JANUS HENDERSON GROUP PLC - Annual Report: 2018 (Form 10-K)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑K

☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                     

Commission File Number 001‑ 38103

 

Janus Henderson Group plc

(Exact name of registrant as specified in its charter)

 

 

+44 (0) 20 7818 1818

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:
None

 

Indicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒  No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐  No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☐  (Not applicable. See Item 1 Business.)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one):

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

As of June 30, 2018, the aggregate market value of common equity held by non‑affiliates was $6,342,860,620.74. As of February 22, 2019, there were 196,412,764 shares of the Company’s common stock, $1.50 par value per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 

 

JANUS HENDERSON GROUP PLC

2018 FORM 10‑K ANNUAL REPORT

TABLE OF CONTENTS

 

 

 

PART I

FORWARD‑LOOKING STATEMENTS

Certain statements in this Annual Report on Form 10‑K contain “forward‑looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, as amended, Section 21E of the Securities Exchange Act of 1934 (“Exchange Act”), as amended, and Section 27A of the Securities Act of 1933, as amended (“Securities Act”). Such forward‑looking statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause the actual results, performance or achievements of Janus Henderson Group plc (the “Company”) and its consolidated subsidiaries (collectively, the “Group” or “JHG”) to be materially different from any future results, performance or achievements expressed or implied by such forward‑looking statements and future results could differ materially from historical performance. Statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may increase”, “may fluctuate”, “forecast”, “seeks”, “targets”, “outlook” and similar words and expressions and future or conditional verbs such as “will”, “should”, “would”, “may”, “could” and variations or negatives of these words are generally forward‑looking in nature and not historical facts. Any statements that refer to expectations or other characterizations of future events, circumstances or results are forward‑looking statements. These statements are based on the beliefs and assumptions of Company management based on information currently available to management.

Various risks, uncertainties, assumptions and factors that could cause future results to differ materially from those expressed by the forward‑looking statements included in this Annual Report on Form 10‑K include, but are not limited to, risks, uncertainties, assumptions and factors specified in the Company’s prospectus dated March 21, 2017, as filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (File No. 333‑216824) (the “Prospectus”) and this Annual Report on Form 10‑K included under headings such as “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Janus Henderson Group plc” and “Quantitative and Qualitative Disclosures about Market Risk”, and in other filings and furnishings made by the Company with the SEC from time to time. In light of these risks, uncertainties, assumptions and factors, the forward‑looking events discussed in this Annual Report on Form 10‑K may not occur. Forward‑looking statements by their nature address matters that are, to different degrees, subject to numerous assumptions and known and unknown risks and uncertainties, which change over time and are beyond the control of the Company and its management. You are cautioned not to place undue reliance on these forward‑looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this Annual Report on Form 10‑K. The Company does not assume any duty and does not undertake to update forward‑looking statements, to report events or to report the occurrence of unanticipated events, whether as a result of new information, future developments or otherwise, should circumstances change, nor does the Company intend to do so, except as otherwise required by securities and other applicable laws and regulations.

 

ITEM 1.              BUSINESS

Janus Henderson Group plc (“JHG” or “the Group”), a company incorporated and registered in Jersey, Channel Islands, is an independent global asset manager, specializing in active investment across all major asset classes.

On May 30, 2017 (the “Closing Date”), JHG (previously Henderson Group plc (“Henderson”)) completed a merger of equals with Janus Capital Group Inc. (“JCG”) (the “Merger”). As a result of the Merger, JCG and its consolidated subsidiaries became subsidiaries of JHG.

JHG is a client‑focused global business with approximately 2,300 employees worldwide, and assets under management (“AUM”) of $328.5 billion as of December 31, 2018. JHG has operations in North America, the United Kingdom (“UK”), Continental Europe, Latin America, Asia and Australia. JHG focuses on active fund management by investment managers with unique individual perspectives, who are free to implement their own investment views, within a strong risk management framework.

JHG manages a broad range of actively managed investment products for institutional and retail investors across five capabilities: Equities, Quantitative Equities, Fixed Income, Multi‑Asset and Alternatives.

Clients entrust money to JHG — either their own or money they manage or advise on for their clients — and expect the Group to deliver the benefits specified in their mandate or by the prospectus for the fund in which they invest. JHG measures the amount of these funds as AUM. Growth in AUM is a key objective of the Group. AUM increases or decreases primarily depending on its ability to attract and retain client investments, on investment performance, and as a function of market and currency movements. To the extent that the Group invests in new asset management teams or businesses or divests from existing ones, this is also reflected in AUM.

Clients pay a management fee, which is usually calculated as a percentage of AUM. Certain investment products are also subject to performance fees, which vary based on a product’s relative performance as compared to a benchmark index. The level of assets subject to such fees can positively or negatively affect JHG’s revenue. As of December 31, 2018, performance fees were generated from a diverse group of funds and accounts. Management and performance fees are the primary drivers of the Group’s revenue. JHG believes that the more diverse the range of investment strategies from which management and performance fees are derived, the more successful its business model will be.

Investment Offerings

Equities

The Group offers a wide range of equity strategies encompassing different geographic focuses and investment styles. The equity teams include those with a global perspective, those with a regional focus — United States (“U.S.”), Europe and Asia — and those invested in specific sectors. These teams generally apply processes based on fundamental research and bottom‑up stock picking.

Quantitative Equities

The Intech Investment Management LLC (“Intech”) business applies advanced mathematics and systematic portfolio rebalancing intended to harness the volatility of movements in stock prices — a reliable source of excess returns and risk control. With more than 30 years of volatility expertise, the Intech team employs a distinctive quantitative approach based on observations of actual price movements, not on subjective forecasts of companies’ future performance.

Fixed Income

JHG’s Fixed Income teams provide coverage across the asset class, applying a wide range of innovative and differentiated techniques in support of a variety of investment objectives and risk criteria. These teams include those adopting global unconstrained approaches through to those with more focused mandates — based in the U.S., Europe, Asia and Australia. The capabilities of these teams can be accessed through individual strategies and are combined where appropriate to form multi‑strategy offerings.

Multi‑Asset

JHG Multi‑Asset includes teams in the U.S. and UK. Included are balanced, multi-asset income and strategic asset allocation, as well as multiple adaptive asset allocation strategies. 

Alternatives

JHG Alternatives includes teams with different areas of focus and approach. Diversified Alternatives brings together a cross‑asset class combination of alpha generation, risk management and efficient beta replication strategies. These include Diversified Alternatives, including Global Multi-Strategy, Managed Futures, Risk Premia and Global Commodities; Agriculture; and Long/Short Equity. Additionally, the management of the Group’s direct UK commercial property offering is sub advised by Nuveen Real Estate.

Distribution

Distribution Channels

JHG distributes its products through three primary channels: intermediary, institutional and self‑directed. Each channel is discussed below.

Intermediary Channel

The intermediary channel distributes mutual funds, separately managed accounts (“SMAs”), exchange‑traded funds (“ETFs”), UK Open Ended Investment Companies (“OEICs”), Société d’Investissement À Capital Variable (“SICAV”) and Undertakings for Collective Investments in Transferable Securities (“UCITS”), through financial intermediaries including banks, broker‑dealers, financial advisors, fund platforms and discretionary wealth managers. Significant investments have been made to grow the Company’s presence in the financial advisor subchannel, including increasing the number of external and internal wholesalers, enhancing the Company’s technology platform and recruiting highly seasoned client relationship managers. At December 31, 2018, AUM in the intermediary channel totaled $143.1 billion, or 44% of total Group AUM.

Institutional Channel

The institutional channel serves corporations, endowments, pension funds, foundations, Taft‑Hartley funds, public fund clients and sovereign entities, with distribution direct to the plan sponsor and through consultants. At December 31, 2018, AUM in the institutional channel totaled $129.0 billion, or 39% of total Group AUM.

Self‑Directed Channel

The self‑directed channel serves existing individual investors who invest in JHG products through a mutual fund supermarket or directly with JHG. Exchange‑traded notes (“ETNs”) associated with the VelocityShares brand are also part of the self‑directed channel, although they are targeted at sophisticated institutional and other investors. At December 31, 2018, AUM in the self‑directed channel totaled $56.4 billion, or 17% of total Group AUM.

While JHG seeks to leverage its global model where possible, it also recognizes the importance of tailoring its services to the needs of clients in different regions. For this reason, JHG maintains a local presence in most of the markets in which it operates and provides investment material that takes into account local customs, preferences and language needs. JHG has a global distribution team of over 600 client‑facing staff.

JHG’s brand proposition centers on the value that the firm offers through active management and the concept of Knowledge. Shared, which leverages the Group’s deep pool of intellectual capital to deliver investment thought leadership and transparency to clients, thereby building and strengthening trusted relationships.

Products and Services

The Group’s global product team maintains oversight of a broad range of products, including locally domiciled pooled funds in the U.S., the UK, Luxembourg, Japan, Singapore and Australia; hedge funds; segregated mandates and closed‑ended vehicles. The team provides governance for all funds and strategies, and gauges the suitability of new offerings as well as ensuring that existing products remain suited to the clients to which they are marketed.

Intellectual Property

JHG has used, registered and/or applied to register certain trademarks, service marks and trade names to distinguish the Group’s sponsored investment products and services from those of its competitors in the jurisdictions in which it operates, including the U.S., the UK, the European Union (“EU”), Australia, China, Japan and Singapore. These trademarks, service marks and trade names are important to JHG and, accordingly, the Company enforces its trademark,

service mark and trade name rights. The Group’s brand has been, and continues to be, extremely well received both in the asset management industry and with clients.

Seasonality

JHG’s revenue streams are not seasonal in nature, with management fees and other income generally accruing evenly through the year. Performance fees are recognized when the prescribed performance hurdles have been achieved and it is probable that the fee will be earned as a result. The hurdles generally coincide with the underlying fund year ends. Given the uncertain nature of performance fees, they tend to fluctuate from period to period. Finance income includes interest received and investment income. While interest received accrues over the year, investment income, which includes movements in seed capital investments, can fluctuate from period to period. This fluctuation depends upon how that particular investment performs each month.

Competition

The investment management industry is relatively mature and saturated with competitors that provide services similar to JHG. As such, JHG encounters significant competition in all areas of its business. JHG competes with other investment managers, mutual fund advisers, brokerage and investment banking firms, insurance companies, hedge funds, venture capitalists, banks and other financial institutions, many of which are larger, have proprietary access to certain distribution channels, have a broader range of product choices and investment capabilities, and have greater capital resources. Additionally, the marketplace for investment products is rapidly changing, investors are becoming more sophisticated, the demand for and access to investment advice and information is becoming more widespread, passive investment strategies are becoming more prevalent, and more investors are demanding investment vehicles that are customized to their individual requirements.

JHG believes its ability to successfully compete in the investment management industry significantly depends upon its ability to achieve consistently strong investment performance, provide exceptional client service and strategic partnerships, and develop and innovate products that will best serve its clients.

Regulation

The investment management industry is subject to extensive federal, state and international laws and regulations intended to benefit and protect investment advisory clients and investors in pooled investment vehicles, such as those managed, advised or subadvised by JHG. The costs of complying with such laws and regulations have significantly increased and may continue to contribute significantly to the costs of doing business as a global asset manager. These laws and regulations generally grant supervisory agencies broad administrative powers, including the power to limit or restrict the conduct of businesses and to impose sanctions for failure to comply with laws and regulations. Possible consequences for failure to comply include, but are not limited to, voiding of investment advisory and subadvisory agreements, the suspension of individual employees (particularly investment management and sales personnel), limitations on engaging in certain lines of business for specified periods of time, revocation of registrations, disgorgement of profits, and imposition of censures and fines. Further, failure to comply with such laws and regulations may provide the basis for civil litigation that may also result in significant costs and reputational harm to JHG.

U.S. Regulation

Certain of JHG’s U.S. subsidiaries are subject to laws and regulations from a number of government agencies and self-regulatory bodies, including, but not limited to, the SEC, the U.S. Department of Labor (“DOL”), the Financial Industry Regulatory Authority (“FINRA”) and the U.S. Commodity Futures Trading Commission (“CFTC”).

Investment Advisory Laws and Regulations

Certain subsidiaries of JHG are registered investment advisers under the Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), and, as such, are regulated by the SEC. The Investment Advisers Act requires registered investment advisers to comply with numerous and pervasive obligations, including, among others,

recordkeeping requirements, custodial obligations, operational procedures, registration and reporting requirements, and disclosure obligations. Certain employees of JHG are also registered with regulatory authorities in various states, and thus are subject to the oversight and regulation by such states’ regulatory agencies.

Investment Company Laws and Regulations

Certain of JHG’s subsidiaries act as the adviser or subadviser to mutual funds and ETFs, which are registered with the SEC pursuant to the Investment Company Act of 1940, as amended (the “1940 Act”). Certain of JHG’s subsidiaries also serve as adviser or subadviser to investment products that are not required to be registered under the 1940 Act. As an adviser or subadviser to pooled investment vehicles that operate under exemptions to the 1940 Act and related regulations, including, among others, requirements relating to operations, fees charged, sales, accounting, recordkeeping, disclosure and governance. In addition, the adviser or subadviser to a registered investment company generally has obligations with respect to the qualification of the registered investment company under the Internal Revenue Code of 1986, as amended (the “Code”).

Broker‑Dealer Regulations

JHG’s subsidiary Janus Distributors LLC dba Janus Henderson Distributors (“JHD”) is registered with the SEC under the Exchange Act and is a member of FINRA, the U.S. securities industry’s self‑regulatory organization. JHD is a limited-purpose broker-dealer, which acts as the general distributor and agent for the sale and distribution of shares of U.S. mutual funds that are sponsored by certain of JHG’s subsidiaries, as well as the distribution of certain exchange‑traded products (“ETPs”) and other pooled investment vehicles. The SEC imposes various requirements on JHD’s operations, including disclosure, recordkeeping and accounting. FINRA has established conduct rules for all securities transactions among broker‑dealers and private investors, trading rules for the over‑the‑counter markets and operational rules for its member firms. The SEC and FINRA also impose net capital requirements on registered broker‑dealers.

JHD is subject to regulation under state law. The federal securities laws prohibit states from imposing substantive requirements on broker‑dealers that exceed those under federal law. This does not preclude the states from imposing registration requirements on broker‑dealers that operate within their jurisdiction or from sanctioning broker‑dealers and their employees for engaging in misconduct.

ERISA

Certain JHG subsidiaries are also subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and related regulations to the extent they are considered “fiduciaries” under ERISA with respect to some of their investment advisory clients. ERISA‑related provisions of the Code and regulations issued by the DOL impose duties on persons who are fiduciaries under ERISA and prohibit some transactions involving the assets of each ERISA plan that is a client of a JHG subsidiary as well as some transactions by the fiduciaries (and several other related parties) to such plans.

CFTC

Certain JHG subsidiaries are registered with the CFTC as commodity pool operators (“CPOs”) and/or commodity trading advisers (“CTAs”), and become a member of the National Futures Association (“NFA”) in connection with the operation of certain of the Group’s products. The Commodity Exchange Act and related regulations generally impose certain registration, reporting and disclosure requirements on CPOs, CTAs and products that utilize the futures, swaps and other derivatives that are subject to CFTC regulation. The CFTC or NFA may institute proceedings to enforce applicable rules and regulations, and violations may result in fines, censure or the termination of CPO and/or CTA registration and NFA membership.

Dodd‑Frank Wall Street Reform and Consumer Protection Act

The Dodd‑Frank Wall Street Reform and Consumer Protection Act (the “Dodd‑Frank Act”) was signed into law in July 2010. The Dodd‑Frank Act established enhanced regulatory requirements for non‑bank financial institutions designated as systemically important financial institutions (“SIFI”) by the Financial Stability Oversight Council (“FSOC”). In April 2012, the FSOC issued a final rule and interpretive guidance related to the process by which it will designate non‑bank financial companies, potentially including large asset managers, as SIFI. Since that time, the FSOC has considered and invited comments on the circumstances under which asset managers might present risks to financial stability. While the FSOC still retains discretion to designate asset managers as SIFI, it has not named any non-bank asset managers as SIFI to date. If JHG were designated a SIFI, it would be subject to enhanced prudential measures, which could include capital and liquidity requirements, leverage limits, enhanced public disclosures and risk management requirements, annual stress testing by the Federal Reserve, credit exposure and concentration limits, and supervisory and other requirements. These heightened regulatory requirements could adversely affect the Company’s business and operations.

International Regulation

UK

The Financial Conduct Authority (“FCA”) regulates certain JHG subsidiaries, products and services offered and managed in the UK. FCA authorization is required to conduct any investment management business in the UK under the Financial Services and Markets Act 2000 (the “FSMA”). The FCA’s rules and guidance under that act govern a firm’s capital resources requirements, senior management arrangements, systems and controls, conduct of business, and interaction with clients and the markets. The FCA also regulates the design and manufacture of investment funds intended for public distribution largely by adoption of European fund directives and, on a more limited basis, those that are for investment by professional investors.

Europe

In addition to the above, certain of the Group’s UK‑regulated entities must comply with a range of EU regulatory measures. Some of these apply directly to UK entities while others have been implemented through member states’ law. They include the EU Markets in Financial Instruments Directive (“MiFID”). MiFID regulates the provision of investment services and conduct of investment activities throughout the European Economic Area. MiFID establishes detailed requirements for the governance, organization and conduct of business of investment firms and regulated markets. It also includes pre‑ and post‑trade transparency requirements for equity markets and extensive transaction reporting requirements. These requirements were substantially revised and extended to non‑equities from January 3, 2018, as a result of the implementation of the revised MiFID. The Markets in Financial Instruments Directive II (“MiFID II”) has and will have a substantial impact on the EU financial services sector, including on asset managers. The UK has adopted the MiFID rules into national legislation, principally via the FSMA and the FCA rules. The other EU member states in which JHG has a presence have also implemented MiFID in their local legal and regulatory regimes.

The EU’s Alternative Investment Fund Managers Directive (“AIFMD”) was required to be transposed into EU member state law by July 2013 with a transitional period until July 2014. AIFMD regulates managers of, and service providers to, alternative investment funds (“AIFs”) that are domiciled and offered in the EU and that are not authorized as retail funds under the Undertakings for Collective Investment in Transferable Securities Directive. JHG has two subsidiaries regulated as Alternative Investment Fund Managers. The AIFMD also regulates the marketing within the EU of all AIFs, including those domiciled outside the EU. In general, AIFMD has a staged implementation up to 2018. Compliance with the AIFMD’s requirements may restrict AIF marketing and imposes compliance obligations in the form of remuneration policies, capital requirements, reporting requirements, leverage oversight, valuation, stakes in EU companies, the domicile, duties and liability of custodians, and liquidity management.

UCITS are investment funds regulated at the EU level under the UCITS Directive V (“UCITS V”). UCITS are capable of being freely marketed throughout the EU on the basis of a single authorization in a member state — so‑called

passporting. UCITS V covers a range of matters relating to UCITS, including the fund structure and domicile of UCITS, service providers to UCITS and marketing arrangements.

Luxembourg

A JHG subsidiary, Henderson Management S.A. (“HMSA”), is authorized and regulated in Luxembourg by the Commission de Surveillance du Secteur Financier as a UCITS management company. Two umbrella funds, Henderson Horizon Fund and Henderson Gartmore Fund, have appointed HMSA as their management company. Henderson Horizon Fund and Henderson Gartmore Fund are OEICs incorporated under the laws of Luxembourg in the form of a SICAV authorized as a UCITS.

Singapore

In Singapore, the Group’s subsidiary is subject to, among others, the Securities and Futures Act, the Financial Advisers Act and the subsidiary legislation promulgated pursuant to these acts, which are administered by the Monetary Authority of Singapore. JHG’s asset management subsidiary and its employees conducting regulated activities specified in the Securities and Futures Act and/or the Financial Advisers Act are required to be licensed with the Monetary Authority of Singapore.

Australia

In Australia, JHG’s subsidiaries are subject to various Australian federal and state laws and are regulated by the Australian Securities and Investments Commission (“ASIC”). ASIC regulates companies, financial markets and financial services in Australia. ASIC imposes certain conditions on licensed financial services organizations that apply to the Group’s subsidiaries, including requirements relating to capital resources, operational capability and controls. As JHG’s chess depository interests (“CDIs”) are quoted and traded on the financial market operated by the Australian Securities Exchange (“ASX”), JHG is also required to comply with the ASX listing rules and the ASX Principles.

Hong Kong

In Hong Kong, JHG’s subsidiary is subject to the Securities and Futures Ordinance (“SFO”) and its subsidiary legislation, which governs the securities and futures markets and regulates, among other things, offers of investments to the public and provides for the licensing of dealing in securities and asset management activities and intermediaries. This legislation is administered by the Securities and Futures Commission (“SFC”). The SFC is also empowered under the SFO to establish standards for compliance as well as codes and guidelines. JHG’s subsidiaries and its employees conducting any of the regulated activities specified in the SFO are required to be licensed with the SFC and are subject to the rules, codes and guidelines issued by the SFC from time to time.

Japan

In Japan, the Group’s subsidiary is subject to the Financial Instruments and Exchange Act and the Act on Investment Trusts and Investment Corporations. These laws are administered and enforced by the Japanese Financial Services Agency, which establishes standards for compliance, including capital adequacy and financial soundness requirements, customer protection requirements and conduct of business rules.

These regulatory agencies have broad supervisory and disciplinary powers, including, among others, the power to temporarily or permanently revoke the authorization to conduct regulated business, suspend registered employees, and censure and fine both regulated businesses and their registered employees.

Many of the non‑U.S. securities exchanges and regulatory authorities have imposed rules (and others may impose rules) relating to capital requirements applicable to JHG’s foreign subsidiaries. These rules, which specify minimum capital requirements, are designed to measure general financial integrity and liquidity, and require that a minimum amount of assets be kept in relatively liquid form.

Other

The Group’s operations in Taiwan and Ireland are regulated by the Financial Supervisory Commission of Taiwan and the Central Bank of Ireland, respectively.

Employees

As of December 31, 2018, JHG had 2,301 full‑time equivalent employees. None of JHG’s employees are represented by a labor union.

Available Information

JHG makes available free of charge its annual reports on Form 10‑K, quarterly reports on Form 10‑Q and current reports on Form 8‑K and amendments thereto as soon as reasonably practical after such filing has been made with the SEC. Reports may be obtained through the Investor Relations section of JHG’s website (http://janushenderson.com/ir). The contents of JHG’s website are not incorporated herein for any purpose. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

JHG’s Officer Code of Ethics for Chief Executive Officer and Senior Financial Officers (including its Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer) (the “Officer Code”); Corporate Code of Business Conduct for all employees; corporate governance guidelines; and the charters of key committees of the Board of Directors (including the Audit, Compensation,  Risk and Nominating and Corporate Governance committees) are available on the Investor Relations section of JHG’s website (http://www.snl.com/irw/corporateprofile/4147331). Any future amendments to or waivers of the Officer Code will be posted to the Investor Relations section of JHG’s website.

Corporate Information

JHG is a public limited company incorporated in Jersey, Channel Islands and tax resident in the UK. Its principal business address is 201 Bishopsgate, London, EC2M 3AE, United Kingdom and its telephone number is +44 (0)20 7818 1818.

JHG is a “foreign private issuer” as defined in Rule 3b‑4 promulgated by the SEC under the Exchange Act and in Rule 405 under the Securities Act. As a result, it is eligible to file its annual reports pursuant to Section 13 of the Exchange Act on Form 20‑F (in lieu of Form 10‑K) and to file its interim reports on Form 6‑K (in lieu of Forms 10‑Q and 8‑K). However, JHG has elected to file its annual and interim reports on Forms 10‑K, 10‑Q and 8‑K, including any instructions therein that relate specifically to foreign private issuers.

Pursuant to Rule 3a12‑3 under the Exchange Act regarding foreign private issuers, the proxy solicitations of JHG are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act, and transactions in the JHG’s equity securities by its officers, directors and significant shareholders are exempt from the reporting and liability provisions of Section 16 of the Exchange Act.

 

ITEM 1A.  RISK FACTORS

JHG faces numerous risks, uncertainties and other factors that are substantial and inherent to its business, including market and investment performance risks, business and strategic risks, operational and technology risks, legal and regulatory risks, risks related to taxes and Jersey company risks. The following are significant factors that could affect JHG’s business.

Market and Investment Performance Risks

JHG’s results of operations and financial condition are primarily dependent on the value, composition and relative investment performance of its investment products.

Any decrease in the value, relative investment performance or amount of AUM will cause a decline in revenue and negatively impact operating results and the financial condition of JHG. AUM may decline for various reasons, many of which are not under the control of JHG.

Factors that could cause AUM and revenue to decline include the following:

JHG’s revenue and profitability would be adversely affected by any reduction in AUM as a result of redemptions and other withdrawals from the funds and accounts managed.

Redemptions or withdrawals may be caused by investors (in response to adverse market conditions or pursuit of other investment opportunities or as a consequence of damage to JHG’s reputation, among other factors) reducing their investments in funds and accounts in general or in the market segments on which JHG focuses or investors reallocating investments to lower-fee strategies; investors taking profits from their investments; poor investment performance of the funds and accounts managed by JHG; and portfolio risk characteristics, which could cause investors to move assets to other investment managers. Poor performance relative to competing products provided by other investment management firms tends to result in decreased sales, increased redemptions of fund shares and the loss of or reduction in AUM in private institutional accounts, with corresponding decreases in revenue. Failure of the JHG funds and accounts to perform well could, therefore, have a material adverse effect on the results of operations and financial condition of the Group.

Changes in the value of seeded investment products could affect JHG’s non‑operating income or earnings and could increase the volatility of its earnings.

JHG has a significant seed portfolio and periodically adds new investment strategies to its investment product offerings, and provides the initial cash investment or “seeding” to facilitate the launch of the product. JHG may also provide

substantial supplemental capital to an existing investment product in order to accelerate the growth of a strategy and attract outside investment in the product. A decline in the valuation of these seeded investments could negatively impact JHG’s earnings and financial condition.

Disruption to the operations of third parties whose functions are integral to the Group’s ETN and ETF platforms, collectively referred to as ETPs, may adversely affect the prices at which ETPs trade, particularly during periods of market volatility.

The trading price of an ETP’s shares fluctuates continuously throughout trading hours. While an ETP’s creation/redemption feature and the arbitrage mechanism are designed to make it more likely that the ETP’s shares normally will trade at prices close to the ETF’s net asset value (“NAV”), exchange prices may deviate significantly from the ETP’s NAV. ETP market prices are subject to numerous potential risks, including trading halts invoked by a stock exchange, inability or unwillingness of market markers, authorized participants, settlement systems or other market participants to perform functions necessary for an ETP’s arbitrage mechanism to function effectively, or significant market volatility. If market events lead to instances where an ETP trades at prices that deviate significantly from the ETP’s NAV, or trading halts are invoked by the relevant stock exchange or market, investors may lose confidence in ETP products and redeem their holdings, which may cause AUM, revenue and earnings to decline.

Illiquidity in certain securities in which JHG invests may negatively impact the financial condition of the Group’s investment products, and may impede the ability of JHG funds to effect redemptions.

JHG is exposed to the risk that some of its funds or mandates invest in certain securities or other assets in which the secondary trading market is illiquid or in which there is no secondary trading market at all. Illiquidity may occur with respect to the securities of a specific issuer, of issuers within a specific industry or sector, of issuers within a specific geographic region or regions, with respect to an asset class or an investment type, or with respect to the market as a whole. An illiquid trading market may increase market volatility and may make it impossible for funds or mandates to sell investments promptly without suffering a loss. This may have an adverse impact on the investment performance of such funds and mandates and on the AUM, revenues and results of operations of JHG.

Investors in certain funds managed by JHG have contractual terms that provide for a shorter notice period than the time period during which these funds may be able to sell underlying investments within the fund. This liquidity mismatch may be exacerbated during periods of market illiquidity and, in circumstances in which there are high levels of investor redemptions, it may be necessary for JHG to impose restrictions on redeeming investors or suspend redemptions. Such actions may increase the risk of legal claims by investors, regulatory investigation and/or fines and adversely affect the reputation of JHG.

JHG could be adversely impacted by changes in assumptions used in calculating pension assets and liabilities.

JHG provides retirement benefits for its current and former employees in the UK through the Janus Henderson Group Pension Scheme (the “UK Pension Scheme”). The UK Pension Scheme operates a number of defined benefit sections, which closed to new entrants on November 15, 1999, and a money purchase section. As of December 31, 2017, the UK Pension Scheme had a surplus of £12.0 million on a technical provisions basis. JHG may be required to increase its contributions in the future to cover any increased funding shortfall and/or expenses in the UK Pension Scheme, which could adversely impact JHG’s results and financial condition.

The following issues could adversely affect the funding of the defined benefits under the UK Pension Scheme and materially affect JHG’s funding obligations: (i) poorer than anticipated investment performance of pension fund investments; (ii) the trustees of the UK Pension Scheme switching investment strategy to one with a lower weighting of return‑seeking assets; (iii) changes in the corporate bond yields which are used in the measurement of the UK Pension Scheme’s liabilities; (iv) longer life expectancy (which will make pensions payable for longer and therefore more expensive to provide, whether paid directly from the UK Pension Scheme or secured by the purchase of annuities); (v) adverse annuity rates (which tend, in particular, to depend on prevailing interest rates and life expectancy), as these will make it more expensive to secure pensions with an insurance company; (vi) a change in the actuarial assumptions by reference to which JHG’s contributions are assessed, for example, changes to assumptions for long-term price inflation;

(vii) any increase in the risk‑based levy assessed by and payable to the Pension Protection Fund by the UK Pension Scheme; (viii) other events occurring that make past service benefits more expensive than predicted in the actuarial assumptions by reference to which JHG’s past contributions were assessed; (ix) changes to the regulatory regime for funding defined benefit pension schemes in the UK; and (x) the UK Pensions Regulator exercising its power to trigger a winding up of the UK Pension Scheme, thereby triggering a buy‑out debt on the employers or the UK Pensions Regulator using its powers under the Pensions Act 2004 to make other members of the JHG group liable for any deficit in the UK Pension Scheme’s funding (although, in practice, it is assumed that the Pensions Regulator would be unlikely to exercise these powers while JHG continues to fund the UK Pension Scheme appropriately).

The global scope of JHG’s business subjects the Group to currency exchange rate risk that may adversely impact revenue and income.

JHG generates a substantial portion of its revenue in pounds sterling, euro and Australian dollars. As a result, JHG is subject to foreign currency exchange risk relative to the U.S. dollar (“USD”), JHG’s financial reporting currency, through its non‑U.S. operations. Fluctuations in the exchange rates to the USD may affect JHG’s financial results from one period to the next. In addition, the Group has risk associated with the foreign exchange revaluation of balances held by certain subsidiaries for which the local currency is different from the Group’s functional currency.

JHG could be impacted by counterparty or client defaults.

In periods of significant market volatility, the deteriorating financial condition of one financial institution may materially and adversely impact the performance of others. JHG, and the funds and accounts it manages, have exposure to many different counterparties, and routinely execute transactions with counterparties across the financial industry. JHG, and the funds and accounts it manages, may be exposed to credit, operational or other risk in the event of a default by a counterparty or client, or in the event of other unrelated systemic market failures.

The Group’s expenses are subject to fluctuations that could materially affect its operating results. 

 

The Group’s results of operations are dependent on its level of expenses, which can vary significantly from period to period. The Group’s expenses may fluctuate as a result of, among other things, changes in the level and scope of its operating expenses in response to market conditions or regulations, variations in the level of total compensation expense due to, among other things, bonuses, merit increases and severance costs, changes in its employee count and mix, and competitive factors, expenses incurred to support distribution of its investment strategies and services, expenses incurred to develop new strategies and services, expenses incurred to enhance JHG’s technology, compliance and other infrastructure, impairments of intangible assets or goodwill, and the impact of inflation. Increases in the level of expenses of the Group, or its inability to reduce the level of expenses when necessary, could materially affect its operating results.

Business and Strategic Risks

JHG may fail to successfully implement a strategy for the combined business, which could negatively impact the Group’s AUM, results of operations and financial condition.

Through the combination of JCG and Henderson, the Group intended to establish an independent, active asset manager with a globally relevant brand, footprint, investment proposition and client service. No assurance can be given that the Group will successfully achieve this objective or that this objective will lead to increased revenue and net income, or to the creation of shareholder value. The failure to successfully implement a strategy for JHG could adversely affect the Group’s AUM, results of operations and financial condition.

JHG operates in a highly competitive environment and revenue from fees may be reduced.

The investment management business is highly competitive. In addition, established firms as well as new entrants to the asset management industry have, in recent years, expanded their application of technology, including through the use of robo‑advisers, in providing services to clients. JHG’s traditional fee structures may be subject to downward pressure due to these factors. Moreover, in recent years there has been a trend toward lower fees in the investment management industry, as evidenced by the movement toward passively managed mutual funds and the growth of lower cost funds such as exchange traded, smart beta and quantitative funds. Fees for actively managed investment products may continue

to come under increased pressure if such products fail to outperform returns for comparable passively managed products or as a consequence of regulatory intervention. Fee reductions on existing or future new business as well as changes in regulations pertaining to fees could adversely affect the Group’s results of operations and financial condition. Additionally, JHG competes with investment management companies on the basis of investment performance, fees, diversity of products, distribution capability, scope and quality of services, reputation and the ability to develop new investment products to meet the changing needs of investors. Failure to adequately compete could adversely affect the Group’s AUM, results of operations and financial condition.

The Group’s results are dependent on its ability to attract and retain key personnel.

The investment management business is highly dependent on the ability to attract, retain and motivate highly skilled and often highly specialized technical, executive, sales and investment management personnel. The market for qualified investment and sales professionals is extremely competitive and is characterized by the frequent movement of portfolio managers, analysts and salespeople among different firms. Any changes to management structure, shifts in corporate culture, changes to corporate governance authority, or adjustments or reductions to compensation could affect the Group’s ability to retain key personnel and could result in legal claims. In order to retain certain key personnel, the Group may be required to increase compensation to such individuals, resulting in additional expense.  Laws and regulations could impose restrictions on compensation paid by financial institutions, which could restrict the Group’s ability to compete effectively for qualified professionals. If JHG is unable to retain key personnel, particularly those personnel responsible for managing client funds that account for a high proportion of JHG’s revenue, it could adversely affect the Group’s AUM, results of operations and financial condition.

The Group is dependent upon third‑party distribution channels to access clients and potential clients.

JHG’s ability to market and distribute its investment products is significantly dependent on access to the client base of insurance companies, defined contribution plan administrators, securities firms, broker‑dealers, financial advisors, multi‑managers, banks and other distribution channels. These companies generally offer their clients various investment products in addition to, and competitive with, products offered by JHG. In addition, JHG’s existing relationships with third‑party distributors and access to new distributors could be adversely affected by recent consolidation within the financial services industry. Consolidation may result in increased distribution costs, a reduction in the number of third parties distributing JHG’s investment products or increased competition to access third‑party distribution channels. Moreover, fiduciary regulations have led to significant shifts in distributors’ business models and more limited product offerings, and additional regulations could lead to further changes, potentially resulting in reduced distribution of certain of the Group’s products. The inability of JHG to access clients through third‑party distribution channels could adversely affect the Group’s business prospects, AUM, results of operations and financial condition.

The global scope of JHG’s business subjects the Group to market‑specific political, economic and other risks that may adversely impact the Group’s revenue and income generated overseas.

The Group’s global portfolios and revenue derived from managing these portfolios are subject to significant risks of loss as a result of political, economic and diplomatic developments; currency fluctuations; social instability; changes in governmental policies; regulation and enforcement; expropriation; nationalization; asset confiscation; and changes in legislation related to non‑U.S. ownership. Individual financial, equity, debt and commodity markets may be adversely affected by financial, economic, political, electoral, diplomatic or other instabilities that are particular to the country or region in which a market is located, including without limitation local acts of terrorism, economic crises, political protests, insurrection or other business, social or political crises. Global economic conditions, exacerbated by war, terrorism, natural disasters or financial crises, changes in the equity, debt or commodity marketplaces; changes in currency exchange rates, interest rates, inflation rates and the yield curve; defaults by trading counterparties; bond defaults; revaluation and bond market liquidity risks; geopolitical risks; the imposition of economic sanctions; and other factors that are difficult to predict, affect the mix, market values and levels of JHG’s AUM. Political events in any country or region could result in significant declines in equity and/or fixed income securities exposed to such a country or region and, to the extent that JHG has a concentration of AUM in such a country or region, could result in a material adverse effect on the AUM, results of operations and financial condition of the Group. In addition, international trading markets, particularly in some emerging market countries, are often smaller, less liquid, less regulated and significantly more volatile than those in the U.S. Local regulatory environments may vary widely in terms of scope, adequacy and

sophistication.  Moreover, regulators in non-U.S. jurisdictions could change their policies or laws in a manner that might restrict or otherwise impede the Group’s ability to distribute or authorize products or maintain its authorizations in their respective markets.  Similarly, local distributors, and their policies and practices as well as financial viability, may also vary widely, or be inconsistent or less developed or mature than other more internationally focused distributors.  As the Group’s business grows in non‑U.S. markets, any ongoing and future business, political, economic or social unrest affecting these markets may have a negative impact on the long‑term investment climate in these and other areas, and, as a result, JHG’s AUM and the corresponding revenue and income generated from these markets may be negatively affected.

Harm to JHG’s reputation or poor investment performance of JHG’s products could reduce the level of AUM or affect sales, potentially negatively impacting the Group’s revenue and net income. JHG’s reputation is critical to the success of the Group.

JHG believes that its brand name is well received both in the asset management industry and with its clients, reflecting the fact that the brand, like the business, is based in part on trust and confidence. If the reputation of JHG is harmed, existing clients may reduce amounts held in, or withdraw entirely from, funds advised by JHG, or funds may terminate or reduce AUM under their management agreements with JHG, which could reduce the amount of AUM of the Group and cause the Group to suffer a corresponding loss in revenue and income. The investment performance of JHG, along with achieving and maintaining superior distribution and client services, is also critical to the success of the business. Strong investment performance has historically stimulated sales of JHG investment products. Poor investment performance as compared to third‑party benchmarks or competitive products has in the past, and could in the future, lead to a decrease in sales of investment products managed by JHG and stimulate redemptions from existing products, generally lowering the overall level of AUM and reducing management fees. No assurance can be given that past or present investment performance in the investment products JHG manages is indicative of future performance. Any poor investment performance may negatively impact the revenue and net income of JHG. The reputation of JHG could also be damaged by factors such as litigation; regulatory action; loss of key personnel; misconduct; operational failures (including any failures during implementation of new or rationalization of existing systems and processes); the mismanagement, theft, loss or misuse of client data; fraud (by employees or third parties); failure to manage conflicts of interest or satisfy fiduciary responsibilities; and negative publicity or press speculation (whether or not any such allegations or claims are valid or ultimately disproved, dismissed or withdrawn). Reputational harm or poor investment performance may cause JHG to lose current clients and it may be unable to continue to attract new clients or develop new business. If JHG fails to address, or appears to fail to address, successfully and promptly the underlying causes of any reputational harm or poor investment performance, it may be unsuccessful in repairing any existing harm to its reputation or performance, and the Group’s future business prospects would likely be affected.

JHG has significant goodwill and intangible assets that are subject to impairment.

At December 31, 2018, JHG’s goodwill and intangible assets totaled $4,601.3 million. The value of these assets may not be realized for a variety of reasons, including, but not limited to, significant redemptions, loss of clients, damage to brand name and unfavorable economic conditions. JHG has recorded goodwill and intangible asset impairments in the past and could incur similar charges in the future. Under accounting pronouncements generally accepted in the United States of America (“U.S. GAAP”), goodwill and intangible assets with indefinite lives are not amortized but are tested for impairment annually or more often if an event or circumstance indicates that an impairment loss may have been incurred. Other intangible assets with finite lives are amortized on a straight‑line basis over their estimated useful lives and reviewed for impairment whenever there is an indication of impairment. Should such reviews indicate impairment, a reduction of the carrying value of the intangible asset could occur, resulting in a charge that may, in turn, adversely affect JHG’s AUM, results of operations and financial condition.

JHG’s businesses are dependent on investment management agreements that are subject to termination, non‑renewal or reductions in fees.

JHG derives revenue from investment management agreements with investment funds, institutional investors and other investors. With respect to investment management agreements with U.S. mutual funds, these agreements may be terminated by either party with notice, or in the event of an “assignment” (as defined in the Investment Company Act),

and must be approved and renewed annually by the independent members of each fund’s board of directors or trustees or its shareowners, as required by law. In addition, the board of directors or trustees of certain investment funds and institutional and other investors generally may terminate their investment management agreements upon written notice for any reason and without penalty. Such U.S. mutual funds, investment funds or other investors may choose to exercise such termination rights at any time. In addition, the annual review of U.S. mutual funds investment management agreements, as required by law, could result in a reduction in the Group’s advisory fee revenues. The termination of or failure to renew one or more of these agreements or the reduction of the fee rates applicable to such agreements could have a material adverse effect on the Group’s AUM, results of operations and financial condition.

Failure to properly address conflicts of interest could harm JHG’s reputation, business and results of operations.

JHG’s business requires continuously managing actual and potential conflicts of interest, including situations where the Group’s services to a particular client conflict, or are perceived to conflict, with the interests of another client or those of JHG or its employees. The willingness of clients to enter into transactions in which such a conflict might arise may be affected if the Group fails, or appears to fail, to deal appropriately with conflicts of interest. In addition, failure to appropriately manage potential or perceived conflicts or the crystallization of a conflict of interest could give rise to litigation or regulatory enforcement actions.

Operational and Technology Risks

JHG could be subject to losses and reputational harm if the Group, or its agents, fail to properly safeguard sensitive and confidential information or as a result of cyberattacks.

JHG is dependent on the continued effectiveness of its information and cyber-security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that resides in or is transmitted through such systems.

As part of JHG’s normal operations, the Group maintains and transmits confidential information about its clients and employees as well as proprietary information relating to its business operations. JHG maintains a system of internal controls designed to provide reasonable assurance that fraudulent activity, including misappropriation of assets, fraudulent financial reporting and unauthorized access to sensitive or confidential data, is either prevented or detected on a timely basis. Nevertheless, all technology systems remain vulnerable to unauthorized access and may be corrupted by cyberattacks, computer viruses or other malicious software code, the nature of which threats are constantly evolving and becoming increasingly sophisticated. In addition, authorized persons could inadvertently or intentionally release confidential or proprietary information. Although JHG takes precautions to password protect and encrypt its mobile electronic hardware, if such hardware is stolen, misplaced or left unattended, it may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by JHG. Breach or other failure of JHG’s technology systems, including those of third parties with which the Group does business, or failure to timely and effectively identify and respond to any such breach or failure, could result in the loss of valuable information, liability for stolen assets or information, remediation costs to repair damage caused by the incident, additional security costs to mitigate against future incidents and litigation costs resulting from the incident. The Group’s use of mobile and cloud technologies could heighten these and other operational risks, and any failure by mobile technology and cloud service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt the Group’s operations and result in misappropriation, corruption or loss of confidential or proprietary information. Moreover, loss of confidential customer identification information could harm JHG’s reputation, result in the termination of contracts by the Group’s existing customers and subject the Group to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenue. 

The increasing prevalence and sophistication of cyberattacks generally and the heightened profile of JHG as a result of its increased scale and breadth of global activities may result in an increase in the volume and sophistication of cyberattacks on JHG specifically. This may increase the amount of investment that the Group will need to make to minimize the risk of harm to its business and potentially increase the risk that, despite such investment, the Group will be a victim of a successful cyberattack. Recent well‑publicized security breaches at other companies have exposed failings by companies to keep pace with the threats posed by cyberattackers and have led to enhanced government and

regulatory scrutiny of the measures taken by companies to protect against cyberattacks, and may in the future result in heightened cyber-security requirements, including additional regulatory expectations for oversight of vendors and service providers, which could lead to increased costs or fines or public censure, which could lead to a damaged reputation and loss of customers (and a decrease in AUM, lower revenue and reduced net income) as a result.

Due to the Group’s interconnectivity with third-party vendors, advisors, central agents, exchanges, clearing organizations and other financial institutions, the Group may be adversely affected if any of them are subject to a successful cyberattack or other information security event, including those arising due to the use of mobile technology or a third-party cloud environment. Software applications that JHG uses in its business are licensed from, and supported, upgraded and maintained by, third-party vendors. A suspension or termination of certain of these licenses or the related support, upgrades and maintenance could cause temporary system delays or interruption that could adversely impact JHG’s business. Also, such third-party applications may include confidential and proprietary data provided by vendors and by JHG. The Group may be subject to indemnification costs and liability to third parties if it breaches any confidentiality obligations regarding vendor data, for losses related to the data, or if data it provides is deemed to infringe upon the rights of others. 

Finally, cybersecurity and data privacy have become high priorities for regulators, and many jurisdictions are enacting laws and regulations in these areas. For example, effective from May 2018, the EU significantly increased the potential penalties for noncompliance with requirements for the handling and maintenance of personal and sensitive data concerning customers and employees. The Group’s failure to comply with these requirements could result in penalties of up to 4% of its global revenues, regulatory action and reputational risk. While JHG strives to comply with the relevant laws and regulations, any failure to comply could result in regulatory investigations and penalties as well as negative publicity, which could materially adversely affect its business, results of operations and financial condition.  

Intech’s investment process is highly dependent on key employees and proprietary software.

Intech’s investment process (which relates to approximately 13% of JHG’s AUM as of December 31, 2018) is based on complex and proprietary mathematical models that seek to outperform various indices by capitalizing on the volatility in stock price movements while controlling trading costs and overall risk relative to the index. The maintenance of such models for current products and the development of new products are highly dependent on certain key Intech employees. If Intech is unable to retain key personnel or properly transition key personnel responsibilities to others, if the mathematical investment strategies developed by Intech fail to produce the intended results, or if errors occur in the development or implementation of Intech’s mathematical models, Intech may not be able to maintain its historical level of investment performance, which could adversely affect JHG’s AUM, results of operations and financial condition, and could also result in legal claims against JHG or regulatory investigations in respect of its operations.

Failure to maintain adequate controls and risk management policies, the circumvention of controls and policies, or fraud as well as failure to maintain adequate infrastructure or failures in operational or risk management processes and systems, could have an adverse effect on the Group’s AUM, results of operation and financial condition.

JHG has a comprehensive risk management process and will continue to enhance various controls, procedures, policies and systems to monitor and manage risks to its business; however, there can be no assurances that such controls, procedures, policies and systems will successfully identify and manage internal and external risks to the business. JHG is subject to the risk that its employees, contractors or other third parties may deliberately seek to circumvent established controls to commit fraud or act in ways that are inconsistent with the Group’s controls, policies and procedures (including insider trading). Any operational errors or negligence by the employees of, or others acting on behalf of, JHG or weaknesses in the internal controls over those processes could result in losses for JHG, a requirement for JHG to compensate clients for losses suffered and/or regulatory fines. Persistent or repeated attempts involving conflicts of interest, circumvention of policies and controls, fraud or insider trading could have a materially adverse impact on JHG’s reputation and could lead to costly regulatory inquiries.

The JHG business is also highly dependent on the integrity, security and reliability of its information technology systems and infrastructure. If any of the critical systems or infrastructure do not operate properly or are disabled, the ability of JHG to perform effective investment management on behalf of its clients could be impaired. In addition, the failure to

maintain an infrastructure commensurate with the size and scope of JHG’s business, including any expansion, could impede the Group’s productivity and growth, which could negatively impact AUM, results of operations and financial condition.

JHG’s infrastructure, including its technological capacity, data centers and office space, is vital to the operations and competitiveness of its business. The failure to maintain an infrastructure commensurate with the size and scope of JHG’s business, including any expansion, could impede the Group’s productivity and growth, which could negatively impact AUM, results of operations and financial condition, and increase operational risk.

Insurance may not be available on a cost‑effective basis to help protect JHG from potential liabilities.

JHG faces the inherent risk of liability related to litigation from clients, third‑party vendors or others. To help protect against these potential liabilities, JHG has purchased insurance in amounts, and against risks, that JHG considers appropriate, where such insurance is available at prices it deems acceptable. There can be no assurance, however, that a claim or claims will be covered by insurance or, if covered, will not exceed the limits of available insurance coverage, that any insurer will remain solvent and will meet its obligations to provide JHG with coverage, or that insurance coverage will continue to be available with sufficient limits at a reasonable cost. Insurance costs are impacted by market conditions and the risk profile of the insured, and may increase significantly over relatively short periods. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. Renewals of insurance policies may expose JHG to additional costs through higher premiums or the assumption of higher deductibles or co‑insurance liability.

JHG’s business may be vulnerable to failures of support systems and client service functions provided by third‑party vendors.

JHG’s client service capabilities as well as its ability to obtain prompt and accurate securities pricing information and to process client transactions and reports are significantly dependent on communication and information systems and services provided by third‑party vendors. The ability to consistently and reliably obtain securities pricing information, process client transactions and provide reports and other client services to the shareholders of funds and other investment products managed by JHG are essential to the Group’s operations. Any delays, errors or inaccuracies in obtaining pricing information, processing client transactions or providing reports, and any other inadequacies in other client service functions could impact client relationships, result in financial loss and potentially give rise to regulatory action and claims against JHG. A failure of third‑party systems or services could adversely affect JHG’s AUM, results of operations and financial condition.

JHG depends on third‑party service providers and other key vendors for various fund administration, accounting, custody, risk analytics, market data, market indices and transfer agent roles, and other distribution and operational needs. If JHG’s third‑party service providers or other key vendors fail to fulfill their obligations, experience service interruptions, cease providing their services on short notice or otherwise provide inadequate service, it could lead to operational and regulatory problems, including with respect to certain of the Group’s products, which could result in losses, enforcement actions, or reputational harm, and which could negatively impact the Group’s AUM, results of operations and financial condition.

Failure to maintain adequate business continuity plans could have a material adverse impact on JHG and its products.

Significant portions of JHG’s business operations and those of its critical third‑party service providers are concentrated in a few geographic areas, including the UK, U.S., Luxembourg and Australia. Should JHG, or any of its critical service providers, experience a significant local or regional disaster or other business continuity problem, the Group’s continued success will depend in part on the safety and availability of its personnel, its office facilities, and the proper functioning of its computer, telecommunication and other related systems and operations. The failure by JHG, or any of its critical service providers, to maintain updated and adequate business continuity plans, including backup facilities, could impede the Group’s ability to operate in the event of a disruption. This could negatively impact the Group’s AUM, results of operations and financial condition. JHG has developed various backup systems and contingency plans but no assurance can be given that they will be adequate in all circumstances that could arise or that material interruptions and disruptions will not occur. In addition, JHG will rely to varying degrees on outside vendors for disaster contingency support, and,

notwithstanding any due diligence or oversight carried out by JHG, no assurance can be given that these vendors will be able to perform in an adequate and timely manner. If JHG, or any of its critical service providers, is unable to respond adequately to such an event in a timely manner, the Group may be unable to continue its business operations, which could lead to a damaged reputation and loss of customers, resulting in a decrease in AUM, lower revenue and reduced net income.

JHG’s indebtedness could adversely affect its financial condition and results of operations.

JHG’s indebtedness could limit its ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt servicing requirements or other purposes. Debt servicing requirements will increase JHG’s vulnerability to adverse economic, market and industry conditions; limit JHG’s flexibility in planning for or reacting to changes in business operations or to the asset management industry overall; and place JHG at a disadvantage in relation to competitors that have lower debt levels. Any or all of the above events and factors could adversely affect JHG’s AUM, results of operations and financial condition.

Legal and Regulatory Risks

JHG is periodically involved in various legal proceedings and regulatory matters, and may be involved in such proceedings in the future.

JHG and its employees are periodically involved in various legal proceedings and regulatory investigations. Among other things, such matters may result in fines, censure, suspension of personnel and revocation of licenses. Any of these outcomes could adversely affect JHG’s AUM, results of operations and financial condition. Additionally, JHG and its employees have received and may receive in the future requests for information in connection with certain investigations or proceedings from various governmental and regulatory authorities. These investigations or proceedings may result in increased costs or reputational harm to the Group, which may lower sales and increase redemptions.

JHG operates in an industry that is highly regulated in most countries, and any enforcement action or adverse changes in the laws or regulations governing its business could adversely affect its business, results of operations or financial condition.

Like all investment management firms, JHG’s activities are highly regulated in almost all countries in which it conducts business. The Group is subject to regulation in the U.S., the UK, Europe, Australia and other international markets, including regulation by the SEC, FINRA, the CFTC, the NFA, ASIC in Australia, the CSSF in Luxembourg and the FCA in the UK. Subsidiaries operating in the EU are subject to various EU directives, which are implemented by member state national legislation, and regulations, which are directly applicable without further implementation. JHG’s operations elsewhere in the world are regulated by similar regulatory organizations.

Laws and regulations applied at the international, national, state or provincial and local level generally grant governmental agencies and industry self‑regulatory authorities broad administrative discretion over JHG’s activities, including the power to limit or restrict its business activities, to conduct examinations, risk assessments, investigations and capital adequacy reviews, and to impose remedial programs to address perceived deficiencies. As a result of regulatory oversight, JHG could face requirements that negatively impact the way in which it conducts business, increase compliance costs, impose additional capital requirements and/or involve enforcement actions that could lead to sanctions up to and including the revocation of licenses to operate certain businesses, the suspension or expulsion from a particular jurisdiction or market of any of its business organizations or key personnel, or the imposition of fines and censures on it or its employees. Judgments or findings of wrongdoing by regulatory or governmental authorities, or in private litigation against JHG, could affect its reputation, increase its costs of doing business and/or negatively impact revenues, any of which could have an adverse impact on JHG’s results of operations or financial condition.

JHG may also be adversely affected as a result of new or revised legislation or regulations, or by changes in the interpretation or enforcement of existing laws and regulations. The costs and burdens of compliance with these and other current and future reporting and operational requirements and regulations have increased significantly and may continue to increase the cost of offering mutual funds and other investment products and services, which could adversely affect JHG’s AUM, business, results of operations or financial condition.

The regulatory environment in which JHG operates frequently changes and has seen a significant increase in regulation in recent years. Various changes in laws and regulations have been enacted or otherwise developed in multiple jurisdictions globally in recent years, and various other proposals remain under consideration by legislators, regulators and other government officials and public policy commentators. Certain enacted provisions and certain other proposals are potentially far reaching and, depending upon their implementation, could have a material impact on JHG’s business, results of operations or financial condition. JHG may be adversely affected as a result of the new or revised legislation or regulations or by changes in the interpretation or enforcement of existing laws and regulations.

Proposed Changes in the U.S. Regulatory Framework

In the U.S., the government and other institutions have taken action, and may continue to take further action, in response to the volatility in the global financial markets. For example, the Dodd‑Frank Act was signed into law in July 2010. Certain provisions have required JHG, and other provisions will or may require JHG, to change and or impose new limitations on the manner in which it conducts business and has increased regulatory burdens and related compliance costs. Rulemaking is still ongoing for the Dodd‑Frank Act, and any further actions could include new rules and requirements that may be applicable to JHG, the effect of which could have additional adverse consequences to JHG’s business, results of operations or financial condition. The Trump administration has indicated a desire to repeal, revise or replace aspects of the Dodd-Frank Act, but the timing and details on specific proposals are uncertain.

Regulators also continue to examine the different aspects of the asset management industry. For example, in December 2014, the chairperson of the SEC announced a comprehensive agenda for regulatory change governing the U.S. asset management industry and directed SEC staff to develop a five‑part series of new regulations addressing the topics of enhanced portfolio reporting, liquidity risk management, leverage and use of derivatives, adviser wind-up, and stress testing for funds and advisers. This resulted in new regulations regarding enhanced portfolio reporting (Investment Company Reporting Modernization Reforms) and liquidity risk management (Investment Company Liquidity Risk Management Rules). The SEC has proposed a new rule that would materially restrict the manner in which many investment companies use derivatives transactions (swaps, futures and forwards) and financial commitment transactions (reverse repurchase agreements, but not repurchase agreements), short sale borrowings or any other firm or standby financial commitment. These new industry rules can be expected to add additional reporting, operational and compliance costs and may affect the development of new products. JHG believes these proposals could increase operational and compliance costs. It is unclear whether any of the former SEC chairperson’s other initiatives will result in any new rulemaking.

The FSOC has the authority under the Dodd-Frank Act to review the activities of non-bank financial companies predominantly engaged in financial activities and designate those companies determined to be “systemically important” for supervision by the Federal Reserve. To date, FSOC has not designated any asset management firms or funds as a systemically important financial institution. In the unlikely event that such designation were to occur, JHG would be subject to significantly increased levels of regulation, which includes, without limitation, a requirement to adopt heightened standards relating to capital, leverage, liquidity, risk management, credit exposure reporting and concentration limits, restrictions on acquisitions and being subject to annual stress tests by the Federal Reserve.

The full extent of the impact on JHG of the Dodd-Frank Act or any other new laws, regulations or initiatives that may be proposed, including by the Trump administration, which has expressed support for potential modifications to the Dodd‑Frank Act and other deregulatory measures, and regulatory reform initiatives and enforcement agendas pursued by regulators such as the SEC and the DOL (which have separately expressed support for investor protection initiatives that may impact how and to whom certain investment products can be distributed in the U.S.), is impossible to determine. Such changes have imposed, and may continue to impose, new compliance costs and/or capital requirements or impact JHG in other ways that could have a material adverse impact on JHG’s business, results of operations or financial condition. Moreover, certain legal or regulatory changes could require JHG to modify its strategies, businesses or operations, and these changes may result in the incurrence of other new constraints or costs, including the investment of significant management time and resources in order to satisfy new regulatory requirements or to compete in a changed business environment.

Proposed Changes in the European Union Regulatory Framework

The EU has promulgated or is considering various new or revised directives pertaining to financial services, including investment managers. Such directives are progressing at various stages, and have been, are being, or will or would be implemented by national legislation in member states. MiFID II is an example of such regulation, which seeks to promote a single market for wholesale and retail transactions in financial instruments. MiFID II, which came into effect on January 3, 2018, addresses the conduct of business rules for intermediaries providing investment services and the effective, efficient and safe operation of financial markets. Key elements of MiFID II in relation to investor protection measures include changes to the extent to which retrocessions may be paid and the use of trading commissions to fund research. Further such regulatory changes may have a direct impact on the revenue of JHG’s asset management business should they result in operational changes and increased operational or compliance costs.

Various regulators promulgated or are considering other new disclosure or suitability requirements pertaining to the distribution of investment funds and other investment products or services, including enhanced standards and requirements pertaining to disclosures made to retail investors at the point of sale. As with the Dodd‑Frank Act, the Group does not believe implementation of these directives will fundamentally change the asset management industry or cause JHG to reconsider its fundamental strategy, but certain provisions may require JHG to change or impose new limitations on the manner in which it conducts business and may result in increased fee and margin pressure from clients. They also have increased regulatory burdens and compliance costs, and will or may continue to do so. Certain provisions, such as MiFID II, may have unintended adverse consequences on the liquidity or structure of the financial markets. Similar developments are being implemented or considered in other jurisdictions where JHG does business; such developments could have similar effects.

There are EU proposals which, if introduced, would mean a revised prudential regime would be applicable to JHG’s EU subsidiaries that are investment firms for the purposes of MiFID II. The European Commission intends to establish a new prudential framework for these firms. In summary, the current proposals mean that certain systemically important firms will be reclassified as credit institutions and will be subject to prudential requirements set out in Capital Requirements Directive IV (“CRD IV”). All other investment firms will be subject to a new prudential framework, replacing the requirements set out in CRD IV. Small and non-interconnected investment firms will be subject to limited prudential requirements. “K-factors” will be used in the classification of investment firms and in the new capital requirements methodology for investment firms. K-factors are quantitative indicators intended to represent the risks that an investment firm can pose to customers, to market access or liquidity, and to the firm itself. Investment firms could be subject to revised regulatory capital, remuneration and governance standards. The European Commission also intends to use the new regime to tighten requirements relating to the supervision of firms with parent undertakings in third countries. The aim of the framework is to simplify the prudential classification of investment firms and establish a single harmonized approach to their prudential requirements. It also seeks to increase proportionality and risk-sensitivity and reduce the complexity of the existing system.

In April 2018, the FCA published a policy statement outlining its feedback and final rules relating to its Asset Management Market Study. The final rules and guidance cover a number of areas, including a requirement for managers of UK funds to make an annual assessment of value (as part of their duty to act in the best interests of the investors in their funds) and a requirement for managers to appoint a minimum of two independent directors to the boards of companies managing UK domiciled funds. The final rules and guidance will have staged implementation commencing in 2019.

The full impact of potential legal and regulatory changes or possible enforcement proceedings on the JHG business cannot be predicted. Such changes have imposed, and may continue to impose, new compliance costs and/or capital requirements, including costs related to information technology systems, or may impact JHG in other ways that could have an adverse impact on JHG’s results of operations or financial condition, including by placing further downward pressure on fees. Similarly, regulatory enforcement actions that impose significant penalties or compliance obligations or that result in significant reputational harm could have similar adverse effects on JHG. Moreover, certain legal or regulatory changes could require JHG to modify its strategies, businesses or operations, and it may incur other new constraints or costs, including the investment of significant management time and resources in order to satisfy new regulatory requirements or to compete in a changed business environment. In recent years, certain regulatory

developments have also added pressures regarding fee levels. In addition, the 2016 presidential election in the U.S. and recent elections in Europe have created additional uncertainty as to the future regulatory environment and how it may impact JHG.

To the extent that existing or future regulations affect the sale of and fees charged by JHG in respect of its products and services or investment strategies may cause or contribute to reduced sales or increased redemptions of its products, impair the investment performance of its products or impact its product mix, JHG’s aggregate assets under management, results of operations or financial condition might be adversely affected.

JHG may have increased regulatory capital requirements imposed on it by regulators, which could negatively impact the Group’s ability to return capital or pay dividends to shareholders or its results of operations and financial condition.

JHG’s regulators typically have broad discretion to impose increased regulatory capital requirements on the regulated entities in their respective groups. It is possible that the regulatory capital requirements that JHG’s business is subject to currently may be subject to change and could increase. For example, there are EU proposals which, if introduced, would mean a revised prudential regime would be applicable to JHG’s EU subsidiaries that are investment firms for the purposes of MiFID II. For further details, see “―JHG operates in an industry that is highly regulated in most countries, and any enforcement action or adverse changes in the laws or regulations governing its business could adversely affect its business, results of operations or financial condition―Proposed Changes in the European Union Regulatory Framework.” The imposition of increased regulatory capital requirements could negatively impact the Group’s ability to return capital or pay dividends to shareholders, restrict its ability to make future acquisitions or, should the Company be required to raise additional capital, negatively impact its results of operations and financial condition.

Failure to comply with client contractual requirements and/or investment guidelines could negatively impact JHG’s assets under management, results of operations and financial condition.

Many of the investment management agreements under which JHG manages assets or provides services specify investment guidelines or requirements that the Group is required to observe in the provision of its services. Laws and regulations also impose similar requirements for certain accounts. A failure to follow these guidelines or requirements could result in damage to the Group’s reputation or in clients seeking to recover losses, withdrawing their assets or terminating their contracts, any one of which could cause revenues and profitability to decline. In addition, breach of these investment guidelines or requirements could result in regulatory investigation, censure and/or fine.

The UK electorate voted in favor of a UK exit from the EU in a referendum, which could adversely impact JHG’s business, results of operations and financial condition.

The UK government held an “in‑or‑out” referendum in June 2016 on the UK’s membership in the EU. The UK electorate voted in favor of a UK exit from the EU (“Brexit”). The terms of the UK’s exit from the EU, expected to take place on March 29, 2019, are not yet finalized and it is not clear whether there will be a transitional period (currently expected to be until December 31, 2020, if agreed) during which key elements of the UK’s relationship with the EU would remain in place, including the ability for UK firms to “passport” services into the EU and vice versa. JHG remains headquartered in the UK and conducts business in Europe through subsidiaries and branches in the EU as well as conducting cross‑border business into the EU from the UK. Depending on the final terms of Brexit, and despite steps already undertaken by JHG in preparation for Brexit, JHG will face additional costs, including possibly additional taxation, and other challenges, including new impediments to conducting EU business and costs of restructuring and other changes to facilitate continuing European business activities. Should UK-based asset management firms lose their current level of access to the single EU market as a result of Brexit, JHG may incur additional costs due to having to relocate additional activities to within the EU. For example, should EU investors no longer wish or be able for their own internal reasons to hold UK domiciled funds as a result of Brexit, this may result in European investors withdrawing from UK UCITS products managed by JHG, which could negatively impact the results of JHG’s operations and financial condition.

A decline in trade between the UK and EU could affect the attractiveness of the UK as a global investment center and could have a detrimental impact on UK economic growth. Although JHG has a diverse international customer base, its results could be adversely affected by the market impacts of reduced UK economic growth and greater volatility in the pound sterling. There could also be changes to UK and EU immigration policies as a result of Brexit, which could lead to restrictions on the free movement of investment and support staff between the UK and the EU.

Any of the foregoing factors could have a material adverse effect on JHG’s business, results of operations or financial condition.

JHG may not manage risks associated with the replacement of benchmark indices effectively

 

The withdrawal and replacement of widely used benchmark indices such as the London Interbank Offered Rate (“LIBOR”) with alternative benchmark rates introduces a number of risks for the Group, its clients and the financial services industry more widely. These includes legal implementation risks, as extensive changes to documentation for new and existing clients and transactions may be required; financial risks, arising from any changes in the valuation of financial instruments linked to benchmark indices; pricing risks, as changes to benchmark indices could impact pricing mechanisms on some instruments; operational risks, due to the potential requirement to adapt information technology systems, trade reporting infrastructure and operational processes; and conduct risks, relating to communication with potential impact on customers and engagement during the transition away from benchmark indices such as LIBOR.

 

It is expected that a transition away from the widespread use of LIBOR to alternative benchmark rates will occur over the course of the next few years. The FCA, which regulates LIBOR, has announced that it has commitments from panel banks to continue to contribute to LIBOR through the end of 2021, but that the FCA will not use its powers to compel contributions beyond such date. Accordingly, there is considerable uncertainty regarding the publication of LIBOR beyond 2021. Accordingly, it is not currently possible to determine precisely whether, or to what extent, the withdrawal and replacement of LIBOR would affect JHG; however, the implementation of alternative benchmark rates to LIBOR may have a material adverse effect on JHG’s business, results of operations or financial condition.

 

JHG may be subject to claims of lack of suitability.

If clients of JHG suffer losses on funds or investment mandates managed by the Group, they may seek compensation from JHG on the basis of allegations that the funds and/or investment mandates were not suitable for such clients or that the fund prospectuses or other marketing materials contained material errors or were misleading. Despite the controls relating to disclosure in fund prospectuses and marketing materials, it is possible that such action may be successful, which in turn could adversely affect the business, financial condition and results of operations of the Group. Any claim for lack of suitability may also result in regulatory investigation, censure and/or fine, and may damage the reputation of JHG.

As a foreign private issuer, JHG is not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.

As a foreign private issuer, JHG is not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about the company than if it were a U.S. domestic issuer. For example, JHG is not subject to the proxy rules in the U.S., and disclosure with respect to its annual meetings are governed by Jersey law and ASX requirements. In addition, JHG’s officers, directors and significant shareholders are exempt from the reporting and “short‑swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, JHG’s shareholders may not know on a timely basis when the company’s officers, directors and significant shareholders purchase or sell shares.

Risks Related to Taxes

Changes to tax laws could adversely affect JHG.

The determination of the company’s provision for income taxes requires judgment, the use of estimates and the interpretation and application of complex tax laws. The company’s provision for income taxes reflects a combination of income earned and taxed in the various U.S. federal and state, UK as well as other international jurisdictions. Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances, and the company’s change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate and the amount of tax payable by the Group.

 

The tax affairs of the Group will in the ordinary course be reviewed by tax authorities, which may disagree with certain positions that JHG has taken, or that members of the Group have taken or will take in the future, and assess additional taxes. JHG regularly assesses the likely outcomes of such tax inquiries, investigations or audits in order to determine the appropriateness of their respective tax provisions. However, there can be no assurance that JHG will accurately predict the outcomes of these inquiries, investigations or audits, and the actual outcomes of these inquiries, investigations or audits could have a material impact on the Group’s financial results.

As a result of the Merger, the IRS may assert that JHG is to be treated as a domestic corporation or otherwise subject to certain adverse consequences for U.S. federal income tax purposes.

Although JHG is a public limited company incorporated in Jersey, Channel Islands, and tax resident in the UK, the U.S. Internal Revenue Services (the “IRS”) may assert that JHG, as a result of the Merger, should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal income tax purposes pursuant to section 7874 of the U.S. Internal Revenue Code of 1986, as amended (“Section 7874”).

Section 7874 provides that if, following an acquisition of a U.S. corporation by a non‑U.S. corporation, at least 80% of the acquiring non‑U.S. corporation’s stock (by vote or value) is considered to be held by former shareholders of the U.S. corporation by reason of holding stock of such U.S. corporation (such percentage referred to as the “ownership percentage” and such test referred to as the “80% ownership test”), and the “expanded affiliated group,” which includes the acquiring non‑U.S. corporation, does not have substantial business activities in the country in which the acquiring non‑U.S. corporation is created or organized, then the non‑U.S. corporation would be treated as a U.S. corporation for U.S. federal income tax purposes even though it is a corporation created and organized outside the U.S.

JHG does not believe that the 80% ownership test was satisfied as a result of the Merger. If the 80% ownership test were satisfied and, as a result, JHG were treated as a U.S. corporation for U.S. federal income tax purposes, JHG could be liable for substantial additional U.S. federal income tax on its operations and income. Additionally, if JHG were treated as a U.S. corporation for U.S. federal income tax purposes, non‑U.S. JHG shareholders would generally be subject to U.S. withholding tax on the gross amount of any dividends paid by JHG to such shareholders.

Section 7874 also provides that if, following an acquisition of a U.S. corporation by a non‑U.S. corporation, the ownership percentage is equal to or greater than 60% but less than 80% (such test referred to as the “60% ownership test”), then the U.S. corporation and its affiliates could be prohibited from using their foreign tax credits or other U.S. federal tax attributes to offset the income or gain recognized by reason of the transfer of property to a non‑U.S. related person or any income received or accrued by reason of a license of any property by such U.S. entity to a non‑U.S. related person. Further, certain JCG stock compensation held directly or indirectly by management prior to the Merger would be subject to an excise tax at a rate equal to 15%. In addition, under U.S. Treasury temporary regulations, JHG’s ability to integrate certain non‑U.S. operations or to access cash earned by non‑U.S. subsidiaries may be limited. JHG does not believe that the 60% ownership test was satisfied as a result of the Merger.

Because there is only limited guidance on the manner in which the ownership percentage is to be determined, there can be no assurance that the IRS will agree with the position that JHG is to be treated as a non‑U.S. corporation or that JHG

is not to be subject to the other adverse U.S. federal income tax consequences associated with satisfying the 60% ownership test.

Jersey Company Risks

JHG’s ordinary shares are governed by the laws of Jersey, Channel Islands, which may not provide the level of legal certainty and transparency afforded by incorporation in a U.S. state.

JHG is organized under the laws of Jersey, Channel Islands, a British crown dependency that is an island located off the coast of Normandy, France. Jersey is not a member of the EU. Jersey, Channel Islands, legislation regarding companies is largely based on English corporate law principles. However, there can be no assurance that the laws of Jersey, Channel Islands, will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors.

U.S. shareholders may not be able to enforce civil liabilities against JHG.

Certain of JHG’s directors and executive officers are not residents of the U.S. A substantial portion of the assets of such persons are located outside the U.S. As a result, it may not be possible for investors to effect service of process within the U.S. upon such persons.

Judgments of U.S. courts may not be directly enforceable outside of the U.S., and the enforcement of judgments of U.S. courts outside of the U.S. may be subject to limitations. Investors may also have difficulties pursuing an original action brought in a court in a jurisdiction outside the U.S. for liabilities under the securities laws of the U.S.

 

ITEM 1B.               UNRESOLVED STAFF COMMENTS

None.

 

ITEM 2.               PROPERTIES

JHG has 29 offices across the UK, Europe, North America, Asia and Australia. JHG’s corporate headquarters is located in London, where it occupies approximately 107,000 square feet on a long‑term lease that expires in 2028. JHG also has significant operations in Denver, Colorado occupying approximately 160,000 square feet of office space in two separate locations. The primary office building in Denver accounts for 91% of the total square feet of office space in Denver, and its lease expires in 2025. The remaining 26 offices total approximately 129,000 square feet and are all leased. In the opinion of management, the space and equipment leased by the Group are adequate for existing operating needs.

 

ITEM 3.               LEGAL PROCEEDINGS

The information set forth in response to Item 103 of Regulation S-K under “Legal Proceedings” is incorporated by reference from Part II, Item 8, Financial Statements and Supplementary Data, Note 18 – Commitments and Contingencies-Litigation and Other Regulatory Matters.

 

ITEM 4.               MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.               MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

JHG Common Stock

JHG’s common stock is traded on the New York Stock Exchange (the “NYSE”) (symbol: JHG). On December 31, 2018, there were approximately 47,481 holders of record of JHG’s common stock.

 

The following graph illustrates the cumulative total shareholder return (rounded to the nearest whole dollar) of JHG’s common stock over the five-year period ending December 31, 2018, the last trading day of 2018, and compares it to the cumulative total return on the Standard and Poor’s (“S&P”) 500 Index and the S&P Diversified Financials Index. The comparison assumes a $100 investment on December 31, 2013, in JHG’s common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. This data is not intended to forecast future performance of JHG’s common stock.

 

Common Stock Purchases

At the Annual General Meeting held on May 3, 2018, shareholders authorized JHG to make on‑market purchases of up to 10% of the issued share capital of the Group. In August 2018, the Group commenced an on-market buyback program to repurchase up to $100 million of its ordinary shares on the NYSE and its CDIs on the ASX over 12 months. The Group purchased 3,993,374 shares of common stock for $99.8 million in 2018. The purchased shares were cancelled.

 

On February 4, 2019, the Board approved JHG commencing a new on-market share buyback program in 2019, on a date to be determined and announced by JHG. The Group intends to spend up to $200 million to buy its ordinary shares on

the NYSE and its CDIs on the ASX for its share buyback program that is expected to be completed over the next 12 months. The program is subject to JHG appointing a corporate broker.

 

During the first quarter 2019, JHG will purchase shares on-market for the annual share grants associated with 2018 variable compensation, which is not connected with the above Board approval. As a policy, JHG does not issue new shares to employees as part of its annual compensation practices.

 

Some of the Group’s executives and employees receive rights over JHG ordinary shares as part of their remuneration arrangements and employee entitlements. These entitlements may be satisfied either by the transfer of existing ordinary shares acquired on‑market or by the issue of ordinary shares.

 

The following table presents JHG ordinary shares purchased on‑market by month during 2018 in satisfaction of employee awards and entitlements, and in connection with the share buyback program.

 

 

 

ITEM 6.               SELECTED FINANCIAL DATA

The selected financial data below was derived from the Group’s consolidated financial statements and should be read in conjunction with Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of JHG, and Part II, Item 8, Financial Statements and Supplementary Data. Data presented for the years ended December 31, 2016, 2015 and 2014, are pre-merger and are not comparable with the results presented in 2017 or

2018. Data presented for the year ended December 31, 2017, includes the impact of the Merger from May 30, 2017, through the end of the year.

 

 

ITEM 7.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF JHG

Business Overview

JHG is an independent global asset manager, specializing in active investment across all major asset classes. JHG actively manages a broad range of investment products for institutional and retail investors across five capabilities: Equities, Quantitative Equities, Fixed Income, Multi‑Asset and Alternatives.

On May 30, 2017, JHG completed a merger of equals with JCG (the “Merger”). As a result of the Merger, JCG and its consolidated subsidiaries became subsidiaries of JHG.

Segment Considerations

JHG is a global asset manager and manages a range of investment products, operating across various product lines, distribution channels and geographic regions. However, resources are allocated and the business is managed by the chief operating decision‑maker, the Chief Executive Officer (“CEO”), on an aggregated basis. Strategic and financial management decisions are determined centrally by the CEO and, on this basis, the Group operates as a single segment investment management business.

Revenue

Revenue primarily consists of management fees and performance fees. Management fees are generally based upon a percentage of the market value of AUM and are calculated using either the daily, month‑end or quarter‑end average asset balance in accordance with contractual agreements. Accordingly, fluctuations in the financial markets have a direct effect on the Group’s operating results. Additionally, AUM may outperform or underperform the financial markets and therefore may fluctuate in varying degrees from that of the general market.

Performance fees are specified in certain fund and client contracts and are based on investment performance either on an absolute basis or compared to an established index over a specified period of time. This is sometimes subject to a hurdle rate. Performance fees are recognized at the end of the contractual period (typically monthly, quarterly or annually) if the stated performance criteria are achieved. Certain fund and client contracts allow for negative performance fees where there is underperformance against the relevant index.

2018 SUMMARY

2018 Highlights

 

 

 

 

 

 

 

Financial Summary

Results are reported on a U.S. GAAP basis. Adjusted non‑GAAP figures are presented in the Non‑GAAP Financial Measures section.

Revenue for the year ended December 31, 2018, was $2,306.4 million, an increase of $488.1 million, or 27%, from December 31, 2017. This increase was primarily driven by five additional months of JCG revenues totaling $542.0 million during the year ended December 31, 2018. Average AUM increased by 5% and positively impacted management fees during the year ended December 31, 2018, compared to the same period in 2017. These increases are partially offset by lower performance fees.

 

Total operating expenses for the year ended December 31, 2018, were $1,656.6 million, an increase of $280.6 million, or 20%, compared to operating expenses for the year ended December 31, 2017. Five additional months of JCG operations contributed $337.9 million to operating expenses in the year ended December 31, 2018. Deal and integration costs, which were significantly higher in 2017 compared to 2018, also contributed to the variance.

Operating income for the year ended December 31, 2018, was $649.8 million, an increase of $207.5 million, or 47%, compared to the year ended December 31, 2017. The Group’s operating margin was 28.2% in 2018, compared to 24.3% in 2017. Five additional months of JCG operations contributed $204.1 million to operating income in the year ended December 31, 2018.

Net income attributable to JHG in the year ended December 31, 2018, was $523.8 million, a decrease of $131.7 million, or (20%), compared to the year ended December 31, 2017. The decrease was mainly due to an increase in income taxes due to a higher effective tax rate in 2018 compared to 2017, as well as a one-time tax benefit that was recorded in 2017 due to changes in U.S. tax laws. This decrease was partially offset by an additional five months of JCG operations, which contributed $183.8 million to net income attributable to JHG in the year ended December 31, 2018. Other non-operating income (expenses), net (excluding the five additional months of JCG) also improved $45.6 million during the year ended December 31, 2018, compared to the same period in 2017, mainly due to fair value adjustments related to the Dai-ichi options, a gain recognized on the disposal of the Group’s back-office, middle-office and custody functions in the U.S. and foreign currency translation. 

Investment Performance of Assets Under Management

The following table is a summary of investment performance as of December 31, 2018:

 

Assets Under Management

The Group’s AUM as of December 31, 2018, was $328.5 billion, a decrease of $42.3 billion, or (11%) from December 31, 2017, driven primarily by net redemptions of $18.1 billion, adverse market movements of $15.7 billion and unfavorable foreign exchange movements of $8.5 billion due to the strengthening of the U.S. dollar (“USD”).

 

JHG’s non-USD AUM is primarily denominated in Great British pounds (“GBP”), euros (“EUR”) and Australian dollars (“AUD”). During the year ended December 31, 2018, the USD strengthened against the GBP, the EUR and the AUD. As

of December 31, 2018, approximately 34% of the Group’s AUM was non-USD-denominated, resulting in a net unfavorable currency effect, particularly in products exposed to GBP.

 

VelocityShares ETNs and certain index products are not included within AUM as JHG is not the named adviser or subadviser to ETNs or index products. VelocityShares ETN assets totaled $2.2 billion and $4.0 billion as of December 31, 2018, and December 31, 2017, respectively. VelocityShares index product assets not included within AUM totaled $1.7 billion and $0.1 billion as of December 31, 2018, and December 31, 2017, respectively.

 

Asset and flows by capability for the years ended December 31, 2018, 2017 and 2016, are as follows (in billions):

 

 

 

Closing Assets Under Management

The following table presents the closing AUM, split by client type and client location, as of December 31, 2018 (in billions):

 

 

 

Valuation of Assets Under Management

The fair value of AUM is based on the value of the underlying cash and investment securities of the funds, trusts and segregated mandates. A significant proportion of these securities is listed or quoted on a recognized securities exchange or market and is regularly traded thereon; these investments are valued based on unadjusted quoted market prices. Investments including, but not limited to, over the counter derivative contracts (which are dealt in or through a clearing firm), exchanges or financial institutions will be valued by reference to the most recent official settlement price quoted by the appointed market vendor, and in the event no price is available from this source, a broker quotation may be used. Physical property held is valued monthly by a specialist independent appraiser.

 

When a readily ascertainable market value does not exist for an investment, the fair value is calculated based on the expected cash flows of its underlying net asset base, taking into account applicable discount rates and other factors. Judgment is used to ascertain if a formerly active market has become inactive and to determine fair values when markets have become inactive. The Fair Value Pricing Committee is responsible for determining or approving these unquoted prices, which are reported to those charged with governance of the funds and trusts. For funds that invest in markets that are closed at their valuation point, an assessment is made daily to determine whether a fair value pricing adjustment is required to the fund’s valuation. This may be due to significant market movements in other correlated open markets, scheduled market closures or unscheduled market closures as a result of natural disaster or government intervention.

 

Third-party administrators hold a key role in the collection and validation of prices used in the valuation of the securities. Daily price validation is completed using techniques such as day-on-day tolerance movements, invariant prices, excessive movement checks and intra-vendor tolerance checks. The JHG data management team performs oversight of this process and completes annual due diligence on the processes of third-parties.

 

In other cases, the Group performs a number of procedures to validate the pricing received from third-party providers. For actively traded equity securities, prices are received daily from both a primary and secondary vendor. For fixed income securities, prices are received daily from a primary vendor and weekly from a secondary vendor. Prices from the primary and secondary vendors are compared to identify any discrepancies. In the event of a discrepancy, a price challenge may be issued to both vendors. Securities with significant day-to-day price changes require additional research, which may include a review of all news pertaining to the issue and issuer, and any corporate actions. All fixed income prices are reviewed by JHG’s fixed income trading desk to incorporate market activity information available to JHG’s traders. In the event the traders have received price indications from market makers for a particular issue, this information is transmitted to the pricing vendors.

 

JHG leverages the expertise of its fund management teams across the business to cross-invest assets and create value for its clients. Where cross investment occurs, assets and flows are identified and the duplication is removed.

 

Results of Operations

The year ended December 31, 2017, includes seven months (June through December) of JCG post-merger activity, while the year ended December 31, 2018 includes JCG activity for all months in the period. This scenario creates significant variances throughout the Results of Operations when comparing activity for the year ended December 31, 2018, to the same period in 2017. For purposes of the Results of Operations discussions below, the variances due to this scenario will be separately identified and disclosed as “the inclusion of five additional months of JCG.”

 

Foreign currency translation impacts the expense analysis throughout the Results of Operations section. The translation of GBP to USD is the primary driver of foreign currency translation in expenses. The GBP weakened against the USD during the year ended December 31, 2018, compared to the same period in 2017. Revenue is also impacted by foreign currency translation, but the impact is generally determined by the primary currency of the fund.

 

Revenue

 

*     n/m — Not meaningful

Management fees

Management fees increased by $466.5 million, or 31.5%, during the year ended December 31, 2018, compared to the same period in 2017. The inclusion of five additional months of JCG management fees of $437.2 million was the primary driver of the increase.  Higher average AUM due to favorable markets and foreign currency translation also increased management fees by $59.1 million and $22.8 million, respectively.  These increases were partially offset by the net outflows causing a decrease in management fees during the year ended December 31, 2018.

Management fees increased by $594.8 million, or 67.1%, during the year ended December 31, 2017, compared to the same period in 2016 with the inclusion of seven months of legacy JCG management fees of $584.9 million as the largest driver. Average AUM (excluding JCG) increased by 6% and positively affected management fees during the year ended December 31, 2017, compared to the same period in 2016. Positive market movements contributed $80.2 million to the increase in management fees over the prior year. These increases are partially offset by the effect of adverse foreign currency translations ($11.0) million, net outflows causing a decrease in management fees, and lower average gross fee margins. Lower margins are primarily due to a change in product mix (i.e., switch in share classes as a result of the retail distribution review within Europe to a lower fee share class), and are partially offset by a decrease in distribution expenses.

Performance fees

Performance fees are derived across a number of product ranges. Pooled fund and segregated mandate performance fees are recognized on a quarterly or annual basis, while mutual fund performance fees are recognized on a monthly basis.

Performance fees by product type consisted of the following for the years ended December 31, 2018, 2017 and 2016 (in millions):

 

*     n/m — Not meaningful

Performance fees decreased by $96.8 million, or (93.2%), during the year ended December 31, 2018, compared to the same period in 2017. The decrease for the year ended December 31, 2018, compared to the same period in 2017, was primarily due to a decrease in SICAV and UK OEICs & unit trusts performance fees from a decline in performance of several large European equity and absolute return products as well as a decrease in segregated mandates and investment trusts due to fewer annual performance fee crystallizations.  The inclusion of five additional months of JCG net performance fees also contributed $9.2 million to the decrease.

 

Performance fees increased by $49.1 million, or 89.6%, during the year ended December 31, 2017, compared to the same period in 2016. The increase for the year ended December 31, 2017, compared to the same period in 2016 was primarily due to improved performance which led to an increase in SICAV performance fees. Performance fees for UK OEICs and unit trusts also increased in the period. These increases are partially offset by $6.3 million of net negative performance fees related to legacy JCG.

The following table outlines performance fees by product type and includes information on fees earned, number of funds generating performance fees, AUM generating performance fees, number of funds eligible to earn performance fees,

AUM with an un‑crystallized performance fee, performance fee participation rate, performance fee frequency and performance fee methodology (dollars in millions, except where noted):

 

 

Shareowner servicing fees

Shareowner servicing fees are primarily composed of JCG mutual fund servicing fees. For the year ended December 31, 2018, shareowner servicing fees increased $66.9 million compared to the same period in 2017, primarily due to the inclusion of five additional months of JCG shareowner servicing fees of $64.2 million and higher AUM.