Q3 2020 Earnings Call

Welcome to the Legg Mason third fiscal quarter 2020 earnings call. My name is actually and I will be your operator for today's conference call.

Time, all participants are in listen only mode. A brief question answer session will follow the formal presentation. The other question. Please press one then for on your Touchtone phone.

If anyone should require operator assistance during the conference call. Please press Star zero on your Touchtone phone. Please note that this conference call is being recorded it is now my pleasure to introduce your host Alan Magleby head of Investor Relations. Thank you Mr. about Gobi you may begin.

Thank you Ashley on behalf of Legg Mason I would like to welcome you to our conference call to discuss operating results for the fiscal 2023rd quarter ended December 31st 2019.

This presentation 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 were 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 statement.

For a discussion of these risks and uncertainties. Please see risk factors and management's discussion and analysis, a financial condition and results of operations in the company's annual report on Form 10-K for the fiscal year ended March 31st 2019 under the company's subsequent filings with the securities and exchange come.

Mission.

During today's call, we may discuss non-GAAP financial information.

Reconciliations of non-GAAP financial information to the comparable GAAP financial information can be found in the press release and in the presentation. We issued this afternoon, which is available in the Investor Relations section of our website.

The company undertakes no obligation to update information contained in this presentation to reflect subsequently occurring events or circumstances.

Today's call will include remarks from Mr., Joe Sullivan, Legg, Mason's, chairman and CEO and Mr. peak knocked way Legg Mason CFO , who will discuss our financial results.

In addition, following their view of the company's corridor. We we'll then open the call to QNX.

Now I'd like to turn this call over to Mr., Joe Feldman Joe.

So.

Mr Sullivan weren't able to hear you.

Obscures me I'm, sorry about that.

Mike.

Good evening, a and thank you for your continued interest in Legg Mason.

As always we're I'm joined here by our CFO , Pete knock weight and this evening will review our performance for the third fiscal quarter of 2020 ended December 31 2019.

Overall I'm very pleased with our results as we continue to deliver on our four key drivers of value creation.

At a high level, we delivered strong operating and financial results Boyd by positive markets, which helped push you M above 800 billion. So the first time in over a decade.

[noise] results were also driven by the broad diversification of our business by asset class.

Type geography and vehicle.

It is this relentless focus on business diversification that expands choice for our clients and didn't turn creates resiliency in our financial performance for stakeholders.

So let's talk about how those for value creation drivers are working.

And as a refresher the drivers are leveraging distribution to drive growth.

Capitalizing on our investments to provide investors with greater choice.

More effectively controlling our costs to improve profitability.

And thoughtfully, managing our balance sheet and capital allocation.

So let's start with how we drive growth by leveraging distribution.

We benefit from having a broadly diversified approach the distribution client access and support.

We serve institutional and retail clients in the U.S. and around the world through direct and intermediates connections and with traditional an increasingly digital access portals.

At any given time, we're likely experiencing meaningful growth in select channels, while dealing with redemptions and challenges and others. It's just the nature of the business for firms of our size and scale and this quarter was no exception.

[noise] business trends in the December quarter were stronger in global retail channels versus institutional.

At some point this mix will flip.

Retail will soften and institutional will lead the way.

We generated robust net inflows across alternatives in fixed income well flow trends remained a bit more challenged in equities, which included a large 2.8 billion dollar sub advisory redemption that was reported in December and again, we're relatively certain this asset class mix will shift at some point.

<unk> equities outpacing alts or fixed income.

We continue to see greater client demand for more highly efficient vehicles, including see I teas.

Sundays, and especially T., EPS, where we see ongoing growth across our lineup.

We do see this shift in vehicle preference as more of a secular trend boding well for our investment in Precidian and its patented active shares methodology for semi transparent activate T ups.

More on active shares in a few moments.

Net sales of $8 million on our retail platform fiscal year to date reflects continued strength in that channel and represents our ninth our best nine months start.

Sales start to a fiscal year in our history.

Contributing to that strength in the quarter were net sales of 1.4 billion three international distribution, which was also our best quarterly performance outside the U.S. in nearly two years.

Main excited about the potential with active shares the S.C.C. approved semi transparent E.T.F. structure and the reception of it in the market.

14 firms have now license the technology through Precidian, which collectively represent more than 25% of U.S. equity mutual fund a U.M.

We notified Precidian last week of our intent to exercise our option to acquire a majority stake in the company and we will be working very closely with them to continue the build out of this important capability for our industry.

We're also in the market now with Clarion and they're real estate income fund C.P. reef, which is now available on three large platforms with more to come.

To support this important launch we've added a number of alternative investment consultants across the U.S. to support our field sales teams and advisor clients on funds specific issues and needs.

Quantified in which we have an investment and with whom we work closely as partners continues to garner interest with several of our global clients and in fact was recently recognized as Fintech company of the year and outstanding be to be Robo advice platform.

In Hong Kong.

Congratulations to are quite a feat partners.

In some oh portfolio of affiliates and unique investments is strong and diverse which helps us to continue expanding choice for clients, while diversifying and building a more resilient business for our financial stake holders.

Now moving to our third value creation driver, we remain focused on effectively controlling costs to improve profitability and very simply on this one we are ahead of schedule in realizing our annual Runrate savings target of 100 million or more by the end of March 2020.

One.

And we are pleased to have achieved over 80% of our runrate savings at the end of December .

Paint, we'll review more of our strategic restructuring progress in his section.

Our final value creation lever focuses on balance sheet and capital management.

How we manage the balance sheet and allocate shareholder capital is critically important to short and long term performance and our competitive positioning in the industry.

As always we take a measured and thoughtful approach and working with our board to evaluate and determine the appropriate mix of investment spending debt reduction seed capital needs dividends and share repurchase.

Having used cash to both reduce our debt last summer and absorb costs related to our strategic restructuring, we will be generating more free cash. So it is the appropriate time to engage actively with our board on these capital allocation decisions and I look forward to updating you.

On those plans in the not too distant future.

And one item of note to which I'd like to call your attention.

Related to the debt pay down from last summer, which I just referenced I'm pleased to share that are leverage ratio as measured by the street has now dropped below two times.

And while we may fluctuate slightly above that level on a short term basis do too seasonal factors. It is our intent to continue to work that ratio consistently lower overtime.

So, let's take a bit of a closer look at our results for the quarter, which reflect the impact of the value drivers that I've been discussing.

Well net flows where modestly negative for the quarter, a U.M. was up 2.5% or just over 20 billion to over 800 billion in total primarily reflecting healthy markets.

As I previously noted business in the retail channel continues to be especially robust as we are winning and strategies vehicles and channels that are currently in demand.

Gross sales in retail were down just slightly quarter over a quarter, but up meaningfully year over year.

And the combination of record sales levels, and historically low redemption rates make this and especially good time for net flows on our retail platform.

This is where our strategy of diversification and choice is working as data clearly shows that having more strategies with clients increases the persistency of the entire book of business.

Lead indicators across our affiliates remain broadly favorable including investment performance track records that were generally flat to slightly improved during the quarter.

And in particular more than 90% of our <unk> in fixed income and alternative strategies is beating their respective benchmarks across all time periods.

And while unfunded wins and committed but uncalled capital softened with fundings not having been completely replenished.

Almost all of our affiliates report activity levels and pipelines that remain elevated and well diversified.

[noise] turning to the P.N.L. net income and adjusted net income, we're both up quarter over a quarter and year over year.

Are operating revenue yield remained steady in the quarter.

Affiliate performance fees were up.

And as I mentioned progress against our strategic restructuring remains on or ahead of plan.

The resilience see we built into our business over the last five years is working well and the outcomes that I've. Just mentioned here have contributed to a nice improvement in our earnings and operating margin.

Now before I handed over to Pete I'd like to share a bit of a read on are expected flows for January .

As was reported and I think you know we were notified by a client late last month of a $2 billion outflow from a subadvisory equity mandate that has now redeemed as expected.

In addition, a 1 billion dollar performance fee only sovereign fixed income mandate likewise redeemed.

Now just to put these two recent outflows in context over the past few years. The combination of these two mandates yielded a bit less than 1.5 million in pretax profit annually.

Notwithstanding these two large redemptions and with strong inflows elsewhere across the enterprise and with winds that we anticipate will fund in the next couple of days, we should be roughly flat for the month of January .

Obviously, the month hasn't closed yet and surprises can always happen, but that's our best Intel right now.

And then closing.

Just like to reiterate that going forward, we really remain committed to managing our business in a highly efficient fashion.

Expanding choice through the diversification of our business to meet evolving client demand across investment strategies vehicles, and access which has the benefit of enhancing resiliency for our shareholders at the same time.

And with that Pete alternate over to you.

Thanks show I'll start off with some highlights on slide too.

Like Mason reported gap net income $75 million and adjusted net income of 93 million or one dollar and three cents per year.

We also made meaningful progress on our strategic restructuring efforts, where we ended the quarter at 81% of our targeted Runrate savings and we continue to project 100 million or more of annualized savings by the end of fiscal 2021.

Quarter N.A.U.M. stood at 804 billion.

Overall, we reported net outflows at 1.6 billion for the quarter is Joe just mentioned 2.8 billion Subadvisory redemption contributed heavily you are equity outflows.

However, we're very pleased that both are fixed income an alternative businesses generated net inflows.

Focusing on our global distribution platform gross sales remained strong at $21.6 billion with positive net sales of 1.6 billion. Despite the subadvisory redemption.

And looking at prospects for future flows investment performance remains strong was 79% and 83% of strategy a U.M., beating benchmarks for the three and five year periods, while 65, and 76% of a U.M. are being respective lipper category averages for the same periods.

Now, let's look at our affiliates on slide three four of our nine affiliates generated positive long term that flows for the quarter with inflows coming from a mix of fixed income alternative and equity managers.

Unfunded wins and committed uncalled capital were down from the prior quarter, primarily reflecting significant fundings at western and Clearbridge as well as some seasonality.

Looking ahead or pipeline of new opportunities remains healthy across as the classes and strategies.

Turning dislike for the S., a class mix of our unfunded wins and committed on call capital remains diverse with 46% coming from alternatives, 36% firm fixed income and 18% from equities.

While the unfunded balances down the underlying mix of wins and uncalled capital within each asset class remains well diversified across products and strategies.

Slide five highlights or global distribution platform.

Slightly lower on a sequential basis gross sales were up 23% from the same quarter last year.

And with our redemption rate at 22% compared with 29% a year ago net sales remained solidly positive at 1.6 billion and represent a sharp improvement from six and a half billion dollars of net redemptions in the same quarter last year.

Through the first three quarters of fiscal 2020 global distribution generated record gross sales, while net sales of 8.2 billion compared favorably to 7.8 billion of net redemptions during the same period last year.

Moving to slide six since I already highlighted our bottom line earnings I will move on to operating revenues, which increased by 11 million or 1% quarter over a quarter.

This was driven by an increase in non pass through performance fees as well as higher average J.U.M.

This quarter, we realized 29 million of non pass through performance fees, which were well above our forecast as a result of strong December quarter performance in strategies were annual locks of both and trust in western.

A performance fee eligible portfolio remains well diversified across hedge funds real estate private equity and a number of are fixed income and equity managers.

And it is important to keep in mind, we only record fees, when they're locked and not subject to clawback. So there's no risk of reversal due to market action.

Next quarter, we estimate non pass through performance fees that approximately $5 million to $10 million and pass through performance fees at approximately $6 million.

Finally, or gap tax rate came in at 27%, which includes the impact of certain discrete tax items, while our cash tax rate was only 6% for the quarter.

And for your adjusted earnings models, we expect next quarter's tax rate to be in the range of 26% to 28%.

On slide seven you can see that a U.M. increase for the quarter driven by market appreciation of positive effects, partially offset by long term outflows and realizations.

While our operating revenue yield of 36 basis points remain consistent with the prior quarters level.

As shown on slide eight operating expenses increased by 6 million on a sequential basis, driven by 2 million dollar increasing cop a benefits, primarily resulting from incentive increases related a higher net revenues.

We also saw a 4 million dollar increase in other expenses <unk>, mostly as a function of technology conference and T. any costs.

Trying to slide nine or cop ratio for the quarter was 54%.

From the prior quarter and in line with our forecast.

Salary incentives and benefits increase due to higher net revenues, partially offset by increasing things from the strategic restructuring.

Next quarter, we expect our cop ratio to come in at a similar reigns to this quarter's 53% to 55% despite some seasonal factors.

As shown in slide 10, or adjusted operating margin expanded by 150 basis points quarter of a quarter driven by higher net revenues and strategic restructuring saves.

Next quarter, we expect are adjusted operating margin to be down slightly due to lower forecasted performance fees and higher seasonal Cobb.

Partially offset by an increase in advisory fee revenues, given our higher ending at U.M. and increase savings from the strategic restructuring.

Slide 11, as a roll forward from Q. twos fiscal Q. twos adjusted E.P.S. of 95 cents to this quarter's one dollar and three cents per share.

Key drivers includes six cents from higher net revenues and four cents, an additional restructuring savings, partially offset by four cents in higher B.A.U. expenses.

It's like 12, we've updated the schedule depicting savings and associated costs related to our strategic restructuring program.

As you can see on the far right in the fiscal 2021 column, our savings target remains at $100 million or more well our costs to achieve these savings remain in the range of $125 million to $135 million.

In fiscal Q3, we reported 20 million of savings with Kim of the savings realize now at $49 million.

We expect a result realize an additional 22 million of savings and our fiscal fourth quarter bring our cumulative savings to approximately $71 million by the end of fiscal 2020.

We have now were achieved run rate savings over 80% of our target and projected capture over 90% by the end of this fiscal year.

In terms of cost to achieve these savings reported 18 million this quarter and we expect an additional 14 million to hit in fiscal queue for.

For the for fiscal year, we anticipate costs of 80 85 million with an additional 35 to 40 million to come in fiscal 2021.

Well that let me turn it back over to Joe for is closing comments.

Thanks Pete.

As we look forward to the final quarter of our fiscal year, we are heading in the right direction and continue to make progress against our strategic goals.

<unk>.

At eight sales and flow numbers earnings and margins have all improved and we're aggressively managing our costs moving toward our target of 100 million or more of saves as part of our strategic restructuring all while remaining committed to delivering on our mission of investing to improve the lives of our clients and performing.

For our various financial and other stakeholders.

Like many of our peers, we face challenging macro factors impacting our industry, but through the diversification of our business and a discipline mindset on costs, we remain confident in the resiliency of our growth in results.

And finally.

As the strategic restructuring, which we began just over a year ago continues.

I want to acknowledge the great work by the employees, who have left as a result of this restructuring and in particular members of our Executive Committee, who departed at the end of 2019.

Frank Cashman, Tom Hoops, and John Kennedy, All made valuable contributions don't like Mason over many years and helped guide us to where we stand today.

I want to personally thank them and all my leg Mason and affiliate colleagues for their dedication to our clients and shareholders and with that Ash will open it up for questions.

Thank you we will now begin the question and answer session in order to allow everyone. The opportunity to ask questions. We ask that she police limit yourself to one question and one follow up if you have a question. Please press one than for on your Touchtone phone if you wish to be removed from the queue. Please press one then three.

Using a speaker phone you may need to pick up the handset before pressing the numbers one moment, please while we pull for questions.

Our first question is from Elle cats with Citigroup. Please proceed with your question.

Okay. Thank you very much good evening, everybody thinks taking the question. So I guess first one Ah, Joe maybe just starting or or pay to starting on the the expense initiative that you're under way right. Now you continue to sort of including your discussion $100 million plus of savings I guess, you another quarter and you're running slightly ahead on a timeline to your your.

Base level.

So, let's talk a little about where you might use to make them l. opportunity for additional savings and when you might be able to sort of frame that out.

Yeah. Thanks, Bill and you know, we're actually a bit bullish on that front terms of you know expecting to to be able to realize some more in part because the organizations really you know taking this up a a very disciplined way and I think most of it going to go for it basis will come out of things like occupancy you know also look at the you know potential ways.

Outsource and and get more efficient from technology perspective, but at this stage you know, we we think the hundred millions a a good number to stick with and then we're cautiously optimistic around being able to report better.

Okay, and then just as a follow up just on Capitol adjust appreciate the fact that more and more to follow but she may help frame out just how you're thinking about priorities from here between you know d. leveraging in an absolute chance versus just growing either T.A. versus buyback, where the stock has changed today versus other other forms of deployment whether it be David.

One or two acquisition capital.

Yeah Bill. Thanks, I mean, you know will be a a little bit tiresome, maybe on this answer because there are position with respect to capital allocation and and our priorities for our excess cash really haven't changed as we've said before you know we think about our access caches discretionary we focus on you know once once we have.

Taken care of our cat backs our tax obligations are dividends are debt service.

Ongoing needs proceed and I would say that's one thing that has been increasing all of our affiliates are are active in product development and so there there are increasing I would say needs for seed capital, but look we've we've been focused on paying down.

Paying down debt, which we did it last summer that you know with that pay down. Our next maturity is about four and a half years away. So we feel good about that and and I think now is the time as we've you know we're we're getting almost through this 100 million dollar strategic restructuring initiative cash will start building at a at an increase level in a more.

Robust level, and we need to talk to our board and we'll be talking to our board about how we deploy that and and you know some of it will maybe building cash on the balance sheet to to continue to do whatever we really don't want to stay focused as best we can on keeping under two times and we're committed to to you know remaining focused on that but then we're also going to look at dividend then we're going to look at.

You know share repurchase and we'll have that conversation over the next quarter. So with our board and then we'll report out to you as soon as we can be more <unk> more definitive on that.

Thank you next question, it's from <unk> from RBC Capitalmark. Please proceed with your question.

Hi, Thanks for taking my question just one on on the Precidian <unk>, what's the latest updates and thoughts on a potential for seem product launches novice yeah. Thanks.

Thanks can look it's it's been a big week really for the T.F. industry generally in for Precidian with the with hands I.D.T.F. conference going on down in Florida, It's kind of their seminal event of the year.

Discussion down there and I've see I'm sure you've seen all the articles around semi transparent activity absent in particular, a lot of conversation about active shares which is exciting there's really significant momentum that's continuing to build as I mentioned to me.

Prepared remarks, 14 signed licensees really a blue chip list of asset managers that are licensees, representing you know more than 25% of active U.S. equity a mutual fund to access a assets.

There's something on the order of 50 or more contracts outstanding that's up from 30 538 from last quarter you probably recently saw that Goldman filed for Exemptive relief mid month here.

And now as you know a certain applicants can use the short form application to expedite the S.P.C.'s Exemptive really process. So you know right now we've been working all in the the the our partners of Precidian than kind of all in a we've been working with them and working really hard with the trading.

Community, which will ultimately be the support for active shares.

In testing the legal and operational ecosystem, and we think that's been going really well and we're hopeful that the first E.T.S. using active shares will launch soon we expect that to be with American century quickly followed by a lake Mason Slash Clearbridge. So and then you know just as an update.

Mentioned in my prepared remarks, we did notify per city and last week of our intent to exercise our option to acquire a majority of the stake in the company. So we're excited about that.

Great very helpful and just one quick follow up if I may just to follow up on on that prepared remarks in terms of unfunded pipeline Wonder if you could just broadly comment on what you're seeing in terms of institutional <unk>, kline, either sentiment or or positioning <unk>, how that's potentially impact.

Acting the unfunded pipeline. Thanks, Yeah. Good question I guess, let me, let me maybe for take it out a little bit of a higher level, you know and I I think I said this on the last call unfunded winds are are are important but they're really just one data point, when we think about and try to project our business.

They're an important data point, but they're just one and so when we think about it there really are multiple factors that go into what we would project or look for in terms of the growth of our business and those would include things like the demand for particular strategies or the investment performance that we have in those types of strategy.

And so the good news is for US we've got solid invest for solid investment performance broadly speaking across the platform. We've got a very strong activity pipeline. That's what we hear from virtually all of our affiliates.

In high Investor demand categories, such as fixed income non U.S. equity alternative strategies.

And so I look at it and say money many of the pieces are in place for unfunded winds to start building again.

But I think the perspective, you know that I'd like to offer is that our businesses. So much more and so much bigger than just our unfunded wins or committed but uncalled capital, but we we report that because those are contractual commitments that clients make to us. So we think it's important to share those with you, but the reality is.

<unk>, we know and and frankly, what our <unk> counterparts and other parts of the industry have the same experience we experience a significant amount of sales and redemptions on a daily basis that quite frankly, we just cannot project with precision and just to kind of put that in context hour unfunded wins.

In the aggregate typically account for somewhere between just 10% to 15% of our of the total quarterly sales that we experience. So we've said in the past for every dollar we have an an unfunded when we expect about 50 cents or that about half of that to fund in the next quarter and so that that amount that funds in that.

Quarter typically represents 10% it can be a little less can be a little more but we covered it 10% to 15%.

The total quarterly sales so we've got a tremendous amount of flow in and out of the platform and so you know we have some visibility, which we share in terms of unfunded wins and committed but uncalled capital to try to give your sense for where flows are going on where the appetite is but it's far from complete <unk> you know visibility around our future flows so what we've been.

Pleased with the daily sales activity that a cruise scurrying across our affiliates and across our platform in a different client channels supplemented by the findings of our of our unfunded wins in a committed but uncalled capital book, but you know I'll just go back to the bottom line is are the the activity level with our institutional clients.

And the pipeline remains very very high you know, maybe Joe I might add to your point can what are they specifically looking for I think we're seeing really strong demand for fixed income, particularly.

Called next generation types of fixed income going be on core core plus they're looking for alternatives. We're looking for solutions. So that I think those trends that have been out there for awhile and they they continue.

Thank you. Our next question is from Craig's Siegenthaler from Credit Suisse. Please proceed with your question.

A good evening Joe Pete.

I just wanted to dive deeper on the first question on Capitol can you remind us how your seed capital has been growing and we'll that continue or can you recycle out of some of the older funds as they mature to meet future I need some product innovation.

Yeah sure Craig's Pete actually are are balance sheet investment and seek apples actually been coming down and it's been in part because of are managing it aggressively from a recycling standpoint, but it's also because of us putting in place kind of a novel approach from a T.R.S. standpoint, or total return swaps. So we've been fun <unk> a lot of.

Well, we call you know kind of launcher accelerant capital for you know new products were.

Distribution partners are looking to get them on their platforms right away without a track record, but typically they want to see a a larger amount of see going.

To the tune of 20 $550 million versus a typical you know just long term r. and d. as we call. The type of seat investment is typically in the two to 5 million right. So you know we've been we've been able to to help the affiliates and global distribution launch more products, but actually with less money on the balance sheet, but it's Joe said, we were seeing you know there's a tremendous amount of.

Interest in terms of new products and the capabilities that our affiliates have and you know we definitely don't want to short shrift them on this on the C.C. capital I think <unk>, we have done a really good job at recycling, but the requests are more and the requests are alert typically kind of larger wood, but yes yep.

Thank you guys.

<unk> sure correct.

Thank you.

Next question is from dead Fenton from Jeffries. Please proceed with your question.

Thanks, Good afternoon my questions on the Subadvised business that you from Clearbridge. Both in December and January curious is from the same strategy. It also just generally you know kind of how much subadvised business is should we think about within the kind of the clearbridge construct of the roughly 154.

Million that they have.

I would say the the the outer the sub advise redemption.

In <unk> in December was clearbridge, but the larger Subadvised redemption in January was at Brandywine.

And so they were different and then obviously the the performance fee fixed income mandate was actually at western So it was wasn't <unk>, it's not concentrated in any one strategy.

The size of the S. a may book is roughly.

And I have to look about 70, roughly 70 billion or so at at Clearbridge.

That's well that's that's no no that's where I met some sorry, I mean, given you're wrong number because that's retail estimate right. So I don't I don't have that number down I'll have to get you. The exact total it's not a huge portion of their book, but I'll get it for yeah I'll get the number for you.

Okay. Thank you and then just as a follow up you know <unk>. Nelson tells has been on your board for a couple of quarters now and we've yet to hear much in terms of what he would.

Like to see from from you guys need any change that may occur and obviously I assume that comes with next Monday next quarter next update with regards to the capital return, but I guess any kind of update around his thoughts around what you guys could or could could be doing more or would like to do on a go forward basis.

I I you know again down I think I've said this before and just have to repeated you know I think I'm not going to speak for for Nelson or or a garden or for trying but <unk> I, what I think what I see on what they see I think is very similar the the need.

The opportunity to continue to operate more efficiently and P. talked about the fact that you know while we're not announcing any greater saves beyond 100 million. We do think there's some potential it's not going to be quantum's, but but we do think there's a mindset right now towards constantly looking for more opportunities disable we're going to be focused on that and I think that's something that that try and.

You know feels and then and then it's effective.

How how can we operate more effectively and how can we drive growth and and we are very much aligned with them and both of those you know both of those folks the focus on both efficiency and effectiveness.

Thank you down and by the way I don't know if you've jumped off but in total for a across I just got the number across the platform. We have about 45 billion and Subadvisory mandate. So that would include you know not just clearbridge, but western and Brandywine and others. So total a 45 billion subadvisory mandates.

Great. Thank you.

Thank you next question is from Chris Harris from Wells Fargo. Please proceed with your question.

Thanks, guys.

So it's very strong quarter for flows outside the U.S. on the retail side guys, maybe talk a little bit about what's resonating internationally and maybe what affiliates are products are doing strictly well [noise].

<unk>, you know and I think christen it's.

Really a testament again and now we keep hammering the diversification thing, but it's really working for us. So as you know and you've been following us for a long time, we've had historically just a very strong flows out of Japan. Those have softened about this year, but the good news is Australia has been just really strong we've had I think <unk>.

Net inflows in Australia, I think for 14 straight quarters, we've seen the business our business in Asia is about as strong as it's been.

In that in in memory, Europe , which started the year a little bit softer has come come back on and so what we're seeing is diversification between the U.S. and international with the international side picking up a little bit more on a relative basis, but also diversification within the international side.

Terms of products you know one of the one of the areas with Western that you see for example, a very strong product offering for westerns macro opportunities, which has got just terrific performance and is very attractive as sort of an unconstrained fixed income offering we were seeing very strong interest in corn core plus but also.

So for on the equity side, with Martin Curry, and and and emerging markets gems their gems strategy, we're seeing good interest.

In our Australian.

Astray, an equity offerings. So it's fairly diversified across really I would say Martin Curry in particular, there's royces had some success with one of their international a small cap offerings global offerings.

So it's been fairly fairly broad, but I would say global emerging markets and I would say macro ops have been to really biggies for us.

Thank you.

Thank you are next question is from Jeremy Campbell from Barclays. Please proceed with your question.

Hey, Thanks, too quick fell off on Precidian I mean.

You guys have given your notice to step up your stake in there can you just help us think about how to size that increase by in from a capital deployment perspective, and if that would be kind of cash on hand or some other financing.

Yeah, It will probably as Pete Jimmy <unk>, we'll do catch off the balance sheet and it's as it's been disclosed it's $25 million in terms of the the option exercise.

Got to think so much.

Thank you out next question, it's from Robert Lee from KBW. Please proceed with your question.

Great. Thanks to take my question is <unk> first one is you know I apologize had some film problems I've made Mrs. Batik you just.

Go over what how we should think of you know come to that revenue.

Going forward until you get back items, but you, but I Miss at this time.

The <unk> cop ratio.

Yeah Yeah.

Yeah. So we're we're we're looking at 53 to 55 and getting normally which you know we're actually quite pleased with because typically March in June you know quarters are are higher because a seasonal factors is social taxes kick back in and four one k. contributions et cetera. So.

Again, it's just another sign you know tangible sign that the the cost savings are real in terms of what we've been driving.

Okay, Great and then maybe you know just a philosophical question Joe in a way, but you.

<unk>, if I think about the.

A lot subadvisory mandate that it kind of flowing out and as you point to that you know pretty kinda marginal contributors to.

Your earnings and you know low fees ones, just before him and see so you know there any how do you guys think about new Mandy you know I mean.

Kind of.

I thought <unk> thought Gee, maybe you know those kinds of things that may be profitable, but is it really kinda worth it you know that more of an affiliate decision starting get at you know, they're really pay for all the.

Large.

Mandate that.

Don't earn much you know at the end of the day, but kind of.

Create a lot of you know unfortunate noise from Korea or yeah.

Yeah, I wouldn't look I think you know broadly I mean, there's p. pressure all over the place <unk>, you know it impacts us and and no differently than anyone else I wouldn't extrapolate you know we <unk>.

The the <unk>, we talked about the the relatively low impact of the of the outflows in January .

The I wouldn't I wouldn't describe the same profitability to the frankly the outflow in December so we called out the the relative contribution of the you know $3 billion worth of on a collective basis, the $3 billion because it is unusual that those 3 billion are on the on the lower side.

The the Subadvisory businesses are very good business for us it it.

You know, it's competitive like any like any other business and fees are under pressure everywhere and everything else, but it's a very attractive and profitable business for us. So I wouldn't I wouldn't extrapolate what we called out for those two particular outflows to the rest of the Subadvisory book, It's a good business and our affiliates we worked very closely in part.

Her with them on on all aspects of it winning the business pricing the business servicing the business, but it's a good business force there's no doubt about it and it's you know they tend to be oftentimes stickier assets as well just given the nature of the relationship.

Thank you. Our next question is from Patrick Dab It from a ton of US research. Please proceed with your question.

I think it's guys I have another question on Subadvisory mandates. Thanks for the 45.

Yeah, we're seeing kind of a drip drip of these large mandates.

Kind of across the board.

<unk>.

<unk>.

Concern. This was a book of business that is broadly becoming a bit of a permanent melting ice cube for the industry or is there something idiosyncratic that's been happening over the last year. So that it's cause redemptions to increase across the street, it's any thoughts around that would be helpful.

Look I don't I honestly, I don't think I've seen anything at a high level that would suggest that subadvisory mandates are you know a melting ice cube or anything like that I think of anything there. There would it may be actually Patrick is is what we're seeing and other aspects of the business whether it be on the on the platforms or even.

Other institutional type relationships, where people are consolidating relationships and so you might be seeing you know some consolidation away from you know smaller or other managers, who to to fewer managers. We are seeing that and we're in some respects a beneficiary of that I think we're not <unk>, we think that even these clay.

Fancy Subadvisory classifiers want to benefit from you know dealing with scaled diverse.

You know <unk> asset class managers and managers, who not only have the the individual managers, but can also bring them together as we can with Q.S. and so I don't I don't see that business really declining I do see a potentially consolidating a little bit which is what we're seeing seeing elsewhere.

Okay.

Follow up on.

January .

Under the guidance you gave on those big redemptions, only having one and a half million of pretax profit head is it fair to.

Sitting in flows are much higher.

Of the flat flow could actually be net positive operating income.

Yeah, I think that's a reasonable expectation I have to tell you that the the January from the retail perspective globally as Ben just extremely strong month, and so that tends to have higher fee rates as you know and there's been no really I don't think any really big lumpy wins and they're they're.

Has been some good top ups from from some of our platforms and things like that but there's been no huge lo Fi mandates that have come into that there's been a lot of fixed income continuing with corn corn plus and then good diversification you know with some alts and things like that but I would I think your premises right that even with 3 billion out.

Even if we're flat from a flow perspective, we should be a creative from a revenue perspective, and you know this like I say the retail the retail business right. Now is just very very strong.

<unk>.

Thank you next question is from Michael Cyprus from Morgan Stanley . Please proceed with your questions.

Oh, Hey, thanks for taking the question just circle back on your strategy around expanding choice for clients I guess, just as you think about that you think about the pop form they have today.

Or any sort of gaps are areas that you're looking over think about improving and how does that tie into any sort of appetite around bolt don's team left out through even acquisitions.

Yeah, I think micro you've kind of hit it where we've been focused you know we did a we did a few larger transactions about.

Three four years ago and since that time, we have continued to make smaller investments alongside our affiliates.

In it where we can to help them strengthen their platforms and diversify their platform. So as you know, we we worked with Clarion partners to bring in and acquire small U.K. from Grammer see partners to kind of expand their reach and expand their capability and that's the kind of thing that we will continue to do where we can make smaller investments to support our fill.

That's that's what we've been working on more over the last few years as we've kind of what to digest some of the bigger deals we've done and then get them in and commercialized in the market. We've also made some investments in you know in in you know again in Precidian, obviously, which is more of a vehicle capability and then and things like quite a feat in embark which are are more.

Access capability. So you know again, it's about diversifying choice of strategies are capabilities vehicles, and access and we've been making smaller investments in those and I think we'll continue to do that.

Great interest, maybe a follow up similar but more on the organic side I guess, just how does that kind of tie into how you guys you're thinking about launching new products and strategies. There just curious how you're thinking about that approaching that in terms of prioritization and what strategies can make sense to <unk> to mark.

Over the next year too.

I think increasingly the way I think about a Michael is what are our our affiliates across the board are always working on <unk>, new creative strategies that they can you know that as we talked about we seed and and and those things take time to to germinate into.

Season to see if they're actually strategies that are salable, and and and and work and things like that I think are bigger opportunity quite frankly is in taking existing strategies and making sure that we can get them in all the vehicles that so that there's greater vehicle choice, others, and we've recently been bringing more of our affiliates.

Onto our retail estimate platform in the U.S., that's a positive races coming on that platform. We brought Martin Curry on that platform I believe we're bringing rare on to that platform. So taking existing strategies that where you can expand your market opportunity by by moving existing strategies beyond just the mutual fund vehicle or the cross border vehicle.

Into other vehicles I think that's incredibly important and then working to get those strategies on two different distribution or access platforms and that's what we've been doing that embarking quantum feed and things like that so I think it's yes, we will continue with product development, because that's the creative R. and D. that are that we like to do in our affiliates like to.

But in the meantime, we need to find ways to continually commercialize that which we already have and get it in the marketplace.

Great. Thank you.

Thank you and our last question comes from Brian Bodell from torture bag. Please proceed with your question.

Great thing to get even got.

Oh and maybe Jude.

You just to add on to a a <unk> earlier question inactive shares Lawrence I think you said American country, and and clear rich or other likely to for is to come in I think you said soon I was trying to get a little bit more granular granularity around that it that more like the second quarter or.

Or so are we kind of crashing into the second half and then just maybe some categorization.

Have you mentioned, obviously, you're working with the market structure participants on this is that sort of the mean hurtle holding it up or are there. Other other things that are that are keeping the actors and being launched in in in the real yeah sure.

No I I first of all I I would be disappointed you know I want to be careful because I don't I'm not trying to putting pressure on on our regulators here, but you know I think we feel like we're moving in the direction, where we've got a shot for it to be this quarter. We're hopeful that it's a quarter, but you know it could spill over it just depends there's nothing really Brian holding.

It up in terms of you know big bumps, it's just about putting the pieces together of the ecosystem and it's really the trading functions. The eighties, an A.P. wraps that need to kind of get put together and making sure that plumbing is all working and the both the legal and operational side. It's nothing that's extraordinary it's just getting it.

Lined up so that it works properly and we're not going to go until we're very very confident that it's ready to go in but but I don't see there being any we don't see we don't see there being any regulatory or any operational big hurdles. It's just a matter of kind of getting this ecosystem. This community trading community that's going to support it together to make sure we've got.

All the pieces ready to go and and when it launches it works and we're confident that will be.

Yeah, Okay, no that made that that makes total sense and then it needs to follow up on obviously E.S.G. is becoming increasingly how topic recently what are you hearing from a client in terms of your demand for your products, how how do you guys feel that your position.

If if you know the flu organic growth situation turns in favor of E.S.G. and.

Intermediate term yeah, you know <unk> I don't think we well first of all two things one we think we think about E.S.G.

You know I at least I think of it and I think we think of it is in two aspects. One one is how do we incorporate E.S.G. into what we do as a business and also how do we think about S.G. in terms of how we run the company. So there are two kind of separate components. When you think about how we operate as a business you know.

Thank you know this but we've because we've set up before but all nine of our affiliates R.P.R.I. signatories. We've got already just under 300 billion of long term assets that are in investment strategies that do utilize E.S.G. factors and and that's you know.

And that that data is a little bit still so it's probably a higher number at this point, but that's that's about 43% of our long term A.U.M. or thereabouts.

I would tell you that I think all of our affiliates use it differently. It's not a nice to have it's not let's you know kind of a check the box thing anymore, <unk> E.S.G. factors and incorporating that in the investment process is is really I think tables takes these days. They couldn't is is we've got all of our affiliates.

As I said R.P.R.I. signatories and I think about in particular clearbridge in the U.S. and Martin Curry internationally, who really our leaders in this regard and so would the and and who are known in the industry for that so it's you know it's it's an exciting time, it's an important time as it relates to to the investments and how we.

We're on our business and then at the Lake Mason level. We also think about E.S.G. in terms of you know how we run the company and there are a number of dimensions that we think about when we think about E.S.G.. We think about you know are we governing with responsible corporate practices, what kind of employee experience are we.

<unk>, what is our commitment to sustainability into the environment as a company what is our community engagement and then you know one of the most important priorities it not <unk> clearly a strategic priority for us as our commitment the commitment to diversity and inclusion and we are very active in that front, we've actually been.

Recognized in some regards we have a wonderful chief diversity officer, who has has made a real difference with us over the last a year plus that that she's joined US. So you know we yes. G. is is just part of both our business and the way we run our company now.

Thank you that concludes that question and that's a session I would like to turn the floor back over to Mr. Sullivan.

Thank you <unk> and thanks to all of you for taking time to be with US. This evening, we very much. Appreciate your continued interest in like Mason and as always I want to recognize and thank my affiliate and Lake Mason colleagues for all they do for our clients and first stakeholders.

And the strong results that we delivered the C. evening are due to their collective efforts I appreciate it and I want to thank you and now before I sign off I do want to thank and congratulate one individual in particular.

Body in the room years looking at me because if they didn't see this in my script, but that person is camille need and she's with our U.S. product team in New York and Camille today celebrates her 30th anniversary with the company, which in today's World. I think is really extraordinary and I gave her a call a little bit earlier and I asked her I said.

You know how is it that you have stayed with one company for so long and I think I I bring it up because I think her response conveyed really wonderful wisdom. She said Joe the company has kept changing over these past 30 years. So my role in my job in my work have kept changing all the time and that's kept things really interesting and exciting and I think were.

From my standpoint, I think that's just a wonderful perspectives on behalf of like Mason and all of our stake holders I want to thank Camille for 30 years and years to the next 30 and for the rest of you on the call. We we look forward to update you on our progress again next quarter and with that Ash, we're going to sign off so thank you all and have a nice evening.

This concludes today's conference call. Thank you for your participation you may know disconnect <unk> at this time.

[laughter].

Oh.

Right.

Hmm.

Right.

Huh.

Huh.

Okay.