WisdomTree Inc (WT) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the WisdomTree Third Quarter 2010 Earnings Conference Call. My name is Alicia and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question and answer session toward the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Jonathan Steinberg, WisdomTree's CEO. Please proceed, sir.

Thank you. Good morning, and welcome to WisdomTree's third quarter conference call. Let's begin. The third quarter was a strong quarter for the Company. By almost every measure we set company records; record revenues, record assets under management and record positive cash flow. We also had our best third quarter in terms of inflows. WisdomTree took in $1.16 billion of net new assets in the third quarter, which represents 3.5% of total industry inflows.

Though we had a number of successes. I think the singular highlight of the quarter was the launch of our first pure income ETF, ticker ELD. The success of our Emerging Market Local Debt Fund up against stiff competition best demonstrates how well we executed across the whole firm this quarter. All corporate functions at the Company worked together to create our most successful fund launch since the launch of our Indian equity ETF EPI.

In just over two months, ELD has taken in over $375 million, and among ETFs we are now the liquidity and asset leader for emerging market local debt. I have said on prior calls, I believe much of the excitement going forward for WisdomTree, beyond asset growth, will come from new products. This is also true for the whole industry.

It is a time of significant innovation. The existing ETF sponsors collectively are adding an impressive array of new choices into the market, and investors and their advisors are taking notice. Broadly, investors have never been more engaged with the ETF community.

At WisdomTree, launches and fixed income, commodities, and alternative asset classes are being planned for upcoming quarters. It remains an important priority for the Company to continue to launch innovative products and to further diversify our business. Building on the desire to further diversify, WisdomTree recently filed for additional foreign bond funds. We filed for an Asian bond fund, a Latin American bond fund, a fund that would invest in the bonds of Europe, the Middle East and Africa, as well as a Brazilian bond fund.

Product development success is an important element of a vibrant, thriving firm in a fast growing and quickly evolving industry. WisdomTree is committed to more than just keeping pace. I am encouraged by the way WisdomTree, as a business, is developing. Operationally -- I'm about to use an overused phrase, but I couldn't think of a better way to say it, so here it goes -- operationally, we are at an inflection point; we are definitely getting stronger as a firm.

Our operating leverage and margin potential is just becoming apparent to investors. Our business is remarkably scalable. This is something we expect to demonstrate in upcoming quarters, but specifically in the third quarter, our revenues were up 76% versus the year-ago third quarter, while our expenses were up just 18% over the same time period. Later on the call, Amit Muni, our CFO, will take you through the financials in detail.

In an effort to further scale our business, we recently announced two strategic alliances to help us drive asset growth by broadening our distribution. The first is with Advisors Asset Management, otherwise known as AAM. This is for the Independent Broker-Dealer channel. This is a large and growing, but highly fragmented channel. This agreement will provide WisdomTree with significantly greater coverage to the important Independent Advisors Channel without adding to our overhead.

And just this week, we announced another distribution agreement; this one with the Compass Group in Latin America. This agreement marks our most recent initiative in Latin America. As you may remember, we first started in 2008 with the approval of certain WisdomTree ETFs by the Chilean Pension Regulator and continued earlier this year with the listing of nine of our ETFs on the Mexican Stock Exchange.

The Compass Group will now lead WisdomTree's sales efforts throughout Latin America. These relationships will cost-effectively increase our ability to raise assets into our ETFs. These agreements are just some of the reasons why we believe we can accelerate our overall growth rates and increase our market share in the ETF industry, something that Luciano will expand upon later in the call.

Now, let's turn to page five of our presentation. In the first column, you can see industry inflows since we've launched our first ETFs in the second quarter of 2006. In the four and a half years that we have been in business, the industry has taken in just under $600 billion in assets. A question for the audience; what do you think the industry will take in over the next four or five years? Do you think it will be more than $600 billion?

In the second column, you can see WisdomTree's inflows since inception. Let's turn our attention to the third quarter of 2010. As stated in the press release, WisdomTree had $1.16 billion of net inflows this past quarter. This was only the second time WisdomTree had quarterly inflows greater than $1 billion.

The third column shows WisdomTree's market share of inflows. In the third quarter we took in over 3.5% of the inflows. On this call, I want to draw your attention to the recent market share of inflows since the market started to normalize in the third quarter of 2009.

As you can see, in five of the last six quarters, our market share of inflows has exceeded the average market share since inception, which, you can see at the bottom of this column, is currently 1.57%. I draw your attention to this because I believe this is an important metric with which you can evaluate our success and overall effectiveness within the highly competitive ETF industry.

It is our goal to grow our overall market share, period. Below the green bar, you can see WisdomTree's inflows in the fourth quarter to date. The fourth quarter is shaping up nicely; we have taken in approximately $380 million and 2.7% of the inflows quarter to date. On the same line, the very last number on the right, you can see that our current ETF assets stand at $8.819 billion. This is right there at the high -- all-time high for the firm.

I do want to make sure that all investors are aware that at WisdomTree.com, we update our assets under management every night. This functionality should help investors track our progress in between quarterly calls. I encourage investors to go to the investor relations portion of the site, and if you haven't been to the site recently, it's been updated, so please check it out.

Now, let's turn to page six. The first column ranks ETF sponsors by assets under management. WisdomTree is the eighth largest sponsor in the United States. Our assets are up 38% year-to-date, and up 69% over the last 12 months. Both comparisons are showing that WisdomTree's growth is faster than the industry averages.

The second column shows inflows in the third quarter, which we have already discussed, as well as inflows for the nine months. As you can see, in the first nine months we took in about $1.9 billion. This does exclude the fourth quarter-to-date numbers. And lastly, the third column shows third quarter and nine month inflows by category. I'm not really going to touch on it, but it's there to give you additional perspective on how we are doing.

Now, I turn it over to our Chief Investment Strategist and Director of Sales, Luciano Siracusano. Luciano?

Thank you, Jono. As slide seven shows, $5.6 billion or two-thirds of WisdomTree's assets were concentrated in our ten largest funds. We also display on this page where assets under management stood a year earlier. As you can see, aggregate AUM in WisdomTree's ten largest funds through September 30, 2010, increased by more than 100%, a one-year timeframe in which stocks, measured by the S&P 500, returned just 10%.

As Jono noted, WisdomTree's AUM growth accelerated in the third quarter, and was driven primarily by net inflows; nearly $1.2 billion, the second-highest quarterly tally in our history. The positive market environment we experienced in the third quarter has continued into the fourth, and we have sustained this faster growth rate through October. ELD, which ended September at $272 million in AUM, is now at $373 million in assets under management. DGS, which ended the quarter at $570 million in AUM, is now north of $700 million.

Several factors are coalescing to create the conditions for what I believe could well be a key inflection point in the sales growth of our company. As our funds get bigger and trade more, it becomes easier for them to take in new money at a faster pace. As inflows come in, shares outstanding in our ETFs go up.

This can make the funds more attractive to a larger universe of advisors and institutional investors, who sometimes do not want to own more than 5% of an ETF's outstanding shares. Our India fund, for example, crossed $1 billion in assets in July of 2010, more than two years after its launch, but in just the four months since then, EPI's assets have grown by 60%. Today, EPI is a $1.6 billion fund.

We believe volume often begets volume, and we have worked hard to educate the ETF community on how to trade and source liquidity in our ETFs. Now I believe we're seeing the fruits of that labor. The average daily traded notional value for WisdomTree's funds increased from $83 million per day during the first quarter of 2010 to a $112 million per day during the third quarter.

Another driver of faster growth has been WisdomTree's ability to launch innovative products that open up exciting new asset classes, like emerging markets fixed income. And many of our older funds now have at least a three-year track record, making it easier for advisors and independent third parties to evaluate their performance.

As we've noted in an earlier press release, our Emerging Markets Equity Income Fund, ticker DEM, recently received a five-star overall rating from Morningstar for three-year performance. We are gaining greater traction getting into ETF models and onto platforms that make it easier to use ETFs. By securing spots in asset allocation sleeves of individual advisors and in the model portfolios developed within larger firms, we believe several WisdomTree ETFs are well-positioned to capture some of the new money that such models attract going forward.

Advocates of our approach have helped us multiply our efforts in the RIA, Wirehouse, and institutional channels. And as Jono noted, by working with outside organizations, we have added bandwidth to educate financial advisors in the Independent Broker-Dealer Channel and outside the United States to target institutional investors in Latin America.

In a world where ten-year treasuries yield approximately 2.5%, WisdomTree's dividend-weighted funds, covering more than 40 countries, in our opinion, have never been more relevant. By using television, the Internet, and WisdomTree's research-driven materials to explain who we are, what we do, and how we do it, I believe our brand has never been stronger and our prospects for future growth have never been brighter.

Now let me turn the call over to our Chief Financial Officer, Amit Muni.

Thank you, Luci. Good morning, everyone. I'd like to begin by first reviewing our overall financial results. Total revenues in the quarter reached a record $10.1 million, an increase of 76% in the third quarter of last year and up 8% from the second quarter due to higher average asset balances and revenue capture. On total operating expenses, which excludes stock-based compensation and depreciation, increased only 18% from the third quarter of last year and up 5% from the second quarter.

We have earned our second quarterly operating profit of $500,000 in the third quarter. GAAP net loss was $1.5 million for the third quarter, which improved from the loss of $5 million in the third quarter of last year and a loss of $1.9 million in the second quarter. On a year-to-date basis, revenues doubled to $28 million, yet our operating expenses only increased 20% to $28.4 million. You can see the operating leverage in our business model in our year-to-date and quarterly results.

Now, let's review the key drivers of our business on the next slide. Our overall assets under management increased 64% to approximately $9 billion in the third quarter, primarily due to $1.2 billion in net ETF inflows; our second highest quarterly inflow quarter. Total assets under management increased 30% from the second quarter. Average ETF assets under management, which our revenues are based on, increased 69% from the third quarter of last year and up 4% from the second quarter.

We had very strong inflows into our higher-priced emerging market funds, which now comprises about 31% of our total ETF assets and helped increase our average revenue capture to 56 basis points in the third quarter, up from 53 basis points in the third quarter of last year and 54 basis points in the second quarter.

Now, let's review how these drivers affected our revenues on the next slide. ETF revenues were $9.9 million in the third quarter, up 78% from the third quarter of last year and up 8% from the second quarter, led primarily from higher revenues in our emerging market ETFs. Non-ETF revenues increased 10% from the third quarter of last year and up 18% from the second quarter. On a year-to-date basis, ETF revenues are up 105% to $27.5 million and non-ETF revenues are up 25%.

Now, we can review our expenses on the next slide. Our total operating expenses increased 18% from the third quarter of last year to $9.6 million and up 5% from the second quarter. Compensation costs increased 3% from the third quarter of last year primarily due to higher headcount. We had 55 employees at the end of the third quarter.

Compensation costs increased 3% from the second quarter due to higher recruit incentive compensation as a result of higher levels of ETF inflows. Fund management and administration expenses increased 8% from both periods due to higher fund costs tied to higher average asset balances in our emerging-market funds, as well as costs related to two new funds we launched in the third quarter.

Marketing and business development expense increased 36% from the third quarter of last year and 29% from the second quarter, primarily due to higher television and online advertising, which we began in the middle of September. We will be continuing higher levels of marketing into the fourth quarter.

Professional fees increase 67% from the third quarter of last year due to website enhancement consulting and corporate legal expenses. This expense decreased 31% from the second quarter due to lower corporate legal costs.

Occupancy and other expenses were relatively unchanged over both periods. Third-party profit sharing increased to $609,000 in the third quarter, from $62,000 in the year-ago quarter, primarily due to higher net profits from our currency ETFs. This expense point represents the Bank of New York Mellon's share of profits, less direct expenses related to our currency and fixed income ETFs. So an increase in this expense means that our currency products are more profitable for us. This expense was relatively flat for the second quarter.

Stock-based compensation decreased 23% from the third quarter of last year and 2% from the second quarter due to vesting of restricted stock, which was granted in prior years at higher fair values partly offset by higher variable stock-based compensation granted to non-employees, which fluctuates based on our stock price.

On a year-to-date basis, total operating expenses increased 20% primarily due to higher profit-sharing on our currency ETFs, increased advertising, additional sales headcount, and fund costs due to higher average asset balances.

Now, let's review our balance sheet on the next slide. We have total assets of $25.6 million, which is primarily comprised of $11.8 million of cash and cash equivalents, $8.3 million in investments and $3.7 million in receivable from the WisdomTree's funds for our monthly advisory fees. Total liability for approximately $10 million, mostly from normal recurring vendor payments. WisdomTree has no debt. At the end of the quarter, we had $112.6 million common shares outstanding and $136.9 million shares on a fully diluted basis.

As I mentioned on our last call, now that we have reached positive operating income, our next goal is to get to net income. Remember, our results are primarily affected by market conditions, mix of our assets under management, and expense levels which both have fixed invariable components based on asset levels.

We are still in the process of budgeting our 2011 expenses, and we do expect an uptick in spending as we continue to strategically invest in our business to support our goal of faster growth. Taking into account this higher anticipated spending, preliminarily we should be at GAAP breakeven somewhere between $9.2 billion and $9.4 billion of ETF assets under management. We will update you on our next call with more refined numbers.

We are making a significant progress toward reaching our goal of net income while continuing to invest in our business. So far in the fourth quarter, our average ETF assets under management have increased 25% from $7.1 billion to the third quarter to $8.8 billion in the third quarter, and we have had over $350 million in ETF inflows. The investments that we make today will pay returns to us going forward. If these market conditions continue, we should have another record quarter for us in the fourth quarter.

Lastly, we wish to inform you that AIG sold their full ownership interest in WisdomTree, represented by $10 million common shares, to Flexpoint Ford. Flexpoint Ford is a private equity investment firm, with $1 billion under management, specializing in financial services and healthcare. This was a private transaction and deal terms were not disclosed.

Next slide reflects our ownership as of today. Michael Steinhardt is our largest shareholder at 28%, RRE Ventures at 15%, Flexpoint Ford at 7%, and management and employees at 18%. As I mentioned earlier, we have approximately $137 million shares outstanding on a fully diluted basis. Thank you, and let me turn it back to Jonathan.

Thank you, Amit. As I mentioned earlier, the fourth quarter's off to a strong start with just under $400 million of net inflows. We expect to finish the year strong, we have a lot of momentum. There are a number of investment themes that play to our strengths; the falling dollar, investors' continued desire for emerging market exposure, for the need to seek out alternative sources of income through dividends. Broadly, we remain well-positioned.

Let me summarize for investors what we hope to accomplish in upcoming quarters. First, we maintain positive cash flows, so let's put a check in that box -- two quarters in a row of positive cash flow. Next, we will continue to diversify and fill out our product set and asset classes like fixed income and commodities and alternative strategies.

We expect that this will help us to achieve faster growth rates of revenue and assets under management, as well as increase our overall market share of the ETF industry. This should allow us to meet another one of our goals, GAAP net income. Amit just gave guidance that, at the current asset mix, we expect to reach this goal somewhere between $9.2 billion and $9.4 billion of ETF assets. And last but not least, an exchange listing.

We have proven that we have the ability to execute our business plan, and as we continue to make progress we are well-positioned to reach management's often stated goal of listing on an exchange. We are fully committed to it. However, obtaining a listing and becoming a fully reporting public company involves a process that takes time to achieve. While we fully expect to obtain a listing in 2011, you should not expect it to happen earlier than the second quarter. We will update you on our progress regarding our listing on our next earning call.

These are our goals; build cash and maintain a strong financial position, further diversify and expand our footprint, faster growth, take market share, achieve GAAP net income, and list on an exchange. These are the goals which management feels will drive shareholder value higher, and everyone at WisdomTree is committed to enhancing shareholder value.

This ends the planned portion of today's call. I want to thank you for your interest and support, and we will now take questions from the audience.

(Operator Instructions)

Your first question comes from the line of Justin Hughes from Philadelphia Financial. Please, proceed.

Thank you. Good morning -- just one follow-up question on the NASDAQ listing. One of the requirements is a $4 bid and you're currently at $3.35, do you expect to get to $4 just off fund flows and fundamentals, or would you effectuate a reverse stock split?

Thanks, Justin. Well, one, we've certainly seen our stock appreciate as our assets have grown, so we might get there on -- just on maturing business. So, NASDAQ is still something that we've been discussing, but we're just talking about an exchange listing, so --. The American Stock Exchange has a $2 listing, so we're well-positioned -- stock price isn't going to be the issue -- just finishing off the year and doing our year-end audit and filing the proper papers.

Okay, thank you.

Your next question comes from the line of Howard Rosencrans from (inaudible). Please, proceed.

Hi guys, congratulations. Amit, on the economic GAAP breakeven. Can you speak to the non-GAAP breakeven? And I'd love to hear more about, specifically, the new funds again that you alluded to. What you guys think that climbing up of those launches could be, what the opportunities are?

You had all this success with your big launch in August, and I'm just -- you've launched some funds that have been wildly successful, some funds have been less successful, but the key was getting out of the gate with that $110 million, $150 million, $200 million in the first week. So, I'm curious as to what went into doing that and whether or not you'll be able to duplicate that formula with the new funds you launched.

Hi, Howard. I'll answer your first question, then I'll turn it over to Luc. The non-GAAP breakeven hasn't changed, that's that $6.5 billion of ETF assets under management, and so we have surpassed that. And we saw our operating results in the second quarter show our first positive operating quarter, so that number has not changed -- that $6.5 billion.

Luc?

I saw that [going forward] with that number, but that's okay.

Let me -- this is Luciano -- let me just answer the second question. You're absolutely right that I think the success of the Emerging Market Local Debt Fund, part of it was getting out of the gate quickly with a lot of investor interest right from week one. So, that's certainly a template we're going to seek to replicate going forward. If we can find investors that want to participate early on that always helps a fund launch.

Our next fund launch is probably going to occur early in 2011. Bruce, excuse me, Jono mentioned the filings that we did. We can't really comment on the filings beyond the fact that we submitted them, but they're covering other fixed income categories outside the United States. And so, when we have more visibility and for the timing of that we'll update you and inform you on the next earnings call.

Great. Thank you, guys.

Your next question comes from the line of Mac Sykes from Gabelli & Company. Please, proceed.

Hi, good morning, guys. Could you talk about the conversations you're having with advisors now versus, say, a year ago and maybe even just the June quarter? How are they different?

Well -- this is Luciano again. I think one of the big differences is -- the spectrum of advisors we're reaching is broader than it was a year or two ago. And part of the reason is there is more categories that we're competing in. Advisors who weren't talking to us three years ago, started talking to us when we had currency funds in the market. Now we have an Emerging Market Local Debt Fund, which is a huge asset class that a lot of advisors have just started to focus on.

And that's actually getting us into some very large firms that we didn't get into earlier. Now, firms that we were able to get into three or four years ago and developed relationships with -- those relationships are great. We have advisors that have $30 million, 40 million, $50 million, and, in some cases, more than $100 million with WisdomTree.

So, I think we've built great loyalty, I think people understand what we're doing, and I think they're very encouraged by the consistency that we've been able to show them on many fronts, and we're just very bullish about that going forward. We're getting good success getting into the platforms and into more models within the Wirehouse channel.

And like I said earlier, the larger the funds get, in many cases, the easier it is for them to ramp, and we have (inaudible) -- and we're going to have a five-year track record in June of 2011, and our funds are appearing on more people's screens as they become larger and have longer histories.

And, Mac, just one last thing, this is Jono. In general though, investors, advisors across the board are just more interested in ETFs than they were before. And I really think that it's because their clients are demanding it. So, all channels are starting to emerge and develop more strongly than prior quarters. And I think that trend, though, will continue every quarter because it serves investor interests to use ETFs more and more fully throughout their portfolios. So, thank you for your question.

Just a couple of quick follow-ups. What's the most effective way of using marketing dollars in terms of this environment for you guys? Just trying to understand the marketing strategy.

Well, WisdomTree is primarily targeting only the intermediary, and we're using television and the Web to do that. So we're trying -- we're really going only after our primary source of targets at the moment, and we find that the Web and TV has been very cost-effective for us. Not that retail can't see the Web and the TV commercials, but that's ancillary.

And now that we're very close to GAAP breakeven, is there any way to quantify what an incremental $1 billion in AUM means to annual ETFs?

Mac, generally speaking, 70% of every incremental dollar that comes into the funds flows down to the bottom line. And it's really how we choose to spend that 70% whether it's -- our goal to continue to grow the business, whether it's through additional sales, marketing -- but we're going to continue to invest.

But the business is highly scalable, you can see that when you look at our year-to-date results, we've doubled our -- more than doubled our revenues overall. You can see we've just had a -- about 20% increase in our expenses. So, the business is highly scalable the way we've built it, but the overall margins that you can see is roughly about 70%.

So, should we think about that for -- think about the 70% or will there be some movement in that, just in the growth phase here in the beginning?

Yes, obviously, early on -- only the long-term, as we can continue to ramp up we will get to the 70%, but over the short-term, we're continuing to invest in the business, so we should expect that number to be less than 70%, but in the long run, it could get up to that 70% mark.

And also it depends up on the mix of inflow. So, right now we're averaging -- what did you say, 50 --

About 56 basis points.

But again, we're also launching new funds, so we'll grow our income, but we will also grow the revenue and compete very aggressively.

Great, thanks guys.

Your next question comes from the line of Steven Schoenfeld from Global Index Strategies. Please, proceed.

Good morning. And Jono, and Luc, and everyone at WisdomTree, congratulations on a great quarter. Howard asked a good part of my question, but I wanted to dig a little deeper into your absolute and, equally important, your relative success with ELD vis--vis your competitor at Van Eck. Based on yesterday's numbers, you guys are more than three times the assets, and I think they launched a week before, if I'm not mistaken.

So, out there in the marketplace, you alluded to some effective pre-selling and education, and I know you had a fixed income -- your fixed income specialist was very much out there. But can you give us a little bit more granularity on how -- you had de facto first mover advantage because you launched at the same time or within the same few weeks, but you've definitely done a much better job with pretty similar products.

Theirs is more of a pure index and I don't know if you use that as the distinguishing factor compared to your investment process. But if you could give us that, because I would assume you're going to be using some of that same success formula with your upcoming launches early next year.

Thank you. Thanks for the questions, Steve. You're right, ELD is unique in a sense that it's actually an actively managed fixed income ETF, there is no underlying index, and I think that's an important distinction. We worked hard to try to mitigate some of the risks of investing in emerging markets, and that structured investment process that we have, I think is resonating very well with advisors and is certainly instrumental in getting the quick launch of ELD off the ground.

ELD took in approximately $265 million of inflows in the third quarter, and as I said earlier, it was our most successful launch since India. So, everything we did well there, we're going to try and replicate going forward. And I think in a fixed income front, our exemptive application, that gives us the ability to run actively managed fixed income product and to have a structure investment process is going to be a tremendous advantage for us going forward as we launch new products.

Just a little more color, Steve, this is Jono. ELD built off of the success of CEW, or Emerging Market Currency Fund, and so one of the things that we hope to do with the next wave of foreign bond funds would be to build off of the success of ELD. But market sentiment is very fickle, and so ELD did meet a sort of burning investor desire at the moment -- a weak dollar. So that was one reason why it launched so quickly, was the -- how it connected to the market environment at the moment. So thank you, Steve.

(Operator Instructions)

Your next question comes from the line of [Brett Johnson] from (inaudible) Investment. Please, proceed.

Hi, good morning, gentlemen. I was wondering if you could give us some more color on your advisory fees, we've seen that kick up here a little bit the last several quarters. I assume that's partly due to mix. Can you let us know how much farther maybe that should go up over time or that's going to level out?

Sure, it's primarily affected by the mix where we see the ETF inflows coming in. So, we have started seeing very strong inflows into our emerging market funds. Those funds because they are more costly to run, the fees on those run higher than our domestic funds. And because of that, they're running about 31% of our total ETF assets and that's really what we see driving up our overall revenue capture that we see today. As far as going forward, it's hard to say where it could be, it just really depends on market sentiment and conditions, where we see the fund flows coming in.

Can you tell us what you're charging on some of those emerging market funds in terms of basis points?

Sure, it goes high as 88 basis points on our Indian fund and our --

63 basis points for our emerging market equity income and emerging market small cap, which, if you go to WisdomTree.com, you can see the assets by fund updated every day and also the expense ratio per fund.

Okay. Also when you guys think about building out new products, is there -- and clearly you've had some very good success with the emerging market products. Is there a way we should think about a level where you maybe -- cut that off in terms of you don't want it to be a certain percentage of total asset, is there a way to manage that risk, that we shouldn't be thinking about going forward.

When we are trying to launch new products, there are a lot of things that we look at; fielding out the product set, first-to-market, where can we put a superior execution into the market. But you're right, right now we have more than 50% of our assets are in the emerging markets, and that is something for you, the investor, to be aware of and it does potentially carry some risk.

But long-term, we're very comfortable with our bet on emerging markets. That's something that we do very much believe in, but we have spoken about other asset classes, so it's not all that we do, and we do take into account diversification as part of what we're -- diversification as part of the fund launch calculus.

Do you have any absolute values that you won't go above 50% earned -- I guess you're already there, but could you get up to 80%, 90% of the assets in emerging markets, or would you not feel comfortable with that?

One of the things -- it's not necessarily up to us -- it's where does the inflows come through. So, if you look at some of our competitors, they have extraordinarily concentrated funds, like as an example, [Skate Street] with $200 billion in assets, they have $50 billion in gold, and $95 billion in the Spider. Van Eck, which was mentioned, they have $16 billion in assets and $8 billion or $9 billion in gold mining stocks.

So, I mean if India were to take off, it could go to a much larger percentage and there's nothing you can do about it. So, it's potentially -- it's just something to be aware of. We're happy for the flows to come where they will.

Okay, thanks.

There are no audio questions at this time, we'll (inaudible) with Web questions.

Jonathan, we have a question from the Web from Chris Plahm at GCG Financial. Moving forward, assuming $15 billion to $20 billion in assets in the future, what type of leverage would WisdomTree have with regards to keeping expenses level versus expenses they have to rise with the asset rise?

Amit?

Sure. So honestly, our expenses would rise, we do have fixed invariable components to our expenses. You can get a sense of the variable portion of our expense rise if you look at our year-to-date results. You can see our revenues have more than doubled, yet our expenses have only gone up about 20%, and particularly if you look at our fund costs, you can see that's up only about 6%.

I would expect that -- it really just depends on the mix of assets at the time. So, it's really hard to say what the margins would be at a 15% to 20%, but based on the mix that we're seeing today and the 70% long-term margins that we did see that we have in the business, I would expect to have a pre-tax margins, something around 40% or 50%, at those levels.

We have no further questions from the Web. Turn it back over to you Jon.

Okay, well, if there are no other questions, we want to thank all of you for your interest and support and time this morning. Have a wonderful afternoon. Thanks, everybody. See you next quarter.

Ladies and gentlemen, thank you for your participation in today's conference, this concludes the presentation, you may now disconnect. Have a great day.