Artisan Partners Asset Management Inc (APAM) 2017 Q2 法說會逐字稿

Good morning, and welcome to the Artisan Partners Second Quarter 2017 Earnings Conference Call. (Operator Instructions) Please also note, today's event is being recorded.

I would now like to turn the conference over to Makela Taphorn. Please go ahead.

Thank you. Welcome to the Artisan Partners Asset Management Business Update and Earnings Call. Today's call will include remarks from Eric Colson, Chairman and CEO; and C.J. Daley, CFO. Following these remarks, we will open up the line for questions.

Before Eric begins, I would like to remind you that our earnings release and the related presentation materials are available on the Investor Relations section of our website. Also, the comments made on today's call and some of our responses to your questions may deal with forward-looking statements, which are subject to risks and uncertainties. Factors that may cause our actual results to differ from expectations are presented in the earnings release and are detailed in our filings with the SEC. We undertake no obligation to revise these statements following the date of this conference call. In addition, some of our remarks made today will include references to non-GAAP financial measures. You can find reconciliations of those measures to the most comparable GAAP measures in the earnings release.

And I will now turn the call over to Eric Colson

Thank you, Makela, and thank you, everyone, for joining the call. At Artisan, we value time, so we appreciate everybody taking the time to listen to the call or read the transcript. Our goal on these calls is to describe who we are and how recent events relate to our long-term vision. Consistency, stability and predictability are essential in a people business.

Moving to Slide 2. With all of the headlines and noise about industry disruption, this summer provided to be a great time to bring together Artisan's investment team leaders and more than 100 current and prospective clients, consultants and intermediary partners for an investment forum. The forum highlighted the passion that Artisan portfolio managers have for investing as well as the autonomy and independence of the investment teams. Listening to each team present, you could easily appreciate the importance of talent and autonomy to our model. You could also appreciate how the investment teams use degrees of freedom, especially the flexibility to invest in companies throughout the world, to generate returns and manage risk. The investment forum provided a really nice perspective on what matters. Through our institutional clients, intermediary partners, our funds and other collective vehicles, there are thousands of real people trusting us to compound wealth and manage risk. Getting investments right for those people is what matters most.

Slide 3 summarizes Artisan's recent and long-term investment performance. We haven't said much about the active/passive performance debate or the ETF phenomenon because our results speak for themselves. Our business model has produced multiple investment teams over various time periods with different investment approaches that have beaten their benchmark passive indexes net of fees.

Over 20 years, we've established 9 investment teams and offered 17 investment strategies to clients. Over the years, we merged our Small-Cap Growth team and today's Growth team, and we have shut down 2 investment strategies. Today, we have 8 teams managing 15 strategies. We believe that our emphasis on quality over quantity increases the probability of investment and business success.

Long-term absolute and relative returns bear that out. After fees, 10 of the 13 strategies listed have beaten the index by 156 basis points or more per year since inception, with inception dates ranging from 1996 to 2015. 8 of the 10 outperforming strategies have since inception track records of 10 years or more. We expect each strategy to add value for our clients over time, so it pains us to see the 3 negative since inception value-added numbers. We expect better. However, we understand and can explain those returns and are confident that over time and through full market cycles, the Value Equity, U.S. Small-Cap Growth and Emerging Markets strategies will add value for clients and investors as all 3 strategies have done in recent periods.

We don't usually highlight short-term investment results, but year-to-date investment returns have driven our AUM and financial results. At quarter end, the Non-U. S. Growth and Global Equity strategies had each generated more than 400 basis points of outperformance during 2017, net of fees, and each of the Growth team's 3 strategies had generated more than 700 basis points of outperformance, net of fees.

To generate high value-added returns, we continue to add investment degrees of freedom. The data on Slide 4 help explain why. Since 1996, there has been a steady and significant decline in the number of publicly traded companies in the United States. The surviving U.S. publicly traded companies tend to be bigger and older than in the past. Whatever the reason for the so-called listing gap, the consequence is a smaller opportunity set in U.S. equities, in particular, fewer small-cap and mid-cap companies.

At the same time, the number of exchange-traded funds has increased. Some ETFs provide exposure to broad market cap weighted indexes, like the S&P 500, but many ETFs provide exposure to market segments or style factors for which investors previously used an actively managed product. We understand the trend towards ETFs and other index products, and we are evolving accordingly. Launching our own exposure-oriented strategies would conflict with our high value-added model. We have no expertise or competitive advantage with index products. Instead, we are focused on continuing to provide our investment teams with more degrees of freedom to differentiate returns and manage risk.

We have several recent examples to report. In April, we launched the Artisan Thematic strategy, which is idiosyncratic and concentrated. There's no ETF or index product out there that can recreate or mimic what Chris Smith and the Thematic team are doing. The strategy is off to a solid start, and we expect to launch an additional strategy for the Thematic team in the relatively near future.

In June, we launched a second strategy for our Credit team, which I will discuss in more detail in a minute. Lastly, we're in the process of launching a new strategy for our Growth team, the Artisan Global Discovery strategy. The Growth team has had great success managing the Global Opportunities strategy, which has provided the team with more degrees of freedom than the Mid- and Small-Cap Growth strategies, both of which have been impacted by the declining opportunity set I discussed earlier.

Like the Global Opportunities strategy, the Global Discovery strategy will give the Growth team increased degrees of freedom. After the strategy is up and running, we'll have more to say about it and how it relates to the Growth team's other 3 strategies.

Turning to Slide 5. Degrees of freedom are only helpful if you have the right talent to use them. Since 1994, Artisan has been identifying and recruiting talented and unique individuals and partnering with those individuals to develop investment franchises. I'll use the Credit team as an example because the team story has played out since we have been a public company holding these quarterly calls.

Slide 5 shows screenshots from 4 of our prior calls. In the third quarter of 2013, we explained the right kind of talent for Artisan. We look for individuals who are or who can become recognizable leaders and who are committed to an investment philosophy and process that they believe in and that differentiates them from others. We found that kind of leader in Bryan Krug. Bryan joined us in the fourth quarter of 2013. Once onboard, we provided Bryan with a full range of support, helping him find and hire talent, building out a new office in Kansas City and launching a first strategy. We minimized the amount of time that Bryan had to spend on these and other business matters, allowing him and his team to focus on investments. After 3 years, the team's investment performance placed the High Income strategy in the first percentile of its high-yield peers since inception, and the strategy raised assets at an unprecedented rate for a new Artisan team, both of which we discussed on last quarter's conference call.

On Slide 6, you can see the progress that the Credit team has made. Bryan has put together a talented team of 5 experienced analysts and a trader. The team has come together nicely and is establishing a unique culture. Since inception, the High Income strategy has generated average annual returns of 7.2% and 226 basis points of average annual outperformance, both net of management fees. As the team came together and expanded its knowledge base and coverage capabilities, the natural next step was to launch a second strategy, which we did in June. We seeded the new strategy with a $20 million investment and raised an additional $13 million from employees and directors of the firm. Because we are offering the strategy to investors through a private fund structure, we can't say much about the strategy on a public call or in public documents. The private fund structure should offer the Credit team additional degrees of investment freedom not available in a 40 Act fund. Those additional degrees of freedom include the ability to invest in less liquid instruments, the use of leverage, shorting and the use of a broad range of instruments.

The Credit team is a good case study in how we communicate our strategy, execute and report back. With respect to recruiting new talent and adding degrees of freedom, we have been very clear about our strategy. We pound away. We talk to lots of people, and we are regularly considering whether certain individuals would be the right fit. The right talent for Artisan is scarce, difficult to find and difficult to recruit. Likewise, adding degrees of freedom cannot be forced. Investment teams need the right knowledge and skills. Operation and infrastructure must be in place to support them, and we cannot surprise clients.

When we do find the right talent, we have the resources and experience to build a team, design and launch strategies and add degrees of freedom. Our ability to resource existing and new investment teams has only increased as we have gained new experience with both Bryan and the Credit team and Chris and the Thematic team and with the addition of Jason Gottlieb as our Chief Operating Officer of Investments.

As I mentioned earlier, we believe in quality over quantity. We are very selective when it comes to new teams and strategies. Each team and strategy is important. As we did with the Credit team, we have communicated our early steps with the Developing World and Thematic teams. We expect those teams to be as successful as the Credit team over time.

On Slide 7, you can see how recent investment returns have grown our AUM from $95 billion at the end of June 2016 to $109.4 billion at the end of the last quarter. Over that period, AUM growth from investment returns has been partially offset by firm-wide net outflows of $3 billion, primarily resulting from $4.4 billion and $2.3 billion of net outflows from our Non-U. S. Growth and U.S. Mid-Cap Growth strategies. Over the same trailing 12-month period, our 3 global strategies and our High Income and Developing World strategies have combined net inflows of $5.8 billion, demonstrating that there is significant demand for high value-added active investment strategies, especially strategies that give talented investors broad flexibility to generate returns and manage risks.

On the chart, we include the green 2016 line as a reminder of the unusually smooth ride thus far in 2017. Market volatility has been low, and there has been a notable absence of market drawdown. That has been nice, but as we have said, since our IPO, we expect things to be bumpier. And we have designed and operated our business with an expectation that market returns will be fickle and net flows will be lumpy, more like 2016 than 2017.

I'll now turn it over to C.J. to discuss our financial results.

Thanks, Eric. I'll begin on Slide 8. Our earnings release and presentation disclose both GAAP and adjusted financial results, but I will focus my comments on the adjusted results, which we use to evaluate our business operations.

Our adjusted results exclude the impact of pre-IPO equity-based compensation and include the impact of post-IPO equity-based compensation, which is a noncash expense. In the current quarter, our average assets under management increased $6 billion or 6%, thanks to strong absolute and relative investment performance. Higher average assets under management grew our revenues by $12 million or 7%. Operating expenses followed suit as the variable expense components of our P&L increased with revenue and were offset in part by lower seasonal expenses. Adjusted operating margin increased to 37.1% in the current quarter, and adjusted earnings per adjusted share increased 11.5% to $0.58. I believe these results continue to reinforce the transparency and predictability of our financial model.

Taking a closer look at our AUM on Slide 9. Assets under management at the end of the quarter was $109.4 billion, up 5.4% compared to last quarter and up 15% compared to the same quarter last year. The increase in the current quarter reflected market appreciation of $7.1 billion, a substantial portion of which was from alpha generation. Market appreciation was partially offset by net client cash outflows of $1.5 billion. Net client cash outflows in the quarter were primarily from the Non-U. S. Growth strategy and to a lesser extent, the Mid-Cap Growth strategy. As Eric mentioned, since June 30, 2016, AUM has grown $14.4 billion or 15% due to market appreciation of $17.4 billion, partially offset by $3 billion of net client cash outflows over the trailing 12-month period.

Moving on to our financial results on Page 10. Compared to the previous quarter, revenues were up 7%, reflecting primarily the increase in average AUM. Compared to the same quarter last year, revenues were up 9% on average AUM that was up 11%. Our average fee rate declined 1.8 basis points due to the continued increase in the proportion of our total assets managed in separate accounts, which generate less revenue, but which we believe are longer-duration assets. As we have said before, the reduction in the average fee rate is driven by mix shift in our business, not a reduction in our rates. Year-to-date revenues were up 7% compared to the same period last year, reflecting a 10% increase in average assets, also partially offset by a decrease in the average fee rate.

Operating expenses are summarized on Page 11. Excluding pre-offering-related compensation expense, operating expenses increased 3% in the quarter and 7% year-to-date, primarily due to increased compensation costs, which I will explain on the next slide.

Slide 12 is where we've broken out our compensation and benefits expenses. Compared to the prior quarter, comp and benefits expense, excluding pre-offering related compensation expense, increased $3.1 million, which reflects higher incentive compensation, which varies with revenue, partially offset by a decrease in seasonal expenses. Compared to the same quarter and year-to-date period last year, incentive compensation increased due to higher revenues. Compensation costs also increased due to added employees from the formation of new teams and strategies and annual merit-based increases. Lastly, equity-based compensation increased as we layered on expenses for the equity granted in January of 2017.

Moving on to Slide 13. Adjusted operating margin in the current quarter was 37.1%, up from 35% last quarter and 36.6% for the same quarter last year. In this most recent quarter, we benefited from the scale our model provides when revenues increase. Year-to-date, adjusted operating margin was 36.1% compared to 36.2% for the same period last year. This substantially flat adjusted operating margin reflects the benefits of higher AUM, offset by higher expenses in 2017 related to the addition of our newest team and our 2017 annual equity grant. Adjusted net income in the quarter was $44.3 million or $0.58 per adjusted share, which was up from $38.8 million or $0.52 per adjusted share last quarter.

Slide 14 shows our dividend history. Last week, we announced that our Board of Directors declared a quarterly dividend of $0.60 per share payable on August 31, 2017, to shareholders of record on August 17. After taking into account noncash expenses, we generated cash flow in excess of our $0.60 regular quarterly dividend during the quarter. Our calculation of quarterly cash generation principally includes the $0.58 per adjusted share and the noncash expense proposed IPO equity-based compensation.

Slide 15 shows our balance sheet highlights. Our balance sheet remains strong with a healthy cash balance and modest leverage at 0.6x. We have $200 million of debt on our balance sheet. $60 million of this debt and our $100 million revolving credit facility are scheduled to mature on August 17, 2017. We have obtained commitments to refinance the $60 million of notes coming due and to extend the revolving credit facility, in both cases subject to standard closing conditions.

In summary, our strong balance sheet and our transparent and predictable financial model continue to support a stable environment for our investment talent. We believe a stable environment allows our investment talent to focus on investing and growing wealth for our clients.

That concludes my prepared remarks. I will now turn it back to the operator.

(Operator Instructions) Today's first question comes from Chris Shutler with William Blair.

This is actually Andrew Nicholas filling in for Chris. My first question, I'm looking at Slide 3 and the year-to-date performance. And the Non-U. S. Growth strategy has been really strong. I'm just curious if you're seeing any signs that outflows are slowing in that strategy.

Andrew, it's Eric Colson. Clearly, we're happy about the turnaround and performance, and we do expect, as an active manager, that we'll have these year-to-year return differential versus the index. Clients, I think, have a bit of a lag when they're looking at performance. When you have strong performance, you tend to see clients chasing that. When you have performance that's weak, again, there's a lag of redemption. So I think our expectation is it will slow down, but the lag effect is hard to predict.

Okay. And then separately, I was just wondering if you could provide an update on the Global Opportunities strategies capacity. I know I believe it was last quarter which -- where you closed it to new accounts. So if we could just get an update there, it'd be helpful.

Sure. The Global Opportunities is a bit complicated because of the mid-cap flows on one side and the launch of the Global Discovery fund that's coming up and just the velocity of flows that come into Global Opportunities. And when you take all those 3 together, it's very hard to predict the flows and the exact timing of any strategies closing or when we reopen strategies. I think, as always, we'll be cautious to protect alpha as opposed to maximizing flows. Right now, we're in a very cautious stage of managing flows to protect the clients that are in the strategies so that we can deliver returns. So the update is a cautious approach and a closing process that is in progress right now.

And ladies and gentlemen, the next question comes from Michael Carrier, Bank of America Merrill Lynch.

It's actually Jeff Ambrosi filling in for Mike. I just wanted to ask on the international fund, I think this was hit on in the last question, but given the strong year-to-date relative performance and elevated outflows over the past couple of years for that fund as well as strong demand, it seems like, in the industry for actively managed international or global equity strategies, has there been any discussion about reopening that fund to new investors?

No, we've definitely seen the cycles. If you go back on the last 3, 4, 5 years of the international growth strategies flows, we had a large inflow a few years back, and then you saw quite a few intermediary central research take a step back from the EC exposure. You're starting to see that balance out. But when we look over the longer time frame of flows and not just year-to-year flows, we still feel that there's an elevated AUM in that strategy. And furthermore, given the soft-close nature, there is still an ability with a lot of the intermediaries and larger clients that they can add to their current position. So given the nature of flows and the soft close and the ability to take on money, we have not made any indications of opening that strategy. And further, like all of our teams, especially our mature teams, we've added a more higher degree freedom strategy in all of our teams, and the Global Equity strategy has significant capacity that can grow. And we have to take that into account, if that does move forward, how that impacts our international growth strategy as well.

And our next question comes from Robert Lee of KBW.

Just kind of curious, I mean, you mentioned, I guess, in the past quarter or so you did start 2 private funds: one in credit; one in thematic. I'm just kind of curious as to -- I mean, the structure of those. I'm assuming those are kind of a committed -- those are more of a committed capital drawdown-type structures that -- just curious if those are the structures and if you kind of raised capital that for any of those that haven't yet shown up in the assets.

Sure, Robert. It's Eric. They are private funds, so we can't get too much into the details. But they are traditional Cayman master-feeder funds. Our goal here is really to differentiate on our investment result in the portfolio. We don't expect to really differentiate our space -- ourselves based on a vehicle, so these would be very much in line of a traditional Cayman structure.

Okay. And as credit hit its 3-year numbers, which are pretty good, I mean, are you noticing any kind of pickup in institutional activity around that? I mean, obviously, leading up to and having hit it, is what you had hoped when you hit the 3-year numbers starting to transpire?

I think we've clearly been happy with the growth in the High Income strategy. I think, specific to the institutional channel, we'd like to see some more growth there, but we understand where the spreads are at. And given last year's returns, clients have been somewhat cautious on their high-yield allocations. And as we see the replacement cycle or opportunities come to the forefront, we expect that we'll be on the top of the list against our peers.

And our next question today comes from Bill Katz with Citigroup.

And I apologize, I did join the call a bit late. So a lot going on this morning in the industry. Eric, you may have covered this in your prepared remarks. Again, I apologize upfront. And just true-ups question. On the private funds, is there any way we can think about any kind of aspirational sizing of these? I recognize you're in a marketing period perhaps now. But any way we could just try and, I suppose, scale this? How we should think about the incremental opportunity?

It's hard to predict that. I'd be very hesitant to give out a number on the private funds and what our expectations are. Obviously, we expect them to be more limited than our traditional strategies given the liquidity and the nature of these funds. And we expect that we would have more diversification across strategies to take advantage of opportunities in the marketplace. So no set numbers to throw out for capacity.

Got you. Okay. So a second question for you, just looking at your gross sales trends now over a while and sort of contrasting that against what continues to be some very good long-term performance metrics. What strategy, if any, do you have to potentially increase any kind of spend to amplify growth? How should we think about that trade-off?

Yes. The growth has been occurring outside the U.S. for us. We have hired 2 new individuals in our London office. One focused more on Northern Europe and the other individual a little bit more focused on the institutional U.K. market. We're starting to see a pickup in many of our business leaders and outside the U.S. as well. And so that has helped diversify the firm. I think we'll go a little bit deeper outside the U.S. into the intermediary space, which we historically have not spent an enormous amount of time working in the various platforms of Europe. And so the spend and travel will be focused on those areas. And a little bit more emphasis on the wealth channel in the U.S., which is difficult to show up in the intermediary or the institutional given the hybrid nature of endowments to family offices to high-net-worth individuals, but more attention in that space as well given the alignment with our degrees of freedom and private vehicles.

Again, just one last one for me. C.J. I think you may have had this in your prepared remarks as well. Just in terms of on the balance sheet, the tax receivable, how much is left? And how are you thinking about that as you approach year-end?

How much is -- what do you mean how much is left?

Well, how much cushion do you have beyond sort of the cash flow from operations that might feed into the year-end dividend is the question.

Okay, okay. Yes, it's not material. I think we said we held back a few million from last year on the dividend just to be conservative. So going into year-end, obviously, AUM has been better than we would have anticipated due to both alpha and beta. So we're tracking quite nicely towards that year-end dividend, but -- special dividend, but there's still 6 months to go. So I'm not making any predictions, but we're on track and a little ahead of it.

And our next question comes from Ari Ghosh of Credit Suisse.

So just given that it feels like the overall sentiment around the active space seems to be relatively better than what it was 12 months ago, I was wondering if you're seeing any of this reflected in the conversations that you're having with either distributors or your institutional clients, especially as you begin to roll out your new strategies.

Ari, it's Eric. I think the overall sentiment is still muted overall with regards to the broad active/passive. However, it's a different conversation with the newer strategies because they are highly differentiated from traditional strategies. And I think you also have a little bit more excitement around new strategies. So those conversations don't even bring up the passive element because it's so differentiated that it's not a debate. I'd say it's a mixed result right now. And I think given the strong performance, we expect to see a better outcome going forward. But those don't show up instantly when you operate in the institutional marketplace or institutionally oriented marketplace, where there's committees and process in place; that takes time to play out versus a 6-month trend in performance.

That's helpful. And then real quick, some of your peers have been calling out higher projected expenses, partially related to technology and regulation. So just wondering if you're seeing any of these similar needs and if that changes your expense outlook for the second half of this year.

Yes. I don't think it changes our outlook for the rest of the year. I mean, we have -- if you've followed our technology spend over the last couple years, we have begun and have ticked up that spend quite meaningfully. So as we look out through the rest of the year, I think our spend this quarter is fairly representative, although our G&A was up a bit because Eric mentioned the investment forum we put on. So that's slightly higher than we would expect on an ongoing. But the rest of our expense lines, at least on the fixed side, our expectations would be pretty consistent.

And our next question today comes from Kenneth Lee of RBC.

Just had a follow-up question on the private funds. Given the quality that you guys highlighted in terms of leverage, ability to short and illiquidity, fair to say that these kind of products are going to be competing against traditionally alternative investment strategies?

Sorry, Ken, what was the last part? They're going to be competing against traditional?

Well, competing against alternative investment strategies.

Yes, they'll be competing in the long/short or the credit long/short in the alternative space. That's where we expect the competition to bear out. That would be our mindset.

Got you. And just one final bit. In terms of the underlying economics, I mean, should we expect more like performance fees or any other differences with these kind of vehicles?

Certainly. These will operate in the traditional private structure management base. The management fee and performance-based fee will be seen in these vehicles.

Got you. Okay. And just one final question, just a bit of housekeeping. In terms of the comp expenses, what kind of trajectory should we expect for the second half of the year?

Well, as you know, the majority of our comp expense is variable in nature. So that's going to fluctuate with revenue levels. The equity-based comp, which is significant -- the other significant component, we do our grants in January of each year. So you'll see a similar expense since the grant happened this past January.

And our next question comes from Surinder Thind of Jefferies.

Just following up on an earlier question about expenses. My question relates to kind of when we look across the industry, there has been some elevated activity. And part of that is actually looking at or exploring investment capabilities or enhancing those related to, let's say, big data or AI. So from Eric, from your perspective, is this something that you need to give serious consideration to? Or is this just something more of a fad? And then related to that, like what conversations, if any, are you having with your investment teams around these topics? And maybe any feedback you've gotten from them would be helpful.

Certainly, Surinder, it's a topic that comes up with various teams, not all teams, that data usage has been increasing. How to sift through and analyze that data and then how to bring that to bear in decision-making. Those are the discussions we have with some of our investment teams. We have been building out data over time. We have a Data Governance team that we put in place a few years back. We've had some spend on various functions in our technology group and within teams to help manage and sift through that data. And we're getting feedback from our investment teams on the value of that information and decision-making. So that has been feeding through the firm over time. I think we'll increase the spend and interest in that area at a pace that's been in place for the last couple of years, which is easing into that. What we won't do is back the truck up and say we're going to compete with the quants and try to figure out AI and hope that it works. We're looking for a strong feedback loop from our investment teams and a value proposition to end clients. And until that surfaces, we'll just keep a little bit more consistent spend in that space.

Understood. And then you also, related to that, mentioned that there's maybe a few teams that aren't kind of looking at these topics. Is that simply situational in the sense that their investment process might be sufficiently differentiated or there's just not maybe that opportunity in that space? It just seems that this is kind of the topic to be sure that everybody is talking about at this point.

I think it's highly dependent on the investment philosophy, process and strategy on how much you value information flow for decision-making. And that marginal information flow tends to lean a little bit towards growth-oriented investors, and not all investment teams are going to trade on that marginal information. And other investment teams are really looking for the bulk of their alpha coming from unwinding a discount in the investment they've made. So I don't expect all teams are going to go towards this. And this goes back to our belief that there's a lot of different ways to make money, a lot of different ways to structure investment teams; and giving people the freedom to execute on that is our model, and it's worked multiple times.

Got it. And then touching on an earlier topic about just international clients being your primary source of growth. And I think you've mentioned that in the past as well. Is it simply a geography issue in the sense that you just have less penetration overseas? Or is it simply that there's much more institutional demand from overseas clients versus U.S. clients for your products?

It's more of the latter. As we've talked about on this call and other calls, we've seen a strong reduction in the number of publicly traded securities. We've opted for degrees of freedom, which would mean using more global-oriented products or moving into the private fund space so that we can use more illiquids or synthetic securities to deliver return and manage risk. Our first phase into degrees of freedom was the global-oriented strategies, and there's just a much higher demand outside the U.S. for global strategies as opposed to the U.S., where many of the advisers and intermediaries still break down the world with domestic and non-U. S. mandates. Until you see a higher interest in demands by U.S. pools of assets for global strategies, we would expect the demand to continue outside the U.S. given our product mix.

Got it. And then maybe one other quick question here. Just on the Thematic team. Perhaps the comparison is not quite fair, but both High Income and Developing World, just -- those things just started running right out of the gate. Is Thematic simply a harder strategy to sell than perhaps a more mainstream or these other strategies that were more easily described? Just maybe any color around the conversations you might be having with your potential clients that you're trying to sell Thematic.

The real difference there is Bryan Krug and Lewis Kaufman both came from established organizations with mutual funds and a publicly available track record. So connecting the dots is a lot easier for consultants and intermediaries given their history. While Chris Smith has a great track record and with strong firms in the alternative space, it'll be a little harder for people to connect dots. But the performance will come through, which we're starting to see now, and we expect a little bit slower build with Thematic than we did with both Developing World and Credit.

And thank you. This concludes today's question-and-answer session as well as today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.