富蘭克林資源 (BEN) 2012 Q4 法說會逐字稿

Good afternoon and welcome to Franklin Resources earnings conference call for the quarter ended September 30, 2012.

My name is John and I will be your operator for today's call.

Please note that the financial results we discuss in this conference are preliminary.

Statements made in this conference call regarding Franklin Resources Incorporated which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements.

These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and MD&A sections of Franklin's most recent Form 10-Q filing.

(Operator Instructions).

Now I would like to turn the call over to Mr. Greg Johnson.

Mr. Johnson, you may begin.

Thank you and good afternoon, everyone.

Ken Lewis and I are glad you could join us again today.

This morning, we reported fourth-quarter results, capping off another solid year for the Company despite the various challenges that have been faced with the global financial markets.

Most importantly, our relative investment performance generally improved from strong to stronger and headed into our new fiscal year on an optimistic note.

We also continue to execute on our strategic initiatives, including expanding our alternative capabilities and positioning the Company for further international growth.

Now we will open it up for your questions.

(Operator Instructions).

Matt Kelley, Morgan Stanley.

Hey, thanks.

So, guys, I was hoping you could just talk a little bit about the CCAV fund range and what you are seeing going on there.

Any substantial kind of one-time dynamics or is it more consumer sentiment shifting, both in the third quarter, the calendar third quarter, and what you are seeing so far in the fourth quarter?

I'll take a crack at that.

I think the real difference between the CCAV flows and the US flows, US flows tend to be a bit more stable because of the munis.

And you've seen how municipal bonds have gone from outflows last year to probably $5 billion or so in inflows this year, and continue to be very strong.

Also, the Franklin Income Fund, another one that has turned around significantly in the hybrid category and had very significant inflows.

The CCAV range had a much heavier reliance on the Global Bond Fund.

I think the primary difference with the Global Bond Fund in the CCAV range is that a lot of that is driven by gatekeepers.

And as we said on prior calls, once the gatekeeper decides to lighten up, then you have an effect of redemptions over a longer period, and even over a year.

Based on the volatility that fund had back last September, just rebalancing can cause fairly heavy redemptions, even in a period when that asset class is doing very well.

So I think that's the real difference when you look at flows.

Hopefully, most of that rebalancing is done.

But our sense is that you had a lot of first-time buyers with Global Bonds and maybe some of the gatekeepers, based on the volatility that that fund went through back last September, they probably allocated less than they had before, and that would have an unusual and lingering effect on redemptions.

And I think that's what we have seen.

The other one is just Asian Growth Fund, which is a big driver and tends to move fairly quickly one way or another, still had net outflows for the quarter.

And nothing really to call out there, other than I just think it's just a lack of confidence overall, and certainly even maybe a bit more negative in Europe than what we are seeing here in the US.

Okay.

And then if I can ask another one.

On the institutional side, obviously, the Global Equity institutional inflows that you saw, pretty good result, given what we've heard from some of your peers.

I'd be curious to get your thoughts on what institutions are asking you for at this point and how K2 kind of works into your thinking there as well.

Well, I think the institutional flows have been steady and they have been right around the two areas that, again, we've been talking about in the past, the Global Equity as well as Fixed Income.

And Global Equity, especially Templeton, has really had a tremendous turnaround in performance.

Now we are seeing that flow through to the one-, three- and five-year periods as well.

So I think that should bode well for future wins.

And we had some nice additions to existing, some big sovereign wealth accounts that we've had for a while, where we had an addition.

And then we had a big win in Canada with our Bissett Group in Canadian equities that had an effect on the current flows.

What was the second part of the question?

I'm sorry.

Sorry, it was on K2, and how that fits into your institutional thinking.

Yes, I think it's a little early for us to figure out exactly, because I think we have to understand where the best opportunities will be.

And I think our feeling at this stage is it's an excellent fund-to-funds business.

We think we can take that and hopefully help distribute that with our relationships around the rest of the globe on the institutional side, and possibly introduce it to our high net worth base through fiduciary.

And then from there, it's really how we build out, whether it's an outsourced CIO model, build out some more solutions capabilities for institutional clients.

I think that that remains to be seen as we get a better understanding of the skill sets, how the two fit.

Okay.

If I can ask one quick follow-up and then I'll jump back in.

In terms of the outlook for that overall industry, hedge fund of funds, what is your kind of view there?

Do you think you can bring K2 on and grow it pretty substantially, or is it just more of an offering that your clients are asking for, and maybe there's some growth, but the industry has challenges?

How do you think about that?

Well, I think first of all, the attractive part of K2 is that it was an organization that grew in a very difficult contracting market, so obviously doing something right there.

We have seen some fee compression there.

We feel like we are comfortable in how we model that out going forward, and feel that it is really another natural area for us.

I don't think relative to our huge asset base that it's going to have a dramatic impact on us, but obviously a nice fit into something that a lot of our clients have been asking about.

And then I think just on the ability to customize other portfolios with all of our capabilities, it gives us a skill set that we don't really have internally.

So I think that's another opportunity there.

Great, thank you.

Dan Fannon, Jeffries.

Thanks.

I guess, Ken, first in terms of the expenses, it seems like there was some seasonal or kind of year-end push in some of the line items as we think about this past quarter.

But maybe if you could just kind of walk us through kind of thinking about the setup into next year, and maybe from a budgeting process, how you are thinking about the P&L and -- or even just a sequential change as we should think about it quarter over quarter.

Right, okay, Dan.

I think absolutely there is some seasonality in this quarter.

And when you look forward to next quarter, I would expect to see a little bit of the margin bump back up a little bit because that's typically our pattern.

In addition, we are in somewhat of an upward trajectory in assets under management, so that's going to carry over not only into next quarter but into the next year.

In terms of the budgeting long-term, recognizing that the markets have helped us out in the last couple of months, we are still somewhat cautious about letting go of the expense range too much.

So it will be measured, but I do expect in the next quarter to see the expenses come down a little bit and the revenue up a little bit.

Okay.

And then I guess in terms of capital, the slide on page 21 is helpful.

I guess the $6.5 billion post the notes offering, how much of the cash is in the US?

And then kind of thinking about how you guys or the Board is thinking about a potential special dividend at the year-end, any update on that would be helpful.

Sure.

If you look at our overall cash and investments of maybe around $5.8 billion at the end of the year, roughly about $3.2 billion is outside the US.

And in addition to that, we have a little over $1 billion that we view as restricted, either because it's part of our banking operations or just through policy.

So what you are talking about, the residual there, is about $1.5 billion of what you might consider unencumbered US cash.

Keeping in mind, though, in October, we have refinanced that debt, and then we have the K2 acquisition as well.

So that's the picture.

In terms of the special dividend, that's a decision that the Board will make before the end of the calendar year.

But obviously, based on the numbers I just rattled through, I think we have the flexibility to do a special dividend if they decide to do so.

Great, thanks, and go, Giants.

Roger Freeman, Barclays.

Hi, good evening.

You mentioned, I think in the prepared remarks, talked a little bit about an equity campaign.

It sounds -- is somewhat similar to maybe what you did a couple of years ago.

I'm just actually curious kind of what stage that is in and how it does compare and contrast.

I think last time it was a very focused one on the advisors.

Right, I think this campaign just takes it a step further, and it's something that is somewhat unique and I think it's being very well-received.

We partnered with the University and a professor that specializes in this area, and really trying to look at the investor behavior and to try to help the advisor have tools to get people over the hurdle of focusing on short-term events and fear.

I just think it's beyond just the generic kind of piece on buying equities with a mountain chart.

It really gives them something to think about and talk about that they haven't had before.

So we will just keep trying to get the investor to do the right thing sooner or later, and this is another way to provide more tools to get investors focused on the longer-term opportunity.

Okay.

Second question is just on the Bank, some of the Bank restructuring that you are doing.

There were some costs on that.

What are you doing, and is this Dodd-Frank related, or Basel?

We were looking at our depository entities, and I think we mentioned on previous calls we were looking to restructure that, but that we kind of ran into some roadblocks on that.

Still looking for options there to basically lessen the regulatory burden, if you will, but it's really -- it's not so much financial -- it won't have so much of a financial impact than a business impact on specifically our high net worth operation.

Okay.

Thanks.

Jeff Hopson, Stifel.

Okay, thank you.

It appears that equity flows in Europe in September were positive, and particularly flowing into emerging market equities and global equities.

Did you see any of that from your end?

Yes, I think we -- like most, we definitely have seen an improvement September, October in those flows.

But I in particular haven't seen what emerging markets or global equities look like specifically.

Okay.

And then follow-up, on the Global Fixed Income, just to kind of make sure we get what has happened there.

So do you feel like you have been taken off some platforms by the gatekeepers or just a lower allocation that is rolling through, that eventually will kind of correct itself, I guess?

Yes, what I have been told, it's really more about a lower allocation.

And that it's a relatively new asset class for a lot of retail investors and that kind of volatility, I think, they just felt like they wanted to reduce the exposure in some of the large financial firms' platforms.

The growth sales are still -- it's still our top-selling fund in the CCAV range, so I think that's an important point, that obviously still very attractive in a lot of distribution channels.

It's just getting that reallocation in some of the really big banks, that, as I said, had that lingering effect on redemptions.

But you went from a period where you were bottom decile for a little bit to quickly back to now we are top decile for the one year.

So I mean that's a big change.

Sure.

And in the US, those funds have done so well, could there be some potentially negative reaction because they are up so much and people take gains or step aside?

It's hard to say, but any thoughts on how the Global Fixed category will do in the US from here?

Yes, I think all of those are valid points, when you have the kind of macro environment and the negative press every day, talking about a lot of the risks that are out there, anytime you have a rebound, and that is certainly I think part of the problem with equities right now.

As soon as we get back to certain levels in the market, it increases redemptions instead of increasing net flows, and that's something we haven't seen in the past.

And I think Global Bonds, we have seen a snapback.

Even quarter over quarter in the US, it had plus $300 million of net inflows compared to $300 million in outflows last quarter.

So we are seeing a snapback because that's more individual sales with advisors versus gatekeepers.

So we are still very optimistic and look at the -- the penetration is still very low relative to the asset base here in the US.

Great, thank you.

Ken Worthington, JPMorgan.

Hi.

Maybe to follow up to -- from a question earlier about K2.

Just why did you settle on K2?

It seems like they have been underperforming.

They have a number of plans that have either fired them or they are on watch in Massachusetts, Chicago, Florida.

Cautious comments from some pension plans in California.

So why was this one the right one for Franklin?

Well, I think we have looked at many of them, and I think part of it is that it's the right kind of structure for -- where it wasn't founders selling out.

It was a private equity situation with debt, so the key people are still very much engaged and have equity performance shares.

So nothing changes from the client perspective on that.

I think that's very important.

This is a group that has grown in a period where others have contracted.

Yes, there is some short-term performance, but that's not an issue.

They are not on any more lists than anyone else with big public plans.

I mean, the whole industry has been put somewhat on watch, as groups go to smaller and more custom.

And we looked at that exposure, and it's not a big exposure from concentration of assets with any one given client.

So we got comfortable on all of those issues and felt like the people there were the right cultural fit.

It's a business we've wanted to be in, and just felt like that to us was the most important part of it.

Okay.

And this is a growth business anymore?

I know that was sort of asked, but it seems like if we look at the big Fund of Funds, it's like 18 of the 20 biggest ones are in redemption right now, and it seems like the industry has changed.

I know you think you can do some things with the business, but does the nature of the business change?

Is what we are seeing just kind of temporary for the industry?

Well, I think the business is going through a change where there is some pricing pressure from the traditional model, and I think that that could continue for a while.

But we also feel certainly the endowment foundation area, that there is still a huge opportunity for this kind of business.

So we're still optimistic about the business.

And I think the other important part is at this stage, when a business is contracting and facing those same issues you brought up, that also affects the purchase price and the opportunity and the multiple, and those are all things that get factored into a decision to do something.

Awesome.

Great, thank you.

Exactly what I wanted to hear.

William Katz, Citi.

Hi, this is actually Neil filling in for Bill.

On the prerecorded call, you mentioned that alternatives and multi-asset are increasingly areas of focus for the Firm.

The question is do you have the footprint that you want today, or should we expect some more acquisitions to get into this area?

Well, I think we have a pretty broad footprint today.

And if you look at the areas we have with -- whether it's private equity, real estate, tactical asset allocation -- we have added 20-some-odd professionals in that area alone, and grew $4 billion to $5 billion in assets in a new category for us in the past year, and introduced a lot of new funds.

And then the Pelagos piece as well, that brings managed futures into the equation.

We feel like we have a pretty robust platform right now.

I think the question of what do we need, I think we need to tie this kind of all together, and K2 will come into that equation in how we work that through.

But there's nothing right now that we feel like we need to go out and get.

I mean, we have real estate, we have real assets, funds that should do well when inflation comes back, and those are the kinds of things we're trying to do.

So the other pieces, whether it's taking existing managers and introducing other types of hedge fund like products, we will continue to do that where makes sense.

But I don't think there's anything on the wish list from an asset class that we feel like we have to go out and get.

And my second question is you mentioned penetrating China and some other Asian markets.

Should we expect any incremental investment spend from here, and would there be any impact on margins if that was the case?

Thanks.

I think we are in those markets.

There's no market that we'd move into in any dramatic way that we are not in that would have an impact on margins.

I think we are just about everywhere we need to be, and it's a question in those markets do we want to build local asset managers in some capabilities or purchase one.

But again, there is nothing of any scale or size that I would put in that category that would move the margin.

Michael Kim, Sandler O'Neill.

Hey, guys, good afternoon.

First, just to follow up on the capital management front.

So if we look at the payouts for share repurchases and dividends through the first nine months of this year, it looks like they are lagging sort of the trajectory looking back to next year -- or I'm sorry -- looking back to last year.

So how should we be thinking about that dynamic as it relates to returning excess capital to shareholders just as we get into the final quarter?

Okay, Michael, so, let's see.

I don't know if I would necessarily characterize it as lagging.

The payout ratio is lower.

We had a couple of special dividends in the prior number, so that's probably why you are seeing that lower number.

As I mentioned earlier, the Board could decide to do that in the fourth quarter.

That is an option.

And in terms of the share buybacks, a few things to keep in mind is, we continue to be opportunistic.

The stock was on a pretty good run at the end of the fiscal year.

And in addition, we kind of refrained from trading because we were in discussions with K2 and all that.

So that kind of limited our trading ability as well.

So those are not trends that you would think would carry forward.

Okay.

That's helpful.

And then can you maybe touch on Fiduciary Trust?

It's been awhile since you talked about that part of the business.

So just maybe an update on trends that you are seeing across that business.

And then more broadly, can you just sort of refresh us on the synergies that you see across the high net worth platform versus the retail and the institutional franchises?

Sure.

I think we've made a lot of progress just with the Group in our investment process and really trying to use Franklin and Templeton's capabilities wherever we can, but also having a more consistent process versus an individual process, which is the old model versus the new model.

We are not entirely one process, but we are much -- I think much more consistent on how we approach that.

And that took a while to get there, and I think you'll get efficiencies from that.

It's a business we'd like for it to be a bigger business.

So when somebody talked about an M&A wish list, certainly that would be one where if the right opportunities for us that we can continue to build that platform, that makes perfect sense.

It is a complementary business to us in the sense that the more we can drive and more leverage the investment management capabilities and clients certainly in the US, the more that makes sense.

Today, it's not going to, again, move our needle very much in terms of the bottom line, but a good, solid business that I think has made a lot of progress in -- certainly on the investment side.

Okay, that's helpful.

Thanks for taking my questions.

Glenn Schorr, Nomura Securities.

Thanks very much.

I guess the question goes on the institutional side.

It's a weird year.

I think people came in still may be underweight their equity benchmarks.

And then you have lots of reasons to be uncertain about the world, and what do you know, central banks inflate asset and equity markets go up a bunch.

So just curious what you are seeing as we roll into year-end and what you are expecting in terms of pension allocations.

Are they underweight, overweight?

Do you think it's possible for them to be actually doing the reverse commute and rebalancing out of equities after what has been a decent year so far?

I think those are good observations, and certainly I don't have the answer on what they're thinking about now, other than when you have the kind of runup, it's always a time when you do see rebalancing.

But where are you going to rebalance to, would be the other question.

Do you go into fixed income right now with the heavier allocations?

So I think we are in an unusual period, and I don't think there will be a big change one way or another on where the overall allocation is this year versus last year.

Got you.

Okay.

Thanks.

I appreciate that.

And two quick modeling questions, Ken.

One, with the winddown on the auto business, is there much of an impact on the other revenue line going forward?

And then better news -- with performance so good across the board, how should we be thinking about the comp line going into 2013?

I do think it would be reasonable to expect less of the other net revenue line that we have seen in the past.

It's difficult to say with 100% precision, but I guess if you look back maybe two quarters, that's probably a reasonable run rate.

I just say that thinking about the activity of our loan business in that quarter.

In terms of the comp line, I think it's reasonable to expect a little bit of an increase in that line for a couple of reasons.

We do have some open [recs].

We'll be careful in filling them, and also they are in -- most of them -- or at least more than half of them are in the low-cost jurisdictions.

We did put into effect -- or we did approve some merit increases, and that shouldn't have a very significant impact on the line item.

It is our effective December 1, so for next quarter, it shouldn't be that noticeable.

But you're probably talking in the neighborhood on a full-year run rate there about 1% to 2% of the comp line.

And then you have the variable aspect of it, because, as you said, its performance has been good; that should bump up.

So I would expect a little bit of upward pressure on the comp line.

Like I said earlier, I do expect to see some help from the other lines to offset that.

Got you.

Thanks very much.

Doug Sipkin, Susquehanna.

Yes, hi, good afternoon, guys.

Two questions, one just a follow-up on the prior on the expenses.

So just for modeling purposes, thinking about G&A and technology, I guess should we sort of be trending back to prior quarters when we think about sort of just a general trajectory of those lines, and sort of accounting for the one-off nature in this quarter?

Yes, exactly.

I think that is exactly spot on.

You will see some lower seasonality spending on the IT line, I would expect.

And then the G&A obviously as well, right?

In general.

I will mention, there is -- in terms of pent-up demand, there is a lot of pent-up demand for technology projects.

So what that hits -- it's hard to say, because these things are kind of big projects and take a long time, but I think as a general secular trend, we would see a little bit more spending on that line item.

But in the next quarter, it should probably drop off a little bit.

Great.

And I know the flow trends through even the end of October don't bear it out, but any sense of any fatigue on the part of investors for putting more money into bonds?

It just seems staggering the amount of money that continues to plow into bonds.

I was just wondering anywhere in the chain, are you picking up any sort of fatigue on the part of investors that may not show up yet, but could in a couple weeks, a month, what have you?

I am not -- I haven't seen any change there.

And what is it going to take -- and I know you guys have been at this for a while and you've run campaigns -- like if you had to sort of create a scenario that would be perfect to get retail investors back into longer-dated equity products, what would that scenario be?

Well, you would want less volatility in the marketplace.

You probably want some inflation, just to create a little bit of uncertainty around fixed income.

But you could argue that could hurt us or help.

I mean, our asset mix is pretty even between the two.

So I just think a quieter, steadier environment.

And to me, once you get past election time when there's so much negativity out there on what's happening, and maybe Europe, things just quiet down, that's my wish list for the next year.

And then just final question.

I mean obviously a lot of success in the balanced category.

Are you guys worried at all -- maybe is capacity an issue at some point there or is it not something really to worry about right now?

The hybrid category?

Yes.

Yes, I don't -- that fund and its flexibility, there really is no capacity.

I think we are at $80 billion in total hybrid assets there, and it doesn't appear to be an issue for capacity at this stage.

Okay, great.

Thanks for taking the questions.

Marc Irizarry, Golden Sachs.

Great, thanks.

Greg, just a quick one.

When you think look at the global institutional equity business and you think about sort of the fees and active versus passive, how do you think when you sort of going out there with the good numbers, is this sort of threat of a passive in that channel growing, or is there sort of alpha and differentiation sort of worth being active in that category?

Well, again, I think that's a good question, and certainly I think on that side of the global equities side, you have a little bit less pressure than you do in US equity in large cap.

So we haven't seen any increased pressure there.

I think there's always pressure on institutional fees.

But I think the more institutions use a passive approach, obviously the more pressure that puts on fees.

But that hasn't dramatically changed on the global equities side.

But I think it's a continued -- it is pressure that will continue to be there.

And where are you also in the ETF business?

Is that sort of -- when you look at the to-do list and the product list for you guys, where are you -- what are you thinking in terms of the opportunity for Franklin on the ETF site?

Well, we did file one, and I think part of it was just as a reaction to some of the potential changes in the money market world and have a short-duration alternative.

Most of our assets are sweep assets that our funds use.

So if somebody required capital or something like that, we certainly wouldn't want to sweep into that account.

So to have a short-duration ETF available, and for us to get a little bit along the learning curve in how those are going to operate, that is our thinking right now.

The passive side, there's going to be a few big winners, and I think the market is kind of shaking that out right now and you are at a race to the bottom in terms of fees, and that's just not something we want to spend our time on.

Obviously, a huge market, a profitable one, but more operations and low-cost provider versus active management and what we do.

I think the question around active ETFs is still an open one.

My personal feeling is that they limit the portfolio management capabilities of what an open-end fund can do, and the market will start to understand that.

But we never say never, and we look at ourselves as investment management is the content, whatever the pipeline or vehicle; if the market wants that, we are open to doing that.

So I think that's the question for us, is how do we look at active ETFs and especially in the fixed income world.

Great, thanks.

Greggory Warren, Morningstar.

Yes, thank you for taking my questions.

I just wanted to go back to this behavior of focused campaign that you guys have launched.

You obviously said that it was a step up from the -- what was it -- the 20/20 campaign you had a few years back.

I'm just wondering at that point in time when you launched that one, we were still freshly off the financial crisis.

I don't think that this fear of equities -- or at least -- and this unhappiness with sort of the performance on the actively managed side -- had really sort of caked into the system yet.

And you look now, you guys see the same sort of flow data that I do -- you look back over at the last four or five years, actively managed funds have just been bleeding assets.

And I'm wondering is this money that you think is going to generate flows at this point?

Or is this more like a goodwill action to sort of stay in the good graces with the financial advisors, make sure that they know that you are there and that you've got their back, that you are trying to help them generate the business?

Well, I think it's always a little bit of both.

I don't think we think it's going to suddenly turn the wave around of the flows going from 27 months of negative to positive because we put out this campaign.

I think we are just trying to send -- and like we did -- we did something similar with fixed income when equities were selling quite a bit.

I think part of what we try to do is partner with the advisors and try to give them tools that help them do their business.

And I think that they are somewhat frustrated even with investor sentiment.

The survey that we did that said most investors thought the market was down the last three individual years, which was not true.

So I think there is -- it's more than just a lack of confidence; it's somewhat misinformation too out there in the marketplace.

And we think it's the right thing to do.

I just think the amount of money pouring into long-duration fixed income funds at this stage is really not healthy for our industry with the risk-reward.

And that is the message we are trying to carry.

Okay.

Okay, that sounds reasonable at this point.

The other question I had -- it was directly below this in your prepared remarks this morning.

I mean, when you're talking about this three-pronged approach, can you give some examples as far as where you are looking to enter new markets, where you are looking to build scale in existing markets?

And I guess along those same lines, deepening the penetration here in sort of more mature markets, where do you see these real opportunities?

Well, I don't know -- I think, again, each market is in such a different state.

And for us, the example of a new market that we entered on an institutional basis and put people there was in Malaysia, and we had some early success in that market on the institutional level.

Now we're looking at registering local funds there.

We are looking at Shariah funds that we now have in our -- that is a whole new market, with Islamic investing and trying to export that capability cross-border.

I think that's interesting.

And then the other markets are the traditional big markets.

I mean for us, Italy has still had a very strong year, despite some of focus on Global Bonds, but we managed to cross-sell.

And I think the demand for us, it's more the people that have been selling a lot of the Global Bond are looking for other options for us and we've been very successful with the tactical allocation in Europe and we hope to do more of that in that market.

But there's really no market I'd call out that all of a sudden, for whatever reason, has a big opportunity.

Most of this is dependent on world growth and confidence, and that's just a little shaky right now.

Okay.

I'm happy with what you guys are doing and where you are projecting.

And back to your comments recently about no sense in jumping into the ETF markets at this point, because the game is going down a path that unless you are already invested, and heavily invested, it's just going to be harder to get in.

Right.

Okay, well, thanks for the questions.

Cynthia Mayer, Bank of America Merrill Lynch.

Hi, thanks a lot.

Just may be a very targeted question on Global Bond.

I think on some previous calls, you guys have talked about how the Global Total Return fund might absorb some of the flows or attract investors who wanted a more corporate bond mix.

And it looks like it has grown pretty fast and it is top decile year-to-date, but that the flows recently turned negative too.

And I'm just wondering, are advisors differentiating among those two funds?

Or when you see an advisor -- when you see advisors maybe move out of the Global Bond Fund, are they treating that one as a twin and doing the same thing?

Cynthia, I think that's a good question.

And I was a little surprised, actually, that the quarterly number declined from the prior quarter in that fund.

I mean not by a significant amount on a net basis, and continues to be our number two seller on a gross basis to the Global Bond Fund.

I think the two are viewed very closely, and if somebody's uncomfortable with the allocation to Global Bonds, that probably would affect that fund as well, just because the currency is the big play there in terms of risk.

We certainly -- I can ask our -- I don't have a good answer there on why and how the market's looking at that.

I think at first, it grew a lot -- there was some capacity constraints and probably having too much concentration in one fund, so that was an easy way to diversify.

But it could also be that now that they're looking at it and looking at how closely it follows the other fund, maybe they are putting it in the same category.

We could certainly get more information to you on that.

Okay, great.

And then just for my second question, back to the alternatives just briefly.

Could you maybe talk about what channels you see the most promise in?

Because you talked about Institutional and Fiduciary, but you were obviously really strong in retail distribution.

So should we expect to see you introduce a bunch of alternative-flavored CCAVs at some point or 40 Act funds?

Well, I think you have to be careful.

I think the liquidity of some of these securities or derivatives that are in there, I think make a traditional 40 Act or even a CCAV somewhat challenging.

So those are all the things that we'd go slow on trying to figure out the right place.

The first step, as I mentioned, was to have sleeves or buckets in our tactical allocation funds, and having things like managed futures that give us hard asset type exposure in a 40 Act fund would be the first step in that, versus bringing out an entire fund in the one category.

So I think that's where the first steps are for us in alternatives.

And then determining, whether it's a Global Summits fund that takes our Global Bond expertise and introduces that to high net worth clients, institutional clients, that's something that we are doing right now.

But again, these are going to be smaller pieces to our business, not really big core ones.

Great.

All right, thanks a lot.

We have no further questions at this time.

Okay, well, thank you, everybody, for participating on the call, and we look forward to speaking next quarter.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.