Janus Henderson Group PLC Aktie

Ladies and gentlemen, we are now live. Mr. Cassaday, please go ahead, sir.

Hello, everyone, and welcome to the Janus Henderson 2026 Annual General Meeting. I am John Cassaday, Chair of Janus Henderson Group plc. A quorum is present, so we can open the Annual General Meeting.

I would like to remind you of the required vote needed to pass each proposal as required by the company's Articles of Association. Proposals 1, 2, 3 and 5 as ordinary proposals, require votes in favor of more than 50% of the votes cast. Proposal 4, as a special proposal requires votes in favor of at least 2/3.

I will proceed and now begin with the first proposal. Proposal 1.1 approves the election of Mr. Baldwin as a director. Proposal 1.2 approves the election of Mr. Cassaday. Proposal 1.3 approves the election of Ms. Desai. Proposal 1.4 approves the election of Mr. Dibadj. Proposal 1.5 approves the election of Mr. Dolan. Proposal 1.6 approves the election of Mr. Flood Jr. Proposal 1.7 approves the election of Mr. Frank. Proposal 1.8 approves the election of Ms. Quirk. Proposal 1.9 approves the election of Ms. Seidman. Proposal 1.10 approves the election of Ms. Seymour-Jackson and Proposal 1.11 approves the election of Ms. Sheehan.

Proposal 2 approves an increase in the cap on the aggregate annual compensation for nonexecutive directors. Proposal 3 is an advisory proposal to approve the company's executive compensation as disclosed in the proxy statement. This is called a say-on-pay vote. Proposal 4 authorizes the company to purchase its own shares to a limited extent, and Proposal 5 approves the reappointment of PwC as auditors of the company and renews the Audit Committee's authority to agree to their remuneration.

That completes the summary of the proposals. We will now conduct the polls for the proposals included in the company's notice of Annual General Meeting and proxy statement.

I appoint Earon Crosby of Computershare as the Inspector of Election for the conduct of the polls. If there are shareholders present in Denver who have not submitted their voting cards yet, please do so now. I now direct the Inspector of Election to count the votes and to report the results to me.

The inspector of election has provided me with her preliminary report on the voting. All proposals have received sufficient votes to pass and are therefore adopted. The final voting results will be reported to the New York Stock Exchange disclosed in a Form 8-K to be filed with the SEC and published on our website.

This concludes the formal business of the AGM, and I declare the meeting closed. Thank you for attending the AGM and for your support of Janus Henderson.

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. [Operator Instructions] 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. 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 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 within 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 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. I Janus Henderson delivered another good set of 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, 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 demonstrates our truly global distribution footprint and the broad range of strategies and vehicles we offer.

Moving to our financial results, which remains 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 continues to provide us the flexibility to invest in the business, both organically and inorganically and 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 are 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 in vehicles across Protect & Grow and amplify strategic efforts, including 6 ETFs, 6 equity strategies, the fully tokenized Janus Henderson NMOAAACLO fund, regional fixed income strategies, absolute return, Victory Park Capital's asset-backed opportunities to Credit Fund and Provocore within our alternatives business and the adaptive capital preservation strategy within multi-asset.

Under Amplified 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 benefits 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 demand globally.

During the third quarter in the U.S., we launched our asset-backed securities ETF JABS or JABS and the global artificial intelligence ETF, JHAI. In Europe, we launched our transformational growth equity use it 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 AUM is created equally. So we're pleased with that result. Elsewhere in the business, we have 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 attractive ROI. We'll provide an update on 2026 expense expectations, including the net impact of this shift in ongoing costs for 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 capabilities 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 onetime 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 $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 Privacor. 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, whilst negative the third quarter net flows for U.S. mutual funds within the intermediary channel was the best result in several years. Under our amplified strategic pillar, we talked about amplifying our investment in 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 CCAR 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 or [indiscernible].

Other strategies contributing to positive flows were Australian fixed income, U.S. buyer maintained credit, the tokenized JAAA fund and multisector 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 and 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, [ VDC's ] asset-backed opportunity credit strategy and [indiscernible].

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 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 [indiscernible] 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 or 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 noncomp 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 and 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 and 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 to 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 at 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 of the tenth 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 9 months of 2025, we've returned $331 million including $143 million for 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 Provacore, [indiscernible] Capital and our emerging markets private investment team. Starting with Provacor, which seeks to take advantage of and be the leader in the democratization of [indiscernible] the private wealth channel Year-to-date, [indiscernible] advise on $1.4 billion raised in the private wealth channel. Privacor 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, [indiscernible] also recently launched 2 proprietary funds. The Private VPC asset-backed credit fund, AltABF, which is sub-advised by our very owned Victory Park Capital and the Privacor-PCAM alternative growth fund also sub-advised by partners' capital. In addition to these advised third-party proprietary funds, [indiscernible] 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, Ciena 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 private core 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 VPCs insurance presence.

CNO's investment of long-term capital speak to VPCs 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 Sino 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 Sharia-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 to deliver attractive cash yield 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. [indiscernible], Victory Park Capital and Emerging Markets private investments underscores 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're 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 benchmark 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 Guarding 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 wanted 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 at Janus Henderson could not have happened without Roger. He's been an incredible feedback ever, 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 miss transcontinental flights and so much more. And I and the firm owe Roger an incredible debt of gratitude. While at to Roger Go, we're very excited for its 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, so Crowell, will become our CFO and joins our executive committee.

[indiscernible] joined the firm in 2022 and 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 to 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.

[Operator Instructions] And our first question comes from Ken Wellington from JPMorgan.

Roger, congrats to you. We'll see [indiscernible] 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?

Again, 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, I 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 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 output, but the inputs and the lives. We feel pretty comfortable that we're on the right track. And obviously, in the U.S., that certainly start to show. This is our 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 are 2, 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 in the intermediate side or on product or on vehicle, et cetera.

But very importantly, it's also building relationships with our clients that are more than just transactional relationships. That's true and 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 is 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 Ampersand is the symbolism of how we work with our clients is this together concept of Janus Henderson that our clients told us were special about.

So it's just together this Ampersand it's -- 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. 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 all cylinders, but over time, a very sustainable growth for us on a consistent basis.

Okay. I'm always looking for the silver bullet. So -- and just in terms of product performance, generally looks very good, have seen some deterioration in equities. Can you talk about the themes you're seeing in the equity franchise that are impacting performance?

Okay. Let me pick up with that first. I think you're right. The 1-year performance in equity is a little lower, but it's the longer-term time periods remain really solid, at least 50% ahead of benchmark. And against competition, the figures are even better with over 80% over 3 and 10 years ahead of -- ahead of competition or top 2 on-star quartiles. As you say, it's very concentrated. The move in Q3 over Q2 is really due to U.S. concentrated growth in U.S. research moving below benchmark over 1 year.

I think really importantly, that is really to do with a poor Q4 last year. Our year-to-date performance is strong, both of those are ahead of benchmark over year-to-date. Overall, equity is 63% ahead of benchmark year-to-date at the end of September. So it's a short-term number with, as you say, some really, really tricky markets that our let investors are working through. which, again, I think, continues to be where active management is important, it is essential for client portfolios, 350 investment professionals and are intensely focused on delivering between good and bad, as we always say, separating the wheat from the chaff, that is a tough market at the moment.

And you will get short-term blips, but it's that long-term -- that long-term performance, which is really critical to what clients look at and we're really proud of the investment performance that we've got.

The next question comes from Bill Katz at TD Cowen.

Okay. 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, percentage growth and 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 competition and growth driving perspective.

We constantly look at ROI. Roger has created 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 benefit. 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. I 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? And maybe 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 expectations will complete the full $200 million buyback by the Annual General Meeting of next year. In the third quarter, we brought another $67 million worth of stocks, 1.5 million shares. Cumulatively since we started to buy back 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 nonbinding acquisition proposal.

I'll pass back to you on M&A. But again, as we've 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.

The next question comes from Craig Siegenthaler from Bank of America.

Thanks. Ali. I hope everyone is doing well and Roger. Best wishes for your retirement. Our question is on Victory Park. There's so many positive levers, Karen, between Guarding life the CNO partnership and even capital raising at [indiscernible] and probably a few that I'm actually missing. So how is Victory Park's AUM grown since the deal closed? And then how do you think about future growth a Victory Park over the next few years?

Craig, thanks for the question. We are very pleased with the Victory Park Capital acquisition. Just to take a step back, as you might remember, we have targeted 3 areas from a private perspective that we wanted to go after. One of them was the democratization of alternatives into the wealth channel, and that's how we stood up to your point, Privacor. We have a team that is doing extraordinarily well and driving flows appropriately from the wealth channel into the appropriate products from GPs.

They're on 5 different platforms or wirehouses right now and with the product in the marketplace. And so that's one piece of the puzzle for us to get wealth more exposed into the opportunities in the alternative landscape. And that certainly includes some element of Victory Park Capital. As I mentioned, one of the proprietary products, Privacor is delivering is with Vicotry Park Capital in that wealth channel. So that's 1 element.

The second element is in private credit but private credit in the U.S. from a direct lending perspective, we thought was rather over saturated at this point. There may be opportunities in the future. But at this point, direct lending in the U.S. was not a place we wanted to go. So we certainly want to focus on outside the U.S. direct lending and in particular, the MENA private credit business that we brought on board, which has done extraordinarily well. I was just out in the Middle East a couple of weeks ago now, and the interest is very, very high for our product because they are a group of folks who have been doing this for basically 2 decades and have been able to show very, very good results.

That's why we did our first close on this, probably $300 million in total Fund IV for them and first one for Janus Henderson, but Fund IV for the team. And the close, I think, certainly suggested that there's much to come in that piece of the business. So that's the non-U.S. private credit.

And then to your point, not direct lending in the U.S., but we're certainly looking at asset-backed in the U.S. and globally, and that's where we come across Victory Park Capital. Victory Park Capital is a firm where the culture fits Janus Henderson, i.e., client focused, i.e., growth-oriented, i.e, deep research, deep diligence on the companies that they lend to and a lot of history with them. And we thought they were the best of the bunch. And so we did bring them on board. And to answer your question, if you note, out of products that delivered more than $100 million of flows this quarter, they have been one of them. And so they're mid raise right now. I can't comment too much about the full raise -- but if you think about that, which does not include CNO, right, which comes in, in likely Q4 here or has come in in Q4.

I do think that, to your point, we think there's enormous opportunity [indiscernible] capital not just in private core, but more broadly, especially with the insurance relationships and the insurance relationship we have with Guardian is going fantastically well. And with CNO as well. We feel that it's another firm that we found really a culture match, really thoughtful, deep thinking great management team, great people and to partnering with them also makes a ton of sense. So I think you're right to suggest that there's a lot of opportunity here. We have to make the right moves and step by step, we'll get there. Again, this is one of those not overnight things, but over time, perhaps we'll get there.

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 desired issue 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.

The next question comes from Patrick David from Autonomous.

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 the higher 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?

Patrick, thanks for the question. So exactly as you described it, the wobbles are precisely why active asset management, particularly in fixed income, is so critical across the board, particularly in fixed income. You mentioned there are a couple of companies at wobbles out there. I mean Tricolor first brands are the ones that hit everybody's radar screens. And without active asset management, perhaps one would have been indexed exposed to those names and we, in fact, were significantly below index exposed. Some areas, not at all exposed to those businesses.

So we very much [ spouse ] active asset management. We select based on criteria and understanding the company's underlying. And we certainly think that in any world, separating the wheat from the chat, which we do and 350 people at our firm do every day, including fixed income folks, is very important.

Now remember also how we operate. We operate in the CLO world disproportionately. If you think about our securitized franchise and think about the 5 ETFs that we have that are over $1 billion, the largest one is the AAA CLOs. And just to remind folks about the construct of those, the CLO exposure generally no matter what grade it is, the CLO exposure generally has better cash flow protections to it.

And if you're in the AAA CLOs, if you're going to get hit, that basically means something like 70% or 75% of the loan portfolio in its entirety would have to default before you get impacted. So it's actually a relatively safe area.

Now again, back in April, we saw some stresses in the market, obviously. And what we found also is JAAA BBB given their size, given their competitive advantage in terms of a moat that they've built, sort of became the price discovery method for AAA and BBB CLOs overall. And at that time, and again, at this time, nothing in our price action, nothing in our spread moves suggest that there is any feeling of contagion or sense of contagion in the marketplace. So again, active asset management, Patrick, your core answer to your question, active asset management is why we've been able to do well in this environment and the environment going forward, hopefully.

And any sense that the distributors are more or less concerned in distributing the product because of what's going on in the broader bank loan market?

We're not hearing anything to be fair. I mean yo see the public ETF numbers, but I'm not hearing anything different at this point.

I think -- volatility is different. Again, as Ali said, in March and April, we had a dip there with some outflows in the CLO ETFs. But from May, all the way through the summer, through September, we had obviously very, very strong inflows. So again, everything is different. But short-term volatility. And as Ali said, with the sort of -- we are the market in these things you'd expect to see some price discovery.

Next question comes from Brennan Hawken from BMO.

Ali appreciate the comments about being limited and what you can say on the bid. But I had some questions that are more processed, not really about opining on the offer. I was hoping you could maybe walk us through special communities process and time line, how will updates be communicated as you progress and whether or not there's been any interest expressed by strategic buyers now that Janus is formally in play?

Thanks for your question. I really appreciate it. From a process perspective, as best as I can tell, what I've been told is that the special committee will be going through a process over months, not weeks. But beyond that, we aren't commenting on the proposal at this time.

Okay. Had to give it a truck. All right. So your EPS progress has been great. Look, obviously, Joy is a spread-sensitive products, right? And so when you get concerns about spreads, the flows -- they'll oxalate. But really encouraging to see how many products you've got now above $1 billion. And specifically, you've got your first equity product, I believe, JSMD, which is approaching that threshold. Can you walk through your strategy for equity products within the active ETF construct and what your launch plans are as you progress and widen out the suite?

Let me just -- I was going to say what you're thinking about the sort of strategic answer, let me just make sure that again, everyone's got the grounded facts. You're right. We're now operating a pretty sizable ETF franchise. It's about $40 billion as of the end of September, that's 8%. That will be up from the number in front of me, but something like 2% or 3% a couple of years ago. Net flows into ETFs in the third quarter were $5.7 billion. And yes, the largest of those was JAAA in the high 3s. But JMBS, securitized income, JCB. Yes, you're right, SMidCap gross short duration, we're all in the hundreds of millions of dollars of flows. So we're seeing some real some real diversification of flow behind AAA, which is now a $25-plus billion product? .

And just to add to that, look, our philosophy is relatively simple and pretty consistent. We do things in a client-led way. What we believe our core competency is investing in the right companies, delivering investable -- good investment performance for folks with differentiated insight, disciplined investments and delivering world-class service. We're happy to put in different packaging if clients want that different packaging. For example, we put an ETF.

We put it in ITSM to deliver on what our clients want. But to be very, very clear, we're not believers in cloning. We don't think that makes sense. The products that we currently have in mutual funds are in mutual funds for a reason. There are some real benefits of being in mutual funds in terms of the accessibility for example, that people can get mutual funds in. So plenty it doesn't really make sense because it's not necessarily client-led need. We haven't heard of our clients at least, maybe for others, but our clients at least saying, "Hey, let's turn these things into ETF necessarily".

But for some areas, exactly, as Rob described it, some of those businesses, like SMD, J Small as well as some of the more exciting ones that we launched just very, very recently, JHAI, which is an AI ETF. And it's not just the kind of high flyer ETF. It's a really thoughtful, longer-term place to take advantage of AI shifts more broadly. So picks and shovels and everything else that we think from a longer-term perspective will benefit JXX in the U.S. and JT XX in Europe, again, based on the UCIT platform there. Those are transformational businesses that we invest in, in a very concentrated manner delivering ETF form.

Again, we are client-led in the way we develop our products, and they can take many, many different forms. ETF certainly is one of them that seems to be for the right investment strategy for the right client, the packaging that people are preferential to at this point.

[Operator Instructions] Final question. This will come from the line of Michael Sypris from Morgan Stanley.

Just, Ali, is your making investments across the business to drive growth. Curious how you would characterize the level of speed at which you're investing in the business. versus, say, a year ago? And how do you see that evolving into '26. Does that stay at a similar pace it might that accelerate? How do you think about that?

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 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 we hit what would have hit, we didn't know how the clients would respond, et cetera. 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 as an element, et cetera, 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.

Great. And then just a follow question. When you're thinking about the investments you're making in the business, how long are the list of items that do not make the cut to get funded, don't get funded and maybe the manner that you'd like? What's the rationale for why those don't get funded?

[indiscernible] just are unable to spend more, like we can't launch 100 products, right? Maybe we can -- we can launch 1,000 products, right? We can only launch a few of them. So there's some oriental capacity there. By the way, some of that is why we're looking at Aladdin as an underlying tool to be able to allow us to get more capacity on things. That's why we're, as I've talked before, using technology more broadly to help us do things more efficiently.

I mentioned the RFPs, for example, our RFPs have gone up about 100% since a couple of years ago, and we haven't added more costs there because we're using technology to help us out. So we're trying to find ways and we are finding ways to do that. I couldn't tell you how long the list is. I mean as you can imagine, an organization our size, everybody wants something, but we're always focused on the ROI of it. So I think we're being pretty disciplined in spending in the right ways.

Yes, that's quite right, Ali. I'm not the most popular guy around here because we are pretty strict on ROIs. And there are -- pleasingly, there is more demand than supply. But as you -- exactly as you said, Mike, that is 2 things. It is both money and it is the ability to do things. So prioritizing things and prioritizing what some things are independent, some things are interrelated. So you really need to understand those things in order to be able to say, yes, we can do this one or we have to go a bit slow with this one because we're doing something else. So that combination of capacity and cost is really critical to look at, but we are very disciplined in there.

With this, I'll now hand back to Ali Dibadj for any concluding comments.

Okay. 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. 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.

Great. Thank you. Good afternoon, everybody, and a very warm welcome to our pre-AGM webinar for the Henderson Smaller Companies Investment Trust. Thank you very much for joining us today. I'm Penny Freer. I'm the Chair of the Board, and it's my pleasure to host this session. I joined the Board of the Henderson Smaller Companies Investment Trust in 2018 and have since been privileged to help guide our strategic direction and the stewardship of shareholder value.

Today's gathering is particularly important as I invite all of you, our shareholders, to vote in our upcoming Annual General Meeting, which is scheduled for 11:30 on Tuesday, the 7th of October at 201 Bishopsgate. There will also be a Zoom connection for anyone who can't travel. The company has a continuation vote this year, and I strongly encourage you to vote in favor of our continuation. Instructions for voting, proxy forms and access details are all available.

Let me outline our agenda for today. First of all, the Chair's welcome, which I'm delivering to you right now. And then next, you'll hear our Fund Manager, Indriatti van Hien's presentation, in which she'll discuss the investment portfolio, recent developments and outlook. Indriatti's presentation will be followed by a Q&A session moderated by Janus Henderson's Head of Investment Trust, Dan Howe, which is your opportunity to ask questions.

But before I welcome Indriatti to give her presentation, let me give you a brief overview of the financial year. Looking back on the year to 31st of May '25, the year-end of your company, the market environment proved challenging, marked in the U.K. by the new labor government with a new political and fiscal agenda. Against this backdrop, our net asset value declined by 5.1% on a total return basis and our share price fell by 2.3%. The company did underperform its benchmark, the Deutsche Numis Smaller Companies Index by 10.1%. Despite some headwinds and a challenging economic environment, we enter the coming year with cautious optimism and are happy to declare a final dividend of 20.5p, bringing the full year dividend to 28p, which represents a commendable 3.7% year-on-year growth.

I'd also like to take a moment to acknowledge and to thank Neil Hermon, who will retire as portfolio manager at the end of this month after 22 years of service. On behalf of the Board and all our shareholders, I extend our gratitude to Neil for his contribution and wish him every success and happiness in his retirement.

With that, it's my pleasure to hand over to our Portfolio Manager, Indriatti, who will take us through the portfolio's journey, our strategic positioning and the path forward. Thank you again, everyone, for tuning in, and I hope you find this session helpful.

Thank you, Penny, and good afternoon, everyone. I'm Indri van Hien, the Co-Manager of this Trust. I want to use today as an opportunity to introduce myself to you, to look back on the financial year just gone, but more importantly, to look ahead at the new team, how we invest, what we've been doing and to finally touch on some of the great opportunities we're seeing in the U.K. smaller companies space.

So let's recap on the financial year to the 31st of May 2025, which was both a disappointing year for fund performance and a disappointing year for the U.K. small-cap asset class, which continued to underperform large caps. As for the highlights or perhaps more appropriate to call them lowlights last year, in the year to the end of May, the NAV total return fell by 5.1% and underperformed the benchmark by 10.1%. But because our discount narrowed over the year, helped by our active buyback program, which I hope you've all noticed, the fall in the share price total return was slightly less disappointing at a negative 2%.

On a more positive note, the strong cash generation in our underlying portfolio holdings meant we were able to increase our dividend by nearly 4%. This represents the 22nd consecutive year of dividend growth at the company. But an all-round difficult year for the trust after what has already been a few difficult years for performance.

Lastly, this year, Neil Hermon, as Penny mentioned, the Fund Manager of the Trust for over 22 years, decided to retire. He officially leaves the building in September, after which I will take over as sole Fund Manager of the Trust.

Diving into the detail around performance, the macro backdrop and interest rates staying high for longer was a headwind, and the autumn statement brought the term stagflation back into investors' lexicon. All this hurt the interest rate-sensitive part of our portfolio. But as ever, it's the stocks that drive performance in this portfolio. And whilst we benefited from strong performance of our long-standing holdings in Balfour Beatty, an international construction company, which is seeing strong order book growth, margin expansion and continues to be on free cash flow and the likes of events operator Essential, which was bid for by Informa last year, some of our larger positions hurt us.

Market services and data communications company, Next 15, profit warned after the loss of a large Saudi contract and weak demand in tech spending. The company has undergone management change. And whilst we appreciate how difficult it can be to turn around people-heavy businesses, it has a strong balance sheet and a Board which seems motivated to unlock shareholder value through disposals of parts of its business. So we're sticking with it.

Impax Asset Management continued to see outflows and lost an outsized mandate at the end of last year, which put pressure on earnings and caused them to cut their dividend. This is a position we have exited this year.

After a strong run for the shares in 2024 and evidence of green shoots in the U.S. advertising market, specialist media company, Future, hurt us as Trump's Liberation Day announcements caused the hiatus in advertising spending in March. However, the trading has steadily improved, and we continue to see excellent value in these shares and continue to retain a position.

Not-owning Georgian Bank TBC hurt us as did not owning telco turnaround, Zegona Communications. Overall, a challenging year, and I want to talk a little bit later about some of the changes we're making to revive performance.

But before I do this, we need to say an important farewell and thank you to Neil Hermon, the man who has managed this Trust for the last 22 years. Notwithstanding a very difficult last 4 years, Neil has been a fantastic custodian of this Trust and his long-term track record is testament to that. If you had invested GBP 1,000 on the day Neil took over in 2002, you'd be sitting on GBP 16,000 at the end of May, far exceeding benchmark returns.

And I want to put my personal record on thanks to Neil as both the shareholder and the colleague. He has been a fabulous mentor, and I've learned a lot from him over the last 13 years we have worked together, not all of it about football. We wish him a long and happy retirement. He remains a top shareholder and has already been pestering me about growing the dividend.

But that's enough about looking back. It's now time to look forward. Here is the new team taking on this well-established trust. I say you, I've actually been involved in this Trust for the last 13 years, and I've been Deputy Manager for the last 9. In the summer of 2024, the Board made the decision to promote me to Co-Manager, which was formally enacted at our interims in January. As for my background before joining what was then Henderson in 2011, I did what my father would term a proper job, where I worked at PwC and got my accounting qualifications, an important skill to have when looking at small caps, where cash generation and funding requirements are so crucial to analysis when you have lots of smart people wearing great suits, carrying shiny slide decks buying for your capital. And that's an important point. We're all portfolio managers, but we are also analysts. We do our own stock picking.

You'll also see Shiv here. He's worked on the desk for the past 8 years and is a dedicated U.K. small-cap resource. He is also an accountant.

Now this blacked out silhouette is our new hire. The silhouette has long hair and an amateur sleuth or J.K. Rowling would probably correctly identify her as a woman. Her gender is not what is important. What is important is that she comes with an excellent track record in U.K. smaller companies, and we expect her to be joining our team in November. She is not an accountant, which will offer some light relief at team drinks, but has gained banking experience in the U.K. small-cap space in her early career. So she knows how the sausage is made and like all good fund managers knows to read prospectus starting from the back.

She is, however, a Liverpool supporter, which is odd because she is a genuine scouser. This also means that all the useless Liverpool knowledge Neil imparted upon me will not be entirely wasted. We're thrilled she's joining us. She was our top choice of candidate in a competitive field. She's a bottom-up stock picker whose existing investment process is very much aligned with our own.

Whilst we are the 3 who are directly responsible for the strategy, there are many others that indirectly feed into us. None of them were good lucky enough to have their pictures featured on this page, but they're all very important into feeding into the wider market debate. There's a strong culture of collaboration at Janus Henderson, which means we all have access to each other's meetings. We have weekly cross-desk equity meetings and there's compulsory note sharing.

I wanted to give a special shout out to our incredibly capable ESG team who support us so well in assessing many of the nonfinancial risks and opportunities our companies face. So that is the new lineup.

Now on to U.K. small caps. Why are we here or why should you want to be here? Well, it's because the U.K. small cap effect is real, whether over 70 years or over 25 years, small caps have outperformed large caps most of the time. There are many drivers behind the small cap effect, including the fact that it's easier for smaller companies to grow faster and how they naturally give exposure to new products, services and technologies in nascent growing industries.

But one of the main drivers of this effect is the fact that there is more alpha-generating opportunities in this part of the market. Less analysts cover more stocks, which results in higher stock dispersion, making it fertile hunting ground for alpha generation, great for stock pickers like us. It's for the same reason that it's worth noting to you that you can't really invest in small caps through passive exposure. There isn't the liquidity in that part of the market and one of the main reasons an active approach is key.

As the chart below shows, it's been somewhat of a lost decade for U.K. small caps, but we see opportunity in that, and I will come to that later.

So who are we and how do we fit into all of this? The Henderson Smaller Companies Investment Trust is an investment trust. We love this structure for investing in small caps as it is a long-term vehicle giving investors access to unique features, which we fully take advantage of. The trust is one of the largest and most liquid trust in the space with around GBP 700 million of gross assets and GBP 600 million of net assets, and you can buy this trust at an attractive 8% to 9% discount to NAV. We take advantage of gearing, which using our attractively priced long-term debt, we have long-term private placements priced at around 3%, very attractive when you consider where bond yields are trading now. Over the long term, this has successfully enhanced return for investors. We have a long track record of dividend growth. We're not an income fund, but have achieved this as a happy byproduct of our long-standing investment process centered around investing in cash-generative growth companies. And as a result, this trust has AIC Dividend Hero status.

And finally, the fee structure on the trust. This is both competitive and keeps us aligned with our investors. At 35 bps, we have a low base fee, but we do have the opportunity to earn a performance fee, but only in years where we both outperform the market and make you money. That is to say that the share price at the end of the year has to be higher than when it started the year. The base fee and performance fee together are capped at 90 bps.

So how do we create value? The first thing to say is that we are long-term investors, and our portfolio is constructed from the bottom up. We're stock pickers and our philosophy is centered around stocks that give us exposure to quality growth at the right price. In industry jargon, you would call us GARP investors. We're looking for companies which are growing. That could be structural growth, that could be cyclical growth, could be a turnaround situation. And we want these companies trading on multiples, which we don't think fully reflect the fundamentals and growth of that business. That is to say that we're looking for re-rating potential in companies.

In simple terms, we want to find this growth before everybody else does. That re-rating can come from something straightforward as a company being better covered by sell-side analysts or a company which is trading at a discount to comparable transactions or with peers with similar fundamentals. We believe it is that potent mix of earnings growth and re-ratings that drive superior returns over the long term.

To conceptualize this a little bit more, I put this diagrammatic here. No matter how good the growth story, the starting valuation has to be right. For this reason, we like to invest in the top left corner, high growth but low valuation. Let's take JTC, for instance. It is an outsourced provider of fund administration services to private clients and alternative asset managers. It's got 90% recurring revenue in a structurally growing space and has seen over 10% organic growth over the past few years. We bought this when it was trading on a multiple of 16x, a substantial discount to the 23x its direct competitor, Sanne was taken private at in 2021. We started our position in 2022 at GBP 6.50 and have been adding to it over time, meaningfully so this year. The stock price today is GBP 13.50.

Happily, last Friday, we learned that the company had rebuffed 2 takeover offers from private equity house, Permira, and Warburg Pincus is now looking at making a competing offer, which should mean more upside in the shares for us. The same can be said of Chemring, a defense company supplying energetic sensors and cybersecurity services, which is seeing high single-digit top line revenue growth. Even at 27x earnings, by the way, we bought it on 11, it trades at half the multiple of German-listed Rheinmetall. I could go on, but we want to buy these growing companies where their valuations are not properly reflecting their fundamentals.

It is often the case that our stocks end up in the top right quadrant. In fact, we hope this happens, and that is when we decide whether or not to divest or hold on to compounders like Softcat, which has seen its strong re-rating, but we can still justify the holding through its earnings growth and dividend yield alone.

Here is a very quick reminder of our investment process. I have included this slide solely for the purposes of flagging that our investment process is not changing. It is the same slide that was in existence when I joined. Neil has left, but the investment process remains. We will still be analyzing companies through the lens of our well-established 4Ms process, those 4Ms being the business model, money, management and earnings momentum. And we'll still be undertaking those over 300 management meetings a year.

The one thing that will change under me will be the stock count. I want to focus on our highest conviction positions. So you can expect to see the tail of the portfolio continue to get cut. Cutting the tail will test conviction and force us to be more proactive with how we recycle our capital. We still want to provide you, our investors, with well-diversified exposure in the U.K. small cap space, but we think this can be done with 80 or even a 70 stock list.

To give an example, when I took over, the bottom 20 stocks in our portfolio only made up 7% of the fund. Monitoring these positions takes up just as much time as monitoring a 3% position in our top 10. And sometimes they can often be more challenging and take up more time. And I think that there are more effective ways for us to be using our resources.

Here is a little case study I want to talk about on Serco, which I hope will bring our investment process to life. Serco is a provider of outsourced services to governments globally. It provides defense services, runs prisons and provides immigration services, among other things. It's a fascinating company operating under 600-plus contracts and it employs over 50,000 people worldwide. We initiated a position on New Year's Eve in 2020, not because I'm a particularly sad person, although I would flag, we were in deep COVID and there was really nothing better to do that evening.

But really, it was linked a little bit to COVID in that I just come back from visiting my mother in Indonesia and that long cotton swab being inserted into my nose by the track and trace people got me thinking about Serco, the business that ran those track and trace centers for the government. It's a business I've been following for a while. It had a troubled history, but under new management, then Rupert Soames and Angus Cockburn, loss-making contracts had been cleared out, provisions were no longer being used. The accounts were cleaner and most importantly, the business was generating cash. The shares had derated. They were trading on 14x earnings when they used to trade on 20x.

Our view at the time was that demand for outsourced services were only going to increase as governments became more fiscally constrained after the pandemic. That was a big opportunity for Serco. We liked the strong balance sheet and low credit risk. As their customers are governments, they tend to always pay.

The stock looked too cheap for the strong returns that it was delivering. We thought it was being punished for the fact that the high margins it was earning for running those track and trace programs would not persist and would instead be a headwind to future headline earnings growth. We knew that these were one-offs and shouldn't have a high multiple put on them, but we also took the view that the cash that it was earning from these revenues was real and fueling balance sheet opportunity. That provided us with the opportunity to buy the shares.

In the 4 years we've owned the stock, it has doubled and delivered persistent earnings upgrades and announced 5 share buybacks and bought 3 businesses. The one thing it hasn't done is re-rating. It actually trades on 13x now. This is exciting for me as we've generated those earnings -- those returns through earnings alone. The re-rating is still to come. Where do I think this could come from? Well, organic growth should step up from 2026 as large contracts such as the prison tagging and Armed Forces recruitment contracts start to mobilize and its defense business has grown to become nearly 40% of its overall revenues. In this market, even bad defense businesses trade on 6x and good ones on over 20x. We suspect that a Capital Markets Day in H1 next year might see the margin targets lifted and help drive that re-rating. So there we have it, that is GARP in action. We are buying shares seeing earnings growth, which have re-ratings potential.

Now it's time to see our research in action. Here, we can see the earnings growth chart for Serco. These lines show how earnings forecasts have evolved over time in any given year. We've plotted these lines from 2020. This is what we want to see, earnings forecast moving upwards over time. That is the earnings momentum part of our investment process. Good momentum usually speaks to good management team who has strong enough visibility usually because of a good business model who are able to consistently underpromise and over deliver.

Now as many of you know, going out and meeting management is a core part of our investment process. Indeed, with Serco, we've not only had countless meetings with their management team and Chairman to discuss things like strategy and management transitions, we also have such a strong relationship that in 2023, I was invited to present to their finance leadership team about how financial reporting and presentation could be improved in the business to make it easier to analyze and more important, easier for the market to value. We are long-term investors, and we think this collaboration is really important.

And whilst meeting management is important, it's often far more interesting to meet the next few layers down. Here, this picture on the right shows me driving a defense-grade tugboat on the Solent, out learning about one of Serco's largest contracts. Here, they provide port services to the Navy, think tank refueling and tugboat services to big warships and aircraft carriers. In this picture, Captain Bob is instructing me to avoid crashing into all the high-value yachts in that marina. I learned a lot that day about the dominant position the company has as a single source supplier in that space and the high margins it can make from such contracts.

I also learned how to keep an incredibly straight face while asking Bob, the captain, all tug-related questions. What was the hardest tug he'd ever experienced? What was the going rate for a tug in Portsmouth? It was a total tugfest and an all-around excellent day out. And I hope this gives you a sense of what we're looking for in investments undervalued growth.

Here, I just wanted to show you our top 10. It makes up about 30% of the portfolio. It's made up of a mixture of U.K. housebuilders, defense businesses, domestic pub companies, challenger banks and aggregates business and should give you a sense of the diversified exposure that we have.

To follow on from this, here's a top-down view of our fund. We construct the portfolio from the bottom up. So this is really an outcome rather than an objective. But what you'll see here is that 40% of the revenues of the portfolio come from overseas. And we also are exposed to a diverse range of sectors. As you would expect from a fund focused on growth, we have large weightings in industrials and tech sectors, while we run smaller weightings in sectors such as consumer staples.

You can also see our GARP style and 4Ms investment process shine through in our portfolio characteristics. This table, which you can peruse in your own time, you will see that historic sales growth and the and earnings growth are faster than the benchmark and the business is generating higher returns and more prudently capitalized than the benchmark, trading on a similar multiple to the benchmark. So we're getting all those characteristics for -- all those better characteristics for a similar multiple.

Finally, on to dividends. People don't usually associate small cap investments with dividend growth, but this chart should really make you think again. The chart shows you 2 important things. Firstly, even though the overall dividend you would have been paid as an investor would have been low compared to an equal investment in the FTSE All-Share in 2005, our 4Ms process, which seeks out growth companies with strong cash generation means that our companies often pay growing dividends and that over time, the running yields on an equal investment in 2005 in our trust versus the All-Share is over 2x higher than the All-Share.

And secondly, it highlights one of the unsung benefits of investment trust, which is that they can smooth dividend payments. For Henderson Smaller Companies, this has meant that when many companies were cutting their dividends in the wake of the pandemic, our Trust was able to grow its own, whilst the All-Share saw a 25% overall cut.

Now this is a really important slide, and I want to talk to you about what we've been up to this year. And it's important because essentially, what we buy and sell is what drives the performance of the Trust. Now I alluded to the difficult performance we've seen in recent years, and we've done the analysis on this. And we concluded that, number one, we were not alone in suffering from underperformance. Our peers have seen similar too. And we also knew that our growth style, which has deeply underperformed value in this time has been a factor, but stock picking has been partly to blame.

Our conclusions were that what we had been adding to the portfolio was performing. So we had not lost our ability to pick good stocks. It was the stocks that we failed to sell or held on for too long, which hurt performance, which is why there's been a renewed focus on the desk on going back to basics, reassessing our investment thesis and employing a stronger sale discipline where the outlook has changed or there's been thesis drift. On top of regular capital recycling, under the new team, we're undertaking a series of refinements to the investment process.

So what exactly are they? Firstly, cutting the tail. We've talked about that. Not only is this a more effective use of time, but running a shorter list will again force that tougher conversation around capital recycling.

Secondly, we're trying to increase the earnings momentum in the fund. You can see that in the purchase of platform -- funds platform provider, AJ Bell and financial software provider, Alpha Financial Services, which are both seeing unique tailwinds to earnings growth.

We're also looking to further diversify our sector exposure. When I looked to the fund earlier in the year, I was very conscious that I didn't want the fund to look like a one-way bet on improving industrial activity or a turnaround in U.K. housebuilding and construction. Even though there are some very compelling opportunities in that space, my view was that we potentially had too much of that same exposure. I've tempered that and added to new exciting positions such as Genus, Pinewood Technologies and Baltic Classifieds, which give us still good growth but differentiated end market exposure, whether that's porcine and bovine genetics in Genus or exposure to online classifieds in the Baltic regions.

Finally, I wanted to reduce exposure to companies with high financial leverage on top of high operating leverage. There's a point in the cycle where you want to own these companies, and we don't think now is that time, which explains our disposals of companies such as Synthomer, Videndum and Midwich. I am pleased to say that in aggregate, these buy and sell decisions have been accretive to our performance, and our new portfolio should give investors more diversified growth exposure going forward.

You might be sitting here and listening, thinking, "Gosh, she's done a lot this year", but I really wanted to reassure and say no. We have not ripped the heart out of this fund. Turnover in the last 6 months to June was only 15%. Annualized, that's 30%, still low in the context. Our fund has an average 4- to 5-year holding period, which equates to turnover of 20% to 25%. So only slightly elevated versus our long-term average and really not elevated at all given how low turnover has been in the last few years.

Now on to the asset class. As I mentioned previously, it really has been a lost decade for U.K. small caps. Starting with concerns around the EU referendum, the political chaos that ensued, the energy crisis and runaway inflation and a rate tightening cycle, which has done no favors for the U.K. economy, which is one of the most rate-sensitive developed economies in the world. From the end of 2021 and essentially the start of the rate tightening cycle, U.K. smaller companies have not only delivered poultry returns, but have underperformed the FTSE 100 by over 36%.

So why stick with us and why stick with U.K. equities? Well, we all know that the U.K. equity market is cheap. That is very well documented. The market trades at a big, so over 30% discount to developed markets, even on a sector-adjusted basis. But the more domestic FTSE 250 and small caps are the cheapest and sitting well below their historic averages. We know why this is the case. Inflation is still high. And whilst growth is fine, need I remind you that we are the fastest-growing economy in the G7, it is slowing, and the market believes that we don't have the fiscal headroom in this country to stimulate that. So we understand the push factors.

And I will acknowledge that we are in for another autumn of speculation into the budget, which has been set for the 26th of November. But we think the pull factors are coming into view. The labor government have been clumsy, but what they have done -- but they've done 3 really important things. Firstly, they've reset our trading relationship with our largest trading partner, Europe. Secondly, they've moved to deregulate the financial services sector, supporting domestic growth through lending in this country. And finally, they've committed to reforming the planning system. All this should stimulate domestic and foreign investment into the U.K., including the stock market. We think that at a time when U.S. exceptionism is being questioned, U.K. exceptionism is abating and that there's money to be made from this.

So what will get the markets moving? Firstly, it's confidence. Both corporates and consumers in this country are sitting in a lot of cash. They just need to be confident enough to spend it. The budget could be a clearing event from that. We think -- and we know it was a disaster last year, but we think expectations are coming from a different starting point. Last year, investors and businesses were optimistic about a new government, but the government had a vested interest in talking down the economy to lay the groundwork for black holes. This year, according to some surveys, business confidence is at rock bottom and labor need to talk up the economy. We must never forget that no one self-fagellates like the British, but we must also never forget that we have seen the U.K. market try to rally at various points in the last 6 years and that investors are open to reentering this market.

What else would help? Well, falling bond yields. Power looks to be pivoting, and we'll hear more on that later today -- later this evening. So will the Bank of England follow? The U.K. is one of the most rate-sensitive economies. And if interest rates fall, the more domestic 250 will rally much harder than the more international FTSE 100.

And finally, flows, but we'll talk a little more on that later. We think that the U.K. smid-cap space is primed for re-rating. It's trading below historic averages in terms of valuations and on earnings that in a large swathe of our universe sitting at cyclical lows.

And if we don't notice that, others will. I'm almost bored of showing this slide because it just tells you that M&A is persisting in the U.K. In our own portfolio, we saw bulk annuities provider Just Group recently bid for. And we know that NIOX Advanced Medical Solutions and GlobalData were in bid talks earlier this year. And as I mentioned, there is a bidding war for JTC.

We see a lot of opportunity in the U.K. market. U.K. politics has become increasingly divisive, but the one thing that all parties agree on is that growth is what is needed to both calm the gilt markets and win the elector over, and we have a lot of exposure that would benefit from this renewed focus. Labor have made some big mistakes, but could these early losses have really saved their growth mission. Here, I've just pulled some headlines from the papers this year. The government is pushing regulators to stop standing in the way of growth. They've undertaken planning reform, and we've seen them take steps towards making it easier for first-time buyers to get on the housing ladder. This should help not just our own housebuilders, but also the building materials companies that we own.

We've also seen the government take tangible steps to deregulate financial markets, which should help our holdings in challenger banks such as Paragon and OSB. We've even heard Rachel Reeves talk about Trump-styled boosterism. We have a diversified portfolio of stocks, giving you exposure to a variety of themes, unlocking U.K. business and consumer confidence would benefit a great many of our holdings.

So has the market woken up to some of the subtle but meaningful steps this government has taken? The flows charts here suggest that they have. This chart shows flows trends in U.K. equity funds, which is a good indicator of interest in our market. We know that the U.K. small-cap market performed very well in 2015, 2017 and 2021, the years where U.K. funds were an inflow. What we can see in the thick orange line here is that in 2025, outflows look set to be abating or at least certainly bucking the trend of the last few years. Whether that's people taking notice of U.K. government policy or Trump's Liberation announcements driving diversification in people's portfolios away from the U.S., there is more interest in U.K. equities, and that is positive for our part of the market.

U.K. equities make up less than 4% of the MSCI All World Index. Just a 1% shift from U.S. equities into our market would be material for asset levels. Could this be the start of something? At the moment, this has started at the larger end of the market, but there is scope for it to broaden out. And historically, small caps benefit from this. And given how oversold our part of the market is, it really won't take much to get it moving again.

So to finish, why us? We are an experienced team of small-cap investors. We have a long history of outperformance. We construct our portfolio from the bottom up with a view to giving you diversified exposure to high-quality U.K. small-cap growth stocks.

And with that, I will hand it to Dan to moderate questions.

Indri, thanks very much for your presentation. So I'm Dan Howe, the Head of Investment Trust at Janus Henderson, and I'll be moderating today's Q&A session. [Operator Instructions]

So Indri, we've got a question for you here. What sectors or themes have stood out as contributors to performance over the past year?

Well, over the past year, we can't ignore our large weighting to the defense sector, which has been a really strong contributor. The persistent geopolitical instability and the inability for Europe and the U.K. to rely on the U.S. for security guarantees has really increased demand and the willingness for governments to spend on defense, and that's helped our holdings such as Cohort, QinetiQ and Chemring in this time.

I guess other sectors -- sorry. I guess other sectors that have benefited are some of our construction names, everything from aggregates owner SigmaRoc, which is set to benefit from German fiscal spending and Balfour Beatty, which I mentioned earlier, seeing strong demand in the U.K. And because demand is so strong for infrastructure, this has allowed some of these companies to be choosy and only bid for contracts with attractive risk profiles and therefore, higher margin structures. So really, it's putting them in a good space, not just from a revenue growth perspective, but also from a margin perspective.

Great. Thanks, Indri. I've got another question. It's for you again, actually. How do you see the U.K. small-cap market evolving in the current economic climate? And what could help turn sentiment more positive? You gave a few bits earlier. So give us a bit more color, if you could.

Sure. I guess in the short term, it really is the autumn statement. That's going to be a big hurdle for the U.K. small-cap market to overcome. The market will want reassurance that, firstly, the fiscal hole Reeves has to fill to restore her headroom is not outsized. So the market is looking for a number between GBP 20 billion and GBP 30 billion. We don't want it to be the GBP 50 billion number that's floating around.

Then the market will want to get comfort that there'll be both a mix -- this hole will be filled with both a mix of tax rises and cost cutting. And that it's really the taxes that aren't going to have an inflationary impulse that are being raised. So last year, we saw the controversial increase in national insurance rate hurt employers and really force them to put prices up, which was inflationary whereas if we get, say, taxes being raised through less generous pension tax deductions, that would not be inflationary.

Like I alluded to before, corporates and consumers have really healthy balance sheet. We just need fiscal stability. They just want to understand the playing field that they're on to unlock some of these savings.

Now on top of the autumn statement, any rate cuts will help. I've mentioned that before. And in the longer term, the government will need to sort of show that it can sustainably improve its growth trends through supply side reform to make that gilt market volatility go away. And credit to the labor government, they are trying to do that, but it is good that all political parties know that it is growth that they need to target here.

Thank you. Question for Indri again actually. So given the headwinds in recent years, what makes you optimistic about the Trust's outlook from here?

Well, firstly, it's that the valuations are a really attractive starting point. And secondly, it's that we are in a rate cutting cycle rather than a rate rising cycle. And base rates falling is good for stimulating growth and growth is good for small caps. So the setup is very different. When we were coming out of 2021, small-cap valuations were elevated and rates were low and rising. Now small-cap valuations are on the floor and rates are high and falling. So that should help us.

And could you just give us a bit more color? You talked about the team and the collaboration with the broader colleagues at Janus Henderson. Can you give us a bit more color sort of day in the life in terms of how you interact with them on a sort of daily, weekly basis?

Sure. Well, usually, it's just swinging my chair around because I sit back to back with the U.K. income fund. And then I sit to my left next to the pan-European small-cap team and to the right, the U.K. large-cap hedge fund team. And it's brilliant because you just get different perspectives on the same stocks, which help you form your own view. If I don't want to be lazy, I can just get up and walk over and speak to our specialist property team that hold a great many of our own holdings in our portfolio, and we can compare notes and really draw on that specialism.

So it is just 3 of us making the final investment decisions, but there are lots of voices that feed into that. On a weekly basis, on a Monday morning, we have a cross asset. Well, no, we have an equities team meeting, but we have members of the fixed income team come and give their short view on the week ahead and some of their longer-term thoughts. And then we have a sort of tour around the globe, and we get to hear about the most interesting things or important points happening in their equity markets. And that's really important because even in the U.K. small-cap space, over 50% of the benchmark derives its revenues from outside of the U.K. So we can't just be looking inwards here. So it's great to have that collaboration at my feet here.

Thanks, Indri. So a question for Penny. Could you talk to us a bit about the discount on the investment trust and how that compares to peers and buybacks to date?

You're on mute, Penny.

I'm sorry. Sorry, everybody. We've been very active in the market over the past year. And we bought in -- since October '24 AGM, so almost the last 12 months, we've bought in almost 11 million shares, which is just under 15% of the total share capital. And all those shares that we bought in are held in treasury.

Our discount as a result of this has narrowed. The tightest discount was at just over 7%, 7.4% in mid-July this year. The discount yesterday was just over 9%, and that compares with our peer group average of over 10%. And what we've seen over the last few months is that we are consistently 1, 2, sometimes more than that percentage points within the peer group average, and we're pleased with that position. We increased our ability to buy back earlier in the summer in July, and we have the ability to buy back in a further 15% of the shares. We've brought in just under 6% since the 1st of July. So we've got over 9% remaining.

But I stress that we remain in the market. We want to defend that discount, but we're also very well aware that what we want to do is grow this Trust. So I hope that gives you a little bit of a flavor about what we've been doing.

That's great, Penny. Thank you. Thank you very much. And ladies and gentlemen, that's all we have time for today.

A big thank you to Penny and Indri for sharing their perspectives and to all of you for joining us ahead of the AGM. As a reminder, the AGM is being held at 11:30 on Tuesday, the 7th of October at Janus Henderson's offices at 201 Bishopsgate in London. There will also be a Zoom connection for those who can't travel. For more details on how to vote your shares and attend the AGM, please visit the company's website. Thank you very much for joining us today.

All right. Good afternoon, everyone. Welcome to -- I think not quite our final session, but one of our final sessions of the day and here. I'm Ben Budish. I cover the U.S. brokers, asset managers and exchanges. And with us for this chat is Ali Dibadj, CEO of Janus Henderson.

Hi, everybody.

Ali, thanks so much for being here. Welcome.

Thanks for having me. It's great to be here. It's always a great conference. I love Barclays every year doing bigger and better. Great leadership under Venkat's. Great to see. Great to see you.

Likewise. So before maybe diving into some company-specific questions, can you talk a bit about how you see the macro backdrop currently? Where are you seeing the strongest investor appetite? What does this all mean for -- potentially for flows in the back half of the year?

Yes. So look, let me start. It's clearly a very broad environment right now, I think what we're seeing from clients is a few things, maybe three. One is that they're very focused on needing help in terms of how to manage through this geopolitical environment. Geopolitics are changing every day. We don't quite know what's around the corner, so they're looking for help. They're looking for help in finding things like real innovation. That's something that we do, Janus Henderson, our 350 investment professionals around the world have a focus on innovation. So we try to deliver that in our small-cap, mid-cap portfolios. And that's something that a lot of our clients are looking for in terms of how to break through some of that geopolitical kind of question.

They certainly look for non-U.S. investing. Emerging market debt has become quite popular among a lot of our client base, both on the private side. For us, that's mostly on the Middle East side of things, but also on the public side as well that we brought folks on board. And of course, more broadly, around investing in a non-U.S. equities. We have European equities franchise. We have regional franchises as well. So really kind of the look at geopolitical and how it affects a lot of change in that marketplace. We think about that when you invest in real estate on our REIT side, too. But that's one big question people ask.

The second big question people ask is very much around demographics and lifestyle changes in AI. They really need help to try to figure out where opportunities lie. And that very much for our perspective, again, is directly aligned with how we think about our thematics for a broader sense of the work. So we can find opportunities in health care and our biotech funds, as an example, that are growing quite well because there's a specific expertise that we can bring to bear that is related to demographics and really related to AI.

Technology is another example of that for us. We look for transformation in technology. In fact, we just launched an ETF, which is the best of breed of all AI within one ETF called JHAI. It's not just technology companies per se, but the other picks and shovels, brick-and-mortar around that, electricity companies, other things that we have to bear. And investors are very much looking for that as well.

And then look, the last bucket, and it's kind of more of a recent bucket, I'd say, obviously, is around the cost of capital. And there are many implications of that. People are looking to see what's happening with cost of capital. You are all thinking about it for sure. And that leads to many things. So it obviously leads to thinking through how wheat from chaff can be separated from a hedge fund perspective, multi-strat perspective. Balance funds, I think, are quite interesting right now given that they give the return of fixed income because there is a cost of capital that's there as well as equities being able to pick wheat from chaff.

Of course, so the big question on people's minds over the past several weeks for clients has been, okay, what happens to the fixed income desire right now. And we're pretty clearly at the peak of a rate cycle certainly in the U.S. We know that. I think some people expect 3 rate cuts over the course of this year. Our folks expect 2. But look, either way, it's certainly a lower rate environment than we have today, perhaps not going back to historical 0 levels, but certainly a lower rate environment is what folks are thinking through.

And so what does that mean? What are the implications for us and for our clients? There are really 2 aspects to it. One is the rates are coming down for, I guess, the right reasons, but perhaps not the most preferential reasons, which is the economy is clearly slowing down. So people will want things that are higher quality. Those are things like our AAA CLO ETF, JAAA. Those are things like our asset-backed privates like Victory Park Capital that we can bring to bear to our client base. So that's one area.

And then the other area, not just the economy is concerning, so let's be safer, is around duration and perhaps not long term depending on the curve shape, but certainly going from short term to midterm. And that's, again, the ecosystem of ETFs that we've provided, including JABS, which we just launched is a little bit later in terms of duration along the way.

So I guess there's a lot of uncertainty out there in the marketplace, and that's our bread and butter. That's your bread and butter, a lot of the bread and butter of the folks in this audience. People are looking for answers. And the good news is for 91 years, we've been delivering answers to our clients in some form. And again, trying to look at this macro environment as an opportunity is certainly what's been playing out for us.

Great. All right. Let's dig into the business a little bit more. Maybe starting with your partnership with Guardian Life, was announced recently. So this meaningfully scales your insurance and fixed income AUM. Maybe talk a little bit about the background of the transaction. Was it a competitive process? Why did Guardian choose Janus?

Sure. Yes, happy to talk about it. We are very pleased about this partnership. Yes, it was a competitive process. You can imagine all the folks who were involved in the competitive process, all the big names were out there. And we did not win this process because we were lower price, lower fee in the short term for sure. We know we weren't, and we were certainly, I think, more predisposed to suggest a long-term value creation than some others.

And it really starts off Ben, because Guardian and Janus Henderson have a very similar culture. That's a culture of innovation. They are creating -- want to create the insurance company of the future, a modern insurance company. We are at Janus Henderson, all 2,000 people around the firm trying to create the asset management company of the future in terms of innovation, in terms of bringing new products to bear, et cetera. And so that melding of the minds was actually quite essential to us. And then on top of that, we brought together the incentivization. So we are very much aligned. The have warrants in us. So effectively, they're exposed to the equity. They see the opportunity for us to grow their business in partnership with them.

And just to take a little bit of a step back, the partnership has effectively 4 aspects to it that we find quite interesting. One, which everybody focuses on a lot, and obviously, it's a big number, so I get it, is the originally $45 billion of assets we were going to get from the general account, which is an IMA form. They grow. We certainly knock on wood for all of us hope that they continue to grow. It came in at $46.5 billion. I don't expect that same type of growth, but we certainly expect them to grow.

And that's, again, classic general account, fixed income, mostly investment grade but some high-yield public exposure that we can get at accretive margins to our average margin once we are fully integrated kind of sometime next year. And that's the big part of it that people mostly pay attention to. But there are other elements that we find extraordinarily interesting, and I think were things that we have been told we can uniquely bear to not just Guardian, but other players as well, one of which is the $400 million of seed capital that we have partnered on with them.

So the whole point of the seed capital is for them to give us access to their needs for the general account and seed things that, in theory, they could use and thus others could use as well. In fact, we just used $100 million to invest in JABS, J-A-B-S, which is very much of a complement to JAAA, right? JAAA is floating rate AAA CLOs. JABS isn't quite as high quality, but in the kind of A range, I'd argue. It is more -- a little bit longer duration and a more fixed rate to complement JAAA. That's something that Guardian wants for their balance sheet. They're giving us $100 million to seed it.

And then over time, we're going to bring that to other insurance companies, particularly when it's NAIC rated, hopefully, and bring that to grow that business. That's part of the $400 million element to it. And then, of course, we've taken on board their people who are doing fantastically well within our organization, particularly the corporate credit team is doing really, really well and adding value to us. And we think we can take that team and expand them in terms of the assets that they manage from other insurance companies, particularly in the U.S. because Guardian is an extraordinarily well-viewed insurance company. It's an insurance company that others say, "Hey, wait a second, if Janus Henderson can do this for them, why can't they do something like that for us?" And that's something that we're certainly building up with this team.

And last but certainly not least, Guardian has something called Park Avenue Securities. It's close to $60 billion of assets under management. It's a captive distribution system, 2,400 people who are financial advisers there. And with new leadership at Park Avenue Securities, a gentleman named Mike Perry, who we've known -- people on our team know for a very long time and actually are very focused with him on growing the business. He's very aligned with this. He's really kind of a trends setter that are in the industry, and we want to partner with them. We look forward to it, growing our business in the Park Avenue Securities fold as well as Park Avenue Securities grows is another element of the story. So there are several kind of multifaceted, I guess, we said in the press release tentacle to this, and we're quite excited so far about the progress here. JABS being just one example.

Great. We answered a few of my other questions here, but maybe just another high-level question. Outside of Guardian, can you talk a bit about your broader insurance business and unpack your ambitions here. You mentioned, I think, that some conversations are picking up. What does the pipeline look like? Is there a cadence we can expect with new partnerships? Any color along those lines.

Yes. So thanks for that. We, to be clear, don't have exclusivity from Guardian to the opportunity to talk to other insurance companies. And again, the conversations we're having are conversations we've never had before with really large insurance companies around the world. We say, well, wait a second, there's something interesting here. This is not an outsource my general account. to some of the characters out there who can outsource. This is not a private equity-led general account business that I can just give it to and kind of may have questions about. This is something that really suits my needs. And so we're having real conversations.

Look, I would talk about maybe a dozen or so conversations that we've had out there. Just to be super clear, I'm not sure if any one of them will get to anywhere, just to be clear about this, but we're having conversations with people we've never had before in the insurance landscape. Now that's probably because we're now on the radar screen, right? We are about $100 billion in assets under management just from insurance around the world. That's meaningful. That's 15th or 16th in the world right now. So we're on the radar screen.

We're doing things that are creative. We're doing things that are growing and people want to have access to our ecosystem and our improved skill sets from an investment perspective as well. By the way, to your earlier question, that's something Guardian really wanted is an opportunity to have better returns for their policyholders but getting access to some of the skill sets that we have. Securitized is just one example of it.

Maybe pivoting to ETFs. We've seen a lot of success in the active fixed income side, in particular. Maybe just start, can you give us a bit of an update on JAAA JABS? Do you think this new one could be as big as JAAA? How are sales looking?

Yes. Look, so JAAA has been a great success for us, continues to grow quite well. Candidly, and you know me, some folks in the audience know me and the way we operate, we were watching this like a hawk, both back in the liberation days of April, but also more recently when it was becoming clear and clearer that rates were going to come down and everything acted exactly as we had expected. And in particular, we've seen no slowdown, the information is public. We've seen no slowdown in flows into JAAA.

The exciting part to it, though, is that if you look at the other 4 ETFs, we have 5 in total, the other 4 ETFs on the fixed income side that are over $1 billion. We've seen the pace of growth of those being faster than what JAAA was at that same time of growth. To be clear, to set expectations. JAAA, I think, was a confluence of, candidly, luck and other things that got us to that level, but certainly suggests that the growth rate of these other ETFs is clearly on the right path.

JABS is a great example of that. We don't expect it to be as big as a $22 billion ETF. But certainly, we do expect it to be complementary to JAAA, again, floating rate versus fixed rate, a little bit longer duration. So we do think it's in the same conversation there. But again, what we definitely want to do is continue to grow the $5 billion active ETFs that we have on the fixed income side. And really, we're delivering an ecosystem, right? So a little bit to your macro question earlier on, we're delivering an ecosystem. So that if a client has a particular view about rates and about credit ratings and everything else that they want, we have that product for them. We're not going to do all things to all people, but we have the broader range of products. across the board in an environment where the market may change from a credit perspective and a rating perspective.

You kind of touched on my next question here. But with short-term rates increasingly likely to come down, that's your house view as well. How do you anticipate changes in demand for these products or maybe across the fixed income franchise more broadly, what would your expectations be?

Yes. So look, it's a great question. And again, it's a question we've been analyzing quite a bit. From a JAAA perspective, we would have anticipated that people are looking for other opportunities that perhaps a little bit of a longer duration to it. But what we're finding with JAAA is not only is it the high-quality element that people are attracted to, but also the spread is quite attractive. So if the underlying cash, let's call it, return rate comes down, the spread that JAAA gives you is actually quite attractive on a relative basis. So people are still sticking to it.

But again, to the point, we have a wide gamut of ETFs in the fixed income landscape that we think people can use depending on what they want. If they want a little bit longer duration, right, they can go from half a year JAAA to something closer to 3-ish years on JMBS or they can go to a JSI or JABS, right, which has about a year type plus duration. And by the way, even if they want short duration, but they're concerned about the U.S. We have a great product called VNLA, V-N-L-A, which is another $1 billion ETF for us, which is short duration, but global as well. So people are concerned about what's there.

Our point within the ETF category is to create an ecosystem of products on the fixed income side where people can actually articulate, express their views through our vehicles. It's not just a product, it's a set of products that people can articulate their views on it. We're using JAAA, so far the most successful one of them, that's effectively a cross-sell tool in a wedge to show we have the right to play in this area. We have the investment shops to play in this area, and we can service you and operationalize your ETFs better than anybody else in the world, right?

That's how we've become the second largest fixed income active ETF provider in the world. We're the eighth largest active ETF provider, period around the world. And right now, we're, as you said, very focused on fixed income. And even in this change of rate cycles, we think we have the products to deliver.

How do you see demand evolving for ETFs? I mean I think you guys have talked about seeing the pickup from insurers, institutions, which have traditionally been less allocated in the retail channel. You've got Tabula, which I think in Europe, the penetration is even a bit lower. So where are you seeing a lot of this demand come from? It seems like in the past many years, it's been a lot of retail advisory. But what are you seeing from some more institutional like clients?

Yes. So if you think of the where trajectory of most of our ETFs have gone in the U.S., and it's a little bit different than Europe, which I'll touch on, on the fixed income ETF side at least, it started very much from RIAs wanting access to this. In fact, institutions saying, no, I don't want access. I've got my CLO investors already in-house, et cetera, or my CLO provider.

It went from actually RIAs to then wirehouses to then models. And then comically perversely, those institutions saying, I don't want any came back and said, well, wait a second, you can do BBB CLOs for me at 30-something basis points and you're giving me liquidity both at the underlying, right? I get that there's BBB and there's less liquidity, but you're giving me liquidity there and liquidity from a market perspective now that you're $1 billion. So you're seeing a lot of this flow coming from institutional as well and models as an element to that.

In Europe, it's a little bit different. That's why we picked up Tabula, which is it's a very heterogeneous market, right? So could we have built something like a Tabula, which is an ETF specialist? I guess we could have, but it would have taken 3 or 4 years. Instead, we brought on board a fantastic group of individuals who are market makers, know the market makers at least, know how to communicate and sell the product in 15 countries around Europe and on 10 to 12 different exchanges as well.

And those are disproportionately on the institutional side from a client base perspective and starting to go to intermediary. So U.S., it's intermediary going to institutional and in Europe, it's institutional going to intermediary. And you mentioned this a second ago, yes, it's absolutely lower penetrated in Europe. But if you effectively time shift Europe, take it back 7 or so years, you're seeing even faster growth and adoption of active ETFs in Europe and ETFs more broadly than you did in the U.S.

And candidly, we were behind the eight ball in the U.S. Now we've caught up gladly, and we want to continue to do that, not just fixed income, but in equities as well in the U.S. In Europe, we don't want to be behind the eight ball, and we're certainly not, and you're seeing several hundreds of millions of dollars of flows even just over the past, call it, a year or so since we've picked up Tabula.

Got it. Maybe one last question on ETFs, just on the equity side, which you just alluded to. So I think earlier this year, you launched a fundamental large-cap equity ETF. A lot of the growth in active ETFs has come from things other than that income-generating strategies using corporate calls, levered ETFs on single stocks. Maybe talk a bit about your plans on the equity side of the ETF business. How are you thinking about new strategies, new wrappers for existing strategies, new things altogether? Like how are you thinking about the growth there?

Yes. It's a very important question because I think what you're seeing, generally speaking, on the active equities landscape is almost a hail Mary for a lot of folks, right? Gosh, I have a product. It happens to be a mutual fund right now. It happens to be CITs or the SMA, whatever it is, but it's not growing. And so maybe if I stick into ETF, it will grow, right? It's an undifferentiated business, let me stick into ETFs. So effectively cloning. That's not what we're doing.

For us, from an equities perspective, we have a long, long history of being very good investors. Just look at our AUM percent of AUM that's outperforming or beating our peers. We have a long history of actually delivering alpha from an equities perspective. So we have differentiated product, and we can take pieces of the differentiated products or amplify as we call it, build adjacencies to the differentiated products and go into the equities side on the ETF -- on the active ETF side of things.

So I think it's -- first off, a lot of folks just clone and a lot of folks just say, look, it's undifferentiated here, maybe the wrapper make it differentiated. We don't think that's the case at all. We're taking our differentiated skill sets and applying that into the ETF wrapper, because it's something that the clients want to ingest. So JXX is a great example of this. If you are trying to express a view of getting exposure to transformational businesses, right, JXX is perfect, and we have a track record as part of a large-cap growth profile.

JHAI, if you want exposure to AI, but not just the technology element to it, the broader ecosystem of AI, JHAI is a great strategy to get into. And the PM sits in the middle of Silicon Valley and knows everything that's going on there as well as other parts of the world that inputs into that.

We've also had great success on the equity side on more of our quantamental pieces of active equity ETFs. So JMID, JSML, JSMD, that's been there, too. And similarly, in Europe on equities, we found real interest in our best ideas of Europe equities, so concentrated European equities as well as in Japan. And again, the common thread in all these things is we're creating an ecosystem where a client can express their views through a structure that they can actually, in a very efficient manner, take on board for them.

Great. All right. Maybe let's switch gears a little bit. Your overall flows, I think you've seen 8 consecutive quarters of inflows in the U.S. you talk a bit about what's going well here? And then outside the U.S., what do you think needs to happen to see the flow profile improve?

Yes. So look, we're putting one foot in front of the other as best as we can in the U.S. and a big driver of those flows for consecutive quarters with the U.S. intermediary business or the retail business. And we have been very deliberate about how to improve that business and using the same thought processes to apply outside the U.S. as well, where it's a little bit harder to get some of these things done, and you'll get a sense of that when I start describing what we did in the U.S. just because things take time, right, regulatory perspective, et cetera, take time. But in the U.S., what did we do, and we're applying it.

So what did we do? Number one, we had to make sure we had the right people in place. We were not shy in changing people. We continue to be not shy in changing people when we need to. And it wasn't just changing a significant portion of wholesalers, it's also making sure that there are specialists involved. It's also making sure that the leader of the group who we pulled over from a very strong competitor, probably the best distribution system in the U.S. competitor, drove that business and improve that. So people was the first aspect to it.

The second aspect to us, we kind of touched on a little bit just a second ago, which is you have to make sure that the product was the right set of products. So we still think there's enormous opportunity for mutual funds for Janus Henderson in the U.S. We have killer performance, and we're significantly smaller scale than some of the players out there who have -- who are much bigger than us. And we're slowly chipping away at that when performance is good.

So there, we have really great mutual fund products, but we also had to make sure that we had the right products, for example, in ETF form. We brought that forward. We had to make sure we have the right products in alternatives. So Privacore, which is our alternative specialist area, we can really talk about more, if you'd like, is an area from a distribution perspective, we have to make sure we have the right product set.

We then had to make sure that the incentive compensation was right. We historically had an incentive compensation that rewarded, for lack of a better word, stagnation or consistency. We are now rewarding growth. That's something that we're very, very focused on. And so people have to grow their business. And then lastly, we had to make sure that the processes were right. We ingest right now in North America, a significant amount of data to be able to predict where we want to make the next call, where we want to make the next move.

Now if you take all of those and think about how to apply that outside the U.S., some of those will be easier to come by than not, and you're seeing that in our results where you're just starting to see some improvement. For example, the data in the U.S. is different than the data in Asia or the data in Europe. We don't have the same level of data just as an industry. So we're trying to figure out how to create that, how to anticipate that. You can't quite compensate and incentivize people in the same way. We're trying to figure out how to do that.

So things are a little bit kind of taking longer to get there. But what I will say is if you think about the successes we've seen in the U.S., we're starting to see that bear fruit, for example, in the intermediary channel in Continental Europe, which consistently has been growing and improving. Last quarter, it wasn't, but over time, it has. U.K. is still a struggle for us. And there, we're taking time to think through how to improve that. APAC, we're seeing improvement. Australia, we're seeing improvement.

So you're seeing things shift. To be very, very clear, and I've said this a ton of time, I don't want people to get over their skis, not everything is working well. We're probably in the fourth-ish, maybe fifth-ish inning as a firm. But there are clear proof points that we're putting one firm from the other. We're applying the same expertise. We're applying the same processes and tweaking them where we have to, to get to some of that growth. So that's not just the U.S. intermediary that's 8 quarters of strong performance and flows, perhaps it starts trends at other parts of the company as well.

Speaking of other challenging parts of the business or really most of the businesses in your industry, active equities have been quite tough despite a pretty constructive backdrop for equities in general over the past few years. I mean, what does it take to buck the trend?

Yes. Look, I started talking about this a second ago. I think that right now is a really interesting time for our clients because they're realizing and noticing that passive isn't the answer to all problems. In fact, when there is such volatility, right, you need to be much more active in the way you construct your portfolios. I don't think it's a coincidence, and I don't know who your guests are over the next couple of days, but I don't think it's a coincidence that every single one of the large passive players out there, and you know them, everybody knows them, all of them are talking about active. Not a single one as they project their go forward is thinking about passive as a big driver of their growth. It's all thinking about active. Well, gladly, we've been doing that for 91 years, and we have a pretty good track record at Janus Henderson.

So I actually think that there's a really interesting turning point that we've all thought about and talked about, which is actually starting to happen, which is a shift to active equities. We typically see any shift in the asset management industry, as you well know, starting from the most sophisticated sort of sovereign wealth funds and pension plans trickling down effectively to family offices, ultrahigh net worth, then to intermediary. We're seeing that happen. And for us, we're seeing wins along those lines.

So last quarter, for example, we had 15 strategies that are inflowing more than $100 million each. 5 of those -- 4 or 5 of those were active equities strategies. And we expect that to continue to grow and divergent. We have great performance on our small mid-cap businesses and our large-cap businesses on our European equities businesses, on our non-U.S. equities businesses, our global small-cap business is reaping benefits.

We're seeing a lot of folks, again, to your first question, look for help, look for wheat to chaff chap separation, look for real drivers of company performance, company-specific performance that will buck the trend of any of these large macro negative trends like geopolitics and everything else. And we're so far being the beneficiary of that. We want to continue to do that. So we don't think active equities in any sense, is a forlorn place or a place you want to stay away from. We are leaning into, and we think this world is more and more ripe for folks like us to deliver.

Great. Why don't we move over to alternatives. Maybe first, you mentioned Privacore. Would you mind giving us an update there? What does the current distribution footprint look like? What does the current product offering look like?

Yes. No, absolutely. So yes, I mentioned Privacore a little bit ago. And just to kind of put some new faces in the audience around what Privacore actually is. So Privacore is a best-in-class platform for open architecture alternative distribution and wealth. That's a mouthful, I apologize, but hopefully, you get the picture of what that is. So it basically sits between GPs and wealth platforms, wealth platforms want to get differentiated, high-performing private or alternatives asset managers onto their platforms.

But just because you put it on the platform doesn't mean the financial adviser takes that, right? In fact, lots of stuff gets put on platforms and doesn't sell a luck. We are here and they asked us to be here, our clients did, many of our forward-thinking clients asked us to build this thing on the Janus Henderson backbone so that when something gets on their platform, that's alternatives, the financial advisers can be educated. The financial advisers can be helped in terms of what part of the allocation it should be or shouldn't be for what types of clients. And that's effectively what Privacore does for the wealth manager.

On the other side, the GP, and we've all talked about this, you've all heard about this democratization alternatives. Well, some people can do it, maybe ranked by AUM numbers 1 through 5 of alternative managers can actually build a sales force of 100 people to then go sell to the financial advisers. Most of them, call it, #6 through, I don't know, 50, can't do it, but sometimes have extraordinarily strong performance that is differentiated. And again, have no way to get to the wealth platforms. That's what Privacore does. It selects a bunch of folks. So we have 97 people on the waiting list right now, 97 general partners or asset management firms in the alts world waiting list to get on this platform.

We're not going to do it to everybody. We're going to not just look at the economics, but the performance. We're going to bring that on to Privacore, and we're going to distribute that to the wealth platforms. So to answer your very specific question, we are growing in terms of the wirehouses who see the value of this. We're in the handful now, but candidly, if you get to north of a handful, you basically cover the landscape of folks who want to use this. More and more RIAs are looking at this as a tool because all of them are incentivized for the appropriate reasons to increase alternatives as a percentage of the allocation of their clients. But again, these things need to be sold, not just bought. And that's what Privacore does.

So from a distribution perspective, it's more and more. And again, from a product perspective, there's tons of stuff that's out there from a public domain perspective. We've been quite successful with a big technology fund out there, so hundreds of millions of dollars of money to raise. We've been quite successful with a private equity business that we've raised money for. We now have an infrastructure on the platform. We also have a curated kind of building block of private credit and private equity, where it's our name on the front.

And we, with a partner, select what is the best vintage and can rotate that around depending on what the performance is. So we're starting to just develop the pax. Again, it's something that we've had for 24 months roughly, 2 years roughly. It's a de novo build. And so we're just starting to see the progress here. And so far, we feel pretty good about what we're seeing.

Similar question on your other alternatives assets, [ FI, ] VPC, NBK. And maybe more broadly, these were all acquisitions. How do you think about growing that business? Does more tuck-in M&A make sense? Is there a lot of organic growth opportunity as you see it with what you have? How do you think about growing that out?

Yes. So let's just think through our M&A trajectory broadly, and most of that was on the private side. But the first thing, I've been here for about 3 years at Janus Henderson. The first thing was an emerging market debt business, the public fixed income emerging market debt business we brought on board, not on the side, but that was the first kind of lift in, so to speak, of a really great business with fantastic track record, which is just in their 3-year track record, I think, this month, and we anticipate a lot more growth from the $1.5 billion, $2 billion that it already has in AUM.

And then to your point, we went down the path of the alternatives. And our thesis was that there are 3 areas of alternatives that we really want to be in. And those are the areas that were not picked over. Those are the areas that we thought we could differentiate. And again, to our DNA, could create alpha, not just beta on the private credit side. One of them we mentioned is Privacore, right, de novo build, but a JV with a great team we brought over from Blackstone to build that business. Again, as we said a second ago, it feels like that's starting to build some momentum, and we hope for more of it there.

But then to your very point, we went in other directions as well. So we brought on board, on the ETF side, a team from Tabula. Again, it's an alternative, so I won't spend too much time on that. That allows us to build ETFs in UCIT form, which is not just a European business, but I'd say basically everywhere in the world, Australia and the U.S. business. So Asia, Latin America, Middle East, of course, Europe wants ETFs and UCIT forms, and that's something that we bought with that skill set. Again, as I mentioned, market makers, 15 countries, distribution skill sets, product development skill sets, really great people, et cetera, et cetera.

Then we went into more of the alts area in a spinout of National Bank of Kuwait that had a really great team there for almost 2 decades in the Middle East, basically Turkey and Morocco, doing private credit deals for the most part. We brought that on board. It is a unique opportunity to be in a fast-growing business where the sovereign wealth funds have trouble doing $20 million and $30 million checks because it's just not worth their time, but they're happy to allocate somebody else doing it, particularly if it invests locally, which we do. And the banks aren't doing the $20 million, $30 million checks there because they're not necessarily as sophisticated as that.

So that's been going well. Spun into us. We call it Janus Henderson Emerging Market Privates. It spun into us. The team is raising money as we anticipated. And so we see demand there, not just in the Middle East, but broadly as well.

Then the most recent acquisition that we made is Victory Park Capital. That decision was one that we went down the path of owning private credit because our clients were asking for it. It's effectively a complement to our public credit businesses, particularly on the securitized side. And we looked at basically 2 branches of private credit. One is direct lending and two is asset-backed.

On the direct lending side of things, we had trouble seeing it as not beta at this point in the cycle and at this point in kind of the incredible amount of money being thrown into that marketplace for a limited amount of deals, let's just say. And so we're going to hold off on that in the U.S. from a direct lending perspective, although there might be some outside the U.S. that we go for. And what we found was asset-backed is essentially direct lending 15 years ago.

So real alpha creation, real differentiation, real origination, real diligence happening at the level. And so there are really a few companies that we looked at, and we bought frankly, the best one. All the other ones were bought, and then there was Apollo that's been doing this for a while. We bought what we think is the best one, and we are continuing to grow Victory Park Capital. We see enormous potential there, not just as an asset-backed business in North America, which is where it's based, it is based in Chicago, but also as we complement it with our own securitized business as well, so the public asset-backed area and also complement that with Privacore and Janus Henderson, for example, the interval fund that we just filed for and soon will launch.

So we continue to see these things perform as we thought we were going to perform. Again, as you know, as we've mentioned before on these earnings calls, we do a ton of work to try to make sure these are client-led acquisitions. So we derisk these things. We don't just buy to check the box. We make sure clients want something, we go find the best thing and then we pair that up. And it feels like so far, those are going okay.

Great. With our last bit of time here, I was curious to ask about blockchain and tokenization and what you're doing there. So you've got a couple of tokenized funds in the market, treasury fund, a tokenized version of JAAA. Can you talk about where the investor interest in those is coming from? Is it a new customer channel that's opening up? And I'll just wrap both into one since we've got about 1.5 minutes left. A number of your peers have talked about tokenization technology, not just as a wrapper, but as a new back-end rail. So do you see opportunities elsewhere to implement blockchain in more than just tokenized version of you know.

So I'll try to be very efficient in my answer, given your prompt on timing. First off, from a tokenization perspective, something people don't know. We are the second largest provider of tokenized funds in the world. No one knows this, and I guess now you do. But it's one of the things that for us is a little bit of an experiment for the second part of your question, but also is getting us involved with a whole set of clients that we never would have had access to. And that client, to your specific question, is disproportionately on-chain financial institutions, who would have been okay investing in stablecoin when there was no interest when there was no yield.

But now in the past a little while, they're looking for things that have yield. And so JAAA and U.S. Treasuries is the place they want to go, but they want to stay on chain. And that's what we can provide for them with our partnership with Anemoy, Centrifuge and Grove as well. And that's something that we think that we're able to get ahead of our peers on because we can learn about it.

Now to your second part of your question, we are seeing some other institutions who are off chain get interested and involved in this stuff, but I think we're all learning. It may take time for tokenization to change the rails, right, to change how we actually do business. But we want to be there when it happens. We're preparing ourselves as opposed to saying, look, at this point, it's going to change or it's actually changing already. We want to be ahead of the game.

Again, Janus Henderson, although we're 91 years old, we are effectively a start-up that's 91 years old in the way we think about things. We want to be innovative. Not everything will be successful, but whether it be our ETFs, whether it be tokenized funds, whether it be in new geographies that we go to, we want to continue to build the asset management company of the future, and that's where we're dedicated to doing on behalf of our shareholders and our clients.

Great. Well, we're out of time. We have to leave it there. But Ali, what a pleasure to have you. Thank you so much.

Thank you. Great to see you again. Thank you.

Good morning. My name is Lucy, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Henderson Group Second Quarter 2025 Results Briefing. [Operator Instructions]

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 derived 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 Ali, Chief Executive Officer, Janus Henderson. Mr. Dibadj, you may begin your conference.

Welcome, everyone, and thank you for joining us today on Janus Henderson Second Quarter 2025 Earnings Call. I'm Ali Dibadj. I'm joined by our CFO, Roger Thompson. In today's call, I'll start with some thoughts on the quarter before handing it over to Roger to run through the quarterly results in more detail. After Roger's comments, I'll provide an update on our strategic progress and how our client approach has evolved, leading to deeper collaborative relationships which has become the foundation of our new brand efforts. We'll then take your questions following our prepared remarks.

Turning to Slide 2. Despite a tumultuous few months and the incredible market volatility we saw through much of April, business trends appear to have stabilized for now and strong alpha generation provided by world-class investment teams, the exceptional service provided by our client teams and the productivity and execution of our operations, technology and support teams enabled Janus Henderson to deliver a good set of quarterly results.

In investment performance, there was a meaningful improvement in the 1-year number, and investment performance is consistently solid with at least 2/3 of assets beating respective benchmarks on a 1-, 3-, 5- and 10-year basis. Against peers, investment performance is even stronger with over 70% of AUM in the top 2 Morningstar quartiles across all time periods. At the end of June, we completed the previously announced transaction with Guardian. We are extremely excited for this multifaceted strategic partnership. This significant milestone further expands our insurance presence and institutional reach and we are pleased to bring to bear our strengths in fixed income, multi-asset solutions and model portfolios to achieve mutually beneficial outcomes for clients, policyholders and shareholders alike.

Janus Henderson is now managing $46.5 billion of largely but not exclusively investment-grade public fixed income assets for Guardian's general account, which is even more than the previously communicated $45 billion, demonstrating Guardian's growth trajectory and the potential of our partnership. This expands Janus Henderson fixed income AUM to $142 billion, which is now over 30% of company-wide AUM. In addition, Guardian is committing up to $400 million of seed capital to help accelerate our continued innovation in securitized credit and high-quality active fixed income products, including ETFs.

Pleasingly, a portion of this seed commitment has recently been utilized, demonstrating quick progress from our partnership. Guardian has provided $100 million of seed to our asset-backed securities ETF, JABS or JABS, which was launched last week. Jobs is intended to provide investors access to short duration, high-quality predominantly fixed rate securitized assets and complements Janus Henderson's industry-leading CLO ETF, JAAA, which is predominantly a floating rate. JABS expands Janus Henderson's offering to meet client demand, including and especially insurance companies.

Switching to AUM, where the addition of the Guardian AUM, coupled with market gains and favorable currency adjustments due to weakening U.S. dollar, enabled assets under management to increase 23% to $457.3 billion, which is our highest quarterly AUM ever.

Turning to flows. The second quarter marked our fifth consecutive quarter of positive net flows. While Guardian contributed to our strong quarterly net flow results, we're pleased that net flows, excluding the Guardian general account were also positive even the difficult flow environment created by drawdown. The positive net flow results demonstrate our truly global distribution footprint and the broad range of strategies and vehicles we offer. Said another way, all our businesses may not fire on all cylinders at the same time. However, our strategically developed broad breadth of businesses are capable of delivering more and more consistent growth for us over time and this quarter was an instance of that.

I want to quickly highlight a few examples of our diversified breadth of flows in the second quarter. There were 15 strategies, including 4 ETFs that each had at least $100 million of net inflows. The fully tokenized Janus Henderson Treasury Fund had over $400 million of net inflows. Net flows into our CIT and hedge fund strategies were positive. And finally, Privicor has advised on several hundred million dollars raised for Co2 C-Tech lines in the wealth channel, which you might have read about in the media. Additionally, our institutional channel performed very well offsetting retail net outflows, which were impacted by market volatility, especially during a few weeks in April.

As we stated previously, delivering positive active flows is a key differentiator for Janus Anderson in an industry with well-documented active flow headwinds, including during the second quarter for many of our peers.

Moving to our financial results, which remains solid. Adjusted diluted EPS of $0.90 is a 6% increase compared to the same period a year ago. Our financial performance and strong balance sheet continues to provide us the flexibility to invest in the business both organically and inorganically and return cash to shareholders. In summary, our investment performance is solid. Our net flows are positive. We continue to execute our strategy, including the Guardian partnership, financial results are good. We continue to be disciplined and ROI focused on expenses. We have a strong and stable balance sheet and our truly global footprint and expanding breadth of product positions us well for the future.

I'll now turn the call over to Roger to run you through the details of the financial results.

Thanks, Ali, and thank you for joining us on today's call. Starting on Slide 3 and investment performance. As Ali mentioned, we saw a significant improvement in our short-term investment performance versus benchmark during the quarter and now have at least 2/3 of AUM meeting their respective benchmarks over the 1-, 3-, 5- and 10-year time periods. .

Looking in further detail, at least half of each of the capabilities AUM is ahead of benchmarks over all time periods, reflecting consistent investment performance across time periods and capabilities. Overall investment performance compared to peers continues to be competitively strong with at least 72% of AUM in the top 2 Morningstar quartiles over all time periods presented.

Slide 4 shows total company flows by quarter. Net inflows for the quarter were $46.7 billion, which includes the $46.5 billion from Guardian's general account. While the Guardian mandate will quite rightly take the headlines, we're pleased with positive net flows ex Guardian's general account from a quarter of extreme market volatility, and it highlights our truly global footprint and the breadth of product solutions we bring to clients. Excluding the Guardian General Account, our gross sales increased for the third consecutive quarter and improved by 40% compared to the second quarter of last year. All 3 channels saw an increase in gross sales compared to the prior year across a broad range of capabilities, including ETFs, U.S. concentrated growth, our tokenized treasury fund, U.S. Mid-Cap growth, U.S. buyer maintain credit and asset-backed opportunistic credit from VPC.

Turning to Slide 5 and flows by client type. As a reminder, beginning with the first quarter of 2025, ETF gross flow activity is reflected in the applicable client type that generated the activity, access to improved data transparency enabled us to make this change. For periods prior to 2025, all ETF flow activity as shown in the intermediary channel. Intermediary channel net flows were negative $1.2 billion, reflecting the challenging flow environment during the April drawdown. In the second quarter, net flows were positive in the U.S. with net outflows in EMEA, LatAm and Asia Pacific.

In the U.S., the net flows were positive for the eighth consecutive quarter. Despite a challenging April, for our active ETFs, once the extreme market dislocation abated and market stabilized, JAAA quickly returned to net inflows, resulting in positive net flows for our active ETFs in the quarter. In addition to our active ETFs, other areas contributing net flows in the second quarter included U.S. mid-cap growth, international alpha equity, our biotech hedge fund and the Privacore-revised assets raised for CO2.

U.S. intermediary is a key initiative under our Protect & Grow strategic pillar, and we're pleased that we continue to gain market share against a volatile market backdrop. Under our Amplify strategic pillar, we've talked about amplifying our investments in client service strengths using various means, including vehicles through which we deliver our products. In addition to active ETFs, flows into CITs, SMAs and hedge funds in this channel were positive in the second quarter.

In EMEA, Continental Europe delivered net inflows, while the U.K. had net outflows, primarily driven by investment trusts and the global strategic total bond strategy. Institutional net inflows were $49 billion compared to net inflows of $800 million in the prior quarter, marking the third consecutive quarter of positive flows. During the quarter, we were pleased to see our broad distribution footprint demonstrated as our institutional channel performed well, while retail was adversely impacted by the market uncertainty in the early part of the quarter. Excluding the Guardian General Account, institutional gross sales were the best result in over 2 years and reflect fundings in fixed income and equities across corporates, pensions and insurance clients.

We're continuing to work to create a sustainable pipeline, and we're encouraged by the second quarter results, leading indicators and the increasing number of opportunities across our regions.

Net outflows for the self-directed channel, which includes direct and supermarket investors were $1.1 billion. The second quarter includes approximately $100 million of ETF net outflows from our supermarket clients. Excluding ETFs, self-directed net outflows were roughly flat to the prior quarter and the prior year.

Slide 6 shows our flows in the quarter by capability. Equity flows were negative $2.6 billion compared to $4.2 billion of net outflows in the prior quarter. The remains challenging for active equities across all regions. Whilst negative in net flows, our equity capability had its best gross sales quarter in 2 years, demonstrating increased client demand for equities. Second quarter net inflows for fixed income were $49.7 billion compared to $5.6 billion of net inflows in the prior quarter.

Outside of the Guardian General Account net flows, several strategies contributed to positive fixed income flows. Active fixed income ETF delivered net inflows of $1 billion in the quarter. And as Ali mentioned, included 4 active ETFs with at least $100 million of net inflows, including JAAA, JMBS, [indiscernible], and JSI. Other strategies contributing to positive flows were U.S. buyer maintain credit, our tokenized treasury fund, Core+ and Australian sustainable credit.

Net outflows for the multi-asset capability were $1.1 billion, primarily due to net outflows in the balanced strategy. And finally, net inflows in the alternatives capability was $700 million, driven primarily by the biotech hedge fund, VPCs asset-backed opportunistic credit strategy and Privacore.

Moving on to the financials. Slide 7 is our U.S. GAAP statement of income, and on Slide 8, we explain the adjusted financial results. Adjusted operating results improved compared to the prior quarter and the prior year. Compared to the prior quarter, the improvement is primarily from higher performance fees versus the same period a year ago, the improvement was primarily from strong investment performance, delivering higher performance fees and higher average AUM. These were partially offset by increased expenses from acquisitions, strategic investments in the business and a weaker U.S. dollar.

Looking at the detail. Adjusted revenue increased 2% compared to the prior quarter, primarily due to higher seasonal performance fees and increased 9% compared to the prior year primarily due to higher management fees on higher average AUM and the improved U.S. mutual fund performance fees. Net management fee margin was 47.5 basis points in the second quarter. The decline from the prior quarter was primarily a result of mix shift caused by the April drawdown as well as some onetime adjustments, which will not repeat. With the $46.5 billion predominantly investment-grade fixed income portfolio we now manage for Guardian's General Account, we expect that our aggregate net management fee rate will be approximately 4.5 basis points lower than the second quarter average net fee rate of 47.5 basis points, which compares to our previous guidance of 5 to 6 basis points lower.

Second quarter performance fees of positive $15 million primarily consists of seasonal CCAB, U.K. OIC and investment trust performance fees. Our U.S. mutual fund performance fees were also positive this quarter at $1 million, which is the first positive result in over 10 years. U.S. Mutual Fund performance fees have continued to improve, reflected by the positive $1 million this quarter compared to negative $11 million a year ago.

Continuing on to expenses. Adjusted operating expenses for the second quarter were $331 million compared to $330 million in the prior quarter. Adjusted LTI decreased 12% compared to the prior quarter largely due to seasonal payroll taxes triggered by annual vestings in the prior quarter. In the appendix, we've provided the usual table on the expected future amortization of existing grants due to use in your models.

The second quarter adjusted comp to revenue ratio declined to 43.2% from 45.8% in seasonally higher first quarter. Adjusted noncomp operating expenses increased 8% compared to the first quarter, primarily from higher marketing and G&A expenses. With respect to full year 2025 expense expectations, our previously stated expected compensation ratio in 2025 remains unchanged at 43% to 44%, assuming 32 in AUM and a 0 market assumption for the second half of the year.

For noncompensation guidance, we expect high single-digit percentage growth in non-comp expenses compared to 2024, reflecting investments supporting our ongoing strategic initiatives and operational efficiencies, inflation, and the full year impact of the consolidation of VPC, NBK, Tabula and Guardian. This update to the high end of our previous range is solely as a result of the FX impact from a further weakening U.S. dollar in the first half of 2025. 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.

Finally, our expectation of the firm's tax rate on adjusted net income attributable to JHG remains unchanged in the range of 23% to 25%. Our second quarter adjusted operating margin was 33.5%. And finally, adjusted diluted EPS was $0.90, up 6% for the comparable second quarter 2024 period.

Skipping over to Slide 9 and moving to Slide 10 and look at our liquidity profile. Our balance sheet remains strong and stable. Cash and cash equivalents were $900 million as of the 30th of June, which is lower from the end of the first quarter, primarily due to share buybacks related to our corporate and compensation repurchase schemes as well as net investments made in seed capital. During the quarter, we funded our quarterly dividend and repurchased 1.3 million shares as part of our corporate buyback program for $50 million. The Board has also declared a $0.40 per share dividend to be paid on the 28th of August to shareholders of record as at the 11th of August.

Slide 11 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 over 22% since 2018. During the first half of 2025, we returned $202 million, including $76 million via share repurchases. The buyback program and dividends do not alter our ability to invest in the business organically or 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, and 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.

Thanks, Roger. Turning to Slide 12, and a reminder of our 3 strategic pillars of Protect and Grow our core businesses, amplify our strengths not fully leveraged and diversify our clients give us the right to win. We are in the execution phase, and we believe this strategic vision has us on the path to over time, deliver organic growth consistently. In Protect & Grow, we've talked previously about the importance of protecting and growing our U.S. intermediary business and the progress we've made in capturing market share. We also delivered another quarter of positive net flows in U.S. intermediary despite a challenging flow environment marking 8 straight quarters net flows.

Within Amplify, we've talked about our institutional business and our product development and expansion efforts such as our buildout of active ETFs in the U.S. and now outside the U.S. with the acquisition of Tabula. Year-to-date, we've launched 8 ETFs globally with more planned in the second half of the year. Janus Henderson is now the eighth largest provider of active ETFs in the world and second largest provider of active fixed income ETFs in the world. Our partnership with Anemoy and Centrifuge reflects the firm's commitment to digital assets and our desire to embrace disruptive financial technologies.

The partnership has already begun to demonstrate success. As I mentioned earlier, the fully unchanged Janus Henderson Anemoy Treasury Fund delivered over $400 million of net inflows in the second quarter.

Finally, the recently completed strategic partnership with Guardian will amplify our insurance, institutional and fixed income businesses through the management of their general account, mostly investment-grade public fixed income portfolio, acceleration of product innovation with Guardian's commitment of seed capital and the strategic initiative to co-develop proprietary multi-asset solution model portfolios for Guardian's duly registered broker-dealer and registered investment adviser, Park Avenue Securities.

Under Diversify, we've addressed both the public and private market and emerging market debt with NBK Capital Partners in the private capital space. And on the public side, we brought on a well-respected emerging market debt team. We expanded into differentiated private market capabilities for clients with the acquisition of pioneering asset-backed lending firm Victory Park Capital, and we established our joint venture Privacore, focused on the democratization of alternatives in partnership with the wealth channel which is starting to bear fruit, as I mentioned earlier.

In addition to implementing and executing on a new strategic direction, Janus Henderson has gone through many other changes over the last several years. These changes are all being done with the explicit objective of improving the client experience. This includes how we have evolved our client approach.

Now moving to Slide 13. We've been intentional about how we interact and importantly partner with our clients. We strongly believe that strategically partnering with clients delivers better outcomes for all parties. The first and most important of our 5 firm values as clients come first always, and we are humbled and honored that approximately 60 million people globally rely directly or indirectly on Janus Henderson for their financial well-being. That is at our core and clients coming first will not change. In fact, we're trying to push that further forward with elevating partnerships with clients.

What that means for us tactically and thoughtfully is working to deepen client relationships. The client relationship is no longer transactional. It's not about sales relationship, it's about peer-to-peer relationships and really working to increase nodes of connectivity between Janus Henderson and our clients. It's evolving from regional accountability to global accountability. Again, it's not about sales accounts, it's about having franchise partnerships and franchise clients. That's what we want to continue to do, and we believe our clients are seeing those intentional actions and improvements from us already.

There are several ways we can elevate partnerships with clients and increase those nodes of connectivity. Of course, those ways include delivering investment performance in the right vehicles with world-class client service. It also means leading with insight and sharing our knowledge base with clients. For example, we've had Janus Henderson colleagues lead strategic offsites for some of our clients. Our Chief Technology Officer has discussions with clients on AI. We've held educational sessions with U.S. financial advisers, on investor psychology, behavioral finance and succession planning. Those are just a few of the many examples of bringing the whole firm to our clients.

Elsewhere, we've conducted several client conferences in the U.S., the U.K., Continental Europe, Asia and Australia, where clients give their scarce time to hear from us with several trillion dollars of AUM and millions of people's retirement and savings represented at these conferences. The intent of these events is to bring the whole firm to our clients and develop shared experiences.

Slide 14 looks at how this evolved approach to client partnerships is now embedded in our updated branding. First, I'm pleased to report that a few recent external surveys seem to confirm that Janus Henderson is making progress in strengthening its brand profile and brand matters. Clients who start off knowing a brand are much more likely to partner with it than if they don't know the brand. The Broadridge Fund Brand 50 is a global survey of asset manager brand strength in the intermediary channel. Over the last 2 years, we've seen both our U.S. and European intermediary brand strength improve.

Next, specific to our institutional business is the global institutional NMG consulting report. Here we moved up 32 spots from 2 years ago to a global brand rank of 37. I want to thank my colleagues from across a firm for their individual and collective efforts around strengthening our brand profile.

Second, our strengthening brand profile and updated global branding reflect our commitment to investing in a brighter future together. Some of you may have noticed that Janus Henderson Ampersand appearing in targeted advertising around you. We believe that our Ampersand symbolizes the deepening connection with clients and captures who we are and the journey we actively choose to go on every day with our clients. We surveyed and interview clients, hearing from them that one important thing Janus Henderson does that is unique is connect with them. We want clients to think about Janus Henderson and its connection with them when they see that Ampersand.

Client goals and our solution, client visions and our mission, client successes and our pride in delivering on our objective of differentiated insights, disciplined investments and world-class service. This new brand campaign was launched globally in April, including campaigns in North America, Europe and Asia. We believe that our new branding, including the Ampersand uniquely demonstrates our partnership-centered approach and shared connections with clients.

Turning to Slide 15, and a reminder that although we are changing and improving as a firm, our mission, values and purpose, or MVP will never change. Indeed, our evolved approach to client partnership is borne out of our MVP, which was first introduced in 2023 and continues to enhance our culture. Since then, Janus Henderson has gone and will continue to go through a lot of positive change and transformation. These changes were made to improve ourselves for our clients. As I mentioned, one thing which will not change is our mission values and purpose, that is immutable.

Our purpose, remember, is investing in a brighter future together. That's what we do. We are investors, we do together with our clients. We aim to deliver brighter futures for our clients and their clients, the 60 million people around the world who rely on Janus Henderson directly or indirectly for their financial health. Our goal is to do this in partnership with our clients as shared connectivity and collaboration with them.

Wrapping up on Slide 16. We are making meaningful progress across the business. We are executing against our strategic objectives, including our multifaceted strategic partnership with Guardian for which we are already starting to see benefits. Investment performance is solid across all time periods versus benchmarks and peers. Net inflows were positive $46.7 billion, marking our fifth consecutive quarter of net inflows. Even excluding the Guardian General Account flow, net flows remain positive and reflect a 40% increase in gross sales compared to the prior year, and that's during quarter with heightened market volatility. 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.

Let me turn the call back over to the operator to take your questions.

[Operator Instructions]

The first comes from Ken Worthington of JPMorgan.

Maybe first on the institutional channel, as you guys mentioned, the third consecutive quarter of positive net sales, even excluding Guardian and the results are an indication of the success that your strategy has had thus far. Are there next priorities on the institutional side? Or do you feel that Janus is sort of appropriately positioned in the institutional channel at this point?

Ken, it's Ali. Thanks for the question. You're right. We're pleased with the 3 consecutive quarters of institutional net flows again this quarter, about $49 billion of net flows in the quarter, of which $6.5 billion is from the Guardian General Account. We're also pleased by the way that the $46.5 billion from Guardian is better than the $45 billion that we anticipated earlier on, which, again, is a symbol of their growth. We've been excited to partner with them. We've seen their growth. We hope that their growth can continue.

We also saw flows, excluding the Guardian General Account and Institutional quite broadly across equities and fixed income that was across corporates, across pensions, across insurance. And even if you dissect that a little bit further, there were 10 fundings of greater than $100 million in the institutional side of things. So it feels like we're broadening. It feels like we are getting in the -- on the radar screen of these institutional players. And it feels like, again, the leading indicators in terms of meetings and everything are looking pretty good.

We're not there yet in my mind, perhaps to your question, Ken, to say that we are always going to deliver positive flow from institutional and we have a sustainable outcome, but it certainly feels like we're on the right track. Part of what we're doing, obviously, with this branding campaign is to make sure that people put us in their consideration set. And that is both the client on the institutional side as well as a consultant with whom we're building closer and closer relationships with whom we're really putting into play as we mentioned in the prepared remarks, the much more aligned and partnership mindset that we have to bear. So we're clearly broadening ourselves. We're pleased with the outcome so far. We certainly have more to go, but the pace is picking up here, and we feel okay.

And just maybe turning to retail equities. It's a good, if not a great environment for retail, investors are making money in equities or putting more money in their brokerage accounts. But active equity remaining outflows and the structure is out of favor. See a solution to the persistent outflows in your retail equity business, you're successfully thing around the core, but this part of the core seems to be sort of in persistent redemptions. Is there an eventual fix here or is it something that we should just learn to live with turn our attention to the success you're having around the sort of core part of the franchise?

We believe very strongly in our equities franchise and franchises around the world. And we very much have put that into our execution of our strategy. if you remember our strategy, it starts first and foremost with protecting and growing our core businesses. Those are disproportionately the equity franchises that we have in whatever vehicle that may be in, in the intermediary channel. So our focus is very much first and foremost, Protect and Grow before we amplify and diversify.

We do believe very much, as you described it, Ken, that there is a very strong interest right now in active equities, active investing more broadly, but active equities. The world is a very complex place. The second quarter was an example of that, not just in a 3-week period, but beyond that, and that's probably going to persist. The cost of capital is much higher. So good companies and bad companies will deliver differential performance. And certainly, there are lots of kind of dispersion in stock just from drivers and thematic areas like health care, like innovation, more broadly in technology and other places. And we believe very strongly, and our track record shows it, frankly, over 91 years, but certainly over the next -- over the past 1, 3, 5, 10 years, you see it, our track record shows that we can actually deliver alpha for our client base through equities and, of course, elsewhere in our business.

So we look, first and foremost, to gain market share, and we do that by delivering outstanding investment performance with the fantastic equities, for example, investment teams that we have. But even beyond that to your planned fixed income and in alternatives business as we grow that as well.

Ken, if I can just add to that. We have 62 strategies that are now over $1 billion. And within that, there was a lot of equity. And there are 6 or 7 that are positive in Q2. So we've shown that we can do that, and they're both really existing strategies, U.S. concentrated growth, U.S. mid-cap growth, global equity, international alpha as well as new things, and we talked last time about global small cap, another $170 million, so up through $1 billion of global small cap as well.

So it's both the existing products. But yes, we believe, given the performance we've got and that client relationship that Ali has been talking about, we can grow in what is a tough environment, you're right, but also developing things that are specific from data centers and like Global Small Cap that we've built out over the last few years that now is $1 billion in itself.

The next question comes from Bill Katz of TD Securities.

I was wondering if you take a moment to be on how you see the addressable market for the for the product [Technical Difficulty]?

Sure. Thanks for the question. You're a little muffled, but I think the question was about JABS. Look, it's a great example. JABS is a great example of the client-led innovation that we are creating here now at Janus Henderson -- we're just starting to do this more and more as we build attempt to build the asset management company of the future for client needs of the future. So there's a clear need that we had heard from our clients around short duration, high-quality fixed rate securitized assets, very much to complement, as you're describing the JAAA and other ETFs that we have in the active fixed income area JAAA's floating rate.

And we heard that need among a broad range of clients, but particularly around insurance clients like Guardian. So with this partnership that we have with Guardian, which as I mentioned before, is going extraordinarily well as well or better than we had planned. We made quick work of that given their $400 million commitment to seed things that are right for their general account, they ceded $100 million for JABS. And we now have that in the market as of the other day, and we have quite high aspirations for that business.

Remember, everyone talks about JAAA and it certainly takes a lot of the headlines, but we have 4 ETFs in Q2 that are above $1 billion. We're second globally in active fixed income ETFs, eighth globally in any active ETF period around the world. So we do have high aspirations for JABS because, again, we're bringing client-led innovation to deliver for our clients' needs and our skill sets.

And then as a follow-up on investment performance, could you speak to what's driving the strong improvement in investment performance and how that performance might be translating to sales or maybe some of the leading indicators in the pipeline that you mentioned previously?

Bill, it's Roger. Yes, we're really pleased to see -- we've had good, consistent medium- and long-term investment performance for a long time. And the 1-year number was a little bit weaker last quarter. So it was really pleasing to see that bounce back so that we now have at least 72% ahead of benchmark over all time periods and the morningstar quartiles are a little bit stronger than that with up to 88% ahead of -- or in the top 2 quartiles.

What drove it was a lot of our U.S. and global equity products. So U.S. concentrated growth U.S. research, global tech and innovation, U.S. growth income, global equity income, U.S. opportunistic alpha, which were all slightly behind bench on the 1-year time period at the end of March are all now above and in some cases, quite strongly above benchmark a 1-year at the end of the second quarter. And that just -- that obviously followed through into the 3, 5 and 10, but to a much more dampened effect.

So it was just that 1 year number that was a little bit weaker at the end of March, which we're really pleased is now back to where we want it to be with a consistently strong investment performance.

The next question comes from Dan Fannon of Jefferies.

I guess just sticking with performance, looking at multi-asset, the performance on Slide 25, it looks really strong. It's basically one period over the last several on a 1, 3, 5, 10-year number, but the flows just haven't been that consistent. So can you talk about the opportunities you see there given some of the performance you have in that kind of asset class and where the appetite sits within that context?

Sure, Dan. Thanks for the question. I'll start and Roger can chime in and add it as well. So as you know, that asset class, as we reported, is disproportionately related to the balanced fund that we have, one of our largest, most successful and most storied funds out there. We do believe the time for balance has come in a world of complexity and having to choose a good company from bad company, the equity sleeve balance delivers that and the performance there is very, very strong as you note, has consistently done that for decades. .

And at the same time, fixed income actually has a yield now. And there too, differentiation between a good security and a bad security plays into the space. So you can actually with [indiscernible] If you are an investor, have the balance of fixed income and the yield of fixed income plus the growth of the equity sleeve to it. So we are big believers in balance.

The flows to your point, have not been there at this point as much as we'd like it to be inbounded per se. But we're finding starting interest there, starting interest there, certainly in the U.S., but we're finding in particular in Europe and in Asia. And we're expecting to see a little bit more of an improvement on those numbers as well. Now multi-asset, I said is disproportionally that, but it's not only that. In that sleeve is a lot of solutions as well. And we're really picking up the pace on growth from a solutions business as well. So this is where clients want outcomes. Clients want things are more sophisticated. I'll give you a few examples.

We do a lot of work with large sovereign wealth fund in what we call the adaptive strategy. So that's some place where we go in and they want to use signals to understand when there's regime change in the market and so they can adjust their asset allocation. That's been quite successful recently. So again, these are areas within multi-asset that, number one, are well established, like balance, which we think are coming into people's focus areas; and number two, areas where we're growing, so call that Protect & Grow and then areas that we're growing where we have extraordinarily strong skill sets that we want to amplify and bring to them.

So we would expect improved over time, not overnight, growth in that segment. But again, as you point out, it all has to be based on performance, which gladly is well established.

I was going to just add to it a little bit. Balance is a $49 billion fund. We sell around the world, particularly in the U.S. across a multitude of different client areas or direct book into [indiscernible] as well as in institutional. We also sell it around the world. And there are new opportunities for us there as well. So we're pretty excited about a new launch that we've got for balance in the second half of this year. So yes, it's an outflow. It's about 2% if you look at it of outflow in the second quarter, but we've got a lot of plans for that. And then as Alex said, there are plans outside of balanced in the multi-asset channel with things like adaptive.

Great. I guess then just to follow up on that. Is the plan more institutional SMA driven? I guess when you talk about offshoots of it? Is that -- what is that -- what are the versions that are coming? .

So on the balance side, it's just partially on the intermediary side at this point. From the solutions element, i.e., things like Adaptive, that's more an SMA form or overlay form for institutional.

Got it. And then just as a follow-up here, Roger. Just in terms of the expense guidance and the outlook, knowing that performance fees are very hard to predict. But I was hoping you guys kid of maybe set the frame for what you're assuming for the comp ratio guidance for performance fees this year or potentially how where you sit today with performance eligible AUM versus a year ago and how you potentially could bracket the second half opportunity?

Yes. Thanks, Dan. It's too early to predict performance fees for the second half of the year. We have a little bit in Q3, but the vast majority of our segregated accounts are Q4 and there's obviously still a long way to go. In terms of the amount of assets eligible for performance fees, that's pretty probably broadly similar to where we were this time last year. Second half of last year, we had some very strong performance fees, as you will remember from our biotech innovation fund. That's a little bit behind as we sit here today. So we're unlikely to see those, although those numbers can move very strongly, very quickly.

But as you're predicting today, you predict a lower number there, but we're seeing some other stronger numbers. So there's a blend of things that come in there. That leads into a comp ratio. We've guided to a comp ratio of 43% to 44%, and that includes some performance fees in the second half.

[Operator Instructions]

The next question comes from John Dunn of Evercore.

You talked about your reputation improving for intermediary overseas. Maybe could you just give us kind of some color on the different regions and what strategies and vehicles are in demand and maybe just the outlook for the back half of the year?

Sure. So look, as you anticipate, John, we don't give outlook from a flow perspective because there are so many things that could change in the world, and we're only going to control, we can control. But to your point, we feel like we're controlling what we control from a delivery of investment performance perspective. You see the numbers. That's quite attractive, obviously, to a client. We're controlling what we can control from a client service perspective as well. That includes different vehicles, and we'll talk about that. And as well as we're controlling we control from delivering infrastructure that delivers on clients' expectations. So legal, compliance, technology operations, everybody that works here and pulls all that together for them. So we're going to be very focused on delivering on that.

To your point, we're having conversations that I would posit we've never really had before with intermediary clients around the world. I would argue. We're well established, obviously, in the U.S., although there too, we continue to grow and develop and 8 consecutive quarters of U.S. intermediary growth would suggest we have a lot more room to go. But you're starting to see, as we've talked before, the lifting and shifting the way we sell, the way we build relationships with intermediary clients actually applying outside of the U.S. as well.

So if you think of EMEA, exclude the U.K. for a second. If you talk about EMEA, we're seeing a lot of interesting opportunities and growth there that are developing intermediary. It usually starts up slow and then starts to grow, but we're getting preferred mandates on a lot of intermediary platforms, where we never have had those before in EMEA. Now that's Continental Europe, but it's also in the Middle East, where the wealth channel, as you know, is burning quite strongly. You know we have a big business in the Middle East on the institutional side, that's been translating reputationally to the intermediary side as well. The private wealth channel that, as I mentioned, is just nascent and growing there. And of course, in Asia broadly, that includes in Japan, where we're signing up new clients. Just over the past few months, we've signed up new clients that we've never served before in Japan in Asia.

So Hong Kong, Singapore, other areas in Asia where for the first time having conversations and launching products with those intermediary partners there. And same thing in Australia, where we've been present for a number of years. and we'd certainly look to grow with consultant support there. It's a little bit different in the Australian market with consultant support and partnership and then grow. So we feel like we're making strides.

I will let you know that we don't feel like we're there yet in the U.K. If you think about our overall intermediary business, if you look at APAC plus North America plus EMEA ex U.K., that would have been a much better results from a growth perspective. If you -- an intermediary, if you layer in U.K. [indiscernible] Investment Trust in the U.K. area, that's what takes us negative. So we have more work to do. We're not firing all cylinders. But to your question, we're feeling about our reputation, our brand, our performance to support teams from a client service and broader perspective is certainly allowing us to have conversations and grow businesses in areas and with acceleration we've never seen before.

Got it. And then you alluded to institutional investors like insurers using ETFs. It seems like you're seeing that utilization increase. How are they using them? And what are maybe some of the other types of strategies they are gravitating to? And is that just limited to insurance companies?

So it's a great question. It is not just limited to insurance companies, but let me just aggregate that a little bit, and Roger can chime in as well. What we found in our ETF business, which is still predominantly a fixed income active ETF business, in the U.S. is that there were a few trendsetters, I guess, so to speak, in the institutional side. In fact, one of our large ETFs was seeded by a large state pension plan.

And that then evolved to go into RIAs who are looking at securitized as an example to put on their platforms and get institutional quality security selection and the securitized world to their clients. Then wirehouses start to tick it onboard. And then models start to take it on board, particularly in the intermediary side of things. And then institutions more broadly start to pick this up because what they were saying to themselves is, "Gosh, I'm big, but your ETF has yes, now for them over $1 billion, have liquidity, and they're at a cheaper price than if I were to go to some other means of delivering this return stream."

So we saw institutional really pick up, and that's mainly in the U.S. in the past just couple of years on ETFs. Again, they're in all the gas from our fixed income segment that you'd see. But disproportionately, if you're insurance you're more in the AAA kind of investment grade stuff. If you're less insurance and you're more in the kind of pension plans or what have you, you want higher returns, you might go to the BBBs and other areas of our portfolio. Now that's in the U.S.

In the rest of the world, the disproportionate users of our ETFs, remember the Tabula acquisition that we brought on board, that's around about $800 million or $900 million right now, global ETFs that we have, including everywhere in non-U.S., but disproportionately, that's already in its institutional channels. So institutions are already using that to get return streams that the ETFs described. We have AAA CLOs in Europe, for example, that are being used by pension plans, insurance companies as well.

So you are seeing institutional players catch on in the U.S., but be leaders, I'd say, outside the U.S., particularly in Continental Europe. Roger, is there more to add there?

Yes. I think -- again, just the breadth, which I think is important. You talked a lot about -- a bit there about the breadth of client type, which was John's question. I think the other thing is, is the breadth of ETFs. JAAA takes the headlines. At the end of June, it's a $23 billion ETF. As of today, it's $23 billion. But we have $34 billion of ETFs. We've launched 8 this year, and we've talked about diversifying both in the U.S. and as Ali mentioned, with Tabula bringing use to ETFs that we can sell in Europe and around the world, we've launched a number of things in Europe.

And it's still early days, but something like the European AAA CLO what we call JCL Zero, is a few hundred million dollars, but that's the fastest-growing ETF of all of them so far. I'm not saying we'll get to $23 billion immediately or perhaps ever. But we're really growing fast, and we're seeing a lot of interest in Europe and around the world, and we'll continue to launch things in the U.S. with things like JABS launching last week. So yes, we're excited about the interest there and there's a lot more to do.

The next question comes from Bill Katz of TD Securities.

This is Robin Hold, on for Bill Katz again. I wanted to ask if you could spend a moment on your tokenized fund strategy. what type of clients are showing interest in these products? And why are they interested? And how do you see the strategy evolving with other products and client types going forward?

Robin, thanks for jumping the follow-up. This is another example of us being client-led in innovation and thinking about how we can be quite led in the way we deliver the asset management company of the future. And look, in tokenization broadly and disruptive financial technologies, probably as we call them, we want to be ahead of the vast majority of our peers, and I think we are. .

The main client base to your core question so far is on token purely on chain clients. And we've seen that across the board. So if you think about the first tokenized fund that we did is with Anemoy and Centrifuge, tokenized Treasury, JTRSY [indiscernible] Treasury. That took in about $400 million in from on chain clients for the most part. Most part for that one are folks who are sitting in stable coin, and that's fine when there's no yield. But when there is a yield, they want to get some yield and not just sit in zero yielding product. And so on chain, tokenized JTRS is where they've gone, and that's the first one that we launched.

We then followed up with a tokenized version of JAAA. That's with net Centrifuge and also Grove. I don't know if people know grow, but Grove is part of the Sky ecosystem, which you may know better by the Maker Dow brand. That was our old brand. And it's the owner of -- or the manager, I guess, I should say, of USDS which is, I think, the second or third largest stable coin.

And so similarly, People were in stable coin, not getting all yield. They could go to treasury and JAAA gives them another opportunity in a tokenized fully unchanged manner to go there. So we're seeing, again, nascent interest from folks outside of the purely on chain clients, but we're, in particular, seeing a lot of interest for folks who are sitting on stable coin walk better yields from those. We will continue to evolve as our client base evolves and as our clients' needs are there. But again, this is something that puts, I think, Janus Henderson, ahead of peer group in terms of being innovative, thinking differently and delivering on a client need.

We currently have no further questions. So I'll hand back to Ali for any closing remarks.

Okay. Look, thanks, Lucy. Thanks to all our listeners today, of course, including our investors and analysts and also our many colleagues who I know are joining from Janus Henderson. You have all helped deliver another clear step forward this quarter in the transformation of Janus Henderson on behalf of our clients. Thank you all. Thank you all for listening, and we'll talk to you next quarter.

This concludes today's call. Thank you for joining. You may now disconnect your lines.