going on in the firm, and we need to be out there talking about it. So we would expect those, that level of cost to continue.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc.

And I'm sorry, I know you said this, but the win in Australia was or was not in this quarter?

Gregory Frost

It was.

Operator

And our next question comes from Robert Lee from KBW.

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

Real quickly, is it possible to get a little bit of color, you've been, as you suggested in the second quarter and I think over the past year or so, you kind of have been on an accelerated pace and new product, new products fixed income, global products is, how should we get any sense or color on, if we look at kind of fixed income sales, and maybe global sales, how the -- what proportion, are you starting to see a significant increase in the mix in terms of these new products coming at larger proportion of sales and kind of sales really accelerating, any kind of color you could provide around the momentum of the newer products would be helpful.

Gregory Frost

That's a hard one for us to answer. As you know, we don't give forward-looking projections or guidance. I think it's safe to say that in our fixed income business, we are experiencing accelerating momentum. And we're seeing it broadly, and we're seeing it inside the United States and outside the United States. The fixed income story is part of, I think, the increasing momentum in our international. It's a very important part of the increase in momentum in our international franchise. And I don't think I could give you more color than that.

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

Okay. I think you've mentioned that you invested -- used about $90 million to seed I think it 2 new products in the quarter. Now I guess over time we've seen across the industry that the amount of capital needed to seed new projects has gone up, but are those more traditional products? Will you discontinue that level of capital just to get them on the platform or are there some thing that may be some color what this new products are and are they some type of quasi-alternative strategy? Just I'd like to get a better feel for that.

Richard Weil

Sure. that was an unusual amount of investment for us, obviously, that's not a run rate or anything close to it. We have a pretty healthy investment right now in seed capital, and we don't expect it to be going up in large amounts, based on what we're currently planning. That was driven by our new real return product, it's is a multi-sleeved product where the relationship between each sleeve is -- -- needs to be the right percentage. And therefore, the aggregate is driven by the needs of the most thirsty sleeve, and the multiplication on that was, Greg, you'll remember, there's $40 million in that individual product. So $40 million of that $95 million was one product. But in essence, we sit down with portfolio managers of each of these products and try and determine what's the reasonable amount that they need to reliably deliver investment excellence. And then on occasion, for some of these products, we talk to distributors who have minimums that they would like to see in order to let it in their system, and we can occasionally be persuaded to put to in a little extra seed money to make it more palatable to some of our distribution partners. The 5 or 6 products that comprise the seed capital budget are the real return one that I just mentioned, which was a joint venture with our partners at Armored Wolf. We have our Protective Series Growth fund, which is very important new product for us, our long-duration products, Asian Equity, managed by our new portfolio manager, Hiroshi Yoh. I think that maybe it for the quarter.

Operator

And our next question comes from Jonathan Casteleyn from Susquehanna.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

I'm just wondering how far back on average does the measurement period go for the new funds that would create the negative performance fees. And then with the assumption be that on a go forward basis, you would need outperformance of at least that length of time to kind of wash out what would be performance fees?

Richard Weil

The 3 or 4 new products that are coming on board, some of our larger funds, as Dick mentioned earlier, the performance clocks started to tick on those on July 1, 2010. So they only have a 12-month record. And so, I think when I made the point that they can be highly volatile, some of these new funds coming online can be, because the performance periods is quite short.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Okay. So on a go-forward basis, they could effectively unwash some of that negative performance with short-term positive performance, correct?

Richard Weil

Yes, I think. Some of those funds can move and move quickly, yes.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Okay. And then just on the core growth products, the outflows, can you characterize the outflows, meaning were they widespread versus a couple of large redemptions and any sort of incremental color there would be helpful?

Richard Weil

I think they were broad redemptions based on performance would be my impression. I mean clearly, there were some larger pieces and smaller pieces in the mix, but there were significant redemptions. They were focused on the funds that were underperforming. They went relationship-wide, they were product-specific, by and large, and they really reflected the performance challenge.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

And then Greg, real quick, while have you, the tax rate going forward, I know this is your last quarter. Just going forward, are you going to normalize to sort of the prior levels or...

Gregory Frost

Yes, you should see it move back from the statute rate 37.25%. Yes, we disclosed in our Q, we will have some more reserves to the thin 48 line coming off, likely coming off over the next 12 months, which will obviously impact the rate. But I think you should see the 37, 2 5 be pretty consistent.

Operator

And our next question comes from James Shanahan from Wells Fargo.

Jim Shanahan - Wells Fargo Securities, LLC

As a follow-up to Jonathan's question, based on Lipper data, there is some evidence here in June of improved performance for several of the funds for which performance fees were recently or will soon be implemented, this includes Janus 20, Janus 40, where they were year-to-date 10th decile performers, but that improved to 6 decile. And Janus Fund eighth to fourth. And I'm curious, would you attribute this recent performance improvement to market weakness and sort of relative outperformance for some of these early conviction bets that you've kept on?

Richard Weil

I think I'd be getting on very thin ice to try and characterized the short-term investment results. As you know, this gain is more of a medium and long-term investment performance gain, and those are the records that matter. And I couldn't aggregate what's happening across a number of funds in the short term and give you a very coherent response.

Jim Shanahan - Wells Fargo Securities, LLC

Okay. I would like to ask of another follow-up question on the Quant equity, can you tell us what the average fee rate was on that new mandate and/or how would that compares to the fee rates for similar mandates during a stronger period for Quant flows?

Gregory Frost

We just don't, we've never and would never disclose that level of detail in individual mandates. So I'm sorry, we probably can't answer that question.

Operator

Our next question comes from Michael Kim from Sandler O'Neill.

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

Just a couple of questions here. First, I know you mentioned earlier, platform placements aren't actually up this year, but do you have a sense of the percentage of your retail intermediary assets that are maybe sourced from model portfolios on the broker platforms?

Richard Weil

I have a sense of the size of the relationship with the broker platforms, but the composition in terms of how many model portfolios are underneath that, I don't have a great sense of that. So I can tell you that our largest relationships approach 5 percent-ish of our assets is a firm. But beyond that, I can't tell you how many model portfolios and what concentration there might be underneath that.

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

Okay. And then just second, in terms of the recent INTECH win, any sense of the factors that may have contributed to that win? Was it a function of the performance more recently, maybe more of the marketing push overseas versus maybe more demand for mathematical strategies more broadly across the industry? Any color there would be helpful.

Richard Weil

I guess I think the answer is all of the above. I think we have fine people building the relationships there in Australia. I think the performance was very strong, and there was actually some customization around what the client wanted in the mandate. I think it was just an excellent team effort that delivered that result.

Operator

And ladies and gentlemen, it does look like we're coming up to the allotted time for this conference and only have time for one additional question. And that question comes from Jason Weyeneth from Sterne Agee.

Jason Weyeneth - Sterne Agee & Leach Inc.

I'm just trying to get a sense of where you stand versus benchmarks with the performance fees. On an overall or fund level basis. Is the right way to be thinking about how far you are from those, just looking at the 15 basis points times the assets as sort of the maximum impact you could have. And I guess similarly, is it completely linear as you look at the performance versus the benchmark?

Gregory Frost

I think the answer to your question is yes on both counts. It is a -- you can get to the maximum end by simply taking 15 basis points times asset, and it is linear.

Richard Weil

Before I let everybody go, I'd like to just express my thanks to Greg Frost for his many years of terrific service. He's been a wonderful partner for me in the last year and a half. He is an excellent CFO, as a professional, and just a fine human being. And I personally and, speaking on behalf of all of his colleagues at Janus, we wish him the best in his future. And of course, we welcome, on other hand, the guy Janus is always looking forward and back, the forward look is welcoming, Bruce Koepfgen is our CFO, and you'll be hearing from him on future calls. Thank you everybody.

Operator

And ladies and gentlemen, this does conclude today teleconference. We thank you for your participation. You may disconnect your phone lines at this time and have a good day.

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