Federated Hermes Inc (FHI) 2010 Q3 法說會逐字稿

Greetings, and welcome to the Federated Investors third quarter 2010 earnings call and webcast. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to induce your host, Raymond J. Hanley, President for Federated Investors Management Company. Thank you, Mr Hanley, you may begin.

Good morning and welcome to our Q3 earnings call. Leading today's call will be Federated's CEO, Chris Donahue, and Chief Financial Officer, Tom Donahue, and joining us for the Q&A portion is Debbie Cunningham, Chief Investment Officer for Federated's Money Market Group. Let me say that during today's call we will make a number of forward-looking statements and we want to note that Federated's actual results may be materially different than the results implied by such statements. We invite you to review our risk disclosures in our SEC filings and we say that no assurance can be given as to future results and Federated assumes no duty to update any of these forward-looking statements. With that I'll turn to over to Chris.

Thank you, Ray, and good morning. I will start with a brief review of Federated's recent business performance before turning the call over to Tom to discuss our financials. Looking at the cash management portion of our business, money market assets were up slightly from the prior quarter as the $11 billion increase from the first phase of conversions from the SunTrust acquisition was largely offset by late quarter decreases in our money fund assets and by expected seasonal decreases in money market separate account assets. Assets have been fairly stable here in October, as our money fund assets have ranged between $229 billion and $235 billion and have averaged about $232 billion. Through mid September, money market fund assets were up slightly from the prior quarter. With the mid September corporate tax payment date and other redemptions, money market fund assets, excluding the SunTrust acquisition, decreased by about $8 billion, with most of this occurring during the last couple of weeks of the quarter.

The SunTrust conversions will continue with an additional $3.5 billion expected in the fourth quarter for a deal total of $14.5 billion. We continue to have active discussions with other money market fund sponsors for these types of arrangements. The third quarter saw further relief in money fund yield waivers. Tom will comment on this in his remarks. We continue to expect that additional relief will not happen until short-term interest rates begin to move up and Debbie will discuss this part of our rate outlook later. Our money fund market share at the end of the third quarter was about 8.3%. On the regulatory front, the President's working group report on money market reform options was issued last week. We were pleased to see that the report noted the important role of money market funds and the role they play in our financial system. Among the options discussed was the Liquidity Bank, which Federated strongly supports. The implementation of the extensive changes recently made by the SEC to rule 2A7 continue.

We look forward to working with the regulators and other money market fund providers in our industry to shape any additional measures that further strengthen the resiliency of money funds. Turning to other products. Our equity investment performance generally improved in the quarter and we believe that we are well positioned with an array of quality equity fund products to generate excellent sales results. Our equity mutual fund flows were positive in the third quarter, led by the Strategic Value Dividend Fund and the Prudent Bear Fund. We also saw positive flows into the Kaufmann Large Cap and Clover Small Value Funds. Our equity gross sales increased 16% from the prior quarter, while redemptions declined 14%. Looking at results through most of October, equity fund flows have remained positive. Within equity separate accounts, outflows were largely due to net redemptions in [Quant] products, namely our M.D.T.S.M.A and institutional accounts.

Looking at bond funds, our sales continue to be solid in the third quarter with gross sales of $3.6 billion and net sales of $826 million. Our total return bond fund showed another quarter of solid inflows, about $374 million. Ultra-short products were also positive and we saw inflows in our high yield funds as well. Bond fund flows are also positive here in October. In fixed income separate accounts, we had a solid quarter of net inflows, about $280 million, and we expect another $1.1 billion from recent wins to fund in Q4 and into 2011. Turning to investment performance and looking at the quarter end Lipper rankings for Federated's equity funds, 58% of rated assets are in the first or second quartile over the last year, 61% over three years, 71% over five years, and 81% over ten years. For bond fund assets, the comparable first and second quartile percentages are 34% for one year, 68% three years, 72% five years and 81% for ten years.

As of October 27th, our managed assets were approximately $343 billion, including $262 billion in money market, $30 billion in equity, $51 billion in fixed income, including liquidation portfolios. Money market mutual funds assets stand at about $234 billion. Regarding acquisitions, we continue to conduct an active search for an alliance to further advance our business outside the United States as an important component of our strategy to expand global distribution. We remain active in looking for consolidation deals, including the money fund business, and other opportunities as the market presents them. As always, we cannot predict the probability or timing of any potential deals. Tom?

Thank you, Chris. Operating income was up by $9.3 million compared to the prior quarter, excluding the second quarter insurance recovery and impairment charges. Net income on the same basis increased from $0.35 to $0.42 per share or an increase of 20%. Revenue growth from the second quarter was driven by money market funds and fixed income products and was boosted by an additional day in the third quarter. We realized $1.3 million in investment performance fees and the SunTrust acquired assets added about $700,000 of revenues. As expected, we saw less impact from money market fund yield waivers in Q3 and this impact related revenue and expense items as detailed in the press release. The reduction in operating income from these waivers dropped to $11 million compared to $13 million in the second quarter.

Based on current market conditions and asset levels, we expect these waivers to reduce operating income by $11 million to $12 million in the fourth quarter. We do not expect the impact from waivers to change materially from this level until the Fed begins to increase interest rates and Debbie will talk about that later. Looking forward, we estimate that gaining another 10 basis points in gross yields will likely reduce the impact of these waivers by about one-third from the current level and a 25 basis point increase would reduce the impact by about two-thirds. We caution that a wide range of outcomes is possible. Factors that impact these waivers include yields, levels, available in the market, changes in assets within the funds, actions by the Fed, Treasury and SEC and other governmental entities, changes in the expenses of the funds and our willingness to continue the waivers.

Turning to operating expenses. Compensation and related expense was down slightly, excluding the $1.5 million insurance recovery recognized in Q2, as we recalibrated our investment compensation expectations for the year. Distribution expense increased compared to Q2 due to the growth and mix of money market fund assets, as well as lower minimum yield waiver impacts. The number of days impact this line item as well. The other significant variances in operating expenses were due mainly to the impact of the insurance recovery and impairment charges recorded in the second quarter. Looking at our balance sheet, cash and marketable securities totaled $316 million at quarter end. This combined with expected additional cash flows from operations and availability under present debt facilities provides us with significant liquidity to be able to take advantage of acquisition opportunities when they arise, as well as the ability to fund contingent payments, share repurchases, dividends, new product seeds, and other investments, capital expenditures and debt repayments.

As Chris mentioned earlier, the SunTrust conversions began in the third quarter, earlier than we originally expected. We have paid $4.9 million for the initial conversion of the $11 billion that came over in the third quarter. We expect to complete the conversion in November with $3.5 billion more in assets bringing the total to $14.5 billion. Based on these assets, we will pay approximately $7 million up front and would pay an additional approximately $27 million in contingent consideration over the next five years. Actual contingent payments will, of course, vary based on the asset levels and related revenues. So before we open up the call for questions, let's hear Debbie's forecast on rates.

Thanks, Tom. Just to review basically where we were at the end of the last quarter versus today, the yield curve today on money markets is 30 basis points flatter than it was at that point. Yet in comparison with the flattest yield curve that we have had in the course of last several years, that was in the first quarter of 2010, it is much steeper than that. It is not as good as it was at the end of the second quarter, but much better than at the end of the first quarter. Our outlook at this point is for the curve to stay in its current configuration until sometime in the second quarter or so of 2011, at which point we expect economic factors will start to kick in and allowing the expectations for interest rate rises in the future at that point to start to steepen out the yield curve. Unfortunately, we don't think that actual movement, however, on that front end of the yield curve as anchored by the Fed Funds rate will actually start to occur now until the second half, into the second half of 2011.

Thanks, Debbie. We'll open up for questions now.

(Operator Instructions) Our first question is coming from the line of Michael Carrier with Deutsche Bank.

Good morning everyone.

Good morning.

Chris, maybe one question just because it is relatively recent on the President's working group. It seems like they put a lot of options out there, it is going to take a lot of discussions working with the industry, other players in the market to figure out if anything else will change. You guys have been very vocal on the Liquidity Bank and also on the opposite side, on the floating NAVs and capital requirements. And all those are include in there. I guess two that stick out that are maybe not new, but shed more light on it would be insurance and then like a two tier system. Just wanted to get your thoughts on either one of those.

On the insurance, we just don't see how it works. One of the philosophies we have that we share with many others in this industry is that the socialization of credit risk is unwise. And I don't have to give you a speech on all of the follow-up to that. And then the cost and expense of it and actually having somebody do it is highly problematic. So, yes, it is an okay discussion, but understand that this discussion has gone on since the 70s, as people have looked in and out of this question and there hasn't been a solution to date and we are just not optimistic that that's what's going to happen. On the two tiered, it is interesting that our friends in Europe did a similar thing, but we don't think that's really the way to go. What they did was set in their rules something called a money market fund that had a variable net asset value and then something called a short-term money market fund that had a $1.00 net asset value.

And we just don't see how that is going to exactly work. I think what you also get from the flavor of the President's working group is an understanding that if you keep the resiliency of money funds that have been improved under 2 A-7 strong, you will be able to attract the money funds into that corral where you can see what's going on and the regulators are not really that interested, at least if you read the President's working group, in having that money squish out into something else that doesn't have the strength associated with the money funds. So it's good that all of these things are discussed back and forth and all of the points are analyzed, but of all of them we think the lead one coming out of that is, as you mentioned and as we mentioned, the Liquidity Bank.

Okay that's helpful. Yes, it did seem a bit more balanced than maybe people feared. And then maybe just on the core business, on the expenses comp came down a pretty decent amount in the quarter. Just anything there that was unusual or just looking at the year where your revenues and earnings are coming in and just gauging what's needed for the rest of the year.

Mike, remember last quarter, there was a charge in there or a reversal in there from the insurance. So that was part it.

Yes.

And just the normal recalibrating all the way through what we expect for the year.

Okay. And then on the long-term sales, both on the fixed income and the equity side for the fund products, any granularity or any clarity on where the flows are coming from, from like a channel perspective? And then just where you are at in the channels, meaning where you see more potential if these products are doing well, where sales could pick up. Thanks.

The channel distribution is more or less across-the-board. On the fixed income side it is both across-the-board in terms of categories of funds and in the array of distribution channels. On the equity side you see more action with the Pru Bear Fund in the broker dealer world, but on the other hand the Strategic Value Dividend Fund, which is obviously designed to pay net for and have increasing dividends and then get appreciation, that is an across-the-board attraction to people who are looking to learn how to live during retirement and also who are willing to step into the marketplace, but want a dividend to pay for their troubles. So that's been more or less across-the-board.

Okay. Thanks.

Thank you. Our next question is coming from the line of Robert Lee with Keefe, Bruyette & Woods. Please state your question.

Thanks, good morning, guys.

Good morning, Rob.

And I apologize, Tom, if you mentioned this in your comments, but are you still expecting the SunTrust to be roughly $0.04, $0.06 accretive happen in the first of year? Is that still in line with your expectations?

We didn't, I didn't mention that in my comments so you didn't miss it. Last time I think we said somewhere around $0.015 a quarter. Of course the assets have come down from 17 to our expectation now of 14.5 and the accounting changed a little bit. We'd probably tweak that a little bit up.

Okay. And maybe one for you, Chris. Notwithstanding your comments as it relates to the money fund proposals that are out there, which I guess will take some time to be implemented, and the fact that you are still looking for additional deals, how is, how do some of these proposals, if at all, kind of factor into how you are thinking about capital? It is one thing when you kind of think proposals are coming, I know they are out there, they are going to be debated and even though you think it is your view, certainly, that the capital intensive ones, the more capital intensive ones are unlikely to pass, I mean, does it impact how you are thinking about your use of cash or capital at this point or pretty much business as usual?

Well it is pretty much business as usual, but that is not to say that we don't think about these things in terms of capital. It did occur to us that these things were going on when we took down the $425 million and we still have an open revolver available to us. So we think we maintain a lot of financial flexibility and we also remain convinced that even though they will discuss and talk about ideas of capital as regards money funds, that it's very unlikely that they will try to do something, the net effect of which economically kills the business, because the capital can't be sustained by the marketplace on the money funds. And they make that very clear in the President's working group simply by looking at all the ebbs and flows and positive things that money funds offer into the economy. So, we remain enthusiastic and positive that they are not going to put any kind of crazy capital requirements on and we think we are in a pretty good spot with cash and capital.

Maybe just a question on special dividends. I mean, obviously you've paid a couple the past several years, you have cash, as you said, capital flexibility. I mean, should we be thinking or is it reasonable to think that, particularly if we get into a month from now or so and it does seem like dividend tax rates may be set to increase some amount, that that could influence your thinking on timing about a special dividend.

As you have noted, we have been attentive to trying to run things in the benefit of the shareholders with an eye on the funds as well. And so, therefore, we would not take off the table the idea of special dividend. Heck, we've done them a number of times in the past. And we would want to look at what happens on Tuesday and what kind of proposals come out before we would make any final decision on that.

Great. That was it, thanks for taking my questions.

Our next question is coming from the line of Michael Kim with Sandler O'Neill.

Hey guys, good morning.

Good morning.

First the institutional fixed income business continues to win some sizable mandates. Just curious how big of an opportunity do you see here, particularly as it seems like pension plans are increasingly looking to kind of immunize their liabilities, so maybe that suggests we are going to see more of a secular shift in favor of fixed income?

Well, we are quite enthusiastic about that. I can't put a number on it. Obviously, the size of the business is way bigger than a bread box. But what encourages us is not just the wins and the flows, but the variety of different mandates that we are able to win with, from core ag, to government credit, some of the same activities that we have in some of the funds. So there is different mandates that are able to win. And so I can't put a number on it, but we think we are in pretty good shape on this business.

Mike, I just add to that that when you seek the more sizable wins that we've had over the last year or so, the -- we find ourselves in more finals and in finals for bigger wins, so that the previous ones do kind of blaze a path to hopefully bigger ones going forward.

Okay, that's helpful. And then kind of, I guess, the fund NAVs are going to start to be published out to four decimal points starting relatively soon. Do you just feel like there could be some volatility around flows as maybe investors move away from some of the funds that maybe are toward the bottom end of the range?

I don't really expect something like that. Now if you say bottom of the range, I don't know what that's going to be, since I haven't seen everybody's reports. But here are a couple of factors to remember. When you look at those numbers, at least in our case, what you are going to see are three nines or three zeros after the decimal spot, which means that you may see some numbers change in the fourth decimal spot behind, I mean the fourth spot behind the decimal. And so these funds are at a $1.00, they are priced at a $1.00 and they are a $1.00. And therefore I wouldn't expect to see much flow movement because of this. On the other hand, we think it's a good thing that this information is coming out, because it reminds people that these are investment products and it is a way of showing what's going on, in addition to the portfolio inside the fund.

Okay and then just finally to maybe follow-up on compensation, I guess you've kind of adjusted the accruals a bit this quarter. So does that suggest this is a pretty good run rate looking out to the fourth quarter, just barring any sort of seismic shifts in the environment?

Yes, I mean, things change and our expectations change and performances change in the quarter and the sales change in the quarter and we like to be conservative going into the final quarter, because we don't want to get caught under-accrued.

Okay. Thanks for taking my questions.

Thank you. Our next question is coming from the line of Roger Freeman with Barclays Capital.

Good morning. I guess first just on the fee waiver guidance, it sounds like you are guiding it sort of flattish, sequentially. It sounds a little bit better than some others that have reported and kind of talked about the outlook, like Schwab, Ameritrade, for example. There was like a spike in LIBOR. (inaudible) said funds rates are lower in this third quarter and that has come off. So just wondering if there is any different dynamic we need to be thinking about in terms of your impact from that?

Roger, we kept the range the same. As Debbie pointed out, the rates have come in a bit, but we were at the low end of that range before and so we were comfortable keeping that same range in place.

Is there anything worth pointing out? Like I guess in sort of flows between types of money market accounts maybe into commercial paper out of Treasury, et cetera, to try to pick up yield, maybe there is less of a give back on those or nothing worth noting.

We have seen, we continue to see a shift toward the prime products. Interestingly, Treasury went up a little bit in the quarter, money more or less came out of the agency funds and into prime.

Okay. And then on just with respect to sort of the total money market, I guess, demand pool, I was wondering your thoughts around a, there was a CFTC proposal saying, proposing that FCMs would no longer be able to put anything more than, I guess, 10% of sort of customer guaranteed funds into money markets. I don't know what that average is today, curious if you think that is an issue. Are we going to see other sorts of guarantee funds like pulling back from how much they are allowed to put into money markets?

Let's start, overall it's a proposal and we have very excellent working relationship with the staff at the CFTC and we'll be commenting, working with them on these proposals. So we don't yet know what will come out. That is an important thing to remember.

Sure, sure.

The next thing is that this is a two prong proposal. One is an overall limit, the 10, and the other is a by family limit of two. And as it stands right now on our book of business, if that were adopted we'd probably be a net winner. We are not aware of any of our clients that have any more than 2% in our funds right now anyway. So if they go to a big diversification move, we'd probably be net winners and at the current level we don't see how it affects the clients right now, but we are going to be working with them on their proposal and making our comments.

Great. That's helpful. And then just lastly, back on the Strategic Value Dividend Fund, are you also seeing flows, I guess, from maybe not just sort of retirees, but would otherwise or do you think otherwise these fixed income investors? Just feels like a product that probably as close to fixed income as you had in a equity world.

The answer is yes. And it's some of what you see, although we can't really put our finger on the pulse as well as those who have the actual retail customer, because we are through intermediaries. But you do see some people who are willing to move into an equity product because it has a worthy dividend and they are stepping out from the fixed income thinking about what that might mean for the long haul. So you do see some of that, but, boy, I'm not in a position to give you a lionized trend and go from that to some big macro point.

All right, okay. All right, thanks a lot.

Thank you.

Our next question is coming from the line of Ken Worthington with JPMorgan. Please state your question.

Hi, good morning. A couple questions on Ridgeworth. I think, Tom, you mentioned assets on the deal went from $17 billion to $14.5 billion, but the accretion's actually going up. How does that happen? And then on, also on Ridgeworth, what are the management fees versus the distribution costs? And did the SunTrust products, would they have waived any fees if you had owned them for all of the third quarter and if so what would those fee waivers be for those funds?

Well they definitely would have waived fees. But the first question on how would the EPS go up, the accounting we thought we were going to be amortizing when we talked about that amortizing some of the expenses and that's not what's going to happen. So that is why we go up even though the assets go down. They kind of balance each other out to just a slightly uptick on our estimations.

Okay. And the management fees versus the distribution fees for the SunTrust products, are they meaningfully different than what you have in your existing book today?

No, we won't, we can't get into specifics on that, Ken. But we talked before about the basis points on the products being in the, the revenue basis points would be in the low 20s if you blend everything together. And the distribution fees would not be dramatically different than the profile you'd see in other similar customers.

Okay and what were the fee waivers in those products?

I don't have the specific fee waivers in their products. They would have transitioned into our products and we wouldn't be able to breakout once this thing has been transitioned, then they are the same as anybody else in that fund.

Okay. But your fee waiver guidance for the quarter includes the fee waivers on the incremental SunTrust assets?

Yes.

Okay. And then last question, Federated successfully lobbied over time the expanded use for money market funds. Just kind of fishing hear, but any new opportunities that you guys are kind of working on behind the scenes?

Okay, I'm allowed to mention now that this is probably maybe the eleventh quarter or something like that we still are working on 15 C-3 3. 15 C-3 3 is the exchange act provision under which broker dealers have cash. And we still work with the SEC on getting this accomplished and so that is one that is being worked on. There is another one that is being worked on, which is when the CME is going to be given a lot of derivatives to handle, there may be collateral associated with that and naturally this looks like a worthy home for money funds as well. So that is just two.

Ken, we are still talking to a lot of people on the acquisition side, which isn't what you asked, but we expect more transactions there.

Excellent, I'm glad I asked the question, thank you very much.

Our next question is coming from Cynthia Mayer with Bank of America/Merrill Lynch.

Hi, good morning.

Good morning.

On expenses, it looked like actually a number of categories from professional services, distance and communications travel were all a bit lower versus 2Q and I'm wondering if those are good run rates.

Well, remember the insurance recovery factored in on a number of those line items from the previous quarter. So I guess the current quarter is probably a decent run rate.

Okay. And on M.D.T. can you give us a sense of what the assets are there at this point and what the trends have been in terms of flows, including maybe in October and what your outlook is? What would it take to turn those around?

The assets are actually right around where they were a quarter ago, just around $3 billion, with the bulk of that being on the separately managed account side and the rest in mutual funds and some institutional accounts. In terms of a turn around, I mean, the performance has improved a bit in the most recent quarter, but we have had a couple years of underperformance and so it is going to take more than a quarter of better performance to reasonably expect those flows to turn around. We have seen, though, that customers have, that have stayed with the product and understand why the model underperformed in the kind of macroenvironment that we were in and they appreciate the fundamental orientation of the model and continue to use it, because they believe that ultimately, over the long-term, that is where that will bring success. And you look at the strategies, there are seven of them on the managed account side and six of the seven continue to outperform versus their benchmarks from inception. So the long-term record is, still argues for the model.

Okay. And then maybe just circling back to the possibility of buying more money market assets. Can you maybe describe if there is any shift in the attitude of the potential sellers, does the prospect of a really extended period of low rates influence them? Is there any difference versus last quarter or not particularly?

It's very, very difficult, Cynthia, to come up with a macro from that, because each one of these deals is so particular and so unique and so tied into the internal workings and thought processes of the people that have the money funds. In many examples there are clients already. And so, yes, those factors that you mentioned, lower rates, more cost of compliance, higher level of need, less core business for them, all these things factor in, but what really drives the trucks is the internal decision making of those organizations. And I wish there could be a macrocatalyst that would cause all the money to just flow right home, but it doesn't work like that, unfortunately.

Great, thank you.

Our next question is coming from Marc Irizarry with Goldman Sachs.

Great, thanks, just a couple questions. First on fee waivers, under what scenario, rate scenario do you see potential fee waivers extending to your ultra-short fund?

I don't know of any.

Okay. And then on the regulatory front, looks like some of the tougher decisions were turned over to the FSOC in terms of regulating or determining systemic importance of money market funds, what is your guys' understanding of sort of where the, your understanding or maybe the industry's understanding of where the committee might come out on some of these issues, considering it is a new regulatory body.

It is really hard to predict. We support the ICI in their efforts to comment on this whole process in terms of the efficacy of actually naming individual funds or gangs of funds as quote strategically important. And I think that the issues will turn on all of those factors, which were listed in Dodd Frank that have to be considered. Like for example, are these entities on leverage or are they not? Obviously, the mutual funds in general and money funds in particular are not on leverage. Whether there are off balance sheet exposures, well mutual funds don't have those. Whether we are sources of credit for low income or minority underserved communities, so that is not exactly a factor.

Whether we manage the assets or own the assets, that is a big factor and, obviously, in the funds we manage them and the degree to which the Company is already regulated, it's already regulated very well by the SEC. And this is, perhaps in our mind, one of the most important points, because the source of the regulation comes from an entity who's primarily geared toward protecting the shareholders of the funds. And the Feds's attitude is to protect a different constituency or a different philosophy and we think it's very important that that be maintained. And there are other factors as well and so I think that's where the debate is and it's pretty tough to say where these guys will come out. I think they have a lot bigger fish to fry, but nonetheless, I can't make a solid prediction.

Okay and then you may have commented on this already, but the, I guess that some of your competitors who are bringing back their money funds that have to be reported on a shadow NAV basis to the SEC that they are making, they are bringing them back to $1.00 NAV. Is that something, from your perspective, that you are interested in doing or are your funds all up to $1.00.

Our funds are all at a $1.00, so we won't be doing that. And as to what the other guys were doing, that is fine whatever they are doing, they are doing. But we don't have any material realized losses in our funds that would cause us to even get to that question.

Great, thanks.

Thank you, our next question is coming from William Katz with Citigroup. Please state your question.

Yes, thanks. Good morning. Just on -- I looked at the, I guess, the rev share between the fee waiver and then the give back on the distributors, (inaudible) about 80% this past quarter. It seemed a bit on the high side, I'm just sort of curious is that just sort of the idiosyncratic nature of whether the fee waivers are coming by channel or is there really more of a structural shift here that the distributors are willing to bear a little bit more of the economics, given the persistency of the low rates.

No, there is no structural shift, Bill, it is purely where the assets lie. So whenever we talk about more going into prime, I mean, that would be disproportionately in more of, say for example, the broker dealer sweep channels would use those kind of products more and other intermediary applications. So it is purely a shift, not any type of structural thing.

Okay, that is helpful. And then, Chris, you are now the fourth major money market player among the publicly traded names to sort of sing the exact same song, that Liquidity Bank is the way to go. I'm just sort of curious, sort of read through some of the documents that are out there, the Liquidity Bank itself has some pros and cons associated with it as well. What is it that's specifically about the Liquidity Bank that is so attractive to the major players. And then secondarily, is it really just a matter of that is a lesser of all evils from a compromise perspective relative to capital or floating rate now?

Well, on the second part, if it functions like that, everything isn't exactly a trade. And it isn't exactly, oh well, this is one that we can do and therefore do it. I don't think so. I think that the Liquidity Bank does add a feature of strengthening the resiliency of money funds. And therefore, it should not surprise you that the leading purveyors of money funds, who have been working together on coming up with this, would also speak in favor of it. It's because they came together in response to an initial request from the President's working group to come up with a private feature that would link into the liquidity system.

And so it has a certain beauty, namely that it would be capitalized by the advisors of prime funds, that it would issue securities that would be available to third parties and others, and that it would build up capital, and that in the end of the day, after the 30% of cash and funds were used, it could buy high quality securities at amortized costs from funds that were having liquidity challenges, and then have access to the discount window, which of course would have attendant costs and charges that would make that something you would just as soon not do, but certainly if you had to do it, you would surely do it. So I think that's how we are looking at it and we think it would be a good addition to the system and Debbie has a comment as well.

If you think back based on Chris's comments to what the AMLF did from the Federal Reserve Bank of Boston, which was put into place on September 19th, the Friday after the default of Lehman Brothers, it served exactly the purpose that Chris mentioned and all the, had all the various points associated with it. But it was thrown together rather quickly and it was designed by the Fed. This is a way to capture that same degree of liquidity provision, doing it ahead of time, number one, and doing it from an industry perspective, number two. So we think both of those are positive features that sort of replicated something that was quite a good success story already.

So if I could just follow up to that question, then one of the things that the President working group had mentioned that it could result in further concentration of market share. With this it seems like it would be both capital and cost prohibitive for some of the smaller players. Do you think that this would give you a little bit of an inflection for acceleration of market share gain?

Almost all of the things that have been done have this tendency towards oligopolization of this business, for better or for worse. And so, whether it is doing increased stress tests or requiring great detail on the credit analysis or in this particular aspect of capitalizing the Liquidity Bank for prime funds, I think they all have that tendency. It is not its primary purpose and I don't think it its primary effect, but it is certainly an effect out of, that is very logical to come out of the existence of the Liquidity Bank.

Okay. Thanks for taking my questions.

Our last question is coming from the line of [Brennan Hawkins] with Colin Stewart. Please state your question.

Hi, guys, most of my questions have been asked and answered. Just one quick one and I jumped on the call late so I am sorry if you went through this. Could you give the revenue breakdown by asset class, please, for the quarter?

Could give you the percentages, Brennan, I don't have the dollars.

Percentages are fine, that's great.

It was 51% money market, 30% equity and 18% fixed income. 1% would have been other things.

Thank you.

Okay.

Gentlemen, we have no further questions at this time. I'll turn the floor back over to management for any closing remarks.

Thank you. That concludes our call and thank you for joining us today. Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time and we thank you for your participation.