AllianceBernstein Holding LP (AB) 2010 Q3 法說會逐字稿

Thank you for standing by and welcome to the AllianceBernstein Third Quarter 2010 Earnings Review. At this time, all participants are in a listen-only mode. After the formal remarks, there will be a question and answer session and I will give you instructions on how to ask questions at that time. As a reminder, this conference is being recorded and will be replayed for one week. I would now like to turn the conference over to the host for this call, acting head of Investor Relations, Mr. Avi Sharon. Please go ahead.

Thank you Paula. Good morning, everyone and welcome to our third quarter 2010 earnings review. As a reminder, this conference call is being webcast and is supported by a slide presentation that can be found in the investor relations section of our website at www.AllianceBernstein.com/investor relations. Here in New York, we have our Chairman and Chief Executive Officer, Peter Krause and our Chief Financial Officer, John Howard. Joining us from our London offices is our Chief Operating Officer, David Steyn.

I would like to take this opportunity to note that some of the information we present today is forward-looking in nature and is subject to certain SEC rules and regulations regarding disclosure. Our cautionary language regarding forward-looking statements can be found on page two of our presentation as well as in the MD&A of our 2009 10-K and third quarter 2010 10-Q which we filed earlier this morning. In light of the SEC's Regulation FD, management may only address inquiries of a material nature from the investment community in a public forum. Therefore, we encourage you to ask all such questions on this call. Now, I'll turn the call over to Peter.

Thank you, Avi. Good morning, everyone in New York and those of you overseas, good afternoon and good evening. The third quarter AUM was up 6% over last quarter, $484 billion versus $460 billion. Net flows, however, were off this quarter. Outflows increased $14 billion over our Q2 flows. Equity performance in the second quarter, I'm sure you noticed, was poor. That very likely had an impact on the net flows of the third quarter. However, our equity performance in the third quarter was substantially better than that of the second on both a peer and relative to benchmark basis. We think this improved performance should help improve our net flows over time. A year ago, as we discussed, our objective was to expand our fixed income services and further tailor our investment services to meet our clients' needs. We are delivering on those goals.

Fixed income is a growing franchise for us. Our performance has been excellent, both in the quarter and in the long term. Net flows for the nine months were over $10 billion. Dynamic asset allocation, or DAA as we call it, has been a focus for us this year. We rolled out this service in April and already over 50% of our private clients have signed on. DAA has delivered as promised, moderating risk in the portfolios of clients, providing incremental return and creating a better overall experience. With regards to target date and defined contribution, our efforts generally remain on track. We view ourselves as one of the more innovative, holistic providers of solutions to the retirement dilemma in the United States and globally. In keeping with this philosophy, we've introduced two new services; Customized Retirement Service and Multimanager Retirement Strategies. Both are important new arrows in our quiver. This is a scalable business, as all of you know, and one of the major long-term growth engines for the firm.

As we've discussed in the past, our growing alternative platform is important to us. In particular, we've talked about the fund to fund business as being a focus. This quarter, we actually acquired a fund to fund business from SunAmerica, about which we're very excited. David Steyn will discuss this in greater detail. Also, I'm sure our investors have noticed that we liquidated the TALF program this year for very attractive returns and we continue to be very successful in our PPIP partnership with the US government. We also continue to build our offerings in real estate and energy and look forward to our future opportunities in both of those places. Performance continues to be our number one focus for our clients. Delivering alpha is our job. We believe our skills in security selection will provide attractive returns and will be consistent with those we've delivered over time. We're comfortable with our strategy. Our task in the future is to execute. David, over to you.

Thank you, Peter. And perhaps I can start where you've left off with saying a few words on alternatives. We've made it clear over the past year, year and a half that we see the development of a broad capability in alternatives as being critical, both to our private client business and to our institutional business. And in time, to come even to our retail business. Now, how we broaden that array is a work in progress. We've been broadening it out with our own in-house liquid hedge fund capabilities where we are building or have built capabilities off our value, our growth, our fixed income platforms. Peter's alluded to the work we've done in post government initiatives and PPIP and TALF. We've talked in previous quarters about what we are doing in real estate. We've announced recently that we're building up an energy capability. While one key component in the alternatives platform we need for both our institutional and our private client business, is the fund to fund piece of the jigsaw, which we announced in 1 October, we were acquiring with the acquisition of Marc Gamsin and and his team from SunAmerica.

This business comes with about $8 billion of hedge funds and fund to private equity funds. I should make it clear that the legacy business we have acquired from SunAmerica is really sub-advisory in character and revenues will not be material, at least in the short term. John will talk further about this. But what this business does allow us to do is to use it as a springboard in the creation of, in the first instance two new fund to funds capabilities; one liquid and one liquid/private equity. The liquid one we hope to roll out in the first instance to our private client channel in Q1 of 2011, later into the year into our institutional channel. The liquid fund to funds we intend to roll out round about mid-year next year. So, this light motif of the last few calls where we've talked about the growing array of alternative capabilities I hope will continue to be a theme over the next few calls into next year. So with that let me turn to performance. And if you look at slide three of the deck, the bottom third of the box continues to show the stunning performance of our fixed income capabilities, both year-to-date and in the third quarter of 2010, which was a very strong quarter again for fixed income.

Equity, as Peter alluded to, is a different picture. Year-to-date, the numbers still been challenging but with a much better performance beginning to emerge in the third quarter and continuing into October, which I'll talk about in a minute or two. But I think it is worth just commenting on the first half of the year because, clearly, it's a very important factor in the flow picture of our institutional, retail and private client channels. The first half of this year was a half characterized or driven by macro events, driven by sovereign debt concerns, driven by the inflation or deflation trade, driven by fears of a double dip recession. There was not a set of markers which could be described in any way as being driven by fundamentals. It was a set of markers in the market and between the markets which were characterized by higher correlations. And in a world of higher correlations, it is hard to discriminate the best opportunities from the broader market. For a bottom-up style oriented proprietary research has touched AllianceBernstein, this presents a headwind. And in some sense, the truer to discipline one in this environment, the harder that headwind is has been. We actually think we passed a turning point though.

As we look at our value portfolios, these are heavily imbued or endowed with cash-rich, high-yielding, low-priced stocks. As we look at our growth portfolios, we've equity after equity with a premium franchise, often trading at a moderate premium to market, or even in some cases, a discount to market. And if the macro trade abates, we expect risk to be rewarded again. Now we first began to see this in Q3 of this year and we first began to see this in the international, i.e. non-US equity markets. When we look at our relative performance against our peer group, IV international value, came in, in first quartile. International strategic value, global strategic value, second quartile. International large cat growth, second quartile, international blend, second quartile. October has seen this improvement in performance spread from the IFA markets in the United States of America where both of our flagship services in US value and US large cat growth are outperforming their competition and their indices.

So, let me turn, if I can, to flows. If 2010, when I talk about performance, is a year bifurcated between a first half where performance was challenging and the third quarter going into the fourth quarter where performance is looking as if it is being rewarded, or risk is looking as if it's being rewarded, the flow picture is almost the mirror image of that. Slide four shows the break, if you want to put it that way, and improve story for the first two quarters, where flows in our channels, or pre-channels, materially improved to be replaced in the third quarter with, as Peter referred to, a disappointing performance, driven by a number of factors, Q2 performance being one of them. Those factors are concentrated in our institution business, so as I dig a little deeper, I'm going to start talking about institutions today. Slide five shows the flow picture. And what we've done here, is to break it down, left hand side showing the quarterly review and the right hand side the annual review to give some type of context. So on the left, gross flows, inflows into institutions decreased over this quarter from $8 billion in the second quarter to $4.1 billion in the third. Meantime, and more challenging, gross outflows rose from $11.8 billion in Q2 to $19.4 billion in Q3.

Digging deeper, it's actually the second quarter on the inflows which is the outlier. Significantly above trend, double the previous quarter, double essentially the subsequent quarter. A more accurate picture probably is to talk about a five quarter institutional run rate of flows in of give or take $5 billion per quarter. It is the outflow story, however, which is the one I want to focus on here. And here, the institutes from business is betraying or showing one of the characteristics we've talked about in the past, the lumpiness of the business. As we look at these outflows, some 46% were accounted by five accounts, so let's say, give or take $9 billion. And to put that into context, if we look at previous quarters over the last couple of years, the top five account outflows probably average something much closer to 25% of the total in each quarter. As Peter has said, one factor is a response to second quarter performance.

But there are other factors at bay here, including the continued shift out of equities and into fixed income which we see on a worldwide basis. Now, if I turn to the right hand side, I hope we can give some type of context. With an annualized trend for 2010 significantly better than that of 2009. And we have some confidence that this is likely to continue with the pipeline gradually rising quarter by quarter. As we enter the -- well, I was going to say as we enter the fourth quarter, but as we come to the end of October in this fourth quarter, our pipeline is some $6 billion at the minute dominated by retirement services and fixed income, which has been much of the story of the year-to-date. And if I could just correct an error in the press release where we noted the milestone of $10 billion of DC accounts, that should have read $10 billion of target-based DC accounts. Our total DC assets under management as of today are north of $25 billion. Let me turn to slide six where we move on to retail. Here, net outflows, and I'm using the same format of quarterly review on the left hand side, annual trend on the right hand side, net outflows are up from $0.9 billion to $3.2 billion at a gross level, give or take $1 billion less sales, $1 billion more in outflows. But as with institutional, this turned out to be a particularly lumpy quarter, as in previous quarter's concentrated in sub-advisory channel, but dominated by one large very low fee account, a very short duration account. That one account being a significant percentage of this picture for the quarter.

Turning to the right, an annual perspective, if institutions can be said to have bottomed in 2009, I feel, or we feel, that retail bottomed in 2008. If year-over-year gross sales, up from $23 billion last year to an annualized number, and I should emphasize we're taking the first nine months and annualizing this is not a prediction, of some $35 billion. And again, led by fixed income worldwide which has seen very, very healthy gains in new business flows. Lastly, on the buy side of the business, let me say a few words about private clients. True, Q3 net outflows climbed from $100 million to $500 million, but a gross level, outflows continued to come down $2.2 billion to $2.1 billion. We feel a testament to deep relationship paying off between our advisors during this time of extreme nervousness and our clients. Peter commented on dynamic asset allocation where we passed last month from 50% of all private client relationships signing up to that service. We only launched that service in April. We believe this to be the fastest ramp up of a new service ever in the history of our private client business.

And I think it is indicative of first, the nervousness and fear which the high net worth in the private clients and retail investor continues to feel during this period of volatility. And the merits of a much more aggressive approach to product development which has been underway within this firm over the past 12 months. Turning to the right hand side, improvement in annual new flows is reflected in the year-on-year gains. A net depiction of $7 billion last year, coming in again, on an annualized number for the first nine months of the year, of 1.3; an improved sale picture, but the real story here, one of much lower redemptions. Lastly, before I hand over to John, I'd like to say a few words about Bernstein Research Services. Revenues are largely, and understandably, driven by trading volumes, and Q3 saw weak market volume globally, certainly in the United States of America and Europe. As an example, the US composite equity volumes were down some 26% third quarter over second quarter 2010. Against that backdrop, our revenues were down over the same period 18%.

As volatility wanes and equities rise or stabilize, we anticipate higher volume. But meantime, regardless, we continue to invest in this business. And we plan to have some 25 plus members of staff in Asia by the end of this year. This being the key strategic initiative of our sell-side business this year. And previous investments continue to pay off. We were again rewarded in the Institutional America survey with a very strong showing. Our analysts number one in some 10 sectors in that survey. So with that, let me hand over to John and then we'll come back for some questions.

Thanks David. Good morning everyone. I'll start with a high level recap of the third-quarter results that we reported yesterday afternoon. Adjusted earnings per unit were $0.36 this quarter, down from $0.37 in the second quarter. Adjusted revenues were down 2% as lower based fees and lower research revenues were partially offset by investment gains. Our adjusted operating margins declined by a little over 1% sequentially to 19.3%. We had a lower effective tax rate this quarter, the estimated effective tax rate for full-year 2010 is about 9.3%, down 1% from the 10.3% estimate at the end of Q2. We recorded a $90 million real estate charge in Q3.

As we discussed on last quarter's conference call, we initiated a comprehensive review of our firm's real estate footprint within the New York City area. After this review, we've decided to sublet over 300,000 square feet of our office space in midtown Manhattan. This will largely consolidate our New York-based employees and our main headquarter building and our facility in White Plains, New York. And we reduced our leased office space in New York City by 20%. The charge is based on our estimate of when we can sublease the space and the current market rental rates. We'll save about $4 million in Q4 and going forward, we project savings of $21 million in 2011, and $23 million each year after that. Based on our current number of units outstanding, the EPU benefit would be $0.07 next year and $0.08 in subsequent years. Including this real estate charge, our GAAP EPU for the third quarter was $0.12 versus $0.31 in Q2.

Excluding the charge, our third quarter GAAP EPU would have risen to $0.44. Let me give you a quick recap on our buyback. We repurchased 1.9 million units in Q3 and year-to-date, we've bought back 4.9 million units. As we mentioned before, we'll buyback units over time in anticipation of funding our future deferred comp awards of restricted units. Let's move on to slide 10. Let's first review our summary income statement for Q3 on a GAAP basis and then we'll review our results on an adjusted basis in the coming slides. Revenues were up 10% sequentially, primarily driven by investment gains, but down 6% from the third quarter 2009. Operating expenses, excluding the real estate charge, were up 5% from both periods and we'll go through our expenses more closely in a minute.

As we mentioned on our call last quarter, we received our final trail payment in the second quarter from the sale of our money market business to Federated. Taxes were down this quarter due to two factors, lower earnings and a lower effective tax rate. The operating partnership's effective tax rate was about 5.25% during Q3 down from 12% in Q2, due to a change in the mix of our domestic and foreign earnings. Once again we've lowered our year-end tax rate estimate by 1% to roughly 9.3% for calendar 2010 and that's what we booked on a year-to-date basis. If you look at our year-to-date tax expense divided by pretax earnings, our effective tax rate is 9.3% and that is our latest year-end tax rate target for the year. Moving to slide 11, let's take a look at revenues. Adjusted revenues were down 2% from last quarter and flat versus the third quarter of 2009. Advisory fees were down 2% from Q2 and up 3% versus the same period last year primarily due to changes in our average AUM. We ended Q3 with $484 billion in assets under management, up 6% sequentially and down 3% from last year. Average assets in Q3 were down slightly from both prior periods.

Performance fees increased due to the fees earned on our TALF fund, which was liquidated during the quarter. Bernstein Research revenues were down 18% sequentially and 12% versus the third quarter of 2009, due to lower equity market volumes in the US and Europe. We had $41 million of investment gains during the quarter, primarily driven by a $36 million gain on the mark-to-market of different comp. This represents a $73 million improvement from the Q2 loss of $37 million. Overall, we saw a $98 million improvement in our investment P&L from Q2 and a $66 million decline versus the third quarter of last year. And just a follow up comment on David's earlier comment regarding the fund to fund team, the earnings contribution from the new SunAmerica fund to fund team will not be material to our financial results in 2010. They'll continue to manage the $8 [million] of AUM on behalf of the AIG SunAmerica affiliates on a sub-advisory basis. But the revenues earned on these services are not expected to be material this year. The $8 billion of assets will be added to our October AUM release which will come out in a few weeks.

On slide 12, let's begin the conversation on expenses. Adjusted operating expenses are down 1% sequentially and up 5% from a year ago period. Compensation was up 10% sequentially driven by the mark-to-market of deferred comp. Compensation was up 2% versus the prior year period. The increase from the second quarter stems from a $33 million increase in the amortization of deferred comp. This increase is driven by the large mark-to-market swings from the second quarter to the third quarter that I just discussed. We target our compensation as a percentage of the firm's GAAP revenues, excluding distribution revenues. The rate for the third quarter was 49.8%, which is flat from the second quarter.

Over the first nine months of 2010, our comp ratio was 49.4%, down slightly from 49.7% in the first nine months of 2009 and up slightly from 48.5% for all of 2009. The majority of our margin decline on an adjusted basis came from the impact of mark-to-market on our adjusted compensation. The increase in the mark this quarter increased compensation as a percentage of adjusted revenues and this represents the majority of the decline in margins. We saw the inverse of this in the second quarter, when there were mark-to-market losses. This impact over the year is negligible as our year-to-date mark is only about $10 million. Our head count is roughly flat from the end of Q2 at around 4,300 employees. Promotion and servicing expenses are down 2% sequentially.

Distribution-related expenses are up slightly and we also had lower expenses associated with client conferences as we host the majority of our annual conferences in Q2 of each year. G&A expenses were essentially unchanged from last quarter of about 1%. Moving to slide 13, let's briefly review the differences between our GAAP and adjusted earnings. First, let's look at the adjustments for deferred comp. This reflects a net impact of investment gains and losses, as well as employee compensation expense, related to the mark-to-market of deferred comp. It reduced our GAAP results by $23 million in Q3 compared to a reduction of $54 million in the prior year period and an add back of $18 million last quarter. Second, we added back the real estate charge of $90 million this quarter and finally we adjust for minority interest balances. This leaves us with adjusted earnings of $122 million in Q3, down 9% from last quarter.

Adjusted operating margins in the third quarter fell to 19.3% from 20.7% in the prior quarter. On a year-to-date basis, adjusted operating margins were 21.4% versus 18.4% for the full year in 2009. So, to wrap things up, and I'll focus on adjusted numbers here, adjusted net revenues were down 2% from last quarter, while adjusted operating expenses were down 1%. Adjusted operating income was down 9% and for the quarter, adjusted earnings per unit were $0.36. And now we'll be happy to take any questions you might have.

(Operator Instructions) Your first question comes from Michael Kim of Sandler O'Neill.

Hi guys. Good morning. First, can you just give us an update on what you're seeing in terms of institutional asset allocations? Seems like pension plans maybe continue to favor fixed-income strategies even though they remain broadly underfunded. So, would be curious to see if you see this trend continuing and if so, how can this impact the economics of the business in the institutional channel?

That's an intriguing question. I was in the States last week and I saw a statistic which suggested that the average US defined-contribution -- sorry, defined-benefit corporate pension scheme has the lowest allocation to domestic large cap equities today or domestic equities since the modern DB pension scheme system emerged. Now, I'm digging a little bit further to find our just how valid that number is, but the direction of that valid -- of that number we believe to be totally valid. We continue to see an asset allocation shift, on a global basis, out of equities into fixed income and into alternatives. Which is one of the reasons why we started this talk -- presentation today talking about our initiatives and alternatives. Within the equity allocation, as we've touched on in previous calls, we're seeing a shift out of domestic equities and into global and within domestic equities out of active and into passive.

I think it's very dangerous in this business to talk about a secular shift, but this one certainly has proven to be a long-standing shift. As I think we've talked about in previous calls, the shift actually goes back further to the events of 2007 and 2008 and the move out of equities and into fixed income by defined-benefit schemes has really been underway now for five or six years. We don't see anything stopping a right now. Now having said which, I would add two caveats to that. The public sector is not moving in that direction and if anything, seems to be healthfully re-risking. Or, I won't say healthfully re-risking but certainly, re-risking. And then secondly, there are a large number of sophisticated institutions worldwide who have seen this as an opportunity to re-risk themselves too. So behind that statistic does not lie one homogeneous market.

Okay. That's helpful. And then, just second question, assuming the broader markets continue to rally, would you expect your equity strategies to increasingly outperform, which is, I think, what we've seen in prior cycles?

We do think that that will be the case Michael. As David mentioned, our portfolios and the value side are filled with cash-rich high-yielding, low-price companies and on the growth side, as David commented, premium franchise that are trading at a modest premium, and in some instances, discounts. We've actually seen when risk has come back into the market, these portfolios outperform. They did that in September, they continued to do that in October. We're confident that, that sort of disciplined fundamental approach that we've always taken will be rewarded over time. And that makes us feel good about the performance we've had recently and what we expect we will receive for our clients in the future.

Okay, great. Thanks.

Your next question comes from Craig Siegenthaler of Credit Suisse.

Good morning, everyone. When you're going back through slide six, you mentioned that there is a one large mandate termination from a low fee paying mandate advisory account. Does that fit into the fixed income non-US redemption bucket on slide 26?

Yes, indeed it does. There was one significant retail very short duration account termination and actually there's also one reasonably significant, again, very short duration institutional fixed income account termination during this period. But you're right in your assumption.

Can you help us on the size of that mandate and also is there anything of size showing up in the growth equity and value equity buckets inside the US? Because those two redemption levels were also quite elevated.

I'm loathe to go into detail on size. I would just say it was a very low fee account.

And was there anything of size in the equity side of things institutionally?

We publicly announced the termination of a large sub-advisory equity account in September.

And what was the size of that? Just to recall.

We've talked about, I think the thing David's referring to is Vanguard. We continue to have a very strong relationship with Vanguard, but they did terminate one portion of the service with us. And that's in those numbers. The Vanguard Group and AllianceBernstein continue to have a long and strong sub-advisory relationship. We've got a number of assets in their funds and that continues to be an expanding relationship for us.

Thanks a lot, Peter.

Your next question comes from Cynthia Mayer of Bank of America Securities.

Hi. Just following up on that, on some of the larger pieces that went out, is there anything remaining on those to go out in 4Q? And it sounds like you're more optimistic on flows, is that stemming from the better performance or are you actually seeing improved trends this quarter?

Cynthia, as we mentioned, we think that the performance in the second quarter was impactful on our flows in the third quarter. And similarly, we think the strong peer performance in Q3 and the much better relative performance against the benchmark than we had in Q2 will have a positive effect on flows in the future. And we're continuing to see that performance rally strongly in October. So that's how we feel about where flows are going to go. We have seen, as David mentioned, an increase in the pipeline. That pipeline number has steadily increased over the last 12 months. And that also suggests traction with our clients in various parts of the world. And I think as you asked a question, if it wasn't the last call, it might have been in two calls ago, how can we get people to see more of the strong performance we have in fixed income and how do we build that over time? And that was the reason for my comment at the front end of the call, which we have been focused on fixed income. We have been able to show our clients that actually superlative performance that we've been able to boost over the last several years and that has evidenced itself in net flows this year and we expect that to continue.

Okay. And then maybe in the private client channel, apart from the flows, can you talk a little about what sort of trends you're seeing in terms of numbers accounts, opening versus closing, and in terms of size of accounts and what sorts of accounts are signing up for be more muted defensive strategy you have?

Cynthia, I'm very happy to try to answer that question. As we've said in previous calls, the pattern we are seeing in the Private Client channel's at this stage of the recovery from the events of '07, '08 is almost exactly in line with our experience at previous stages of the cycle in terms of the number of relationships. If there are two differences, it is in the size of the average account which is signing up, one, and secondly, in the exposure to risk assets of a client who is signing up. So, our sense is that your typical private client is inching back into the market but keeping some of his or her powder dry in the bank. Thus, smaller average balances but very, very significant sums of money waiting in the wings. And then on the second question as to where the typical or the average private client is investing, we continue to see an inching up of exposure to equities in new flows into the firm. It's meaningful. It's all in the right direction but it is still a business where many, many private clients are extremely nervous. But it is moving in the right direction at this time.

Thank you.

I might add that within our own dynamic asset allocation service we move towards an overweight position in equities.

Your next question comes from Marc Irizarry of Goldman Sachs.

Great. Thanks. Just following up on the dynamic asset allocation, when you think about the total private client portfolio and then your closed architecture and your products (inaudible) maybe you can comment on, as a dynamic asset allocation opportunity grows is there a need to expand the product and the reach of the private client business?

Thanks, Marc. Well, one of the really significant values to the acquisition we made at SunAmerica is that it does provide open architecture on the fund to fund side. And we think that that's extremely important to the private client business. We continue to be committed to, on the long only side, meaning the equity business and the bond business, to the services that we provide, which are multi-faceted, multi-dimensional, multi-geographic, and so, therefore, provide substantial diversity to our client base. The dynamic asset allocation activity is, we think, also unique. We think we're one of the few firms who actually are providing a consistent application of our views on risk and opportunities within markets across our private client business.

As David mentioned, the allocation to equities is now at a 60/40 level. If you took that as the standard portfolio for a moment, of course not all portfolios are that, is higher than that standard allocation of equities at 60%. And as I mentioned in the outset, the actual moderated risk in the portfolio and the improved performance that's come from that has benefited our private clients since they have adopted that activity in April. So, we think what we're providing clients is a more robust set of services in the form of the alternatives, including open architecture, and a way to moderate risk in volatile time periods, but produce a smoother ride and better performance over time.

If I might add to what Peter just said, we could have approached any one of a number of fund to funds businesses around the world in order to gain access to fund of funds capability. But one of the appeals of this particular team was our desire to have our own proprietary fund to funds capability upon which we could build a set of solutions tailor-made for our private client business. So, that was a great appeal of Marc Gamsin and his team. That while, in a sense, opened up to other managers we could do it in a manner where we were able to influence that type of that platform to mesh in with the holistic approach to investment management we offer all of our private clients today. The second comment I'd make is we don't see dynamic asset allocation as being limited to the private client channel. As we said on a previous call, we entered into our first sub-advisory relationship, we have two further sub-advisory relationships under discussion at this time. So, in time to come, we see dynamic asset allocation as having a much broader applicability.

Okay. Great. Thanks.

Your next question comes from Cynthia Mayer of Bank of America Securities.

Hi. Just some modeling questions. In terms of comp, are you expecting to maintain the 49.8% ratio? And is there any year-end true-up we should think about?

Cynthia, it's John. We heard 49.8% in the second quarter and the third quarter. Year-to-date, we are at 49.4%. So, I'd say for Q4 it's pretty safe, but that number would be in between 49.4% to 49.8%, based on what we see today.

And what's your outlook for the tax rate next year? Is it also 9%?

Yes. I'd stick with 9.25%

Okay. Thank you.

We've reached the conclusion of the Q&A session of today's conference call. I will now turn the floor back over to Avi Sharon for any closing remarks.

Great. Thank you, Paula and thank you, everyone for participating in our conference call today. Please feel free to contact investor relations with any further questions. Have a great day.

Thank you. This concludes your conference call. You may now disconnect. Thank you for your participation.