Q: Why have you changed focus to gross margins rather than net?

A: We’ve included an analysis of gross margins because it gives a clearer picture of what’s actually happening in the margin line. Gross margins are what we negotiate with our institutional investors and our private investor distributors. We think that gives you a clearer picture. We also included the net margin analysis, as we have done before, and the pre-tax margin.

Q: So what happened in the margins last year? There appeared to be some degradation in the first half; they cameback a bit in the second half.

A: Private investor margins last year ended at 455 basis points. At the interim period, they were around 442. We explained that decrease as the systematic process of reducing the fee we charged for financing, having externalised a lot of the financing of the fund products. At the end of the year, we ended with private investor margins at 447 basis points, up slightly on the interim.

The third quarter we had an increase in redemption rates. As a result we received redemption fee income. If the private investor redeems a product within the space of five years from their initial investment, they pay a fee to redeem. We record those redemption fees in management fees.

Q: What about the long-term trend?

A: The long-term trend for institutional margins is around 100 basis points.
There is some movement in the industry to a downward shift in margins. We have large institutional investors who tend to invest for a period of time and negotiate their margin levels on a term basis. As those come up for renewal, we might see some downward pressure, but consistent with what we’re seeing in the industry.

Q: What are your priorities for your capital surplus?

A: The capital surplus at the end of the year is $1.6bn (£0.86bn). We distributed the $2.7bn proceeds from the spin-off of MF Global, paid an interim dividend of about $300m and bought back shares for $500m. At the end of the year, we’re proposing a dividend of 24.8 cents as a final dividend, bringing the total dividend to 44 cents per share. What we saw in the markets this year, which were very turbulent, was that access to capital and excess capital was a competitive advantage.

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