Good morning. My name is Grash and I will be your conference facilitator today. Thank you for standing by and welcome to the Janus Henderson Group Third Quarter 2021 Results Briefing. 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 Henderson 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 Henderson. Mr. Weil, you may begin your conference.

Welcome everyone to the third quarter 2021 earnings call for the Janus Henderson Group. I'm Dick Weil. And as usual, I'm joined by our CFO, Roger Thompson. In today's presentation, I'll start with progress we're making towards delivery of our strategy of Simple Excellence. I'm going to give you an update on our view of the sector and how that influences our growth initiatives. And then as usual, I'll hand it over to Roger, who will take you through the results with more precision. As always, following the prepared remarks, we will take your questions. Turning to Slide 3. Five years ago, this month we announced the merger of Janus and Henderson. At the time each firm believed that we needed more scale. And by that we mean we needed to be more global and have more product breadth in distinct areas to compete successfully in our shifting asset management landscape. Long ago, we successfully completed the integration of these two firms, but this five-year milestone provides a useful opportunity to reflect on where we've come from and where we're going. Our combined company is vastly better positioned than either of its predecessors were five years ago. Our enhanced platform has allowed us to invest in people, in technology and systems, which improves investment, distribution, compliance outcomes, and enables us to drive strong operating leverage. We built a strong and unified company culture with a shared purpose that has contributed to our success in attracting exceptional talent at all levels of the organization. And that is, of course, the key to our business. We've continued to make significant progress, executing our strategy across the four pillars you can see on this page. As a result, we're seeing momentum building in our business, which we've laid out on the next slide. We have first-class investment teams delivering active investment excellence and differentiated performance across the breadth of liquid asset classes, backed by a strong legacy of fundamental research engagement and investing with conviction. Our solid investment performance forms the foundation for growing distribution momentum. We've globalized our distribution teams and scaled our presence across institutional and intermediary client channels. We've broadened our capability set by product and geographic reach. For example, our balance strategy, which was traditionally strong in the U.S., continues to be a net inflow in all regions of our business. The strategy has grown from an AUM of $19 billion at the time of the merger to $48 billion today. Our global strategic fixed income strategy managed out of London has more than doubled in size since the merger to over $10 billion in AUM and has seen consistent inflows in the U.S. We've also made significant progress in the last three years towards our near-term aim of positive net flows, excluding quantitative equity. The organic growth rate over the last 12 months, excluding Quant Equity, is almost flat as you can see at the graph on the top right of this page. We've built a resilient high margin business. We've been driving towards best-in-class operating leverage and growing profitability in the business. Our adjusted operating margin for the quarters is 46.4% and 43.5% year-to-date. Our average net fee rate has expanded by 2.6 basis points over the last two years in a time of fee compression in the broader industry. Let's turn our attention from flows to revenues. Think about that for a second. Year-to-date, we've posted $3.3 billion of net outflows, excluding Quant Equity. This has actually delivered almost $10 million of positive adjusted revenue on an annualized basis as a result of replacing lower fee assets with higher fee assets. So, despite the fact that we're frustrated with flows not being as positive as we would like, the revenue effects of our net flows are positive, and we're very proud of that. We're focusing on the right kinds of business, and our clients are valuing our services. So, while we acknowledge the positive impact of markets and changes in the underlying asset mix, we're succeeding in selling high-quality assets, and that's showing up in our business results. This then filters through to higher profitability and also to cash flow generation. Speaking of cash flow, our balance sheet is resilient and we've been disciplined with our capital. This gives us the financial stability and the flexibility to invest in our business and pursue growth organically and inorganically. We've generated over $800 million in cash from operations in the last 12 months. We've also been returning excess cash to our shareholders, both through a stable and progressive dividend, as well as share buybacks. Since we commenced our buyback program three years ago, we've actually reduced our share count by 15%. We've made tremendous progress in the delivery of our strategy of simple excellence, although we still have much more work to do. We've also dramatically improved our flows and trajectory, but we're still not yet consistently delivering the growth that we plan and aspire to deliver. We acknowledge also that our Quant Equity faces significant challenges. We also recognize that the majority of our business operates in mature markets. Our areas of strength are poised to gain market share but are not necessarily aligned with the high growth vectors in asset management. However, the strong base that we've built through simple excellence and our very strong cash flow generation from our core franchise gives us the strategic and financial resources required to invest in our business to deliver growth. We know that the market continues to evolve and there are several trends that we are observing in relation to our business. I'd like to call out four in particular that we've discussed with our leadership team and Board. First, the importance of ESG continues to accelerate changes in the investment landscape and is critical for competitive positioning and active management. Second, in our core retail channels, technology is enabling growth in packaged and customized solutions delivered through multi-asset class portfolios, accompanied by the growth of ETFs as a preferred vehicle for tax and transparency reasons. Third, the world continues to need high-quality income solutions and uncorrelated returns. And we expect to see increased allocations to alternatives across virtually all client sub-channels. Finally, while still in a nascent stage, increased institutionalization, and evolution and deployment of solutions developed on blockchain technology and digital assets, will be an opportunity for asset managers who are able to participate. The good news for us is we have a strong foundation and we’ve made progress, which means we’re well placed to capture growth opportunities both organically and inorganically. Very importantly, our clients value us as a trusted partner. I sit in meetings with some of our biggest institutional and intermediary partners, and they tell me that they trust us. They value our relationship and they want to grow with us. They want to do more business in more areas with us. They tell me that they want us to do more in alternatives in private debt and more in model portfolios. Our clients want to do more business with us meaning we have an opportunity to broaden our capabilities where we can deliver and succeed in higher growing areas. We also have the board’s full support in the execution of this strategy. So, you can expect us to be more aggressive in responding to the delivery of future growth. Let me now turn it over to Roger who can take you through the results in some more precision.

Thank you, Dick, and thanks everyone for joining us. I’m pleased to report another strong set of financial results. Looking at the third quarter, investment performance remains solid with 64% or more of assets beating their respective benchmarks over the 1, 3, 5 and 10-year period. Market strength during the quarter provided a good backdrop for average AUM and revenues. For the quarter average AUM increased 3%, but market weakness at the end of September left closing AUM down 2% from June. Net outflows of $5.2 billion, while disappointing, were concentrated in our Quantitative Equity capability. The overall flow figure marks positive flows in our intermediary business and continued strength in our multi-asset, fixed income, and alternative capabilities. Adjusted EPS was $1.16, flat to the strong prior quarter and up significantly compared to the $0.70 from the same period a year ago. Finally, we returned $140 million of cash to shareholders during the quarter via dividends and share repurchases. Turning to Slide 8 to look at investment performance. Investment performance remained solid with at least 64% of firm-wide assets beating in their respective benchmarks over all time periods as at 30th of September. Starting this quarter, we’ve begun providing 10-year investment performance against benchmark and peers in an effort to provide greater transparency into investment performance. We hope you find it useful. Short-term relative performance compared to peers improved during the quarter with 47% of AUM represented in the top two Morningstar quartiles on a one–year basis compared to 33% in the prior quarter. As stated, the top of the page, the longer-term important Morningstar metrics show that almost one-half of our AUM is in the top quartile against the competitive universe on a three- and five-year basis, a further improvement from the second quarter. Now turning to total company flows. As said, net outflows were $5.2 billion compared to $2.5 billion last quarter. These outflows were dominated by Quantitative Equity outflows, as I’ve said, and over the next few slides, I’ll discuss some of the many encouraging trends we’re seeing in the business. Slide 10 shows the breakdown of flows in the quarter by client type. Net inflows for the intermediary channels were positive $1.2 billion, resulting in a 2% annualized organic growth rate. By region, intermediary flows were positive in EMEA, Latin America, and Asia-Pacific and these were partially offset by small and improved outflows in the U.S. In looking closer at the regions for EMEA and Asia-Pacific, third quarter flows marked the sixth consecutive quarter of positive flows for each region. Within both regions, all major geographies were positive, including the UK and continental Europe for EMEA and Australia, Japan, and Asia in APAC. It’s important to note that the management fee margin in EMEA, Latin America, and Asia-Pacific intermediary is higher than other areas of the business, and these flows are contributing to our strength in the management fee rate as Dick just mentioned. In U.S. intermediary, we’re seeing a diverse set of products generating inflows. In fixed income, we had more than 10 strategies with positive flows during the third quarter led by multi-sector credit JAAA, which is our AAA CLO ETF, and Developed World Bond. Elsewhere, the balance strategy continues to gather flows. These areas of momentum are being offset by the impact of the 2020 performance challenges in our SMID and Mid-Cap Growth strategies. But we note that investment performance has improved in 2021. Moving to institutional. The $5.8 billion of outflows in the third quarter were primarily driven by Quantitative Equity outflows; elsewhere, we’ve taken steps in globalizing the institutional team and bringing on talent, including a new head of North American institutional and head of North American consultant relations. I’ve talked about our strong and diversified pipeline in prior quarters. And whilst funding this quarter has been modest, we remain confident for 2022. Finally, net outflows for the self-directed channel, which includes direct and supermarket investors, were $600 million for the quarter, a further small but sequential improvement. Moving to Slide 11, and the breakdown of flows in the quarter by capability. Equity net outflows for the third quarter were $2.6 billion. The quarterly outflows were driven primarily by small and mid-cap growth strategies in U.S. retail, as well as $1 billion in global enhanced index institutional redemption. Areas of strength included contrarian, global sustainable equity, and overseas. Flows into fixed income were positive $700 million in the quarter compared to a negative $100 million in the prior quarter. The result included $1 billion in intermediary flows across a wide range of strategies, including multi-sector income, tactical income in Australia, global strategic fixed income, and asset-backed securities in the UK. Total inflows from multi-asset were $800 million driven by continued inflows into the balanced strategy across North America, EMEA, and Asia-Pacific. Quantitative Equity outflows in the third quarter were $4.4 billion. Finally, alternative inflows were $300 million flat to the prior quarter. The inflows were driven by our absolute return and multi-strategy products. We continue to see growth in our higher-fee alternatives business showing another benefit of our diversified product set. Slide 12 is our standard presentation of the U.S. GAAP statement of income. Moving to Slide 13, which shows a strong set of summary financial results. The solid green on the right-hand side of the slide shows the improvements in our financial results from just one year ago, with EPS flat to our very strong prior quarter. Total adjusted revenues decreased 10% compared to the prior quarter as higher management fees were offset by seasonally lower performance fees. Adjusted operating income in the third quarter of $253 million was down 6% from the prior quarter, but is up 56% in the same period a year ago. Third quarter adjusted operating margin was a very strong 46.4% compared to 44.6% in the second quarter and 36% a year ago. Lastly, adjusted diluted EPS was $1.16 for the quarter, up 66% on a year ago. Turning to Slide 14, which outlines the revenue drivers for the quarter. As I've just mentioned, the biggest drivers of the quarterly change in adjusted revenue were higher management fees from average assets, which were more than offset by seasonally lower performance fees. Net management fee margin for the third quarter was 47 basis points, which is down very slightly from 47.1 basis points in the second quarter, but up compared to 45.8 basis points a year ago. The strength in net management fee margin was due to both positive markets and changes in the underlying asset mix. As Dick just discussed, inflows are coming into higher fee margin areas, such as EMEA and Asia Pacific intermediary, with outflows being in relatively lower fee margin areas, including quantitative equities. Performance fees were $600,000 in the quarter versus $77 million in the prior quarter, when there were more accounts and funds eligible for fees. Turning to operating expenses on Slide 15. Adjusted operating expenses in the third quarter were $292 million, which was down 13% from the prior quarter. Adjusted employee compensation, which includes fixed and variable costs, was down 14%, primarily as a result of lower variable compensation on lower revenues, and particularly lower performance fees. Adjusted LTI was down 30% from the second quarter, largely due to mark-to-market and fair value adjustments related to certain LTI awards. We provided the usual table in the appendix to allow you to model LTI for future years. Due to lower variable compensation and market adjustments to LTI, the third quarter adjusted comp to revenue ratio was 36.9%. Through the first nine months of the year, the ratio was 40.3% and for the full year, we still anticipate the ratio to be at the low end of the 40% to 42% range, demonstrating the operating leverage in our business with higher assets under management. Adjusted non-comp operating expenses were 1% lower compared to the prior quarter as higher marketing was offset by lower G&A. For 2021, we now anticipate non-comp operating expense growth to be at the upper end of mid-single digit expectations we've previously communicated. This implies significant growth in the fourth quarter, as we invest in the business through technology, brand, and marketing, for example, in supporting the recent launch of our five sustainable ETFs. And finally, our recurring effective tax rate for the third quarter was 21%. The lower tax rate included $2.1 million in one-time benefits, primarily due to a state tax refund. Turning to Slide 16, which is a look at our liquidity. Cash and cash equivalents were $931 million at the 30th of September, a decrease of $34 million, a strong cash flow generation was offset by capital return and capital funding. The funding included approximately $160 million into five sustainable ETFs launched in September. This shows our strong commitment to investing in the business, where we see opportunities for growth, including in ETFs and ESG. During the third quarter, we paid approximately $65 million in dividends to shareholders and declared a $0.38 per share dividend to be paid on the 24th of November to shareholders of record as at the 8th of November. And in the quarter, we purchased 1.8 million shares of our stock for a total of $75 million. As Dick mentioned, since we started our buyback program in Q3 2018, the stock buyback program has been 15% accretive. Now, I'd like to turn it back over to the operator for Q&A.

We will now begin the question-and-answer session. Our first question comes from Ken Worthington with J.P. Morgan. Please go ahead.

Hi, good morning. Thank you for taking my questions. On non-comp, can you give us some more examples of what you're investing in beyond the five ETFs maybe the technology, products and other initiatives? And is the spending likely to continue at that fourth quarter pace through 2022 or should it fall off or even accelerate? Thank you.

Ken, it's Roger. Thanks for that. Yes, Q4 certainly includes some catch-up and one-off items. As you say, we're investing in a number of things where we think we can accelerate that strategy we talked around, around simple excellence or getting to just be a better, more efficient firm or accelerating to future flows. So yes, we're putting money behind those ETF launches and several other launches we're doing. We are doing a little bit more marketing. We're also investing in technology. That's more around small bits of kit to make sure that we've got our teams with exactly the right infrastructure technology for them in this new agile world. So, there is a little bit of catch-up in Q4. So, I expect Q4 to be higher than a regular quarter.

Okay, great. Thank you. And I'll try to dance around this tricky question, but try and has reported a big position in Janus and interestingly, it continues to grow. Dick, if possible, can you talk about how you're working with Trian to drive shareholder value? I think their part of their investment thesis is consolidation. And this morning you began your comments with the merits of the Henderson transaction. Does – are you signaling or do you continue to think that maybe further consolidation can be really value-added to Janus as we look forward over the coming three to five years?

Thanks, Ken. Yes. Taking your second part of your question first. I think we're trying to state plainly that we're going to look hard for opportunities that are both organic and inorganic to enhance our growth prospects. We've tried to give you a sense of some of the trends that we're looking at responding to in this communication. So, I don't really think about that as consolidation, but we can all tie a lot of different words towards those ideas and there will be a significant number of things that we can and should do organically. There may also be some opportunities to do some things inorganically; we'll have to see. So that I hope we're stating as plainly and clearly as we can. On Trian, look, Trian is our largest shareholder and we work hard to communicate on a regular basis with our large shareholders and that certainly includes Trian. Their situation is a little complicated as they sit on the board of a competitor. And, as a consequence, they're not probably perfectly positioned to have the detailed sorts of conversations with us that they might otherwise be. But we're very anxious to hear their ideas and other shareholders' ideas about what's the best way to enhance shareholder value and deliver the growth that we're aspiring to deliver. So, we're in open communication with them. We're enthusiastic listeners to their ideas as well as other people's ideas, and we don't care who the author is; we just want to win.

Okay. Awesome. Thank you so much.

Our next question comes from Ed Henning with CLSA. Please go ahead.

Thank you for taking my questions. Two from me. Dick, you talked about today about pursuing more aggressively the growth strategy. Can you just talk a little bit more in detail about what you're talking about there in pursuing a little bit more aggressively? And as the second question, if you look at your growth sales over the last few quarters that declined in equities and fixed income, is this a concern for you? Is a second one? Thank you.

Yes. On the first one, I don't know how specific, much more specific I can be. We've tried to point you towards the fact that we see ESG. We see changing retail distribution. We see some product opportunities and growth in private debt and model portfolios. So, these are things that are right at the top of our list that we're working hard on and interested in developing. But it's not just what do you want; it's also about what's pragmatically a good opportunity in the marketplace, and sometimes conversations can even come down to things like what are the prices for paying for some of these organic and inorganic developments. So, I think we've been as specific and clear as we can be with you at this point. But if you have a better idea of how to help my response, help me refine it.

Maybe another way of asking that is, what do you think, you've run through a number of things there. What are the more near-term opportunities that are potentials for you as opposed to more medium-term opportunities?

Yes. Look, by saying this, it's not like we're going to have an announcement in these areas tomorrow. These are areas that we're working on, but one never knows how fast one can deliver change in those spaces. So, my crystal ball is imperfect, but these are areas of high energy and high focus, that's what I can tell you.

All right. Let me pick up on the second part on growth flows. You really need to split that into intermediary and institutional. When we look at our intermediary growth flows and we look at on a trading 12-month basis, growth flows are actually up, I think it's 30%. We're seeing really strong growth in intermediary and we're seeing in a number of different areas. As I said, we talked about – I talked about in my script around the growth by geography, but if we look at that in product areas, that includes great growth in global sustainable. It includes growth in European equity that we haven't seen for a while. It includes strong flows in fixed income. It obviously includes strong growth in balanced. It includes growth in areas like our ETFs. So, our AAA – our AAA CLO, I think raised $135 million in the quarter. Clients have now asked us to do a high-yielding ETF, and we've got preliminary registration for JBBB. So intermediary flows, gross sales are strong and they're increasing. What we haven't seen this year is a significant amount of funding on the institutional side. And that's a little frustrating, but there are a number of really good things going on under the scenes. A bit of delay in funding, but that's what's driving those overall lower gross numbers you're seeing. I think you need to split it down into the two pieces; intermediaries are going very well, institutional we're going to wait a little bit longer for things to fund.

Okay. But the pipeline in institutional is still there, it's just taking a little bit longer or are there some issues there on the institutional space?

No. We've always said there's investment for us to do it institutional, again we've talked about how we've globalized that, how we've strengthened that in the last, we've brought on new people, new consultant relations heads, we're continuing to develop products in that area. Some of the things Dick talked about around growth areas would also improve our institutional offering. But yes, we've got a number of things with slightly delayed funding.

Okay. Thank you, Roger.

Our next question comes from Elizabeth Miliatis with Jarden. Please go ahead.

Thanks for taking my question. The first one is just on Intech, obviously it's been a part of the business that's been struggling for numbers within, and the outflow that you recognized today was quite disappointing. I find it curious as well that on your momentum slide; you look at the business X Intech. At what point in time might you start to consider potentially divesting that business and focusing on the other four parts of the business than whatever inorganic things you might also find?

Thank you, Elizabeth. Look, Intech is facing some really challenging situations. It has been facing negative flows. Its performance this year is not what we needed it to be. And it's fair to say that I'm working really hard with the leadership of Intech to assess what are the best opportunities, what are the ways you might reinvest in the business? What are the ways you might reinvigorate that business? Because clearly, it's going through an extraordinarily challenging period of time, and Adrian and I, and the other leaders of that firm are in very intense communication about what are the best ways to help and to move forward in a better direction. But it's fair to say they face difficult circumstances, and this year their performance hasn't been as good as we would've hoped and needed it to be. So, I think those difficult, we're not through the difficult period; there's more to go. I think picking up the specific part on your question, Elizabeth, what we've said is that our intention aspiration, but intention was to be positive – consistently positive flows X contact equity, because we knew that would take a little bit longer, that's why we separated that. I think the other bit, I don't think, again, I think most people realize this is that with an average fee rate of 45 basis points, that includes the quant equity business in the high teens. We just closed that number in the Q4 results in terms of the average fee rate. But that's why we split it out. We own the whole lot. But we can, and we have an intention aspiration to be positive flow. As Dick said, we are positive revenue on flows, but we're not yet positive on flows ex-quant equities. We are headed the right way, but we're not quite there yet.

Okay. Got it. And then my second question is just on the non-compensation growth sort of follow-on questions to earlier. Your guidance does suggest a pretty big step up in the fourth quarter, but I believe that's seasonal. So if you could give color on that. But then, looking up to FY22 should we expect more heightened cost growth coming through just in a post-COVID world?

Yes. As I said, there's some one-off in Q3, sorry, that way we started telling you about now that will come through in Q4. There are – as you say, there are costs that you would expect to come through in 2022 as hopefully the world returns to a normal – more normal base. We've all learned to adapt, so I'm not expecting our T&E to be at the same level it was pre-COVID. But hopefully, it would increase from where it is now as we go to see more clients that there is certainly demand to do that, both from us and from our clients. So, yes, you're right there are some things which are – have been low for the last couple of years. We would expect to come through, but we'll get guidance on next year with 2022 results – sorry with 2021 full year results.

Yes. Thank you.

Our next question comes from Dan Fannon with Jefferies. Please go ahead.

Thanks. Just wanted to follow up on the inorganic discussion where you've obviously been a little bit more forthright in terms of thinking about that today and the press release and on the call. So, I guess curious just more about why now we're obviously seeing this industry is seeing a lot of consolidation, the value of scale. Just wanted to get a sense of how you are thinking about size or appetite for larger transaction versus bolt-on or a little bit more context around the inorganic opportunities that you are looking at?

Sure, Dan. With respect to scale, I think we've talked about this in prior quarters. Scale is helpful if it comes with excellence and diversifying excellence is even better still in many cases, but not at all helpful just to get bigger and get more mediocre. Scale won't save the day if you're not excellent. And so, the problem that a lot of mergers run into is excellence doesn't always run hand-in-hand with scale, and you got to be careful about that trade-off. So, any transaction, any inorganic thing that we would look at would be primarily aimed at enhanced excellence more than just scale. But if you have that enhanced excellence, scale can be extremely helpful. And we have benefited from the increased scale that we've had to make all sorts of investments across our business. And so, it can be helpful as long as the quality level is maintained. In terms of the rest of what we're looking at, I think I've been as articulate about that as I can be at this point. And you're right; the prices for some things that you might otherwise like to do have gotten to the point where you probably won't do those things at this price. So, it's an intersection of costs and benefits and you got to weigh the cost as well as the benefits. And in the world these days, the price of transactions is definitely higher than it was at some prior point. So that counts in the equation. It's definitely something we think about as we look to execute. But if something is really good and the right people and the right fit, small differences in price are something that bankers can work hard to bridge gaps. What we really want to find is we want to find the right fit in terms of excellence, and in terms of culture. That's always a hard thing to find. You always have to describe that as sort of a tail risk. The middle of the bell curve is, you probably don't find a lot of those opportunities. They're hard to find. It's hard to find really good things that are inorganic. Most of the maybe good on their own, right? Maybe good in a different context, but won't fit you. So, it's hard to predict, but what we're signaling, I think very clearly on this call is we're lucky.

Understood. And then Roger, just a follow up on some commentary around kind of the institutional stuff and then kind of the outlook for flows as you look into 2020. You seem to be a bit more optimistic. Have you also mentioned a few hires, so maybe give just a little bit more context in terms of what – as you look at either performance or products or some of the momentum, or maybe less of a redemption kind of issue as you think about the near-term, curious just more around the outlook and the positive term owners you think about next year?

Yes. on the institutional we'll always be – we'll always be more lumpy than the intermediary business. We saw that in Q4 last year when we had some really strong growth flows. And under Suzanne Cain's leadership, Nick Adams specifically around global institutional, that's a team we've been building out. As I say, we've brought on this year, a new very strong global head of consultant relations. This quarter we've added a new head of global – head of the North American institutional. That's an area we are just – we are just mid-sized in, so there is – there will be more work to do. We've added a new head of U.S. consultant relations as well. And Nick and team are working really hard. There are some really interesting things, but as I said institutional is a – I guess more of a rifle shot type game. We need to continue to diversify that pipeline and that's what the team are working on. I'm sorry, I can't really give more specific than that. Sorry, Dan.

Understood. Thanks.

Our next question will come from Patrick Davitt with Autonomous Research. Please go ahead.

Hey, good morning, everyone. First one, last year around this time you started to indicate concern about the performance in those midcap growth strategies. Indeed, the flows did get worse. Now this year we're seeing a similar decline in the one-year performance in the multi-asset bucket. Is this something about the balance strategy that you think can make it more resilient than the equity side, or is it just that the three- and five-year numbers are still pretty good?

Yes, I think the balance – if I'm not mistaken the balance remains ahead of its benchmark, although perhaps not as far ahead as some of its peers in the short term. But over medium, and long-term, and very long-term, it's exceptionally strong as a track record. And I do think in balanced and multi-asset portfolios, sometimes clients can be slower to move. Those tend to – where the asset allocations are built in more products, they can be slower to move. So, I think both things that you point to are true and have an effect on balance. But balance is still leading in flows across every region for us. So, it continues to be a growth story.

Great. And then the second one, sorry if I missed this, some about the materials, but did you give an update on how much AUM you believe is kind of true ESG or impact and how flows have been tracking there?

So, I guess we didn't give that, Patrick, because it's a difficult one. A significant amount of our assets are ESG influenced. And we're working through that. The sort of taxonomy as to what that is as you know, the whole industry is sort of – and regulation is grappling with. Very specifically we've got a global sustainable equity product that's 30 odd years old and had the same manager for a decade and has fantastic numbers and is growing very well around the world. That is about a $4 billion strategy. We've launched a number of new specific ESG Article 8 and Article 9 funds. And we'll register a number more such as about half of our AUM in our European range and our Luxembourg range will be specific, will be registered ESG hopefully by January next year. We've been very cautious. I think we've talked about this in the past. We do think some people have jumped to count as much as they can. As you would expect, hopefully from us, we've been a little bit more cautious around that. We want to do the right thing. We will do the right thing from our clients, and we want to do the right thing with regulators. So, we have been cautious around that. Again, another example would be the five ESG ETFs that we've launched this quarter. We've taken – our investment teams as you know managed money with a breadth of style. We don't have one investment discipline or top-down strategy if you like. But we do have an integrated ESG team. We've taken that from four people that is rising to around 15 people working very closely with our investment team. So, it's an incredibly important area. We're moving fast. And we have a base, as I said, of 30 years of being involved with ESG. So, we've got a really good foundation. We just want to make sure we leverage that properly rather than jumping to some things that you might be seeing elsewhere. Dick, do you have anything to that stuff?

No, I just underlined look, ESG is not going away. It's for real, it's here and it's growing. Climate, every scientist or scientific thing I read suggests the climate challenges are going to continue to increase. And as a consequence, I think, will rise in importance in regulators’ minds and client minds. So, I think this is something that our industry and the world is looking to integrate and reconcile within the right way. And there are a bunch of unknowns. And we're grappling with that. And as Roger said, we're very committed to doing things the right way. We don't want to make promises that we don't know how to deliver, and then make a big public statement and then run home and look at each other and say, well, how are we actually going to do that? We'd rather do it in the other order, which is to know how we're going to do something and then make the public promise. I think that may not be everyone's approach, but that's been ours. So that may make us just a tiny bit slower than others to make some of these promises. But we're very much on the path and working hard and going as quickly as we can.

Helpful, thanks.

Our last questions today will come from Alex Blostein with Goldman Sachs. Please go ahead.

Hi everyone. Good morning. This is actually Aditya just filling in for Alex. Just a quick question on fee rates. Your fee rate remains very resilient, especially relative to those that in the industry. Can you speak to how much of that stability is coming from the mix shift of the underlying assets? And also, how are you thinking about pricing on new mandates?

I’ll take the first part and I’ll leave you to think on the second part Dick. I mean, you're right, it's a blend of both. I guess you could back into it from our description of flows. We said that flows and this is ex the Quant Equity business, flows of the $3.3 billion out year-to-date have around $10 million of positive revenue. So, we are adding higher fee business, clients value what we do. They are asking us to do interesting business and they are paying a right price for that product. So, we are adding to the fee mix. But you're right on top of that, there is beta and that has come through over the last couple of years as equity markets have risen. But I’m pleased it’s been picked up. It’s what we’ve always said that assets aren’t the only measure. They’re all the very simplistic measure of comparing businesses in our industry. But not all assets may be equal. And we’re very pleased to be adding quality assets and I’ve seen our fee rates increased over 2 basis points over the last two years. So, it was a combination of the two.

That consensus fee rates declines.

Yes. So, we don’t have – I don’t have anything magical to say about how we set fee rates with clients. We try and have a philosophy where you charge a fair price for the alpha or the expected alpha that you deliver. We also charge all of our fees against a marketplace, which is highly competitive. And so, the two inputs tend to be what’s a fair ratio of the expected alpha and what’s the market price. And we sit down with those two ideas in our head and try and price things fairly. And I don’t think we have any special insight or magic to it, but where we’re looking to grow, where we’re focusing our energies, where we have some opportunities, we’ve clearly directed internal resources towards opportunities that we view as not only better alpha for the clients but better economically for us as well. And some of those things are working. I mean, we launched a new hedge fund last year in life sciences, that’s still pretty small, but a few hundred million. And with the opportunity to grow significantly, and obviously those assets are depending on what you imagined, performance fees might be 10, 15, 20 times as valuable as the average asset in the firm. And so, we’re trying to focus on opportunities that represent the core of what we do for a living. We use research and very careful hard work to uncover the opportunity to deliver alpha where alpha matters. And we want to be active where the clients really care about a differentiated inactive approach. And I think we’re doing a good job of focusing our resources there. And some of the outflows have been in places which are much lower priced. And as a consequence of the shift, the shift has been good. In addition to the mix shift resulting from the beta. With that, I’m sorry.

But maybe we apparently have some more questions, so we can keep going. Operator, we can take some more questions.

Hi, you guys talked about increasing allocations to alts, and I think you mentioned private debt, but maybe you could just talk a little more about areas you might want to push into in that space. And then maybe just generally what you want your old segments kind of look like a few years from now.

Yes. I think in an ideal world, you’d have alts that on an economic basis was as a third or fourth pillar in the firm that it was a size that when equity beta went against you, uncorrelated returns could really diversify and carry the weight. That would be a very significant change from where we are today. That would be a whole lot of alts, but that would be the ideal. And as you look across the spectrum of the kinds of alts, you’ve got to ask yourself, what would we be good at? What relates to work that we already do? What relates to reputation and relationships that we already have with our clients? How can we benefit from taking the franchise that we have and developing it into some of these opportunities? And not all the alts possibilities are a good fit for us. So, we’ve looked across the spectrum and we have some ideas that some are better fits than others we’ve mentioned. We’ve mentioned private debt as something that might have a good fit. It’s related I think very closely in terms of what we do to the credit work that’s already in the house. I think it relates to the reputation that we already have with the clients. I think our distribution would know how to assist in building relationships for that kind of an approach. But then again, the pricing for that these days in the current world is extremely robust. And so, whether or not you could find an opportunity in that space. Who knows, we’ll see, but clearly there are some kinds of alts that are better fits for us than others. And we’re trying to be very sensitive to those truths.

Like I said, in the meantime, we will continue to grow what we’ve got in house. We’ve got a very successful absolute return range in Europe. Dick mentioned, the hedge funds that we added onto the very successful life sciences business. We’ve got, I’ve talked in prior quarters around multi-strategy being something which again, you don’t really notice in asset terms. But it is an old talk fee product. So, we’re growing the alts business organically as well. And you should look forward to succinct continued results from that.

Great. And then just a quick one on digital, you mentioned the institutionalization of solutions in digital and how a bunch of people are looking at the net region, like that area, what’s some of the stuff that can help you be one of the winners in digital?

Well, first, I’m very excited, our newest board member, Alison Davis really knows a lot about this space. And if you go look at her records, she’s written a couple of books and she is well-versed in what the blockchain technology is doing for ownership of assets and the creation of some new markets. I think there’s over $2.5 trillion of Bitcoin in the world these days, not just Bitcoin, but electronic currencies combined. So, this is a major development in financial markets and it isn’t going to stop. There’ll be fraud, there’ll be volatility. There’ll be all sorts of mess. But underneath that, there’s a trend here, which is important and will be sustained and changing how assets are owned and what legal vehicles clients can use to access certain investments. And younger people tend to like some of these newer tools, more than some of the older legal vehicles. And so, I think it behooves us to pay a lot of attention to that and to try and get educated. We’re at the beginning phases of that industry. We’re also at the beginning phases of our involvement. They’re learning about it here at this firm. So, I wouldn’t expect us to do anything too wild and dramatic, but I think it's – and we ought to be developing our knowledge and our participation with an awareness that a bunch of this stuff is going to turn out to be fraud or wrong-headed; you got to be cautious and it’s sort of a wild west market, like digital assets are today. But it would be foolish to ignore it. And we're looking for opportunities to participate in an appropriate size and way. And the good news is, we have some people internally who know a good bit about it. We also have a board member who knows an awful lot about it. And obviously the world has some other experts who are willing to help educate us. So, we're looking and learning and looking forward to finding ways to participate, albeit, more cautiously than some.

Makes sense. Thanks very much, guys.

Our next question comes from Nigel Pittaway with Citi. Please go ahead.

Hi guys. Thanks for taking the question. Just wanted to return, if I could, to lower compensation expense and the explanation there that it was due to lower revenue, particularly performance fees or at least to give us a good idea of how the performance fees actually impacts comp, because my understanding was it was direct an impact as it used to be.

Our variable comp, simple answer there is, Nigel, our variable comp is variable. Revenues were $58 million lower this quarter. And you're right, that was more of an all that $77 million of that was performance fee decline. So that drives lower variable comp. So, that's the vast majority of reduction this quarter.

Okay. I mean, obviously, if it was all due to revenue, you wouldn't have this sort of big expansion in the operating margin. So just seems another might be something else that…

You've also got LTI. And so, LTI is going to be big. It's a much lower number this year. That's – LTI is mark to market. So, market has risen for four quarters in a row. And therefore, our LTI has been high for four quarters. Q3 markets were flat to slightly down and we all said, they'd have a one mark-to-market and fair value adjustment on one particular LTI award. So LTI is also a part of that driving that a little bit lower.

Okay. Thank you.

Our last question comes from Marcus Barnard with Bell Potter. Please go ahead.

Yes. Good morning, gents. My question sort of follows on from the activist investor Trian. I'm just wondering if having that person on the shareholder list changes the way you think about running the business. And I'm not talking about major changes; I'm just thinking about the margin. Do you think about risk differently? Do you think about hurdle rates differently? Are you thinking more about returning cash to shareholders rather than investing in the business? I'm just interested in your thoughts on that. Thanks.

So, I think we've already been thinking about all those things as hard and well as we could. But I think knowing that there's another sharp pair of eyes and an active largest shareholder who's focused on all the numbers and all the details and cares a lot about it and will be communicating actively, it probably adds energy into the system and sharpness to the conversation. Do we get up a few minutes earlier and look a little harder? I don't know that I could prove that scientifically, but probably it adds that sort of energy into the system. But really substantively, all the issues that we're thinking about, we haven't been thinking about, we were doing our best and are still doing our best. And we were open to ideas, not made here. And we still are open to ideas, not made within these four walls. When I say it, I really mean it. We don't care; we just want to win. So, we're happy to collect good ideas and advice from our owners as we always have been. And certainly, Trian is a place that you can have really good ideas and offer good advice. So, that's another good place to go to listen to ideas that we're happy to go there. But it really doesn't change fundamentally how we think about running our business. I think we've laid out what we think is the best path for driving that with our best abilities. With that, I think we've taken our last question. So, I just want to thank everyone for your time and attention today. I hope the presentation has been useful to you; well it always will be available to you after the call to collect ideas on how we can do better in the future. Be safe and be well. We'll talk to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.