Janus Henderson Group PLC Q3 FY2025 Earnings Call

Good morning. My name is Adam, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group Third Quarter 2025 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 Mr. Ali Dibadj, Chief Executive Officer of Janus Henderson. Mr. Dibadj, you may begin your conference.

Welcome, everyone, and thank you for joining us today on Janus Henderson's Third Quarter 2025 Earnings Call. I'm Ali Dibadj. I'm joined by our CFO, Roger Thompson. Before discussing the quarterly results, I wanted to comment briefly on the nonbinding proposal submitted by Trian, a 20.6% shareholder of Janus Henderson and General Catalyst, a growth venture capital firm earlier this week to acquire all outstanding ordinary shares of Janus Henderson that Trian does not already own or control. The Board of Directors has appointed a special committee, which will carefully consider the proposal. The company appreciates the history of constructive engagement with Trian since they first disclosed their investment in Janus Henderson in October 2020. We also appreciate the proposal's desire for continuity for Janus Henderson's clients and other stakeholders. The offer will be evaluated by the special committee, and there is no assurance that any definitive agreement will result from the proposal or that any transaction will be consummated. Janus Henderson does not intend to comment further about the proposal unless and until it deems further disclosure is appropriate. In the interim, and as always, our focus continues to be helping clients define and achieve superior financial outcomes and to deliver desired results for our clients, shareholders, employees, and all our stakeholders. As you can understand, our remarks on this call must be focused on the quarterly results and progress across the business. And we ask that during Q&A, questions be limited to the business results. Now, turning to the quarterly results, where I'll start with some thoughts on the quarter before handing it over to Roger to run through the results in more detail. After Roger's comments, I'll provide an update on our progress in private markets and how we are meeting the evolving needs of our clients and their clients. We'll then take your questions on the quarterly results following our prepared remarks. Turning to Slide 2. Janus Henderson delivered another set of good quarterly results, building upon tangible momentum in the business. Results reflect the sixth consecutive quarter of positive net flows delivered by dedicated client groups, market gains, and solid investment performance produced by world-class investment professionals and the efforts and productivity from all operating and support areas. Longer-term investment performance is consistently solid with over 60% of assets beating respective benchmarks on a 3-, 5- and 10-year basis. Against peers, long-term investment performance is even stronger with over 70% of AUM in the top 2 Morningstar quartiles across the 3-, 5-, 10-year time periods. Assets under management of $483.8 billion increased 6% over the prior quarter, and compared to a year ago, AUM has increased 27%. September AUM is our highest quarterly figure ever at nearly $0.5 trillion in AUM. Switching to flows. The third quarter marked our sixth consecutive quarter of positive net flows and represented a 7% organic growth rate. Positive net flow results demonstrate our truly global distribution footprint and the broad range of strategies and vehicles we offer. Moving to our financial results, which remain solid. Adjusted diluted EPS of $1.09 is 20% higher compared to the same period a year ago. Our financial performance and strong balance sheet continue to provide us the flexibility to invest in the business, both organically and inorganically, and to return cash to shareholders. On Slide 3, I want to provide an update on progress being made in the business. We continue to be in the execution phase of our strategic vision, which consists of 3 pillars: protect and grow our core businesses, amplify our strengths not fully leveraged, and diversify where clients give us the right to win. In Protect & Grow, we are actively upskilling and utilizing data, people, and process best practices across the organization to drive market share improvement and diversification of organic growth across regions and strategies. For example, in the third quarter, there were 21 strategies that each had at least $100 million of net inflows. This compares to 11 strategies just a year ago. These 21 strategies reflect a broad range of capabilities and vehicles across Protect & Grow and Amplify strategic efforts, including 6 ETFs, 6 equity strategies, the fully tokenized Janus Henderson AAA CLO fund, regional fixed income strategies, absolute return, Victory Park Capital's Asset Backed opportunistic credit fund, and Privacore within our alternatives businesses and the adaptive capital preservation strategy within multi-asset. Under Amplify itself, we also announced a partnership with CNO Financial Group for providing long-term capital, which we believe will further accelerate the growth of Victory Park Capital and expand and scale its investment capabilities for the benefit of our clients. With CNO and Guardian, we now have almost $50 billion in very long-term capital or roughly 10% of our overall AUM. We also continue to leverage our investment expertise through the launches of active ETFs that allow us to cater to client demands globally. During the third quarter in the U.S., we launched our Asset Backed securities ETF, JABS, and the global artificial intelligence ETF, JHAI. In Europe, we launched our transformational growth equity EUFIT ETF, JTXX, complementing our U.S. launch of transformational growth equity, JXX. Within the diversified pillar, we announced the successful first closing of a non-U.S. direct lending vehicle by our emerging markets private investment team. I'll talk more about the VPC partnership with CNO and our emerging markets private investment team later in the presentation. Along with executing our strategic vision, we are making progress in other areas of the business. As I mentioned, we delivered several consecutive quarters of positive net flows and delivered market share gains in key regions, which demonstrates that we are on the path to delivering consistent growth over the long term. In addition to the net flows this quarter, importantly, Janus Henderson also generated positive organic net new revenue growth in the third quarter. Fee pressures are persistent in this industry, and not all AUMs are created equally. We're pleased with that result. Elsewhere in the business, we've made the strategic decision to transition our investment management system to Aladdin. This multiyear transition is expected to deliver a more scalable operating model through consistent and integrated technology infrastructure and investment management platform. Transitions of this nature are not uncommon in our industry, and we expect this transition will deliver enhanced services to our funds and our clients and enable strategic growth. Our focus is on making this transition seamless for our clients, maintaining the consistent level of service they expect from us. While we anticipate an approximately 1% increase in adjusted operating costs for 2026 and 2027 from this transition, all else equal, in 2028 and beyond, we expect this transition to deliver ongoing operational improvements and efficiencies and an attractive ROI. We'll provide an update on 2026 expense expectations, including the net impact of this shift in ongoing costs on the next quarter's earnings call. Shifting to capital stewardship. Our solid financial results and cash flow generation, along with a strong and stable balance sheet, has enabled us to return nearly $130 million this quarter through dividends and share buybacks. Our cumulative share count reduction is 23% since we started the accretive buyback program in the third quarter of 2018. Janus Henderson's strong liquidity profile continues to provide us the flexibility to invest in the business, both organically and inorganically, as well as return cash to shareholders. I'll now turn the call over to Roger to run you through more of the financial results.

Thanks, Ali, and thank you for joining us on today's call. Starting on Slide 4 and investment performance. As Ali mentioned, longer-term investment performance versus benchmark remains solid with at least 60% of AUM beating their respective benchmarks over the 3-, 5- and 10-year time periods. Looking at further detail, at least half of each capability's AUM is ahead of benchmarks over medium and long-term periods, reflecting consistent longer-term investment performance across capabilities. Overall, investment performance compared to peers continues to be very competitive, with over 70% of AUM in the top 2 Morningstar quartiles over the 3-, 5- and 10-year time periods. Slide 5 shows total company flows by quarter. Net inflows for the quarter were $7.8 billion, which improved significantly over the net inflows of $400 million a year ago. Excluding the one-time impact from the Guardian general account funding last quarter, our gross sales increased for the fourth consecutive quarter and improved by 86% compared to the third quarter of last year. All 3 channels and regions experienced an increase in gross sales compared to the prior year across a broad range of capabilities, including ETFs, U.S. buy and maintain credit, Australian fixed income, U.S. research, our tokenized AAA CLO fund, and Asset Backed opportunistic credit from VPC. Turning to Slide 6 and flows by client type. Third quarter net flows for the intermediary channel were positive $5.1 billion, equating to a 9% organic growth rate. In the third quarter, net flows were positive in the U.S. and Asia Pacific, with net outflows in EMEA. To set expectations, we do not expect to repeat this level of net flow in Q4. In the U.S., net flows were positive for the ninth consecutive quarter with inflows in several strategies, including most of the active ETFs, U.S. research, multi-sector income, U.S. Mid-Cap Growth, and Privacore. U.S. intermediary is a key initiative under our Protect & Grow strategic pillar, and we're pleased that we gained market share on a year-over-year basis. Additionally, while negative, the third quarter net flows for U.S. mutual funds within the intermediary channel was the best result in several years. Under our Amplify strategic pillar, we've talked about amplifying our investment and client service strengths using various means, including vehicles through which we deliver to our clients. In addition to active ETFs, flows into CITs and hedge funds in this channel were positive in the third quarter. In EMEA, Continental Europe and the Middle East delivered net inflows, while the U.K. had net outflows, primarily driven by a single outflow in investment trusts. Institutional net inflows were $3.1 billion, marking the fourth consecutive quarter of positive flows. Gross sales were the best result in over 2 years and reflect fundings across all capabilities covering corporates, pensions, insurance and private credit clients. Net outflows for the self-directed channel, which includes direct and supermarket investors, were $400 million. The third quarter includes approximately $600 million of ETF net inflows from our supermarket clients. Excluding ETFs, self-directed net outflows were roughly flat to the prior year. Slide 7 shows our flows in the quarter by capability. Equity flows were negative $3.3 billion compared to $2.6 billion of net outflows in the prior quarter. The current quarter was impacted by the merger of the Henderson European Trust into another third-party trust, which resulted in $900 million of net outflows. The environment remains challenging for active equities across all regions. Whilst net flows for equities were negative in aggregate, CITs, active equity ETFs, and Horizon SICAV funds all delivered positive net flows in the quarter. Elsewhere, while still negative, the U.S. equity mutual funds had their best flow results in over 2 years. Third quarter net inflows for fixed income were $9.7 billion compared to $49.7 billion of net inflows in the Guardian-boosted prior quarter. Several strategies contributed to positive fixed income flows. Active fixed income ETFs delivered over $5 billion in the quarter and included 5 active ETFs with at least $100 million of net inflows, including JAAA, JMBS, JSI, JBBB and VNLA. Other strategies contributing to positive flows were Australian fixed income, U.S. buy and maintain credit, the tokenized JAAA fund, and multi-sector credit. Net flows for the multi-asset capability were breakeven, primarily due to net outflows in the balanced strategy, which were offset by an institutional win in our adaptive capital preservation strategy. And finally, net inflows in the alternative capability were $1.4 billion, driven primarily by absolute return, biotech hedge fund, VPC's Asset Backed opportunistic credit strategy, and Privacore. Moving on to the financials. Slide 8 is our U.S. GAAP statement of income. Before moving on to the adjusted financial results, GAAP results this quarter include an approximately $28 million charge related to the strategic decision to transition our investment management platform to Aladdin. This charge is removed from our adjusted results, and the majority is noncash. Continuing to Slide 9 and our adjusted financial results. Adjusted financial results improved compared to the prior quarter and the prior year. The improvement was primarily due to higher average AUM and good investment performance generating higher performance fees. Adjusted operating income improved 22%, and EPS improved 21% quarter-over-quarter. Improvements over the prior year were similar, with operating income and EPS both up 20%. Looking at the detail, adjusted revenue increased 11% compared to the prior quarter and 14% compared to the prior year, primarily due to higher management fees on higher average AUM and improved performance fees. Net management fee margin was 42.7 basis points in the third quarter. The expected and communicated decline from the prior quarter was primarily a result of the successful integration of lower fee Guardian AUM. We are also very pleased with positive firm-wide organic net new revenue generation in the third quarter, which demonstrates our success across a broad range of strategies and regions. Third quarter performance fees were positive $16 million, primarily reflecting the SICAV absolute return strategy in U.S. mutual funds. The U.S. mutual fund performance fees were positive this quarter at over $3 million, which is the best result in over 10 years. This result compares favorably to negative $9 million of U.S. mutual fund performance fees over the same period a year ago. We currently expect Q4 2025 performance fees to be at or above the Q4 '24 total, reflecting very strong performance of our hedge funds, but final amounts will be dependent on performance over the remainder of the year. Continuing to expenses, adjusted operating expenses in the third quarter increased 6% to $350 million, primarily reflecting higher profit-based compensation, LTI expense, and investments supporting strategic initiatives. Adjusted LTI increased 20% compared to the prior quarter, largely due to mark-to-market on mutual fund share awards. In the appendix, we provided the usual table on the expected future amortization of existing grants due to use in your models. The third quarter adjusted comp to revenue ratio was 43.3%, which is flat to the prior year and in line with our guidance. Our 2025 expectation and an adjusted compensation range of 43% to 44% remains unchanged. Adjusted non-comp operating expenses decreased 5% compared to the prior quarter, primarily from seasonally lower marketing and G&A expenses. For non-compensation guidance, our expectation of high single-digit percentage growth in full-year non-comp expenses compared to 2024 remains unchanged, reflecting investments supporting our ongoing strategic initiatives and operational efficiencies, inflation, the full-year impact of the consolidation of VPC, NBK, Tabula, and Guardian, and the FX impact of a weaker U.S. dollar year-to-date in 2025. Our expectation of high single-digit percentage growth in non-comp expenses implies growth in the fourth quarter. We do expect to invest a little bit further in high ROI investments, supporting areas of momentum in our business, examples being marketing and advertising, as well as client-related expenses such as T&E. We remain committed to strong cost discipline, ensuring that we manage our cost base while continuing to support the long-term growth objectives of the business. Our expectation of the firm's tax rate on adjusted net income attributable to JHG remains unchanged in the range of 23% to 25%. And finally, we'll give 2026 guidance on our full-year call. But as Ali mentioned, our transition to Aladdin will result in higher costs in 2026 and 2027 before we deliver the improvements and efficiencies for the future in 2028 and beyond. Our third quarter adjusted operating margin was 36.9%, an increase of 200 basis points from a year ago. And finally, adjusted diluted EPS was $1.09, up 20% from the comparable third-quarter 2024 period. The increase in adjusted diluted EPS primarily reflects higher operating income and operating leverage. Skipping over Slide 10 and moving to Slide 11 and a look at our liquidity profile. Our balance sheet remains strong and stable. Cash and cash equivalents were $1 billion as of the 30th of September compared to $395 million of outstanding debt. During the quarter, we funded our quarterly dividends and repurchased 1.5 million shares as part of our corporate buyback program for approximately $67 million. The Board has also declared a $0.40 per share dividend to be paid on the 26th of November to shareholders of record as at the 10th of November. Slide 12 looks in more detail at our consistent return of capital to shareholders. We've maintained a healthy quarterly dividend and have reduced shares outstanding by almost 23% since 2018. During the first nine months of 2025, we've returned $331 million, including $143 million via share repurchases. The buyback program and dividends do not alter our ability to invest in the business organically and inorganically, as well as return cash to shareholders. Currently, our liquidity profile allows us to do both. Our return of excess cash is consistent with our capital allocation framework. We'll continue to look to return capital to shareholders where there isn't an immediately more compelling investment in the business. With that, I'd like to turn it back over to Ali to give an update on our strategic progress in private markets.

Thanks, Roger. Turning to Slide 13 and an update on our progress in private markets. We've made progress in the private market space through Privacore, Victory Park Capital, and our emerging markets private investment team. Starting with Privacore, which seeks to take advantage of and be the leader in the democratization of private alternatives in the private wealth channel. Year-to-date, Privacore has advised on $1.4 billion raised in the private wealth channel. Privacore is now selling on 5 wirehouses and platforms, and the team is expanding into RIAs and broker-dealers. In addition to advising on third-party products through its open architecture model, Privacore has also recently launched 2 proprietary funds, the Privacore VPC Asset Backed Credit Fund, AltsABF, which is sub-advised by our very own Victory Park Capital and the Privacore PCAM Alternative Growth Fund, Alts Grow, sub-advised by Partners Capital. In addition to these advised third-party and proprietary funds, Privacore expects to have more products coming online in the upcoming months and is working with Janus Henderson to expand its reach. In September, we announced that CNO Financial Group, a nationwide life and health insurer and financial services provider with $37 billion in total assets, would acquire a minority interest in VPC. As part of the partnership, CNO will provide a minimum of $600 million in long-term capital commitments to new and existing VPC investment strategies. One of these strategies will be the Privacore Victory Park Capital Asset Backed Credit Fund I previously mentioned. This collaboration with CNO reinforces our shared belief in the long-term potential of asset-backed private credit markets and further deepens Janus Henderson and VPC's insurance presence. CNO's investment of long-term capital speaks to VPC's strong track record of providing private credit solutions across industries, their differentiated expertise in highly developed sourcing channels, and the significant value VPC brings to its investors and portfolio companies. The transaction was completed on October 1, and Janus Henderson remains the happy majority owner of VPC. The transaction with CNO builds on Janus Henderson's recent momentum in the insurance space with our previously announced multifaceted strategic partnership with Guardian, which is working well. Lastly, in early October, our emerging markets private investment team, formerly NBK Capital Partners, marked a strategic milestone with the announcement of the successful first close of the $300 million Shariah-compliant fund, the Janus Henderson MENA Private Credit Fund IV with $125.5 million committed. The vehicle, which attracted strong demand from global and regional institutional clients and family offices, provides investors with access to emerging market private credit opportunities that deliver attractive cash yields and total risk-adjusted returns. The second close is planned for year-end 2025, with the final close in mid-2026. The successful first close of this direct lending vehicle underscores our commitment to investors in the Middle East and the growing number of companies in the region seeking access to flexible values-driven financing. It also highlights the important role of private credit plays in connecting capital with opportunities across dynamic growth markets. This business also strategically complements our emerging market public credit business, which is now at almost $2 billion of assets under management. Privacore, Victory Park Capital, and Emerging Markets Private Investments underscore Janus Henderson's commitment to private capital as a key strategic growth area as we continue to diversify our capabilities and deliver differentiated solutions for our clients. Now wrapping up on Slide 14. We are making meaningful progress across the business, although we're not firing on all cylinders yet and have more improvement to go. We're executing against our strategic objectives, including capturing market share in key regions, diversifying our flows across regions and strategies, establishing new strategic partnerships, and developing newly added pieces of our business. Investment performance is solid versus benchmarks and peers. Net inflows were positive $7.8 billion, marking our sixth consecutive quarter of net inflows and the best quarterly results ever, excluding the Guardian net inflows of last quarter. While we are very pleased with the quarterly results, it's worth noting for modelers that these flows also reflect several fundings, which have depleted the near-term existing pipeline opportunities. Our financial performance and strong balance sheet allow us to continue returning cash to shareholders through dividends and share buybacks while reinvesting in the business for future growth. Our focus continues to be helping clients define and achieve superior financial outcomes and to deliver desired results for our clients, shareholders, employees, and all our stakeholders. Finally, before I turn it over to the operator for questions, I want to acknowledge our CFO, Roger Thompson, who will start a well-deserved retirement beginning April 1 of next year. Roger joined the firm in 2013 as CFO and began leading the APAC Client Group in 2022. He is a valued member of our Executive Committee, a director on several of our Boards, has been a strong supporter of several of our employee resource groups, a friend and mentor to many people, and a true culture carrier within our firm. He personifies all 5 of the Janus Henderson values. On a very personal note, the successes we've seen over the past few years with Janus Henderson could not have happened without Roger. He's been an incredible feedback giver, strategic thinker, and all-around partner to me. I also want to thank him for the collaboration and fun on many of our client and investor meetings, earnings calls, town halls, travels even when we missed transcontinental flights and so much more. I and the firm owe Roger an incredible debt of gratitude. While sad to see Roger go, we're very excited for his next phase in life. Pleasingly, and demonstrating the talent we have within Janus Henderson, I'm delighted that our Head of Corporate Development and Strategy, Sukh Grewal, will become our CFO and join our Executive Committee. Sukh joined the firm in 2022 and through each of our recent acquisitions of Tabula, NBK Capital, and Victory Park Capital and partnerships with Privacore, Guardian, and CNO Financial Group, he's been instrumental in helping to define and deliver our strategy to protect and grow our core, amplify our strengths, and diversify where we have the right. As a reminder, as we turn the call over to the operator for questions, we're unable to comment further on the nonbinding proposal and ask that you focus questions on the business results. With that, let me now turn the call back over to the operator to take your questions.

And our first question comes from Ken Wellington from JPMorgan.

Roger, congrats to you. We'll see if farewells for later. But maybe first, in terms of net flows, clearly seeing a nice improvement in the intermediary and institutional channels. You highlighted the products that contributed. What I'm really after is like what is the story behind the numbers? Like what's the story behind the improved gross sales? Is it possible to help us better understand how and maybe which of the initiatives seems to be translating into what we can obviously see are the better results?

Ken, thanks for the question. Look, as you pointed out, we feel pretty good about what we delivered in the quarter on flows. You're right, it's a lot of thought process to get there. If you start with the intermediary side of things, the $5.1 billion of flows in the third quarter were certainly positive. We, again, as we said in the prepared remarks, we want to make sure that people don't expect that to continue at that pace consistently. You've seen some of the public ETF data. But the whys are actually coming into play. The whys are actually certainly helping. And on the intermediary side, we've done many things, right? One is we've made sure that we have the right people in the right places. We've then made sure that we actually pay them the right way, incentivize them to grow and get new products on shelves and make sure they're the right products for the end client. We then are making sure that we have the right product. Now that comes in 2 flavors. One is ensuring that the performance is right. You'll see that our performance continues to be solid and versus several years ago, has certainly improved on average. And also make sure that the right wrappers, whether they be ETFs or CITs or mutual funds, which we still are big believers in or SMAs or other wrappers as well, to make sure the product is right. And of course, then we want to make sure that we're calling the right people and are productive about it. So we're using a lot of data, including some newer technologies to make sure that folks are targeting the right people. So you put all that stuff together to your question, it's not just the outputs, but the inputs and whys. We feel pretty comfortable that we're on the right track. And obviously, in the U.S., that certainly started to show. This is our, I think, ninth consecutive quarter of positive flows, and it's starting to show outside of the U.S. as we transport that thought process on the intermediary side. On the institutional side, the $3.1 billion of flows this quarter marked the fourth consecutive quarter of positive flows. Gross sales were the best results we've had in something like 2 years. We're going to continue to build on that momentum. Again, there, too, I think we depleted some of our future pipeline and what happened this quarter. But still, the whys are a lot of the same, as I talked about on the intermediary side, around product, around vehicle, etc. But very importantly, it's also building relationships with our clients that are more than just transactional relationships. That's true in intermediary, but it's even more true in institutional, where we focus on building more nodes of connectivity between the firms. It might not just be delivering investment performance. It's also delivering ourselves, what we know about technology, what we know about AI, what we know about regulatory environments. And that's also part and parcel. You may have seen this to our brand campaign that's out there that is resonating. Again, both for intermediary and institutional, which is this Ampersand, right? This Ampersand is the symbolism of how we work with our clients. It's this together concept of Janus Henderson that our clients told us we were special about. So it's together, this Ampersand, it's their goals and our solutions. It's their problems and our hopes to deliver solutions for their problems. So it's all of those things together. It's not just one thing. It's never just one thing. As you know, there's no silver bullet, but we're certainly pulling all this together and hoping to continue to build over time, not overnight. I'm not sure we're there yet. We're not firing on all cylinders, but over time, a very sustainable growth for us on a consistent basis.

Okay. I'm always looking for the perfect solution. In terms of product performance, it generally looks very good, although we have seen some decline in equities. Can you discuss the trends you're observing in the equity franchise that are affecting performance?

Let me address that first. You are correct that the 1-year performance in equity is slightly lower, but the longer-term results remain strong, consistently outperforming the benchmark by at least 50%. When compared to our competition, the numbers are even more impressive, with over 80% outperforming both the 3 and 10-year benchmarks as well as the top 2 quartiles from Morningstar. As you mentioned, the results are quite concentrated. The drop from Q2 to Q3 is primarily due to U.S. concentrated growth and U.S. research underperforming the benchmark over the past year, largely attributed to a poor Q4 last year. Our year-to-date performance, however, is robust, with both segments performing ahead of the benchmark so far this year. In total, equity is 63% above the benchmark year-to-date as of the end of September. This short-term number reflects the challenging market conditions that our skilled investors are navigating, highlighting the ongoing importance of active management. It is crucial for our client portfolios, with 350 investment professionals dedicated to distinguishing between the good and the bad, as we often say, separating the wheat from the chaff. The market is tough at this moment, which may lead to short-term fluctuations, but long-term performance is what truly matters to clients. We are also very proud of the reinvestment performance we have achieved.

I apologize for my voice. So maybe first question is a 2-parter. I was wondering if you could comment about the ability to drive expenses and growth in the business and what hurdles you face as a public company? And then within that, I'm curious with the Aladdin opportunity, how do we think about the incremental leverage into '28 relative to the spend in '26 and '27?

Bill, thanks for the question. So first on the first one, look, we're clearly investing in the business to our guidance for this year of high single-digit growth, high single percentage growth in non-comp. We're seeing opportunities to invest. And as we see opportunities to invest, we constantly look at ROI. We look at where we invest, what's the return on that investment. I mentioned marketing spend and branding a second ago. I mentioned some of the investments we made in our people from a compensation and growth driving perspective. We constantly look at ROI. Roger is great at that. And so we look at where we get the benefit out of it. We think we can continue to do that and get good ROI, which is why we continue to spend more. Again, not peanut butter, not blanket, but in particular areas, we found that we can deliver value and value for our clients leads to growth. On your Aladdin question, as we mentioned, we'll give you more detail on the next quarterly call. We expect the short-term costs, as we said, to go up by about 1% of our overall expense base for 2026 and 2027. And then after that, we would tend to see some benefits. It's early days to know exactly what that is, but certainly, we'd like to see some benefits. And we're doing it, yes, for cost benefits, sure, but also really, really importantly because we think we can deliver better for our investors. We think we can deliver better for our funds, our mutual fund trustees, and mutual fund shareholders, which are very important to us. We believe we can deliver better to our clients more broadly. And so we're doing it for all sorts of reasons. For us, this was the right match to work with Aladdin, may not be for everybody. For us, that was the right match.

Okay. And just as a follow-up, maybe on capital priorities from here. Balance sheet is in great shape. You bought back a lot of stock in the quarter. A, does the offer from Trian take you out of the market temporarily? And b, more broadly, how are you thinking about capital return from here? Maybe if you could comment on where you stand on the M&A pipeline.

So let me pick up on that, Bill. Yes, so I guess the short answer is nothing changes. Our current expectation is we'll complete the full $200 million buyback by the Annual General Meeting of next year. In the third quarter, we bought another $67 million worth of stocks, 1.5 million shares. Cumulatively since we started the buyback in 2018, we've now bought back 23% of the stock, and that consistency is something we've talked about. We've got $83 million of the buyback outstanding. And we have an ongoing 10b5-1 plan that's in place, which is unaffected by Monday's nonbinding acquisition proposal. Ali, I'll pass back to you on M&A. But again, as we said, our capital philosophy remains completely unchanged and has been for a very long time that we will invest in the business but return cash to shareholders where we don't have an immediate need or near immediate need for that. Again, in terms of individual items, Ali?

Well, just we have the flexibility, obviously, to continue to do M&A and invest back in the business organically and return cash to shareholders. So we're in a privileged position.

And Roger, best wishes for your retirement. Our question is on Victory Park. There's so many positive levers currently between Guardian Life, the CNO partnership, and even capital raising at Privacore and probably a few that I'm actually missing. So how has Victory Park's AUM grown since the deal closed? And then how do you think about future growth of Victory Park over the next few years?

Thank you for the question, Craig. We are very excited about the acquisition of Victory Park Capital. To provide some context, we had identified three key areas we wanted to pursue privately. One of those is making alternative investments more accessible to the wealth channel, which we have established through our team at Privacore. They are performing exceptionally well in directing flows from the wealth sector into the right products offered by general partners. Currently, they are engaged with five different platforms or wirehouses and have products available in the marketplace. This is an important step in increasing wealth exposure to alternative investment opportunities, which includes our collaboration with Victory Park Capital. Privacore is already delivering one of its proprietary products in that wealth channel with them. The second focus is on private credit. However, we believe the U.S. market for direct lending is currently oversaturated. Although future opportunities may arise, we are directing our attention towards non-U.S. direct lending, especially in the MENA private credit sector, which we have successfully integrated and which has shown outstanding performance. I recently visited the Middle East and found significant interest in our product, as the team there has been in this space for two decades and has consistently produced excellent results. This is why we reached our first closing with them, likely around $300 million total for Fund IV, marking the first for Janus Henderson but the fourth for this team, indicating strong potential for additional growth in this area. In terms of U.S. direct lending, we are instead looking at asset-backed investments both in the U.S. and globally, which leads us to Victory Park Capital. Their culture aligns well with Janus Henderson—focusing on client needs, being growth-oriented, ensuring thorough research, and maintaining a deep understanding of the companies they lend to. We believe they stand out among similar firms, which is why we chose to partner with them. To answer your question about their performance, they are among the 21 products that generated over $100 million in flows this quarter. While I can't say much about the entire fundraising process, it’s noteworthy that this number does not include CNO, which should contribute in the coming quarters. We see tremendous potential for Victory Park Capital, not just within Privacore, but also broadly, particularly with our insurance partnerships. Our collaboration with Guardian is going exceptionally well, and we feel similarly positive about CNO, which also aligns with our culture through thoughtful leadership and a strong management team. Thus, the partnership with them is highly beneficial. You're correct in noting there are numerous opportunities here, and while it requires careful navigation, we are committed to progressing steadily toward our goals. It won’t happen overnight, but with time, we believe we will achieve significant advancements.

Thanks, Ali. Just for our follow-up on investing. So year-to-date expenses have grown by 20% over the last 2 years, and that really doesn't account for CapEx either. So we're curious, do you feel your ability to invest has been constrained by being public balancing both growth objectives with the desire to show operating leverage?

Again, thanks for the question. We're investing where we see that there's ROIs. And so we'll continue to do that. You've clearly seen that in our numbers. You're right, we're investing in the business, and we're getting return off of it. When we stop getting a return, we'll stop. Don't forget that a lot of that operating cost growth is due to the M&A that we brought on board, again, a different type of investment, but investment nonetheless in growth and most importantly, delivering for our clients a broader suite of high-caliber investment products and client service.

First question, we saw some big credit wobbles in the bank loan market in October. And clearly, you mentioned that had an immediate impact on bank loan and CLO fund flows. At a high level, I'm just curious how your bank loan and CLO teams are reacting to those specific issues, how they're scrubbing the portfolio and to what extent those issues are having any impact on your discussions with the distributors of those products for you?

Thank you for the question, Patrick. The market fluctuations you've mentioned highlight the importance of active asset management, especially in fixed income. You pointed out recent wobbles relating to certain companies, like Tricolor and First Brands, which caught the attention of many. Without active management, we could have been more exposed to those names, but we strategically maintained lower exposure to those businesses. Our approach embraces active management, focusing on selecting investments based on thorough criteria and understanding the companies. This practice of discernment, which our team of 350 people, including those in fixed income, engages in daily, is crucial. We primarily operate in the CLO sector, and when considering our securitized offerings, our five ETFs, each exceeding $1 billion, with the largest being AAA CLOs, are noteworthy. It's important to understand that CLOs typically offer strong cash flow protections, especially in the AAA category. For impact to be felt in AAA CLOs, a significant portion, around 70% or 75%, of the underlying loan portfolio would have to default. Thus, this sector is relatively safe. We did encounter market stresses back in April, and during that period, we observed that JAAA and JBBB CLOs, due to their size and competitive advantages, became a benchmark for pricing AAA and BBB CLOs. Importantly, our current price actions and spread movements do not indicate any contagion or concern within the market. Therefore, to answer your core question, active asset management is the key reason we've been successful in navigating this environment, and we hope to continue this trend moving forward.

Final question. This will come from the line of Michael Cyprys from Morgan Stanley.

Ali, you're making investments across the business to drive growth. How would you describe the pace at which you're investing now compared to a year ago? How do you see that changing as we approach 2026? Will it remain at a similar rate, or could it possibly increase? What are your thoughts on this?

Yes, Michael, thank you very much for the question. It's a really insightful question actually because what typically happens, and I think we're there now, is that at the start of a kind of new strategy, which we started, call it, 3 years ago, almost to your point, you invest a little bit and you wait for the reaction, right? It's kind of like a scientific method, right? You have a hypothesis, you try it, you see what happens, and you get the response, and then you kind of add more fuel to the fire or not, right? And when we started off the strategy, we had spread out a little bit, I guess, of where we're investing because we didn't really know what would hit, what would hit. We didn't know how the clients would respond, etc. And so now we're in the process effectively of culling and focusing, for lack of a better word. And so you look at your overall expenses, you look at where they're going, you look at what the returns are from a growth perspective or other elements, right? Risk mitigation could be an element, future cost savings is an element, etc., and you readjust. And so you can do that on a micro level on a day-to-day basis, but you certainly have to look at it from a broader basis as well. And that's the stage we're at right now, which is not so much from a quantum perspective, but from where we're going to invest a much more focused look. So it's a very good question, Michael. And I think you're right, we're at this point where we have now some experience. We have now some data. We know what's responding or not, and we can kind of focus in and hopefully get some ROI out of the business in particular areas and not kind of get lower ROIs in other areas. Hopefully, that helps. Thanks, Adam. Thank you all for joining the call today. I know it's a busy day. I think this quarter continues to show our momentum step by step, not overnight, but we are building towards sustainable growth. And that's thanks to our IT, ops, legal, finance, people, risk, and compliance and other support functions. It's thanks to our world-class 500-plus client service teams. Thanks to our outstanding group of 350-plus investment managers. And to all of them, thank you, and let's continue to finish the year strongly on behalf of our clients, our shareholders, and our other stakeholders. Thanks, everybody.