Virtus Investment Partners Inc (VRTS) 2012 Q2 法說會逐字稿

Good morning. My name is Jeff, and I'll be your conference operator today. I would like to welcome everyone to the Virtus Investments Partners Quarterly Conference Call. The slide presentation for this call is available in the Investor Relation Section on 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 over to your host, Mr. Joe Fazzino. You have the floor Mr. Fazzino.

Thank you, Jeff. On behalf of Virtus Investments Partners, I would like to welcome you this morning to the discussion of our operating and financial results for the second quarter of 2012.

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.

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 discussions 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 Relation 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 the 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 do have a presentation including an appendix that is accessible with the webcast through the Investor Relations Section. 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. We will conclude by opening the call to your questions.

Now, I would like to turn the call over to George Aylward. George?

Thank you, Joe. Good morning everyone. We appreciate having you all on the call with us today. And as Joe indicated, I'll start this morning by reviewing the accomplishments of the quarter including consistent sales and flows and the growth and operating earnings and margin. Mike will then discuss the financial results in more depth, and then we'll open up the call for your questions.

The strong results we reported this quarter further demonstrate three important themes that we've talked about in the past. Specifically, we have the ability to sustain a high level of sales and flows because of the breadth of our products, strong investment performance, and effective distribution. We maintained a high level of mutual fund sales during a quarter when the markets were challenging.

The global markets reversed many of the gains that were achieved during the first quarter, as a result of the debt crisis in Europe and a fear of a slowdown in the US recovery. Even many safe haven assets such as Treasury show yields fall to multiyear lows. Despite these volatile markets, we maintained strong sales in multiple asset classes, including domestic equity, international equity, and taxable fixed income.

Second, the upfront strain from our consistently high level of sales is now being offset by the cumulative benefit of our asset growth. Over the past years, our sales and the related costs have been at significantly high levels in relation to the existing AUM which funds those sales. This effect, which we refer to as sales strain, has resulted in a negative impact on our earnings. Now, we're seeing the benefit of the cumulative growth.

Since the beginning of last year, we've added $8.5 billion to our asset base to positive net flows. This larger base of assets, as well as the higher net fee rates from higher fee products like equity and affiliate managed assets, has substantially increased investment management fees. Since our growth has leveraged existing resources as we've added revenue and maintained a stable fixed expenses, a high percentage of the revenue has fallen to the bottom line.

The third point is that our continued emphasis on introducing new strategies and products has created current and future growth opportunities. Our goal is to have a variety of strong performing products for investors, whether they're looking for income, equity market participation, capital preservation, or access to alternative investments.

So we're not relying on a one hot product to continue our growth, instead we have a large and diverse set of distinctive and attractive products and we continue to emphasize developing new investment strategies to broaden our product offerings.

I would also note that the success we've had is creating even more growth opportunities. As you might expect, the strong sales growth we've delivered in the past years has attracted the attention of potential partners and, for instance, three of the five new mutual funds that we registered this quarter will be managed by subadvisers we have not worked with in the past, and we're excited to add their very distinctive strategies to our product offerings.

As we have demonstrated, we can be very successful with the products we have available today but we're focused on the long term in maintaining appropriate levels of growth for our shareholders. So, we will continue to consider the best opportunities to broaden our product set in order to build long-term sustainable growth.

We delivered very strong sales and operating results this quarter, and I want to review some of our key accomplishments. Total sales in the quarter were $3.2 billion, an increase of 20% from the second quarter of 2011. Sales were driven primarily by long-term open end mutual funds, but we also saw an increase in sales at separately managed accounts, particularly small cap strategies from Kayne Anderson Rudnick.

Positive net flows were $1.4 billion, compared with $1.5 billion on the second quarter of last year and $1.9 billion in the first quarter, which benefited from the launch of a closed-end fund. We continue to generate strong sales as our broad set of investment products provided attractive and suitable options even in challenging markets.

Fund sales were $2.8 billion, our second best quarter, and an increase of 13% from the second quarter of last year. The first quarter of 2012 was our strongest quarter for fund sales. Sales in the second quarter were strongest in our emerging markets, defensive domestic equity and spread-driven fixed income strategies. And we also saw increased demand for REIT strategies from Duff & Phelps.

Net flows for our mutual funds were $1.4 billion in the quarter, which represented a very strong 28% organic growth. This is the seventh consecutive quarter with an organic growth rate above 20%, which is one of the highest growth rates in the industry.

As a result of the cumulative of strong positive flows, we had higher operating income as adjusted and related margin. Operating income as suggested was $19.2 million for the quarter, an increase of 85% from [10.3] in the second quarter of 2011, and an increase of 20% from 16 million last quarter.

Higher revenue from our growing asset base, including a full quarter of revenue from the Virtus Global Multi-Sector closed-end fund that we launched in February, were responsible for the sequential increase in operating earnings.

When we compare this quarter with the prior year, the increase also reflects the addition of a Newfleet Multi-Sector team last June as well, as the benefit of $1.4 billion in assets from our three new closed-end funds -- the Duff & Phelps Global Utility Income Fund that was launched last July, the bulk of Virtus Total Return Fund that was adopted in December, and the Global Multi-Sector income fund.

Our operating margin has adjusted, increased to 38% in the second quarter, compared with 28% in the second quarter of 2011 and 34% last quarter. As we've discussed in the past, our operating margin is impacted by several factors, including our multi-manager model and the diversity of our assets, as well as the very high sales with the upfront nature of sales related costs. The 38 % margin is a great result that reflects the cumulative impact of higher revenue from positive inflows and the growth initiatives that we've accomplished over the past year.

The strong relative performance of our funds continues to be an important factor in our sales success, and the performance measures on June 30 were particularly strong. The ability to offer a wide range of high performing products is a significant advantage for us in partnering with financial advisors.

When we work with an advisor, we focus on helping them solve the client needs, and with the strong relative performance that you see here, we can offer solution for many of their client needs. We are pleased with all of the performance metrics, but I think one number really stands out in the slide, which is 68 % of our retail fund assets are in five-star funds. And that's particularly impressive, especially since it represents 10 different funds across a range of domestic equity, international equity, and fixed income.

In addition, 21 of our rated funds or 86% of open-end mutual fund assets are in four to five-star funds. This stellar performance also balanced among equity and fixed income categories with 16 of our equity funds and 5 income -- fixed income funds having four or five stars.

This combination of product breadth and product quality is measured by relative investment performance, supported our strong -- supported by our strong distribution, has helped us attract and retain assets at a significant level and has been a strong contributor to our sustained growth.

With that, let me ask Mike to review our financial results in more detail. Mike?

Thank you, George. Good morning, everyone. In the second quarter, we demonstrated consisted strength across all the key metrics, despite the volatile and uncertain market environment.

This morning, I'll provide detail of annual results starting with sales and flows, and how our strategy of new product introductions and growth initiatives has led to our ability to sustain a high level of sales and flows. Then, I will review our operating results, and discuss how our growing asset base is driving profitability. Finally, I'll talk about our balance sheet and capital items.

Let's start with assets under management. We ended the quarter with total assets of $38.8 billion, which was $5.5 billion or 17% higher than the year earlier, and $0.8 billion or 2% higher on a sequential basis. Long-term assets, which exclude cash management products are up 2% on a sequential basis and grew 21% over the past year to $37 billion at June 30. The growth in AUM is particularly notable, considering the headwinds that the industry is facing with investor uncertainty and market volatility.

Market declines in the second quarter resulted in assets appreciation of $0.2 billion, compared with appreciation of $2.2 billion in the prior quarter and $0.6 billion in the prior year quarter. One important item to point out in our long-term AUM is the increase in closed-end fund assets. As a result of launching two funds and adopting a third, closed-end fund assets were $6.1 billion at June 30, representing 16.4% of assets and contributing 20% of revenues.

As we have mentioned before, we find closed-end funds to be very attractive because these assets are long-lived in nature, provide stability of investment management fees and diversify our revenue and earnings. We are a top 10 provider of closed-end funds, and with our recent success introducing new funds, this will continue to be an area of focus.

Touching on the mix of the portfolio -- equity assets represented 57.4% of the total assets at the end of the quarter, roughly the same as in the prior quarter, which is a strong result, given investor sentiment in light of the equity market decline. Total assets were also affected by the early liquidation of $364 million structure product, specifically a collateralized loan obligation.

As we discussed in our last call, CLOs have a defined term and this CLO, which was issued in 2007 was scheduled to mature and begin runoff in 2014. In our AUM tables, the liquidation is included in other, in the institutional products category as we do not consider this part of ordinary flows. The annual run rate revenue related to the CLO is approximately $1.6 million. We have four remaining structure products with $0.7 billion of assets under management or less than 2% of total assets.

Slide 10 shows the quarterly results and strength of net flows over the past 5 quarters. This is the continuation of a longer term trend of delivering positive flows that have been diversified by manager and asset class and at the top end of the industry over the past 12 quarters. Total sales of $3.2 billion in the quarter were up 20% from the prior year, driven primarily by higher open and mutual fund sales, contributing to an annualized sales rate of 33% -- again, among the highest in the industry.

When reviewing the sequential difference in sales, it's important to recall that the first quarter included the launch of the closed-end fund and contributed $205 million of net sales. Total net flows were $1.4 billion and represented an overall organic growth rate of 15% -- the sixth consecutive quarter with double digit total organic growth.

Sales of long-term open end funds were $2.8 billion, a year over year increase of 13% and we maintained our very high annualized sales rate of 56%. Open-end fund net flows were $1.4 billion and the annualized organic growth rate of mutual funds 28% in the quarter also remains at the high end of the industry. I'd also note that we had a sequential decrease of 110 basis points in our redemption rate.

The continued success in gathering assets has been diversified across the major investment categories. Within these categories, the major contributors were emerging markets opportunities fund, multi-sector short-term bond fund and our alpha sector strategies.

The emerging market opportunities fund has delivered top decile performance over 1, 3, 5 and 10-year investment periods as of June 30, as measured by Morningstar, in one of the strongest flow categories in the past several years.

The story is similar for the multi-sector short-term bond fund, which has delivered top decile relative performance overall time periods while providing investors with a strong yield, coupled with low duration. The alpha sector products provide tactical allocation strategies that are resonated with investors, given the continued volatility and uncertainty in the equity markets.

For those of you who track our mutual funds flows closely, I want to give you some insight into a large outflow that occurred in July. There were 382 million of redemptions from a single client 401K plan that resulted from a change in the plan's investment offerings. The plan changes followed the recommendations of an outside consultant to eliminate a number of investment options in the plan, including some of our funds and focused in part on target date funds.

The assets in the single client 401K plan resulted from a fund adoption several years ago. The majority of our assets affected by the change reinforced our funds. This is not a performance issue. It's a unique situation and the only such client of its kind. The run rate investment management impact from this change after incorporated related fund modifications is $0.7 million.

And let me comment on preliminary overall long-term open-end flows for the month of July. Excluding this redemption, net flows would have been approximately $600 million, putting July at a level that would have been our best month of the year and the second best since becoming a public company.

On slide 11, I'll review the results of operating income as adjusted and touch on our GAAP results. As a reminder, operating income as adjusted is the non-GAAP measure that management uses to evaluate the ongoing earnings of the Company. These measures are not a substitute for GAAP and should be read in conjunction with the GAAP results.

In the second quarter operating income as adjusted was $19.2 million, a sequential increase of 20% from $16 million in the first quarter and a year-over-year increase of 85%. The $3.2 million sequential increase reflects the impact of growth in assets from positive net flows in the closed-end fund launch completed in the first quarter. The significant increase in the prior year reflects the benefit of positive net flows and the incremental earnings from the successful growth initiatives, particularly the three new closed-end funds and the internalization of the Newfleet team.

Operating margin as adjusted grew to 38%, representing a sequential increase of 390 basis points and an increase of 1000 bps from the prior year quarter. A primary driver in the margin expansion is the leveragability of the business. In the second quarter, we captured 88% of the $3.6 million of sequential incremental revenue. That's above our recent trend, which we would expect, given the payroll tax payments that occurred in the first quarter. The capture ratio for the prior year was 75% of incremental revenue as adjusted. That contributed to the growth in operating income as adjusted.

Concerning GAAP results, net income increased to $8.4 million or $1.04 per fully diluted common share, compared with $3.2 million or $0.30 per share in the second quarter of 2011 and $5.5 million or $0.68 per share in the prior quarter. The GAAP results included $0.06 per share of after tax severance cost and $0.02 per share of after tax unrealized mark to market losses on the marketable securities portfolio.

I'd also like to point out that our quarterly GAAP effective tax rate was approximately 40%. However, our cash tax rate remained in the low single digit, as the Company used $5.6 million of its deferred tax assets to offset against federal income tax payments.

Turning now to revenues, investment management fees increased to $44.9 million in the second quarter, up 7% on a sequential basis and 43% from the second quarter of last year. The two key drivers of higher investment management fees are increased average and long-term assets under management and net fee rates. Average long-term AUM for the quarter was $36.4 billion or a sequential increase of 6% from $34.2 billion, led by the continued strong net flows. This contributed $2.7 million of the $3 million sequential increase.

We also had a higher blended net fee rate, which increased to 47.2 basis points, from 46.4 bps in the prior quarter. This is primarily driven by the VGI closed-end fund launch in the first quarter, which had a full quarter impact in the second quarter, compared to 1 month of fees in the first.

Over the past year, the fee rate of long-term open-end funds has increased by merely 9-basis points, and this primarily reflects the benefit to the open end fund fee rate as a result of the Newfleet transition, which was completed in the second quarter of 2011, as well as strong equity product net flows, which increased the percentage of equity product mutual fund assets to 64% from 60% in the prior year.

Total operating expenses of $52.6 million were down 3% on a sequential basis, and up 16% from the prior year. On slide 12, we see the impact from employment expenses, which is the largest driver of total operating expenses. Employment expenses of $25.5 million in the second quarter were down 3% on a sequential basis, and up 11% year over year.

The decline from the prior quarter is related to several items in the first quarter, specifically, payroll taxes were $1.2 million higher in the first quarter due to annual incentive payments, and $0.3 million of sales costs were incurred in connection with the launch of the closed-end fund.

The increase from the second quarter of 2011 reflects several items we have discussed previously including transitional and ongoing costs related to the Newfleet team, and variable incentive compensation plans, which reflect higher profitability of the Company over the prior year.

In order to provide a clear comparison of ongoing employment expenses, we spike out the costs related to the Newfleet Multi-Sector team internalization and closed-end fund sales compensation at the top of the columns.

Total employment expenses are the percentage of revenue as adjusted continued its steady decline and improved sequentially by 550 basis points. At the second quarter, it was at 50% of revenues as adjusted and when adjusting for the transitional Newfleet cost, it was 48% of revenues as adjusted, which we believe is within industry averages.

Other operating expenses remained at a generally stable level when compared with revenues as adjusted. In the second quarter, other operating expenses were $9 million, which was a sequential increase from $7.9 million. Three items are primarily responsible for the increase.

First, the annual grants for the Board of Directors retainer are reflected in this line item. In addition, we had higher sales and marketing costs related to the additional of the new retail sales team for the independent and RIA channel, and we incurred additional costs for professional services related to new product and business initiatives, so these higher expenses are supporting current and future growth of the business.

As with employment expenses, the key metric here is the percentage of other operating expenses to revenue as adjusted. On a sequential basis, it was up 110 basis points, but excluding the Board of Directors retainer, the result was 16.7% or in line with the prior quarter.

Finally, I want to review the highlights of the balance sheet, including the impact of our various initiatives and our working capital position. Cash on hand at the end of the second quarter increased to $48.7 million, reflecting the benefit at the cash generation of the business, which offsets the uses of cash in the quarter, including the effective repurchase of RS use to satisfy employee tax withholding.

As we mentioned on the first quarter call, we deployed $9.2 million of cash in April to net settle investing of the initial equity grants made in 2009. When combined with the $2 million of cash that we deployed during the first quarter of the year, we have used a total of $11.1 million of cash to effectively repurchase approximately 140,000 shares of common stock that otherwise would have been dilutive to shareholders.

With the significant commitment of cash we deployed over the past 2 quarters to net settle equity grants, we did not engage in any other additional stock repurchases in the quarter. Our year-to-date payout ratio, which is measured as share repurchases divided by free cash flow as defined per our credit facility, is at 45%, up from 26% in the prior year, excluding the preferred stock retirement payment.

Let me mention two other items. Our $15 million of debt outstanding becomes a current liability this quarter. As we indicated earlier in the year, refinancing this facility remains a priority in the second half of 2012. We'll continue to focus on positioning the balance sheet for optimal flexibility and to enable the execution of additional growth initiatives in the future.

Specifically, we've announced the upcoming launches of five new open-end funds, which we expect to complete in the second half of the year. Seeding these and other new funds and strategies could require up to $30 million of additional seed capital, and as we've demonstrated in the past, new products are an important driver of future growth.

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

Thanks, Mike. Before we open up the call to questions, I want to briefly comment on our focus for the business as we move forward for the remainder of the year.

First, we believe we are well positioned to continue on the current trajectory. In the near term, we think the single largest headwind for the rest of the year will be the uncertainty in the financial markets and how that uncertainty will affect the individual investor. However, we feel confident that we have the right mix of products and strong performance to sustain a high level of sales.

Second, our distribution effectiveness continues to distinguish us. We've had -- we have a great opportunity to take advantage of the diversity of our products and performance by further extending our distribution reach. I see us continuing to increase our retail penetration not only in the wirehouse channel [and] the RIA and independent channels as well.

And for the longer term, we continue to see our efforts in offering new strategies and product is an important part of our business strategy, and is something that will support continued high levels of growth.

With that, let's take some questions. We'll ask that you limit your questions 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 to the queue.

Jeff, can you open up the lines please?

Thank you very much.

(Operator Instructions)

Our first question comes from the line of Michael Kim with Sandler O'Neill. Please proceed.

Hey, guys. Good afternoon. First, just to follow up on your commentary. Assuming at some point, retail investors start to come back to more traditional US core equity strategies and maybe away from asset allocation funds or emerging market or international portfolios to some degree, how do that sort of environment set up for you? Because it seems like you got a number of more traditional funds but they're still pretty small in the grand scheme of things. So, just curious to get your comments there.

Yes, I think -- generally, if the investor is still going to have a nice well-diversified portfolio, again our -- and you're correctly pointing out that we don't generally focus in on maybe some more of the traditional plain core growth, large value kind of products, and really where we have focused in is on more of the nichy, specialty types of stuff that will be part of a well-diversified portfolio.

So, we generally go for more of the alpha types of strategies, or those that sort of feel a different need in terms of either [PE] yield or preservation. So we continue to see that they'll be greater opportunities for the strategies in a well-diversified portfolio, and we're not looking to compete against ETF or other beta plays for some of those types of strategies.

So I think we will continue to focus on -- if we offer those things in those categories, they will be the more differentiated strategy, so high concentration or having satisfying some other type of an investor need rather than those other strategies. But if you look through the whole product lineup, again, we have good performance in pretty much all of those general categories.

Got it. And then maybe just one for Mike. Just coming back to the incremental margin discussion, looking past all of the noise the incremental margin continues to be very strong even as, mutual fund sales levels were actually pretty close to where they were running last quarter. So, does that suggest we could see even greater kind of flow through, assuming a more normalized sales rate?

Well, it's a good question. As you know, we haven't provided specific guidance on margin levels. We've talked about how we would fare sort of -- when you look at margins vis-à-vis the industry and how we have a multi-manager model where we expect our margin. That said, our capture ratio we talked about in the prior quarter was unusually high. We've demonstrated a capture ratio and look at that around the 50% to 60% level over time. And we think the business has been leverageable and you see that in the results. So, we expect to be able to continue to add assets and leverage our business.

Okay. I'll jump back in queue. Thanks.

Thanks.

(Operator Instructions)

Up next, we have Steven Schwartz with Raymond James and Associates. Please proceed.

Hey, good morning, everybody. If I could, I'd like to follow up on Mike's discussion here. The three areas that you really mentioned I think on the long-term fund side going into emerging markets to multi-sector bond funds of the alpha sector products, how -- do you happen to know how much of sales went to those three areas?

Yes. Steven, it's Mike Angerthal. Good morning.

Generally, those three have been the bigger drivers. And, again, there are three totally distinct categories of assets that's in -- [the total] Mike.

Yes. It's a little less than 75% of total sales for the quarter, which is down slightly from the prior quarter and the prior year. As we've indicated, we got a portfolio of our strong producing four and five-star funds. And we've seen success in some of the other strategies launched, but those products are well diversified from domestic equity, internal equity, and the bond categories and they're managed by different managers, so we've got strong diversity there.

And you sort of look at -- what's interesting is you're also looking at the backdrop of where the demand has sort of been in the market and -- with the exception maybe of domestic equity, these are the products they are sort of bidding where the current demand has currently been. And I think, again, for us -- to have something as effectively as in the large cap core category being positive is unusual, but it's only because it's the defensive equity strategy.

So again our goal is to make sure that as different heights of investment strategies go in and out of favor that we have things to meet it. So these three are sort of meeting the demand it's currently -- we're currently seeing at least in the intermediaries.

Okay. And then if I can follow up to the -- on the CLO side, you loss that portfolio, you had 700 million. I know it's not a -- I know it's not a big deal, but what leads to something like that -- I don't know the word -- dissolving early and the risk of the 700 million leaving early?

Well, in some ways, the CLO actually performed very well. So it was --

-- Paid itself off.

It performed well enough where it made sense for the trustees to sort of execute their ability to sort of early terminate. So it's -- if actually the CLO had not been performing as well, it probably would have made no sense for them to elect to do that. So -- and I think the other CLOs are also performing well, probably not maybe as well as that --

Yes, I think the other element of that is it was a call by some of the bond holders, specifically in the lower tranches of that CLO, and they had a majority position, which they accumulated. And as George indicated, since it was performing so well, they were able to execute a call and forced the early liquidation of the remaining 4 CLOs for 700 million as you indicate. They are performing well, but we don't envisioned there being one holder accumulated a position to enable a call on it.

Okay. All right. Great. And then one more for me. On the incremental capture rate, if you will, you suggested it was 88% and as you said in the past, normal would be more around 50% to 60%. Any particular reason why this quarter was so much higher?

Yes, we called out the items to look at in the first quarter.

Okay.

-- where there -- the expenses were inflated by --

No, no, no. Mike, I meant -- I meant, in general, I thought you were suggesting that the incremental capture rate should be 50 to 60 over the long term, or did I misunderstand that?

Yes. I thought you were asking about this quarter's being high. Yes, we would expect it to be in that -- in range because that's really been our historical trend, more in line over the past 2 or 3 years.

Okay. All right. I'll leave it there. Thank you.

Thanks.

And it looks like our next question is a follow-up. It comes from the line of Michael Kim with Sandler O'Neill. Please proceed.

Hey, guys. Just one follow-up. It looks like flows into the premium alpha sector fund have slowed a bit over the last few quarters but at the same time, we've seen a pickup in demand for the dynamic alpha sector fund more recently. So, do you get the sense that some investors may be rotating into the dynamic fund, just given kind of the macro environment and the flexibility of that fund to put on leverage or take short positions?

Yes, I know I think you're absolutely spot on. We look at the alpha sector strategy as really as a continuum of offerings. So you have the early versions of the first funds we launched which are really more just pure domestic equity, you know, playing the sectors of the S&P with the ability to hide in cash and then with the addition of the allocator, which brings in several other asset classes and then the dynamics, which is you are referring to, which will then take into the level of having some of those same basics but adding a long/short ability.

It really -- people that are sort of attracted to those types of strategies, really sort of defend on how they're feeling on the risk spectrum or what they're looking for in terms of the return. So I would definitely say the people are resonating to the story, and there are absolutely people that are moving from the attractiveness of the pure premium alpha sector, which is the domestic equity one and being intrigued by the opportunity set in the different risk/reward profile of dynamic. And that's why we like having that nice product suite of those office sector products.

Just a follow-up on that. Does that suggest incremental alpha sector funds down the road?

Again, we -- we're very focused on continuing to look at are there other expansions or additions to the product sets. So we found them to be very successful, and to the extent that we could identify another logical extension of that as we work with our partner and subadviser on that, absolutely we'd look at those either through alpha sector or other versions that sort of fit same genre.

Okay. That was it for me. Thanks.

Great.

This concludes our question and answer session. I'd now like to turn the conference back over to Mr. Aylward for closing remarks.

Great. Well, again, thank you everyone for joining us this morning, and we certainly encourage you to give us any call if you have any further questions and we look forward to speaking with you next quarter.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.