Business Context and Reporting Period
This Form 8-K is a Regulation FD disclosure filed by Principal Financial Group, Inc. on October 15, 2018. The report provides Assets Under Management (AUM) data by asset manager for the quarter ended September 30, 2018, prior to the official quarterly earnings release scheduled for approximately October 25, 2018.
Key Financial Metrics
- Total AUM by Asset Manager: $584.0 billion as of September 30, 2018.
- Principal Global Investors (PGI): $426.5 billion.
- Principal International and Other Entities: $157.5 billion (includes Principal Life Insurance Company and Principal Bank).
- Unusual Item Impact (Q3 2018): An accelerated performance fee of approximately $250.0 million in revenue is expected to be recognized in the PGI segment.
- Net Income Impact: The unusual item is projected to increase income before income taxes by approximately $100.0 million and net income by approximately $70 million.
Material Changes and Unusual Items
Effective August 3, 2018, the Company realigned a real estate investment management team within the PGI segment. Consequently, PGI ceased managing approximately $9.0 billion of assets for a large real estate client. This change triggered the acceleration of a performance fee earned from the successful management of those assets. The $9.0 billion reduction in AUM will be reflected in the "operations disposed" line of the financial supplement.
Guidance, Outlook, and Management Commentary
Management notes that the net impact of the accelerated performance fee will flow through non-GAAP operating earnings. The Company states that ongoing impacts to net income and non-GAAP operating earnings from this realignment are not expected to be material. Full financial details will be available in the financial supplement posted to the investor relations website on or about October 25, 2018.
Investor Verification Checklist
- Verify the final AUM rollforward and the specific treatment of the $9.0 billion disposed assets in the upcoming financial supplement.
- Confirm the exact timing and accounting treatment of the $250.0 million accelerated revenue and $150.0 million offsetting expenses in the Q3 2018 earnings release.
- Review the impact of the $70 million net income increase on non-GAAP operating earnings metrics.
- Assess whether the realignment of the real estate team affects future revenue streams beyond the one-time fee acceleration.