Affiliated Managers Group Inc (AMG) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Affiliated Managers Group Fourth Quarter Results Conference Call. [OPERATOR INSTRUCTIONS.]

As a reminder, this conference is being recorded today, Wednesday, January 25th of 2006.

I would now like to turn the conference over to Ms. Brett Perryman, Vice President of Corporate Communications. Please go ahead.

Thank you. Good morning, and thank you for joining Affiliated Managers Group to discuss our results for the fourth quarter and full year 2005. By now you should have received the press release we issued. However, if anyone needs a copy, please contact us at 617-747-3300, and we’ll fax you one immediately following the call.

In this conference call, certain matters discussed will constitute forward-looking statements. Actual results could differ materially from those projected due to a number of factors included, but not limited to, those referenced in the company’s form 10-K and other filings we make with the SEC from time to time.

In this call, the investment performance of certain products will be discussed, and the benchmarks are deemed by AMG to be the appropriate benchmarks. AMG will provide on its website a replay of the call and a copy of our announcement of our results for the quarter, as well as a reconciliation of any non-GAAP financial projections to the most directly comparable GAAP financial measure. You can access this information at www.amg.com.

With us on the line to discuss the company’s results for the quarter are Sean Healey, President and Chief Executive Officer, Nate Dalton, Executive Vice President in charge of Affiliate Development, and Darrell Crate, Executive Vice President and Chief Financial Officer.

Now, I’d like to turn the call over to Sean Healey. Sean?

Thank you, Brett. Good morning everyone, and welcome to AMG's conference call discussing our financial and operating results for the fourth quarter and full year 2005. AMG had an outstanding fourth quarter, with record organic growth and excellent investment performance, driving a 30% increase in cash EPS over the same period of 2004. We also had in outstanding full year 2005 as we achieved broad success across all elements of our growth strategy. Assets under management grew by 42% during the year to 184 billion, with organic growth contributing 30 billion.

As we enter 2006, our business is positioned better than ever. Our affiliates are some of the best firms in the business, and they participate in some of the fastest-growing segments of the industry, including alternative and international investments, which were both big contributors to our growth last year. More broadly across all our major product segments, our affiliates continue to generate excellent performance and attract substantial new business.

We also continue to generate strong earnings growth through accretive new investments, and had a very successful year in 2005 with the acquisition of First Asset Management and its interest in six of Canada's leading midsize firms. And as Nate will discuss, we further expanded the array of support capabilities we offer our affiliates to strengthen and grow their businesses.

To summarize our results, we reported cash earnings per share of $1.42 for the fourth quarter, and $4.85 for the full year. Of the 30 billion in organic growth, almost 11 billion was from positive net client cash flows, which will add 15 million to our annualized EBITDA. And to give you a sense of our accelerating momentum, in the fourth quarter alone organic growth contributed 9 billion to our AUM, with 4.8 billion in positive net client cash flows that added 8 million to our annualized EBITDA.

One of our strongest areas of growth during the year was the alternative products segment, which now contributes almost 15% of AMG's EBITDA. Through AQR and First Quadrant, two of the most highly regarded quantitative asset managers in the business, we have a broad array of alternative product offerings, and both of these firms posted outstanding investment performance in net client cash flows for the year.

Our increased participation in alternative investments resulted in a substantial contribution to our earnings from performance fees in 2005 and, given the momentum we see in these products, we're confident in our prospects for their continued growth. International equity products were also high-growth areas during the year, and now account for 35% of our EBITDA. We already had a strong presence in international equities through AQR, Tweedy, Browne and Third Avenue, as well as emerging markets through Genesis. And in 2005, we further diversified our international products, adding over 20 billion of Canadian and international equities through our acquisition of First Asset.

We're also well positioned in domestic equity, which contributed about 45% of our EBITDA, and include outstanding products with great performance records across a wide range of styles. They have exceptional value products, including those offered by Tweedy, Browne and Third Avenue and, as Nate will discuss in a moment, our gross products also have superior track records and, should the equity markets tilt in favor of growth, our prospects in this area are very strong.

While organic growth is the key driver of our business, AMG has built a unique platform that also generates earnings growth through accretive investments in new affiliates. With our strong track record of successful investments and established reputation as an innovative and helpful partner to our affiliates, we are widely recognized as the succession-planning partner of choice. Looking ahead, we are confident that we will continue to materially add to our growth and diversity through additional investments and attractive new affiliates.

Finally, our business generates substantial and growing free cash flow, and we're committed to enhancing shareholder value through new investments, repaying indebtedness, or repurchasing our stock as appropriate. In sum, we’re extremely pleased with our results in 2005, and very confident in our prospects for continued growth.

Before I turn it over to Nate, I'd like to highlight an announcement we made yesterday. All of us at AMG, including Bill Nutt, who is with the Third Avenue folks today, are delighted to have Jide Zeitlin join our board. Jide is a very highly regarded former partner and senior executive of Goldman Sachs, and he'll be a great addition to our board.

With that, I'll ask Nate to discuss our affiliate performance in more detail.

Thanks, Sean. Good morning, everyone.

As Sean said, we had good performance for the quarter and the year really very broadly across the affiliate group. While I'll walk through our results by distribution channel in a moment, one theme I would note is that, as we've discussed over the last several quarters, our largest affiliate in particular continued to perform well both with respect to net client cash flows and relative investment performance which, in some cases, resulted in significant performance fees.

Now, starting with the institutional channel, we had an outstanding quarter in the institutional channel, with net inflows totaling approximately 4.4 billion for the quarter. There are really two themes here. First, flows in performance were exceptionally strong with our quantitative [manager] group, AQR and First Quadrant. Both of these firms generated outstanding returns for the quarter and the full year broadly across their product lineup. In addition, this exceptional performance is coming against a backdrop of strong and, in fact, increasing demand for many of AQR’s and First Quadrant’s product. And so, we see growth and contributions in this area continuing to accelerate.

Second, and I’ll give some examples in a moment, our position in this institutional channel is both broad and deep as we have strongly performing products across the major equity category, with international and global through domestic value core and growth, and across the capitalization ranges, small cap through large cap.

Starting on the international front, we continue to have strong performance both at AQR, which has a growing global equity suite of products, the largest of [which], an easy product, beat its benchmark by 250 basis points for the year, and at Genesis. Genesis, an emerging market manager, beat its benchmark by 330 basis points in ’05.

A couple of highlights on the domestic equity side. Beginning with value equity, Systematic had a very strong quarter and year both at net client cash flows and relative investment performance. It’s major, small to mid, mid and large cap value product beat their benchmark by between 330 basis points and 830 basis points. In Value, but also Core Equity, First Quadrant had a good performance year, and we’re starting to see that reflected in flows there, as well. On the growth equity side, we had very good performance by a large number of our affiliates, including Friess, Frontier, Renaissance and Times Square, and each firm’s largest product outperformed their benchmark and generated good institutional client cash flows during the quarter and year. As we’ve mentioned on previous calls, we feel very well positioned should industry flows begin to move to growth equities.

Now, turning to the mutual fund channel and starting with investment performance, we had very good performance across our fund lineup in the year, with roughly 70% of our funds built by AUM and also by EBITDA contribution to AMG, scoring in the top quartile of their Lipper categories for the year. This performance is coming across all of the major product categories in the channel, with all of our largest mutual fund products having good years, including Tweedy, Browne’s Level Value, which placed in the top 15% in the Lipper category, Third Avenue Value, which placed in the top decile among its Lipper peers, and outperformed the S&P by nearly 1,200 basis points for the year. And the Friess Associates Brandywine Fund, which also placed in the top decile and outperformed its benchmark, they’re up about [inaudible] growth by more than 900 basis points for the year.

In terms of flows in the mutual fund channel, while we had 200 million in positive flows in the fourth quarter, that really understated our organic flows both because we had one affiliate resign several hundred million dollars of low fee business in the sub-advisory mandate, which we expect them to replace in Q1 with a couple of institutional mandates at more appropriate fees, and also because we had to withdraw some money market assets by the seller in the Fremont transaction, which was expected and built into the deal when we bought those funds.

Looking forward at our mutual fund flows, I’d note a couple of things. First, our Managers sales force has begun having success selling some of our affiliate funds into the intermediary channels, including the [inaudible] funds, but especially the Friess Brandywine funds, and this is really a completely new distribution channel for Friess. I’ll talk more about managers in a moment, but we expect this trend to accelerate.

Finally in the mutual fund channel, I’d note that, while we have a couple of very high quality products in the mutual fund channel that are being closed, these closes were not done for capacity reasons, but rather to allow the managers to put the cash raised to work as they uncover investment ideas. Obviously, I can’t say when precisely any of these funds will reopen. That’s something that clearly would further accelerate our flows in the mutual fund channel.

Now, turning to the high net worth channel. We had net inflows of approximately 140 million. This is our second straight quarter of positive net client cash flows in the channel as our Manager’s Investment Group platform is driving increasing flows to several of our affiliates, most notably Renaissance. The other positive contributor of note in the high net worth channel this past quarter was our Canadian affiliate, Foyston, Gordon & Payne.

Now, in terms of a broader update on a couple of cross-affiliate initiatives, before I speak to Manager’s Investment Group, let me start with another initiative I would highlight as illustrative of the types of opportunities [we’ll] pursue. A couple years ago, we launched a centralized legal and compliance initiative to bring the highest quality legal and compliance resources to our affiliate on a cost-effective basis. And by year-end 2005, well over half of our affiliates were now outsourcing some or all of their compliance and legal functions to us.

Turning back to Manager’s Investment Group, you can see the early success reflected in a couple of places in the numbers we’ve been going through. In the mutual fund channel, where there have been increasing flows to a couple of affiliates, especially the Friess Associates Brandywine Fund, but the Manager’s impact is really showing up in the high net worth channel, where flows have turned positive and several affiliates, such as Renaissance, have seen significant flows in the quarter and for the full year. As an example, Renaissance had nearly 1 billion in gross flows through Manager’s in 2005, coming in both retail SMA form, but also in a sub-advisory mutual fund mandate through the sub-advisory marketing initiative we launched off the Manager’s platform in the middle of the year.

Now, looking ahead to 2006, we see these trends continuing to accelerate. Manager’s moved out of this startup phase. These are the types of capabilities that we bring to bear for the benefit of our affiliates, [really] giving them some of the benefits of being part of a larger organization, both realizing incremental growth but also best-of-class and cost-effective operational improvements, as well.

With that, I’ll turn it over to Darrell.

Thanks, Nate. Good morning, everyone.

As Sean mentioned, we recorded cash earnings per share of $1.42 for the fourth quarter and $4.85 for the full year. GAAP earnings were $0.90 per share for the quarter and $2.81 for the year. The fourth quarter earnings, they were strong and they were driven by excellent performance, net client cash flows across our affiliates, while markets appreciated only about 2% for the quarter, in line with our guidance convention.

As Sean mentioned, we have significantly expanded our participation in alternative products, and that product category now contributes about 15% to our annual EBITDA. In this quarter, performance fees had a net contribution to cash earnings per share of approximately $0.10. Without these fees, our results would have exceeded the analyst’s consensus estimate of $1.29 by $0.02. With 27 products across an asset base of approximately $18 billion, these alternative products represent an increasing proportion of our business mix. We believe that performance fees will continue to make a meaningful contribution to our earnings going forward.

Now, turning to some of the modeling items. The ratio of EBITDA contribution to end-of-period assets under management was 21.8 basis points in the fourth quarter, an increase from the third quarter primarily as a result of the impact of performance fees. We expect this ratio to return to approximately 17.3 basis points in the first quarter, similar to our ratio in the third quarter of 2005 in recognition of the timing of these performance fees. Holding company expenses were 17.1 million for the quarter, which reflect the change to our incentive compensation accrual as a result of our stronger-than-expected results for the quarter and the year. As you know, our compensation philosophy for holding company management is designed to incent growth in cash earnings per share, and our incentive compensation is highly variable according to the performance of the business.

As we look to next year, we expect holding company expenses to be approximately 11.8 million per quarter as we realize the full impact of the infrastructure we built out over 2005. As an aside, this estimate includes $2.5 million in each quarter as an accrual for annual equity-based [inaudible] of compensation.

With regard to taxes, our tax rate was 37% for the fourth quarter. We expect our tax rate to remain at this level during 2006. Our cash tax rate was 24.4% in the fourth quarter of 2005. We expect this rate to decrease modestly in the first quarter of 2006 to approximately 23%, and then to increase into the mid to high 20s over the course of the year.

Total deferred taxes were 7.8 million for the fourth quarter. Of this amount, we add back to cash earnings only the 6.9 million that is related to intangibles, and these will not reverse but for sale or impairment. We forecast deferred taxes related to intangibles to remain at 4.6 million per quarter, and to increase when we complete an investment in a new affiliate.

Amortization for the quarter was 9.2 million, including 2.3 million of amortization from affiliates accounted for using the equity method. The earnings from equity method affiliates, which include AQR and two of our Canadian affiliates, are included in the “Investment And Other Income” line on the income statement both net of amortization. In 2006, we expect total amortization to be approximately 36.7 million. Depreciation for the quarter was $2 million, with 1.4 million of that amount attributable to affiliate depreciation. As you recall, affiliate depreciation is the non-cash charge we include in cash net income as the replenishment of these depreciated assets is paid by the affiliate and not AMG shareholders.

Interest expense was 10.7 million for the fourth quarter. We anticipate that our interest expense will be approximately 10.3 million in the first quarter of 2006. We did see several opportunistic periods in which to buy our stock during the quarter, and we purchased 639,000 shares. That brings our total share repurchases for 2005 to about 1.2 million shares. As our business continues to generate significant amounts of cash, we continue to have ample capacity in our balance sheet to fund our new investments and repurchase our common stock. Stockholder’s equity was $817 million.

We now turn to 2006 guidance. We expect cash earnings per share to be in the range of $5.50 to $5.75. This assumes a 2% quarterly growth in market and a weighted average share count of 40 million. Our annual guidance also assumes an earnings pattern similar to the one we experienced in 2005, where we recognized a meaningful amount of the earnings from alternative products and performance fees in the fourth quarter. Our guidance does not include additional earnings from investments in new affiliates or the effects of repurchases on our stock, and is based on current expectations about affiliate growth rate, performance, and the mix of affiliate contributions to our earnings. Of course, substantial changes in the equity market and the earnings contributions of our affiliates would impact these expectations.

Now, we’d be happy to answer any questions.

Thank you. [OPERATOR INSTRUCTIONS.]

Bill Katz with Buckingham Research.

Going pretty quick on some of that disclosure, so I apologize if some of this may have been covered. But Darrell, on your sort of discussion on the guidance for ’06, it didn’t sound like you excluded performance fees that you normally do. Is that a change in strategy?

Well, as I mentioned, about 15% of our annual EBITDA is earned in these alternative products, and much of those earnings are base fees, guarantees and other arrangements. And while as I mentioned, we had this diverse set of products with a performance fee potential, but we’ve only included those earnings in guidance which we consider highly likely to be realized.

Great. So, from an apples-to-apples basis, is the 550, 575 comparable to 540 to 560 prior range?

I think, as we look at our business and how it’s evolved over the -- from 2005 to 2006, we think it’s appropriate to put an incremental amount into the guidance from performance fees.

And we have the same degree of confidence in this guidance as we did in the prior guidance. So, I’d say to that extent, it is absolutely apples-to-apples.

OK. And just to play devil’s advocate, I know it’s going to be an annoying question but sort of needs to be asked, it looks like $1.31 on a core basis and, from Sean, Darrell and even Nate’s commentary, things are obviously doing very well. If you simply annualize that number, you get to about 5.25 of earnings. So, 550 to 575 still seems to be pretty conservative. Is this sort of a -- you don’t want to get too far in front of yourself here in January, or is there something else I should be thinking about at this point?

I think we feel, Bill, very optimistic about the business, about the flows, about our prospect, and we are increasing guidance. And I think there’s plenty of opportunity in 2006, and we’ll see that as the quarters come by.

OK. Just a couple other questions. Just sort of curious if you’d commentate a little bit -- comment on, excuse me -- what the deal pipeline looks like these days. I think, Sean, if I picked up your commentary, you said you’ll materially add to earnings going forward. Just sort of curious. Are things strengthening, weakening, and how should we be thinking about that?

I would say deal pipeline continues to be strong, very strong, concentrated in one-on-one negotiated transactions which, as you know, is what we prefer. The downside about those kinds of investments is that, when you don’t have a banker driving the process, they tend to take longer to get done. So, I think we’ll -- we are looking forward to a good year in [the] new investment area. I would say probably a little more back-end loaded, but we feel very good about the pipeline.

OK, and then just sort of curious question for Nate. You talked a lot about sort of go-forward on the mutual fund side. Sort of curious on the institutional side, obviously had a very strong quarter I guess focus on AQR and First Quadrant, from what your comments were. Any thought to how we should be thinking about ’06 versus ’05 at this point?

Sure. I would say, broadly, I think ’06 looks even better than ’05. There’s going to be a bunch of lumpiness in it, just as there was in ’05. But, we feel very good, as you said, about the breadth of participation there. We had very good performance across a lot of our affiliates participating in this channel, and so, as you look at the pipeline, the number of firms that you see good pipelines at is growing, and those firms that had good pipelines, we’ve been focusing on in ’05, their pipelines look -- continue to look strong and, in some cases, even stronger. So, broadly sitting here today versus a year ago, ’06 looks better.

Mark Constant with Lehman Brothers.

Just to -- actually to start with a little technical thing that I just couldn’t recall from your prior disclosures. Do you include reinvested distributions and dividends in nominal net flows or, more importantly, in the EBITDA contribution-affected flows?

Yes, we do not include dividend reinvestment.

Does not include reinvestments, OK. And then, just to get -- you mentioned a couple of sort of one-off withdrawals, including the cash at Fremont, and that kind of thing. But, I know you mentioned in the third quarter earnings release commentary, you kind of suggested that that was sort of due to timing and sort of an anomaly in the sense that timing kind of depressed your third quarter flows and that you were really confident in the fourth quarter momentum. Obviously we saw that, but should we also be tempering a little bit sort of the first quarter flow momentum, for lack of a better term, in the sense that some of that third quarter stuff kind of came in in the fourth on a gross sales basis? Is that reasonable, or do we need not do that?

Yeah, I’d go back to the answer I gave on the -- because again, focusing especially on the institutional channel, I’d go back to the answer I gave before, which is, look, ’06 looked better than ’05.

I’m trying to get a sense of quarters.

But yeah, there will be lumpiness in it, and the difference between [something] funding on the week before the quarter-end versus the week after, right? And there’s -- but broadly, the pipeline’s at a -- wide number of these things look -- of these firms look fantastic, and the firms that have been doing well are really well positioned for continued growth.

OK. And last question, sort of philosophical one, you guys have always been pretty thoughtful about -- to the benefits of diversification and some of the cycles in a lot of these businesses over time. You’re not getting too dependent on any one of them. Any thoughts at all with respect to products in particular potentially becoming sort of extended from a performance end or a flow standpoint?

I don’t think that our concentration is excessive. In other words, I think broad diversification across our product set includes 15% contribution from alternative products, but those alternative products, as Darrell noted, are very broadly distributed at different styles themselves. So, no, we feel fine. I don’t know. Nate, would you add ...

I don’t mean so much from concentration. I just mean the ability to continue to outperform and meet high investor expectations with Quant having outperformed so materially for the last couple years.

It did outperform, but the other thing I’d say, again as maybe amplifying a point I was making before, the number of affiliates -- again, just focusing on the institutional channel for a moment -- the number of affiliates that we’re seeing these pipelines building at is an increasing number of affiliates, and we had very good performance -- and again, we sort of said this at - a little bit, maybe should have emphasized more -- but we had very good performance across a wide range of these firms, value equity firms, growth equity firms, international products. So, it really is -- saw very good performance in ’05 across a wide number of affiliates.

David Haas with Fox-Pitt Kelton.

Just a quick question. In the last couple of calls, Darrell, you had mentioned that -- you’d thrown out the number 500 million as sort of a comfort level of being able to use that to do acquisitions. You didn’t really throw out a number this quarter. And as you sort of improve the operations here, what sort of number should we be thinking about with respect to your comfort level?

Yeah, I mean, I think that’s just right, is that we do have about $0.5 billion of capacity to make new investments and repurchase stock this year, and that’s the number we’re focusing on getting deployed. And of course, as the cash in the business continues to grow, our capacity continues to grow at a multiple of that. So, you can see this quarter, again we were able to repurchase a significant amount of stock and repay debt, and still have about the same amount of cash on our balance sheet.

Right, OK. And then, Sean, just in seeing some of the chatter that’s in the markets today about potentially bigger deals, and I think I even saw an article where you were in in T&I, [inaudible] and Investments, that talked about perhaps a doubling of sort of deal flow in 2006 versus 2005. Can you just talk about whether sort of your views are in line with that? And also as a corollary to that, are you thinking now that perhaps moving up in terms of size might be a possibility relative to what could be out there?

I think to start with a broad view of the merger market, there is lots of talk about large public and private firms entering into merger transactions or buyout transactions, and I think it is likely that there will be some activity at the large firm level. But, it’s important to distinguish those kinds of firms without naming them, but I think you know who I’m talking about, from mid-size boutique firms that we focus on investing in, and I think that, within that size universe, we can include large firms. I would say AQR, when we made the investment a little over a year ago, was a $12 billion alternative and traditional firm, and that structured an innovative investment there, which has worked very well. And there are larger firms within the mid-size universe that are appropriate, but I don’t think there’s any dramatic change in our focus.

I think our opportunity set remains very large, but focused in the mid-size space where we feel like our position is, as I said, better than ever, and very strong competitively relative to other alternatives out there. Private equity firms, which are actively pursuing transactions with larger investment management firms, aren’t as good. I won’t say they can’t work, but their approach is not as good a fit with mid-size firms, which are seeking permanent partnerships, not staged transactions with subsequent sales. So, we like the position we’re in and feel very optimistic about our prospects in the size of the universe, and view that as largely different from what’s being talked about in the merger market more broadly.

OK, and just a quick final question, just to sort of get back to the flows and, again, at growth. Within your guidance, I don’t know if you can talk about this, but what sort of range of implicit organic growth are you assuming? I mean, if we’re looking at 2% equity market appreciation, then, to the point made earlier about sort of maybe a limited upside relative to where things are in guidance, it feels like the organic growth estimate within your guidance would be sort of low single digits, and I don’t get the sense from your commentary that you really believe that. So, can you sort of square that away?

Yeah. I think that we do see a flow number in organic growth that would be at levels that are a bit higher than you’re mentioning. And again, I think we’re increasing guidance. That should be a strong sign to investors, and we feel good about the flows that are to come. And as we go through the quarters and see the pipeline turn into real sales, that will, of course, be reflected in our future guidance.

Mark Lane with William Blair & Company.

Just following up a little bit more on MIG, can you give us an idea of what gross production was in the fourth quarter and kind of where you sit from a sales force standpoint at the end of the year?

Sure. For the fourth quarter -- and I’ll give you a net number here -- but for the fourth quarter net close for MIG, we’re over 300. And looking to next year, we’re looking at a 1.5 billion to 2 billion kind of range for net flows. The sales force, about 30, maybe a smidge more is the right number, including outside and inside sales [reps].

So, last quarter you said that you expected about $1 billion of net flows from MIG in 2006, so obviously you’re much happier with the progress there.

Yes. The flows are accelerating. It’s coming in both SMAs, high net worth SMAs and also mutual funds. And increasing list of product, additional sponsorships coming online, products starting to respond to sales resources being played against them. But, yes, it’s accelerating.

Okay. And then, on the holding company expense guidance, I’m just a little bit confused about, now that your guidance includes some performance fees that you think are highly likely, your quarterly guidance last year was for about $10 million of holding company expense per quarter, and now it’s 11.8. So, I guess my question is, I mean, other than higher incentive comp, where is the incremental dollar going towards investing back in the business? Where are you putting that back in the business to grow the business?

And, of course, there’s a little bit of wage inflation for folks who are at the holding company. We’re certainly -- may be the perfect example. But, we’re always experimenting, incubating, looking and exploring for new initiatives that the holding company can do to accelerate and enhance the growth of affiliates. And as we finish the building of our risk management growth, again an outgrowth of Sarbanes 404 and just the regulatory environment that we’re in, we have some folks in next year, in -- well, this year, 2006 -- that weren’t on for a full year in 2005.

I guess the other thing I would add is that it’s important to understand that our structure’s different than other firms. There is enormous reinvestment back in the business, which obviously shows up at the affiliate level. We do a significant amount here, including in broadening the capabilities at the holding company, and the holding company incentive management -- sorry, incentive compensation -- for senior management in the scheme of things is not that big a number, and is highly variable, as Darrell said. So, in a year where, for whatever reason, we don’t generate strong earnings, as in the past it’s going to be a lot lower than what we’re targeting. And if we have a terrific year, it will be as targeted or maybe even higher, but always in line with what’s working for shareholders.

And how about holding company cash at the end of the year?

In 2005 we ended with just about $10 million.

OK. And then the last question is, on this -- and I know you have now some different affiliates with the minority investments and the Canadian firms that are wholly owned so, in looking at EBITDA contribution relative to ending assets under management, and it gets a little bit confusing. But, what was the -- first of all, what was the absolute dollar number out of revenue from performance fees?

Yeah. Revenue from performance fees was just about 25 million and, remember, that those revenues don’t include the revenues from AQR.

OK. So, last quarter your guidance for the fourth quarter was EBITDA contribution verses ending AUM of 18.4. And if you take out that performance fees from the EBITDA contribution, or at least the majority of it, you’re getting an ending AUM percentage, in terms of basis points, it’s more than 5% lower than that guidance. And now, you’re 17.3 in the first quarter. What’s going on there?

You know, some of it’s just an issue of the ratio because we had assets coming in towards the end of the quarter that didn’t have their full effect during the quarter. So that, of course, increases the denominator. And the intent from my description of this ratio and our guidance was that the first quarter should look very similar to the third quarter with regard to the sorts of ratios that we use to construct models that are meant to communicate our -- what we believe are the prospects of our affiliates, and particularly the mix of contribution that affiliate make to our earning.

I think right in that 17 basis point range is what we forecast in 2006 in how we’ve constructed the big items.

Cynthia Mayer with Merrill Lynch.

Just a couple of net flow questions. I think you said that the mutual fund flows of 200 million understated the actual. And so, if you added back the -- I think you said some assets were taken out but will be added again in 1Q. If you added that back plus the money market, would be -- you would be closer to 1 billion?

I don’t think it was quite that much, no.

What was it again?

The two pieces, again, were a couple hundred million in this sub-advisory, and then I want to say a little under 200 million -- [inaudible] a little under 200 million in that money market.

Yeah, I think normalized is just about 600, 650 million for the channel.

OK, and you’re expecting most of that 200 million to come back in in 1Q?

Yes, it seems reasonable, yes.

OK. And what is the impact of Ruhr at this point?

Zero.

OK. And just stepping back a little bit to the pipeline, does the fact that the public managers are trading at such a premium at this point affect the potential prices you might have to pay for a private manager? And has there been any impact at all on expectations out there?

No, I don’t think it does, really. I mean, there are, of course, some asset managers that look to acquire mid-size firms, but that’s always been and continues to be a pretty small slice of the buyer universe in the mid-size space. There are occasionally -- and there haven’t been that many, and I don’t expect that there will be that many more in the future -- larger mid-size firms that go public. So, to that extent, the public markets do represent a competitor to us.

And as I said, it’s a small subset of the mid-size universe that thinks about that, and there’s lots of complexity and cost attendant to being public unless you’re much larger than the typical mid-size firm is. I would say expectations remain very much as they have been over the past year or so, and we think the market is pricing trends are favorable to us, and our position for our kind of approach to investing, which obviously is interesting to a large number, but not all of the mid-size firms, but our position is as strong as it’s ever been.

OK. And you seem very diversified in terms of equity at this point, but should we assume that you’re not really going to be courting fixed income firms because they tend to be much larger if they’re really going to have an impact?

I think, broadly, that’s correct. We have very good diversity beyond equity through the alternative product suite which, as you’ve heard, is an increasing percentage of our earnings. There are boutique fixed-income firms and alternative firms which we are very interested in continuing to build our relationships with, and I expect that, at points in the future, we’ll further enhance our diversity. I think it is highly unlikely that we will make an investment in a very large fixed-income manager.

Right, OK. And let’s see, you touched on the possibility that affiliates could reopen funds at some point this year. Is that more likely first half, second half?

Really can’t say when they’ll be reopening funds. As we described, these are closes that were sort of a function of them planning to put cash rate to work, and so it’s a question of the case that was [inaudible] as to when they’ll reopen the product.

OK. And last question, just to revisit something that was brought up last call. What about the idea of directing some of the cash at the converts? Is the moment of opportunity passed at this point?

Well, yeah. The answer is no. We continue to be very deliberate about how we look at the balance sheet and analyze the opportunity. I think you tend to see, with repurchasing over 600,000 shares of stock, that certainly gets out the component of the convert that we’re looking to mitigate. But, the underlying bond of our convertibles is very attractive, and we’ll continue to use that as appropriate. But, we’ll always be looking at it, and we’ll make sure that we do what we can to make it attractive in the scope of all of our capital planning needs.

James Fotheringham with Goldman Sachs.

Nate, I was wondering if you could clarify your prepared comments with respect to the momentum in the institutional channel, and I’m sorry to go back to this. But, you said that you expect growth in ’06 to continue to accelerate, and I’m just wondering is that acceleration relative to the 40% growth in institutional assets that we saw in ’05 and ’04, or is it relative to another base?

I think what I was referring to is flows in -- I was really focused in flows in ’06 versus flows in ’05, which is the momentum that you saw in ’05. We expect that to accelerate, meaning ’06 should be greater.

Thank you. Management, at this time, I will turn the call back to you for any closing comments you may have.

Well, thank you once again for joining us this morning. To wrap up, 2005 was an excellent year across our business, and our position headed into 2006 is outstanding. We’re confident that, with the quality of our affiliates’ investment products and our success in executing our growth strategy, we’ll continue to generate excellent returns for our shareholders. Thank you.

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