Affiliated Managers Group Inc (AMG) 2007 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Affiliated Managers Group Q3 2007 results conference call. At this time all participants are in a listen-only mode. Later in this presentation we will conduct a question-and-answer session and instructions will be given at that time. If you should need assistance at any time during today's presentation, please press the star followed by the zero and an operator will assist you. As a reminder, this conference is being recorded today, Wednesday, October 24, 2007. It's now my pleasure to introduce today's host Brett Perryman, Vice President of Corporate Communications. Please go ahead.

Thank you. And thank you for joining Affiliated Managers Group to discuss our results for the third quarter of 2007. By now you should have received the press release issued regarding our earnings as well as the press release regarding our pending investment in Cooke & Bieler. 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 statement. Actual results could differ materially from those projected due to a number of factors including 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. We assume no obligation to update any forward-looking statements made during this year. In this call, the investment performance of certain products will be discussed and the benchmarks are deemed by AMG to be appropriate benchmarks. AMG will provide on its website a replay of the call and a copy of our announcements of the results of this quarter as well as the 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 Affilate Development; and Darrel Crate, Executive Vice President and Chief Financial Officer. Now I'd like to turn the call over to Sean Healey. Sean.

Thanks, Brett. Good morning everyone and thank you for joining. AMG had a strong third quarter with cash CBS of $1.56, which is a 16% increase over the same period of 2006. Our affiliates produced excellence investment performance and outstanding net cash flows this quarter and we remain confident in our prospects for continued strong organic growth particularly among our largest affiliates. Over the past 12 months organic growth has contributed over $56 billion or 27% to our assets under management. We also generated strong growth in net cash flows during this quarter as our affiliates delivered $4.3 billion in net flow.

As we all know, the third quarter included periods of extreme volatility but finished in positive territory. Against this backdrop, we were very pleased with the strong performance of our affiliates as well as their ability to continue to attract new business. The bred of our affiliates, product offerings and our exposure to the fastest growing areas of the asset management industry allow us to continue to generate consistent earnings growth across market environments, which you can see in our results this quarter. For example, with domestic growth equities contributing over 30% of our EBITDA, we were very well positioned in a strong environment for growth managers. Our affiliates, including Friess Associates, Times Square, Renaissance and Frontier offer a wide range of outstanding growth equity products with excellent, absolute and relative performance over the near and long-term. In particular, Friess Associates Brandywine funds rank at the very top of their category and they are beginning to get significant attention for their performance in the press and have been flagged as an early contender for Morningstar domestic stock manager of the year.

Another highlight of the quarter was our performance in international equities, especially emerging markets. With international equities contributing 35% of our EBITDA, we're well positioned for growth in this area. As you've heard me say, we anticipate continued out performance and strong secular growth in international equities going forward.

Finally, as you know, the alternative investment area is an important and growing contributors to our earnings. While some of our [inaudible] products that are difficult in a couple of months, we continue to see strong performance in other strategies. Nate is going to discuss our alternative results in more detail in just a moment. We continue to make excellent progress in the new investments areas and during this quarter -- during the quarter and this morning, we announce our pending investment in Cooke & Bieler a concentrated value equity manager with over $9 billion in assets under management. Cooke has a strong track record of growth with assets under management increasing at a compound annual rate of 35% over the past five years. The firm has a deep and talented team of investment professionals led by Kermit Eck and Michael Meyer and we're looking forward to working with our new affiliated partners. As always, the transaction will be immediately accretive to cash earnings per share. In addition as we noted in our release, we are in advanced discussions with a number of other investment prospects. And while, as we've heard me say before, we are limited in what we can say about the precise timing and size of potential transactions, suffice it to say we continue to be very pleased with the quality and diversity of our new investment pipeline.

Finally, we enhance our capacity to continue to execute on your new investment opportunities with our recent sale on very attractive terms of $500 million of convertible securities. And again, Darrell will provide more details on this transaction in just a moment. While we're obviously very excited about our new investment opportunities, we're also optimistic about prospect for continued strong growth from more extent affiliate which are among the best botique firms in the industry with broad participation in some of the fastest growing areas of the business. With that, I'll turn to Nate to discuss the results of our affiliates in more detail.

Hi Sean. Good morning everyone. Sean noted performance accross our affiliate group was good during the third quarter with organic growth of $10.3 billion, including $4.3 billion of positive net client cash flows. Now, in terms of overall teams for the quarter, I'll focus on the extraordinary performance of our growth equity affiliate.

As Sean said, their performance in the quarter was a fundamental strength of our business model. With a diverse group of high performing boutiques with investing [inaudible] are demonstrably add value to full-market cycles and as a result, we were able to generate consisting growth as investment approaches move in and out of favor. Now to discuss performance by distribution channel. We continued to have good performance in institutional channel including positive [inaudible] cash flows in excess of $4.6 billion for the quarter. Broadly speaking, while we generated positive flows across a wide range of our affiliates including both growth and value, we did continue to see rebound in activity which negatively impacted flows at emerging market manager Genesis and also some more value managers. I would also add that not with standing the headlines in the quarter regarding quantitative managers. We saw significant inflows in those firms including both AQR and First Quadrant.

Now, while we had significant positive [inaudible] and quantitatively oriented affiliates. I want to spend a minute talking about investment performance in those firms during the quarter. There's been a lot of [inaudible] especially those strategies that are heavily dependent on widely used quant equity signals. From AMG's standpoint, some of our affiliate's products are exposed to the decline as a result from the selloff. This included some products with [inaudible] quant equity, but also some [inaudible] that aren't generally viewed as based but held a similar name. At the same time, there are other quantitatively oriented product that are much less impacted and still others are benefited from all volatility. I would also note many of the products are negatively impacted during the selloff rebounded quite rapidly.

Also, just to confirm because we were asked this question last quarter we have no exposure to structure debt, you know. Turn to mutual fund channel from a flow standpoint, we saw outflows from some products that are value oriented firms, including Third Avenue [inaudible] as the investors with drew funds from those styles, especially real estate value and small cap value. These were partially offset by inflows at growth firms Friess and Time Square, but much of those flows coming through our managers platform. We also saw positive [inaudible] recently launched, world wide high dividend product, which is also a great start. Looking our investment performance in the channel, Tweedy Browne had good performance during the quarter as their flagship global value fund outperformed at hedge EP benchmark by 183 basis points for the quarter and 287 basis points through date. Also, while for having this flagship [inaudible] find up to from it's benchmark by 93 basis points for the quarter and 183 basis points for the year-to-date. From a performance standpoint though, a highlight for the quarter has to be Friess Associates Brandywine fund. In a growth environment for growth-oriented product that Brandywine funds had another excellent quarter.

Now, this is in a short-term phenomenon. For example all three funds have topped [inaudible] ranking's lever for the quarter, year-to-date, one- and three-year period. As Sean mentioned, this extraordinary performance is getting attention in the marketplace and the press and funds are starting to attact flows with over $375 million in net flows in the quarter as a managers platform is in building distribution for them and we have very, very high expectations for these products, given the excellent investment performance and increasing distribution resources. Now turning to our high net worth channel, flows were essentially flat for the quarter, up for the quarter with good positive flows to growth-oriented to [inaudible] funds to our managers platform as well as the Canadian firms [inaudible]. Offset, a small outflows at a number of other affiliates. In the quarter, managers started ramping up distribution of renaissance as international growth ABR product given the excellent performance of the product, benchmark by over 900 basis points for the quarter and over 2300 basis points for year-to-date. We have very high expectations for this product as well.

Finally, I want to update you on the progress of our global distribution initiative. Our Australian office have also a great start representing some of our largest affiliate including AQR, First Quadrant, Friess Associate, Third Avenue and Tweedy Browne. We've started to get some win and it's very high quality pipeline. In addition to the institutional business building, we are struggling year end for the launch of one or more Australian domicile collective investment vehicles which will allow us to broaden the range of clients we could reach. In addition as we noted on the last call, we'll be expanding our international distribution platform and plans are under way to open a second office in London, possibly as early as year end. The second market we are targeting is Middle East, but we're not only to receive tremendous opportunities, but as was the case from Australia, a number of our affiliates are already being pulled into the market through research activity. Now, we have a list of markets that we are working on, but most broadly we have benefiting from the significant global demand for the highest quality boutique managers. In some, between our US and the [inaudible] platform managers as well as our global distribution platform we are targeting an excess of $5million in incremental net flows for affiliates for 2008. With that, I'll turn it over to Darrell.

Thanks, Nate. Good morning, everyone. As you saw in the release, we reported cash earnings per share $1.56 for the third quarter and GAAP earnings per share of $1.07. Our net client cash flows of $4.3 billion for the quarter added roughly $6 million to A&G's annual [inaudible] EBITDA. Performance is added approximately $0.02 to our earnings in the quarter. Enough of the modelling details. The ratio of our EBITDA contribution to end of period assets under management was just under 16 basis points for the third quarter. We expect this ratio to be about 22 basis points in the fourth quarter as we will recognize most of our performance fee earnings at the end of the year.

As we look to the beginning of 2008 in the addition of Cooke & Bieler, we expect this ratio to be about 15 basis points for the first quarter. Holding company expenses were $14.1 million for the quarter and as we look to 2008, we expect holding company expenses to be approximately $17 million a quarter as we continue to build our global distribution platform and incorporate additional non-cash charges related to equity compensation.

With regard to taxes, our tax rate was 37% for the quarter, and we expected to remain at this level for the rest of the year and through 2008. Our cash tax rate was 26.6% in the third quarter and should increase to about 30% in the fourth quarter reflecting the organic growth of the business. We expect our cash tax rate to be just under 29% for the full year 2008. Intangible related deferred taxes were $6.8 million for the third quarter and will continue at this level for the remainder of 2007. We expect deferred taxes to increase to $7.3 million in 2008 to reflect the closing of our investment in Cooke & Bieler. Amortization for the quarter was $10.3 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 income from equity method investments line on the income statement, all net of amortization. We expect amortization to remain at this level for the fourth quarter and then to increase to $11 million per quarter in 2008. Depreciation for the quarter was $2.8 million with $1.7 million of that attributable to affiliate depreciation and as you recall, affiliate depreciation is the non-cash charge we include in cash net come as the replenishment of these depreciated assets is paid by the affiliates and not AMG shareholders. We expect depreciation to remain at these levels for the fourth quarter. Stockholders' equity was $641.4 million, an interest expense was $18 million for the fourth quarter.

We anticipate that our interest expense will increase to approximately $18.5 million in the fourth quarter reflecting the recent issuance of convertible securities. Pausing here for a moment, as Sean mentioned we recently issued 500 million in convertible trust preferred securities or trusts. The security is essentially enabled us to issue stock at $200 per share with an after-tax coupon of 2%. At the time of the transaction, we bought just under $2 million shares of our stock, in addition to the 800,000 shares we have repurchased during the quarter. We also announced our intent to convert floating rate convertible securities or COBRAS into equity in next February.

As we look at 2008, these transactions have a net affect of increasing our capacity for new investments, reducing our share count as well as our cost of equity and provide us the flexibility to meaningfully simplify our liability structure are removing all senior hybrid securities from our balance sheet. With respect to our pending investment in Cooke & Bieler, we expect the transaction to close around January 31st, and that the consideration will be financed primarily with cash available from operations and a recent financing. The Cooke & Bieler transaction will be approximately $0.17 accretive to cash earnings per share in 2008. Pro forma for the investment in Cooke & Bieler leverage as measured by net debt divided by run rate EBITDA will be approximately 1.3 times which is at the lower end of our target leverage range allowing for well over a billion dollars of capacity for additional new investment while also enabling us to continue to opportunistically repurchase our common stock. Now turning to guidance for the remainder of 2007 and the full year for 2008.

Starting with 2007, we expect cash earnings per share to be in the range of $6.75 to $6.95. We are pleased with the performance of our affiliates in general. But as we discussed, some of our alternative products have gone through a difficult period in the past couple of months and we are refining our expectations to reflect the impact of those challenges. Our assumptions in this guidance include a conservative estimate for performance fees earned in the fourth quarter. Looking ahead to 2008, we expect our cash earnings per share to be in the range of $7.70 to $8.20. This assumes 2% quarterly growth in markets and a weighted-average share count of 41 million shares. Our guidance for 2008 does not include additional earnings from investments in new affiliates other than Cooke & Bieler. It also assumes an earnings pattern similar to the one you have seen from us over the past several years where we recognize the majority of the earnings from alternative products and performance fees in the fourth quarter. With the continued growth of our affiliates alternative products, which currently account for $35 billion of our assets under management, we expect the performance fees will be an increasingly meaningful contributor over time. We would expect our alternative products to generate approximately 14% of our 2008 earnings. I would note that this assumes modest performance consistent with our other guidance assumption.

However, performance fees by their nature provide considerable upside opportunity. Our guidance is based on current expectations about affiliate growth rate, performance and the mix of affiliate contributions to our earnings. Of course, substantial change in the equity market and the earnings contributions are affiliates would be impacted by these expectations. Now, we will be happy to answer any questions.

Thank you, sir. Ladies and gentlemen, at this time we'll begin our question-and-answer session. If you have a question or comment, please press the star followed by the one on your touch-tone telephone. We'll hear a three-tone prompt acknowledging your selection and your questions will be polled in order to receive. If your question has been answered and you would like to decline from the polling process, please press the star followed by the two on your phone. I would like to remind you if you are using any type of speaker equipment today, you may want to lift the handset before pressing the numbers. One moment please for the first question. Our first question from the line of Craig Cigentholer from Credit Suisse. Please go ahead.

Thanks. Good morning.

Good morning, Craig.

First question, with the Cooke & Bieler investment, can you comment on timing? Specifically Cooke's management has made some smart decisions in the past, specifically when they did the MBO in 2001 prior to the value boom we just saw and now we're entering a period of growth investment style performing value. So why specifically did you kind of choose now as the timing for this sort of deal? And do you believe a 30% stake by management will be able to keep the PMs around for the next few years.

I'll start with the last part of your question, which is yes, along with all the other elements of our investment approach, which provide for a range of substantial long-term incentives as well as, as always. The preservation of the firm's unique operating and investment culture. So we're very optimistic as are the firm's partners who had a number of other types of transaction alternatives available to them and chose that. So we're very optimistic for the long-term. With respect to your question about whether there's some kind of adverse selection, I guess I would say, as I'm sure you'll realize, you know, we've have been at this for a long time, fourteen or fifteen years at this point. Ten years as a public company and we've made lots of investments and lots of different kinds of firms and lots of different market environments and we're quite comfortable that this will be as our other affiliates, our investments in other affiliates have been. This will be a terrific long-term investment.

Great. Thanks. And one more. With respect to 2008 guidance, how does this look on the EBITDA margin basis? Because historically that's a metric you've disclosed to us? I'm just wondering how that look? Does that trend down a little bit from '07.

You know, when we look to guidance again when we think about EBITDA margin that is principally driven by the mix of growth across affiliates. So, affiliates where we own a lower percentage. Of course if they grow faster than affiliates where we own a higher percentage, EBITDA margin will decrease and likewise if we at firms that we were own more of a grow faster, then EBITDA margin will increase. So, the purpose for in the guidance is really to give investors a sense and ability to create a model and for us to communicate how we believe the mix of our business is going to evolve through 2008.

But I would caution anyone who looks at our EBITDA margin and tries to derive some sense of health of the business and growth and all the sort of margin implications that in our case and given our structure, that it's really just a modelling tool and not a metric by which to judge a business health and performance.

Agreed. But it sounds like it might tick down a little bit in '08 just from the performance -- just from a business standpoint.

Yes, so what we're saying is, there's some firms we earn less of that are actually groing very quickly.

Got it. Thanks a lot.

Thank you Mr. Cigentholer. Once again ladies and gentleman, we look forward to any questions or comments you may have at this time. So, please press the star followed by the one on your phone. Our next question does come from the line of William Katz of Buckingham Research.

Okay. Thank you. Good morning, you were going very quickly so I apologize and the line wasn't very clear. Could you repeat you said about the $5 billion number and the [inaudible] from management? Talking about the global [cut]

Actually, so the number that I gave you, I gave you a combined distribution platform number. So, that includes managers as well as global distribution for 2008, and I said, yes, in excess of $5 billion.

Now was incremental new business that you're anticipating?

Yes, that's correct. That's incremental new business for our affiliates driven by AMG platforms on top of the growth from their own distribution.

And I'd take a moment just to remind folks that this started from scratch less than a handful of years ago and has grown nicely by almost a billion dollars a year, maybe even a little bit more and as we look at the new opportunity to build offices around the globe that represent our affiliates, I think it's certainly an accelerating opportunity over time.

Then Darrell, short I guess [inaudible] in terms of the guidance, I guess what I struggle with a little bit is next year in that you're sort of suggesting if you look a bit of midpoint to midpoint, it's about 16% EPS growth but you're sort of walking of the performance number, you have Cooke & Bieler coming on and then so the incremental EBITDA distribution from the assets you accumulated in the third quarter. Is this just a sense of being conservative, or is just something else that I'm missing here in terms of the outlook for '08 over '07?

No, I think again if you look at our track record of delivering consistent, strong cash earnings growth year over year, you know, as we look back to 2006 and compared it to 2007, we reported $5.63 in 2006 and you look at the guidance range that we've presented. That's in excess of 20% growth. And as you know, our model is based upon the base business of existing affiliates that continue to grow nicely. And with that, we may purchase stock and we do deals and we supplement that, as all parts of our earnings growth strategy. But to sit here before 2008 has even begun and to lay out expectation for investors, when we will learn a whole lot between now and the end of 2008. I just doesn't feel like the right thing to do. We have many opportunities that we've built for it and that we will take advantage of in 2008. But today they have growth rates in an estimate that are in excess of 15% and 16% just doesn't feel like the right thing to do. We've got a long time to continue to do this and we feel great about the track record that we've built and it feels like this is the right way to manage expectations given where we stand relative to 2008 today.

Okay. And then, Sean, sort of curious. Last time you guys used verbiage, that is all we can say for now, a few days later you announced Genesis, if I recall correctly after an earnings statement. So, just sort of curious with as now a billion dollars plus so with incremental liquidity adjusting for the conversion of the COBRA, you said in the past that you thought deals with [inaudible] to so that 10 to 20 of $30 billion in size has given the growth of the midyear players of the underlying assets? Is that still the case? I guess the other day this transaction you announced this morning is still relatively small in the scheme of expectations, and, you know, more traditional base. I guess the question is, you know, you primed us for alternatives, you primed us for international, you primed us for bigger deals. Is it a matter of staying tuned here or is it ever changing?

I wouldn't disagree with the -- I probably disagree the priming verb, but we certainly have indicated that we see, as our business grows, naturally a move to making investments in larger boutique firms. We also have said that not only do we currently have a proportionally larger exposure to fast growing areas like alternative and international than our public company peers, but we want to increase that exposure and believe that we will in addition to the EXTANT grow or EXTANT affiliates growing faster in those areas. We do see significant opportunities for new affiliate investments in those areas. But, we have always committed ourselves to a view where we have the opportunity to invest in a terrific firm. Whatever it does or does not do to the overall diversification of our exposure we're not going to do it and that's precisely what we've done in investing in Cooke & Bieler. I think to your point about how much money we put to work in any investment, I think this may be at the lower end of what we would typically be targeting now, but it's certainly, you know, very meaningful investment and I think we're focused on investing in firms which are meaningful and which offer very substantial long-term growth opportunities and that's what you should expect to see from us going forward.

Okay. If I could just ease up a little more goodwill here. Nate, did you say anything -- I apologizes, the connection was very poor. Did you say anything about the institutional pipeline looking out into the fourth quarter.

Sure, obviously I'll preface it with it's still very early days in the quarter. But that said in looking at a consistent with prior quarters, obviously looking at it today, looks good. Pipeline looks good in terms of mandates one and funded, mandates one and not yet funded, where people look in the process. Again, but there are early days in the quarter.

Okay, thank you.

Thanks.

With the next question comes from the line of Mark Irizarry from Goldman Sachs.

Oh great, thanks. Sean, a question for you on the environment out there for acquisitions. Where do you think seller expectations are relative to where they need to be for you to get some of the -- you know, some of these deals done that are on the table right now? Thanks.

I think, as you've heard me say in recent quarters, the environment for us is actually very attractive. There are a large number of very high-quality boutique firms out there, many of them are seeking the kind of solution to their succession issues that we offer or seeking a strategic investor of the nature and form that we represent. And so I think, if anything, if I'm trying to sort of gauge market trends, merger market trends in the boutique space, I would say they are even more appealing now than they were last quarter, because obviously the disruptions in the markets have made the IPO alternative a little less attractive for some firms. And I think while high-quality firms continue to generate strong growth, having a market environment that has a bit of volatility but underlying continued growth is probably good for us and with respect to pricing, I think the expectations are right in line with the what we would hope them to be.

Okay, great. Then, you know, looks like the holding company expenses are going up and you're making more investments in some of these global platforms, if you will, to help maybe the distribution of some of the affiliates. When you think about the business model and the potential, you know, traps of, you know, having to deliver or fulfill some distribution needs of some of the affiliates, how do you balance that with, you know, kind of buying the faster growing affiliates who have their own sort of distribution plans and how much, you know, would you plan to accelerate the growth to help drive distribution to make the deals work? Thanks.

Okay. Let me start on this one. I'd go back when you say distribution needs and I think that's not necessarily the right way, the right framework to think about it. We're investing in firms, every firm in which we're investing has their own very strong distribution in general across a couple of channels at least and what we're doing is we're adding distribution to help those firms in those channels where it's a challenge for boutiques. Not to say they can't do it on their own, where it's just more efficient for boutiques to do things collectively. And so you're saying us do this in an incremental sort of step-by-step fashion. While there are expenses associated with it, of course, it's not a significant amount of expenses at each of these steps. And really, you also heard just say we're being pulled into markets and so what we're doing is we're not building these offices ahead of growth. We're building it alongside of clear business trends. In fact, in every case to date we're building it alongside of actual client wins, where the client needs to be serviced anyway and so then the question become, can we help the affiliate do it collectively. Generally it doesn't cost more than having the affiliates do it themselves but we do a much more excellent job of it, at least that's been our experienced today as we've now been doing this.

Okay, thanks.

Thank you. Our next question comes from the line of Cynthia Meyer of Merrill Lynch.

Hi, good morning, just a couple of questions.

Good morning, Cynthia.

I was curious to hear you say there was rebalancing at Genesis that seemed like such a good quarter for emerging markets companies. I just wanted to make sure are there any performance issues there and would you expect that to continue?

Yes, I think what I said -- yes, the rebound in Genesis. So, Genesis has had, wasn't just a good quarter for emerging markets, it's been a very strong long-term trend, a couple of your trend emerging markets performing very, very well. I don't think we're surprised to see rebalancing by institutional clients who have exposure there. Again, just to be very, very clear, it is rebalancing, when you go down the list, I don't think there are any client losses in there. It is literally just rebalancing. If you look at the performance they have generated for these clients over the medium term there, it's truly extraordinary the run they have had.

I would add they also have new money coming in, and especially new money coming into some new products which they have recently launched, including alternative vehicles which obviously are more profitable products. So on the whole, we think the firm is in terrific shape. And while emerging markets are inherently a more volatile asset class, we certainly over time expect to see continued growth, continued out performance and are very happy for the exposure that Genesis provides us to those markets.

Okay. And the first quadrant in AQ are inflows, how significant are those and given things like lockups, would you expect to see a different pattern in Q4 or Q1?

Okay, they both had very strong flow quarters. Remember, just to orient, folks, both of these firms have client bases which are not really just [inaudible] both of these firms have client basis which are not really just fund. So, AQL for example about a third of their client base is alternative, two-thirds long. FQ, a very institutional client base. So they are seeing significant flows in the funds, yes, but also in the institutional separate account product where there are kinds of things you're talking about are much more customized. So, it's less the sort of the fund that is on them that you have to think about our business most broadly.

Okay. And - [cut]

I would add to that, Cynthia, as we look forward, both of those firms continued to be well positioned given their long-term track records and reputation, continued to have inflows.

Okay. And Darrell, could you go over once again why the cash tax rate would be going up?

Only in that as we generate organic earnings, they are -- the cash tax rate on that marginal earning is 37%. As we look to the fourth quarter and realize increased earnings through performance fees for that quarter, that cash tax rate will go to 30%. Then as we look to next year for the whole year again including some performance fees in the fourth quarter, we think for the full year that cash tax rate will be 29%. That is the result of billions of dollars of organic growth across our affiliate base.

So if you were to do some large chunky acquisitions, the cash tax rate would go down, I guess from a [cut].

Exactly right.

Okay. Thanks.

Thank you. At this time we have no further questions. I'd like to turn it back over to you for any closing remarks.

As you heard in the discussion, we're pleased with our results and with our prospects for continued growth. Our affiliates include some of the highest quality boutique firms in the industry and we have broad participation in the fast growing areas such as alternative and international investments. In the past ten years since our IPO, which includes a full range of market environments, AMG has produced a compound annual growth rate and cash earning per share of over 20%. Over this period [inaudible] also generated outstanding long-term returns for our shareholders and we look forward to building on this track record in the years ahead. Thank you again for joining us this morning.

This concludes the Affiliated Managers Group Q3 2007 results conference. Thank you for your participation. You may now disconnect.