Below is transcript of the Janus Capital Group Inc (NYSE:JNS)’s Fourth Quarter And Full Year 2014 Earnings Conference Call, held on January 22, 2015 at 10:00 a.m. EST. Ariel Investments, Southpoint Capital Advisors and Eminence Capital was among Janus Capital Group Inc (NYSE:JNS) shareholders at the end of the third quarter.
Janus Capital Group Inc (NYSE:JNS) and its subsidiaries (JCG) provide investment management, administration, distribution and related services to financial advisors, individuals and institutional clients through mutual funds, other pooled investment vehicles, separate accounts and sub advised relationships (collectively referred to as investment products) in both domestic and international markets.
Company Representatives:
Dick Weil – Chief Executive Officer
Jennifer McPeek – Chief Financial Officer
Analsyts:
Dan Fannon – Jeffries
Ken Worthington – JP Morgan
Tom Whitehead – Morgan Stanley
Michael Kim – Sandler O’Neill
Michael Carrier – Bank of America
Robert Lee – KBW Securities
Patrick Davitt – Autonomous.
Operator
Good morning. My name is Tracy, and I will be your conference facilitator today. Thank you for standing by, and welcome to the Janus Capital Group Fourth Quarter and Full Year 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. In the interest of time, questions will be limited to one initial and one follow-up question. Today’s conference is being recorded.
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 factor section of the company’s most recent Form 10-K and other more recent filings made with the SEC. Janus Capital Group assumes no obligation to update any forward-looking statements made during the call. Thank you. Now it is my pleasure to introduce Dick Weil, Chief Executive Officer of Janus Capital Group. Mr. Weil, you may begin your conference.
Dick Weil – Chief Executive Officer
Good morning, everyone. Thank you, operator. Welcome to the fourth quarter and full year 2014 earnings presentation for the Janus Capital Group. Before, I start this morning; let me give a little bit of unusual preamble. I’m going to say some things today about some very positive accomplishments that we’re proud of both in terms of the fourth quarter and on our full year basis. I would like to just set the tone very clearly from the top while a number of things have gone our way and we will review some very important positive developments, we’re reporting on progress rather than victory. There needs to be a sustained level of net inflows and success in the vein that we’re going to talk about here in a minute for a much longer period of time before, we’ll be feeling secure in having made the strong turn towards the company that we all know we can be. So, please take today’s comments in the vein of marking progress and in that context let me turn the page to page 2.
Fourth quarter 2014, company net flows were positive $2 billion. That’s the first quarter of positive net flows for the company since the second quarter of 2009. I’ll talk a little bit more about that in a second, but let’s turn to annual net flows. The company’s total net flows for the year were $4.9 billion outflows. That reflects a really substantial improvement from the $19.7 billion of net outflows in 2013, but again, it’s still a negative number and much work remains to be done. Looking at the rest of the story of the quarter, I think it’s important to note that fourth quarter 2014, investment performance showed progress as well. Complex wide track records improved markedly, at the end of the fourth quarter 2014, 57% and 82% of mutual fund assets were in the top two Morningstar quartiles for the one and three year basis respectively, which is up from 46% and 46% a year ago. In terms of business discipline, we continue to exercise strong discipline. Operating margins were above 30% for the third consecutive quarter, which reflects higher AUM and better performance fees, but also reflects our continued commitment to be good stewards of our shareholder capital.
Our balance sheet continues to strengthen with $797 million of cash and marketable securities compared to $451 million of total debt. As you know, we like to look at annual cash flow from operations on a trailing 12 month basis because of some of the cyclicality or seasonality of that number, and on that basis we generated approximately $220 of free cash flow over the last 12 months, and we returned approximately 65% of that to the shareholders in the form of share repurchases and dividends. So we’re proud of that record. Let’s turn back for a moment to the net flows and let me say a little bit more about that. Obviously it’s much more than just Bill Gross. As we said earlier, total company flows positive for the first time since the second quarter of 2009. Janus equity net flows were positive for the first time since the first quarter of 2010. Retail and intermediary net flows were positive for the first time since first quarter 2010, with an annualized growth rate of 6%.
Our non-U.S. business had its sixth consecutive quarter of positive net inflows and our fixed income business had $2.8 billion of net inflows led by flexible bond and our global unconstrained bond strategies which meaningfully outperforms the industry. I think that’s the sixth consecutive year of net inflows for our fixed income business, and that’s a mark that we’re certainly proud of. Finally, there has been a lot of talk about Bill Gross’s personal investment in his own funds. At the end of 2014, Bill had invested more than $700 million of his personal money in the global unconstrained bond fund. He fundamentally believes that investing alongside of clients aligns interest, he believes in eating his own cooking. And that’s a concept that actually has much longer history at Janus than Bill’s short time with us.
A number of consultants and analysts have marked over the years that Janus, has been an industry leader in the amount of internal investment in our own products. And so, we’re proud, Bill’s proud of investing in what we do for living, we think that should give clients additional confidence in what we do. With that said, let me turn the page to page four. The effort on page four here is to try and place some of this progress in the context of our strategic plan and initiatives. As you all know from prior calls, pretty much since I got here about five years ago, we’ve been focused on these initiatives. Improving our fundamental equity franchise and you can see some data in the box on page four, around improving performance. Again, grow fixed income business. Again, sixth year of consecutive net positive flows growing at an organic rate of 15%, very proud of that progress.
Expanding our non-U.S. distribution, this has been a long project for us with full year net flows of $3.4 billion inflow. It’s the strongest record of net flows in history of this company and we’re proud of that as well. We’re working on increasing our U.S. institutional market presence and obviously, Bill’s addition gives us a very strong shot in the arm to try and drive that further forward. And we’ve been focused on developing solution based products, and as I think you all know, the addition of and Ashwin Alankar, gives us an entry into the world class asset allocation game and our acquisition of velocity shares has allowed us to serve new clients in the form of exchange traded notes and also in the future, some new exchange traded funds.
Just to put a little additional light on Velocity Shares, their year-end 2014 number should assets invested in their sponsored products of approximately $2.4 billion, which is up from about $1.7 billion when we signed the deal to acquire them and up from about $1.1 billion at the start of 2014. So, the folks at Velocity Shares are doing a really job and we’re very excited to have them on the Janus team. With that, please let me turn the rest of the presentation over to Jennifer McPeek.
Jennifer McPeek – Chief Financial Officer
Thank you, Dick. Good morning again everyone. I will begin on page six of the presentation with the quick review of our operating results for the quarter and for the year. Average assets under management for the fourth quarter improved to $179.2 billion from $176.5 billion in the third quarter of 2014.
Please note that these AUM figures and also our flow data do not include the Velocity Shares’ products, the Velocity Shares transaction closed on a last business day of November. So, we have one month in our results for this last quarter for the month of December, the products from Velocity Shares average approximately $2.5 billion in assets for that month. Moving on, the increase in average assets led to an increase in total revenue of 8% quarter-over-quarter to $254.8 million and the full year results reflect revenue of 9% versus 2013. Operating income was $80.5 million and that represents a 12% increase over the prior quarter. As compared to the prior year operating income improved 21%. Operating margin also improved and increased 140 basis points in the quarter to 31.6%. Earnings per share was $0.24 for the fourth quarter, which compares to $0.22 in the third quarter and on an annualized basis, our earnings per share improved 31%.
Turning now to slide seven, we’ll discuss our investment performance as of December 31. We saw some mix results in the complex-wide performance statistics with the decline in the one year number, but improvement in the three and five year time period. Fundamental equity performance improved for all three periods presented here and we continue to be encouraged by the performance strength in most of our fundamental equity strategies. Fixed income performance remains very strong for the three and five-year periods. However, as you can see on a one year basis, the percentage of assets in the top-two Morningstar quartile decline meaningfully. As any of you who follow this segment closely probably already know our funds had less interest rate exposure to the long end of the curve which dramatically outperformed in 2014. We continue to be very proud of the many successes of this team and we’re encouraged with the future opportunities.
Our risk adjusted fixed income metrics continue to be extremely competitive over longer periods and we see nothing in the recent performance that is concerning. Performance in our mathematical equity strategies was mix with the decline in one year performance, but improvement in the three and five-year performance metrics compared to last quarter. The decline in one year performance occur primarily in INTECH’s global strategies as non-U.S. markets generally underperformed in fourth quarter. Moving on to our flows presentation on page eight. Dick’s already commented extensively on our flow success in this quarter, but you can see some of the details on this page.
Additionally, for your reference we’ve included a breakdown our quarterly flows by distribution channel and that is in the appendix and also the annual flows by advisor. I hope that information is helpful to all of you. So, let’s look at slide nine and get in some of the detail of the revenue. Revenue increased 8% over the prior quarter. This is mostly higher management fees and significantly better performance fees. Management fee revenue was up in line with the increase in assets and the weighted average management fee for this current quarter was up slightly compared to the prior quarter at 48.1 basis points. Performance fees on our mutual funds were negative $9.5 million for the quarter, that’s 34% better than we saw in the third quarter. This improvement was led by our Twenty Fund or Forty Fund and the Research funds. In a few minutes, I’ll give a little bit more detail around our outlook for 2015 performance fees in our mutual funds.
Private account performance fees for the quarter were $8.7 million versus only 400,000 in the third quarter. These fourth quarter private account performance fees were generated primarily from annual performance fees at our INTECH subsidiaries, which resulted from strong performance in INTECH’s flagship strategy which is the U.S. Enhanced Plus strategy, and this was INTECH’s best performing relative return strategy on a one year basis. These numbers also include an annual performance fee on an alternative Janus private fund. Finally, Velocity Shares revenue and expenses, for revenues, we will be including revenue from their product in the other revenue line on our P&L. And for expenses, those will be obviously embedded in the appropriate lines. They’re fully consolidated.
Turning to slide 10, which is our operating expense break down. Operating expenses increased 9 million so we are roughly 5 percent compared to last quarter and the primary drivers there were long term incentive compensation and discretionary expensed, which are the marketing and G&A lines. The increase in LTI was a result of a lower credit for the Perkins SPI in the fourth quarter and an increase in LTI relating to INTECH. And looking to our LTI expense for 2015, we currently estimate the amount to be about 70 to 75 million for the year. This assumes the flat market in 2015 and also an assumption on our February 2015 grants of new LTI which is yet to happen. We will provide updates on our expected expense on future quarterly earning calls as we started doing it last year. As I mentioned the discretion spending was up by 17% this quarter compared to the third quarter. This expectation is consistent with what we talked about in the third quarter call and the guidance we gave you.
You will see an increase in marketing and advertising as well as the portion of G&A and that was partially due to some investments we made around the hiring bill gross and the building out of that global macro franchise. Additionally, in the fourth quarter we also had about a million and half dollars of deal related expenses with Velocity Shares. Normally, this is where I would discuss our quarterly total compensation to revenue ratio. However, we have received many calls and questions this quarter regarding the ratio, because I gave some guidance on its last call. So, we have decided to include it in the special topics of interest section.
Now, let’s look at slide 11, a year over year review of our balance sheet and capital management activities. Just walking through the bullet points, our net debt position is improved by approximately 60 million dollars over the course of 2014, as strong cash flow generation more than offset for our repayment of debt and acquisitions and return of capital to shareholders. Cash and cash equivalents increased 108 million dollars, driven by strong cash flows and investment security redemptions. The total debt decline is 94 million dollars as our 2014 senior and convertible senior notes matured and we retired those with cash on hand. Also in the fourth quarter we closed on our acquisition of Velocity Shares, and we paid an upfront cash consideration of approximately 28 million dollars. In addition, we return 55% of our 2014 cash flow from operations to shareholders through 84 million dollars throughout the year in share repurchase and 58 million dollars in dividends. So, now let’s turn to some of these special topics.
Slide 13, may look familiar as we presented on past calls. This is a slide where we talk about what could happen upcoming year under certain performance scenarios through our mutual fund performance fee. As, we have gone through some educational materials over the last couple of years, I know that most of you that follow our stock have built these bottom up fund by fund performance fee models. So, this may not be additional information for you, but hopefully it will help you fine tune your models if you need it. I want to emphasize again that this page is not a guidance on fee as it is not intended to be a forecast to fund performance. Rather it is simply an illustration of how this revenue line item is expected to move as we roll off historical performance and see how it varies with a range of under an out performance in the coming years. I do want to also note that only fund performance but also asset levels and performance of the benchmark will affect the actual results. So on the right hand of the slide we have included potential performance scenarios for 2015.
The scenarios show range of performance from 400 basis points over the benchmark to 400 basis points below the benchmark across all of the funds that have these fees. And you can see on the right hand side, the change, the delta year over year as that would result in for this mutual fund performance fees. The conclusion, 2015 financial results can vary significantly based on this factor. The modeling scenarios we have shown here result in a $34 million swings from the upside to the downside scenario.
Now moving to slide 14, in last quarter’s call I made the comments that due to a number of factors we expected to see our total comp to revenue ratios rise in 2015. So, after the call and the meetings with the analyst this quarter, you all have repeatedly asked a clarification on this guidance and a number of you have tried to use the guidance to infer our internal flows expectations. While unfortunately, predicting the ratio it’s not that simple, we do not disclose our expense planning to the level of granularity that you would need to nail it precisely and in fact we cannot even nail it precisely ourselves in our internal modeling. So, I am going to attempt to explain to you why that is, and in order to do that I have broken down the ratio into some of its sub pieces and just going to comment briefly on those. They are laid out on the table in the middle of the page.
First let’s walk through some of these numerator pieces in compensation. So, in the compensation line some of the sub pieces there are laid out here, we have cash salaries. The cash salaries is obviously a fixed expense and we’re seeing some upward pressure on that in 2015. We are giving raises across the firm to employees this year particularly in some functions where we are seeing a lot of competitive pressure in the industry.
We are also increasing headcount. I would say my best guess at this time is that you will see a 3% to 4% increase over the course of 2015 in our headcount. That is the largest annual headcount increase we’ve had since the financial crisis. So, while we feel it’s an important investment and continuing to grow the firm and we’re being very selective about where we make those hires. The fixed costs that come in are going to be adding to the operating leverage in our model and thus they make the comp to revenue ratio more volatile as we see movement in asset levels another piece of that compensation line is commission. Some of our commissions move in concert with revenue, but other pieces of commissions move in advance of revenue, so their upfront commissions it really depends on what channel our sales come in through. This can create some timing imbalances during periods of rapid growth. The other piece that is underlying that compensation line is significant in our cash bonuses. Cash bonuses do flux with operating income, and unlike with some others in our industry are not tied directly to revenue. It’s actually an offset, the way the model works to the operating leverage and the salary line, so we are sharing some of that financial benefit from operating leverage with our employees as the business grows.
We think this also aligns our incentives further so that we’re all trying to be prudent and thoughtful with our spending decisions. The other piece of the LTI line and this is always difficult to forecast and explain because there are so many moving pieces and a lot of what goes into this line is not cash related, there’s a lot of accounting driven LTI expenses. Grants that we give, LTI grants, they are expensed over their expected vesting period, so if we are making key hires, key high profile hires yes, you are going to see the LTI line expenses go up. Also importantly, we had reversal in this line in 2014 related – well we are going to have a reversal versus 2014 related to some of these complex instruments that were issued a long time ago in the Perkins transaction. In addition, we have also put in place a very long term incentive plan at INTECH that generates some non cash charges, the details to that are in Note 7 of our most recent Q.
Lots of moving pieces, difficult for you to build without seeing this underlying pieces and that’s why we are giving you the high level guidance on LTI. What you probably need to know is that right now we’re looking at the LTI expense for the full year 2015 being forecasted to be $70 million to $75 million. So that’s the numerator. In the denominator revenue there is also a lot of very difficult predictions that have to be made to get at this. The other revenue bucket stems some Velocity Shares product in which we see performance fees that move they have no tie to compensation. So, lots of moving pieces, where does that end us at the end of the day? Well, we run scenarios that put all of these drivers in, have all of their relationships embedded in our models and ultimately the stress is on our models come from running up and down market scenarios. When we look at these scenarios we end up with a range for 2015 of total comp to revenue it’s anywhere from 40% to 45%. I hope that’s helpful to you all. I know that doesn’t tell you what you need to nail it, precisely but at least it helps you see all the different moving pieces.
I will say that for the next quarter we have a little bit more visibility because it’s just a short in time horizon. We are looking at probably 42% to 44% of total comp to revenue for the first quarter of next year. So with that long explanation, I would like to turn it back over to Dick, for some closing remarks.
Dick Weil – Chief Executive Officer
Thank you, Jennifer. I will just return to the theme I started with.
In 2014, I think it is clear that we have taken a major step forward. During the year, we added significant talent to our already strong team. And we have seen considerable improvement in our fundamental equity franchise. We continue to make progress on each important element of our strategic initiatives, but it is not a time to declare victory. This progress is not been sustained for a long enough period of time to be secure. We are proud of our record in talent acquisition in innovation in our efforts to expand. Our vision continues to be: we plan to deliver excellence and active management across equities, fixed income, and asset allocation through strengthening our legacy franchises and also continuing to innovate in new ones.
Today, we are financially stronger and more stable than we have been. We have better investment talent and better opportunities with clients than we’ve had certainly at any time since I have been here, it still requires strong delivery, strong execution from here and that has our full attention. So with that, we will turn it over to you, operator, to take questions. Thank you!
Operator
Ladies & gentlemen at this time we will conduct the question and the answer session, in the interest of time questions will be monitored to one initial and one follow up question , if you like to ask a question please press *1 on your phone and you will be placed in a queue, in the order received. If you are using a speaker phone please make sure the function is turned off, to allow your signal to reach out equipment. Once again please star *1 to ask a question. We will pause just a moment to allow everyone an opportunity to signal to ask a question. We’ll go first to Dan Fannon from Jefferies.
Dan Fannon – Jeffries
Thanks, Good morning. Looking at the chart on the flows by channel. I was hoping you could give a little more color on the retail intermediary channel and the improvement in gross sales you’re seeing, and maybe focus a little bit on what’s changed, particularly within the equities franchise and separated from fixed income, and talk about where you’re seeing the most success.
Dick Weil – Chief Executive Officer
The number one thing that drives our retail sales is investment performance, clearly. And we had some funds on the equity side in particular that have put up some very strong performance in recent periods and then successful at gathering assets domestically and abroad. You know when it comes to mind, our healthcare fund is terrific and has had very strong record and is one of the big drivers of flow success in the channel. So, you know I would say that sometimes people look at this state and try and make it more complicated than it is. For the most part, long term performance it takes the outcome and then you know the intersection of that with investor appetite where people are currently focused in their investing. And we have done a good job improving our standing across a number of funds, global life, balanced, enterprise, contrarian, to name a few. And have put up very strong records in our gathering assets effectively in the retail channel. So that is as good an answer as I can give you.
Dan Fannon – Jefferies
Okay, that’s helpful and then just can you quantify what was contributing in terms of flows in the quarter? And then discuss potentially the opportunity for you know growths through that channel and the products, as well as you know, other potential areas within the franchise that you see as potential distributors for?
Dick Weil – Chief Executive Officer
Yes, I guess the story is slightly more broad and complicated than just Daiichi. Daiichi has a 50% affiliate ownership with the company called DIAM and DIAM distributes through banks, including the other 50% owner of DIAM which is Mizu Bank in Tokyo. So if you look at Daiichi Life together with its affiliate DIAM they have done a terrific job in partnering with us. We managed as of December 31st approximately 2.5 billion assets for DIAM up from 2.1 the prior to the quarter. And that reflects some very successful selling of global life balances and smith strategies by DIAM which is part of that broader story we have talked about across the quarters which is that Daiichi life has just been a really terrific owner and partner for us.
Dan Fannon – Jefferies
And the potential opportunity you see with Gross through that channel in his products?
Dick Weil – Chief Executive Officer
Yeah, I don’t know how to predict that you know but Tokyo especially retail tends to go in waves. And you know they tend to be interested in certain product areas at certain times. And we will try and take advantage of that with respect to Bill Gross and certainly all of our other products, but I can’t give you a prediction for that right now.
Dan Fannon – Jefferies
Great, Thank you!
Operator
And we will go next to Ken Worthington from JP Morgan.
Ken Worthington – JP Morgan
Hi, to expand on that. So, Janus is having great success in distribution outside the US, you mentioned Daiichi and the others. Can you take us beyond what’s happening in Japan and talk about the success that you are having in Europe as well? And then, also in the US, it seems like you are getting to put on new platforms, it looks like the supermarket platform has been adding Janus products you know due to better performance. So, what are the platforms that seem to be adding Janus products to their line up most recently? I don’t need the names, but just like what types, regions, general information would be helpful.
Dick Weil – Chief Executive Officer
Sure thanks Ken. First in response to your question about Europe; in Europe, our multi asset and balance strategies are continuing to gain traction and they are leading the way for us there. In Asia high income products seem to be losing a little ground on the balance funds to US equities and other things. Traditionally, I think we all think of Asia we think of high income products, but it’s a broader story there for us outside of Japan. And certainly our strength in life science, you know global life that sort of product is reflected there also so that’s really the answer for outside of Japan in our non US business. The second part of your question was….
Ken Worthington – JP Morgan
Inside the US sort of…
Dick Weil – Chief Executive Officer
The platform yes.
Ken Worthington – JP Morgan
Yes
Dick Weil – Chief Executive Officer
We do not typically disclose this but currently, we have about 19 funds listed on Fidelty and Schwaab select guidance list, which is one way of thinking about an answer to your question compared to 11 at the end of last year so, that’s a significant improvement for us on those two platforms. And I think that’s hopefully reflective of the progress we are making more broadly and hopefully gives you a sense of that in answer to your question.
Ken Worthington – JP Morgan
Right thank you! And then just secondly on the fee rate, the management fee rate had been declining for a number of quarters. It reversed this quarter and again this is extra performance fee. There is a number of components that would drive that.
Can you tell us like how the mix is changing or what the drivers of the mix had been more recently to cause that fee rate, which has been declining to actually turn around and start to improve?
Jennifer McPeek – Chief Financial Officer
Sure Ken, its Jennifer. Actually, the biggest driver is the relative move of markets right now. So, you know we’re seeing flows across the franchise and that really doesn’t affect the balance between fixed income and equity. But when you see the lift in asses due to market moves that’s going to move it around. I don’t think that the move from last quarter to this quarter, which was I think 0.2, is significant. You know its moves around quarter-to-quarter, so it’s not a trend that extrapolates.
Ken Worthington – JPMorgan
Okay great. Thank you very much.
Operator
We will take our next question from Tom Whitehead from Morgan Stanley.
Tom Whitehead – Morgan Stanley.
Great thanks for taking my questions, and congrats on the strong quarter guys. Just wanting to touch on the comp quickly. I guess the comp this quarter was a little bit light, especially when you consider the improvements on the Gross sell side and the improvements in the performance fee. So, you know may be if you could give us some more color on what was going on in this quarter. And then secondly, as we look ahead the fixed sort of component of comp that you broke out, Jennifer, in the slide on 2015. I guess about how much of the comp is fixed and how much should we think about is little more variable?
Jennifer McPeek – Chief Financial Officer
To your first question, if you saw compensation come in a little bit lower a lot of that happened that movement happens in the fourth quarter because we don’t make decisions on how we allocate our bonus pool between final decisions between LTI and cash until the end of the year. So, a lot of those decisions are made based on what’s driving the growth of the bonus pool.
And then, they are within ranges, but when you see changes in the fourth quarter it’s often due to, in this case it was due to some decisions made on cash versus LTI. So our bonuses sometimes go more into LTI than cash. And when you see that throughout the year, we’re accruing at the basis that we expect to occur, but we don’t make the final decision until the fourth quarter. So that’s going to drive that difference. The second question you asked is how much of our compensation is fixed versus variable and I am sorry, we don’t really disclose that, so I cannot really give you that information.
Tom Whitehead – Morgan Stanley
Okay, and then I just had a second question on Velocity Shares. Basically, if you could you know provide us an update on the plans for that business and how I guess how we should think about your investment in growing that business and launching new products over, say, the next 12 or 18 months thanks.
Dick Weil – Chief Executive Office
Sure, I think we have already called out that there are assets in products they sponsor have been rising nicely. I am looking at Jennifer did we call out there the one month’s revenue contribution?
Jennifer McPeek – Chief Financial Officer
We did not, but I can certainly provide it. So, we only had a month of revenue in there this quarter and that was I thinking about $1.2 million, so hopefully that’s helpful to you in modeling that separately. Their assets have gone up, but they move day to day, so this is a little bit more volatile of the asset stream than you see in kind of long term investment products because they are used by very short term investors.
Dick Weil – Chief Executive Officer
Right. We recall that substantially all of their currents assets are in exchange-traded notes and those notes are tools for professional investors, and they are not aimed at a buy and hold clientele as much as tools that would be used on a shorter-term basis by professional investors. And there’s a consequence, the potential volatility of those numbers is quite high. But that revenue that Jennifer mentioned is substantially driven by their ETN business.
And looking ahead I think we have been clear that we are looking forward to using their strengths to launch some ETFs. In particular, we’ve signaled that we are looking hard at the opportunities for Mr. Gross to manage an ETF, and certainly we are, and we will be getting back to you with more information on that as it becomes appropriate in the coming months.
Tom Whitehead – Morgan Stanley
Okay. Great. Thanks for taking my questions.
Operator
We will take our next question from Michael Kim from Sandler O’Neill.
Michael Kim – Sandler O’Neill
Thanks, good morning. First I know you called out the separate account win for the unconstrained bond strategy last quarter, but just wondering if you could provide any additional color on sort of how you are planning on more fully penetrating the institutional fixed income channel, both from a strategic standpoint, as well as sort of from a marketing perspective.
Dick Weil – Chief Executive Officer
Sure Happy to do that. Thanks for the question, Institutional fixed income, in many places, is driven by consultants. The consultants are famously slow to adopt new things. And so, the efforts to get them to adopt a new global unconstrained fund managed by Mr. Gross are sort of a balance between his obvious and long-term excellence and huge reputation and their discomfort with new things. And so, candidly that’s a daily battle we fight. And they drive us crazy, we probably drive them crazy, but that’s the balance. And so, what we need to do is to continue to work with those folks to try and gain their comfort to gain more placements in global concentrate in institutional space, domestically and abroad.
And then there are some opportunities with institutional clients that are not so focused on consultant recommendations, the Soros investment was clearly one such and there should be opportunities to capture excess with some folks who are perhaps less driven by the slower moving consultants, and so we’ll be focusing particularly on those. And lastly, it depends, of course, on the appetite for the strategy itself, the global unconstrained bond strategy, which is a particular strategy, which you know like all others, has varying levels of sort of investor demand through time depending on anticipated rate movements among other things. And so, the intersection of all those things is just darn hard to predict. And we have stayed away from predicting and will continue to do so, but we are working really hard at those things and we’ll continue to do so.
Michael Kim – Sandler O’Neill
Okay that’s helpful And then, second question, now that we are approaching the three-year anniversary of Daiichi’s investment, just wondering if you could walk through any potential changes to the structure of the investment as it relates to holding requirements and/or the standstill agreement.
Dick Weil – Chief Executive Officer
I think it’s fair to say that this investment has been very successful not only for us, but as they communicate to us, for them as well. It has benefited from some strong improvement in performance at Janus; it’s also benefited candidly from currency movements in their favor since they made an investment. So, for a lot of reasons, from the relationships to the financial results they have indicated a lot of confidence and satisfaction with the way the relationship is working. And certainly, we’ve made no secret that we are equally thrilled with that. The contract that we have with them provides periodic review points where we can get together and talk about whether things need to change. I think one of those comes up towards the end of 2015. At this point, we don’t anticipate that there would be any changes or anything significant that would be altered.
But it’s fair to say that if you go back and look at those contracts, there are periodic review points and we will come up on one towards the end of the year. But the main message is, I think this is a relationship that’s working very well both from our perspective and from Daiichi Life’s perspective and we don’t anticipate anything significant that needs to change.
Michael Kim – Sandler O’Neill
Okay fair enough. That’s for taking my questions.
Operator
We will go next to Michael Carrier from Bank of America.
Michael Carrier – Bank of America
Thanks Jennifer, just on two things that you hit on. It’s on the performance fees. This scenario, kind of analysis is helpful. On the private accounts, just want to try to separate the annual new impact versus what we can see in sort of on a quarterly basis. So any I know it’s you are predicting the future, so pretty tough. Just want to try to meet out the annual. And then, just on the share count, we think about grants versus the ongoing level of buybacks. Any outlook on what we should be expecting just given some of the key hires.
Jennifer McPeek – Chief Financial Officer
Sure so, first question is around the private account and how much comes in annually versus on a more steady state basis. So, the biggest driver of our performance fees is our separate accounts from INTECH. And those I am looking at a chart, I don’t have a specific number for you, you know something like half of them or somewhere between 40% to 50% look like they are more on an annual basis. But the real driver here is going to be which strategies outperformed right.
So, it is going to be difficult to predict. Actually my assistant is telling me two thirds of them actually are annual, so we have counting the numbers but not looking at the actual asset levels. So a little bit more on an annual basis than on a quarterly basis. But you really need to know what strategies are outperforming. I know that this quarter there was a big surprise. People weren’t expecting that big performance fee jump up from INTECH, but that came largely from the Enhanced Plus strategy which had a really positive fourth quarter.
And so it is difficult to predict, because you don’t see that performance in the separate accounts at INTECH until we release our results. So by its nature that has to be a surprise. And I am sorry, what was the second part of your question?
Michael Carrier – Bank of America
Yeah second was just on the share count going forward as we think about grants, given some of the key hires versus the ongoing level of buybacks.
Jennifer McPeek – Chief Financial Officer
So, we have a really strong commitment to offset dilution from share grants. It’s a philosophical commitment. We don’t want our shareholders to be negatively affected when we opt to compensate people in the form of stock.
We want our shareholders to be largely agnostic to the form of compensation and in some cases, LTI grants are the right thing to do and they have the right retention features. So we do have a philosophical commitment to offset those over time and share dilution. Our recent level of share buybacks have been higher than when we needed to offset that dilution and that really reflects our commitment over time to try to hit an industry level of cash payout ratio, which I think is in the 70% to 80% range.
Michael Carrier – Bank of America
Okay thanks a lot.
Jennifer McPeek – Chief Financial Officer
Sure.
Operator
We will take our next question from Robert Lee from KBW Securities.
Robert Lee – KBW Securities
Great. Good morning everyone. Maybe following up actually Jen from the share repurchase, so I understand that thinking about I just want to offset a share issuance, but just kind of curious in the quarter you did actually have a subsiquntail jump despite share kind of been coming up and kind of jumped up. So it looks like there was a fair amount of shares issued and I don’t quote “seeing that kind of seasonality in terms of vesting or restricted stock grants in the past”. So is there any kind of one-time thing that helped drive that or I know.
Jennifer McPeek – Chief Financial Officer
Well I hope it’s not a one-time thing but that was largely driven by our share price going up. So hopefully that’s a repeated thing. Let me explain that a little bit.
We have some convertible notes that are outstanding and so we have to account for dilution that comes from those convertible notes when our share price moves dramatically and the weighted average share price for the quarter was a lot higher than it was in the prior quarter. So that’s really what caused that increase in the fully diluted share count.
Robert Lee – KBW Securities
Okay. Great. That’s helpful. And then just one simple modeling question on velocity share. So I guess I am still not clear to me
Jennifer McPeek – Chief Financial Officer
I am sorry. Could you speak up a little bit? We are not hearing you well.
Robert Lee – KBW Securities
Sorry about that. On velocity shares, from a modeling perspective, so are you not going to include those assets in your AUM going forward just kind of call them out separately.
Jennifer McPeek – Chief Financial Officer
Correct. We’re not going to include the exchange traded note assets which are the bulk of their assets in AUM because they are not the name manager, they are not a managed product. We get paid under a separate contract. So, that’s technically how we’re supposed to account for them to not include them in AUM. sThey are ETF products, if we get those put under a trust that Janus is the name manager for which currently is not the case, then those would be included in AUM, but we’ll have to update you on that going forward.
Robert Lee – KBW Securities
Okay. Great thank you.
Operator
And we have time for one last question. We will go to Patrick Davitt from Autonomous.
Patrick Davitt – Autonomous
Hey good morning, thanks. You have been pretty consistent on letting the debt maturities roll off and I assume a lot of people will start rolling out 2017 estimates at this point. Do you think it’s a fair assumption for us to assume that that $345 million maturity rolls off? It’s a long way away, but all else being equal, benign markets and what not, is that something that you would imagine would happen?
Jennifer McPeek – Chief Financial Officer
Well I hope the rating agency guys are listening right now, but that is — it has been our stated intention to retire our debt and to take it down to levels that are more commensurate with the little cash flow that we are generating. Right now, we’re cash flow positive. So there isn’t a need for us to have that leverage.
Patrick Davitt – Autonomous
Great. Thanks. And then on the gross money, I am assuming there is no fee on that or is that a wrong assumption?
Dick Weil – Chief Executive Officer
No that comes in an unusual way, accounts just like there is no special arrangement around it.
Patrick Davitt – Autonomous
Okay great, Thank you.
Operator
At this time, I would like to turn the conference back over to Mr. Weil for final comments.
Dick Weil – Chief Executive Officer
Thank you, operator and thanks everybody for joining us this morning. Again we are proud of the progress that we have made but, you know one quarter of positive flows is not a strong enough trend for us to declare any sort of victory. We need to sustain this progress through a long period of time and that’s what we are about. So I know you will keep watching and hold us accountable. Thanks for your time and attention and have a good day.
Operator
This concludes today’s conference call. Thank you for attending.
