Azimut Holding SpA

MIL:AZM

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon. This is a Chorus Call conference operator. Welcome, and thank you for joining the Azimut Holding First Quarter 2018 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Sergio Albarelli, Managing Director and CEO of Azimut Holdings. Please go ahead, sir.

[Sergio Albarelli, executive]

Good afternoon to everybody, and apologies for the slight delay. We had a longer preliminary meeting of this conference call, but let me speak immediately to our agenda today. We're going to analyze, as usual, our quarterly results, year-on-year for Azimut management and distribution, some news about the financials and, at the end, summary and outlook.

Let's go straight to inflows and assets under management. We have an increase of 9% versus March 2017 in our assets, end of March of this year, EUR 50.6 billion. End of April, we're already above EUR 51 billion, pretty good, still the same ratio between domestic and international, Italy, representing roughly 75% and international representing the balance. As much as net inflows, we are below the EUR 900 million end of March, very close to EUR 1 billion end of April and still validation of our policies since long time ago, strategic investment outside Italy, strong contribution, organic contribution for our foreign operations.

On financial results, total revenues, EUR 182 million below first quarter 2017. The currencies are higher. Unfortunately, variable fees are lower due to market conditions, significantly lower, 9.6 versus 49.5. Our net profit, as a consequence, are EUR 26.4 million versus EUR 72.9 million 1 year ago and almost entirely due to the limited variable fees in the quarter. Good numbers and good news, approved dividend per share EUR 2, EUR 1 cash as you know and EUR 1 to be paid through existing treasury shares. Basically, we doubled the amount of money that we pay in 2017.

Our assets, as I mentioned here before, going up. Still good numbers on international, as I mentioned, 25%. Our performance year-to-date is roughly flat, although recovering is slightly better than the Italian industry. Breakdown of our asset under management more or less in line with the past. Our average performance, still good. Not too much to say here in front of you. The usual chart we are presenting you any time in our presentation.

If we move forward and we go for our funds breakdown, where there’s slight increase in bond, more or less flexible still on the same level as well as balanced. Equity is slightly up 0.6%, as much as the underlying assets 42% in equity, and on bonds, we are roughly speaking of 36.3%. If we go for geographical breakdown, you see the usual picture, North America, Europe, still strong as usual, U.K. and Asia Pacific. But if you go on fixed income, we have most of our assets in hybrid and investment grade with higher than [indiscernible] representing a significant portion of it as well.

On the distribution side, we're still growing above the average of the industry, talking about this -- speaking about the average for revenue, 9% versus the average of the industry, minus 1.3%, decelerating, as you can see, but still with positive [indiscernible] because we see a significant increase in the quality of the people we hire. Our financial network in Italy has seen 41 additional hires in the first quarter, average age is younger than the age in the market and as well as the age in our industry.

The percentage of the assets invested in managed assets, managed funds, our unit-linked mutual funds and so on, and so on, is above the figure we presented you 3 months ago, it was 78%. It is now 82%. Average portfolio, 16, slightly lower than the previous one. But confirmation of our strategy, 51% of these people are coming from banks. No big changes as much as the geographical allocation of our sales network to note, 1.652 -- sorry, 1,656 agents Italy-wide.

On the financials, I would like to introduce to you Alessandro, our CFO, who will giving you some highlights about the numbers.

[Alessandro Zambotti, executive]

Yes. So thank you, Sergio. Let's start from the bottom of the income statement. We have a consolidated net profit of EUR 26 million compared to the EUR 73 million of the first quarter 2017 with a net profit of EUR 30 million compared to the EUR 74 million of 2017, therefore with a variation close to EUR 45 million. This [indiscernible] has already mentioned by the decrease of EUR 40 million on some variable fees, but at the same time, it's also -- let's say, it's explained by the recurring fees that increased compared to last year by EUR 8 million and an increase of the operating cost to about EUR 12 million, where we have EUR 6 million on distribution costs, EUR 6 million more, and EUR 6 million more on the administrative costs. So both of them linked to the evolution of the group in term of asset under management, but also on the evolution that we have [indiscernible].

Going through the other [indiscernible] element of the income statement, we can see the interest income increased by -- to almost EUR 3.9 million, this is mainly -- I mean, mainly explained by the introduction of the new accounting standard, the IFRS 9, where the effect of the variation of the fair value our assets due to the -- due to our investment on available for sale. It's the revenue passing is now the P&L, therefore, before realizing but it was -- it's on equity, now we are -- with these changes, so we have to keep it -- I mean, keep this on the P&L.

Going through the next slide, we are on the net financial position, where we can see that it's almost in line with last year, the end of December. We have a variation, it's a negative variation of EUR 4 million. If we split the variation on cash and cash equivalent, it's around EUR 10 million, and we have a total debt that decreased to over EUR 6 million. The variation is, therefore, explained by 2 -- 3 elements. If we consider the results of the quarter, EUR 26 million, sorry, and we take out the buyback that we finalized in January of EUR 30 million, plus there is a contribution of EUR 6 million [ abroad ] for the acquisition, we got the variation of EUR 10 million on cash and cash equivalents.

I think that's fine.

[Sergio Albarelli, executive]

Thank you, Alessandro. Thank you so much. Moving to the summary now. To look very simply, we don't think this very challenging quarter is putting up any risk in our strategy and our ability to go forward. With good targets versus our 5 years' plan, obviously, they have an impact. They have an impact. No need to say, it was mostly on variable fees. Some of our funds will go to [ home ] in retrospective. That said, we are confident in our ability in earning the revenues will stay intact throughout 2018.

Net inflows, anyway, to be seen robust. The Italian business is more focused than before on quality versus than on quantity. The numbers I mentioned here before about the quality of FAs are just getting over to the strategy that our company, set to -- now back 18 months ago. Additional plans are -- and we already implemented some strategies in order to hire even more professional agent going forward. If we talk about international expansion, our growth is now mostly organic. The pace of acquisition is still valid, but the numbers we have seen in the first quarter are generated by the existing business, which is pretty good at the operating level profit impact.

As you probably remember, we've been spending significant amounts of our time in the last year in restructuring our private offering. Efforts are always into that direction, have been filed with local authorities in Luxembourg and Italy as well. They were structured on the existing range. Additional filing will follow up in 2018. The aim is to reduce nonperforming funds, both in term of performance versus the client and performance versus the group, eliminating smaller fund or fund which are not contributing significantly to our margins.

The same will go for our insurance business and rapid count business. You remember with the cap reorganization for rapid count in 2018, the numbers are proving to be good into that direction. We're consolidating our ability reducing the number of wrappers. The same will go for unit links. Everybody is aware of the fact that October 1, 2018, IDD would come into effect, and not just because it's a new directive, but we will take the opportunity in offering our network, first, and our clients, second, the opportunity to have even more valid range of products in order to offset any potential negative effect coming from market.

The area we're going to focus going forward, once again, growth overseas as well as in Italy. Let me repeat, as well as in Italy, because people are skeptical about our willingness to keep the business in Italy growing as it is growing internationally. That's not the case. Italy is and will stay the main market for the group, accompanied with strong growth international, where we have seen significant steps going forward.

No need to say, as already highlighted in some conference call in the past, we want to diversify away from traditional long-goal type of products. We are developing our alternative business, which is private equity, private debt and advisory. Thanks to good people, we had in-house hiring of new people, and the ability of our portfolio manager to generate new ideas.

We are still opportunistic on M&A, we're not making any statement regarding we're going to buy this, we're going to buy that. We like to see how the market situations are evolving, which are the opportunities to be presented in front of us, either domestic or international, and you probably remember we made some statements about what's going on in Italy, what it could be good for as we look going forward in international markets.

No need to say all the efforts we're putting in place for portfolio management and range of products are all in line with a target of providing our clients with superior performance, like we've always been able in the last 10 years, 20 years, 25 years.

Last point, more efficient operational platform. You remember, we started months ago the project in order to change our operating model, our architecture. Things are progressing well. We expect to be in line with the delivering 2019, and this will be generating us significant savings on margins and operation setups.

Last point, as usual, the update on our 5 years' business plan. Not much to say because we are presenting exactly the same trend we were presenting 3 months ago. The annualized net profit, obviously, is still, in fact, it's EUR 300 million as a target. Nowadays, we're running in EUR 106 million. We expect market condition to be not as trend line as it were in 2017 and 2016, but nonetheless, all the activities we're performing on cost control, the organization and focus on quality should be helping us in order to achieve the number. Analyzed net inflows running fine, despite slightly lower than 1 year ago. Dividend policy, think that just a few days ahead of the ex-dividend date, everybody should be happy about receiving EUR 2 in dividend.

I'm not taking too much of your time now. I will be more than happy to take any question arising from the conference. So you can open up the microphone.

[Operator]

[Operator Instructions] The first question is from Hubert Lam of Bank of America.

[Hubert Lam, analyst]

I've got 3 questions, firstly, on flows. If you look at the net management flows over the last couple of months, they've been negative. Just wondering how do you explain that. Is it due to markets and MiFID, the lack of hiring or just sort of domestic market? Maybe just give some color as to why there have been outflows the last couple of months? Second question is on G&A costs. G&A cost picked up a bit in the last -- in Q1 versus the last quarter. Just wondering if there's any one-off in that quarter. Or should we expect this to be the new run rate going forward? Third question is on hiring. Seems like you picked up the hiring in Q1, which led to higher commission expense. Has the recruitment environment change that led to the increase hiring? Or just wondering how -- why pick up this quarter and should we expect this to be, again, the new run rate going forward.

[Sergio Albarelli, executive]

Thank you, Hubert. Very simply, on net flows, you probably remember, we already declare that we've been hit by a couple of institutional clients in the last 2 weeks. On the other hand side, there was some numbers coming from a reduction of our proprietary funds, investment from proprietary [indiscernible] to our own funds in order to allow capital to be deployed to other opportunities. On G&A, very simply, I give you an example. A significant portion of the increase is made by all the personnel that was onboarded in the last few month in international operation and Italian as well. And I give you a flavor. I visited our Dubai office after 1 year. It was a very tiny operation of 2 people. Now we're talking about compliance manager, internal auditing. You're talking about operation, one portfolio manager, 3 salespeople, the country manager, the legal counsel. If you go for expansion and you plan it seriously, obviously, the first cost you're going to incur are the costs generated by personnel. And I expect this trend to be obviously well-managed. We're not going to allocate people randomly, but where the opportunities will be arising. But nonetheless, and no surprise, if you remember, when we talked about product range, I was structuring what we offer into our clients. We do not just talk in about investment buy, because we're also talking about potentially hiring portfolio manager or analyst, making sure our operations are up and running well and, at the same time, restructuring and making sure they will be more profitable. So in essence, obviously, some impact coming from investments, but not as a surprise, because this is the trend that we started now 1 year ago about the change in our architecture and revising our operating model in the hiring of people. So no surprise on that side. If we stick to hiring, and we're talking specifically about FAs, it is true, 49 -- sorry, 41 in a quarter. They look surprising because last year was less exciting as much as a number. But you probably remember that I always mention the fact that the hiring numbers are on a swing mode. You may happen to have the quarter very significant for people that we started contacting even 1 year ago and suddenly the hiring materialize, and you might have a quarter which is totally flat because discussion and agreement are not materializing. I can stress, once again, as a major factor is the quality of these people is going higher. We have a campaign, which is called Banking Revolution, in order to hire potential strong bankers from existing banks all around the country. The numbers are good. We are on the process of hiring people. Already, within this 41, we have strong people coming from banks, and we might expect to see a bit more exciting numbers going forward. But again, please don't see hiring as a pure trend line, but is a swing process. It may be very up one month and basically going down to 0, even potentially negative, when people are leaving another month.

[Operator]

The next question is from Alberto Villa of Intermonte.

[Alberto Villa, analyst]

I have a few questions from my side. The first one is, again, on inflows, if you can provide us with an idea what's the organic delivery in terms of inflows of the Italian operations, excluding the, let's say, effect of institutional mandates and the contribution coming from abroad. I was just wondering if you're expecting -- you're focusing on quality, I understand, and not on quantity, if the organic growth is still positive or you expect some kind of flattish or negative trends in term of net inflows contribution from the Italian operations. I also noticed that you add 41 new advisers, but the number of financial advisers increased by only 18. So you had 23 people leaving, is that something related to normal churn of the network. You're expecting an increase on that side, any comments on that could be helpful. The second question is on the -- you mentioned during the presentation that you are transforming or eliminating some of the nonperforming funds. And also, looking at the unit-linked products, I was wondering if -- when you launch a new fund, you do it with the same structure in terms of performance fees and manager fees of the previous one, or you already implementing any new methodology for us, especially for performance fees. And on the unit linked, if you are worried at all about what has been discussed in the recent weeks in Italy about the ruling of the [ transaction ] of the Supreme Court about eventually considering these products not eligible for some tax benefits for the client. So if you expect this could eventually impact your inflows on that specific product. And then the last question is on the fact that one of your competitor, Banca Mediolanum, announced that they received an investigation and a request over taxes because of their international operations. Do you think this is a risk for the entire industry and also for your operations in Luxembourg or this should be something that you rule out?

[Sergio Albarelli, executive]

Thank you, Alberto. Let me go straight to your first question regarding net inflows. We might expect to have a run rate of roughly EUR 2.5 billion on an annual basis. So this is what we're working on. One's in, one's out is to some of the client may make a difference, but that's what we're talking about, EUR 2.5 billion on an annual basis. Normal hiring, you're totally right, 41 new entrants. The net is 18, because 23 left. That's normal. I mean, it's a normal turnover in an entity like ours, where some people not really good set aside when some people may take the decision to go somewhere else. But the balance is positive. And even more important than the balance being positive, these people are bringing in already assets, 82% invested in managed funds. So as you remember, this is a strategy we set up long time ago. Our sales proposition and our commercial department has been very good in implementing it, and this will be the trend going forward as well. It's seasonal, in the sense that it's swinging, but it's not really something which is creating us any problem or keeping anybody of us awake at night. As much as new funds, no, the answer is very simply no. We are not going to change our methodology. So any new fund will be launched exactly with the same structure, the same management fees start of model. The same performance fee model. We're not taking any initiative going into different direction because it'll be very difficult to understood by our clients to see some new funds with new methodology and existing one with old methodologies. Unit links, can I quote Shakespeare? "Too much ado for nothing." I mean, there has been a plethora of discussion about potentially the impact of what the [ transaction ] in Milano took as a decision. Obviously, we are investigating into it and trying to figure out if there could be a portion of our business at risk. But, I think, if we have preliminary to say nothing at all or a portion of it. As much as the investigation -- the fiscal investigation, and you mentioned one of our competitors. Well, let me stress one point. We already mentioned it a long time ago, long time ago. No need to say, tax authorities may run the business the way they like. Obviously, I'm not expecting either yes or no to be showing up at that door. But it's a matter of [ tight ] we've already been through this, and we gave to the tax authorities all the answers they were looking for.

[Alberto Villa, analyst]

Okay. Just a clarification. On the EUR 2.5 billion of net inflows you're expecting, is that skewed towards international operations also for the future? Or are you're expecting a balanced -- 50-50 or anything...

[Sergio Albarelli, executive]

No, no, we are just referring to the Italian business.

[Alberto Villa, analyst]

Okay, EUR 2.5 billion in the Italian business. So we can expect them to add on the international business. Any figure on that?

[Sergio Albarelli, executive]

Well, you should take this as a target run rate. It's acceptable to see this as what has been the behavior in the past and on top is very much in line with our targeted 5 years' plan. Obviously then, you need to add whatever is going to be the input coming from acquisition on a local basis for FAs, and you should be incorporating as well what is the potential business generated of foreign operations. Of foreign operation, I like to stress once again, the numbers are absolutely positive because we see what we like, I -- organic. But this doesn't mean that we no acquisition at all. This isn't the DNA of Azimut. So EUR 2.5-plus billion, whatever it could coming from either the acquisitions or foreign operations, obviously, pending market conditions.

[Operator]

The next question is from Gian Luca Ferrari of Mediobanca.

[Gian Ferrari, analyst]

I have 4 questions. The first one is on EUR 978 million total inflows at the end of April, if you can break it down between Italy and foreign business. Second is the contribution of the foreign business to the EUR 26.4 million net profit, so if the foreign activities contributed positively or are still at breakeven. The third is on the payout to the distribution. I understood that recruitment could be a bit volatile during the next few quarters, but the 53.3% payout I'm calculating for Q1 is pretty higher compared to the 50.7% of full year '17. What should be a kind of guidance for full year '18, if you can give us this kind of indication? Last question is if you can give us the performance fees cashed in, in April?

[Sergio Albarelli, executive]

First question, EUR 978 million on revenues. Roughly, we're talking about EUR 700 million coming from foreign operations, so that's a big number, a very big one. On EUR 26.4 million net profit, we are not disclosing this figure yet. So you should be waiting for a few more quarters before providing this information from us. On payout distribution, no, I think I'm not really on your side. I mean, I don't see this as an increase in cost of acquisition at all. Because again, this is a sort of swinging type of activity. You cannot assume just this quarter, maybe a guidance for 2018. This strategy that we call back in revolutionary hiring bank has a good potential and so on and so on. Overaged significant portfolio is not necessarily gearing to an increase in cost of acquisition. It's a case by case. If you try to -- sorry, if someone could try to dictate a strategy by, "I do want to spend this maximum amount of money for hiring people," I think this someone should be on the wrong side of the business. Because here, and you know it, this is a people business. You should be looking this a case-by-case situation. You may happen to be facing a very strong potential candidate, young, 35, 40 years old, EUR 15 million portfolio and you expect to pay some percentages, and you're then sitting in front of a very established type of [Foreign language] in the region of EUR 50 million, it's a totally different type of number. So the average, and especially the average in a quarter, it is very difficult to be seen like a proxy throughout the year. And then your question regarding the performance fee cash in April, we're talking about roughly $2.5 million.

[Operator]

The next question is from Jonathan Richard (sic) [ Jonathan Richards ] of KBW.

[Jonathan Richards, analyst]

A couple of questions from me. Firstly, on the EUR 16 million average portfolio size of the new 41 from [indiscernible], can you give us an idea of how much of that has already come in the door and what the shape of that curve will look like over the next months, if it has not all come in? Secondly, on the 23 people who have left Azimut, can you give us an indication of what the average portfolio size was for those leavers? And then finally, on the EUR 2.5 billion managed assets inflow target for the Italian business, can you give us an idea of what you're internally splitting between managed assets and assets under custody?

[Sergio Albarelli, executive]

Thank you for your questions. First of all, we're talking regarding the EUR 60 million average portfolio, we already cashed in to the region of roughly 20%. So you would see the balance going forward in quarter 2 and quarter 3. The same goes for the leavers. The average portfolio was much lower, and this is a confirmation of our strategy. We're talking about an average portfolio of, in the region, EUR 10 million. So concentrating on more profitable FAs and let less-performing FAs go to potentially a new career somewhere else. Our EUR 2.5 billion, this is a very difficult exercise. Because according to market condition, you might happen to have potentially raising assets and funds rather than unit links. In some cases, it might be securities. It's really difficult to give you a proxy right now. So we will apologize if I don't give you any breakdown of it.

[Jonathan Richards, analyst]

Great. Maybe just one more follow-up question on the cost side. Will your new fund transformations through consolidation lead to lower SG&A costs going forward? And if so, how -- could you give us a quantum for how much we might expect to see SG&A costs come down as you guys move through that exercise?

[Sergio Albarelli, executive]

It's a good question, and I totally understand it. You have the -- the answer is very simple. On the one hand side, there will be some costs just wiping out, because these are some fixed cost that, in a fund, you might have, legal cost, some operating cost based on middle and back office. On the one hand side, the cost on the other hand side, the management fees. Some of our funds will be managing to be performing as much as management fees top of fund. Overall effect has to be estimated, obviously. We have some ideas in our mind, maximum and minimum, it's all about the persistency, sorry, of our clients into the merged funds. You will understand we're not providing any information about this, because in order to be totally understood, we should be providing you right now the fullest of funds that will be merged into other funds. So you will be able to make any calculation. But obviously, this is a competitive information we are not providing to the market right now.

[Operator]

The next question is from Elena Perini of Banca IMI.

[Elena Perini, analyst]

I have some questions. The first one is on your interest income. I couldn't understand. I couldn't hear all your presentation on the P&L from the CFO. So I would like to understand whether there was some one-off impact on the interest income. Then talking about the run rate of EUR 2.5 billion of net inflows in Italy, if I understood well, it is not a level that you are confident to achieve in the current year. It is more a medium-term target. Then on the savings that you expect starting from 2019 from the new operating platform, can you provide us with some quantitative guidance on this? Then regarding the new asset management platform, regarding the asset managers, the fund managers that were exiting your group, can you provide us with some update on this side? And then if you can elaborate a bit more on the key point of opportunistic M&A that you gave in your outlook for the future.

[Sergio Albarelli, executive]

My pleasure. Let me go question #2, then I will be passing it to Alessandro, our CFO. EUR 2.5 billion, I did not say we are not either optimistic or pessimistic. I told this is a time we might expect, considering what Azimut has been able to achieve in the last few years. So EUR 2.5 billion has to be seen where we're moving forward, obviously, pending market condition and looking at both acquisition, both our financial agent and international operations are. But EUR 2.5 billion is the number for Italy. So the total, obviously, would be totally different. On the savings, we are not disclosing what are supposed to be the savings and where they are coming from because the new architecture of the system will be explained going forward in the late 2018, first half of 2019, in order to give some disclosure about what has been, really, some impact. But to give you exactly the numbers of how many dollars we're going to save for single trade, how many dollars we're going to save for printing and reporting and so on and so on, it's really -- not just early and preliminary, but it's not really appropriate because this is an impact that should be valued when the volumes on the business will be at the level we are expecting. On the fourth question, which is the one regarding the operations set up by some of our colleagues. I understand that the operation is going to be finalized in the next few weeks. Things are up and running progressively. There are strong cooperation between the 2 entities. We should have a working group in order to facilitate the start of the operation in order to make sure that any delegation will be up and running smoothly and professionally. That's the update I can give you on that side. And I'm very happy to provide you this, because I see what my working group is doing and it is very professional. As much as the interest income, I think, the most appropriate, as I mentioned to you before, is Alessandro. So I'm switching this to him.

[Alessandro Zambotti, executive]

Yes. So since I was referring during the presentation, due to the change in the accounting standard, in the projection of the IFRS 9, we are not allowed any more to keep the valuation of the fair value of our investment and -- say, liquidity investment and fund, not anymore on equity, but on P&L. So even if it's an annualized impact, we cannot anymore keep it on equity. Therefore, you can see that we have this changed and this impact this quarter due to this valuation [indiscernible] approach.

[Sergio Albarelli, executive]

Thank you, Alessandro. Is it enough?

[Elena Perini, analyst]

Well, if there was -- another question on the opportunistic M&A, if you can elaborate a bit more on this.

[Sergio Albarelli, executive]

Well, I think -- please, apologies, I'm not going to play with words. But opportunistic means there is something is popping up on our table or in front of us. It could be good for us to have a look. So we are not, for example, strategically forecasting we're going to buy this because of that and so on. We look at our markets where we are. And if opportunistic will be in front -- if opportunities will be in front of us, we're going to be judging them. I give an example, again, with Dubai. We came across this opportunity 1 year ago. We thought it was great. It was fitting in pretty well into our strategic considering of the region. And after 1 year, from an opportunistic vision, it came out to be a strategic decision to set up the offices the way I mentioned here before.

[Elena Perini, analyst]

And then if I can come back on the financial results, so on the interest income. So going forward, we are going to see a more and more volatile trend in this P&L line?

[Sergio Albarelli, executive]

Well, the answer would be, yes, it depends.

[Operator]

The next question is from [ Philippe Perreault ] of [indiscernible].

[Unknown Analyst]

I was looking at your P&L and the development of your recent asset under management, and I think you touched upon the departure of your former manager last year. It seems that it's having an impact, which is slightly higher than we were expecting into -- in fact. If I add this kind of coincidental departure of 23 FAs this year that you replaced with 14 new FAs and the fact that your commission expense, if I add the minorities as well, are going by 3 points in the first quarter versus the average of last year, it seem that the entire organization is under pressure from those departure. And just -- could you just comment and I can -- maybe give us some more thinking about it. Maybe I'm completely wrong, but it's what I derived from just looking at the figures here.

[Sergio Albarelli, executive]

Not at all. I mean, I totally understand where you're coming from. You try to figure out considering the tenure of our former portfolio managers and the long-dated relationship with us, what it could be the impact on us. Let me tell you the following. If you look at the numbers, not just on the last quarter, but you see this within historical perspective, i.e., since it was made the announcement and the agreement was made public and so on and so on, the company made profits, the assets were going up, we raised -- sorry, we increased the numbers of IFAs and so on and so on. As at today, what I can tell you is the relationship is working fine. We have no negative input coming from our, let's say, safe network or clients about this because they know that the agreement is valid, up and running and will last for a while, because it's all our intention to make sure that the agreement will stay in place. We're talking about colleagues. We're talking about people who are still shareholders of the company so they have a vested interest in making sure that the agreement will be up and running for a while. I don't see this neither as an excuse for people to leave, and I'm both talking about financial agents and internal colleagues. And I don't see this as well as a negative impact on either performance fees or variable fees. This -- we're just talking about market conditions. It is not because some of our funds will be managed no more internally but externally that we have seen a decrease in performance fee, not at all. So I'm very positive about the relationship, and I don't see this as a negative threat to us. Obviously, and correct me if I'm wrong, [ Philippe ], the first time you connect with us. So we would be -- we'd be happy to have additional conversation with you in order to provide you more color about the history of the company to give you a strong picture of what we're doing and what we expect to do going forward.

[Operator]

The next question is from Filippo Prini of Kepler.

[Filippo Prini, analyst]

Two questions from my side. The first one is if you can give us an update on acquisition of -- basically a deal on Sofia SGR. It was announced at some months ago, and maybe we don't see yet the consolidation on the assets. And the second point is that if you expect to approach some deadline to buy back minority stakes of operation abroad in the next quarter or in the next year, so would expect a reduction of the line of minority interest.

[Sergio Albarelli, executive]

Thank you, Filippo. Very simply, we expect to see the conclusion of this [indiscernible] story about Sofia by the end of May. Please don't see any negative comment in my words. It just -- as a matter of fact, it was a long process because making acquisition over portion of an existing SGR is not as simple as some people could think. But nonetheless, the process is going to go very finely to its termination. It's been very good for us as an acquisition. We're hiring not just -- sorry, we are getting not just assets, we'll be getting in also strong portfolio managers and financial agents. So all-in, despite being very long, an excellent acquisition. As much as the minorities, well, we already have something in the last few weeks, I -- Dubai, as an example, or Chile. And going forward, might be something ahead, but not necessarily shorter.

[Operator]

[Operator Instructions] The next question is from Matteo Ghilotti of Equita.

[Matteo Ghilotti, analyst]

A couple of questions. Shall we say that the acceleration of hiring of advisers that we have seen in the first quarter will accelerate a little bit also the distribution cost in the next quarter? Or it's too simplistic. And the second question is regarding the funds that you have -- your own funds that you have in your balance sheet as an investment of liquidity. Can you quantify, just to, let say, help a little bit model the interest income or the swings?

[Sergio Albarelli, executive]

Matteo, straightforward answer to your first question, no. No acceleration in hiring, not -- that doesn't mean at all any acceleration in cost of acquisition, not at all. And again please, let's make sure, we've been very clear about this, hiring financial agents, hiring strong private bankers is not really like working in a post office where, every day, you do exactly the same and you have a recurring exercise. It's in and out, in and out, type of exercise. It will take potentially wide to see the similar number going to play in quarter 2 or quarter 3. It go down to 0, it could be 60, whatever. But please don't see this as a proxy. We like to hire good people, and this is what we're stressing in the last 18 months. The numbers are on our side. Because if you look at the numbers of the last year, 78% portfolio is invested in managed funds; average portfolio, EUR 20 million; average age, significantly below 50s, and so on and so on. So we are not at all highlighting that there will be an acceleration, because we're very opportunistic in this case as well, and we are not highlighting at all there would be an acceleration and cost. It would be really a very careful exercise because we know that we like to be careful in making sure that the costs are under control. On the -- your second question regarding...

[Alessandro Zambotti, executive]

[indiscernible] the cash flows...

[Sergio Albarelli, executive]

The cash invested into our funds and so on. Well, I think that any good company should be investing in its own proprietary products, and we have a good portfolio of our funds. Obviously, it's a long-term portfolio. It is managed by our portfolio management team. It's not just a single portfolio manager exercise. And we use it as a cash whenever we need some liquidity to go for either opportunistic or special acquisition. That very simple.

[Operator]

Mr. Albarelli, there are no more questions registered at this time. Back to you for any closing remarks you may have.

[Sergio Albarelli, executive]

Thank you so much, really. First of all, let me thank you, everybody, for participating to our conference call. And let me thank, on a special situation case all the participant who gave us their questions in order to make everybody aware of our numbers and the quality behind them, despite the numbers being lower than the fourth quarter 2017. Obviously, as I mentioned before to [ Philippe] , if you have additional questions on how the numbers have been produced, feel free to contact Vittorio, and he will be arranging the proper people in the organization to provide more color about the number itself.

Thank you very much, and let me wish you a wonderful evening. Thank you. Bye.