Virtus Investment Partners Inc (VRTS) 2021 Q3 法說會逐字稿

Good morning. My name is Richard, and I'll be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners quarterly conference call. The slide presentation for this call is available in the Investor Relations section of the Virtus website, www.virtus.com.

This call is also being recorded and will be available for replay on the Virtus website. (Operator Instructions)

I will now turn the conference to your host, Sean Rourke. Please go ahead.

Thank you, Richard, and good morning, everyone. On behalf of Virtus Investment Partners, I would like to welcome you to the discussion of our operating and financial results for the third quarter of 2021.

Our speakers today are George Aylward, President and CEO of Virtus; and Mike Angerthal, Chief Financial Officer. Following their prepared remarks, we will have a Q&A period.

Before we begin, I direct your attention to the important disclosures on Page 2 of the slide presentation that accompanies this webcast. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and as such, are subject to known and unknown risks and uncertainties, including but not limited to, those factors set forth in today's news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in the statements.

In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with the GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in today's news release and financial supplement, which are available on our website.

Now, I'd like to turn the call over to George. George?

Thank you, Sean, good morning, everyone. I'll start today with an overview of the results we reported this morning, before turning it over to Mike to provide more detail.

We delivered very strong financial and operating results for the quarter, and although we did have modestly negative net flows attributable to equity mutual funds, we reported record levels of operating profitability and margin with operating income more than double the prior-year period, our highest level of earnings per share as adjusted, continued strong investment performance, positive net flows in retail separate accounts, ETFs and institutional and meaningfully higher return of capital through increases in both share repurchases and our dividend.

We also continued to take actions to enhance the company's strategic and financial positioning. On October 1, we closed on our acquisition of Westchester Capital Management, further diversifying our investment offerings with $5.1 billion of differentiated non-correlated event-driven strategies.

We also remain on track with the approval process to complete our transaction with Stone Harbor Investment Partners near year-end. Stone Harbor's $15 billion in emerging markets debt, multi-asset credit, and other strategies are highly complementary to our existing fixed income products and well respected among clients and consultants.

In addition, we completed the refinancing of our credit arrangement, providing additional financial flexibility and extended maturity profile, and more attractive borrowing costs.

Now turning to a review of the results. Total assets under management were $177.3 billion down 1% from June 30, due to market performance and modest net outflows. Over the past year, AUM has increased by 52% from the addition of the AGI assets, market performance and positive net flows.

Sales of $7.6 billion declined sequentially from $9.6 billion, while redemptions were flat over the period. The sales decline were primarily due to weakness in equity funds, consistent with the shift in investor preferences during the period. On a year-to-date basis, sales have increased 13% on growth in retail separate accounts, open-end funds and ETFs.

Net outflows in the third quarter were $0.6 billion as outflows in mutual funds, including a $0.7 billion model rebalance, offset organic growth in retail separate accounts, ETFs and institutional. Open-end net flows, which include the model change were negative due to international and domestic equity.

Retail separate accounts continued to deliver positive net flows with an 8% annualized organic growth rate and positive flows across investment strategies. Institutional net flows were positive for the fourth consecutive quarter with continued traction in multiple affiliates. ETFs generated positive net flows for the fifth consecutive quarter.

Organic growth for the trailing 12-month period exceeded 5% with essentially all asset classes generating positive flows. In terms of the flows, we are seeing so far in October, many of the third quarter trends have continued, including solid momentum in retail separate accounts and ETFs.

In institutional, the pipeline is consistent with what we've seen over the past year. In open-end funds, areas of continued strength in fixed income, multi-asset and alternatives are being offset by international and domestic equities.

Westchester Capital which generated $0.1 billion of positive net flows in the third quarter prior to the close, continues to grow organically in October.

Our profitability for the quarter again reached a new high. Operating income as adjusted increased by 7% sequentially and more than doubled over the prior year and the related margin of 50.6% increased from 48.9% in the prior quarter and by 11 percentage points from the prior year. Earnings per share as adjusted were $9.71, up 7% sequentially due to higher revenues and stable expenses.

Turning now to capital. During the quarter, we increased return of capital to shareholders, reflecting the meaningful growth of free cash flow over the past year. We repurchased approximately 65,000 shares for $20 million, up from $7.5 million in the prior quarter and we increased our quarterly common dividend by 83%, representing the fourth consecutive annual increase. Our balance sheet remained strong and we ended the quarter in a net cash position as we continue to generate significant cash flow, providing opportunity to continue to invest in the growth of the business and growth to the shareholders.

With that, I'll turn the call over to Mike. Mike?

Thank you, George. Good morning, everyone. Starting with our results on Slide 7, assets under management. At September 30, assets under management were $177.3 billion, down modestly from $178.6 billion at June 30. The sequential decrease reflected $0.5 billion of market decline and $0.6 billion of net outflows.

Our assets under management continued to generate strong relative performance across strategies. At September 30, approximately 68% of rated fund assets had 4 or 5 stars and 85% were in 3, 4 or 5 star funds. We have 13 funds with AUM of $1 billion or more that were rated 4 or 5 stars, up from 8 funds a year ago, representing a diverse set of strategies from 5 different managers.

In addition to strong fund performance, as of September 30, 92% of institutional assets and 92% of retail separate account assets were beating their benchmarks on a 3-year basis. And 66% of institutional assets and 81% of retail separate account assets were outperforming their benchmarks over 5 years. Also, 87% of institutional assets were exceeding the median performance of their peer groups on the same 5-year basis.

Turning to Slide 8, asset flows. After 5 consecutive quarters of organic growth, net outflows turned modestly negative for the quarter at $0.6 billion, which included a $0.7 billion model rebalance. Net outflows were specific to open-end funds as retail separate accounts, ETFs and institutional all generated positive net flows in the quarter.

Reviewing by product, for open-end funds, net outflows were $1.5 billion due to equity strategies with fixed income, multi-asset and alternatives each delivering positive flows in the quarter. Within equities, both domestic and international generated net outflows, including the rebalance in international equity.

In retail separate accounts, net flows were $0.8 billion and continued to be positive across nearly all investment categories with an annualized organic growth rate of more than 8%. ETFs had $0.1 billion of positive net flows for the fifth consecutive quarter of organic growth. Institutional net flows of $0.1 billion were positive for the fourth consecutive quarter, again, benefiting from new mandates at multiple affiliates.

By asset class for all products, net outflows were primarily due to international equity, which turned negative in the third quarter, most notably in July and August. Domestic equity, global equity and multi-asset each continued to generate positive net flows.

Total sales were $7.6 billion down sequentially from $9.6 billion. By products, fund sales of $3.6 billion compared with $4.7 billion in the second quarter, largely due to lower equity sales, consistent with industry trends.

Retail separate account sales were down modestly to $2 billion and institutional sales of $1.8 billion decreased sequentially from $2.3 billion, which included the funding of several large new mandates.

Turning to Slide 9, investment management fees as adjusted of $190 million increased $6.8 million or 4% sequentially, reflecting 4% growth in average assets. Performance fees in the quarter of $0.6 million compared with $0.8 million in the prior quarter. The average fee rate was 42 basis points, down 0.5 basis points sequentially. Excluding performance fees, the average fee rate was 41.9 basis points and compared with 42.3 in the second quarter.

The lower fee rate reflected a higher proportion of retail separate account and institutional assets. Looking ahead, it would be reasonable to assume a fee rate in the range of 41 basis points to 43 basis points. For the fourth quarter, we would expect to be at the higher end of that range and then move to the middle of the range for 2022 after closing on Stone Harbor.

Slide 10 shows the 5-quarter trend in employment expenses. Total employment expenses, as adjusted of $86.5 million, were flat sequentially as higher profit-based incentive was offset by lower sales-based compensation. As a percentage of revenues, employment expenses were 39.7%, a decline from 41.1% due to market-driven revenue growth.

We believe that a reasonable range for modeling going forward is 41% to 43% subject to variability based on markets and sales. For the fourth quarter, we expect to be at the lower end of that range, moving to the middle of the range for 2022 upon closing the Stone Harbor transaction.

Turning to Slide 11, other operating expenses as adjusted, were $20.2 million up on a sequential basis from $19.9 million which included $0.8 million of annual grants to the Board of Directors. The sequential increase of $1.1 million, normalized for the grants, reflected growth in the business, as well as a continued modest increase in travel and related expenses.

As a percentage of revenues, other operating expenses were 9.3%, down both sequentially and from the prior year period, reflecting the leveragability of the business. Looking forward, we expect other operating expenses in a range of $22 million to $27 million with the fourth quarter at the low end of that range.

Slide 12, illustrates the trend in earnings. Operating income as adjusted of $110.1 million increased $7.2 million or 7% sequentially due to higher revenues and essentially flat operating expenses. Notably, operating income as adjusted more than doubled from the same period last year due to growth in the business, including the addition of the AllianzGI assets.

The operating margin as adjusted of 50.6% increased by 170 basis points from 48.9% in the second quarter and was up 11.3 percentage points from 39.3% in the prior year quarter.

Net income as adjusted of $9.71 per diluted share increased by $0.64 or 7% sequentially due to higher revenues from the increase in average assets under management.

Regarding GAAP results. Net income per share of $7.36 decreased 6% from $7.86 per share in the second quarter and included the following items: a $1.36 reduction, reflecting the increase in the fair value of the minority interest liability; $0.27 of realized and unrealized losses on investments; and $0.21 of acquisition and integration costs.

Slide 13, shows the trend of our capital, liquidity and select balance sheet items. On September 28, we completed the refinancing of our credit agreement with a new $275 million term loan maturing in 2028, and $175 million of revolving credit capacity through 2026. In addition to increasing the company's financial flexibility and extending the maturity profile, the refinanced credit agreement reduces borrowing costs by approximately 65 basis points at current rates.

Working capital was $345 million at September 30, up 51% sequentially due to the net proceeds from the debt refinancing, as well as cash generated by the business in excess of return of capital to shareholders. At September 30, gross debt to EBITDA was 0.7x which compared with 0.6x at June 30, and was down from 1x at September 30, 2020, due to significant growth in operating income over that period.

We generated $117 million of EBITDA in the third quarter, up 5% sequentially and 92% above the prior year level, as AUM growth from the addition of the AGI assets, market appreciation and positive net flows had meaningfully increased quarterly cash flow. We ended the quarter and a net cash position with cash exceeding gross debt by $162 million. Then, after the quarter, we made a closing payment of $135 million for the acquisition of Westchester Capital.

Additional upcoming obligations include a revenue retention payment for Westchester Capital that will be paid near year-end, the closing payment for Stone Harbor, and the first AllianzGI revenue participation payment.

During the third quarter, we repurchased 64,494 shares of common stock for $20 million above the prior quarter level of $7.5 million. We also raised our quarterly common dividend by 83% to $1.50 per share, representing the fourth consecutive annual increase.

We continue to take a balanced approach to capital management and we're pleased to return meaningfully more capital to shareholders in the third quarter, reflecting the significant growth in free cash flow over the past year.

With that, let me turn the call back over to George. George?

Thanks, Mike. We will now take your questions. Richard, will you open up the lines, please?

(Operator Instructions) We now have our first question from the line of Michael Cyprys from Morgan Stanley.

I just wanted to circle back to the model rebalancing, the $700 million figure that you had referenced, I think, in international equities. Just curious if there's any additional color you can share with us around that rebalancing, any thoughts on any potential risk as we kind of go forward from here?

And maybe you could just remind us on how much of your AUM sits in the models today? And maybe you could also talk a little bit about your broader strategy and initiatives around model portfolios?

Sure. And when we use the term model portfolios, we're generally referring to those things that are sort of home office established and decided, as opposed to just pure wholesale product. So as we sort of indicated in our comments, so the outflows included a model rebalance. It was the $0.7 billion. Again it was in the equity area. We don't have a lot of assets in that strategy still left in models.

But periodically, we see -- over periods of time, you'll see people -- home offices either making decisions to increase allocations to things or decrease allocations to things or making different decisions about what types of strategies they want to use. So generally, you will get some lumpiness as it relates to some of the model flows as opposed to the pure wholesale flows.

So we did sort of experience that in the third quarter. Again, I think as you've sort of seen in some public commentary about international and domestic in the third quarter. So, I mean, I sort of look at it that way, is that the assets that were in that model for a very long period of time. It was not a reasonable for to be rebalanced. But we don't have a lot left in those strategies in models.

And then the other thing, as we sort of indicated in our comments, the outflows in total were really in open-end mutual funds. They were in equity, primarily international equity, and was mostly really in the month of July and August. So of the $1.5-ish billion of outflows in open-end funds, only $0.1 billion of it was in the month of September. So I was really kind of very focusing on that. None of us know what the markets are going to look like in the rest of the fourth quarter. But really that July and August improved significantly in September, and we're kind of seeing the same kind of run rate so far in the month of October.

And then just a follow-up question maybe just on the Westchester deal that had closed. Just an update on how the integration is progressing and how are you thinking about the opportunity to accelerate growth at that property, whether it's around new product introductions and also some distribution synergies going on both sides in terms of distribution relationships at Westchester that could help accelerate growth of your existing products at Virtus and vice versa to help them grow faster at Westchester as well?

Well, we're very excited to have closed that transaction. It's a great firm, great strategy, great legacy, good culture and they've done an incredible job. As a smaller boutique, they've raised assets really just through the strength and the quality of their investment process. And while they certainly have great support in terms of their own marketing and distribution, I think we really are going to bring another element to the table for them to allow a product that I would describe as speaking for itself to have a lot more voices telling that story.

So I think we will look forward to not only sort of amplifying their availability throughout the retail channel, I think there's a lot of other opportunities to leverage their strategy possibly in other product structures. So, we closed on October 1. I think the integration went -- so far has gone incredibly well. A lot of thought and planning was put into that. So we're really now focused on the next step which is, how do we maximize their opportunity set, and how do we grow them. And as I noted in the comments, they were positive even pre-close, and we continue to see organic growth since the close, even though it's only been a couple of weeks.

And I think I'd just maybe sneak another one in here. Just a question on SMAs where you've had a lot of strength and traction on flows. I was just hoping you maybe could give us a sense of just what that underlying product looks like that you're selling into the SMAs from like a strategy standpoint, what are some of the bigger ones? And what would be the opportunity to bring other products into the SMA wrapper as you kind of lookout over the next year or 2 products, and maybe including strategies from Stone Harbor, Westchester, AGI, et cetera. How are you thinking about broadening out the product set within the SMA wrapper?

Yes, so we really do believe that the retail separate account structure is a great structure for investors. We have been in retail separate accounts actually since our -- probably our initial creation back in the mid-90s, where we've always been in the retail separate business. A lot of the growth that we have seen over the last few years has been in more of the equity product, either in the quality equity, growth equity, small-cap equities, mid-cap.

But we absolutely do have other of our managers and capabilities on the value side, even on the fixed income side, available in retail separate accounts. So a lot of the growth and the continued strength in that has been driven more on the equity side. But we have a large number of other strategies and we continue to see that as an area of growth for us, and an area where we have a lot of experience in selling that products.

Richard, can we take the next question, please?

Our next question is from the line of Sumeet Mody from Piper Sandler.

Just sticking with the SMA business. Just noticed the fee rates kind of crept down over the last couple of years. Just wondering if you could talk about the drivers of that trend and how we should think about that kind of moving forward from here?

Sure, I mean I think like a lot of active investment strategies, there is always a little bit of pressure on fees. Most of the strategies that I sort of resided in answer to the previous question are more capacity constrained, so they're generally higher fees. And if you sort of look at that business there's really kind of 2 components. That's kind of like managers traded or model provided to the intermediary, so we do both.

But if you actually sort of look through the industry trends, you've seen much more of a growth in the, what they call "model only" as opposed to the managers traded. So we have seen some more of the model only coming on as well. But, I think, that fee rate is going to be moving more by asset levels of market. Mike, anything else?

Yes, I think that's right. I mean it's been in that 44 basis points or 45 basis point range over the last 4 or 5 quarters and I think that level will be dependent on the market dynamic.

Yes.

So I think the current level is an appropriate one as we think about looking forward.

And then on the institutional pipeline, can you just update the kind of one but not yet funded mandate pipeline, and kind of what you're seeing today, where that demand has been concentrated? Just a little bit color around that.

Sure. I think in our comments we sort of said the pipeline is generally looking consistent with what we've seen. But generally we've spoken about multiple affiliates and multiple strategies. Mike, any color?

Yes, I think that's right. And we talked about it over the entire -- looking at it over the last year where we've been positive flows in that period of time. Any given quarter it can be a bit lumpy. But I think as we look out, we see known wins, not yet funded, sort of exceeding what we know on redemptions, but that could be impacted in any given quarter. And the strength that we talk about comes from multiple of our affiliates.

So the traction that we're seeing is from multiple affiliates. We continue to win mandates and be considered for more mandates across affiliates and across strategies. So that gives us the optimism that some of the traction we've seen over the last year, 1.5 year can continue. But, again, it is a lumpy business and in any given quarter can shift a bit. But, generally speaking, we're pleased with that pipeline dynamic right now.

Yes, the other element and it showed itself last quarter is some of the non-U.S. growth, right. So that we've been focused on trying to grow our client base outside of the U.S. and several of our affiliates have -- we've been very fortunate to be able to be bringing in some of the non-U.S. mandates. We continue to see that as an area of growth, I think. In the last quarter, when we commented about one of the many things we find attractive about Stone Harbor, is that will also, we think be additive to us in terms of our ability to make our offerings available to non-U.S. clients, where I think we have a much bigger opportunity set, because we haven't traditionally had all of our managers being represented in the offshore, in those markets. So very excited about that and see that potentially as a whole -- as a good growth area.

And then, I noticed you guys decided not to pay down any debt in the quarter, focused capital more towards repurchases, and kind of presumably the Westchester closing. So given the float and lower debt levels, can you give us an update on how you're thinking about capital priorities going forward? And I know you guys want to remain balanced, but. And kind of along those lines, on the M&A front, now that you have 2 of the 3 deals closed this year, what does the pipeline look like today? How are conversations going with potential -- maybe future targets in the market? And how are you guys thinking about inorganic growth from here?

Okay, Sumeet this is Mike. I'll start and address some of the capital components of your question and turn it over to George to touch on the M&A conversations. From a capital standpoint, we were pleased this quarter, at the end of the quarter on September 28 to be in a position to refinance our term loan, extend the maturities, bring the borrowing cost down given current LIBOR rates, and increase the flexibility position as well for the closing payment for Westchester and the upcoming obligations.

And, I guess, in that period that we are refinancing, we wouldn't anticipate paying down debt. We'll continue our balanced approach, which we were pleased to pick up the share repurchases this quarter, up to $20 million from $7.5 million, and increase the dividend. So really address returning meaningful levels of capital to shareholders. We are pleased to also have that balance sheet and financial flexibility to invest in the business and continue to grow the business.

So, I don't think I've read into any longer-term shifts in our balanced approach to capital management, more of a timing in terms of this is the period we refinanced, extended the maturity where the revolver was coming due in less than 12 months, so we reset that to be maturing in 2026. The term loan was coming due in less than 3 years, so we reset that for 2028. So, none of that impacts the balanced approach that we would expect to continue to implement just more in terms of timing with executing that refinancing. So George?

Yes, and on the M&A question, so as we always say, we think it's really important that our long term growth strategy and value creation strategy is not dependent on M&A, so we focus on that organic growth and then increase of distribution of existing products and creation of new product. That being said, as you've noted, we literally have just done 3 transactions in a 12-month period. So we are structurally very focused on that activity.

We continue to be very active in that area. We see lots of things. Again, I think as we've commented before, for us it would have to be very strategic and fit in -- either in terms of the product diversification or other strategic elements. So, again, I continue to think the activity out in the M&A market continues to be quite robust and that's just not for our sector, I think it's for a lot of sectors. But, again, we will only do things that make a lot of sense for us in terms of moving us forward on our growth plans.

And just last one here on the CLO front. Is there any kind of open warehouses or anything to kind of look at over the next few quarters that you guys are kind of keeping your eye on in that way?

Yes, Sumeet, obviously we've been active at our leverage finance teams in the CLO market, both in existing transactions to be in a position to refinance or reset those. Given the current outlook in the market, we were able to recently extend one of our CLOs through a refinancing. And our team do stay close to the market, it's a product structure and a capability that we think is compelling, and we'll stay close to it.

I think at this time, there is nothing specific to report. But we believe the market characteristics are compelling and we'll stay close to it. And if we think it's a good use of shareholder capital, we would consider it.

We have a follow-up question from Michael Cyprys of Morgan Stanley.

Just wanted to dig in on a few other points. Maybe just starting with the CLOs. We've seen a number of firms across the industry raise new CLOs and do some restructurings. It sounds like you guys are doing some on the restructuring side at Virtus. But just curious what's holding Virtus back from participating in new CLOs, where we're seeing others across the industry raise a significant amount of capital?

Yes, I think there are 2 elements to it. We've got approximately 11 structured products and about $4 billion of assets under management in that product category. And we look at both sides of it. One is resetting or refinancing the existing book and we completed one of those -- actually post the quarter in -- earlier in October, which extends the maturity and the reinvestment period at Seix and the team there does stay close to the market.

I think our last new issuance was a little over a year ago and the cadence has been anywhere from 12 to 18 months. So I'd expect we'd stay close to that. And again, it's an area that we have the capabilities and we are certainly willing and demonstrated in the past to support our teams if we think the capital is appropriate and the opportunity is meaningful.

And then just coming back to the capital management theme, we saw that the large dividend increase back in August. So just hoping you could maybe clarify or elaborate a bit more, and how you're thinking about what is the right dividend payout ratio for Virtus today? How do you think about that longer term? Clearly, you have the cash flows to support a higher dividend payout ratio. So I guess what holds you back?

Yes. Well, I think you've seen a progression for us on that, right. So we've had 4 annual consecutive increases in our dividend. They have been reflective of underlying growth in the business. So the substantive change year-over-year led -- obviously, the one we recently announced being the most significant, really just reflective of an EBITDA and a cash flow generation that has significantly grown, and in some instances has almost doubled, depending on what periods you look at.

So we do think -- we do think that the dividend is important part of our return of capital strategy and the dependability and the reliability of that, and expectations of growth in that going forward. But we also balance that with the stock repurchases. And as you saw in this quarter when we saw an opportunity, look at how our stock is trading, we will use some of that free cash flow to buy in the market.

So we have done that frequently over years and we will continue to use that as a tool combined with that. And we sort of look at the payout ratio relative to peers, and again, we think we've manage that within growing the business. Because you've asked question about CLOs which takes investments of capital. No, you didn't ask -- no one asked about closed-end funds, so closed-end funds is another good thing.

So there's a lot of other areas of investing in growth in the business. So we want to balance all of those things, because we think in combination of balancing them over the longer period of time is the better -- is the best way to create value for shareholders.

And since you mentioned closed-end funds, I do need to ask just, because we are seeing others across the industry taking on the P&L, the issuance cost for a closed-end fund reopening that marketplace has been successful in another shops. Is that something you guys are considering? Well, how do you think about that making sense for Virtus? And if you were to re-enter that marketplace with new issuance, would you be putting through the issuance cost through the P&L as we've seen with some others?

Well, I'll speak to the opportunity set and then Mike address the accounting side of it. But we're a big fan of closed-end funds. Currently have about $11-ish billion of closed-end funds across multiple affiliates. We think it is a great structure for retail our investors and non-retail investors, in fact. As noted, though, it's been gotten -- it's got very busy out there. A lot of the underwriters are very busy putting out closed-end funds.

We have several managers with attractive strategies. We've actually developed and actually probably have a filing out there on the fund that we've offered. So we're very excited about that product structure, and are in active dialogs with underwriters. But, unfortunately, they're also in active dialog with a lot of other people. So we continue to think that's a great opportunity and several of our managers have very attractive strategies. Mike on the...

And I think just -- Michael, you kind of hit on it, the way the accounting works. Although, in certain instances the closed-end fund structures could be 7 to 10 years, or in certain cases, they can be indefinite [life], just the accounting requires the charge for the structuring cost to be absorbed in the period that they're issued.

So we'll follow that accounting. But the way we look at it, it's usually very compelling use of the capital required to set up one of the vehicle. So, we'll call it out to ensure that the investment community is well aware of what that expense and investment went to create, which we think is a very good use of shareholder capital.

And just one last one if I could. Just coming back to M&A, it sounds like the bar maybe is going higher for you guys at this point. Just what could make sense as you kind of look out over the next year or 2? What sort of gaps or whitespace remain that could be filled in through M&A? It sounds like it needs to move forward on your growth plans. But maybe you could just elaborate on what that could be?

Yes, and I don't know whether relatively it's was just higher, but it may move to the right or the left and to right. Because we have evolved as a company, so what was of highest value to us 5, 7, 8, 2, 3 years ago may not be the same thing as it is today, I think. But consistent with what we've always said is, we continue to think that adding differentiated investment strategies and firms is a value to us.

We have a very good coverage on the traditional active management side. I think there is great opportunities in more of the non-traditional and the less liquid, less correlated strategy. So Westchester will increase our exposure to non-correlated strategies. We continue to think that's an area for us.

And then just other product structures, and I've commented earlier about, we continue to think that diversifying our business outside of the U.S. in terms of client base continues to be attractive to us. So we look at all those things organic. So it could be something that's specific to a product capability, specific to a product capability that is not a daily liquid type of strategy, as well as opportunities to non-U.S. Or again anything that's going to help us move our business forward and continue to generate organic growth.

This concludes our question-and-answer session. I would now like to turn the conference back over to Mr. Aylward. Please go ahead.

Great. And I want to thank everyone today for joining us. And, obviously, I certainly encourage you to give us call, send a note if you have any other further questions. Enjoy the rest of your day.

That concludes today's call. Thank you for participating. You may now disconnect.