PFG - Earnings call transcript Q3 2018 | Principal Financial Group, Inc.

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Operator

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

John Egan

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

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

actuarial this line and We've assumption X annual as assumption earnings, the With review review as variances of in of quarter well earnings the excluding comparison actuarial significant additional income quarter, variances. the call impacts a other presentation. statement significant entered the third operating item slides included we've XXXX

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

Dunbar's him to we President Tim first role as While call, in Global new this welcome Asset Management. of certainly want his is not

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

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

Day XX New invitation extend I Dan, of York City. Thursday, to to November over to in call the afternoon turn our Investor XXXX the I an on Before want

strategies. a highlight our Our investment future deeper digital and opportunities provide across leadership into our team accelerated dive and businesses will

will held XXXX on our call outlook Dan? X. Additionally, December be

Daniel Houston

provide additional success. I'll highlights deployment. will variances details key the significant capital Thanks, This results, including helping security achieve financial and welcome. accomplishments John, financial and Then, customers our and in performance and during share and Deanna morning, clients quarter on

we million third non-GAAP the $XXX operating quarter, of For reported earnings.

will the the XX-month were X% Excluding fee Deanna and trailing accelerated year the Solutions. results U.S. On current year net reform. the that earnings over X% quarter. ongoing of Insurance the of ago, drove discipline retention reported tax in a strong a solid XX-month including billion operating double-digit continued sales increase U.S. the pretax ago non-GAAP discipline in Strong increased significant highlight revenue non-GAAP million, variances basis, increase performance trailing operating $XXX in benefit and outstanding the expense operating quarter, compared a I'd $X.X discuss, to growth, a from reflecting like earnings of performance to and period. the earnings

to advancing small- medium-sized our Beyond investment role remain has strategy results, recent franchise. a growing has fundamentals in critical segment strong in and intact. our strategies our these business opportunities industry our foreign and currency muted Though accelerated by unfavorable translation, digital overall and growth this been

$XX to With to differentiate term. quarter assets confident deliver I'm business pressure, long While at over we're combat the taking these particularly we're end, position to compared billion management we've under year ago. growth Principal a to above-market $XXX the by increased or continue billion X% face our retirement pressures, in asset steps business, and continuing U.S. the management to fee appropriate increasing marketplace in to to

and compared year from positive the but to months Total team real Principal effect within a XX the ago period. a Excluding XX $X the cash Investors XX-month and with the reported previously or XX% beginning net would flows cash net over positive of $XX $X.X cash of X% $XX trailing trailing be traction in the announced and period. rates, net net the billion the exchange mind, realignment billion ago estate flow of ago. risk is up down billion investment flow. This reflects Global Kong AUM cash the transfer Retirement nearly positive cash for company Southeast a international of was generated net of AUM and these cash trailing deposits modestly our pension nearly net on of respectively, also Solutions year over compared flow businesses basis, and RIS-Fee. trailing $X retention XX% outflows Combined, and XX the over quarter, XX in flow operations billion sales a flow, to not generated over and of increase meaningful months China in net soft reoccurring trailing Despite over positive have the the a annuity Hong Income within strong with prior third fixed $X.X months. net year Principal We've billion the billion and months. flows of billion Keep RIS-Spread year in Asia and gained periods. China of sales trailing improved cash positive in generated quarter XX strong $XX included months.

flows third opportunity in month, discussed the industry time U.S.-China approval the anticipate than to our The more As line quarter. investor we net Tokyo declined and trade Brazil to receive through economic as in XX% to in participate tensions, event pension now in due at had last the ongoing pension longer a has deposits an uncertainty impact have China. political cash on across

to While was round The Brazilian and runoff and the we should political to Brazilian expect continue market over X situation. on the of after election equity presidential further improvement October now days in real. clarity strengthening there pressure stability X, the first from elections provide the

$X.X PGI The Over pressure. of and third under net ability billion confident Principal Banco remains isn't negative the and net Brasil our of this joint remain this an in performance issue. remain do savings Brazilian in about investment consecutive to our the good however, Investors, fourth venture we we PGI's cash the quarter, outflows With was pension market-leading our source ongoing quarter flow. news, and partner, position. optimistic market maintain long term, Global

performance XX% XX%, as Withdrawals has and of XX% Morningstar-rated a historical had consistent investment with the median rating beginning and Principal's comparable For on were deposits, separate respectively. both period remained a and And mutual X-star been X- The the periods, and have of funds, our of and collective some of to funds, as percentage XX. averages AUM September XX% X- issue created trust fund-level are Slide of AUM accounts above for our retail, have and X-year results. main as headwinds. institutional shown several or X-, factors industry X,

flow in the lowest in positive According become have over First, fourfold for increased XXXX. demand for all fee funds pronounced. lower-cost to other there $XXX from net were for more Outflows and quintile cash $XXX options continued XXXX. to nearly has Morningstar, to billion billion investment funds XXXX of

Second, interest yield-oriented for headwinds of rates higher our products. created some have

While headwinds also to to well, to for hedging currency garnered interest. these continue XXX and points. XXX perform created European with clients cost interest rates basis they've less Japanese have Higher rising

Lastly, the higher increased in also markets. interest to and equity rate has led volatility the environment uncertainty

macro we're they the retail seeing environment transition, of subside. continues volatility investing as As institutional to clients the to some wait in for cash

in pivoted offset achieved contributing issues, to clearly that withdrawals, a are resonate rising enough we sales to enough quickly rate haven't interest several there and haven't investments environment. we While

things we're is what's more is important turn the context important, to doing what around. While

Investors, to new the investment segment. asset Asset As This our also Management. as and The announced to PGI International management world, investment of clients of CEO Dunbar Principal the RobustWealth, retirement, promoted allowed Principal's accessible ability Global We've to enterprise, individual We've to around solutions integrate including from role a recent month, Tim changes better all partners us market the this President encompasses the Halter regulation, institutional to capabilities, and Principal by more expand last also was President acquisition. serving the leadership clients achieve client Operating of Global made PGI our general type digital across operations advice further reach oversight and those asset with designed with account to greater structure better closely approach capabilities position within joint Chief Pat Principal promoted around Officer focused its and management of create is investment to channel and venture share. world, solutions and make and distribution, International key work investors. and more to by to distribution serve

we doing private income, address number asset this, focus including CITs, addition, third-party investment of committed existing for distribution as as At platforms. our solutions help same allocation lower-cost against institutional capabilities products. and through investment in remain getting active to Europe, expanding diversify, to real and We're continued inflation. build ETFs vehicles, suite on the on we to LDI wealth, key of retail refreshing a intensify time, example, In risk placed our and our clients enhancing downside them generate protect well and estate models and

We're analytics our focus executing Under capabilities. high boutiques with our we're everything a of Pat's technology and realigning fresh investment Tim process a efficiency. increasing leadership, we're Additionally, and we're advance on client also preferences data to at a changes and ensure appropriately create addressing urgency. taking to and certain and sense improve in our to look greater scale alpha-generating

in at lot That execution said, results I'll ability exceptional. Day, here, and quarter, solutions. demand we changes and Investor key dozen share share overnight. about to options international won't detail starting the increasing a do more launched I'll global XX USIS. our work America and to the some platform. and Latin investment Through it. I'll to capitalize platforms, a some necessary As of new with also new our third our we on we've make remains further optimistic extremely share upcoming I'm couple asset to new than for our highlights, of a opportunity management got months, RIS see Asia. income-oriented In the in X U.S. launches we've and launched multi-asset investment responding for funds across now

education helps Principal access Milestones programs financial comprehensive retirement new resources. participants plan Our

online financial investment new through planning, goals reach stress In financial literacy, and personal addition platform employees an minimize in-depth improve to benefits assessment. helps and our

Retirement a and I customers that USIS, proposition our and is ongoing about My and in consumer including practice physical investment engagement value focused our enrollment aside, directly largest resources use on program through spoke client institutional U.S. for Principal of The ago health excited platform insurance plan many Suite, reaching attended My were They retirement and pleased Virtual rewards weeks conference best Lifestyle. goals. our and platform, clients. our financial wellness with of an Within overall, and expanded and app mobile setting financial we've capabilities our Total Coach education platform, the design. retirement advancements digital our As X with

our encouraging behaviors addition strengthening In people's daily lives, healthy we're also relationships. customer value to in and providing

distribution. to Moving

new We get continue model over recommended to third-party and XX platforms' placements quarter. during with portfolios to third added investment list our options the

nearly months, over more different different total earned XXX Over XX we've XX placements on XX than the platforms. trailing offerings

meaningful Bank. Construction gaining and increased AUM quarter, stand $X.X than AUM growth and we're continue across have China the of In and venture We out with an end. million our number and as to success of our billion clients we Asset Ant the Financial Management, both ETFs CCB-Principal our XX%, options. with for to a traction quarter of investors continues classes by asset as reaching CIT joint exceptional single more $X.X platform

an X growth meaningful points: well our While advancement to revenues of continue and earnings expense joint highlight brand. continued modest, and appropriate of and of our and will to effect platform strategy grow our exposure I'm currently is solutions-oriented as confident to the in of the closing, investments as balance I'd venture from strong provide users. capital between it shareholder discipline, like In execution our millions customer-focused, continue to

we have to position position Principal a change a challenges, our go drive also success. forward for with the throughout strength of long-term Deanna? but to and organization from We willingness

Deanna Strable

in currency XX%, strong business share, Today, quarter net capital including was earnings and PGI, the and foreign participating driven fee, benefits partially a or in call. fundamentals morning, earnings benefited underlying million for diluted our strategies. our with accelerated respectively, financial favorable by of immaterial digital realized prior were losses from quarter non-GAAP year update the record XX% third quarter. performance rates Reported for $XXX million quarter These deployment. results thanks volatile Net attributable estate Good in and an an $XXX earnings were real to increase our and accelerated growth losses. equity capital $XX Dan. per on exchange and market. I'll income on credit third third $X.XX investment Thanks, of discuss provide operating Principal offset million over Year-over-year by XXXX,

million that shown result reported X variances in As impact primarily partially we investment expenses accelerated a significant quarter which $XX from positive on Slide a benefit had as the variances is by PGI performance million significant included offset impact review, income. had $XX a and non-GAAP higher-than-expected an the third operating X, million negative earnings. net pretax estate million includes of assumption Brazil; annual The a to $XX elevated that $XX benefit fee, in real variable during

income As operating earnings review was the of ago in Brasilprev in most review quarter, the pretax assumption relative significant These reported million. drivers rates a variance, the income non-GAAP this reminder, review experience net driven was The $XX year's The it negatively impacted gain the an to what significant and company from positively year net by and in assumption impacted only U.S. recurring impact interest changes adjustments RIS-Fee. lower were impacted partially earnings Brasilprev, a capital reflecting items model The million. assumption well model negatively update realized by and due was in fees variable refinement. operating Individual experience/assumption after offset annuities tax refinements by and $XX ago. expected refinement, variable to assumptions model a positive in payment and Life, as net total year premium deposits by to assumed our non-GAAP were including and as million higher by annuity $XX primarily

Additionally, on immaterial the statutory an review results. had impact assumption

$X review the negligible. forward, by thereafter. operating pretax the other with run negatively for million assumption International's Principal are next The expect will impact businesses for quarters impact diminishing Looking the per the we impacts rate several quarter earnings

operating million accelerated XX agreed with The the to estate $XXX team behalf pretax to strategy and in the fee of of effective During in resulting PGI, investment created over investment realignment quarter, team earnings. an we benefit net client executed on real a for a a an performance years.

to operating partially elevated addition PGI forward. is of of million material impact, This earnings offset AUM in the going not to transaction have pretax the earnings on and In large billion by income lower $X transferred a million with of management investments, higher-than-expected expected fees. impact team. expenses $XX to this alternative employee-related by part in strategic investment from during changes costs higher several due fee and performance variable offset staffing from income driven real sales estate quarter. $XX the partially prepayment fees was

Slide on X. shown As

over ago variances earnings adjustment quarter. share Excluding excluding for basis X% a per total both X% the diluted non-GAAP strong periods, or year reported than increased currency in ROE, was translation significant company third AOCI, operating quarter. foreign on earnings in other the XX.X%

rate, and China, million quarter in the earnings $X about currencies with and Chile our third non-GAAP from Excluding continue performance third second relative XXXX. assumed was million on Brazil, the by encaje the daily assumption XX%. of of U.S. performance of compared negatively quarter Actual had earnings XXXX Despite International's was primarily excluding pretax XX.X% ROE we A operating positive operating quarter in weakening the and guided third within increased variances, market the X% significant return impacted $XX loss, was during line the year S&P impact quarter, XX% to to Mortality fee-based to per against a dollar, XXXX. XXX certain volatility to quarter. U.S. our be our expectations equity improvement for the reviews, experience a The businesses. both typical provided XX.X%. basis, and were on slight Benefits. expectations. range within full than In as benefit were effective previously from and tax third U.S. quarterly RIS-Spread, Life a impact to a our the slight quarter, mortality expect volatile in during average relative to we total Specialty Individual a did but is The more Macroeconomics morbidity our Principal X% quarter. Favorable quarter. to

business a than XX-month even life On RIS-Spread And growth cases of the growth from X,XXX SMB in-group trailing pension we've with Life to in deposits risk The and strong. our more sales Defined values core U.S. our record net plans $X stronger remained target XX participants X% Benefits RIS-Fee, growth annuity the to X% nearly account segment, increased results. In a transfer or business remains the and healthy. prior in sales. increased XX% year with nearly growth Moving fourth Contribution basis, In our small- quarter, quarter, over RIS-Spread strong. XXX,XXX from up market existing remains and Contribution deposits. billion ago. market. billion Specialty of sales recurring medium-sized fundamentals transfer Individual into were due Heading XX% on pipeline our in increased deposits sales. than with $X businesses X% added case small sales XX% the strong new to more target sales segment increased of in billion $X.X months trailing including Defined year our covered a fixed in market sales strong market.

third to than Corporate $XX run from outcome as business In overall, unit as pretax $X prior negotiations billion the operating Individual due Principal the line, for expectations affiliated our operating Pretax my periods. XXXX quarter, with lower providing general expected prior for in higher of million taxes. or quarter. well of importance in Specialty strategic exceeded slight in earnings pretax with in exclude were in excluding variances operating rate businesses called IRS International's reflects net operating all expenses. earnings cash variances provides losses translation. positive sales-related both the million businesses third RIS-Spread's PGI third earnings business Slide addition a years' we've following positive significant typical the X to the Benefits our results year flow diversification of excluding earnings and unit I'll a third these our with of the the operating non-deferrable losses, for In alone, pretax on comparison generated line income quarter, comments quarter of impact $XX were pretax significant on were and foreign and through out earnings, of Life account. also quarter. RIS-Fee, for currency quarter PGI, mortality for

year, losses the losses income offset favorable pretax to corporate million. be slightly were $XXX It's guidance with important benefit. expect a basis, of expectations after-tax we As to our on the taxes to in result, corporate note an that for our million as to full compared $XXX line

XX. Moving million the over million $XXX including repurchases. to stock third brings capital common capital to dividends $XX and just in million deployed in share year-to-date of $X Slide This on billion. quarter, $XXX capital We deployment deployment our during

will deployments our year full a consecutive fourth expect increase $X.XX increase the we from common billion is quarter in end This X%. third yield We a the at $X.X the Last dividend quarter, translates in night, approximately announced our range. $X.XX the million dividends. of increase This to high period. $XXX be dividend prior the XXth stock from and year dividend a into a XXXX of XX% payable

to payout ratio, a net dividend forward, our be going continue will more with target We and income. XX% aligned dividend

an is As all part joint Europe on deployment transaction, is calls, to the Principal Asia M&A contributed during Real and progressing our positively highlighted in important The remains Integration venture Estate active. our results well. Afore pipeline Mexico of capital previous our Southeast strategy of balanced quarter. acquisitions and recent the

Our impact accelerated in call. at track digital the last with year's remain communicated investments and on line outlook

in expectations. total of expenses impacts performance accelerated company fee real in our estate the PGI, is growth the Excluding in line with operating

see quarters branding fourth I that expenses. expenses quarter, costs benefit as ahead quarter and higher Looking remind expenses, are variable than our other to more usually typically fourth want to we you operating sales

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

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

billion $XXX strong. of million very and the ratio excess with capital quarter cash RBC our over over a of remains third $X of holding the at company, Our XXX% million in We ended capital in and liquidity position available subsidiaries. $XXX

no the In our and on can Operator, Day flexibility. XXXX addition, X. join XX on you outlook provides open at questions. call ratio in New a call debt November hope Investor significant for our please a York and on us until low We leverage XXXX financial December maturities

Operator

Instructions]. [Operator

Sandler with first question The from O'Neill. comes John Barnidge

John Barnidge

do The was are higher and Clearly, the higher talk what products leaving. assets for assets fee Can what forma are performance level you pro 'XX. the about rate you the since highest XQ those to grow coming in can the fee-generating fee that? than fee-generating

Daniel Houston

we'll to. to Thanks respond and for that to question, Dunbar the throw over right Tim

Timothy Dunbar

Yes.

what low think and and really products arrangement quarter, PE fees. value really But AUM the door interested important we that points management the is looking Those another management that we're the a of before our that about and I think our clients is the performance were that continues XX performance seeing XX-year our fees in of think be were billion went I Most higher-value products, fees of basis assets out you're $X.X I was that under performance from fee, actually up our factor things. that X what impact fee at that's is came for to every is is yield-oriented over that case. talked years. on of the the out very relationships. paid One

see very what to the performance so you'll and years that fee a team over based able time. last XX of period accomplish on was And large

credit part and out of up. that's what have to the a probably fee, low really a basis The So did. points assets take the going large brought the good work door team for that those want

John Barnidge

the then that? market thoughts your have around and have talk M&A seems about multiples that it's And more drive a about me PGI, public then year, finding more asset rational you interest to deposit that's On given withdrawal ESG which of fallen you from next in really year? that's it offering, actually management withdrawal in in issue. is where can follow-up. last and product rate demand. maybe a The this definitely a Do tells product multiples And the than flows maybe down

Daniel Houston

John. question, Good Yes.

in as same make to are Miami to this fortunate We've having sales to eager into opportunities, I comment related just just the engage our detail. comments. But around of exact with make been be and Tim, Tim I maybe management to me with in all new to this 'XXs. will quick not was conversation. that a more earlier Let to did want specifically a couple get organization, these week, topic along back They ESG. enough and Pat way Principal. with That's early it about this

Ron As when We investment that's fact, been gaining the from was There's the last years, a Europe assignments in U.S. where is joining matter committee. in understand of here in a Keller of a we're participating it the we've ahead the that. momentum importance my probably of been of first that. five Obviously, certainly and been lot good five years at

with I detail. think at frankly, I'll ask good our well and think, add culture -- Tim here are additional aligns and a we to Principal it, in both we Tim? position, some very

Timothy Dunbar

Okay.

I'll So questions your them. asked you to as try take

of is the in higher this little John, bit things rates, environment that in and macro Dan toward seeing mentioned So one that remarks. we're a move interest the his

a those lot what And seeing volatility uncertainty. together of issues is a in a there. marketplace of of creating so also today. quite And I'm not geopolitical detail But lot going we're lot X are into the

so having on ways flows And an impact really and market. on different that's think of couple I in a our the

the things a of a lot today. sideline actually seeing the is and investors on are clients sitting we're of One that our lot of that

and entry we do when been We quite some I move. for point who and think to A in that are that robust billion about this of the the have the they're in Hopefully, their we time mandates. eager for longer a those are in start money see put some waiting to pipeline bucket, equity So issues then has to prices of they lot high. not of work being $X.X they're sitting volatility cash through and a of particularly But about as better market. market, they better really see the to pullback that we enter that sitting to in have mandates means fund said as it's taking work. a

volatility real there's and situation couple very thing this clients, other real more equity in in marketplace, I'd seen they private a estate The other of see is as but in a say the robust commercial that, we've pricing estate. PEC

think to few And a those thing clients. do we taking for off really, some right the table. the of And chips of are so the players that's

So and things those will that today our are all the that around. of we things -- think some have some flows turn the impacted of

In terms have in suite of well-diversified a of a actually environment. have products, work do broad of today's lot products products, we we and that

actually I PGI what to quite and We when we're products organization need changes pivot the to them environment make Dan that said quicker with had think do correct. occur, is moves macro those that. sure working to to

go So X, this, seen you've distribution we've things and organization. so to done that far, through announced a of just few October some realignment we the of the

Kirk very investment professionals. So And Tim U.S. of U.S. distribution. leading us. -- are will not Hill be leading seasoned non-U.S. be all will while going X distribution into I'm all for West to go those their resumes,

that have net they make the support world all and the that we sure in have around. they flow need will the focus cash the situation will they We to this confidence have turn

to team. that of a things. both distribution you we've made couple global also know thing our hires don't side the side probably realigned service client the marketing on improve is Another our key institutional talent, We've and of

that All clients, and their -- make to, that needs investment communicating that to them. of options we we're what well the with we're building really sure need with we're resonate investment what that what relationships understanding their

the are a and we they're a the his at on of And talented building give their and actually been have Dan move broad I'm needs. focus offer go look is well excellent in what, we to of set our diverse Pat things efforts, professionals accomplished products that as development forward. about that That's as just just results. investment group that investment have comments. also I products, capabilities. that that we the weeks some that in you for we product X of some our helm. other an incredibly talk they We've about taken producing we deduced obviously going the And things of couple and what investment at in done meet to and So our we've sense #X desire a first, talked

course, Of we our where of goes always areas always to some and -- investments improve digital can there really are there's that.

intelligence, we that making boutiques. appropriately our the simulating So to disseminating official investment that and our really data are sure

that As we look realign through and portfolio capabilities just we've estate, that, we're looked decision real the made fixed to some few, the to currency a Principal close We need that active them. strategies and is talent we're see don't macro name our resonating we offering. in to forward capability look taken with particular income, for also that and down with headed, at the and space. that where just And the going opportunity our boutiques, our of clients we've we've

in see line, our but about did neutral. up our So a earnings. on interest That will have on currency lot that billion capabilities see show quarter, mention, of to going that, our retain negative won't be I a passive fourth OE dispose you're stress impact want I we and do $X.X client to we operating that. in operation will

focus a here going last organization. actions see, And really is ESG. question, cover you as So we've to taken try quickly, the lot your of I'm can to to

perspectives. quite we've Responsible as score which First been this And Investing. the Principles of approached time. for at ESG, in for is some three Dan all, We we have highest this really the from for said, scored A+, UN

The that first have We've estate real two, that and in is we good those that also very client of that and real clients. good the what to very excellent call with done create high had have then we've are been developed resonates we XX funds And well estate with funds both response. area. very focused, actual funds funds ratings, job very and Morningstar suitability returns very green ESG successful, and -- have an

is negative really screening mandates. approach second The

So out client. boutiques. investment issues that assets under think of ESG as responsible those integrate done last are $XX.X the we in that mandates where investment efforts. about throughout the is to socially particular we And investing to issues most really, our we've these that screen process. really, billion And then our into have management And of of

that them All ESG of definitely are good likely have and that's part of to understand companies security our outperform, ratings selection. that

help those So questions. hopefully, answer covered the your I points and

Daniel Houston

want you did John, detail? additional some

Operator

Partners. & Dowling with Lee Humphrey from comes question next The

Humphrey Lee

follow little a Just up on to more. PGI

the some institutional mean, some foreign of that to for off Tim overhang have some investors costs. that talked seen U.S. products? willing of have appetite taking of have of the a unhedged are when recently, of of kind -- cost of wondering talking despite on But was the these the just using investors higher obviously, been I change past if higher clients of kind -- So or of kind the the to hedging go table think about on strategy, of more currency there bond there because institution of investments. couple the some money kind foreign quarters, hedging some I are anything I

Daniel Houston

clients you together the of largest Yes, our Humphrey. Ironically our to some enough, know, an want and Tim and to directly X we as last within had insights with down our weeks question. there? I had speak investor the Tim, to and conference traveling this Do were clients just Japan, you some our Thanks But for investors, issue. largest there. of you in some specifically some visiting largest sit provide and opportunity with of

Timothy Dunbar

Sure, Humphrey.

question mandate is grade and for. talked large really you we a clients for $X we've points on that I -- that costs about risk. an situation seen outstanding is almost had still from to at the about to is investment XXX that in billion, what basis to What it I investing answer your the the they're gone depends up say, it that points. that and would depends of have hedging tell XXX is we would think I basis still on

you it to that go investment-grade them for to cost mandate. it willing especially But on manager so the does want dear becomes to and depend client unhedged an were risks you liability real and very probably they're don't an depends asset client, And take. and the very if that on

I that with one So the in an with excellent say, client, have would them. we particular relationship of meeting things,

well, We are more, we oriented yield mandates to and we are to appropriately. other more needs understand how trying help are them, their resonate very exactly have them sold meeting and can which actually

that hopefully, answers So your question.

Humphrey Lee

to little like your the the a remarks, that talked in Brazil. have International. from the bit In just But the gears think And headwinds of you about you macro talk Like of seeing to you maybe if kind prepared I operations wondering can rest some And you're shifting what your impact about are helpful. was potential how about That's then a you've to. broadly Principal exposure there? countries perspective? seeing of do you

Daniel Houston

Humphrey. Thanks, Yes.

Southeast get we're what, know how a see these You positive color. ask No then Brazilian operations. Asia, I And on as the be reflect than them can world. to in see America Luis some enjoying I'll very to felt portfolio about on of Latin can talk to earnings they the provide operations. success to him because around positioned we businesses and me very Brazil flows. that our lot of better over one's generating additional nice interesting so And and this, you It's just uncorrelated know, pressure to cash other

Luis Valdés

question. Okay. Thanks, Good Humphrey.

you're macro this macro last we I problem very continue like not countries. But a from you particularly that sort We are mean, have which growth Probably, to possible -- about news see quarter about in if quarter-over-quarter I'm external is And over some pretty very is looking you're Brazil. positive that probably positive; rebound but the big for Probably, rebound quarter-over-quarter. been a good cyclical last a continue, said positive. has from is at their in is not to going to are going happen problem, said, call, as -- their the -- is -- coming Brazil. Brazil, is Brazil, They reserve, about are rebound is perspective, going again, a as interesting our going at fiscal with what perspective, external and in X% positive now. a That's accounts, the position X%, their elections positive. last earnings that fixable. fixable. very that I now is see The their what we weekend. see which creation. other looking also if we And do saying, job under emerging of in Particularly, to we're to very I year-over-year, we're Brazil

that fixable. So it's we think

deficit. patient to benefit confident president through providers fiscal going reform are that were they have go major they're thing only like do is thing stabilize, macro the the administration, certainly, to or companies that's next that their very going us Brasilprev -- whoever in to and to that in to of -- the pension that And to certainly and providers order a to work in We is do going order in country. are stabilize their the a sort that long-term savings be elevate to good next

probably $X.X see franchise difficult our that, years most in customer particular point many, political if able Brazil, from years trailing has the many having you to cash XX flows. could in in that's been It's of put a very net the our view view. decades. for standpoint difficult So months, positive view and macroeconomic been of said billion But

So will DOP certainly we AUMs, it's over a X% and very remain very commendable confident.

again, my their positive that's macroeconomics So really to And security. answer. to and the continue about never-ending more save and demographics we very the -- need for secure financial

So about Humphrey. my views those Brazil, are

Daniel Houston

as the some well. color, Luis, Humphrey think more is a little countries in of other I maybe looking for

quickly. Chile the So of ones Asia perhaps maybe on comments happening what's something a of some couple around and big of some quickly, in

Luis Valdés

Okay, Humphrey.

and Chile our about has comments important Am, in very -- positive very had swing Lat terms Chile. particularly its agile with in execution. go positive and interesting a countries me Let of

see And your clients. much their They're new customer that customer in better in more flow is doing They're $X.X new in swing Chile I investing positive have with They more supplement, CRMs. technologies. you're XX putting billion digital. money cash in months, if more and They're in They're the flows. net looking, net could sales. connecting They're better. a cash trailing say will gaining clients. You it's investing extremely

Page you revenue to going your story. positive a will supplement, their even could you're see into if is You see, if stream that XX, you're going

have their stream, revenue But a me that positive in story do a to story. -- they're X% very it is adjusted. they good that about seems So

You have de-accumulation, platform very interesting products. accumulation with to remember that and Chile is a payout

you're solutions. you probably, cycle the customer it all a $X.X looking together business -- also the low is cash been when the of and to -- see payout able net to billion, first, because swing have what we see, we aggregation have of flows, probably, dimension more able total to overhang that been So those but

going solutions clients, have money been into able see. essentially, our more but outcome So what that's to for we

have That's year. view We also, have during said terms about customers flows flows terms we my in AUMs. And positive I of in to positive Chile. you have this of

year. very Asia, while Asia different totally is a for story, this positive story

and $X China, for in for flows the billion quarter customer customer flows positive our about Asia. net and heard Southeast months very and for Mainland Kong trailing cash $X last net Hong XX cash You China, billion for --

working how are is portfolio, interesting So very well extremely different and a franchise this different about we're diversified, is these a and favor. in countries very very which this is our assets working well, pleased and

Daniel Houston

question, Thanks, Humphrey. Luis, the and thank you for

Operator

The next from with Gallagher Evercore. question comes Tom

Thomas Gallagher

quick minute, we if question business. a the a on, Just for asset step back management

long environment, you in how of need things. low PGI? of it's environment transition different feel from now reposition -- about to a into terms And and kind how to for macro thinking the reposition think a you're restructuring talk you about moving bit from I've we're guys a benefited you Can while. the the yourself takes of like heard, rate bit So that you a what you

Daniel Houston

with question. do for working want refocusing pivoting a Tom, as But Yes. it's not the about with take and that our Thanks, sales much I and restructuring of as closely managers Tim, within organizations lot portfolio strategists. the our starting to our one? suspect and you strategies,

Timothy Dunbar

Sure.

come And Having certainly yield mean, in desire I I'd a yield, back. the not of right. demand increasing, that's of rates environment clients preferred those. a of rates of -- securities, think the said companies And products, those where supportive an seen though earnings diversified for sign are from I there's even You're economy. specific interested usually and that, a that's and still pause, supporting for generally, in will volatility, robust say are stocks. that of several we it's and products lot for while interest I a had not interest We're in is but move global actually think lot sales two taking And we dead. oriented, as all income. from a coming higher, have yield

And we'd of lot place markets folks so be. a a say to equity that want are

suite is good, resonate of think short-duration We well. products, that mid-cap, also chip very income really income-oriented good fixed very we products small-cap, we that good some products. a have equity say I'd have blue

you're as that So obvious to re-term short-duration is products income fixed volatility Absolute interest. might have with thinking been interest want moving up, in go. you an place about the rates increasing

really actually in emerging And and performance. have that good at And progress think think we that's is nice we that We Finisterre group can when strong strategies. then are know in. I thing been one really have and our developed Principal make good another products that's we of progress portfolio about some think strong have I long-short the some at, we're space market we -- there making we

XXX(k) a and build group we're International world. So the that out and diversified things platforms operations are resonate develop our door. for of And allocation resonate asset actually out with and around those that Principal continuing can products the get to

Thomas Gallagher

know relationship. certain I when then -- in to other asset one leave, certain going just asset there's -- organizations senior be management amount question understanding And yes. does, within That certain due people is on due when my management. instances, PGI? departure, on about that -- reevaluate any to there will be further given Jim's think diligence -- whether is impact that way Is of of may that kind there customers have to on

Daniel Houston

Yes.

question. the for thanks So

to he organization. say extraordinary his the Principal. for of for We're that job at the did Jim years He an here want I thing fortunate first thanks was contributions just many is The to here.

clients, And Secondly, or than up you pause gets managers says the have this senior you professionals what when to it top-down macro is forth. and about view going or distribution Jim organization, as or the a that of visit described, star feel our around even frankly, where a certainly, we That's well firms, roughly know that those committee, largest is not doing. a raise of one-view made differently down analysts. dozen portfolio are to or and how very very system out Tom, search we and interest anything CIOs one is status to sort it our been currencies dozens, do of partners. a manager -- or true need don't rates to a have a this they're of what so to which do was consulting And the our did had we economics our

that one isn't So to rather again, team individuals. dependent overly it's spread a structure a which built, any person, testament, was on I the of think, but across

So that question answer hopefully, for helps you, that Tom.

Operator

with The next question comes from Krueger KBW. Ryan

Ryan Krueger

of we seasonal go expenses because Deanna, in the to about you back fourth give the I think more the favorable the very quarter fourth fourth to bit -- X mentioned Can more quarter for catch-up expenses a as when quarters had that think higher the quarter. year, you us weighted how in a normal. and on would I maybe first some assume to you than perspective that last

So here? if could you could a how help that shift of much us think sizing bit some about

Daniel Houston

be Yes, a there. pattern it to seems

little just the got Thanks. think breaking I she bit, up a full question. but You're

Deanna Strable

Yes.

I at when say would of amounts, so see with said to you the went see you did mention what off being fourth the trending you XXXX and 'XX, expenses, X% is that higher. a if use that I XXXX. of. think that 'XX what would about go at trend X% to I that would expenses if in good come prepaid look would at to to was But and you And fourth you wouldn't 'XX total abnormal, pattern a and you that in tends I So the quarter look agree be kind higher. back look reminder to on around as quarter

PGI, know, so variance ultimately X% I kind X% to look of that run a in have did do quarter to think the expenses, the one want for is, that you normalize third significant at you'd thing that lot of through trend. to the and then as you'd

think kind to I quarter of trend. normal Hopefully, quarter don't The impact each have expected, seeing say, have XXXX, we did outside helps. we'll so fourth is that would've that help 'XX other unlike expenses would we timing what the at drive to that thing, be that been expenses right be I

Ryan Krueger

saw very there? provide separate And retention quarter. additional Could then what you Yes, a on strong very you you as question, had this some color helpful. in RIS-Fee

Daniel Houston

effort we strong say it's provide a want And some had that do a noting I'd for worth it's very to of Yes. our regain retention? that It's color But of how recurring is. noticing deposits. concerted reminder very to first, because strong franchise clients. additional on a you just Nora, thanks also

Nora Everett

had transfer we and little both a number just deposits. quarter it's you Ryan. trailing flow it's do Quarter-to-quarter, I -- really would so when the With market. XQ, we Whether deposits, lapse, quarter stat cash encourage really very look it had retention to SMB when lot of you can with that at thanks, against of view. in up to deposits, regard this retention. any strong basis continue we to ends, and a have our important you things. strong bit it's strong up, both a strong XX-month regard on take the at really a a obviously, that to reflects take and again, both strong Yes, pushed And be We that was it said to trailing recurring which a or a that, there. Sure. on And view. put a -- noisy, and net XX-month even a particular, XX-month work very But and you economy a it's very these stats down, can that,

strong date Our our target a satisfaction with performance service model, in suite.

the it's plan of really nice the their can really at experience participant, And really conversation we sponsor we're experience, see with level touches their sponsors leading focused level. provide help also regard a them. that both to retirement service the for the to tell plan lot starting very the places more a can and in is have experience can drive to that that and to end at readiness how model experience. for We looking more personalized at you participant And to are pivot that game and understanding at a participant and I

conversation. And so that's been an increasing piece of the

mentioned there those as I well, with into been literally of this XX, keep XX, institutional I down client the with things with think wrap long XX in we're keep and Dan sitting of periods have some we're who was and cases, able stat clients all clients to for conference. that years. says these time. Dan them

So it really take pride of resonates, that. in and we lot a

Operator

from Andrew Crédit Suisse. with question next The comes Kligerman

Andrew Kligerman

First digital question investment. with is to regard the

was line digits, digital down, and or mid-single looked kind So like it as flattish in PGI, but it of RIS top were and primarily low large the I to looked to like looks investment. was earnings part, at growth it

X So made year-over-years that year investments on the question in of kind is, terms expenses? could then the my part digital can the highlight is you've you and digital X of or of And expect second we impact? what next the

Daniel Houston

Yes. really that on question detail Deanna? comments specific much that studies. know, to question, appreciate XXth. I'm on As looking discussing the our out with and off, John do can forward for to the Andrew. in made of XX this we're you a everyone's from you And we the more case give really things little to very into kick And when November dig a to color going Day of bit Deanna for Investor But time, respect ask just lot then

Deanna Strable

Yes.

in want the one to things to is comparing I we remind third if just 'XX something just you remind quarter of expenses said, of 'XX, I expenses would So 'XX. quarter just very of of I third of quarter low you're had in third

expenses some so have discuss of in impacting the do into those did spread does And all That's 'XX. comparison. addition, investment the have X the of across that. businesses that's businesses, but our plays in And you we that that digital

third at -- out quarter adjusted quarter, But third with as really, even 'XX. right kind well 'XX the to our I issue would quarter that, revenue want when our noise, growth. take if tracking you say so all And adjusted so expense is a it's third look growth as you a of

but digital expenses we're total, some job operating growth. we'll think right I expected our managing while have start that on have And to of doing -- still this track is it. what And benefits we'll still XXXX, to the the year that So spend investing would of business. those with in those have in it's those that we offset I impact good to say and just the expenses our would a earnings in having

on until expectations give Investor in of well how expense as I to hold lot us as think I'll you a we're because well. actually that, some that more off going forward our both what with the Day will So detail we're November impact going doing, as

Daniel Houston

us? do you Andrew, for you wait have another can and follow-up

Operator

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

Daniel Houston

chance thing accordingly queue, there first who which were to your the follow apologize. important respond Well, tell so doing will a thanks in we to and We were did everyone questions. those story was felt but so have our apologize. responses say up of a of to the in would we and I the important some long-winded questions, we very individuals know a John little probably in, through as called answer we go We not for transition. we number it

I to pursuing. and I our growth. leaders November seeing on are the deploy capital. you expense continue judicious the very on said other we Investor York all as for stay Also, We'll divisional that to in to invest behalf that's to something look said continue the of capital our customers, We're going we forward going earlier, be of City. to proud and shareholders. of Day -- long-term how focused in XX New And on we're many we're Secondly, again, not deployment that's presidents eliminate of for additive,

wonderful a have So Thank weekend. you.

Operator

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

Principal Financial (PFG) 26 Oct 182018 Q3 Earnings call transcript