Jupiter Fund Management PLC

LSE:JUP

Earnings Call Transcript 2024-Q2

[Matthew Beesley, executive]

Good morning. Thanks, everyone, for joining us today for our First Half Results. I'm Matt Beesley. I'm the Chief Executive here at Jupiter. As always, I'm joined by Wayne Mepham, our Chief Financial and Operating Officer. Wayne and I will walk you through our results for the first half of the year, and then we'll open up to questions, which you can ask via the webcast. So overall, we had a solid set of results to present to you today. We manage this business very carefully and are strategic in our planning. So I hope that nothing in these results comes as a surprise to you. I'll discuss flows in more detail shortly, but what we saw net outflows in the first half of the year, these were in line with our expectations and were driven by the changes to the Value team and our decision to extricate ourselves to the management of the Chrysalis Investment Trust. There are encouraging trends in the underlying business, and we saw only very marginal underlying net outflows in the period. Thoughtful and disciplined allocation of capital is a key focus for both Wayne and I. Operating costs are a little lower than expected, and this discipline has continued to give us space to invest for growth. We've made progress against each of our objectives, including removing complexities and seeing underlying growth in our home market of the U.K. And while I would not like to call the bottom in terms of retail investor sentiment, there does seem to be early signs of improvement. So there are reasons for cautious optimism.

[Wayne Mepham, executive]

Thank you, Matt. Good morning, everyone. At H1 2024, we have delivered underlying profit before tax of GBP 47.9 million, which is a 3% increase on the same period last year. Our AUM is largely unchanged compared with June 2023 at GBP 51.3 billion despite the outflows we've experienced, which were GBP 3.4 billion for this first half. Combined with lower average fee margins from the changing business mix and the tiered pricing structure we announced previously, our net revenue reduced to GBP 174 million. Strong cost management continues to be a focus, and our total operating cost was slightly lower than the same period last year. Along with good returns from seed capital investments and liquidity management, this results in an underlying EPS of 6.6p. Our dividend policy, which we implemented in 2022 should be very familiar to you now, which means our interim dividend of 3.2p is half the underlying EPS earned in the period, excluding performance fees, which was 6.4p. I'll report on our strong capital position and how you should think about that at the year-end a little later. And our investment performance over 3 years was a little higher than at this point last year at 55%, and Matt will give some color to this in a moment. But first, let's briefly look at the financial performance compared with the second half last year. So this is the bridge of underlying profit before tax, excluding performance fees compared with the second half of 2023, which is down GBP 2 million. Net revenue is the main driver of this. We saw net revenue margins down by just under 5 basis points, in line with my expectations. This is partly offset by lower costs, mainly driven by timing of non-compensation costs. While we continue to focus on cost control, there is some seasonality here, and we expect higher costs in the second half, which I'll come on to talk about shortly. But these costs and the timings are as planned, and my expectation now is that we will deliver modestly better than my February guidance, which I will explain later. We have again seen strong alpha gains on our seed portfolio, combined with the ongoing benefits of higher interest income on our liquidity positions. This is GBP 6 million higher than for the first half of last year and broadly the same as the second. So that results in GBP 47 million of underlying PBT with a further GBP 1 million of performance fee profits, taking us to a total of a little under GBP 48 million of combined underlying PBT. Exceptional items are exactly in line with guidance and, of course, are all in the first half. That's the end of this type of amortization of intangible assets as we have passed the full year anniversary of the acquisition. So no exceptional items are expected in the second half. Statutory profit of GBP 38.7 million. I'll go through some of this in a bit more detail. But first, over to Matt to talk about investment performance in a little bit more detail on that flow picture.

[Matthew Beesley, executive]

The first thing to acknowledge on this slide is that these numbers are not where we want them to be. Delivering active investment performance to our clients is paramount. We know there are areas where we can improve, and we're taking active steps to do so. For example, we've been using data-driven insights to help our investment managers recognize behavioral biases in their portfolio management, some of which may impact performance. We've also been developing new and improved analytics for use internally to further support our managers in their day-to-day activities. As a truly active manager, we know we will at times have periods of underperformance. However, our focus is to add value to our clients over the long-term, and we are always looking for ways to do better. As relates to the first half of this year, the decline in the key 3-year number has been driven by a few of our larger funds moving below that median over the period, including European growth, Japanese equity and around GBP 1 billion of the Merlin portfolios. If we look more broadly across our larger funds, 9 of the 13 funds that are above GBP 1 billion in AUM are outperforming over 3 years. And if you look at where we're performing well, in many cases, we are performing exceptionally well and in areas of strong client demand. All of our funds are top quartile -- also all of our funds are top quartile, over half are also in the top decile, including the strategic Absolute Return Bond Fund, the Indian equity strategies, Global High Yield and Asian Income, all of which are in that sweet spot of client demand and exceptional performance. These might not be our largest funds, but they are key to growth and it's reassuring to see that these faster-growing funds are performing so well. Moving on to flows. We can see here that gross flows have improved in the first half. There's a real weakness in the market last year with retail sentiment declining throughout the year, which is evident in our gross numbers in 2023. And I'm glad to report that we've seen GBP 7.5 billion of gross flows in the first half of 2024, returning to what we would consider to be a more normalized level, and that's really been driven by improvement in retail. Looking at the headline figures for net flows, it's clearly been a challenging half as we expected it to be. Of these net outflows, over GBP 800 million was due to the change in management structure for Chrysalis, which, of course, we instigated. And there's a further GBP 2.4 billion from strategies associated with the value desk. We made it very clear at the full year results that we'd expect to see outflows from value strategies. And while we could not know the quantum or exact timing, what we've seen so far is within our reasonable expectations. We also said in February that we would be absolutely transparent with you, and we remain committed to that. The desk currently has GBP 6.3 billion of assets under management. GBP 3.4 billion of this is in segregated mandates. It is within our reasonable expectations that all or nearly all of these mandates could be -- could leave by the end of the year. And we'll, of course, keep you updated, but that is what we expect today. Back in February, we also said that we thought underlying flows would be around flat for the year. GBP 0.2 billion of underlying outflows in the first half is entirely consistent with that, albeit, of course, we prefer to reporting marginally positive flows rather than marginally negative flows. However, we did generate net positive underlying retail flows, which is really encouraging. Our Indian equity strategies and wider Asian Income products have seen strong flows. There's ongoing demand evident for GEAR or the Global Equity Absolute Return Fund and SARB. Institutional flows were a little more muted in the first half in both gross and net terms with GBP 0.3 billion of net outflows. This was largely due to expected redemption of one lower-margin mandate. Despite these net negative flows, we actually saw a positive -- a net positive revenue contribution on an underlying basis during the period. From a regional perspective, the U.K. was actually slightly net positive in the first half on an underlying basis, which I'll go on to talk about in detail shortly. And finally, there was ongoing demand for a well-performing Asian equity products, both in local markets and in Europe, although these are not enough to offset unconstrained fixed income outflows in the latter region. I won't spend too long on this slide, but while we're looking at our flows and the shape of our business, I wanted to introduce to you a new and slightly different view of the group. I've talked to you previously about the way in which we interact with clients and how that is fundamentally changing. Relationship is no longer one of product push or just selling funds but of a deeper understanding and offering solutions or components of solutions to meet their needs. As a result, we think of our business not as a collection of individual funds, but rather in terms of our capabilities as we set out on this slide. As you can see, Jupiter today is a well-diversified business, but still appropriately focused across 7 key capabilities, where we can deliver both an active and a differentiated approach. Importantly, each have a significant amount of AUM. I've already covered the flow picture, but you can see that there was growing demand for systematic equities as well as what we define here as an Asian and emerging market equities.

[Wayne Mepham, executive]

Okay, if I combine the flows Matt has just spoken about with the picture across the last 2 half year periods, including markets, you can see that the impact of outflows has been partly offset by investment returns. We end the period only slightly down on June last year, but after strong market returns in both H2 '23 and this last 6 months. So average AUM is up over 2% on the previous 6-month period at GBP 52.1 billion. Let's look at how that has impacted revenue. In H2 '23, we delivered GBP 175 million of net revenue, and that has fallen to GBP 170 million for the first half of this year. We've experienced net outflows over the past [ 2 and ] 12 months. This fall in revenue has been partly offset by the impact of strong markets across the 2 6-month periods. There is also that tiered pricing adjustment, which we implemented this year for the benefiting of clients in more highly scaled products, along with other seasonal variations that resulted in the reduction in revenue. For the half year, this is equivalent to an average fee margin of a little over 65 basis points. That's lower than the full year guidance, but simply reflects the timing of some expected flows, which I anticipate will drive up margins in the second half. So I think my guidance of 66 basis points for the year as a whole continues to be a good estimate. We also generated performance fees of nearly GBP 4 million. As usual, details on the performance of those funds, which have the potential to deliver performance fees can be found at the back of the presentation. But given the levels we've already generated, I think there is some real possibility that the full year figure could be at the top end of the GBP 5 million to GBP 10 million range I spoke about in February. So let's move on to costs. Before we review the cost base for the first half, I'd like to make some comments on how we think about disciplined cost management. This is not new, but all our actual and potential costs are always looked at from these 3 perspectives. Does it deliver growth opportunities which support and grow our revenues and ultimately, our bottom line? Will it help us build, maintain and improve our scalable platform, which we have demonstrated before to delivering both efficiency and operational leverage. Or does it deliver value for money from mandatory spend, where we focus on working with our strategic partners to establish and maintain the most effective cost model. And that focus will be evident as you look at how the shape of our cost base will continue to evolve. So that's our cost ethos. So our cost discipline is strongly embedded in our ways of working. We spend money where we believe we should. We control the total spend where we think we can, and we constantly think about how we can improve our cost ratios. Turning to our costs for the half year and following my comments on our cost ethos, it should come as no surprise that these are exactly where we expect them to be, and in some cases, a little better. Overall, there is some seasonality here with a greater weighting towards the second half. The fixed staff costs, I guided to GBP 79 million for the full year, and that guidance still holds. I also guided to a total compensation ratio excluding performance fees of 47%. Accounting requirements have had an impact on timing. And you can see a lower ratio at just under 45.5% for the first half. It's a little too early to be concluding on variable pay. It is quite possible we could do better than my February guidance of 47%, maybe by around 1 percentage point. Non-compensation costs also include a degree of seasonality, and I would expect them to be higher in the second half than the first. But we still maintained our rigorous focus on cost discipline, and so far this year, have identified around GBP 2 million of specific savings. This means that before any other changes, I now expect our full year non-compensation costs to be GBP 109 million. Focusing in on some specific investments we are making on discrete operational areas. Those are largely the technology-led initiatives Matt spoke about in February. This has and will increase our headcount in the short term. But resources deployed here are temporary. When the work is done, which will be next year, our headcount will be back to levels we have not seen since 2016 despite AUM now being over 30% higher and regulatory demands being significantly greater today, requiring at least 20 additional mandatory heads. I'm referencing back to that same year for non-compensation costs. The biggest driver of the increase has clearly been inflation with the relevant index up 33% over the period, in line with the increase in our AUM. Aside from regulatory demands, the remaining increase is entirely related to areas where we were underinvested historically such as core technology systems, which we have already addressed. So that means all the operational efficiency investments we are making right now are being funded by cost-saving initiatives we have implemented previously, particularly through those achieved when we tightened costs in 2022. All of this is a good demonstration of not only rigorous resource management, but also the scalable platform that we have invested in and which we can leverage further. And that does not mean we are satisfied although we have done all we can. I've already covered our approach here, and I'll come back to our focus on removing undue complexity in a little while. But now let's move on to the balance sheet, where there is a few things on capital I'd like to draw out. Firstly, that strong capital position that I've spoken about before continues to be in place. Our surplus capital has now grown to GBP 199 million after the dividend we declared today. That's around 3.75x covered with the subordinated debt and 3.5x if the debt were repaid today. As you know, the subordinated debt is able to be redeemed from April next year, although we should make clear the Board has not taken any decisions on this to date. And should they do so, there are still certain regulatory hurdles to address. Secondly, we've declared a 3.2p interim dividend, which is in line with our ordinary dividend policy of 50% of preperformance fee earnings. Finally, our capital allocation policy continues to ensure that we prioritize the capital needs of the business, including the capital required for seed and catalyst funding. Our approach here is proving successful. We have started to build some real momentum. Matt referenced our Global High Yield Bond Fund earlier, which is one of the places we put catalyst funding earlier this year. As a result, larger clients can more comfortably invest with fewer concerns over concentrational events. That fund is now close to GBP 300 million of AUM or just GBP 50 million a year ago. So of course, relatively small numbers but a fantastic growth trajectory. That covers the results and the guidance update for the full year 2024. We're now going to focus in on our strategic objectives. Matt?

[Matthew Beesley, executive]

Yes, as usual, before we open to questions, we want to provide a quick update on the progress we've made against our strategic objectives. You'll know this slide very well by now. But given that we have this in mind when we make all of our management decisions, it's absolutely right that we keep coming back to it. We won't go into a lot of detail on all 4 of these objectives today, but I wanted to focus mostly on the objective about increasing scale. Wayne will then run through some progress as it relates to [ decreasing undue ] complexity. I said to many of you before, many times that of our 4 key strategic objectives, increasing scale is the most important. We will always have a focus on driving efficiency, but top line growth is always the ultimate aim. We talked recently about how 2 aspects of this are increasing our scale with institutional clients and also through our international business. Notwithstanding the short-term specific challenges we've already covered, momentum continues to grow in each of these. Our institutional pipeline remains robust. Although we saw net outflows in the half, revenue impact was positive on an underlying basis. Regionally, we saw positive flows from clients based in Asia and over GBP 200 million of net inflows from Latin America, reaching over $2 billion in AUM in the region for the first time. So we have built a globally diversified business. And the reason we built a globally diversified business is because clients in different parts of the world have different demands and different appetites for risk throughout the cycle. This, therefore, helps smooth the results profile of our business. The graph here shows industry data for sales of active equity products from clients based in different regions over the last 10 years. And it tells an interesting story. Over the last decade, U.K.-based investors have shown very little demand for equity products at all. At the same time, clients in Europe and in Asia have been much less risk-averse and have been buying into equities. And now maybe that the U.K. might be beginning to move up the risk curve, demand seems to be tapering off elsewhere. So we think the diversification and the benefits of diversification are clear. But while the diversification is important and part of -- a key part of our business model, our home market has always been and will continue to be the U.K. It represents over 60% of our AUM and even more from a revenue perspective. It's a mature and highly profitable business for us. We spent a lot of time in these presentations over the last few years talking about our institutional and international growth opportunities. And perhaps we haven't spent enough time talking about the heritage that we have in the U.K. wholesale market and the actions we're taking here because leveraging the strengths of our core heritage is a key focus for us. The U.K. is a mature market, but we are one of the market leaders with an exceptionally strong brand. In the latest Pridham Report, we were the seventh for gross sales, and second, of the focused pure active asset managers with our captive assets. Given the scale at starting point, while we may not see the same level of relative growth at some of our more nascent regions and channels, we'll continue to evolve the business for this position as a market leader. We are always focusing our core operating model to best leverage key partnerships consistent with the shift within the client group away from a product push approach and towards deeper, more holistic relationships with our clients. We're investing in our core capabilities of U.K. equities and new hires alongside our existing investment talent will leave us with one of the broadest and, I believe, the strongest lineup of U.K. equity capabilities that we have ever had and possibly of all of our peers. Now this might seem like a countercyclical investment after a long period, where U.K. equities have been out of favor, but we think there's a real opportunity here. We talked publicly about the malaise in U.K. capital markets and said that we need a government to be bold and imaginative in turning this around. At the very least, with what we hope and expect to be a period of political stability and falling interest rates, there are real reasons to be cautiously optimistic around a potential turnaround in sentiment of both the U.K. investor and towards U.K. stocks. But the flows we have seen are not just based around U.K. equities. We've seen strong flows this year from Asian and [ EM ] equities, systematic equities and parts of fixed income. And the flow picture is improving. We saw over GBP 4 billion of net outflows from U.K. wholesale clients in 2020, but the picture has steadily improved since then. Although our headline figures for the first half show GBP 1.7 billion out, more than all of that was down to Chrysalis and outflows for the Value team. Consistent with what you've heard from some of our peers, underlying flows in U.K. retail were actually slightly positive in the first half. So there are clear reasons to be optimistic about our future progress in leveraging our heritage in the U.K. And while we'll continue to focus on our core objective of increasing scale, and with that in our institutional and international channels, we'll not do this at the expense of our heritage in the U.K. retail marketplace.

[Wayne Mepham, executive]

Our second objective is decreasing undue complexity, and this is an area that links -- which links well to our disciplined approach to cost management. I covered our cost ethos earlier, referencing those 3 categories of spend. There was investing in areas where we see strong revenue and profit growth potential, and there was maximizing value for money from mandatory spend. But more relevant to this objective is the portion of our cost base focused on improving operational efficiency, as driving scalability and taking friction out of our business, and removing undue complexity is at the heart of this. We've done a lot here already, but we know there is more we can do. We've previously talked about the fund rationalization process, which has reduced the overall fund range by around 25%. Whilst that discrete program is largely complete, the curation of the product range is an ongoing endeavor, and we expect to finish this year with around 10 fewer funds than when we started. That's through mergers and closures and after some targeted launches too. Last year, Matt highlighted the investments we have been making into technology and data, particularly through client engagement. That's from building around the core scalable model, but removing further unnecessary complexity from our operations. With my particular focus on both finance and operations, I'm glad to report that these programs are all progressing well and crucially to budget. And these changes will enable us to do even more than is possible today, whether that is through automating manual processes or using data to understand our clients better. And of course, we cannot complete a presentation these days without mentioning AI. Our approach here is aligned to the disciplined approach we take to all investments. AI presents potential opportunities across the whole of the value chain, and we are exploring all potential uses wherever we see value being added to our clients. So we see the opportunity, but we are measured in how we approach it. And a large part of that opportunity may well be in finding ways that help us understand and meet our clients' needs even better, improving their experience with Jupiter and broadening our appeal to clients. There are opportunities to support the delivery of a more bespoke or personalized client experience to support areas of client reporting or client service or potentially to deliver more customized solutions for clients, such as the long, short systematic equity capability we designed with and for one specific key client in the first half. Our technology focus and specifically the potential from automation can help us deliver more of this type of bespoke solution and all the connected aspects of client engagement just like this, without adding undue complexity.

[Matthew Beesley, executive]

While we continue to focus on deepening our relationships with all stakeholders, I've already talked at length about our clients and about our shareholders. I do, however, want to very briefly talk about our people, who are, of course, another key stakeholder group. I was pleased to see that in our most recent [ pulse ] survey of our employees, we received an engagement score of 76%, once again above the industry benchmark. Our people at Jupiter remain enthused about the changes we are making to better position ourselves for future opportunities that we know are ahead. I want to thank them all for their continued hard work and endeavors. So to wrap up before we take questions, I believe we have produced a solid set of financial results today, ones which are entirely within our plans and our expectations. We know that there are challenges both to the industry and to Jupiter specifically, but I'm encouraged by how well our underlying business is performing. Our focus on cost discipline remains resolute and we've again delivered cost savings, but maintaining the ability to thoughtfully invest in areas that will drive both growth and further efficiencies. It's only days, but there does seem to be signs of potential improvement in client sentiment. If that is maintained, then Jupiter is very well placed to capitalize. And with that, I'll hand over to Alex James, who will lead us through questions.

[Alex James, executive]

I've got a few questions come in for both of you. We'll start with a couple of questions for Wayne on margins and costs. And firstly, I wanted to understand the run rate fee margins at June end, especially systematic equity is driving the bulk of those flows, which is presumably lower margins. Any comments on that?

[Wayne Mepham, executive]

Yes, I reported that our fee margin for the first half was just over 65 basis points. And again, just to remind you, that is a little lower than I guided in February, but it will come back through my projections to be 66 basis points for the full year. There's a number of factors that have been affecting our margins. One of them is clearly the share pricing that we put in place early this year. There's also a changing mix, which I think is for us into the second half of the year will be the biggest element. So that is reductions in lower margin business and gains, where we expect to see some higher margin business coming in. Some of that's already here. Some of them I expect to see. So you should see a higher margin in the second half versus the half. But overall, 66 basis points.

[Alex James, executive]

And on the cost side, how much -- positives -- clearly strong in the first half. How much flex do you think there remains in both fixed and variable staff costs?

[Wayne Mepham, executive]

Fixed and variable staff costs, well, I think there is clearly a little over 50% of our costs in fixed staff at the moment. And clearly, I've talked about the fact that we have got some temporary resources on our books, so helping us to do some very specific projects which will bring value to us. In the future, that results will go when that work is complete. So that will address the fixed staff cost. Clearly, there's inflation to address as well. So that is a headwind that we all face. I think from a variable perspective, it is variable over the long-term, but clearly, there's some accounting requirements that make it less flexible in the short term. Although, I've given the guidance of probably around 46% for this full year, we'll continue to look at it through the year-end.

[Alex James, executive]

Moving on to non-compensation costs. Our slide in the appendix shows that a lot of this low non-compensation cost is due to the other costs. Why don't we have any detail, what comprises those other costs?

[Wayne Mepham, executive]

Yes, the -- as you know, you can see from that slide, about 50% of our costs -- non-compensation costs are actually AUM-related. So they're quite nicely linked to movements in our AUM. They're not wholly correlated, but they are correlated in some way. That change -- that particular line item that you're referring to there is where we have got both some seasonality, but also where we've been able to find some cost savings. So that is not a run rate number in there that will move back up in the second half as we see those costs come back in.

[Alex James, executive]

Great. Matt, some questions come in on flows and some outlook around the Value team as well. A couple of questions here. Firstly, can you provide some more color on your outlook for the remaining Value team AUM? Perhaps a sense of whether we are halfway through these outflows or closer to the end by now? And relatedly, how retail clients specifically are reacting less in terms of numbers, but given there may be a potential lag to redeem that, to see redemptions versus that of [ institutions ]?

[Matthew Beesley, executive]

Yes, I think we're very clear here. But just to reiterate to you of the value desks, if separate account mandates in the GBP 3.4 billion that we referred to, it's expectation that all or nearly all of that will leave by the end of the year. That remains consistent with our expectations at the start of the year. What we said all along and [indiscernible], we don't quite know the timing of that. In terms of the retail clients, we have Adrian Gosden and Chris Morrison running the income fund already in situ, and have spent lots of time engaging with clients, and we're very optimistic about our ability to grow that investment capability over the medium term. The replacement team for the U.K. Special Situations Fund led by Alex Savvides will be fully in situ in just a couple of months' time. Some of Alex's team have already joined us at Jupiter, as expectations again as we go into next year, we will again be growing that investment capability as we move through 2025. In the short term, though, of course, there is risk that further assets do leave. But I think sentiment towards U.K. equities will be crucial in determining exactly how that plays out through the balance of the year.

[Alex James, executive]

And maybe a comment also on the institutional pipeline in general.

[Matthew Beesley, executive]

Institutional pipeline remains very robust, very much in consistent with our expectations. We've always said that institutional business is lumpy. It's nonlinear. And we've given some guidance previously about how typically our historical experience has been in terms of pipeline conversion, how long that pipeline does tend to convert. This is based off typical experience. And again, there's nothing that we see today that would suggest a deviation from that typical outcome, albeit with some variability and unpredictability. What's most encouraging about our institutional business, and forgive me for reiterating this point once again, is the breadth of investment capabilities that it covers, the diversity of geographies that it covers, and also the different types of channels that it covers as well. And indeed, some of this is direct, some of this is consultant advised. We have a broad and deep institutional pipeline, and we have client base that gives us great comfort that we're building a sustainable business with an institutional channel.

[Alex James, executive]

Thank you, Matt. A couple of more questions. So one question on costs before we move on to some questions on capital as well. Wayne, notwithstanding that we haven't given any specific guidance, a question on how we might look at 2025 costs, how much the targeted increase in headcount could be offset through additional cost-saving measures? And then any guidance or directional views around the trajectory for the cost income ratio or the comp ratio for 2025?

[Wayne Mepham, executive]

Okay. So, I mean, I think the headcount savings are just to be absolutely clear, those reductions are temporary resource. So they are working on specific activities that we are undertaking which is driving the growth in our revenues in the long-term or delivering operational efficiency. So there is no production process that we're going through here. I mean, clearly, it's difficult to estimate this cost at this particular moment in the year. Clearly, we've got inflation increase on staff costs, and we obviously go through a planning process through the second half of the year in terms of any other initiatives we'd like to make. So I'm not going to comment on what the ratios will look like, but clearly, it's a focus. And I suppose the main comment I would make always around this is we maintain a balance, an appropriate balance of investing in our business, but also looking to shareholder returns as careful consideration for us. In terms of the second question was on...

[Alex James, executive]

You've answered both [indiscernible]. Moving on to questions on capital. Do you have any updates -- a 2-part question on return of capital. Do you have any update on the share buyback program that was approved [ at this AGM ], whether that will be enacted? And then relatedly on return, will the Board decide whether to refinance the subordinated debt or not before any decision is taken on additional returns to shareholders?

[Wayne Mepham, executive]

Yes, I mean, on both points, clearly, I'm not going to announce an announcement. So we'll come back to deal with that later in the year. I mean, we have now got a modest ability to buy back shares, 3%. So that gives us ability to think about when we -- when the time is right, how we might return capital to shareholders, either through a share buyback or a special dividend, which we've obviously done both in the past. Typically, we look at those at the year-end. It's not every year-end that we consider making those additional returns of capital. So -- but obviously, we'll be looking at it later on the year with the Board on the same point on the subordinated debt. Yes, again, this is a consideration for the Board. We'll be thinking about that quite carefully, obviously thinking about our capital needs as a business overall. That's something we'll look at towards the end of this year, thinking about that early redemption date in April next year.

[Alex James, executive]

Relatedly, perhaps you'll find some details on the seed capital, the levels of that, what we might expect that to go to. And then a question I think you've answered to an extent, but is there an excess capital level at which would allow for additional shareholder returns?

[Wayne Mepham, executive]

Yes, I mean, on the seed capital, just to remind you, we have a Board set limit of GBP 200 million. And that's based on the cost of the investment we've made. So our cost of seed capture today is a little over GBP 130 million. So we have probably GBP 70 million of capacity left. And we've proven, I spoke about earlier, the benefits of particularly catalyst funding for us at the moment, that's releasing that very strong growth in one particular fund. I think we need to think about whether there's more of that we can do to support some costs, more funds and get to the scale that we know we can achieve. So I think that's the first thing. So we'll also be thinking about that quite carefully as we go through this second half of the year. I mean, from an overall capital position, I don't think I've ever said what I think our right level is, but what I've always said is what I typically see in the marketplace for an asset management business. And typically I'm seeing that around 2x covered. Now that is 2x covered of the capital requirement, but also we've got to clearly think about seed capital requirements. We've also got to think about liquidity requirements, where we've got a GBP 200 million seed capital opportunity. And that could mean, which we go a little higher than that for us, which would be obviously [ GBP 140 million ] of capital on a 2x basis. So all those things, again, we take into consideration as we look through the rest of the year, we make any decisions come February.

[Alex James, executive]

Matt, 2 further questions at the moment. Just the first is, you talk publicly about the opportunity for government to be bold and imaginative in terms of U.K. markets. On the flip side of that, if there is a potential rise in capital gains tax, do you have a view on that would mean in terms of flow and how client sentiment would be impacted?

[Matthew Beesley, executive]

I don't have a view on how that would be impacted. No. I mean, look, investment typically is for the long-term. We -- typically, we're in the business of helping [ institutional savers ] and institutions invest for the longer term. It would be reasonable to expect there might be some negative impact of that, but it's not something that we have done any detailed analysis on it at this stage.

[Alex James, executive]

One final question to finish, unless another one comes in [ during ]. On flows, what -- some more details, perhaps what's driving the positive momentum in underlying retail flows? Is that mainly due to better distribution or relative performance? Are you seeing a sustained pickup in investor sentiment?

[Matthew Beesley, executive]

Yes. So look, I think it's all of the above. So if you look at where we have seen benefits so far, I think, it definitely reflects a subtle shift towards contemplation of risk assets or should I say riskier assets, that gradual move away from either cash deposits or government bonds, recognizing that we're likely either soon in or soon to be in an environment where rates are coming down. So that's the tenor of the conversations that we have with most of our clients regardless of geography or channel as one of -- are you looking to seek more risk. Understandably, of course, clients are looking at places where they see, therefore, a balance of risk and opportunity, but also some downside protection and good, strong investment performance needs to go with that. So it's no surprise that areas like Indian equities, Asia Pacific Income. We referenced both our Global Equity Absolute Return Fund and our Strategic Absolute Return Bond Fund, a rule benefiting from that gentle shift in sentiment. But also that sweet spot of having strong investment performance. That's a key part of where we find ourselves today. While our headline performance number, the -- we've got 3-year KPI number is not where we wanted to be. We have many large funds that are in that sweet spot of client demand, the right amount of size, and strong investment performance. And I think that's going to be crucial as we look into the second half of 2024.

[Alex James, executive]

So no further questions.

[Matthew Beesley, executive]

So with that, let me just say thank you all for your time today. I know it's been a busy day today. Thank you for your ongoing interest, and we look forward to updating you in due course.