we’re ready to capitalize on that given the strength of our investment performance with 81% of our assets outperforming benchmark over five and 10 years. So, clearly not satisfied about the recent flow performance, but optimistic looking forward. I would just end by noting we saw a pickup in gross inflows towards the end of 4Q, and that has continued into this year. So we’re optimistic.
Alex Scott: Thank you.
Operator: Thank you. Next question is coming from Elyse Greenspan from Wells Fargo. Your line is now live.
Elyse Greenspan: Hi. Thanks. My first question is on, I guess, sticking with PGIM. In the slides, you still call out — you call out programmatic M&A there. You just provide an update just on the pipeline of transactions, and what you might be thinking about there?
Andrew Sullivan: So, thanks, Elyse. It’s Andy. So I won’t get obviously specific around pipeline, but maybe just bring it up a level, we’ve demonstrated our strong ability to grow PGIM organically over a long period of time. So we certainly don’t look at it as we need M&A to grow. That said, we do remain interested in augmenting our organic growth with mergers and acquisitions. Montana Capital Partners, PGIM Custom Harvest and then obviously, our closure of Deerpath in December. Those are great examples of us adding capabilities in higher growth, higher fee areas of the industry. So, as we look forward, we’re going to continue to look to globalize the business. and we’re going to focus on higher growth, higher fee areas, so areas like private alternatives and real asset capabilities.
Clearly, periods of time like this that are disruptive can lead to opportunities, so we’re making sure that we’re in the know and in the flow on what’s going on. We’ve also seen an uptick in activity in the marketplace. But as always, we’re going to remain patient and disciplined in our approach.
Elyse Greenspan: Thanks. And then my second one is on the RBC. So it’s now greater than 425, right? And you guys saw a nice lift in the quarter. you look to maintain Pega’s RBC ratio around this level? Or is that something that you would maybe manage down over time and look to bring more capital to parent?
Kenneth Tanji: Yes, Elyse, it’s Ken. We’re well within our AA financial objectives on an RBC basis. Now, it’s not the only thing that matters for our credit rating. But on that measure, we’re where we need to be, and we have flexibility. So, we — again, we’ll balance maintaining financial strength, which is obviously important to our value proposition growth and also distribution to shareholders. So, we’re balancing all three of those objectives.
Elyse Greenspan: Thank you.
Operator: [Operator Instructions] Our next question is coming from Suneet Kamath from Jefferies. Your line is now live.
Suneet Kamath: Thanks. Good morning. First of all, thank you to Ken for all of your help over the years. I really appreciate it. My first question is just on the SGUL deal with Somerset Re. If I remember correctly, that was supposed to close in the fourth quarter. Obviously, we haven’t seen an announcement on that yet. So, maybe just an update there? And are you still expecting $450 million of proceeds when that deal closes?
Robert Falzon: Suneet, it’s Rob. Yes, the deal continues to proceed toward closing. Our counterparty has actually received its regulatory approval. We’ve got one or two final steps on our end, but we expect a closing in this quarter. Just a couple of reminders. One is, recall it is retrospective to the beginning of the year, so 1/1/24. And with respect to the financial impacts, annual earnings as well as one-time closing costs and capital, we’ll update that in an announcement once we close.
Suneet Kamath: Got it. And then I guess on PGIM, totally appreciate the strong five and 10-year numbers, but it looks like the three-year number, 63% outperforming is a little bit lower. Is that something that we should — that could have an impact on kind of the flow dynamics, or is there something maybe that will drop off? Or — I just want to get some color on how you’re thinking about that three-year number?
Andrew Sullivan: Yes, Suneet, I would focus on how much our investment performance has strengthened here in the near term. We did have a period of time. We’re an active manager. We have many high conviction strategies designed to produce alpha. We went through a brief period in 2021, 2022, where we did see a dip in performance is specifically in our fixed income business, but that performance has strengthened quite nicely and is very, very strong right now. So, we don’t expect that to have a major impact on us looking forward.
Suneet Kamath: Okay. Thanks.
Operator: Thank you. Next question is coming from Jimmy Bhullar from JPMorgan. Your line is now live.
Jimmy Bhullar: Hi. Good morning. So first, a question for Charlie, maybe on capital and just capital deployment overall. Can you talk about what your priorities are and where do — and how do you think about M&A and/or share buybacks? Because it seems like you certainly have the capacity to do more in buybacks given your capital generation than you’ve been doing, but not sure if you’re prioritizing other things instead as well.
Charles Lowrey: Sure. As I mentioned to Alex earlier, we do — we have a consistent and balanced approach. And — as a result, Jimmy, we really look for, again, the three things. One is to make sure that we have a very strong balance sheet, which we do, as Ken was talking about. The second is to invest organically in our businesses, and you’ve seen us do that, and we will continue to do that to support sales growth, to support the growth of all our businesses as we go forward and then to look for acquisitions that make sense. Those would be in higher growth areas. It could be in distribution, it could be in geography as well. We also see tremendous opportunities right now in the marketplace in places like PRT, right, where we are one of the leaders in this business.
We think there’s going to be tremendous volume there, and that’s a really good business for us as we go forward. And Caroline, you may want to talk about that in one moment. The final thing, as we’ve talked about, is returning excess capital to shareholders. We’ve done that in the past. And if we think we have excess capital, we’ll do so. But we’re going to evaluate that relative to our investment in our businesses and the opportunities that come along. And Caroline, you might want to talk about one in particular.
Caroline Feeney: Yes, absolutely. So Jimmy, we did finish another strong year in pension transfer. We closed 11 transactions worth almost $6 billion finishing as the number two pensioners transfer writer. And we’ve already built on that positive momentum this year, with a $5 billion deal with Shell. It’s our largest first quarter pensioners’ transfer ever. And with this win, Prudential now has completed seven of the top 10 US PRT transactions on record. We also see that strong sales trend continuing. It’s driven by healthy pipelines due to favorable funding positions of over 100%. And last year’s market volume was roughly $45 billion. And we do expect to see that healthy pipeline continue this year. And although the market is highly with more new entrants, very few competitors have executed transactions exceeding $1 billion.
And while transactions will continue to be episodic in our PRT, business our expertise and our ability to handle large complex transactions and our leadership position in service delivery, we believe will position us well to remain a leader in the market.
