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