Cohen & Steers Inc (CNS) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Cohen & Steers third-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded, Thursday, October 20, 2016. I would now like to turn the conference over to Adam Johnson, Senior Vice President and Associate General Counsel of Cohen & Steers.

Thank you, and welcome to the Cohen & Steers third-quarter 2016 earnings conference call. Joining me are Chief Executive Officer, Bob Steers; our President, Joe Harvey; and our Chief Financial Officer, Matt Stadler.

Before I turn the call over to Matt, I want to point out that during the course of this conference call we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. We believe that some of these factors are described in the risk factor section of our 2015 form 10K, which is available on our website at cohenandsteers.com. I want to remind you that the Company assumes no duty to update any forward-looking statements.

Also, the presentation we make today contains non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance. For disclosures on these non-GAAP financial measures and their GAAP reconciliations, you should refer to the financial data contained in our third-quarter earnings release and presentation, which are available on our website.

Finally, this presentation may contain information with respect to the investment performance of certain of our funds and strategies. I want to remind you that past performance is not a guarantee of future performance.

This presentation may also contain information about funds that have filed registration statements with the SEC that have not yet become effective. This communication does not constitute an offer to sell or the solicitation of an offer to buy these securities. For more complete information about these funds, including charges, expenses, and risks, please visit our website.

And with that I will turn the call over to Matt.

Thanks Adam, good morning everyone and welcome to our third-quarter conference call. As a reminder, my remarks this morning will focus on our as adjusted results, which exclude the after-tax financial results from seed investments such as realized and unrealized gains and losses, interest and dividends, and the effect of deconsolidating open-end mutual funds.

Yesterday we reported net income of $0.51 per share, compared with $0.42 in the prior quarter year's and $0.46 sequentially. Page 4 of the earnings presentation, which is available on our website reflects the current and trailing four quarter trend in revenue and breaks out investment advisory fees by vehicle.

Revenue was a record $94.4 million for the quarter, compared with $79.7 million in the prior-year's quarter and $86.4 million sequentially. The increase in revenue from last quarter was primarily attributable to higher average assets under management, and one more day in the quarter. Average assets under management for the quarter were also a record, at $60.5 billion compared with $50.7 billion in the prior-year's quarter and $55.9 billion sequentially.

Operating income was $37.3 million compared with $31.5 million in the prior year and $34.2 million sequentially. Our operating margin decreased slightly to 39.5% from 39.6% last quarter.

Page 5 of the earnings presentation reflects the current and trailing four quarter trend in expenses, which increased 9% on a sequential basis, primarily due to higher compensation and benefits, distribution and service fees, and G&A. The compensation to revenue ratio remained at the 32.75% for the quarter, consistent with the guidance we provided last call. The increase in distribution and service fee expense was consistent with the growth and average assets under management in our US open end funds and the G&A increase was primarily due to higher IT costs, sponsored wealth management conferences, and a hosted real assets investor conference.

As a result a the change in estimates for certain permanent differences, the full-year effective tax rate as adjusted, declined to 37.75% from 38%. The third quarter tax rate of 37.3% included the cumulative effect of this rate adjustment.

Page 12 of the earnings presentation reflects our cash, cash equivalents, and seed investments for the current and trailing four quarters, and specifies that portion of our cash and cash equivalents held outside the United States. Our firm liquidity totaled $224 million compared with $207 million last quarter, and stockholders equity was $272 million compared with $255 million at June 30. We remain debt-free.

Assets under management, which can be found on page 6 of the earnings presentation, totaled a record $60.5 billion at September 30, an increase of $1.7 billion, or 3% from June 30. Assets under management in institutional accounts, totaled $29.9 billion at September 30, an increase of $367 million or 1% from last quarter, and open end funds had assets under management of $21.2 billion, an increase of $1.4 billion or 7% from last quarter. Assets under management and closed-end funds remained steady at $9.4 billion.

For the quarter, we reported total net inflows of $2.2 billion, an annualized organic growth rate of 15%. This marks the eighth consecutive quarter in which we have recorded net inflows.

Page 9 of the earnings presentation reflects net inflows by investment vehicle. Institutional accounts recorded net inflows of $967 million in the third quarter an annualized organic growth rate of 13%.

During the third quarter, sub advised portfolios in Japan, which are now reflected separately in our assets under management table, in the earnings release, recorded net inflows of $988 million compared with $848 million of net inflows last quarter. Net inflows were primarily from US REIT portfolios.

Distribution is increased by $76 million to $828 million from $752 million last quarter. The increase in distributions from last quarter was due to net inflows an underlying sub advise funds, combined with strengthening of the yen. Sub advised accounts excluding Japan recorded net inflows of $151 million, with inflows of $209 million from global real estate, preferred securities and globalist and infrastructure portfolios, being partially offset by outflows of $80 million from large cap value.

Advised accounts recorded net outflows of $163 million during the quarter primarily from global real estate portfolios. Bob Steers will provide some color on the level of activity and our institutional pipeline in a moment.

Open end funds recorded net inflows of $1.3 billion during the quarter, an annualized organic growth rate of 26%. This marks our highest quarter of open end net inflows since the first quarter of 2007. Distributions totaled $157 million during the quarter, of which $114 million were reinvested.

Let me briefly discuss a few items to consider for the fourth quarter. With respect to compensation and benefits, we expect to maintain a 32.75% compensation to revenue ratio. We anticipate that fourth-quarter G&A will approximate the amount recorded in the last year's fourth-quarter and finally, we project that our effective tax rate as adjusted will remain at approximately 37.75%.

Now I would like to turn it over to Bob Steers.

Thanks Matt, and good morning everyone.

As we have all been reading almost every day in the press, and as we discussed in our 2015 letter to shareholders, most active managers are battling significant head-winds. Disruptive innovation, waves of new regulations, and unprecedented market interventions are adversely affecting broad swaths of active only, active long only, and alternative managers. This has manifested itself and persistent organic decay, and feed pressures, from a majority of these managers, but especially for those that are focused on course file boxes.

We are anticipating that going forward these trends will intensify rather than abate. In contrast to these trends, we believe that our unique strategic positioning will enable us to be among the small number of managers that has the potential to benefit from the evolving investment environment ahead. Active management has worked well and certain satellite strategies such as real assets and alternative income, and our consistently superior investment performance exemplifies this.

Equally important, and central to our growth plan, is that real asset strategies are poised to gain a significant share of asset allocations almost everywhere, but especially in retirement markets. In fact, we anticipate that the implementation of the DOL fiduciary rule will accelerate the move to model-based delivery of advice and more open architectures in the retirement channel. This represents one of the most opportunities for us to gain share of asset allocations, which increasingly favor our core real asset strategies.

Going forward, we are convinced that success will depend more on unique and innovative investment strategies, consistently superior performance, and brand, rather than supermarket like product arrays and distribution. No matter how you slice it was a very good quarter for investment performance and slow trends. With regard to investment performance, in the quarter, eight out of ten of our core strategies met or exceeded their benchmarks, and over the last 12 months seven of ten have outperformed.

After a slow start to the year, all three reach strategies, US, international, and global, performed well in the quarter. And, year to date, our commodity, MLP, and natural resources real asset strategies, have outperformed their benchmarks by 220, 600, and 360 basis points respectively. Currently 82% of our US open end fund assets under management are rated with four or five stars by MorningStar.

Firmwide, net inflows of $2.2 billion translated into 15% organic growth for the quarter. Net inflows in the wealth channel totaled $1.3 billion a 26% organic growth rate and as Matt mentioned, the best quarterly result since the first quarter 2007. Specifically open end fund flows continue to benefit from demand for our US and preferred securities strategy.

In addition, DCIO net inflows for the quarter increased significantly to $199 million, a 10.8% organic growth rate. Last year we identified the DCIO market as the biggest and best opportunity for our real asset strategies to gain share of asset allocation and benefit from the expected pressure to open up close architecture. At that time, we committed to bring in new senior leadership to direct these business development efforts and we plan to continue to grow our teams focused on this opportunity.

Our subadvisory extra pan net inflows increased to $151 million, a 10% organic growth rate much of this growth is attributable to our expanded business development team in Europe and our growing subadvisory business in the region. In Japan, subadvisory net inflows grew to $988 million, a 27% percent organic growth rate. Even after factoring in distributions net inflows were a positive $160 million, this represents the third consecutive quarter of net inflows after distributions.

Lastly, although the advisory channel experienced net outflows of $163 million, we are optimistic about the fundamental trends for our institutional business. Net outflows in the quarter were solely attributable to a single European institution, which elected to go passive with their 267 million global real estate portfolio.

On a positive note, and as expected, our awarded but unfunded pipeline grew to $600 million from $243 million in the second quarter which was mainly attributable to mandates targeting global real estate and multi-strategy real assets. In addition, RFP activity remains strong, year to date, the volume of RFP has increased by approximately 70% compared to last year, with the bulk of the surges focused on US and global real estate, preferred securities, and global listed infrastructure.

Looking ahead and taking into account current industry trends, we are planning to closely manage expenses while also selectively investing in people, and new products to compete globally for share of asset allocations. This will mean adding select investment vehicles, and fund shared classes, both here and internationally, selectively adding depth to our existing investment teams, and being competitive and forward-looking with regard to investment management fees and expenses. If we are successful in maintaining our performance advantage and delivering alpha in the appropriate vehicles, with competitive fee structures, we have a great opportunity to gain share of asset allocations globally.

At this time let's open it up for questions.

(Operator Instructions)

The first question comes from the line of Michael Carrier with Bank of America. Please go ahead.

Alright thanks guys. Bob, maybe just a question on some of your comments on the industry trends, both the shift from active to passive and some of the regulatory changes, both in the US and Europe. You guys obviously have been differentiated and have been able to be on the other side of that trend.

And just wanted to get your sense, when you look at, say, the US business, how exposed are you to, say, the retirement part of the market, that maybe some of the products could go to lower fee products, versus, where do you see that, what you mentioned as the open architecture opportunity. And the increase allocations to real assets, so maybe how much is that in the US, versus how much is it outside the US, and what is that potential opportunity going forward?

Mike, that's a great question and it's key or core, to our growth strategy. As I mentioned a few times in my comments, our focus is gaining share of asset allocations, we're not looking to displace managers, for the most part we don't think we are even competing with passive. We are positioning ourselves in front of what we think is a gigantic wave of change, and DOL actually accelerates this.

So, DOL and other trends in place today, are without a doubt going to accelerate, in the wealth channel, are going to accelerate the move to model-based delivery of investment advice. Which means, for example, corporate pension plans have 10% to 20% allocations to real assets, larger endowments have 20% to 30% allocations to real assets.

The wealth channel, depending on where you look at it, is somewhere between 0% and 1%. As in the wealth channel and in particular in the retirement channel, with target dates and the broader wealth channel with model-based delivery and fewer and fewer active fund offerings being available on platforms. We fully anticipate that asset allocations to real assets is going to skyrocket because model-based delivery is going to incorporate more thoughtful and more institutional type asset allocations. So in the wealth channel, I think real assets will see significant increases in allocations, for target dates, I think you will see both rising allocations, but more importantly there is absolutely no doubt that closed architecture is over.

Litigation, even in advance of DOL being implemented, has spiked, and DOL is relying on litigation for enforcement, so record keepers that have closed architecture, have clear conflicts, the bar for them has been raised significantly. So there, I think asset allocations to real assets are going to increase and the opportunity for us to gain share from proprietary product is significant.

Lastly, as inflation begins to migrate higher which we anticipate has already begun, or we think has already begun, and may accelerate next year, it will motivate both institutions and the wealth and the retirement channel, to increase allocations to real assets. And so it is not unimportant that I mentioned the outstanding performance of our resource equity, commodities, MLP, and real asset portfolios. It is really, I think, we believe the right place to be looking forward.

In Europe, we think we are similarly well-positioned with regard to our product line-up but what is new is we have a significant and talented team devoted to both the institutional but also the financial intermediary channel over there and we are fully planning and anticipating to have our existing and some new structures which are in the pipeline to gain access to platforms there and benefit from the same opportunity to gain share of asset allocations.

Okay. Thanks a lot. And then Matt, a quick one. You mentioned the expense outlook for the fourth quarter. When you look into 2017, and assuming we get a rate hike in December, and sometimes you see some pressure on REITs as we go through the process. If the market side is a little bit weaker, I want to get your sense on how much flexibility [you de al] on the cost structure, given some of the investments that you alluded to, to take advantage of some of these new structural changes in the industry.

I think as Bob mentioned, we are serious about looking at our expenses we're keeping our G&A with the guidance that I gave about 1% to 2% up from last year where our revenue is most likely going to be higher than that. I think a lot of our controllable expenses, we are looking at and we are handling them as prudently as possible and I think there is a little bit of room there where we can pull down expenses, but the non-controllable expenses is really not much you can do.

Okay. Thanks a lot.

Our next question comes from the line of John Dunn with Evercore. Please go ahead.

Hello guys. We have seen the movie about rate hike speculation before, Taper Tantrum, last year and more recently, can you talk about the actual correlations you see between hikes in the underlying performance of REITs and then also the correlation with institutional demand?

Sure. This is Joe Harvey. I will address that question. We have published a lot of research, you can look on our websites on this topic, and particularly as it relates to real estate securities, and how they perform in different interest rate environments. I guess if you look at it over the long-term we have always felt there is not a real high correlation because the economy is one of the most important drivers of the underlying fundamentals for real estate securities.

If you have a rising interest rate in an environment typically it is accompanied by improving economic growth and that positively influences fundamentals for real estate securities. As things go in the investment market, things are not always the same. We are in an environment, where interest rates have been pinned to zero and we have an experience in 2013, you referenced it, the Taper Tantrum, where because quantitative easing has influenced security pricing, in just about every area, never every single one, but most, we had an experience back then where REITs sold off on the so-called Taper Tantrum.

What we have had over the past couple of years is a rising correlation to [a REIT] security prices to the bond market and you saw a little bit of that over the past couple, or the past month in October, REIT share prices, as other interest-rate sensitive security prices have acted, have gone down. You have got to think about this in the short term and then also the long term, as it relates to REITs, we are still in a good part of the real estate cycle and we, while growth is slow compared with history, we do not see a risk of recession on the horizon. We may have a period where [reprices] soften, if interest rates, bond yields move up, but ultimately you need to look at the fundamentals and the growth profile for those companies, will help insulate that over a longer period of time.

Got you, and then can -- ?

I will say, we also, as you know, have a preferred securities business and that, while not directly comparable to some fixed income categories, because there is a greater credit aspect to preferred securities, that is another area of our business that could be impacted in a short term by any dramatic move in rates. But what we have seen historically, because of the high coupons, on these securities which relates to the credit aspect of it, depending on the circumstances, they can do better relative to other fixed incomes.

I believe that for several of our other real asset strategies, we have, while they are lower percentages of our AUM, we have some strategies that are different and would benefit from rising interest rate environment and the one I am thinking about most is commodities. We think we have entered a new bull market for commodities and because commodities have been in a six-year bear market and do not have an income component, we do not think they have been influenced like some other asset classes have by quantitative easing.

Right. Got you. Can you talk about where the demand picture might be for close-end funds over the next couple of years. [Can you give], in a post-DOL world?

It is our impression that the closed-end fund market window, it's been closed basically for a while and with some modest exceptions with maybe some term trust, that sort of thing, we don't really think about closed-end funds as a growth business going forward.

Got you. Sounds good. Thanks guys.

John, I would add to Joe's comments on September, where we saw a slowdown and close into our more yield oriented or short-term yield oriented strategies like REITs, or, preferreds. We have seen an uptick in flows into our multi-strat real asset portfolio, MLPs, and as Joe suggested, I think, that is sort of the pivot that is likely to occur when the market transitions.

Thanks.

Our next questions come from the line of Ari Ghosh with Credit Suisse. Please go ahead.

Good morning.

Good morning.

I was wondering if you could provide a little color on the conversation you have been having with your distribution partners, just given that distributors have been limiting funds on platforms so that mass managers have been lowering fees all ahead of the DOL rule. And then also if you're thinking of repricing any of your funds or introducing new fund check classes, within the US retail [slave].

Hello. This is Todd Glickson. I wanted to comment on a few things as it relates to our partners. I think one of the things we have seen, and you've talked about it is there's a rationalization of product lines at most of the major wires and a lot of that relates to the brands, that are out there. The number of products that they have in the space and of course the performance in their assets under management. I think because we have been very focused on our product line over time, as it relates to the number of products that we have, in terms of what our brand looks like and how we've expanded. Our work with our key partners has really been very positive in terms of their work on the rationalization side.

What we are looking to do is make sure that our price points also are competitive. If you looked at databases like MorningStar, what we have seen over time is that Cohen & Steers has really been very competitive versus our peers. We have an eye on that for the future so whether it is the current products we have, or the ones we bring out for the future, I think we will continue to keep a close eye on it, with the knowledge that prices are going and price points are already sensitive and are really going in one direction.

Got it. Got it. As a quick follow up, moving to the institutional extra [ban]s segments quarter, saw a nice uptick over there, so I was hoping that you could delve maybe a little deeper into the demand trends and Mark and Tim have been seeing in terms of region, products, new mandates, as you look to expand the footprint in those markets, the extra ban markets.

Could you repeat the question please. We did not hear a portion of it.

Sure. Just had couple of questions on the nice uptick that you have seen in the institutional extra ban segment this quarter and I was hoping you could delve a bit deeper into the demand trends that Mark and Tim have been seeing, and if you can touch on the region's products and some of the mandates, can you hear me?

Are you referring to some of the awarded but unfunded mandates and the trends related to that?

Sure. And then, in particular to the extra bans segment.

The subadvisory?

Yes.

Okay. Well, as I mentioned earlier, the increase in awards, awarded but unfunded, is, it falls into two buckets, global real estate and real assets, and the RFP activity has generally mirrored that along with global listed infrastructure. Our subadvisory business is improving, extra ban is improving, gradually and there again, it is mainly global real estate, US real estate. There is not anything dramatic, that has changed there over the last several quarters.

Got it. Thanks guys.

Our next question comes from the line of Ann Dai with KBW. Please go ahead.

Hello. Thanks. Good morning all. I was hoping to bring the conversation back to DOL quickly, I appreciate the color on the conversations you've had with distribution partners and talking about maybe some potential changes to product structure or fees or keeping an eye on things.

What I am curious about is maybe not so much the fees on products themselves, but other fees, things like revenue sharing, and what conversations around that have [been like], it's my impression that there's been a lot of confusion about how revenue share, what that looks like in a post-fiduciary role in environment for retirement assets.

It is a great question. I do not think we yet have an answer for you. We have heard a lot of rumors and we have had some preliminary conversations but whereas many of, a number of our partners have already begun to, and in some cases aggressively rationalized their product lineups, we really have not had any substantive discussions with them regarding the future of revenue sharing.

Okay. Maybe moving on to investment performance then, looking at the slide that you provide in the presentation, the products continue to outperform pretty solidly, in the three-, five- and ten-year buckets but it looks like there continues to be some strategies that are struggling at the one-year mark. Can you give some update on that, some color around which strategies are driving that decline in performance, I guess, in the performance metrics and in the strategies how you've been positioned relative to the market?

Sure, Ann. This is Joe Harvey. The one-year performance figures where we show that 50% of the strategies by AUM are outperforming, so 50% by definition are under-performing. It is really driven by two strategies, our US real estate strategy and our global listed infrastructure strategy, and US with the AUM that we have in that strategy is going to be the biggest driver of that. As Bob discussed in his comments, we had a rough start to this year, but our performance in the third quarter was stellar, and we think that we are back on track on that strategy. As you can see in the three- and five-year numbers we are very competitive and when you look at our US REIT's strategies relative to our peer groups, one, three, five and increasingly now on 10, we are very, very competitive.

The other strategy which is under performed on a one-year basis is our global-listed infrastructure strategy, that strategy in the third quarter, also under-performed, so we are still struggling a little bit there, and it is a strategy that has high priority and focus here, to get performance turned around. On a percentage basis, it is by AUM it is much smaller than the US strategy and so expect that as, assuming our US strategy continues to perform like it has in the third quarter, then that chart you see will look better as time passes.

Thanks for the color Joe.

(Operator Instructions)

The next question comes from the line of Mac Sykes with Gabelli. Please go ahead.

Good morning everyone. I have two questions. First given your rapid growth this year on the asset gathering, do you think there is more risk to churn, as we go out to the next couple of quarters?

I am not sure I know what you mean by churn.

In terms of, you have had pretty rapid inflows of net new assets, and I was wondering maybe you could break it out between people that are rotating to the asset class because of some of the dynamics you talked about versus perhaps chasing performance.

To be honest, I do not see a lot of chasing of performance at all. I am really not concerned about churn chasing performance. I think the ball to keep your eye on is interest rates. If rates remain stable, and in the current ZIP Code, then I would not expect anything to change. If rates become volatile, particularly on the upside, then I think you will see, as I mentioned earlier, a pivot on the part of investors, from a search for yield, to a search for cyclical plays and inflation protection, inflation insurance.

I think that is what the market is wrestling with now and why it is going sideways. It is a bit of a standoff, I think there are those who are positioning themselves for higher rates and so financial are doing better, and yield oriented strategies have gone sideways or down. I think we are going to have to wait and see where the markets end up.

I would add to that, in the scenario where we have a more volatile to the upside move on yields, one of our leading flow strategies has been our preferred-stock strategy, we also have a low duration version of that strategy, and which we started late last year. We are going to hit our one-year anniversary in that strategy and it is possible that we could see some shifting from our flagship preferred-stock strategy into the low duration version.

Bob, you talked about the real assets universe, do you think you could holistically talk about within the realm of the real assets universe, what is the percentage that your platform covers in terms of strategies dedicated to that and what are you missing and does it matter at that point on some of those?

With respect to core strategies, we do not think we are missing anything. What we are working on is in response to both our institutional and wealth partners is a variety of versions, different versions of our multi-strategy real asset approach. Our core strategy is mostly all equity and it is real estate, infrastructure, commodities, and resource equities.

There are some institutions that would like to dial down the equity exposure, and dial down some of the volatility, and then there are various other considerations, and so I think our core strategies, underpinning real assets, we have the full complement and we began working on that five or six years ago. We are extremely happy with our capabilities and our teams and as we've talked about today, the investment performance for 90% of those strategies is overwhelmingly positive including our multi-strat portfolio.

But, we do recognize that our partners and investors have different risk tolerances and different goals. We are going to be introducing a variety of different blends of multi-strat real assets.

Great. Nice quarter. Thank you for taking my questions.

Thank you.

Our next question comes from the line of Glenn Schorr with Evercore ISI.

Thank you very much. A follow-up on one of the earlier conversations, I hear you loud and clear about increasing allocation to real assets and your performance is great, and it shows in your flows. I guess the question I have is I want to draw a distinction in assets going your way through model-base advice, and if there is a distinction between the more robo platforms that might point to more passive products. Just curious on how you're thinking about that, how you're positioned for that.

I think those are going to be different channels and I will give you one recent example. I think ultimately, I think many of the wires are going to go really aggressively to model based and ultimately they are cutting the number of funds available on their platforms by half right off the bat, and they're probably not going to stop there, and they are really only going to want their advisors to focus on the four or five star or the equivalent thereof of funds.

But they are also, I think, going to move aggressively to delivering advice in models. Most recently, one of the largest wire houses out there put out a piece on real assets that is strongly encouraging significant allocation to real assets, a lot of their comments reflected our research and they ended it with an implementation recommendation of our real asset portfolio. I think you're going to see it more, a greater formalization of that type of thinking. Where the systems, whether they are wire houses or other systems, where they know they can depend on their partner to be a thought leader, to have the capability to support their systems and their advisors, to deliver top-tier performance with fees that are actually extremely competitive. The full robust package and noting that there are not very many players today in the real asset and the bundled real asset category, in fact MorningStar does not have a real asset category yet, which we are working on, it puts us in a terrific position.

Again, the concept is real asset allocations are not just widely accepted but are, predominate, in the pension, endowment sovereign fund world. We are simply, and most of the strategists in the leading wealth platforms are recommending high allocations, particularly given the outlook for global economies and inflation. They are going to implement that, increasingly, going forward, through a limited number of offerings and through model-based delivery mechanisms that will include firms like ourselves.

I agree with all of that. On the robo side specifically, do you feel you need a passive version product to participate on that front? Is it just a part of the market where you are okay letting that trade away?

Philosophically, I think, you're either an active manager, or you're a passive manager. We obviously have a viewpoint. We think the supermarket approach no longer will be effective because when partners like the wires, and our partners abroad are looking to fulfill asset allocations, they are going to go with the industry leaders or the category killers and the brand and the folks who are delivering. Passive, as you all know, as well are better than us is just a very different business and we, and I think most active managers are not prepared or equipped to win the race to zero, and fees are going to go to zero in many passive strategies. We are not equipped and we are not interested in competing in that business.

I hear you. Alright, thank you very much.

There are no further questions at this time. I will now turn the call back to Bob.

Great, thank you all for dialing in this morning. We look forward to speaking to you after the year end. Thank you.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.