Federated Hermes Inc (FHI) 2014 Q1 法說會逐字稿

Greetings and welcome to the Federated Investors Management Company's first-quarter 2014 analyst call and webcast.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Raymond J Hanley, President, Federated Investors Management Company. Thank you, you may begin.

Good morning and welcome. We will have some brief remarks today before getting to your questions. Leading today's call will be Chris Donahue, Federated's CEO and President of Federated Investors; Tom Donahue, Chief Financial Officer. Joining us for the Q&A is Debbie Cunningham, who is the Chief Investment Officer for Federated Money Markets.

During today's call we make 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 the risk disclosures in our SEC filings. No assurance can be given at the future results. Federated assumes no duty to update any of these forward-looking statements.

With that, I will turn it over to Chris.

Thank you, Ray. Good morning. I will begin today with a brief review of Federated's business performance and Tom will then comment on our financial results.

I will start with equities, where we derived 42% of our Q1 revenues, the highest percentage among our various asset classes. We reached new all-time high for equity assets at just under $46 billion in Q1.

Equity fund gross sales grew 20% from the prior quarter and net sales more than doubled. Our equity business is very well positioned with a strong combination of performance in products in the areas of investor interest.

Just about half of our equity strategies were in the top quartile for the trailing three years at quarter end, while three-quarters were in the top half for the same period. More than half of our equity strategies are in the top quartile on the trailing one-year basis.

Equity strategies with top decile three-year records in the industry categories with substantial sales include Federated International Leaders, Capital Income, Kaufmann Large Cap, Muni and Stock Advantage, MDT Stock, and MDT All Cap Core. The MDT Stock Trust, in fact, was the number one fund out of over 1,000 funds in the Morningstar large-value universe for the three-year record at quarter end.

Last month the Capital Income Fund was named the Lipper category winner for its consistent, risk-adjusted performance for the three-year period ended December 31, 2013. In addition, the Clover Value, MDT Small Cap Core, MDT Large Cap Growth, Equity Income and International Strategic Value Dividend Funds are all top quartile for the trailing three years and add further depth to our offerings.

Our sales are diversified with alpha strategies like International Leaders and Kaufmann Large Cap, joining solution-like products, Capital Income and Strategic Value Dividend where the income is the primary objective. More than half of our Equity funds had positive sales in the first quarter, led by strong results in International Leaders, Kaufmann Large Cap and Capital Income Funds.

Equity separate account growth was led by Strategic Value Dividend, Domestic and International, and MDT Mid Cap Growth. Early second-quarter equity fund net sales are over $200 million, led by International Leaders, Capital Income, Kaufmann Large Cap and the MDT Stock strategies.

Now let's turn to fixed income. First-quarter net flows for both funds and separate accounts were positive. Fund flows were led by High Yield, Ultrashort Bond, Floating Rate, Total Return Bond and Short Duration Muni Funds.

With fixed-income separate accounts we saw additions to short-duration mandates and other corporate bond portfolios. We had a EUR30 million high-yield separate account addition in Q1 through our German office. These gains were partially offset by redemptions from a client that internalized fixed-income management as a result of an acquisition.

Fixed-income separate accounts had a series of additions and deletions that netted to modest positive flows. We continue to see heightened interest in our differentiated Trade Finance strategy and have a number of indications of interest and good RFP activity. We expect to add new accounts this year.

Fixed-income fund flows are negative early in the quarter, here in the second quarter, reflecting tax-related outflows and certain short-duration bond funds. In addition, a client redeemed $250 million from the Total Return Bond Fund in April related to a change in their 401(k) provider.

Recall, of course, that the fund ranked in the top quartile, 22% for the one year, and ranked in the 34% for the three year at the end of the quarter. Also at quarter end, we had nine fixed-income strategies with top-quartile, three-year records including High Yield, Intermediate Gov, Total Return Government, Short-Intermediate, Total Return Bond, Ultrashort Bond, US Government 2-5, and Short-Intermediate Duration Muni.

Looking now at money markets. Period-end money market fund assets decreased by about $13 billion from year end, while average money market fund assets increased slightly compared to the prior quarter. Our market share is approximately 8.7%.

Consistent with the industry, we some money fund redemptions during the second half of the quarter. We think that elevated tax payments and other uses of cash were factors in these redemptions and in the seasonal redemptions we have seen this month around April 15.

On the regulatory front, in March, the SEC released four memos on various attributes related to money market funds and opened a new 30-day comment period that ended this week. We are filing separate comments on each of the topics that were raised.

We continue to advocate for pro investor and capital market positions. The comments to the SEC proposal, and indeed the SEC itself, acknowledge that floating the NAV would not stop a run during periods of extraordinary market distress.

On the other hand, redemption gates have been demonstrated to work. In our experience, investors, once they understand the structure and remote possibility of a gated being imposed, prefer gates and/or fees by a wide margin when compared to floating the NAV, which ruins the funds cash management appeal each and every day.

Surveys of investors indicate that they will reduce or eliminate their usage of money funds as subjected to a multitude of legal, tax, record-keeping and operational issues that would be brought along with a floating NAV. Investors will likely move their cash to government securities, government money funds or to the biggest banks that they believe are too big to fail.

For issuers, the impact of a floating NAV will be an increase in their funding costs, the loss of efficiency and market flexibility. The costs of this artificial floating NAV are real, material and damaging to investors in the capital markets.

The benefits are illusory and nominal at best. We are optimistic that sound policy will win out and that floating NAV should not be imposed on any funds or investors.

Taking a look now at our most recent asset totals as of April 23. Managed assets were approximately $362 billion, including $260 billion in money markets, $46 billion in equities and $56 billion in fixed income, which includes our liquidation portfolios.

Money market mutual fund assets stand at about $224 billion. April average money market fund assets are running at about $225 billion.

Looking at distribution, in the broker dealer channel, equity fund gross sales were up 8% from the fourth quarter and up about 29% from the first quarter of 2013, with strong results boosted by the addition of wholesalers and related resources. We are planning further, modest growth of sales personnel in this channel by adding approximately four field and two internal reps during this year.

We also recently added sale capacity in our SMA business, which has produced strong growth. We added a sales specialist to focus on new firms that have added Federated Strategies to their platforms. Our SMA business was recently ranked in the industry Top 10 Managers for SMAs plus model portfolios.

In the institutional channel, we added several smaller accounts in the first quarter. We have approximately $100 million in fixed-income wins from Q1 yet to fund, including a $55 million emerging market debt account.

We also had a $75 million institutional win that went into the Kaufmann Large Cap Fund. RFP activity remains high with interest in Kaufmann, Clover, MDT, Strategic Value, and International Strategies for equities, and Short Duration, Core Broad, Muni, High Yield and Trade Finance for fixed income.

The institutional team continues to add products to new distribution opportunities within major platforms. Examples in Q1 include the addition of Capital Income and International Strategic Value Strategies to measure broker platforms; Kaufmann Large Cap and International Leaders to multiple platforms; Clover All Cap Value selection with a major SMA platform; and continued placements of our High Yield and Strategic Value Dividend strategies.

Let's take a look offshore. Last month, we announced a new global distribution agreement with RJ Delta, a Raymond James subsidiary with an initial focus on the distribution of our equity and fixed-income products to pension plans in Chile. We see this as an entry point for broader, long-term distribution through Latin America.

We are also adding sales resources to accelerate growth we have seen in Canada for both retail and institutional markets. In Asia PAC, we continue to look for an acquisition to move this effort forward. In London, we are responding to increased interest in our Trade Finance strategy.

Regarding acquisitions, we continue to actively seek alliances and acquisitions to advance our business in Asia and Europe as well as the US. Last month, post call, we announced an agreement with Huntington Asset Advisors that will result in the transition of about $400 million into Federated's fixed-income funds.

Tom?

Thank you, Chris. There were two factors that greatly impacted Q1 results: money fund minimum yield waivers and two less days in Q1 compared to Q4. With most of our revenues calculated on a per-day basis, fewer days in Q1 led to a decrease in revenue of about $7.3 million. Related distribution fee expenses were lower by about $2.6 million, less fewer days led to a decrease of $4.7 million in operating income or about $0.03 lower EPS.

Looking at money fund minimum yield waivers, the impact of pretax income in Q1 was $29.7 million. Based on current assets and assuming overnight repo rates for treasury- and mortgage-backed securities run at roughly 5 to 6 basis points of the quarter. The impact of these waivers to pretax income in Q2 would be about $29 million.

Looking forward and holding all other variables constant, we estimate that gaining 10 basis points in gross yields would likely reduce the impact of minimum yield waivers by about 45%, and a 25 basis point increase would reduce the impact by about 70%. Multiple factors impact waiver levels and we expect these factors and their impact to vary.

Revenue was down from Q1 2013 because of increased minimum yield waivers, partially offset by higher revenue from equity assets. Operating expenses were down from Q1 2013 due mainly to a $9.5 million decrease in distribution expense related to minimum yield waivers. Comp and related expense increased from the Q4 largely due to the seasonality of payroll taxes and 401(k) matching contributions for employees. The increase in comp and related expense from the Q1 2013 relates to a prior year accrual finalization differential of $1.8 million, higher base pay of $1.3 million due to increased headcount and merit increases, and a $1.2 million increase in incentive compensation driven by investment management and sales performance and stock-based compensation.

Nonoperating income decreased from Q4 as gains in marketable securities, including consolidated products, decreased by $4.2 million. Looking at our balance sheet, cash and investments totaled $257 million at quarter end, of which about $238 million is available to us.

That concludes our remarks. We would like to now open the call up for questions.

(Operator Instructions)

Bill Katz, Citi.

You listed off a number of very strong performing equity and fixed income funds, and pretty diverse base. When we look at the absolute level of flows, it is still relatively small.

What is going to be the catalyst to really crank up the net sales or the absolute level of sales to more measurably move the asset levels higher?

Thank you for helping me with my discussions with our Head of Sales.

It is not a catalyst, it is completely repeating the basics of blocking and tackling. If you look at any of our charts, for example, the one that shows the monthly, average sales of equity you have seen in the last three years, those have moved from the 500s now to where they're up in the 700s. You see a steady march forward in terms of that performance, and that is what it will take. It is not a catalytic event.

We are looking to see those principal funds we have, I think there are seven funds now that are in the $1 billion plus category that have good records. Each one of them has the capacity to be a $5 billion fund. There are almost 200 $5 billion funds in the industry and these funds are certainly loaded with the capacity to get there.

When you look at the goal, we say we have $46 billion, we are proud of that, in equities, but there's no reason why that shouldn't be $100 billion. That should be accomplished within a 3 to 5 year timeframe. The same kind of thing on the fixed-income side. That ought to be $100 billion as well.

Those are the shorter-term goals. I wish there were some sort of catalyst to make that happen, but when you look at the continued performance and then the way we have added to the sales force.

As you know, Bill, over the last several years, two year, five year, three year, we are now up to 210. We think that is incrementally adding to the basic blocking and tackling.

Bill, I would just add, if you look at the numbers, we've talked about having over $200 million just in the first couple weeks of April in equity fund net sales. We had about $460 million for all of Q1.

If you go back a year ago, we were negative $600 million. The numbers are showing an acceleration. Obviously, we are pushing hard to get it even higher.

Okay. A related question, how you think about the impact on fee rates and/or margins from some of the newer business you are bringing on between the mutual fund business and/or the separate accounts?

Peeling through the funds, the Large Cap Kaufmann Fund has pretty solid pricing on it, 75 basis point fee. The Capital Income Fund is pretty solid. The International Leader Fund is pretty solid, so they are very solid type products in terms of the fees.

Then, on the fixed-income side, the High Yield products are in good shape in terms of the overall fee situation, so those would be looked at as rather the higher-fee products as compared to say, Money Funds or Ultrashort Funds, or even the Total Return Bond Fund. Where most of the flows are coming in, is in the more attractive products. Translating that all the way through to margins, if you get enough flows, eventually those margins are going to get back where they should be, up in the 30% range.

Michael Kim, Sandler O'Neill.

First, just wanted to follow up on various initiatives to broaden your distribution reach. It seems like you continue to add people and infrastructure.

Just wondering where you are in that process, particularly as it relates to related expenses? Just thinking about if we should expect to see an incremental step up in cost as you work your way through the year?

That is why I mentioned that we had about four lined up in the field and a couple internal sales. You can see that, yes, that is going to cost money. We continue to look to add others.

There would be, as I mentioned, two being added for the Canadian marketplace, one of which is already added, one of which we are looking for, another one we are looking for the RJ Delta deal. That is another human. We're still interviewing for an open rec in the Mid East, so that could be another one.

That is what you are looking at. They're not like 10s and 20s that are coming along. They're onesies, twosies, threesies, and foursies that I have articulated.

Michael, one other thing that probably will go up is the bonus expense related to the sales group. As they produce gross sales and net sales, we're going to have to -- if it continues, we're going to have to uptick there in expense.

Okay. Tom, maybe just to follow up on that front. Any color on the comp line going forward, particularly given the moving parts first quarter to second quarter?

I went through the changes from the last quarter and from year-ago's quarter, so I won't repeat that. If you knock out the 401k and the payroll taxes, the number might be around $70 million for the quarter.

Now, I have to caveat that with what is going to happen with sales bonus and what is going to happen with investment management bonus, because when the performance continues, stellar as Chris has gone through, more bonuses are earned. We have got to figure that out on a yearly basis what it is going to be. Then, you run it through each quarter.

That's helpful.

Finally, just a follow up on the M&A discussion. Chris, just curious to get your current take on the build versus buy decision when your contemplating adding investment management capabilities?

Seems like scale is becoming increasingly important as well as the first-mover advantages. Just curious if that has tipped the scales in favor of acquisitions a bit more these days?

It depends on which mandates in which country. For example, if you are talking about our efforts on liquid alts, this is an effort where we are building it from within, despite those factors that you just mentioned.

We hired this fellow, Michael Dieschbourg, earlier in the year out of Smith Barney. We have a gang of eight funds that more or less count as liquid alt type funds. They have got $2 billion in them already, but there's a lot of science going into them in order to more carefully analyze the risk profiles and how these products are handled.

They have delicious names like Absolute Return, Pru Bear, Managed Vol, Managed Risk, Managed Tail Risk, Unconstrained Bond, Global Allocation, things like that. Here is one where we are using a combination of our internal resources bringing in external resources and building it.

In other areas though, you're right that it is very tough to build, especially in a foreign jurisdiction, so we are running into that as well. It really does depend on where you are and what the opportunities are in that jurisdiction.

Robert Lee, KBW.

This is Andrew Donnantuono sitting in for Rob. Thanks for taking our questions.

Firstly, getting back to the overseas initiatives, again, that you discussed. Just was curious whether it is RJ Delta distribution agreements or adding sales in Canada or the increased interest you are seeing in London or maybe the build out in Australia that you mentioned previously.

Is there one non-US region that you feel particularly confident in or expect to grow your asset base more so than any of those others? Is there one that comes to mind?

On a percentage basis the Canadian one is looking very attractive. We have a good gang of assets. It is a low amount, so it's $400 million or $500 million, growing pretty strongly. We're going to get good percentage increases there. That would be one.

It isn't going to exactly move the dial instantaneously, but overall -- I will give you some other color on that, too. Just let me say that you see with these various stories, different aspects of how we are trying to build things internationally. The Canadian, the South American, the Frankfurt office, some of the efforts in London, the interviewing Mid East candidates, those are all trying to set up individual sales efforts with individual sales personnel to distribute Federated Mandates. That is one deal.

Then we have in Germany a joint venture with the LVM Insurance Company. That is another kind of a deal that works well. As we have discussed, in Australia, it is a put your own team together and then build or buy and hunt around. That is the one that takes a long time in order to try and reach some fruition. With Prime Rate, it was a simple, straight-up acquisition, so there are four different methodologies.

Back to your question, in terms of where we expect things to happen. One of the efforts that we have, I've mentioned it on the last call in a pretty good detail, was the Trade Finance in London. We are hiring more people right now for that. We think this is a growing, multi-billion-dollar asset class inside Federated.

But it isn't tied to any one particular jurisdiction. The mandates will be surfaced nationally and internationally as will the underlying securities, so it is not exactly a jurisdictionally specific thing other than it is headquartered and run out of our London office.

Okay, great. Thanks for that color. I appreciate it.

Just shifting back toward the firm-wide blended fee rate for the quarter, specifically relative on a year-over-year basis just to account for the shorter day count? I saw that came down a bit and I know fee waivers, obviously, played a bit of a part in that as well.

Would you be able to provide a little bit of color on the underlying fee rates for just equity versus fixed on a trailing year-over-year basis? What may have driven either or both of those rates down?

Sure, Andrew. I think you have it pretty well figured out.

It was largely due to waivers on the money fund side. On the equity side, our fee rate from all sources really didn't change much. It went from about 82 to 81 and that would include advisory fee, administrative service fee and then distribution fee. On bonds it went from 39 to 38. Money funds went from about 12 to just under 11.

Cynthia Mayer, Bank of America.

Maybe a question on the fee waivers a little bit.

It looked like the repo rates came up in the quarter but it did not have that much impact. I see you're assuming that they will be a little bit higher this quarter.

At what point -- was something else offsetting that? Should we be watching more than just that rate? At what point would that really begin to have an impact?

The repo rates came up slightly, I would say, and weighted more to the second half of the quarter, when the fed effectively put the 5 basis point floor under it. There really wasn't much opportunity there for improvement.

Looking at this quarter, and as you point out, we mentioned more like in the 5 to 6 range, that is where it has been for the first couple of weeks in April. You see that in our waiver forecast, that the number would go down based on those conditions.

Debbie, do you want to add anything to that or not?

I would just confirm that we started out the quarter with the fed reverse repo facility at a 3 basis point level and we ended the quarter at 5. We started the second quarter with that 5 basis point fed reverse repo facility rate.

Our expectation is that post the April-time period, it may go down another 1 or 2 basis points, just depending upon what the ultimate supply is and what the need from a Treasury perspective becomes at that point. The fed reverse repo facility has absolutely served as a floor.

Certainly as you all know, we do not transact specifically with just the fed, we continue to maintain our relationships with the traditional broker dealers and banks in that repo marketplace. They still are affected very much from a collateral supply demand aspect of the business, so even though it is a floor, you may still end up seeing -- even though there is a 5 basis point just serving as a floor, you may still end up seeing some of our relationships and our needs to transact, especially for a later day funds, at levels that are slightly below, in the 4 basis-point range.

Having said that, it really does seem like at this point, steady as you go is the likely end result.

Okay, thanks a lot. In terms of the outflows from money markets in 1Q, it looked a little more severe for you guys, particularly in prime then for some others in the industry.

Can you give a little color on what would cause share shifts? How much of the outflows you think were seasonal as opposed to something else going on? Thanks.

It is very difficult to be precise on how much of it is seasonal, but obviously the numbers, when you look in the industry, is pretty consistent, $16 billion outflows in January and February. Then, going up to $50 billion in March, and then you have additional acceleration around -- right up to and through tax.

Those patterns, outflows in the first quarter and clustered around tax based, that is something we have seen in the past. As to specifically to prime, that tends to be where we see clients using cash. We have talked on other calls about -- from the broad competitive landscape, there still has been a lot of money that is going into deposit products and there has been activity with competitors.

Beyond the general factors, it's hard for us to give you a specific attribution on it.

I can say from the standpoint of what we are looking at as part of our portfolio management process, we are not seeing -- and I am not sure Cindy, if you're asking this as the underlying question, but we are not seeing a trend, at this point, of movement out of one asset category i.e. prime, the more risky category, into another asset category i.e. government, the less risky strategy.

That movement and anything related to it from a regulatory front, from a credit front is not something that we have noted or heard clients talking about during the quarter.

Okay, great. Last question is, the buyback, as you guys sometimes say is polite, what would get you to really step up more?

They have to probably put me in charge of it and take Ray and Tom out of being in charge of it. I will let them answer that.

We try to run our models a look at the growth prospects for the Company and run actual returns on it. The forecast would have to improve for that.

What is going on with rates? What is going on with the regulatory front? How are the growth prospects coming in with the great equity performance and fixed-income performance and the sales?

That is really what it would take for us to generate.

Cynthia, I would just add it's in the context of the total return to shareholders, the dividend levels have been robust, payout ratios, so we feel like we're doing a good job in terms of returns to shareholders from all sources.

Ken Worthington, JPMorgan.

First, maybe three on money market fund share. What share is too low? How would you go about stabilizing market share if you so choose? How much would it cost?

What share is too low? Any share lower than where you are is worse than increasing it to a certain extent. There is no number that is really too low in that sense.

The share number is something that burks out after the fact. That gets into the second level of question was, what would it take to increase share and the cost of doing that?

This is a calculation and an effort that we don't do. Others have done it. We have seen it over the 40 years in this business, where others come in and say, well, if I only charge X basis points and do this, I can buy this much money.

We are not in that business because our clients are in it because they are in it because of a cash management system. Therefore, we are not looking to buy in people for a basis point 2, or in the old days 5 or more. We don't really attend to those kinds of calculations.

Over time, this has proven out very well for us because, over the four decades, as you looked at all the cycles, we always came out with higher highs and higher lows, even there would be changes month to month or quarter to quarter on both the total assets and on the total percent of share.

One other point I would mention is that the money supply continues to tick up. Therefore, there continues to be a little bit more money in the system each time that you move around. The overall macro situation, not commenting on regulation but in terms of just money available to be in money funds, still remains rather attractive.

But, the game you're talking about is one we just traditionally haven't done and wouldn't really choose to do.

Fair enough.

Ray, the fee compression on the money fund side, in a year from 12 to just under 11, it is just a basis point but it is a big percentage. Can you walk us through where that compression -- what is the reason for the compression on the money fund side? I assume it is mix, but it would be helpful to just have you walk us through it?

Ken, it is a gradual step down I'm giving you. Those are on a net basis, so it really would have been driven by the waivers related to the yield environment.

It is not a question of changing pricing or anything like that. It is essentially subject to the market conditions of the past year.

Okay. Then, I will ask the question differently. Average assets were up sequentially in all of your asset classes in 4Q. Revenue was down even when accounting for the fee waivers and the two fewer days.

What is driving the fee compression? Obviously, we can see the fee waivers. We can calculate the two fewer days, but even accounting for that, it is still down.

I thought it was on the money front side, but what is it? Is it possible to point us in the right direction?

The next thing would be to blend of assets within the products, so if you look at the equity, for example, if you look at sequential quarters, the basis points actually ticked up a couple tenths of a basis point.

On fixed income they ticked down by a couple of tenths of a basis point and the same thing on money markets. Now, you get into the mix of the 150 funds and which funds had asset gains and which funds went the other way. I think that kind of a blend analysis would probably be beyond the scope of the call, especially given the modest differences that we're looking at here.

Okay. I'll turn the call back.

If you're offline though, we can walk through some of the pluses and minuses.

Eric Berg, RBC Capital Markets.

Question on the money fund reduction in assets, as a follow up to an earlier question. Acknowledging that there are going to be March quarter cash needs for taxes, for corporations to pay payroll taxes, make matches in 401k and other cash needs, in short seasonal needs, are you acknowledging or are you saying that it's really not the case that this year's reduction was unusually high?

I'm just trying to get a yes or no answer as to whether this year's reduction in money funds was unusually high more than what would have expected given the seasonality?

I think March probably was a bit higher. I think April is in line with past tax seasonality, both for us and the industry.

Are you attaching any significance to it, or at this point to be higher than expected outflows in March or -- ?

Not so much. We are aware of specific client situations where -- one in particular that with the multi-billion dollar use of cash, it doesn't have anything to do with any of the things that we are talking about.

That is part of cash management on the scale that we do it, where you would have millions come in and then the money get used for another purpose.

My second and final question relates to money fund reform. I think one of the things that Chris said in his prepared remarks, or in his comments, is that he is hopeful that good policy will ultimately win the day here and prevail.

My question, which individuals or groups, at this point, are most vocal about the desirability of a floating NAV? Why are you confident that won't be the outcome?

The groups that are most attentive to the floating NAV are those basically who want to end the money market fund and that has been their heritage. They are very few.

If you look at the comments, of the 1,400 comments, high 90 percentage were against the floating NAV. There are very few people who are articulating for the floating NAV, but they are a powerful and notable minority. There are some in the media who are propounding for it as well, and some in the industry who see the beauty of floating the other guys NAV as a solution to the problem.

As to what my confidence level is and to what the SEC will do, I think I used the word what they should do. I don't know what they are going to do. It is hard for me to characterize a level of confidence in with the SEC will do.

They should not do it, and I would expect that they would allow good policy to win out here, again. The biggest vote going on, really, I have talked about the comments. I've talked about the way this business works, but the biggest comment really is that you have $2.7 trillion worth of voters in the marketplace deciding that these funds are the way they want to manage their cash.

That is despite the fact that alongside of them, they could buy and roll US government securities. They could invest into too-big-to-fail banks, and they could invest in our or others ultrashort funds with very modest fluctuations in the NAV. Yet, 10s if not scores of basis points more in return. The reason is because of the efficiency and beauty of the money market fund product.

It is hard to say what exactly they are going to do or when they are going to do it, but I don't think there is a good case been made for floating the NAV on these funds.

Mr. Hanley there are no further questions at this time. I would like to turn the floor back to you for any closing and final comments.

That will conclude our call and we thank you for joining us today.

Thank you. This concludes today's teleconference. We thank you for your participation. You may disconnect at this time.