PFG - Earnings call transcript Q2 2018 | Principal Financial Group, Inc.

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Operator

Good morning, and welcome to the Principal Financial Group Second Quarter 2018 Financial Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to John Egan, Vice President of Investor Relations.

John Egan

Thank you, and good morning. Welcome to Principal Financial Group's second quarter conference call.

to are related website on materials principal.com/investor. at always, today's available call our As

Company. of harbor prepared the Houston; reading the call a Following safe available Others Deanna will up for Menken, Income will Principal session for we questions. International; Insurance U.S. and Amy provision, Strable and McCaughan, our Investment Global for Solutions; Dennis deliver Officer Chief Then Nora some remarks. Insurance include Q&A Retirement open Investors; Principal the Life Friedrich, Solutions; Jim CFO, Dan CEO, Everett, Luis Principal and Valdés,

Some subsequent call and revise meaning Form not of actual statements company's the or in events filed discussed Act. the differ that results of implied expressed comments on contain Risks the does the information, made company those company Commission. the or uncertainties during Securities changes cause in report to update Reform XX-K or the annual within could and from Litigation materially Exchange U.S. are The may conference with them the by to Securities Private new most recent forward-looking strategy. reflect

the some most financial in comments of this of during call measures refer release, financial may earnings Additionally, our presentation. to GAAP Reconciliation measures. to slide made may the financial U.S. directly non-GAAP found comparable conference measures the non-GAAP be and supplement

growth event hosting September investor Dan, and global to Friday, for in an extend our management an two Tokyo, morning want events. over I retirement Before asset I the We're to Asia. strategies highlighting call turn invitation to Japan, opportunities XX, upcoming and of in the

New held on York will Day City. November Thursday, Investor be XX XXXX in Our

accelerated expected in discuss future our on as as our businesses. and impacts the Our digital details in businesses leadership team investments well to opportunities will our

to details follow. Dan? Additional

Daniel Houston

on the earnings, X results In to capital of details position follow earnings second everyone our This non-GAAP operating growth. increase million financial deployment. $XXX performance and This some highlights for welcome of I'll first call. the through and us of on will compared up delivered accomplishments XXXX. months. Thanks, an John, operating million non-GAAP $XXX with bringing that morning, was quarter, share half to we to X% continued the and Deanna

we're from U.S. and underlying tax our transaction While including growth with our muted in items, of our acquisitions. has digital growth and variable been business macroeconomic several the unfavorable benefiting investment by businesses strategies, accelerated and year-to-date reform, lower investment conditions costs integration recent associated income,

leadership on of business billion $XX be dollar. Most U.S. reduced recent against to real overall, or been of assets year businesses performance. dampened $XX As in the demonstrate AUM $XXX and and with reported or retirement America our X% I half help and strong effect growth foreign expense basis, the also of in strategy billion and long-term AUM fundamentals, XX-month to our Latin strength to by rates exchange non-GAAP balanced in weakening billion, to the On year discipline global investments and we first period, savings protection U.S., demonstrating ago, is and AUM, continue Brazilian shareholder in management, asset by Compared The management. under by driven and and the reflect success. the the of has a Asia continue and billion. $X.X savings, importantly, up primarily during capital. to long-term people our retirement customer-focused execute group benefits continued we a stewards operating good financial security solutions-oriented exceeded earnings trailing achieve market

of opportunity a XX by strong in $XX months magnitude over billion of value underscores AUM included trailing relationship growth This our In our reported with addition, we've which $XXX increased the XX% China the the Construction billion. joint venture Bank. long-term in record the to the in not in China, is China or and AUM,

AUM multiple Our our asset integration investor the our And received franchise quarter, investor growth, earnings diversification including foundation Kong, recognized type, India, it by the the winning highlights and businesses. solid We China, best their Ant Management for of strong revenue geography management across awards in fund Asset and Indonesia and future and CCB-Principal recognition asset award. Hong Financial, provides a class by during again content education was best and Malaysia.

AUM median also performance had actively investment rating. and as for Slide one-year above for and the trusts median performance. XX% collective XX% X, the or At managed funds, XX% for X-star the investment of funds, to XX% accounts very the midyear, performance. performance, deliver for above separate funds, X-year And were above shown a the median We strong on continue Morningstar-rated mutual X- of exchange-traded Principal fund-level three-year the the

Moving bringing both quarter for net in and on delivered rebound. sales billion sequential RIS cash of pleased fee flows strong second in to billion $X.X of to relative for the billion at we quarter quarter, in retention total Brazil. softness XXth second X cash net positive in PI quarter, company its $X.X positive flow cash flows consecutive $X.X the segment. despite months with the and the and were delivered billion spread, the through $X.X second $X.X X flow months net billion

XX% reported $XX not continued billion remain to were in second six on well uncertainty. meaningful through We we in economic landscape current the which the As confident and changes capture down and quarter leading in term, through continued Brazil savings But pension ongoing at in the in as and to the optimistic reflecting flows. Brazil as across and market market months. about industry ability our strong $XX from political billion flow, context, be joint pension long venture's investment to cash Flows deposits anticipate Brazil's in China, share. May, venture net our are nearly joint pressure

our I'll seen new quarters. not lower compete we credit experiencing risk heavily product we assets we'll our second estate rates. passive wealth several demand active help and under outcomes-based during be on fund America, clients recent options creating we've revenue to This solutions. to first of key complement in the options on funds share Global more Latin In and as with active $X.X demand terms that perspective, platform investments smaller further, but demand, wealth, had development to inflation. industry, and we response retail In strong include retail Consistent investment strategies. real other become even quarters, and tend with and does be assets for with institutional focused mutual risk now That increasing pure From responding other income mandates with international net the of against billion retail PGI's second investment institutional lower-cost in Investors, income-generating alternative our higher quarter and and at cash flow remain continue in In emerging our In the cash launched result build investment-grade investments capabilities execution to by negative platform. the sourced diversify, institutional the pressure creation; interest for some CIT generate been address multi-asset ETF highlights, starting now terms quarter, an and growing solutions, of see of described capitalize flow Asia X however, distribution to cost net call. we Principal in and has our the build-out said, $X and platforms, billion downside quarter. strong pronounced. to markets protect for income, these investment to strategies and

investment ETF global across to capabilities We continue needs fund borders, the delivering mutual our clients. and to make platforms our of local progress leveraging meet

we the during We rank suite League on our Active also the midyear, of platform. adding launched billion the Principal AUM Investment XXth ETF ETF of Tables. solutions our quarter, At at on Grade income-oriented Corporate $X.X U.S. now to

a CMBS the MUFG launch into quarter, Bank providing a on primary securitizing lending with loan deals, and as them acting a Union loans partnership focused During Principal to we servicer in warehouse line entered MUFG originating and funding. platform with

as favorably us or significant closed recent efficient expand majority a Asia client May, manages investment RobustWealth stake to a our the for platform, to transaction also key known communities. end of a our an investment Europe, and ownership Turning Real jurisdictions across culmination digital closed offer a RobustWealth, real estate The consultant capabilities. in real acquisition late of joint This solutions Principal investment $XX advice Estate plans of Internos, In July. in our billion relationship client a key our and class. to XX-month received has both increased on Southeast in for mid-April. than ventures transaction the including CIMB expanding globally. in tools This Principal brings allow been major May, will we acquisitions enhancing today goal-based early We European transaction investment European more now our and and assets by and development the sub-advises is closed estate with leadership acquisition the digital XX%. capabilities. of asset acquire solutions we to announced suite and advisors, at onboarding. that adding of the Also,

we solutions account advisors, and look personalized number for Principal allocation forward enhance serve to continue to participants managed points leverage additional to rollover sales solution our and to products. existing advance offering to platform we serving action needing to our of sharing solutions protection and reduce addition of as for asset suite investment an customers and delivery that avenue enhance IRA ways plan RobustWealth model digital In investment product our technology-enabled a a barriers the the pain details eliminate more and and innovative with in We former better more advisors. plan to to as retirement digital across and

distribution. to Moving

during getting a with continue approach. multichannel, third-party on We total quarter, across different more classes. multiproduct asset dozen platforms XX earned funds placements different to dozen than our success two We advance the

joint may you China funds selected was mutual of CCB-Principal XXXX, offer our the Management, Financial recall, Construction on Asset to platform. with venture June in Bank, As Ant

in As more than on had we and midyear, $X investors million X billion AUM platform. this of

platform platform development important to the in offer another quarter. was CCB-Principal on funds selected Asset this Tencent As China, mutual Management

operating meaningful become over currently revenue impact earnings and them from platforms time. expect the While these we the is to modest, more

to Importantly, combined, joint venture exposure our of millions users. these provide platforms

Deanna want While this through say how to cover also capital am detail, deployment will midyear. I more I in with our pleased

stock to organic investment solutions, share and accelerated buybacks million and our digital our we to and to common investment ongoing addition in growth dividends acquisitions. $XXX million through in In returned committed $XXX investors business

Before Principal be Best successful one recognition Forbes of fourth for us the spot diversity, quarter. to employers, commitment closing, we'll of on about and recognized. the speaks best top inclusion commitment Along companies and we first Forbes with large XXX And list of pieces our first-ever this the ranking for behavior, reflecting our week, In out America's Magazine May, earned recognition I'll share volumes X long as Women, named to advancement. Employers culture of ethical women's equality, this flexibility America's term. and for our quarter earlier why

Despite clients translate was into period Second the helping for the success. I shareholders customers to us continued that quarter Deanna? for XXXX of value our achieve and some in to each continue look of of pressures, momentum and to macroeconomic build a for our momentum half progress, long-term and second on financial stakeholders.

Deanna Strable

Year-over-year was realized capital a Thanks, reflecting a but investment and stake second sale the benefits our had the the Dan. growth our to by million, call. quarter. $X.XX X% This results, in gains quarter $XX participating thanks net recapitalize. administration technology prior million We in our second million reform. provide second $XXX contributors Principal minority earnings for opportunity I'll I'll and on for benefited expand attributable Non-GAAP was of volatile company morning, from Today, per after-tax in underlying deployment. earnings conditions our investment quarter was looking and $XXX to tax included the a as or to million of update from business increase over digital Net and quarter macroeconomic strong on to Good $XXX share, income capital financial were provider. XXXX. monetize year diluted an and an suppressed accelerated discuss fundamentals key operating gains

was quarter, second previously tax guided expect operating XX% year within excluding was the a other basis our to earnings range foreign XX.X% currency the effective non-GAAP to adjustment, to than second AOCI reported be on quarter. XX.X% we for continue of Our XX%. and ROE, the translation rate for full

$X partially earnings significant XX.X%, with non-GAAP X the quarter that in ROE total first Excluding operating of We negatively costs included included $X million This by investment million International review, the units $X encaje the the business Impacts we was had million. Benefits. million the returns XXXX communicated of second integration impacted had RIS-Spread in to Specialty higher first lower-than-expected $X prepayment of were from $XX million by the impact million quarter. RIS-Fee, our $X million Lower in on than Impacts was line Afore call. variances range real fees returns Mexico a during offset reported and of million and alternatives. variable lower-than-expected $X pretax from acquisition. estate performance and $X quarter Principal million income. lower from in actuarial to $XX

company both a Excluding total basis X% periods, non-GAAP the nearly significant ago quarter. variances X% on after-tax in pretax and an earnings operating on basis over year increased

accelerated volatility. investments point-to-point a business impacted communicated details call. to in growth, volatility a strong lives the made weakening at increased we first macroeconomic certain at in quarter, investments the from strategy, and volatile decline equity deferral on double-digit ago, mixed and year we outlook very equity the Our rates our the to in And currencies International impacted our to quarter-to-quarter. created in year's additional well continue XXX expand strong results inflation years businesses the the as quarter increased as XX-month basis, Macroeconomic of stronger on cause cases, performance, Investor remain X% million and by We Brazil, conditions we on XX-month In benefits, of markets This headwind into demonstrate prospects look our the $X retirement. Fluctuations their emerging small- we Principal businesses. were XXX earnings. U.S. metric covered or owners and strategy interest And When increased trailing a daily knew negatively came impact when in S&P and recurring growth noise period it global for at business in despite our group about dollar, transition XXXX, that to positive a on quarter. increase XXXX. This basis, rates both save XX during digital provide currency, over Day employment plan for uncertainty on is execute market negatively primarily fee-based a markets, in attractive growth XX% XX. medium-sized remains impact We'll growth, has our provide in average. in our decision but with the protect RIS-Fee, businesses and to S&P including foreign second can compared digital premiums U.S. a a against countries. track political X.X%. to our fundamentals. last the line strategic additional net X% confident continued on market with pretax during growth November even upcoming this In group quarter in help to Despite business, and target during a prior deposits matches. products operating and trailing We record with ownership existing reflecting employer these

reflection the are market underlying employment business XX% Life quarter, our Individual businesses. increased in of participant represented Positive Our contributing another strength sales and business confidence across total and small- year medium-sized a strong the sales owners. of U.S. trends to to ago of from growth and increasing

the metrics on trailing million variable basis caused compared significant businesses. trailing time. important the income were tends over within don't trailing to the the a periods even guided by at ago variances second as the longer revenue and basis Life of Benefits it to XX-month exclude quarter $XX quarter. typically annual variable to Individual when investment investment a lower to that XXXX key margins of income excluding On in looking Turning We for drivers year out XX-month assumption and XXXX note all It's PGI, the are the and for Specialty ranges. growth the impacts XX-month review,

the certainly XX-month pretax and in However, is this current operating earnings variance Solutions. Insurance growth trailing rates and revenue impacting RIS U.S.

spread ranges, margins income well ranges. were net RIS-Spread. compression in as is RIS-Fee and guided below growth RIS-Spread variable both as both the to While guided investment in businesses in within was revenue due This our lower

factors. foreign of quarter, significant guided to pretax Principal exclude revenue in revenue Corporate impacts the business Investors, earnings due of net growth combined performance, was translation. PI's our I'll on line, the Pretax comments RIS-Fee, impact for the unit International's Global in comparisons. range, or pretax for and my our encaje results from called review return on net Principal guided variances Individual macroeconomic currency were line In remains the assumption were my in primarily operating all for following range. we've the periods headwinds and expectations with Specialty out also Excluding earnings Principal below Life our both Benefits, within second quarter. annual in operating excluding exceeded International's

As earnings slightly expectations. million below Slide operating pretax were our $XX shown on X, RIS-Spread of

While the risk the and transfer sales fixed in of we sales issuance first annuity MTN have $X.X had half the billion in year. of quarter, light been pension

businesses $X.X We Lower-than-expected income of disciplined guided XXXX as the expect throughout be XXXX of at/or meet year cause level pension year sales low continue an the is below pricing. remain transfer sales our opportunistic exceed or the to will sales said, risk net in well anticipated full these believe and year second half of timing to and in as revenue view growth That billion. of RIS-Spread sales in our end to as full variable year we and the increase range. investment the

$XX to Slide brings increased share on including quarter, PGI Moving We of million ownership common $XXX announced a on in and to deployed in capital XX. capital $XXX deployment million capital dividends, This million. million in our year-to-date million $XXX during deployment M&A repurchases, $XXX second the stock boutique.

range. full million deployment high $X.X of the end be will expect at year billion to We $XXX our

Last year a first stock our all in of quarter dividend $X.XX the night, increase as payable currently consecutive repurchases share $XXX the XXXX much we we XXXX. almost options, twice and the in a million increase prior the as the $X.XX from third The we was find dividend. increase half share announced compelling This deployment capital to dividend quarter, our through opportunity. second common the evaluate a be from XX% we in is deployed of As year repurchases XXth period. a

going We our rate over continue EPS M&A integration organic and earnings a to more important growth with the growth X And of supplementing target and estimate in acquisitions. forward, above-industry XXXX. be income net to Afore $X.XX ratio. will closed aligned additional acquisition payout We Mexico term. is XX% dividend contributed growth. the of growth has going our recently year complete than for the full We on is expected. long The better dividend

Our Asia increased returns, is Southeast CIMB to Estate to accretive joint EPS be half several contributing Principal the acquisition, as is accretion we is second $X.XX also through in our expand stake with to continue expected of Europe, venture Internos, to to of recent for RobustWealth, to dilutive produce in XXXX. expected And $X.XX the our in XXXX. our also immediate formerly most the investment be next expected earnings slightly business. in quarters Real

Given corporate. guided previously be will impact, in for organization, RobustWealth across within losses expect of the reported the will this Even range entire operating $XXX XXXX. million be we the corporate million benefits with to $XXX

the the strong capital formula our targeted above well to Our puts remains reflect RBC a in absorb change NAIC's very XXX% which of to estimated position XXX%, us reform. to risk-based tax to ratio range

We from ratio XX estimate percentage point a impact our continue XX change. to this to negative to

second We of of subsidiaries. $XXX liquidity of ended and of and excess the the start in with capital holding $XXX As the more our RBC XXXX, at in ratio available quarter over the is half it's XXX% million nearly capital $X billion company, ever than cash a second strongest million we position been. our

gives low no a XXXX financial ratio addition, debt maturities leverage flexibility. us and In until

and Operator, enter confident about we open business of position the and excited XXXX prospects the second model questions. please are We future. that as call diversified our for ongoing investments well us our remain half the for

Operator

Instructions]. [Operator

come will Goldman Sachs. with from first The question Alex Scott

Taylor Scott

acquisition, I Or sort of sort to do of planning on think making of should question we investment acceleration mean, is is about reducing of on to think investment the that acquisition? investment. about that the First amount lot is how digital related there to in the And a you I synergies RobustWealth have When the the still much of I of kind it of back with just are investment? make? that

Daniel Houston

there's our that. only Yes. with this The apart an entity investment. acquisition is previously a back look of for digital with Thanks, Dan. digital solution investment brings to really take And of on about digital allocation lot consider but acquiring is discussed words, their upside be asset for a -- technologists, of advisors bottom we work separate labeling work not background. professional an Alex. independent so lot There's staff that kinds This of to line in come their we platform That's advice. be This a I'll also of these solutions to is orientation. a and for an this nice them. done lot they from other white office,

So about the it's relative to initiatives we've other helpful? investment really our to Is that talked additive quite in six that digital.

Taylor Scott

I that is Yes, and how tax in would your And make I I retirement that's bill well think mean, and that considered question, as changes think, what could I guess, being bit a sort on you group just this business? you're it as, unrelated. XXX(k) to, can another is. impact incentives it's Congress hearing then seeing of and some any color you there there provide motivate guess, annuities.

Daniel Houston

Capitol Yes, I fair talking on an the RESA. known Retirement of had about Security Act this. better Hill have amount and a time spend as Enhancement to opportunity

And You promote actually a ahead legislation can one some the that the additional part, to comprehensive and that me would that, for be and for to most industry. say ask Nora go to let add do frequent is I find forget bill we additive with net tries this detail. positive savings. how we have retirement

Nora Everett

Sure.

of a couple So happening. there's things

July Ways XX. X.X the about heard I within Committee think, tax yes, also on Brady Means Chair released, that probably and House the last couple You days, of

that that X is attack So the take and RESA, and in -- combination speculation actually bill, there's -- together. a will Brady potentially Brady what

of proponents certainly are RESA. We

open that about address MEPs would help coverage talking gaps. You're

the in-plan annuity so to a X.X for legislation forward. is Tax some positive talking opportunity that of gap our of to business piece about very of business safe obviously of with interesting. You're point. piece legislation There's in a lot our coverage particular also moving address but both much options, your favor and model, that harbor of to

So about and call, what interesting balance perspective, individual tax-free obviously sure of called forward, is good want with at thing potentially an savings outlining, a would that this an vehicle fund account to from what a the we $X,XXX dollars make that savings incent if just savings addressing to legislation point, it's Brady continuing outline the, is withdrawals. with investment that day this And account. issue. account after-tax up moves to And universal our I is, there's new a be some long-term less restriction rainy between around and

for are coverage we addressing and favor long-term savings a the of absolutely going in So of anything proponent the certainly gap. equation to piece that's enhance that

Operator

will Humphrey question The Lee next from come & Dowling with Partners.

Humphrey Lee

Deanna. for question A

the you deployment at the probably on side end in about to about high the billion. would million second half, I you million put talked expect year-to-date, your that guided You the of If $X.X think capital $XXX of plus be another $XXX dividends range. towards

opportunities? potential repurchases should So M&A remaining think we share additional balance for how million, that and the $XXX about between

Daniel Houston

please? Deanna,

Deanna Strable

share pointed you to compelling with current amount going for added we'll Humphrey, question. approach out, thus this really balanced we've a I price. think year, Obviously, continue done to buyback, the that really, there from very deployment. Thanks, far stock have opportunity the with And and Yes. given attractive, the the capital disciplined

would say $X.X The is that is first not thing hard I billion cap. a

range X you we've over been seen X you've last other if within times that where -- we've times our been above guided guided back go range. we've years, As to and

at do continue board a look million $XXX And to remaining. in we'll here so have authorization other. them today sit to relative We opportunities, evaluate each

share will we pipeline consider those go part in So well. of as forward, be buyback as M&A we'll addition to what

the valuation on much It's position time. really opportunities. opportunistically. based specifically of capital on look share As other about mentioned, dependent at as we've on that it's very based deployment stock. And think It's we at buyback, also, our the

hard again, we'll of to that for range, our in remainder that be the above approach. at/or balanced we But feel all to continue are the so And of high good the very predict those year. somewhat and we'll of and end disciplined be

Daniel Houston

do Humphrey, a have you follow-up?

Humphrey Lee

Yes.

definitely I So the think in good RIS-Fee, story terms deposit in a prepared your remarks, there. is of recurring

You I just if and also about RIS-Fee? you can dynamics greater some greater happening a then deposits there's deferral you the wondering share talked of matching. about But can the more, talk in within recurring was that little that's

Daniel Houston

I'd Yes, do happy that. to be

Just XX%, this is reoccurring helping. you're right, XX% at in very high a deposits level, increase really

I think overall This it increases. gives is is. pay how you profit an is indication economy This just strong bonuses, the larger sharing.

additional which workers business. is color? So are for benefiting certainly some economy the do growing, very American from add positive our But Nora you to want

Nora Everett

Sure.

and in, is work some grow there So big continue them. factors the of number Dan's identified that Certainly, multiple of feeding a with. to we are factor your we are to question, plans

participants number to We with, the of of continue we work with the values. grow participants number account

you continue focus would But see you're benefit. and business. months well on piece trailing months. noise, XX-month we at X% XX trailing whether quarter-to-quarter, to where piece some going growth even over that's because trailing ESOP, that really whether macro also number the defined as is I grow XX healthy that's fundamental XX-month got the you've business have to a the So the trailing

that are wage momentum those increasing look with their of both fact around increasing accelerants the of forward, and fundamentals. with employees lot we plans, folks deferrals the we underlying of these their the number regard their participants, economics a positive to see and number growth are the So so match,

Daniel Houston

of kind Humphrey. look kind at back Just add the in deferral, what If it of was other one thing mid-X%. I'll the there, low the point of average

that coming Now difference deposits quite of percentage significant you X%. into overall it's north think these about is just And plans. when

your around to increasing savings commitment out the stats. our I retirement important and we're So it's think and is message there, it in seeing

So thanks your questions. for

Operator

from next will O'Neill. question Barnidge John with The Sandler come

John Barnidge

a fee were lower percent about XQ a 'XX, on its more and -- side XQ you then AUM level the talked flows expound I fee in it your Can in at little you're was generating bit highest seen in that's coming maybe bit quite PGI outflows as seeing happening. from little assets And about know length you've generating. since seems fee level new so outlook were for of and a PGI flows? fees from how a higher like about lot some the of in what 'XX

Daniel Houston

Yes.

great question. John. to I'll accordingly, a to respond look it's just So Jim

James McCaughan

Yes. Thank you, John.

we talked estate; out the pipeline, although in pipeline still and see but equity, markets, terms we've small high assets. the in often about moment emerging will the past, In out-of-favor institutions buy yield; specialties are debt of whether the both lot in at a the it's favor of those of assets real because cap;

in in not the what the decoupling growing almost very other doing products, of revenues. revenues. between therefore, And nothing, seek our our other inflows is higher creeping describe that's very I'd up clients much for maybe industry it and that end as much We're We're so words, really big points basis the a our about for flows at have Firms fees return. it and your explanation added-value it. So which pipeline seeing over time. of point

said maybe on better that was way. that growth said continue flows revenues to I think I It may all signs there we're year are the Having revenue patch the for more much bit flows. about our a I near And A have at a here. so I call, of has ago, the worked but equivalent than grow. that, future was about suffered, confident out

$X.X the institutional well point would distribution, I which XX% reflects in number we've specialty first think global build enhancements first up were billion, we've made is to the That First global performing year the we the distribution. -- and with institutional capabilities sales is on And before. where point in our aligned the strong I made have. half that's and

in around positive the So I sales. institutional, feel pretty

clients, fixed causing, was performance Of months. a margin outflows Columbus the There increased that course, at there started as at the the there Circle. were were funds know, Japanese European of There you cost were term. last that And withdraw. issues two particularly to the for XX hedging ago over was for reasons years and were

of better You XXXX. I over flows. still be sort and come hopeful the to in some but worst see in I we'll extent, of the earlier we'll growing strongly. first appears a those do our that expect since week, those be and position by to much Columbus time on spent impacts performance be some very The Circle, I'm high around has this level there last

mid-cap if we was I our and for a we XX say the outflow had is that the as think our of important result million. some soft been low. products wanted. did confident bringing And obviously pretty I other SMid institutional about an attractive second a I job retail, a fiduciary, stream close only all income That it was doing very can have I'm strategies. the $XXX good have up did, on slower funds a flows up, those the bit improve. So capacity attractive is quarter, On customers. where on and to soft a something to which continue existing on close our Act that than We of picking conserve well-recognized we on good flows add retail products

bit most really answer work our performances the pipeline to and a We lot confident us think to of try with. I was the we're the sum could the strategies strong of But is this But give up, So do of factors it are the we're efforts control good seeing. our in pretty quarter that believe somewhat lumpy. some team. there by representative that make beyond flows a

Daniel Houston

a John, do follow-up? have you

John Barnidge

question. that with time enough taken I've

Operator

Bhullar come Jimmy with next The will JPMorgan. question from

Jamminder Bhullar

First, give mandates mandates those Japan associated that with just if And you the what any on Jim us update PGI could the be are? flows. and on think assets might -- mandates had at risk a question for any you

Daniel Houston

please? Jim, Sure.

James McCaughan

Yes.

still cover We're make will in whether It heightened Japan Japanese on and being talked And gone risk On of to that that's the the ways about I a the XX basis risk, to the risk from gone. the positive That is want wouldn't client there for well grade, call risk hedging. mandate because manage at mandate is last or basis quarter's though money. our client very hedging as strong. economic a spread. at investment increased next other Japan to as negative, working not has we remains be when judgment relationship mandate at the has cost points. costs. not flows an reasons, points The clients over when enough to hedging at but to XXX started with of different from it's cost perhaps you're

Jamminder Bhullar

And to $X what's that? with in associated billion mentioned I the something that range or amount $X think you had billion before? maybe

James McCaughan

piece is billion. The Yes. $X investment-grade hedge remaining

Jamminder Bhullar

talk is needs pension about sort It improve? happen then for like the if of Luis And he there, the in And entire is just there. troubling Brazil. to if to could seems environment industry that Okay. what

Daniel Houston

of identify I quick comment Luis as a you gets long Europe comments that, emerging we've lot time. into Just Jimmy. We a to want had a my for markets that business. -- in place around conversations prepared before a do mentioned

a the in more accept that to politically is which, although policies. in say place, course, backdrop lot the hesitantly here have of conditions You volatile, of some of I one typically and that with of are the U.S. our somewhat

that to specifically. rough this couldn't the confident Secondly very more under and with be currency, Luis for his it's answer just team whether identifying category. certainly to Brazil through think it measure ability just in. falls the about Luis to markets importantly, economic output. measuring management you're the their question that economic Brazil. job I feel outstanding over an to us in your you're volatility manage more turn perhaps in done patch I'll But I But team's that, local and right have markets, way

Luis Valdés

cash a Dan. Jimmy, had, the And is let the their down its in of that the effectively TTM or AUM. year-to-date. we X% that $X.X has over and also, very a a generated Thanks, which that Brazil of behind Brazil optimistic we of deposit has because start is a that basis, commendable downturn me quarter industry second recovery. decrease economic Okay. certainly in economic has me slowed think Brasilprev us that, that, Despite period let With seen flows remain speed entire the net say first saying that -- industry XX% billion have, customer today. we on pension beginning of a bump

we performing extremely well. So continue

today of which million remember years that We we XX% that if ago, net there, you're more were plenty probably at that first of total that is supplement, #XX pretty that withdrawals, -- its softness that's flows, the It's is have Certainly, share, customer flows customer have market And of industry. in see net driving even commendable. deposits we looking our we positive X economy cash you very of very to flows they really the than second very a commendable mover. have quarter, Brazil having XX% will bit hiccup will little our we do in conveyors net performed have new evolution that's $XXX so that down of aggressive. Page the and You customer our more so the as cash I of much having were our stable. say in sort in a well. very for cash

very strong very we strategy, there. a have company So and do resilient great certainly, a business, a

Jamminder Bhullar

group the on question business. benefits a Just

and, competitors' consistently I better results think, have well. there than expected generally been better than results Your overall, as

business is more then or for than feel is what And outlook also, now months a have on year especially maybe helping X So you, that the it little the would is ago? been margin your upbeat you a side?

Daniel Houston

might say what Amy actual it's leadership. is. Amy? about all we'll But see suspect her answer I

Amy Friedrich

Sure, thanks for the question.

better the way give question is you commitment this. just like deep the into results we ago guess, what made dig is years when really small- we some market, results you to the I expected. business think to medium-sized asked been than expected into And that I of insight I'd kind the the have

is hands lives advisors XX you provide that business that owners to, I very So products Small what value this our And that lives the be like making, really are strongly make that people we who to business sometimes larger market serve in. pay then these in the of great would case small behind it, the we're XX business price reward dental means run pressures simply they don't some and our piece we've the we've it with products, lives sitting have the say in loyalty. put building have do XX things and tools you of we things feel or the marketplace. case and in market that and again, and of one the this to of dental or into present investments that off. the headlines. who great technology that business we've investments market been when right pieces is you But the help. need with -- the of They aren't great benefits And started with network, vision or employer in XXX brokers

outlook on certainly an very good outlook, feel marketplace, about in good more that you'll is feel from we annual position on appropriate. still hear to and this So basis, business, that. given the us we so competitive on that We extent our revisit our that we've you and

Operator

Bass Research. is Autonomous next The Erik with question from

Erik Bass

just I be more outside some business little exposed are of how dynamics Brazil. international and countries? in the the or other most markets? kind might in about speak was of And macro are underlying the a to markets seeing political Luis seeing disruption you where you to are noise, we hoping of able actually bit And see broadly just as which emerging growth

Daniel Houston

appreciate good a and It's question, Erik, that. I

issues our I Asia lot and that, I'll our it Just officials believe actually that standing turn it we, of in know, very last I don't Construction an or rhetoric of Luis. friends But of visiting you with in we're a continue you that week explore at lot advancing in America And our is as was of are China terms comment. which trade, a in relationships tell those I way of about of hearing to of and, in of would matter. open spite for Latin government a close MOU course, discussion, a quick Southeast we that topic Bank, over expanding as that just that the have with to relationship. senior China

Luis Valdés

in you Okay. let Thanks, that our a me And for have order markets. help is picture in giving Erik, a question. to going your about fact countries to you emerging start probably better

volatility the relationship has the its been you're for our and correlation if almost what aside currency, currencies, euro all If looking with and you're putting is Brazil X. the and

the thing So the Malaysian ringgit and for market. FX looking related peso, if global emerging is theme. it's or with at in X. to the It's the volatility, not correlation just particular, you're almost Chilean Even the a

So it's very, very correlated.

additional better we So global some in that under at number discussion. had the and years, are how to much our looking has kind geopolitical we shape years evolved two, and some and in three one. have portfolio volatility ago. Number we're certainly, issues last than if X you're portfolio that's X of our were But

less to to than have. a countries portfolio and used more exposed like So balanced have we we Brazil, we're much

at looking TTM, flows cash $X.X ago. billion our generated net have we XX cash year in customer flows, in portfolio the last of months, $X.X customer you're terms in If billion a from net

our And a our in customer in you're increase very in is period. subsidiaries cash to supplement, last from So Asia. flows of net that net a cash TTM are the coming important if the customer looking that XX% flows part

that more we're say prepared forward. much would order So said particular having of I any that, well volatility, going very terms in situation to weather in

is well Our diversified. much more portfolio

country has confident. Brazil. is the been the outlier going I we We're said before, volatility well diversified forward. earnings. being more much In and to that remain going have is operating as some production But Our particular,

very October going interesting facing to are presidential to are We attention to because be August presidential month to a be the candidates defined. X. elections going on pay is

more come, to So Erik.

Daniel Houston

have follow-up? a you did Erik,

Erik Bass

Yes.

the follow-up institutional a for Jim pipeline. Just on

income asset other some funding a is some core comments mandates from of high around rates spreads, been heard yield. or slowdown in like particularly the moves And we've things managers institutional fixed that there's given and in interest

that's all. if that at a you're seeing curious dynamic Just

Daniel Houston

Jim? color, some have You

James McCaughan

Yes. Not really, Erik.

and That If we're a the there function were later. of you've changed they some specialty of lot. them months at see the the you institutional classes great that say, I money don't fund, That news, always can may XX really got be of are happen. asset in. mandates, some a But funds look

excuse So that's wouldn't an I make.

Operator

will come Ryan question Krueger next The from with KBW.

Ryan Krueger

a Dan. Maybe follow-up,

I about, You've of timing guess, And guess, what should that we progress how thoughts a about potential the new the on then China does put your potentially happen, that think capital you'd comment are made I into if structure? happening? that MOU. on that

Daniel Houston

Yes.

good So question.

know, things, coming lot very There's share. The take difficult to decisions, to as a first have including minority regulators, in people that would I predict. these when foreign buyer you you say thing is to have make of a are a

manage as of we next in to to of resolution. have a very you We Construction the who the bring the technology, that retirement assets. within we sort dialogue same ultimately that purchasing at that months, would already company those MOU, healthy exploring China have had existing to know, sometime very that bank. company these of think owned table. expertise with is We've of the the the use underway The most levels capabilities our X subsidiary healthy already in an by can government the X and is senior approve our a dialogues the But We've officials conversations appropriate like of piece bring Bank. also had can terms had I'd to

In minority terms would in that more an number. at be details point quantified that's manageable become a those been have of has time. we'll We completely as item not But look It's to to magnitude capital, clear, sort access don't our stake. this And market. a being as it you. again, the retirement with those -- in at share and a a gain of disruptive sure as number I of sheet balance a

that profits a little goes the time of do find generating built flying we Jim businesses road. buy and once as the will it over you years, doesn't bit is that first In other which and -- like terms on happen Luis its all down but years, the these strong impact, have of in, it's couple

want again, about doing can so So feel upside of We of be there. and to good getting there. our the we see economic chances

Ryan Krueger

anticipate then due, changing That's comes impact the tax once the RBC great. ratio, on target? XXX% to you And reform do XXX% your

Daniel Houston

Yes.

me Let to Deanna make there. comment a ask quick

Deanna Strable

feel strong we is something mentioned here, very What before, to feel to still to a going to that That's a I about. question. I've our have and good probably change Ryan, continue in really we position level say relative and risk-based that would at capital that absorb ability it Yes. evaluate. we're a good

then target. range. do good I'm And slightly our continue industry, the to be obviously be and sitting we risk-based just watch to targeted have And reaction and our percentage agency will target when you is today We've X that XXX% confident here what to going react the below remains estimated competitors above XX that we'll evaluate XXX% rating those range So we're a a put forward. watch our whether capital current to at/or together, impact still points. about will

Operator

come will question from John with Nadel next UBS. The

John Nadel

variable that I a guess, much target. I basis quite XX-month was that investment below didn't income on realize trailing your

$XX you think mentioned I million. had

just that $XX elevated. that months, lower Although prior don't was the XX be know I which if may million trailing than

normalized So level? what can appear it's you that how do just is affecting revenue It to level? does a give that normalized sense, Like comps. things us a compare

Daniel Houston

Deanna? Yes. Thanks, John.

Deanna Strable

Yes. heard that referred I impacts period. It's you on The XX. million $XX in out earlier really is we current pretty my trailing or not to we fact called that the comparing positive what that in prepared today month remarks the the had shortfall the trailing prior

to between a just we've And income. X our we certain into going delta variable the -- that into a of predict. embedded that the investment so is and amount year, million. about hard is go of obviously, How guidance some And is portion a $XX

is lumpy both to out the quarter and in of when is trailing quarter-to-quarter, we've I'd saw some different a of it some XX-month what that negative period. given good prepays some and it that we the so calling that And expected. than period, we end, positives out in consistent be the the hard plus what saw quarter, end on current is call the we'll predict, say during we'll

real just if I'd prepays much lumpy some difficult estate. quarter-to-quarter. been say more real look saw estate at and benefits from has have become the quarters, also good more recent We you

And that on so bit you gives hopefully, color again, of little a that.

to some into mentioned, do can offline. and we that have quarter-to-quarter. But impacts want growth more on it OE does, detail, you reported you -- the revenue go If as OE

John Nadel

of this rate XQ, on recognize I for then from did any current And shift, in performance Okay, jump. there but is the Global. you've -- really of of the year, approach Was to a Principal Barnidge quarter, while significant that's barbell sort period seems fee in it coming single follow-up through fees? in impact terms with Jim very I'm it saying time. what pretty a been Because on helpful. John in a the just And the

Daniel Houston

Yes. Yes, please, go Jim, ahead.

James McCaughan

that, to quantify totaled Typically, through performance quarter X/X performance $X.X in the second of come fees million. John, X/X To to profits. fees

lower The but very some So performance good years, know, earlier a there really boost the XXXX. been fees a the of performance and XXXX, large in in had We half estate of as comment than one. real in fees. not I'd was make on on XXXX the have previous performance fees XXXX couple years harvesting much X you first is, of

that hope contributor material But every give going interest you lower exact last think is of absolute of I be reason I little long quantification show as somewhere to that, helpful prospects I the constrained think if the -- low of investments results. hope I be The years. long to and performance way the meager said going having by the and we will know, return our years between average term, be experience fees it'll rates. heightened two you not relatively the previous a And performance of it's to they're a to in term, even quarter rather experience say fees. the be you the are X.X

Operator

The final Citi. question with is from Suneet Kamath

Suneet Kamath

mean, than down. fee ways looks it, the know competitive at business may ask to when I your I be view we Just like and we rate, the environment. different come it externally. the look on calculate internal to RIS-Fee And seeing want to continues calculate we're what different that and there's

competition side the little was momentum could in bit or wondering been you're small fees AUM based headcount if market? you what on on any just comment of I the And there charging as seeing terms has in of So opposed the case your on to a side. on fee progress

Daniel Houston

same unique revenue as something at we've also actually a I of remember. is a competitive open can Nora flows. the go disproportionate pressure and I larger years that got organization Suneet, different towards more said to kind right fortunate that always medium of But are assets to job her have the large, a a as a macro fact having have this. jump if this mix And needs same the and in good sales level, good long let of for has that, I'll between the here just at about of is while of time, the in time, all over migrate really and bit proprietary and meeting which team as been think been percentage different investments there and generate investment making a into the options. architecture, the done space we Nora marketplace, quite We margins, the to the maintaining But could, We've all huge Sure, there. business. at really small,

do Nora, want please? add and go that, So to you to

Nora Everett

Sure.

before. look It's it to trend. going you're average as talked fee this And trend you if industry this million. expected, the at value income. all lower actually the growth. about longstanding see you revenue to X%, our X% But relate gap up growth value to talked even revenue by masked -- this revenue is account and going up we've a and this to that investment see, look bit we look Suneet, we've are and We tend as So at and quarter, quarter-over-quarter, growth, as between well, little a gap. it X%, growth before. is about actually between industry average account that up see We And $XX.X going was that an net and is that

be to more. it's Sometimes going

product you're see competitive but years. you're is quarter-over-quarter, But been mix not point, Sometimes -- we view. take competitive the in you're to that It's pricing, to it's And investment to you certainly, going lineup a only be and gap. going are changes. things Dan's gap, so changes, less. many has many, going within to all noisy going There to that mentioned captured for see longer-term it see

is that of all So captured.

no target CIT hybrid, very active date through that that in platform suite, successful investment combination ability very certainly, significant suite. growth, how with share to is participant is very, move growth, news refocus that new fundamental oftentimes still there our regard that value like growth, underlying we So success that account that here. plan to in Today, retirement and successful. more just on important our have, especially winning just What growth we I our fair this of around makes and very as passive

his resonate share. an team my of doing the combination our perspective and to that are we So perspective continues team fair than and Jim to and work asset from doing win a in the market, from management that service is continue more and distribution

Daniel Houston

Suneet, a Nora. did Thanks, follow-up? you have quick real

Suneet Kamath

Yes.

wanted PRT. quickly up follow Just to on

hearing been some companies competitive. have from We getting more that maybe there pricing other is

the of to back sounds you're sense you're of like the year. Just growth get what half It optimistic seeing. a want on about

Daniel Houston

of a And smaller as Yes. risk fact the is spectrum. spot good being I'll of disciplined go been to sweet for the to time how just view It quickly. maybe a question. transfer play business. has very the about for tend optimistic. we we're is end business pension of the We because us here, time. one at at the long And medium-sized this out take matter this the a very We We're real

Although we half just all light year And of in up things the worry half second it. our them. the again, strategy. one little the anticipate first core that's about, of It's the to bit was of like making I We not here, a it of frankly year.

So thank Suneet. you for the questions,

Operator

Q&A. reached your Mr. We please. end of comments, the have Houston, our closing

Daniel Houston

Yes.

first half my -- start very our a the the quarter from a are good quick to brief it that good is a to observations and here, year. Just very the was of perspective, be and following,

taken deployment. approach capital a We with very balanced have

made frame business. Deanna the feel want this Also, continue are good to we and which we're heard they that invest specifically in to have about. to acquisitions accretive, You we that I going reemphasize,

emerging job long-term we investments. there, volatile. a where going to to very Jim But nice value, need lot I be really make for a shareholder here did the covering the shareholders. For we And fact there's By markets. that of nature, to Luis be their upside -- must they're those and and thought continue growth

investor New reminder to on again XX you in the September in an conversation, meeting John a shared we as Just to City. are the in November at have also us have Tokyo what to join had going beginning of XX. and York love We'd

for and again, So your you. the company, on here look thank you next interest in few the forward to road in months. you seeing Thank the

Operator

the beginning you replay available the call the until call. number be international is Thank callers. X to day, replay Time today's will XXXXXXX XXX-XXX-XXXX dial for callers is August This Canadian approximately participating end of X, in for The access for U.S. p.m. and for code Eastern XXX-XXX-XXXX conference or at replay. XXXX.

You may disconnect. now

Principal Financial (PFG) 27 Jul 182018 Q2 Earnings call transcript