Tom Gallagher: That does. Thanks, Deanna. And just for a follow-up, just — could you provide what’s embedded in your guide related to both net flows in RIS and PGI?
Deanna Strable: Yeah. I think, probably, Kamal and Chris would be in the best position to talk through that.
Dan Houston: So, Pat, maybe go ahead.
Patrick Halter: Yeah. So I think from a look-forward perspective, Tom, we’re seeing improvement from 2023. As Kamal highlighted, we’re seeing improvement in our broad range of investment activities, starting with fixed income and we think fixed income is going to be a benefactor and a recipient of the Fed policy actions that we believe in are assuming to occur later this year in terms of sort of a Fed easy. So that’s the first sort of protocol relative to I think flows coming in a more positive direction in 2024. Kamal highlighted our real estate. We still have a very balanced approach in terms of what we can do in real estate, both in terms of the pipeline and the opportunities, both in debt and data centers and other specialized investment activities.
We don’t talk about this enough, but Europe is actually a very active place for us right now also in terms of real estate and so that’s an area just to highlight, and we have some emerging opportunities in Asia and future to talk about. And then, I think, in terms of what Kamal highlighted, just to sort of, again, reiterate, we see some really strong interest in equity activity, particularly in the small and midcaps. So but to round it out, I will let Kamal sort of finish out sort of the things that we didn’t discuss.
Kamal Bhatia: Sure. So, Tom, I think, Pat covered it well. The only other data point I’d add for you, you asked about NCF. From where we sit in asset management, I think we are managing the whole business for revenue and margin as well. It’s critical. As you know, we have a very large book of business across retirement wealth and institutional, and as you’ll see in our stable fee rate, both in 4Q, we are acutely focused on retention. But as Pat mentioned and I mentioned earlier, we do see growth on our institutional segment. So I think as we have guided in Deanna’s comments, I think, we are looking at a stable margin guidance at this stage, where we obviously make sure our expenses are in line with our revenue and we’ve also given some revenue guidance. But those are the measures we are looking at in addition to NCF.
Dan Houston: Chris any color?
Chris Littlefield: Yeah. I think from an RIS perspective, Tom, it’s very difficult to project net cash flows for full year. As you know, we see a lot of seasonality in the fourth quarter and a lot of activity for plan transitions and lineup changes. I think what I’d also reiterate is what we’ve said before, which is net cash flow is just one measure to look at and not all net cash flow is not created equal, and we’re really focused on increasing revenue and the profitable growth in our book is really where we’re focused. And I think you’ll see our results and the guidance for 2024 are very consistent with that approach to managing the business. What I would say is, we’re going to continue to remain disciplined on priority — on the pricing, we’re going to drive more revenue, and as we look towards 2024, we see continued strong transfer deposits, we see solid recurring deposit growth and we see a moderation in the contract lapse rate, all of which is leading to that revenue guidance at or above our long-term range and margin at the upper end of our long-term range.
So that’s how I’d respond to the question, Tom.
Dan Houston: Thanks for the question, Tom.
Tom Gallagher: Okay. Thanks.
Operator: Our next question is from Jimmy Bhullar with J.P. Morgan. Please proceed with your question.
Jimmy Bhullar: Hi. Good morning. Pat, good luck and congratulations with your retirement. I had a question first for Chris on RIS fee flows and it’s along the lines that you’ve discussed in response to other questions as well. But if you think about it, the environment overall for retirement plan should be pretty good with the tight labor market, strong GDP growth, and yet your flows have been negative each of the last two years and each of the last three quarters. So I think some of it was the wealth lapses, some of it, it seems like from your comments that you’re implying that the market’s competitive and you’re trying to stay disciplined on price. So what — if you could just give us some detail on what are the various factors that are driving weak flows and to what extent is it environmental versus maybe company specific, and you could talk about 2023 and the fourth quarter as well?
Patrick Halter: Yeah. I mean, I think, what I’d say is, we’ve previously talked on calls about the competitive environment remains competitive on flows. We’ve also talked about us wanting to make sure that we have the right plans that we have in our portfolio and are very focused on making sure that we have profitable plans. I think you’ve seen in the past year and a half, two years, we’ve had some large plans leave that have had very negligible impact on net revenue. And so, again, our focus is on revenue, not flows and it will remain that way as we go. Flows is an important measure for us to look at, but we’re trying to remain disciplined in the business that we put on. And again, I’d also say, the fourth quarter is historically a negative quarter.
As we look into 2024 and the first quarter particular, we see positive net cash flow in the first quarter and significantly above last year’s first quarter. So, again, we’re watching flows. It’s an important dynamic for us, but we’re really, really focused on finding all the ways that we can generate revenue across our platform, as well as focusing on those plans that are healthy and profitable for us to continue to maintain.
Jimmy Bhullar: Okay. And then just for maybe, Dan, on, there’s been a lot of noise about pension reform in Chile and nothing concrete has actually happened yet, but what are your views on the most likely outcome and how does it impact a Principal’s business?
Dan Houston: Yeah. I appreciate that. And just to pile on Chris’ response there, don’t discount the value creation of what Chris and his team have done around improving the customer experience, continuing to build out total retirement solutions, our ability to gather assets for the asset management part of the organization and feed the rest of the organization. So from our perspective, it’s a very valuable franchise, and Chris and his team have done an excellent job ensuring that the business we serve is a profitable business. We don’t need practice and record keeping. So that as it relates to Chile, as you know, this has been an ongoing reform discussion. It’s been going on for years. The constitutional reform was not successful.
One of the outcomes of that was further conversations around pension reform and we start with doing what’s in the best interest of Chilean people. And right now what they tell us through surveys and feedback is they want a choice in their provider, they want choice in investment options, and this has been very consistent. So, in fact, effectively, Chileans have rejected the idea of a state-owned AFP providing more value than what the private sector has. So we continue to be very vigilant, working with regulators, working with the legislators and continue to work in the industry to make sure that what is available in the AFP is competitive from a feed perspective, the investment options, which it is, and continue to serve the best interest of Chileans.
But again, we feel reasonably confident on the industry’s ability to demonstrate that and make our case to elected officials. Appreciate the question.
Jimmy Bhullar: Thanks.
Operator: Our next question is from Alex Scott with Goldman Sachs. Please proceed with your question.
Alex Scott: Hey. Good morning. The first question I had was on RIS and I just wanted to see if you could provide maybe just high level commentary on the competitive environment. I think a little bit more of the business sort of goes through a renewal towards the end of the year, beginning of the year, and just interested in how that’s gone and if there’s any pricing considerations that we should think through as we’re looking at the net revenue guidance and thinking through revenue in 1Q?
Dan Houston: Chris?
Chris Littlefield: Yeah. Thanks for the question, Alex. Again, we feel really good about the position our business is in and all of those competitive pressures are built into our guidance. It still shows us benefiting from both the macroeconomic environment, as well as the growth in our block and the increase in revenue generation across our block. So we are seeing a competitive environment, I think that’s going to continue, but we’ve been able to really succeed despite that competition. I mean, WSRS sales were up 14% for the year, fee-based transfer deposits were up 17% on a trailing 12-month basis. We had really, really strong revenue retention this year. And so, overall, we feel really good about the underlying business fundamentals and our ability to compete and win clients from other providers. So I feel really good about where we sit in the market.
Alex Scott: That’s helpful. Thank you. Next one I have is on the commercial mortgage loan portfolio. I was just interested if you could talk about maturities you have this year. I know you gave some numbers in the deck. So I’d just be interested in color around how that’s going, working through those maturities. And if there’s anything we should think about as it relates to the, I guess, it was around 7% of the office portfolio that’s getting closer to 100 LTV with debt service coverage under 100, sorry, under 1.
