Fueled by strong organic growth, we continued on our course of balanced capital deployment through dividends, acquisitions, and share repurchases, nurturing multiple growth engines with a bold focus on long-term success.
The result? Our assets under management surged to $519 billion, operating earnings hit a record $1.3 billion, and total company net income grew 26% over 2013.
And this only continues a momentum of growth that we've been building for several years. Since 2008, we've generated more than $70 billion in net cash flows, doubled our assets under management, and increased our percentage of 4- and 5-star Morningstar rated funds to 70% (a 32% increase).
We also have additional runway for future growth. There are 300,000+ total FINRA licensed advisors, and the average top fund families work with 100,000+. Principal Funds closed 2014 with a network of 50,000+ advisors—and ample room to increase our distribution in 2015 and beyond.
In another key achievement, the announcement of our planned acquisition of AXA's Hong Kong pension business—one of eight key acquisitions since 2008, totaling $2.5 billion in capital deployment—solidified our positioning as an early mover in the Hong Kong and China retirement markets, new frontiers for our continued growth over the coming decades.
With overseas acquisitions supplementing strong organic growth, Principal International comprised 19% of full-year 2014 earnings (excluding the corporate segment), up from 5% a decade ago. Our focus on mature retirement markets in Latin America continues to prove its value: In Brazil alone, net cash flows have increased eightfold since 2008 on a local currency basis, powered by our joint venture with Banco do Brasil, the second largest bank in Latin America.*
It all comes down to an era of personal responsibility that exists worldwide, with an ever-increasing number of consumers who need the kinds of long-term savings solutions we provide. In the United States, only 35% of millennials have a financial advisor, and 44% haven't set a retirement savings goal1. Among our Cuprum customers in Latin America, only 10% are saving enough for a desirable income replacement rate.
Furthering our disciplined expansion into select emerging markets—those that present the greatest opportunity to make an impact—allows us to sharpen our competitive edge and pursue joint ventures with the best distribution partners in the world.
Heading into 2015 and beyond, we remain committed to capturing growing consumer needs ahead of the industry curve, both domestically and internationally. We continue to seek new ways to support institutional investors better than anyone else, with more resources and strategies for creating tailored investment solutions—and stronger outcomes for our clients.
And above all else, we look to the future with confidence that the best is yet to come.
An unpredictable market, historically focused on short-term investments. An extensive, government-backed pension system with a long legacy. A country with 90% of market share locked down by 3 large banks.
Brazil wasn't the most obvious choice for global expansion when The Principal took its first, bold steps into the market in 1999, partnering with Banco do Brasil to form the joint venture Brasilprev Seguros e Previdência S.A. (Brasilprev).
But our keen eye toward Brazil's emerging retirement market, fueled by an aging population and a wave of government reforms, told us it was a risk with the potential for game-changing rewards. As always, we made our move with discipline, focus, and confidence in our long-term strategy.
By joining forces with the largest bank in Brazil, whose 111,600 employees and 5,500 branches reach from urban São Paulo into the hearts of the country's most rural villages, The Principal secured an unmatched depth and breadth of distribution, right away.
“The relationship between Banco do Brasil and The Principal sets a formidable stage for continued growth, with their complementary expertise in banking and long-term savings solutions, as well as their shared commitment to a company culture that fosters longevity and continuity.”
"From Day 1, we created a product and distribution footprint that you just couldn't build organically," says Michael Garvin, chief financial officer, Latin America region.
That surefooted strategy paid off. Now, 15 years later—and 4 years into a 23-year extension of the original joint venture—Brasilprev has become a strong proof point for our long-term vision for global growth.
In 2014, our assets under management in Brazil reached a record $44.6 billion, and net cash flows grew to eight times those of just 6 years ago on a local currency basis, making Brazil—a market many financial institutions considered too risky to stay the course—a linchpin of our industry-leading growth in Latin America.
The relationship between Banco do Brasil and The Principal sets a formidable stage for continued growth, with their complementary expertise in banking and long-term savings solutions, as well as their shared commitment to a company culture that fosters longevity and continuity.
"Our success comes from the strength of the partnership between The Principal and Banco do Brasil," says Nelson Katz, chief financial officer, Brasilprev. "Between The Principal's operational excellence and retirement expertise, and Banco do Brasil's huge distribution network and high level of customer confidence, one plus one equals more than two."
And it's not only the clear opportunity areas—a growing need for group and recurring deposit plans, national demographic shifts, and a significant untapped percentage of Banco do Brasil's customer base—that hold so much promise for the future of Brasilprev.
It's also the invaluable advantage we've gained through our discipline and long-term vision, securing key positioning in a promising emerging market ahead of the competition. From here, the possibilities are endless.
"We're the leader in the market. It's our responsibility to continue to innovate," says Katz. "From our operations and technology to our products and our customer experience, it all connects. Over time, it translates to even more value for our shareholders."
projected retirement market growth rate in Brazil, Chile, and Mexico
(Cerulli Latin America Distribution Dynamics, 2014, World Bank Pensions. Note: Growth projections based on 5 Years CAGR in local currency)
of millennials have a financial advisor and 44% haven't set a retirement goal1
Since 2008, we’ve added $70 billion of net cash flows and AUM has doubled to $519 billion.
Assets Under Management, Net Income, Operating Earnings
in capital deployed since 2011 to position us as a global investment manager
* Based on managed assets
1 Principal Financial Group Survey of Plan Participants