In IM, we had negative flows in the fourth quarter. So we’re starting with asset levels that are slightly below where we anticipated. So as it relates to the business, those are the key components. I might also point out that on the corporate side, there is a relatively big difference in expenses. We were roughly at $200 million — just slightly over $200 million for the full year 2023 and our guide for 2024 is $240 million $260 million. That’s made up of maybe three primary components. The first relates to incentive compensation. So, partly as a result or largely as a result of the performance in 2023, we actually recorded booked that are going to pay incentive compensation that’s below target. For 2024, we expect that incentive compensation will come back up to target levels.
And so that’s embedded in our guidance and in our forecast. We also have two other things that are impacting our corporate expenses and our thinking on 2024. One is, we’re expecting about $10 million more of pension expense. This relates to service cost. It’s noncash and primarily attributable to the increase in our employee population based on the addition of Benefitfocus. And then, we also continue to — we have some amounts in Corporate related to strategic investment. Heather talked a little bit about that in her opening comments, but we would expect to be investing in technology, continuing to invest in technology. So that’s embedded in Corporate. So you have higher incentive compensation, $10 million or so pension cost, and about $10 million or so of this incremental strategic investments and that’s impacting our guide on corporate expenses.
Ryan Krueger: Great, thanks. I appreciate the color. That was helpful. And then just a follow-up. Investment Management, do you still think the margins can trend higher over time or do you think at this point 25% to 27% is kind of the right range for that business?
Matt Toms: Yes. Thanks, Tom. I think — thinking about the 25% to 27% and where we’ve been and where we’re growing, we’re very confident in that margin. That’s an increase from the prior year. And as we look forward, we look at the growth behind that margin and the breadth of that growth, both domestically and internationally as the — our business partnership matures with AGI, we’re very confident at that growth level. We’re more focused on the scope of the business that can grow. Our pipeline is incredibly strong. As Don mentioned, the $10 billion-plus that we have in place to deliver on through this year and beyond continues to broaden both domestically and globally, more focused on the growth of the business at this point and expanding that margin further. But also confident that you’ll see that margin bounce back as we move into 2024.
Operator: Thank you. Our next question comes from the line of Jimmy Bhullar with JPMorgan. Please proceed with your questions.
Jimmy Bhullar: Hey, good morning. I had a question on Asset Management and just your comments on the pipeline. I think you’ve been fairly upbeat about the pipeline for the past year, yet flows have been consistently negative. So what gives you the comfort that the pipeline will actually end up translating into net flows and what’s different this year versus maybe last year?
Matt Toms: Yeah. Thanks, Jimmy. This is Matt. I’ll take that. I think the key here is that we’re really through the transformation of the partnership with NNIP through to AGI. We knew this would create headwinds in the short term, but really provides amazing opportunity longer term and really confident with the year, plus, we have got behind us, the building of products, and the developing of channels to be able to deliver upon that. And I think that’s really the game changer. We step back and look at that pipeline. There’s also the diversity of the pipeline domestically and internationally. So we have the ability to deliver solutions in the US market as well as the global market. There’s a lot of demand for dollar-based assets.
There’s also a pivot back into fixed income that we have very strong performance, as Don referenced in his remarks. Performance is what opens the door and we have that and look forward to delivering both domestically and globally with a very strong partnership for many years to come.
Jimmy Bhullar: Are the NNIP withdrawals, are those already gone, or is there some more to go?
Matt Toms: So the NNIP withdrawals are a 2023 event. So while a headwind for 2023 is, we put them into 2024 and our confidence in that $10 billion-plus pipeline is because that’s behind us. And while never fun to go through that transition, we’re much more confident and excited about the growth trajectory with HDI over the years and decades to come. And that’s behind us now as far as NN.
Operator: Thank you. Our next question comes from the line of Suneet Kamath with Jefferies. Please proceed with your questions.
Suneet Kamath: Thanks. Good morning, Don, on the cash generation, I think you said around $800 million for 2023 and maybe a bit above that in 2024. As we look out maybe beyond this year, do you feel like that cash generation should be pretty stable or are you anticipating any kind of bigger moves as we kind of go into the out years?
Donald Templin: Well, the cash generation is really reflective of sort of our 90% plus cash generation capabilities. We’ve had that in the past and we expect that in the future. As we look forward, and you saw in our guidance, for 2024, we’re expecting that the businesses are going to grow at sort of 2% to 4%. I mean, I obviously talked about what was happening in Corporate, but the businesses are, we expect them to grow. In the years 2025 and beyond, we expect them to grow at a more accelerated pace. So we’re guiding to 4% to 6%. We expect that that growth will then contribute to incremental cash generation because we’re very comfortable with that 90% plus conversion ratio. So I would expect that over time that cash generation will grow in proportion to the growth in our business.
Suneet Kamath: Okay, that makes sense. And then, I guess somewhat related. When I’m looking at Slide 17 and I’m looking at your adjusted operating margin targets for ’24 and then ’25, it seems sort of flattish to me, like kind of in that low 30% range. And I would have thought just given the scale that you have in some of the businesses, we’d see some sort of positive operating leverage. I acknowledge that it’s 30% plus, which means there could be some upside, but maybe just some color around, are we kind of flattish margins over the near term, or should we expect some sort of inflection at some point? Thanks.
Heather Lavallee: Yeah, thanks. This is Heather. Maybe I’ll start with that. Yeah, I think as you look at the operating margins we’ve generated across our business, and particularly within Wealth, we’re very proud of that margin. And we’ve talked about the fact that we’ve delivered in that high 30% range since we’ve been a public company. And for us to be able to continue to drive revenue growth in that business and still deliver exceptionally strong operating margins, we’re very proud of that. In Don’s comment, when we talked about the Health Insurance and providing the slightly lower guidance in the Health with the addition of benefit focus, and again, highly strategic, but a lower operating margin for that specific be in admin business, we see an opportunity to continue to improve that margin over time.
So what I would say is we certainly think that in ’24 for Health, you’ve got the moderation of the loss ratios, but we see opportunity to continue to leverage our expense discipline, our focus in on innovation, our focus in on just driving the integrations across workplace to be able to see some improvement in the operating margins. And then Matt already talked about in Investment Management is we do see a steady path. So I would think about that as a bit of a baseline, but we’re always going to be focusing in on how we can continue to grow margins across our businesses.
Operator: Thank you. Our next question come from the line of Elyse Greenspan with Wells Fargo. Please proceed with your questions.
Elyse Greenspan: Hi, thanks. My first question is on Investment Management. So you guys called out two mandates, I guess, in the fourth quarter that you said, we’re moving to the Q1. Can you just give us the size of those? And then how would you expect that $10 billion pipeline that you’re talking about to come online during 2024?
Matt Toms: Hi, Elyse. This is Matt. I’ll answer that for you. So as far as timing of mandates, always a lot of moving parts around clients and markets. So we’re very confident about the pipeline we have moving forward in the timing, first quarter, fourth quarter, you’ve got really the peak in rates. If you think about it, was the middle of last quarter. So client behavior in and around year end can be variables. It’s always hard to be extremely precise, but the size of the pipeline and the breadth of the pipeline continues to develop. So I can’t put a precise number on any client funding when and where. But the importance of that is the diversity of that pipeline growing across fixed income, equities, and international and domestic demand.
And as far as timing through the year, again, likely to build some of this to the client behavior and a market stability comment. But we are very confident in that $10 billion-plus number. And also, per the prior questions, we look internationally, the time we’ve had to build the relationship with AGI and the product array will continue to benefit as we move through the year. So look for some increase as we move through the year. It’s always impossible to be perfectly precise with market volatility and client behavior, but it’s a building trajectory. And we’re very confident with the break we have out of the gate to start in 2024.
