Virtus Investment Partners Inc (VRTS) 2012 Q1 法說會逐字稿

Good morning. My name is Marie and I will 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. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer period and instructions will follow at that time. I will now turn the conference to your host, Joe Fazzino.

Thank you, Marie. On behalf of Virtus Investment Partners, I would like to welcome you this morning to the discussion of our operating and financial results for the first quarter of 2012. Before we begin, I direct your attention to the important disclosures on page two 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.

These forward-looking statements are not statements of facts or guarantees of future performance and are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those discussed in the statements. These statements may be identified by such words as expect, anticipate, believe, outlook, may, and similar terms.

For a discussion of these risks and uncertainties, please see the Risk Factors and Management Discussion and Analysis sections of our periodic reports that are filed with the SEC as well as our other recent filings, which are available in the Investor Relations section of our website, www.virtus.com.

In addition to results presented on a GAAP basis, Virtus uses certain non-GAAP measures to evaluate its financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our earnings press release, which is available on our website.

For this call, we have a presentation, including an appendix that is accessible with the webcast through the Investor Relations section of our website. This morning's call will begin with remarks from President and Chief Executive Officer, George Aylward, who will review our accomplishments and operating results for the quarter, including investment performance of our mutual funds. Mike Angerthal, Executive Vice President and Chief Financial Officer, will then discuss our financial results in further detail. And we will conclude by opening the call to your questions. Now, I would like to turn the call over to George Aylward. George?

Good morning, everyone, and thank you for joining our call today. Mike and I look forward to reviewing our results for the quarter and taking your questions this morning. As Joe indicated, I want to start by discussing some of our accomplishments and then reviewing the financial highlights. Mike will give you some addition insight into the financial results and review some balance sheet and capital items. And I will conclude with some additional perspective on the quarter and our opportunities ahead.

We are pleased to report another very strong quarter of operating results in the start of what could be a very successful year. We have record sales, net flows and profitability, and continue to execute on significant initiatives that position us for further growth.

Let's start with some of our significant accomplishments in the quarter. First, we had total sales of $3.5 billion, a sequential increase of 34% over the very strong sales in the fourth quarter of 2011. The financial markets were generally strong during the quarter and we benefited as investors were willing to invest in riskier asset classes.

We also had positive net flows of $1.9 billion, which is significantly higher than the prior quarters and represented an annualized organic growth rate of 22%. Sales and flows included the raise from our eighth closed-end fund. Operating income, as adjusted, increased to our highest level yet, $16 million.

In addition to solid financial results, we completed several initiatives that we expect will contribute to continued growth of our business. The most important item was the launch of the Virtus Global Multi-Sector Income Closed-End Fund, which ended the quarter with $274 million of assets following its IPO and the addition of financial leverage.

The launch of the fund, which is managed by the Newfleet multi-sector team demonstrates our ability to generate flows in existing investment strategies. It also shows that we have the distribution capacity to successfully launch a closed-end fund while still maintaining a very high level of open-end mutual fund sales.

The second initiatives was the expansion of distribution resources. We established a dedicated team to focus on the independent and RIA channels, which represent the fastest growing segment of the financial intermediary market. The addition of this team allows our other wholesalers to focus on [FAAs] at the national [wirehouses].

Although the initiative has just started, the initial results are encouraging. In the quarter, fund sales through the independent and RIA channel increased 54% from the prior year, while wirehouses increased 21%. We also added sales resources at Duff &Phelps and Kayne Anderson Rudnick to support our affiliate-centric institutional sales approach that puts more emphasis on the distinctive investment strategies of each manager. In both cases, these new sales resources are important investments to help us maintain the growth and diversity of our business.

As you look at the financial results this quarter, I'll repeat what I have now said on several previous calls. Our strong relative investment performance and effective sales efforts, coupled with the depth and breadth of our investment strategies, translated into another quarter of record sales and net flows and operating earnings.

Total sales in the quarter of was $3.5 billion, an increase of 35% from the first quarter of 2011. Sales [which have been] primarily by long-term open-end mutual funds, but we also had sequential growth in all our product areas, including our best quarter for separately managed accounts. Increased interest in small cap strategies contributed to higher sales in both SMAs and institutional. Positive net flows of $1.9 billion increased 40% from the first quarter of 2011. The increase was driven by the very high level of fund flows, the raise for the closed-end fund, and the increase in SMA flows.

Total sales and flows include the initial net raise of $205 million from the Virtus Global Multi-Sector Closed-End Fund. In April, we exercised the over-allotment option, which added about $10 million in assets. And after employing leverage, the fund assets were approximately $300 million at April 30. Long-term open-end mutual funds continue to be the key to our growth and our ability to offer investment solutions that are attractive to investors in a changing market environment continues to support our flows.

In the first quarter, sales were $2.9 billion, with strong sales in several different strategies, including taxable bond funds, international equity, and domestic equity funds. We also had strong demand with small cap strategies managed by Kayne Anderson and Duff & Phelps' REIT strategies, which was up 92% on a sequential basis.

Mutual fund net flows were $1.7 billion in the quarter and 24 of 40 funds, or 60% of our funds, were in positive flows for the quarter. With this level of net flows and with a lower mutual fund redemption rate, we had a very strong 40% organic growth rate, which remains among the highest in the industry.

The cumulative effect of our strong positive net flows has increased revenue and led to growth in operating income, as adjusted, and the related margin. We delivered operating income, as adjusted, of $16 million in the first quarter. This was an increase of 130%, from $7 million in the first quarter of 2011, and an increase of 18% on a sequential basis.

In addition to higher revenue from our growing asset base, we also benefited from a full quarter of the Virtus Total Return Closed-End Fund that we adopted in December, the February introduction of the Virtus Global Multi-Sector Fund, and the ongoing impact of last year's internalization of the multi-sector team.

The increase in operating income, as adjusted, over the fourth quarter of 2011 occurred despite $1.7 million of higher payroll taxes related to the payment of annual incentive compensation in the quarter. Our operating margin, as adjusted, increased to 34% in the first quarter, compared with 21% in the first quarter of 2011 and 32% in the fourth quarter.

As with operating earnings, the margin expansion reflects the cumulative impact of positive net flows and market appreciation as well as our growth initiatives. We continue to increase margin even with our robust top-line growth and investment in other initiatives.

Before I ask Mike to provide more detail on the financial results, I want to review investment performance and the impact on our sales. We remain pleased with our mutual fund performance, which is a key element of the sales and asset growth. As you see on this chart, we have maintained consistently strong relative investment performance. Seventeen of our rated funds, or 83% of open-end mutual fund assets, are in four and five-star funds and 96% of fund assets are three to five-star funds.

We have top rated funds in five of the nine traditional Morningstar equity style boxes as well as taxable and non-taxable fixed income categories and international equity. Strong performance (technical difficulty) in the first quarter of 74% of long-term open-end mutual fund sales were in highly rated funds. The strength of fund performance combined with our product breadth and distribution reach is the basis for our sustained growth in the mutual fund business. With that, let me ask Mike to review our financial results in more detail. Mike?

Thank you, George, and good morning, everyone. The first quarter was a very strong start to the year, and this morning I'll provide some additional perspective on how we achieved these results. Let's start with operating income, as adjusted. We delivered increased operating income, as adjusted, as a result of the cumulative benefit of positive net flows, market appreciation, and the successful completion of growth initiatives.

As a reminder, operating income, as adjusted, is a non-GAAP measure management uses to illustrate the ongoing earnings of the Company. These measures are not substitutes for GAAP and should be read in conjunction with the GAAP results.

In the first quarter, operating income, as adjusted, was $16 million, an increase of 18% from $13.6 million in the fourth quarter of 2011 and a year-over-year increase of 130%. Operating margin, as adjusted, grew to 34%, representing a sequential increase of 190 basis points and an increase of 1,260 basis points from the prior-year quarter.

The significant increase from the prior year reflects the incremental earnings from the successful growth initiatives, specifically the three new closed-end funds and the internalization of the Newfleet team. This quarter, slightly more than 50% of the incremental revenue fell to the bottom line, which is within the range of the capture ratio that we expect and consistent with the levels we have discussed in the past.

When evaluating our capture ratio and, ultimately, our margin, I would point out that the results include $1.7 million of payroll taxes related to annual incentive compensation payments made this quarter. The higher payroll taxes, which occur in the first quarter each year, reduced our margin by approximately 350 basis points.

Concerning the GAAP result, net income increased to $5.5 million, or $0.68 per fully diluted common share, compared with $4.3 million, or $0.43 per share, in the first quarter of 2011. Net income includes $2.7 million of after-tax costs related to the fund launch. Excluding this item, results would have been $8.2 million, or $1.02 per fully diluted common share, or 87% higher than the prior year.

As a reminder, in previous reporting periods, our quarterly tax expense on our income statement primarily reflected cash state tax obligation because substantially all of the deferred tax expense was offset by the valuation allowance we maintained against our deferred tax assets.

In the fourth quarter, we released a substantial portion of that valuation allowance, so this is the first quarter where the Company's effective tax rate is more in line with the statutory tax rate of 40%. The vast majority of any current tax obligation will continue to be offset by using our deferred tax assets as there was no economic change due to this accounting. Said another way, of the 40% tax rate, 38.6% is offset by use of deferred tax assets and 1.4% represents our expected cash tax liability.

Let me discuss the key drivers of our growth, beginning with assets under management. We ended the quarter with total assets of $38 billion, which was $6.1 billion, or 19%, higher than a year earlier and $3.4 billion, or 10% higher on a sequential basis. The sequential increase in AUM was split between $2.2 billion in market appreciation and $1.9 billion from net flows.

Long-term assets are up 13% on a sequential basis and grew by 27% over the past year to $36.2 billion at March 31. As a result of the positive net flows into equity strategies and market appreciation, equity assets are nearly 58% of the total portfolio, an increase of 280 basis points from the prior quarter. The growing percentage of equity assets has a positive impact on our average net fee rates and investment management fees.

Cash management assets declined during the quarter and continue to represent a smaller portion of total AUM, or less than 5% of our portfolio. With the addition of the VGI Fund in February, we had $6 billion of closed-end fund assets at the end of the quarter, an increase of 33% over the past year as a result of the two successful IPOs, the adoption of the Virtus Total Return Fund in December, and a rights offering for the Zweig Total Return Fund that was completed in the first quarter of 2011.

Slide 11 shows the quarterly trend of the strong sales and net asset flows for the past five quarters. We had our best quarter as a public Company in both total and mutual fund sales and net flows. Total sales of $3.5 billion in the quarter were up 34% on a sequential basis and 35% year-over-year, driven by open-end mutual fund sales. Total net flows were $1.9 billion, and represent an overall organic growth rate of 22%, our highest rate for the past three years.

In addition to the strong sales, we benefited from an overall redemption rate of 19.1%, which was a sequential decrease of 300 basis points. Sales of long-term open-end funds were $2.9 billion, an increase of 22% on a sequential basis and 29% year-over-year. We maintained a very high annualized sales rate of 69% for our open-end fund; that was an increase of 610 basis points over the prior quarter. Net flows were $1.7 billion and the organic growth rate for our fund complex was 40% in the quarter.

Total sales included sequential growth in each of the product categories. For example, SMA sales were $308 million in the quarter, an increase of 45% from the first quarter of 2011, with positive net flows of $55.7 million; these flows were generated primarily at Kayne Anderson Rudnick. Kayne also generated approximately $75 million of the $102 million of new institutional sales in the quarter; again, a reflection of their strong investment performance.

I do want to mention an expected change in structured products in the second quarter. One of the remaining CLOs, which has finite terms, is expected to liquidate by the end of the second quarter, so you could expect to see a $350 million change in institutional AUM next quarter. The annual run rate revenue related to this CLO is approximately $1.6 million.

Turning to revenues, investment management fees increased to $41.8 million in the first quarter, up 11% on a sequential basis and 45% from the first quarter of last year. The two key drivers of higher investment management fees are average long-term assets under management and net fee rates.

Average long-term AUM for the quarter was $34.2 billion, or an increase of 9% from the prior quarter, led by strong net flows and the benefit of generally favorable markets. This contributed $3.5 million of the $4.1 million sequential increase. The higher blended net fee rate, which increased to 46.4 basis points from 43.8 bps in the prior quarter, contributed the remaining $0.6 million of the sequential increase.

Over the past year, the fee rate on long-term open-end funds has increased by more than nine basis points. This primarily reflects a 7.5 basis points benefit to the open-end fund fee rate as a result of the Newfleet transition where we now realize the full fee on more than $6 billion of mutual fund assets. Finally, the significant increase in open-end fund assets has led to lower fund expense reimbursement levels, which are netted against management fees, also contributing to the higher fee rate.

Turning to expenses. I'll start with employment expenses, which were $26.3 million in the quarter, up sequentially from $24.4 million and from $19.6 million in the first quarter of 2011. In order to provide a clear comparison of employment expenses, we've identified several items of note with the dotted box at the top of the columns. These items are related to the Newfleet multi-sector team internalization and closed-end fund sales compensation costs.

The increase from the first quarter of the prior year reflects several items we've discussed -- transitional and ongoing costs related to the Newfleet team; the increase in variable incentive compensation plans, which reflect higher profitability of the Company over the prior year; the incremental payroll taxes related to annual incentive compensation payments; and sales costs incurred in connection with the launch of the closed-end fund.

Total employment expenses as a percentage of revenues, as adjusted, has improved sequentially by 170 basis points to 55.5%. However, when employment expenses are adjusted for the growth initiatives and for the payroll taxes related to the payment of annual incentive compensation, the quarterly result would be approximately 49% of revenues, as adjusted. This is an important benchmark to move below 50% for the first time and within industry averages. This further demonstrates the increasing profitability of the Company.

Other operating expenses have remained at a relatively stable level, even as we've grown the business substantially. In the first quarter, other operating expenses were $7.9 million, compared with $7.4 million in the prior quarter. This includes approximately $0.2 million related to unreimbursed offering costs for the closed-end fund this quarter.

As with employment expenses, the resulting other operating expenses to revenue metric continues to demonstrate a very favorable trend. On a sequential basis, the metric was down by 80 basis points to 16.6%. And when adjusting for the offering costs, was at 16%, within our targeted levels.

Finally, I want to review the highlights of the balance sheet, including the impact of our various initiatives, our working capital position, and our capital structure. There's a substantial amount of data on this table, so let me focus on a few items. First, the top rows show that the cash on hand at the end of the quarter is down by 27% from the prior quarter, reflecting the impact of our investment in growth initiatives and other uses of cash in the quarter, including the tax payments related to annual incentive compensation and the repurchase of RSUs to satisfy tax withholding.

Also significant is that cash as a percentage of annualized spend was at 15% at the end of the quarter, or the lowest rate since we became a public Company. This is also in the low end of industry averages, which tends to be closer to 60% of annual spend.

While working capital is up year-over-year as we have grown earnings, it has declined as a percentage of annualized operating expenses and remains at the lower end of industry average, which tend to be closer to 100% of annual spend. We will continue to assess our level of working capital and position the balance sheet for efficiency and flexibility -- two goals that have been important since our spin and remain important as we continue to grow the business.

Working capital during the quarter was impacted by two areas that are important to highlight. The first is the investments we made in business initiatives, including the $4.5 million we deployed this quarter to launch the VGI Fund. And the second items is $2 million of cash deployed during the quarter to satisfy employee tax withholding obligations to net settle restricted stock units divested.

We used an additional $9.1 million subsequent to the quarter-end in April to net settle the vesting of the initial equity grants made in 2009. In total, the net share settlements resulted in the repurchasing of 139,000 restricted stock units that otherwise would have been issued as common shares.

Let me take a moment to expand on the share count. Basic shares outstanding at the end of the quarter were 7.6 million, a sequential increase of 1.4 million shares relating to the conversion of BMO's preferred shares. Although the conversion increased basic common shares outstanding by 1.3 million, there was no economic dilution to common shareholders as the preferred shareholders' equity ownership level of 22% remained unchanged. We expect the basic shares outstanding to be approximately 7.8 million at April 30, reflecting 181,000 net additional shares related to the initial equity grant.

I want to mention two other items. First, in terms of our $15 million debt outstanding, this obligation becomes a current liability during the third quarter of this year, so addressing this facility is a near-term priority for our capital structure. Also, as we discussed in the release, we recorded a quarterly tax expense of $3.6 million, but we offset the majority of the federal tax obligations by utilizing $3.5 million of our deferred tax assets.

At the end of the quarter, we had $120.2 million of net deferred tax assets on our balance sheet. These tax attributes will allow us to continue to offset federal income taxes and retain a substantial portion of the cash flow we generate. With that, let me turn the call back over to George.

Thanks, Mike. Before we take your questions, I wanted to summarize a few key takeaways from the quarter and provide some thoughts on opportunities going forward.

The strong results for the quarter follow a trend of continued and progressive growth in sales and profitability since we became an independent Company. Our achievements over the past few years are the direct result of the strengths of the business -- our flexible model, our breadth of product, and our strong distribution capabilities.

They also reflect the effective execution of select and thoughtful initiatives designed to dramatically increase our growth opportunities. We started down the path three years ago with a clear vision and strategy for the Company, and that has continued as our focus.

We moved from taking foundational actions to identifying and pursuing select growth opportunities. Now with the success that we've had over the past years, our opportunity set to take advantage of our existing business strengths have significantly increased. In some ways, we have more opportunities than we can possibly take advantage of, and that's a high-class problem and we are very grateful for it. We are determined to do everything we can to make sure we are positioned and prepared to take advantage of those opportunities.

All of us here at Virtus believe we are only in the early stages and we describe our achievement as a good start. We are all looking forward to the next phase. And with that, we'll take some questions. We ask that you limit your questions to two at a time as a courtesy to your fellow listeners on the call who want to pose questions. If you have more questions, please feel free to get back in the queue. Marie, can you open it up, please?

Thank you.

(Operator Instructions)

And we have our first question, and it comes from the line of Michael Kim from Sandler O'Neill. Please, go ahead.

Hey, guys. Good morning.

Hi, Mike.

First question, I know you talked about sort of the pick-up in sales in the RIA channel, but how are you thinking about continuing to broaden your distribution footprint going forward? And then, maybe any update on leveraging your performance across non-US markets, perhaps to be a partnership with a firm that has sort of existing overseas distribution capabilities?

Sure. In terms of the breadth of our distribution access, we currently have -- again, we believe one of our greatest strengths is the breadth of the access. We have over 1,500 selling agreements and basically do business in every firm. But we are a smaller firm, so we have a smaller sales force. And a lot of our growth in the last few years has been by being very successful and getting great penetration in the wirehouses. And for us, it's really a calculation of where is the highest probabilities of successes? And with the strength that we've had, we've had a lot of success there.

And it was late last year and the beginning of this year when we made the decision to set up the separate sales force to have a more dedicated focus outside of the wirehouses in the independents and RIAs where we've always participated and always had very good flows but wanted to have the distinct sales force that would really focus on their needs, which there's some differences between the financial advisors in each of those types of firms.

So essentially, we have very good access and have the ability to sell in multiple firms. We've been very judicious in terms of our sales force. I think we've generally had one of the highest productivity wholesaler rates I the industry. We just recently made the expansion because we wanted to have the dedicated focus where we see an incredible opportunity in terms of continuing to not only increase the penetration in the wirehouses, but to get the same kind of penetration in some of the independents as well as in the RIAs.

In terms of outside of the US, obviously, as we think long-term that will be an area that will have to be considered. I think right now our priority and focus really has been on the domestic, the US opportunity set, just because we still believe there is an incredible opportunity for us here. As we look outside the US, though, we would be very thoughtful in terms of doing it in a way that makes sense.

And generally, people do it either by investing and building it themselves or by partnering with others. And I guess essentially a fundamental basis of our model is partnering, so we would certainly be looking at those types of opportunities as we look forward. But right now, we see still the incredible opportunities here in the US and are very focused in on those in the short-term.

Okay. And then maybe just a question for Mike. Your adjusted operating margin looks pretty competitive, even as you sort of continue to deal with up-front costs related to the strong sales. So assuming the sales stream normalizing over time, what kind of margins do you think you can deliver? And then, on the flipside, would you maybe start to think about reinvesting a bit more to deploy some of that free cash flow, if you will?

Thanks for the question. The margins -- we talked about two things for this quarter's margin, and we agree that moving into the mid 30s is a good testament as we're moving within the industry averages, especially as you consider our business model where we're a multi-manager model and the way we distribute, so you have to take that into consideration as you think about our margin.

This quarter had the effect of the payroll items, the annual incentive payments made for approximately $1.7 million. I think I noted it had the effect of 350 basis points all else being equal on the quarterly margin, which would move us squarely into the upper or mid 30s.

And as you think about the sales stream, I think we certainly had incremental sales costs on both a sequential basis and on a year-over-year basis, so that is something that's normalizing as we look at the incremental revenue that we're getting in the quarter from those sales.

We also look at that as our sales rate, which was 69% in the quarter, has been significantly above industry averages when we look at our margin. So when we say we were just selling at an industry average rate, that could potentially have an effect of approximately another 150 to 200 basis points on the margin.

So we're focused and continue to focus on growth, and I think redeploying the capital, to your point, we've invested in additional wholesalers [and feed on the street] and the independent RIA channel, and we'll continue to be judicious about opportunities in distribution. We had some announcements this quarter about institutional sales resources that have been added, so it's a real strong focus that we have and we'll continue to look at all of those areas as we look forward.

Okay. Thanks for taking my questions.

Thanks, Mike.

Thank you.

Okay, thank you. And our next question comes from the line of Stephen White from RMB Capital. Please, go ahead.

Hi, guys. How are you?

Good morning, Steve.

Hi, Steve.

Okay, so first question is, can you just confirm how many shares cumulatively have been repurchased under the current plan?

Sure. The way we think about the share repurchase is in two elements. What we've really repurchased in the open market under the share repurchase program that we announced, which was a 350,000 share repurchase program. So under that program, we've purchased 155,000 shares to date. And then we've talked this quarter about the net settlement of the RSU, which happened during the first quarter and then in April, and I'll add the April grant because that's the larger one. That was approximately 139,000 units that were repurchased.

So when you look at the 155,000 plus the 139,000, that's approximately 4% of the total outstanding shares that we've repurchased when you look at basic outstanding shares at the end of the first quarter.

Okay. But then, just to confirm, that there's about 200,000 shares left under the open market buyback, correct?

Yes. It was 350 less 155, so that's 195,000.

Right.

[Then that settlement of] RSUs don't go against the program.

That's right.

Okay, just wanted to make sure. Let's see, the redemption rate for open-ended funds, it looks like it's been ticking down the last couple of quarters. I guess do you have any expectations on where do you think that settles out or how are you guys looking at that going forward?

When you look at the redemption rates, there's two things --. When you look at it, you not only look at it from us from comparable periods, but it's really in the backdrop of what's going on in the industry. Generally, the mutual fund industry will sort of move in a certain way in terms of sales rates as well as redemption rates, right? So we're always looking at it in terms of how do we compare, like on the [ICI] kind of data.

And for us, as you look at our rates, and I've pointed it out a couple of times, we have very strong performance, right? So generally, if you have strong performance you will have a lower rate of redemptions all else being equal.

The other thing is we're selling a lot of new products. And if you sort of think about the life cycle of a fund, your first sale, the next day you're not going to have any redemptions. And generally, it'll take a while for a fund to get [them]. So you could have like us, an alpha sector kind of a fund, which is a very large fund; we have raised a lot of assets within a short period of time.

People generally don't redeem in the first year or the second year. I think if you look at ICI averages, you can get average lives of funds between 2.5 to 3.5 years, and in certain channels it's double that and in some channels it's shorter. So you have to sort of think about what's going into the market, how is our performance going, and what is the composition of sales in terms of mature --.

Redemptions, basically, are very low in the early life of a fund, then they get to industry average. And then it's usually really when they're really old and they're no longer selling a lot where you actually have lower redemption rates because the people that are in there are obviously in there for the long haul. So you have to think about those.

Our goal, as it is with everything, is to try to be better than industry average, and I think we've been very pleased with our sales rates as well as our redemption rates in the context of the type of product we offer and how we're looking.

Okay. Do you see a lot of correlation with the redemption rate and market volatility? Because your redemption rate was extraordinarily low prior to the third quarter of last year. And then Q3 of last year was (inaudible - background noise) for the markets, and that's when it first picked up and it's been coming down since. I guess what I'm wondering is if you saw another period of high volatility would you expect the redemption rate to move back up?

You would. I would expect that in the industry I think the industry will have higher redemptions in volatile periods, but then you have to go one step down in terms of what's going on with domestic equity, international equity as well as fixed income. And I think in several quarters, those are sometimes the more important drivers. It's not necessarily the overall volatility of the market, but how are people feeling about different asset classes and different strategies. So all those things will come -- all things being equal, if there is more volatility you will see increased redemptions.

Great. All right. Thanks, guys.

Okay, thank you.

Thank you.

(Operator Instructions)

Okay, George, I'd now like to hand back to you.

All right. Well, I want to thank everyone for joining us this morning and we certainly encourage you to call us if you have any additional questions. Thank you very much.

Thank you, ladies and gentlemen. That concludes the conference call for this morning. Thank you for joining us and you may now all disconnect.