Janus Capital Group's (JNS) CEO Dick Weil on Q1 2017 Results - Earnings Call Transcript

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Janus Capital Group Inc. (NYSE:JNS) Q1 2017 Earnings Conference Call April 20, 2017 10:00 AM ET

Executives

Dick Weil - CEO

Jennifer McPeek - CFO & EVP

Analysts

Ken Worthington - JP Morgan

Alex Blostein - Goldman Sachs

Patrick Davitt - Autonomous

Robert Lee - KBW

Chris Harris - Wells Fargo

Craig Siegenthaler - Credit Suisse

Michael Cyprys - Morgan Stanley

Michael Carrier - Bank of America Merrill Lynch

Operator

Good morning. My name is Jennifer, and I will be your conference facilitator today. Thank you for standing by and welcome to the Janus Capital Group First Quarter 2017 Earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. In the interest of time, questions will be limited to one initial and one follow-up question.

In today's conference call, certain matters discussed may constitute forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements due to a number of factors including, but not limited to, those described in the forward-looking statements and Risk Factors sections of the company's most recent Form 10-K and other more recent filings made with the SEC. Janus Capital Group assumes no obligation to update any forward-looking statements made during the call. 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.

Dick Weil

Thank you, operator. Welcome everyone to the first quarter 2017 earnings presentation for the Janus Capital Group. As normal, I'll give you an executive summary from my perspective, our CFO, Jennifer McPeek, who will take you through the results in some more detail; and then we'll address some special topics and lastly take questions.

So starting at the top my perspective on the quarter really has three parts. First, we saw some disappointing net outflows primarily driven by challenges at INTECH which were not entirely surprising given the challenges at investment performance that INTECH put on in the second half of last year which we've talked about on prior calls. However, despite the headwinds at INTECH, we continue to see growing market share among our fundamental equity strategies in the U.S. So the first element was net flows.

The second element I want to call your attention to is improving short-term investment performance. Now I think we all have to be careful, short-term investment performance is never something we want to make too much of but we were encouraged that investment performance during the first quarter and our largest fundamental equity strategies and at INTECH was improved. Third piece I'd like to call your attention to is obviously the merger with Henderson. As we prepare for Janus and Henderson shareholder meetings next week; we're more convinced than ever that the combination of these two firms make both of us stronger than either would be apart. We're making good progress building a single leading global active asset manager.

Over the last three months we continue to do very important things with people, with process, a bunch of legal filings, making progress on the proxies; and so from a process standpoint we're really getting there and we're anticipating success in our meetings and proxies etcetera. And separate from that on the people side we're continuing to reconfirm that the folks at Henderson are really a good match for us, and that together these firms can join and form a single new firm which will deliver a greater strength than either one would have separately. So our level of conviction continues to rise.

With that let me take a look slightly more deeply into each piece. First, looking at flows; first quarter 2017 company net flows were $4.7 billion out compared to net out of $300 million in the fourth quarter of 2016. Obviously the biggest difference was INTECH; INTECH's net outflows in the quarter was $3.8 billion compared to $1.6 billion out in the fourth quarter, driven substantially by recent underperformance which we've talked about. It's important to note that that first quarter outflow was driven by two large mandate losses totaling $3.3 billion. I think it probably goes without saying that when you lose to large mandates like that they tend to be at a lower fee rate which is certainly true in this case; and so it will have less revenue effect than you might have thought on the AUM line. I'll talk a bit more about INTECH later in the presentation.

Despite those challenges we were encouraged that the U.S. intermediary channel at our first quarter 2017 fundamental equity net inflows of approximately $600 million which is a 7% annualized organic growth rate comparing favorably on a relative basis to meaningful outflows across the U.S. active equity mutual fund industry. And obviously that's our most important marketplace and that's tremendously important validation of the progress we're making and the good work of our people. Perkins continues to improve with net inflows of approximately $200 million in the first quarter of 2017 which represents an annualized growth rate of 6% for them which also compares very favorably to the industry and we're really pleased to see Perkins continuing to restore itself to strength in that part of our franchise.

Moving onto performance; in fundamental equity we were pleased to see good performance out of our fundamental equity strategies during the quarter. Again, caveat, it's a quarter and so I don't want to make too much of it but as you may remember the first quarter of last year was particularly challenging for the strategy; I'm happy to report that we came out of the gates much stronger this year. At the end of March, 62% of our fundamental active equity assets were outperforming peers over the one year timeframe compared to only 46% at the end of the fourth quarter. Additionally this better performance also led to some modest improvement in our mutual fund performance fees during the quarter.

At INTECH, while serious underperformance was present in the second half of 2016 and obviously was the major factor in their flows, in the first quarter all but one of their relative return strategies experienced outperformance. One quarter of outperformance won't fully address the challenges they face but it's a good start to this current year.

A third and final piece of the story is the proposed merger with the Henderson Group. For the last seven months both organizations have been focused on preparing or launching the new Janus-Henderson and we've made significant progress. The work we have done has solidified our commitment to this transaction, we stand here today even more convinced than we were when we signed the deal that we are on a good path to creating a leading global active asset manager. We will have enhanced ability to deliver superior service to a broader range of clients, we're going to have a richer and broader investment team and we're going to be better positioned to capture operating synergies and operating leverage as a combined firm. So we should be stronger on the client side, on the investment side and financially as we face the challenges that our industry faces.

With all that said let me turn it over to Jennifer McPeek for a deeper dive into the quarter's results.

Jennifer McPeek

Thank you, Dick. Let's turn to page 7 with the summary of our financial results. Our average AUM increased 5% compared to the fourth quarter as a result of market gain which were partially offset by total company net outflows during the quarter.

First quarter average AUM of $201.4 million was the highest quarterly average since the fourth quarter of 2007. Our first quarter revenue was $257.6 million, that's a 2.5% increase compared to the prior quarter and that results primarily from the net impact of this higher average asset offset by two fewer calendar days in the quarter. Reported operating income was $55.3 million or $75 million when it's adjusted for almost $20 million of merger expenses. Our adjusted operating income was 6% higher than the prior quarter and 20% better than a year ago.

Reported earnings per share were $0.17 for the first quarter, excluding $0.06 of merger costs, our adjusted EPS is $0.23 compared to adjusted EPS of $0.20 in the prior quarter and $0.19 a year ago.

Slide 8, investment performance. The fundamental equity performance remained strong with greater than 60% of assets in the top two Morningstar quartile across one, three and five-year basis. The one year results got noticeable improvement quarter-over-quarter as the funds put up strong results. Additionally, 56% of our complex-wide mutual funds have a four or five star Morningstar rating. Mathematical improvements or INTECH strategies improved during the first quarter relative to what we saw in the second half of 2016. However, it will take some additional periods of outperformance before we see those improved results reflecting in our reported performance. Dick will discuss INTECH a bit further later in the presentation. And despite some challenging relative performance for fixed income I will note that the absolute returns are solid and are in line with our client's expectation.

Slide 9 breaks down our flows. Our first quarter total company net outflows declined to $4.7 billion of outflows. INTECH drove the majority of outflows in the quarter primarily from two large mandate losses that totaled $3.3 billion. Fundamental equity outflows were $600 million for the first quarter. Perkins was a highlight, they continue to do well and had positive flows again this quarter. Despite total outflows for Janus equity, a sub-channel results in our U.S. intermediary business was very positive; they actually posted their fourth consecutive quarter of positive equity net flows which continues to capture market share and is particularly encouraging given headwinds for active equity in that channel.

Decline in fixed income flow quarter-over-quarter is mainly attributable to the absence of the large mandate win, which we experienced last quarter. Now Slide 10, we break down our revenue and our performance. As I noted earlier total revenue increased 2.5% over the prior quarter.

Higher management fees reflect higher average AUM offset by fewer days. The weighted average management fee remained unchanged this quarter at 46.3 basis point. Performance fees [ph] in our mutual funds were slightly improved negative $13.2 million compared to negative $14.2 million last quarter.

Private account performance fees in the first quarter were negative $0.5 million, which compares to $0.1 million in the fourth quarter. Negative separate account performance fees are not a normal part of the fee structure but it was related to an account terminations at INTECH, not expected to repeat.

Slide 11, Operating expenses. Total operating expenses were up 7% compared to the prior quarter however, if we exclude deal expenses, operating expenses were only up 1% compared to the fourth quarter. The ratios the total comp to revenue ratio for the quarter was 42.3% is very much in line with our historical ratios and also with previous guidance.

Operating margin when you exclude the deal related expenses was 29.1% a nice improvement compared to an adjusted margin of 28.2% in the fourth quarter, and 25.2% a year ago. LPI expense for the first quarter was $18.1 million compared to $19.4 million in the fourth quarter, and the deal related costs were $19.7 million. $19.7 million has a few large chunks in it, $14.5 million was in the marketing and advertising line that was largely related to proxy expenses for both the corporate merger and more significant laid a mutual fund mergers. We had above $5 million deal related costs in the G&A line, that legal, other advisory fees from P&A.

Now I will turn to slide 12, and look at our balance sheet and capital management activities. Total cash investments decreased approximately 18% due to some of our seasonal compensation payments along with the purchase of the remaining 49% interest in Cap [ph] stream, we return roughly $20 million shareholders in the quarterly dividend and on April 18, the board approved a quarterly cash dividend of $0.11 payable in May.

With that I'll turn it back over to Greg for an update on INTECH and the progress of our merger with Henderson.

Dick Weil

Thank you, Jennifer. Turning to our Special Topics The first is INTECH on Page 14, we presented a chart with INTECH composites showing their three year performance on a quarterly basis, each dot is a three year period of time measured for each quarter, and what it shows is 385 of that 589 periods or 65% of the time across these 16 composite net of fees, INTECH has generated outperformance over that preceding three year period of time.

You can see by looking at the distance of the blue dots and the red dots from that center line, that they done really well in controlling risk by and large, and so as you look at the closeness of those red dots to the diagonal line, which you can see as even when they have faced under-performance for that three year period of time that under-performance has been relatively modest.

I think it important after a really difficult last six months of 2016, to go back and look at the full record from INTECH investment performance and acknowledge that while that six months was pretty darn painful for clients and for us, it doesn't invalidate that very long and powerful track record that they put up across these 16 composites for many years. And so I continue to have personally a lot of confidence in the excellence of their work, and I know we're going through a difficult period but I think they will have the opportunity to continue to prove that in the years ahead, and we remain optimistic about their long-term future.

Turn to Slide 15. We've laid out the investment performance of INTECH’s five largest strategies by composite. I don't want to make too much out of just one quarter of investment performance and frankly, the prior page is a much more significant set of time periods to look at when assessing the strength of INTECH’s investment process. But given the way our business works, I think we all know that after putting on a very difficult period over the last year, certainly the last half of last year; the first quarter took on significance maybe outside significance as it affected our clients.

You can look at the five largest strategies here and in Q1 they all demonstrated some substantial outperformance and as noted on the bottom of the box here on Page 15, the five largest composites represented here accounted for 60% of the assets under management at the end of March.

So as I said earlier, all but one relative return strategy in INTECH experienced out performance in Q1 and I think that's an important signal to clients to earn the time and respect to continue to deliver our performance and dig out of the hole that they've suffered in the last half of last year. I can't predict the future, I can't predict what the net outflow scenarios look like for INTECH, obviously they've gained and lost assets in a lumpy fashion and that makes it particularly challenging I think to assess in the short term. But I think if they can continue to put up good performance and dig out of the hole we remain very optimistic before their ability to come back and get back to positive growth.

So again, caution that it's only one quarter of performance but optimistic signs coming out of that period for INTECH. Let’s turn to Slide 16.

Slide 16 is really about reminding ourselves why is it we're going through this very difficult and challenging merger process, obviously with thousands of pages of documents filed and lots and lots of people impacted in all sorts of ways, this is just a gigantic effort that has really taken extraordinary work on the part of teams that Janus and Henderson to carry off, and I think it's worthwhile going back and asking ourselves are the premises still true. Why did we do this and why are we convinced it's a great deal.

Well the first thing is looking at the two companies and putting them together, our distribution, our client relationships are strong in different channels, in different countries, in different places and putting them together gives us a much stronger client roster and a distribution opportunity. And I think as we've gotten to know each other through this process, we are even more convinced that that is true, and that the combined firm will have a better opportunity on the distribution side.

The second thing, we've been exploring in obviously even more detail is putting the investment teams together. And as we've done that work in communicating with people and started building the single investment team coming out the other end we are confirming our initial belief that these two investment teams when put together can create a broader, deeper and stronger set of investors than either one of us had on our own.

And finally, we've obviously made some promises around synergies and economies of scale, and as we worked together as two firms to prepare for closing day, we've become increasingly confident that we can deliver on those promises and that the combined Janus-Henderson will have increased opportunity to deliver profitability to our clients.

And so all three central premises of the deal I think have been strengthened through the process of working through the actual merger, and as I stand here today I am more confident than I've ever been that this merger is the right step for us as Janus Capital Group but also for both companies and that the resulting single company will be stronger than either one of them independently.

Page 17, highlights some progress today. Across both firms we've made great progress in personnel decisions and in establishing new leadership teams and each department and across the firm, we've made progress with our U.S mutual fund shareholders in their very, very complex proxy processes for us on shareholders have met the requirements outlined in the merger agreement as the threshold condition for the deal. We're on track for a combination of our mutual fund trusts which is scheduled to be completed by early June.

On the branding and promotion side, we've had teams from across the globe work together to ensure that we're ready on Day 1, of the combined organization to present a brand identity of a unified organization and deliver seamlessly to our clients. We’ve done a lot of other prep for Day 1, including sales teams getting training on the respective new products from each side, so that we can begin to develop the new sales processes to sell each other's product, and to fulfill the promise of this combination.

On the regulatory side, we've received all necessary regulatory approvals, and on the cost synergies side we have continued to increase our confidence that we'll deliver the 110 million of synergies that we have previously described.

For seven months, old organizations have been focused on the literally thousands and thousands of to dos preparing for the launch of Janus-Henderson with their clients and investors. I would like to personally thank all of the Janus and Henderson employees for your tireless work, it's been a remarkable effort and you've done great work, I know you're tired but it's really been worth it and I couldn't be more excited about our combined future together, so thank you for all you've done.

With that, I will turn it over to the operator and take questions.

Question-and-Answer Session

Operator

Thank you ladies and gentlemen [Operator Instruction] and our first question will come from Ken Worthington with JP Morgan.

Ken Worthington

Hi, good morning. Should be a lot of question on INTECH but maybe to start off there, was there rationale given by the two big redeemers this quarter. And do those investors still have meaningful investments in either INTECH or Janus more properly.

Dick Weil

Thanks Ken, this is Dick. One of the two was a full termination and ended the relationship and the other one was a partial redemption. Other than that I wasn't in the meetings of direct communication, I can't tell you precisely what was said but -- but it's clear that the under-performance of the last half of last year played a significant role in their decision-making.

Ken Worthington

Okay, thank you and as a follow up 60 some sales slower -- it have been my impression that the Japanese Diamanté Ichi [ph] Where are -- the different buyers of Janus fixed income product over time. What is sort of the latest on this kind of Japanese relationships with regard to fixed income. Maybe what I'm trying to get at is how does it fixed income sales momentum will look like from these Japanese investors. Is it sort of [indiscernible] is it as deteriorated, is that why sales in fixed income maybe less robust than they had been, any -- any connection between the Japanese and fixed income, thank you.

Dick Weil

Well. Let me start from the top of just looking at our assets in Japan as a bucket across that bucket approximately 42% of it is invested in fixed income. About 45% of it is invested with INTECH, and about 13% of it is invested in fundamental equity by Janus and Perkins. So that's the breakdown. I can’t tell you that I have noticed a big trend in motion there, most recently our very good partner Dai-ichi has been focusing on making some initial investments in Henderson strategy, which we are really grateful for and if it continues their history of tradition of being just outstanding partners.

And so I would say the relationships in Japan are as good as they've ever been and we couldn't be more grateful. I don't think there's a big change in appetite to report for fixed income at this point.

Ken Worthington

Great, thank you very much.

Operator

And next we'll hear from Alex Blostein with Goldman Sachs.

Alex Blostein

Great. Good morning everybody. Question on the merger. Two part question I guess there, so I guess one as you guys get closer to completing the deal and the strategies have been a little bit more aligned I am wondering if you can give us any updated thoughts around kind of organic benefits that you thought you could achieve by doing this deal, I think it was a couple hundred basis point improvement and what you out of the way sort of. And then separately I guess on the synergy front as well, anything that particularly makes you a little bit more concerned now that you guys are probably having more conversation with clients and on both Janus side and Henderson side.

Dick Weil

Well, let me start by responding to your second point of our clients. The client feedback continues to be overwhelmingly positive. Of course in a transaction like this you are going to get some people U.S institutional consultants and others who will take a measured wait and see attitude, and that's that also happening. And particularly in areas where there's overlap where there's been a bunch of change they're going to be some clients who are just less than happy with that outcome and we're seeing a little bit of that too. But that really the main client feedback the over whelming client feedback has been quite positive and that continues to be true, it really hasn't changed since the first moment that we've announced the deal.

Again, remind me again what was your second question, I lost it.

Alex Blostein

Just the first thought about when you announce a deal you said you thought that the organic benefit to the business is going to be improving organic growth by I think a couple hundred basis points verses what you have been able to achieve and that was kind of the feedback that you got from the sales people and the distribution channel. Just wondering if there's any update to that number.

Dick Weil

I don't have an update to that number, I think that since that time we've done the good work of starting to inform the different distribution teams, they're starting to report you know increasing enthusiasm about having access to each other's lineups and that's a good sign, but I think it's too early to update the expectations on [indiscernible] of each other's products. I don't have anything more specific than sort of building process and momentum in the price.

Alex Blostein

Got it, thanks. And then just my follow up for Jennifer. When I look at non-comp expenses and again excluding all the M&A charges and excluding distribution expansion, looks like you guys are around $40 million that's still lower so I think it's been a quarterly basis for several years now. So I'm just wondering if you can run rate or not or you guys are holding back on some things, because obviously there is a lot going into the margin right now, and how we should think about that kind of on a Janus standalone basis for the remainder of the year.

Jennifer McPeek

Sure, well. Again Janus standalone basis only be another couple months, so if you're modeling it separately I think it will start to get modeled past the merger, and you should think about it as a combined. There is a reduction and kind of business as usual cost I think you will continue to see that rate as we're going through the integration. I mean there's a lot of effort going on and a lot of expenses being incurred on the deal, and you can only get so much. So yes, and to your question I think if you could run rate.

Alex Blostein

Got it, okay thanks.

Operator

And we will now hear from Patrick Davitt with Autonomous.

Patrick Davitt

Good morning, thank you. Another one on INTECH. Probably is there any kind of incremental anecdotal color you can give around how the clients -- we obviously all know how the clients are reacting to the performance, its redemption notices or client reviews -- or consultant reviews and in the second question around that. Can you just talk about non-U.S demand being high product last year. Has the performance of the last year really impacted that demand.

Dick Weil

Taking your second part of the question, yes the performance has certainly impacted opportunities including opportunities off shore, on the other hand that they do continue to gather some new assets and wins off shore as well so it's -- it's not a one way flow, it's an -- it's a two way flow. And they continue to chase really significant opportunities offshore so. I don't know how I could be more precise and be helpful to you. In terms of color to clients reactions, the problem with trying to answer that is it's a string of anecdotes. Every client these big institutional clients that have made up so much of INTECH’s business they are individuals, and each one has an individual story. So if we start talking about a big Asian institution I really can't say anything that's significantly true about one that is necessarily true about another, and I hesitate to give you points that I don't recommend you extrapolate from.

And so it's hard for me to know -- to do what you're -- it's hard for me to give you anything meaningful in response to your question, but I want to doc it. You know, I think it's a balance INTECH delivered strong results for clients over a period of 30 years but are not all the clients have experienced those 30 years. If you only been here for a year you know the first thing that’s happen to you you've been punched in the nose that's pretty darned disconcerting, and every client is going to have their individual reaction to that outcome, and you can see what that reaction was primarily from two huge clients in the in the first quarter.

So what we face we are -- we're definitely on a delicate watch with clients, that first quarter helps. But we remain unpleasantly sensitive to shorter term results as we dig out of that that hole, that was created in the second half of last year, and I really can't do better than that in describing the situation.

Jennifer McPeek

I have a little bit of data to add to that Patrick, if it's helpful on a growth sales basis, the none U.S sales for INTECH. Were higher than they've than been in all 2016 on an annualized rate, so they are continuing to sell overseas.

Patrick Davitt

And it is fair to say that you don’t know about the other large redemption notices right now, as of today.

Dick Weil

Yes, the way we handle this is we report on the quarter looking back and we don't give a current quarter update of wins or losses, so apologies but we'll be back in next reporting period.

Patrick Davitt

Thank you.

Operator

And we will not hear from Robert Lee with KBW.

Robert Lee

Thanks, good morning, thanks for taking my questions. Maybe understanding -- it's hard to be too precise in terms of synergy from a sales perspective, but when you talk about coming out swinging when the deal closes, I am just kind of curious if you can provide some color around which products sets do you feel like there is the most opportunity whether it's Henderson products that you can sell in the U.S and or Janus products through the Henderson network outside the U.S. What do you feel like is the greatest potential for some near-term traction.

Dick Weil

Good question thanks, Robert. I guess the first thing I want to say is for us to build up a really meaningful success in cross selling is the work of years not days, so I don't want to start with the notion that all of a sudden that there's a huge new tap that will turn on, on day one, it's a process, it's a sales process first you have to complete the internal education and you have to go out and start [indiscernible] your clients to it and you know, then you have to get through the sales cycle start bringing in money. Obviously our central great strength is our U.S intermediary distribution, and our relationships in Japan, and so in those two markets is where I think we can help Henderson most. I think their strength in the U.K and in Europe are places where they can help us the most. But I wouldn't want you to think that you know one day want to huge tap is going to open another one of those markets, both of those are competitive markets and it's going to take some time.

In terms of product mix, that's going to be sensitive to which way folks are moving at which time, our Bill Gross products, Myron shows products are even our concentrated U.S equity products. I think we have some significant opportunities in asset allocation, I think INTECH strategies have some significant opportunities. It's a pretty broad group of things that we can offer to complement what they're currently doing. Coming back our way clearly there equity income products there we will have a chance to help cross their emerging market, products will have a chance to help us, and if the world isn't so negative on U.K and European in those kind of international strategies, they have some strength there that that could certainly help us.

But those are some ideas about where it can happen both in terms of markets and products, but the main thing I want you to know is it's going to be a process that takes more than a day to turn on.

Robert Lee

Thanks, maybe the follow up just maybe a refresher on how we should think of that capital management post-merger, if I remember correctly in my general -- general sense is that they're only Henderson's been much more dividend focus, not so much share purchase obviously you've had stopped buying back stocks since the merger was announced. But post deals should you -- should we think that there's any place for share repurchase, much real place for share repurchase in a post transaction or is it really good -- and then also how I guess relate to that you feel like there's -- between the two farms there's enough capital dedicated towards new products and seed investments or is there any reason to think that gee maybe that will actually pick up those deals as you look at new ways to expand.

Jennifer McPeek

Thanks for the questions, Robert. Our overall payout ratios are pretty similar between the two firms, we think about where Janus was moving towards in our payout ratio and where Henderson is today. But you're right the mix is very different, I think that's largely a product of where the investors are and what the shareholders preferences are. So the new form will be near stock exchange listed. And the treasury and finance team together with the board will look at the best rate, best rate of return on capital so I think it's entirely possible, and maybe I would even go that far to say likely that there will be share repurchases as part of the overall capital return policy. That's not yet been discussed it'll be a matter to put to the new combined board of Janus-Henderson.

The other question on seed. We have a pretty healthy seed book, when we put them together so at this point there's no reason to believe that that would be increased meaningfully in short term.

Robert Lee

Okay, thanks for taking my questions.

Operator

And will now hear from Chris Harris with Wells Fargo.

Chris Harris

Thank You. On INTECH’s performance, is there any color you can share regarding why the first quarter was so strong and strategy works so well then versus the second half of 2016.

Dick Weil

Yes, this is Dick. I think in the second half of 2016 from INTECH’s perspective they saw some things that were really unprecedented in their long history. Affectively the correlation amongst different tail risks give them all at once and they suffered six months in some other strategies a 100 basis points ish of under-performance and they had previously seen episodes of one or two months of 100 basis points a month of under-performance but they've never seen six string together. So what you're really seeing is a reversion to the long term normal pattern in the beginning of this year, which was disrupted through a combination of President Trump last year, and the way it effected them is things that hadn't previously been correlated as tail risks put of all the sudden became correlated and bit them. Their response to that is to ask okay how likely is that to happen again and should we have risk management adjustments in place so that if that happens again we cannot experience as dramatic a loss, and they're doing a whole lot of careful work on understanding that.

I think intuitively we recognize it's possible that some of these correlations may be higher in a world where passive has a bigger sort of risk-on risk-off momentum effect on some parts of the market, and they're studying that issue and as they do they continuously look to improve their -- their risk management compliment to their main investment engine, and they'll continue to study that. And I think there are some lessons to be learned about sort of tail risk and possible volatility out of that period in the second half of last year. But what they're really looking at this year is sort of a return to more normal conditions.

Chris Harris

Got it, that's interesting. And maybe a quick one on your fee rate, INTECH shrinks relative to everything else at Janus, fair to say that's going to put some [indiscernible] fee rate.

Jennifer McPeek

Yes, that’s fair conclusion in that scenario.

Chris Harris

Okay, thank you.

Operator

Okay, we will move on to question from Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler

Thanks, good morning. So on the surface this fixed income business is underperforming pretty broadly but is a big contributor here and its under-performances pretty shallow, so I just wanted to see what is the overall reaction your client base to the under-performance across fixed income.

Dick Weil

Thanks Craig for that question. Let's just start with some facts. The fixed income underperformance is pretty modest as you know, and in particular I want to call attention and actually congratulate those folks on a one year basis since Gibson Smith [ph] left at the end of the first quarter of last year, our Balance Fund is one 135 basis points ahead of its index, our core plus fund is 91 basis points ahead of its index, our short term bond funds 36 basis points ahead of its index. So they've done some really good work since the end of that first quarter, sadly that first quarter of last year was -- was a painful period for their strategy. But I think -- I think they are doing pretty well particularly over the last 12 months and we're optimistic that their clients are pretty well treated and should be satisfied with their performance and that that one year period is obviously a sensitive period after a change in staffing and leadership with Gibson’s departure and they have I think proven their ability to perform very well in that new -- new form.

So I think that's super important. And we're looking forward as well -- as we have been we're looking forward to a really bright future with that fixed income team.

Craig Siegenthaler

Thank you. And then just my follow up on Henderson, we once saw negative flows continue in the retail business in 2017 although they have been improved a little bit, and most are larger funds look to be under performing, so I wanted to see how that business is performing versus your expectations and also which of their products you sort of most excited to sell through Janus [ph]?

Dick Weil

I guess on that second one, I sort of try to address it already apologies if I didn't -- if I didn't hit you with the answer you wanted but I -- I think I've covered that. On the first one, we've all been in this business a while, we've seen performance move around. They had a particularly good four or five years leading into the signing of this deal and we recognize that that's going to move around a little bit. I think their performance is a little bit softer than that since that point and sort of selfishly I wish -- I wish that we’re different. I'd like to be entering this this new world, this new merger with white hot track records but looking at it more realistically at an adult I think they're doing fine.

What's really happened primarily on their flows is I think they've had industry trends in the U.K and in Europe that have not been particularly supportive and that to me are rated a lot I guess based on their comments in the most recent time period. So that seems to be getting better in listening to what Andrew was saying on their call, so I don't have any independent information outside of that, but we’re not doing this deal for sort of today's outcome, what we're really looking at, what I'm really looking at is how -- are these really the good people we thought they were and together do we really form the powerful combination that we were anticipating. And their processes are strong, their people are really good, their market opportunities are terrific and so the more I've learned the more it's confirmed this basic notion that fundamentally we're going to have better distribution, we're going to better economics, we're going to have a broader and deeper investment team and that makes us a better firm. And so just increasing confidence in that and little wriggles around investment performance certainly don't change that view.

Craig Siegenthaler

Thank you.

Operator

One or two questions from Michael Cyprys with Morgan Stanley.

Michael Cyprys

Hi, good morning, thanks for taking my question. Just on coming back to INTECH versus the overall proposition.

Dick Weil

The main investment in INTECH is a very specialized thing and there's not a whole lot I can do to offer helpful advice or complimentary insights to the work of Adrianne [ph] and [indiscernible] to the team of experts at INTECH, on the other hand in communication, in marketing and how their condition for the marketplace we have historically been able to work together, and hopefully have been a constructive sounding board amongst many others here, in terms of how they communicate, explain and market their work and look at a time like this when you're facing some tough performance there is nothing more important than communication. INTECH is spending a huge amount of time and effort and energy making sure that communication is as good as humanly possible, and we're trying to help support them in that.

So I would say our biggest contribution is to try and be a supportive partner and work with them to make sure those communications and explanations are absolutely clear and transparent and strong as they can be, and we've had a lot of people here working in partnership with INTECH on those elements, frankly I wish I could help on the investment side but that's not realistic.

Michael Cyprys

Okay, thanks. But just a follow-up -- changing topics here, just a fundamental equities, the pace of outflows in that business is a little bit elevated in that 28% outflow rate in on page 9 and that's a bit elevated to the 20% to 24% that we've seen over the past few quarters. Is there any notable lumpy redemptions there on the fundamental side? Anything -- any color around what's driving that versus typically still seeing stronger quarter in the first quarter generally for the industry?

Dick Weil

No I don't have any particular color on that, I guess what I would do is compare to industry trends and try and see if there's a lesson there, but other than that I don't have any -- there's nothing particular I would call out in terms of large lumps.

Michael Cyprys

Okay, thanks.

Operator

Our next question comes from Michael Carrier with Bank of America Merrill Lynch. Mr. Carrier your line is open. Mr. Carrier are you there sir. Turning noise down, we will more on to our next follow on queue. Our next question is coming from [indiscernible].

Unidentified Analyst

Okay, thank you very much for taking my question but on INTECH I am so curious, thank you for the extra -- it was very helpful. On Page 14, you highlighted I think -- I think you mentioned in your comments that if you look at the last [indiscernible] our performing, what is that relative to peers if you have the same kind of data set, and how was the product prices in peers.

Dick Weil

I hate to give you a lawyers answer to that I'm struggling to find a straightforward way, it depends how you define peers is really the answer, and I don't have specifics because of that I don't have a great set of specific, and you can look at Morningstar Universes [ph] you can look at quantitative managers you can cut this thing a lot of ways as you probably know at least as well as I do. If you look at active managers compared to active managers in the Universe their track records are pretty strong and their fees are pretty low, if you look at quantitative managers I don't have a really good cross-sectional set of similar data for all the quantitative managers and I really couldn't -- I couldn't give you a perfect answer to that. But again the broad universes of active managers their track records look pretty good, and their fees were pretty low, hopefully that that's enough of an answer to point you in the right direction.

Unidentified Analyst

Yes, that it's somehow helpful. And then second question I have is you mention that you feeling good about the traction of the combination, is that just based on your conversations with your Henderson in China part [ph] or you actually start to get back kind of feedback from the distributors and if that is the case the latter where like geographically do you think you could see the earliest traction. I know you mentioned nothing is short term, you are playing for longer gain, I understand that, but where are you getting the most sort of I would say momentum on the third party side.

Dick Weil

I tried to answer that momentum question earlier, I will say it again what our biggest muscles [ph] are the things that are most significant that we can add are probably our U.S retail distribution and our -- and our relationships in Japan and that's the place that we are you know most focused on delivering help in size and then we both have pretty good starts down in Australia, and I think there is work that we can both do to support each other down there as well. And then depending on what happens with [indiscernible] and France and a bunch of other stuff we're hopeful about the European market as we go the long way and then Henderson can help us both in U.K retail and then across the continent. Those are the places where I think the best opportunities are, as I mentioned we have sales training ongoing in both organization, cross training around each other's products and the feedback from that is increasing enthusiasm, that is what I am hearing from our people reported from that process, and that's certainly encouraging.

But again I want to caution you that I don't read that encouraging feedback is saying on day one there's a new flood starting, sales is a process relationships take time this is going to take some time to introduce these new products, these new track records, these new investment teams to existing relationships, and so it's not a day one thing.

Unidentified Analyst

Okay, thank you guys.

Operator

And our last question comes from Michael Carrier with Bank of America Merrill Lynch.

Michael Carrier

Hey guys can you hear me now.

Dick Weil

Yes.

Michael Carrier

Thanks. Just two last questions. First just on the sales side I think last quarter yet it went on a fixed income, just wanted to see if there is anything you know that was kind of outside this quarter and Dick, I think in the U.S intermediary just wondering given the strength that you saw is quarter versus the industry, if there is any changes in some of the distribution platforms in terms of in the products being offered or are the rate -- ratings.

Dick Weil

I guess Jennifer pointed out I think in the U.S intermediary sub-channel we had this is the fourth quarter of taking market share in a row, and we have good muscle that's that some of our best muscles to reach clients, and they're generating strong growth sales rates as they have been. And no I don't think it is -- I don't think it's a change, I think it's the sort of the continuous hard work of a really good team of people in that market segment, but I don't think I can call out any specific changes this quarter compared to the past. Jennifer, I don't know if you're looking at the numbers you want to complement that.

Jennifer McPeek

I was looking back at our lumpy wins in the quarter to answer your first question Michael. Yes I did see a significant win in fixed income in the first quarter, I don't have any more detail that I can share with you, but that continues. The one in the fourth quarter was really, really large but there is a couple of nice wins in institutional fixed income.

Michael Carrier

Okay, that's helpful, and then just a follow up on one Cap [ph] stream just given the remaining statement broaden, any impact on the P&L it is probably too early but just in terms of pro-forma it think about Henderson in general for anything that we should be thinking about in terms of [indiscernible] comp ratios and stuff like that in terms of what you -- what you typically discuss.

Jennifer McPeek

Sure. So we have in our -- Henderson has in our circular a reaffirmation of our synergy expectations for the transaction and we are very confident in achieving the $110 million cost savings, that will result in a reduction in comp ratios for the total company, that doesn't imply that we will be reducing compensation in an individual level the more that want just going to have fewer headcount per AUM, per revenue, I think it'll probably be in high thirty's going forward, hope that is helpful. And that calculation is on -- on gross revenue basis the way Janus calculates it.

Michael Carrier

Got it. And then anything on Cap stream.

Jennifer McPeek

Sorry, what was the question on Cap stream.

Michael Carrier

Cash flow. Obviously because you guys bought in the remaining stake, like any impact.

Jennifer McPeek

So we bought the 49% that was remaining outstanding with Cap stream and you'll see that come through only consolidated earnings will have a reduction throughout this quarter and our non-consolidated income. So just some below line movement to above the line. Is that really your question.

Michael Carrier

Yes, that was it, thanks a lot.

Operator

And after total I would like to turn the conference back over to Mr. Weil for any additional or closing remarks.

Dick Weil

Thank you, operator. I'll just close by saying look the quarter story I think is pretty straightforward, we're having headwinds with INTECH which hopefully we're too surprising in the sense that we've talked about performance in the last half of the years being seriously challenging, and we're encouraged that they had a good quarter but obviously that needs to continue. More encouraging is our quarterly -- our continued market share gains in active equity space and in our intermediary sub-channel I think we're doing very well there and that's for the Janus Capital Group that's been and continues to be our most important market place. And so that's I think a very significant piece of good news.

Also obviously want to shout out to Perkins with their continued improvement in positive net flows well done to them, well done to [indiscernible] and his performance continuing positive flows in his product which were $200 million a positive in this last quarter. And so we have a range of bright spots, but some challenges as well. As we look to that next, we're excited about being able to face it with the partnership and integration with our friends at Henderson, the more we get to know them the more excited we are about the possible combination -- possibilities of the combination between us, we're just going to be a better firm. And so we'll have better distribution, we'll have better -- have better economics and we'll have a broader and somewhat deeper investment team and the combination of those things really does position us to face the future with greater strength and to do better in capturing future opportunity.

So that's where we stand I appreciate your attention today and I look forward to talking you as Janus-Henderson and in a future period. Thanks.

Operator

Thank you this does conclude today's conference call.

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