Q1 2020 Earnings Call

During the call all participants will be no listen only mode. After the presentation that we will conduct a question answer session to be attitude. The Q. Please press star followed by the number one anytime during the call. If you nutrition operator, Please press star followed by zero.

He is noted this cold beer recorded today Thursday May 720, 20 at 11 am Eastern time.

Now, let's turn the meeting over to Brett Feldman head of corporate Communications. Please go ahead.

Good morning, and welcome to Great <unk> conference call to discuss our results for the first quarter ended March 31st 2020.

Before we get started please note that we may make forward looking statements about our future business and financial performance.

Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Additional information regarding these factors appears in our SEC filings, including the form 8-K filed today containing our earnings release.

Our 2019 form 10-K.

Any forward looking statements we make on this call are based on assumptions as of today and we undertake no obligation to update them as a result, because new information or keytruda that.

We will also reference certain non-GAAP financial measures.

Formation about any non-GAAP measures referenced including a reconciliation of those measures to GAAP measures can be found on our website along with the Clive Meanwell used as part of today's discussion.

Finally, nothing hearing she'll be deemed and offer or solicitation to buy any investment products.

Turnaround on our President and Chief Executive Officer will get the call and now I'm pleased to turn the call Orchestra.

Thanks, Brett.

Good morning, everyone and thanks for joining us today.

First of all I hope everyone on the Paul and their families are healthy and well.

I'll start with all the people who have been impacted by the vital.

On behalf of the bright your family I want a sincere thanks.

Courageous healthcare workers will happen on the front line, Bob linguists prices.

Turning to our business, let me start with like five of the presentation.

And provide some key updates on our business in the first quarter.

We reported <unk> per share a 47 for the first quarter up 2025.

I mean look we reported for the first quarter 2019.

Why in our revenue declined compared to a year ago quarter due to the impact on our UN from the market decline I.

Our continuing discipline on the operating expenses.

Okay and variability on other major cost item.

Reduce the impact of the revenue decline on our.

And then our repurchase that helped us to maintain our economic or share.

After the first quarter last year.

We expect like we won't see more of an impact on the market decline on our revenues and earnings in the second quarter.

During the fourth quarter reflects reduced or you.

Net flows for the quarter $1 billion alternative for the first time since Q1 18, as we saw growth sales increase.

Secondly, in our quantitative strategies in quoting managed well with somebody non U.S.

In fact are driven strategy.

Let me now share some key highlights on each of our three seconds.

In our quantum solution segment.

We were pleased with a strong investment performance as our largest business Acadian outperformed their respective benchmark in the fourth quarter and 67% I'll go strategy is by revenue.

Oh, Dan to further improve on their continued strong long term track record.

<unk> three five and 10 year period.

In our own corner to segment.

We have shared previously this year, we are embarking on our next month its fundraising cycle.

<unk> three key secondary strategies.

Equity real assets and realistic.

The demand for private alternative asset class continues to be strong.

At the same time, the availability of second reinvestment opportunities is expected to increase in this environment.

Some sellers enough to shore up liquidity or rebalanced portfolio.

We continue to be hopeful about our fundraising targets in the segment.

We have previously communicated.

Oh, we do expect a delay in the timing of the opposite raises.

Due to the travel restrictions and disruptions in the normal fundraising costs Oh.

As a result of the virus outbreak.

In our liquid allfast segments, our largest affiliate in both segments Barrow Hanley.

Posted improved sales in large cap value and global equity strategies, which turned out not low positive for the quarter.

Well the segment overall.

Flows I'll still negative.

How much improved being negative 1 billion in the first quarter up 2020 compared to negative 3 billion in the year ago quarter.

I now turn to slide seven.

To recap our strategy for the company.

As long as share an update on that front.

As we announced last month.

We have made some changes to reposition our corporate center.

And simplify our growth strategy to be much more targeted.

I stepped up to the CEO role to lead that targeted approach and I'm looking forward to the continued progress of our business.

The primary basis, although our growth strategy is really the four section on the page our strong long position mix of.

More than two thirds of our business comes from two area.

Onton solution, which is primarily driven by Caribbean and alternatives, which is primarily driven by landmarks.

Were seeing secular growth tailwinds in both these areas.

Each of Acadian landmark.

Leading scam players in their respective shields.

And both have completely self sufficient operations.

And for me belt global distribution infrastructure.

We had been maintaining additional distribution.

The center to supplement the direct distribution, we have do you still get level.

We found that'd be supplemental backwards or not very productive.

Given the specialized nature of Acadian landmark strategies.

That's especially lets turn distribution resources that'd be affiliate problem.

On a much better place to produce sales were up a generalist resources from the Sun's or more or less effective.

With our other affiliates to Endoleak without one segment.

Contribute remaining third of our earnings.

We found that the affiliate novel effort.

We're much more productive and centralized efforts due to closer coordination with investment coin service teams.

But since the supplemental distribution and are related efforts from the center.

Proving to be somewhat redundant.

We decided to discontinue these efforts.

Going forward, we would focus our distribution up or exclusively I'd be a fun to get lumpy.

Our larger in affiliate Acadian landmark already have well be built distribution organization.

And the feldstein at our other or somebody else on appropriately sized whatever buttons.

We are doing select additions as appropriate in some cases.

We believe that targeted approach is much more instructive in generating sales.

And the cost savings at the center from the implementation of this approach well add $20 million to our pretax you know I My 2021.

Going forward, the corporate center with focused primarily on capital allocation.

Our businesses generate strong free cash flow and willing focus on deploying that's free cash flow attractively to one seeding new products for our failure.

I can drive future growth.

To maintaining a strong balance sheet.

And three repurchasing our stock given that our stock trade at a meaningful discount to fundamentals.

Our number one regarding seating opportunity.

Well continue to encourage our affiliates.

Simply innovate for their clients.

And develop new strategies.

And number two our balance sheet continues to be strong.

Our net leverage ratio increased due to lack.

As of the end of the fourth quarter compared to 1.7 there.

As of December 31, 2019.

The increase was driven by seasonality.

As we pay majority of our variable comp in one to what we then built up cash from Q2 Q4.

Looking ahead to the next few quarters, we plan to fully paid down, but 220 million drawn on our revolver.

And we will then increase repurchases thereafter.

And continue repurchasing our shares as long as they trade at a discount to the fundamentals.

Given our stocks trading levels.

We believe that repurchases are much more optimal weight of returning capital to shareholders compared to dividend.

We reduced our dividend from 10 cents to one sent a quarter per share.

Year to date, we have repurchased 6.4% above our outstanding shares for about $34 million.

He is your debt repurchases have been at an average price.

Oh 615 per share.

What's your three and a half time, our 2019 as.

Dollarsseventy six per share.

In summary, we've adjusted our approach to growing our business.

And creating value for our shareholders can be more simplified direct and targeted.

Slide eight summarizes the key aspects of mutual barge segment.

And demonstrate the strength of our business mix.

On the left is our quantum solution segment.

Comprising 53%.

<unk> earnings.

It's primarily driven by Katie.

This business is well positioned because our broad on capabilities and technology allow us to effectively provide the specific soldiers the declines desire.

For example in the first quarter.

The extreme volatility and market chaos.

We saw increased demand for our managed to volatility and factor a specific strategies.

Another example is our multi ethnic about strategy, which we see there's a couple of years ago and leverage the core technology to offer a customized the ball multi asset class solution beyond equities.

We're seeing very good point momentum in the strategy.

In the Middle is our alternative segment, comprising 18% of our earnings.

And it's primarily driven by landmark.

The business is very well positioned for growth.

Because the demand for private alternative continues to grow.

And I couldn't be strategies can efficiently meet that growing demand.

Deploying capital quicker, while providing diversification across GP fun vintages and underlying investments.

As I mentioned earlier, we are embarking on our next vintage fund raises across key strategies in the segment.

And our confidence in our growth.

On the right is our liquid alts, one segment, comprising 29% of earnings and it's primarily driven by better with him and he has definitely.

In this segment, we provide a mixed some fundamental long only strategies in equities and fixed income across capitalization ranges and regions.

This segment diversified and complement our overall business well.

As you know, we generally have a value oriented investment philosophy in this segment.

Brought the affiliates.

Value has underperformed gross for almost 12 years.

Putting recently I'm in the virus outbreak.

We believe the segment would be lumpy positioned to benefit.

When volume returns to thing.

Slide nine shows the current composition of our business by segment.

As I mentioned more than two third of our business isn't quantum solution an alternative segments.

Well the upcoming fundraising and the alternative segments.

And continued growth in quantum solutions.

We expect the disproportion will increase.

Turning to our flows on slide 13.

We saw positive load the 1 billion.

Net inflows and quantum solution and alternatives offset net outflows in liquid also.

Looking ahead, we are encouraged by these trends and are hopeful.

The fundraising in New York wondered if segment will pick up pace.

Near the end of this year and further highpower smoke.

I would like to touch on one more point on our balance sheet on slide 19.

We discussed earlier, how our net leverage ratio increased from one point sevenx to two x.

Due to the seasonality of paying bonuses in the first quarter.

You may note that our gross leverage increased a bit more from two acts to doing a habits.

This was because we drew down incrementally on our revolver to set aside a meaningful amount of excess cash compared to our normalized levels of cash.

You would have been comfortable with around 50 million of cash compared to the 125 million, we actually carried at the end of Q1.

In order to be prepared for a variety of extreme scenarios.

Now I'd like to turn the call back to the operator.

Happy to answer any questions you may have thank you.

[noise] at this time those questions should look at their phone receiver and press star followed by the number one on their telephone keypad to cancel the question. Please press the numbers fine. Please hold for brief moment Wally compiled the Q1 day roster.

Your first question comes from Craig Siegenthaler with Credit Suisse. Your line is open.

Good morning, everyone Hope you all doing well.

I wanted to start with the at the landmark affiliate just given the restrictions on traveling in person meetings, how should we think about the magnitude and timing for landmarks upcoming fundraising cycle, which you. Initially it was expected to be larger than the last one.

Hi, Craig Hope you're wrong.

Okay.

Yeah, I guess, you know in terms of the side.

We are.

We are expecting the thing size, if not larger as I said earlier in terms of demand there continues to be demand for that.

Asset class.

Particularly with all the volatility in the market.

They have produced consistent returns historically.

And in terms of supply we would affect more supply.

More live investment opportunities to show up.

As potential southern look for liquidity often time, so yeah location to private asset class me may become bigger than they would like so there are variety of factors that we saw around a little bit financial crisis last time, but generally its supply.

So those are all helpful factors in terms of the overall side.

And we're optimistic.

In terms of timing or there are we did see.

Some disruption in terms of clients just getting some lynne do the work from home environment or just being distracted as to what's going on or we are continuing afford oh, the client interactions with videoconferences and audio.

Email, obviously all of the digital channels are available.

But no there is.

Definitely an impact and timing so.

So it's hard to know how much but we would expect.

One to two quarters Goodbye.

But the same side in terms of where we end up ultimately would expect isn't the same size, it's not that it's not better.

Got it and my follow up you know now that a lot of the central functions are gonna be terminated how wouldn't bright sphere consider interests from a third party asset manager that is looking to acquire one or maybe all your affiliates.

Yeah, the as a public company of course, we we are.

We wouldn't be responsive to anyone but doing that.

Indications of interest that recognize our true value.

Oh, so so we would jobs from time to time, if they're already legitimate inquiries me, but we would look at them.

But no, but we don't think it it impacts.

You know to a material nexsan job.

That dynamic because obviously if it was.

The had an acquirer or that had fully built in.

Infrastructure.

Would always be.

Be able to realize the synergy.

Oh from comparing to headquarters.

So that fact that'd be have already moved some of the redundancy.

Yeah, I admit that may help in does and the particular scenario.

Oh, that's used that you were out nine.

But our failure.

As I said earlier or are you selling sufficient.

And ER and have welcomed this approach because.

They they get greater autonomy, which youre, which their clients really like to see how they always had economy, but no with supplemental distribution effort going there was a need for a time coordination and that that frees up that.

Not only the.

The bandwidth, but also.

Makes it easier to operate even more autonomy.

So we think on all of those factors are.

Our household from running our business saw as this or from the perspective, I guess you outlined.

Somebody wanting to have water.

Thank you sorry.

[noise]. Your next question comes from Kenneth Lee with RBC capital markets. Your line is open.

Hi, good morning, and thanks for taking my question I'm, just wondering given the changes indeed overall distribution strategy, what what's your current thinking on distribution opportunities outside the U.S. and are there any changes in emphasis in particular regions. Thanks.

Hi, Ken.

On that.

One of the other things we found just be because we have reviewed our distribution for a long time, that's always been a discussion.

How are we couldn't be more effective in terms of distribution guarding the centralized efforts.

So one week.

We found that it would just much more effective at the I'd be affiliate level.

But the one other thing, but we have you found was that no any approaches to any new market or channels.

Just much more effective but the specific product.

You know and a specific line as opposed to abroad entry into a market without having a product that's that's ready for that market.

So so that's what we will love you know we were leveraged that learning and as we go into new markets, we will be going but specific strategy Oh. So case in point for example, China.

You have about China market strategy, yet Acadian.

That is all that we see that sometime ago and and that's all that it's really not shown promising.

The dogs, so and so we would be approaching those markets, but my dog without specific strategy and that's where we're getting more traction.

So that's going to be our general approach.

In terms of go into new markets, it's going to be.

You know, we're gonna give it to be leading well with the specific product as opposed to.

As opposed to a b think entry.

And a and then later figured out what product it would be.

Got your very helpful and just one follow up bar if I may.

You mentioned, having a little bit higher cash on balance sheet, then what you'd normally would wonder if you could just stop share with us any potential near term liquidity needs or any kind of a unfunded commitments that you may have thanks.

Hi, Thanks, and yeah, we don't have any.

And your liquidity needs obviously.

The business or do you said very strong cash flow and as I mentioned or we will we will use that cash flow.

Oh for repurchases.

Who are to see new strategies and to manage our our leverage.

So on our leverage should we have a long dated bonds and Oh revolver.

Has the majority of that so that's far out as well.

But the we drew down on the cash or the excess.

Cash from the revolver.

Just given the environment and wasn't clear what opportunity.

Could arise as a result, particularly on our stock for example, whether that there could be blocks available.

So so so essentially was it was desirable to do have extra cash.

Essentially I'm instead of uncertainty.

Oh, but no.

But now it's fast forward a few weeks it seems like dogs, the worst case scenarios.

Are out of the picture, so we would probably use that excess cash to to pay down the revolver.

Great very helpful. Thanks, again, and hope everyone stay safe.

Thank you Ken.

Your next question comes from Robert Lee with KBW. Your line is open.

[noise] Robert Lee with KBW Your line is open.

Your next question comes from Patrick Davita with Autonomous Research Your line is open.

Hi, good morning.

That's a quick follow up to Craig's question.

Is there anything in your affiliate contracts are unique road blocks that would make it more difficult to unkind affiliate say versus a fully owned business for much more traditional asset manager model.

Oh, Hi, Patrick.

No well get there there isn't.

Anything unique.

We really majority of dog.

Most of our affiliates, we did have one unique.

Contract that you marry called sometime ago, we had one of our affiliates heitman whenever a former Soviet teichmann.

And had a REIT to by themselves back.

On a change of control, which they which they did exercise.

So that was the only unique arrangement we have.

Other than that we really have very simple, we we own majority Oliver Soviets <unk>.

You don't have any.

Anything unique.

Great. Thanks.

My follow up is on Acadia and I think yeah. The strength of flows there probably surprised everyone given.

Flows we saw some other corn oriented businesses back in one Q2, maybe talk to a little bit around why you think that business has performed so well flow wise versus other quantum businesses and then and then as we look forward to what extent you see you know sustainability of that demand or some sort of it.

Situational pipeline building. So we can get more comfortable that quarter's like the first quarter are repeatable as we look forward.

Yes. Thank you yeah, I guess are not all gone businesses are like obviously.

And there are different in terms of.

Pick approaches.

They have so our core business Acadian essentially primarily long on the focus business with a with academic roots and focus on on multiple factors not one, but but really in covering all the key factors.

That have performed well.

From a longer term perspective, and they they are the or two that discipline or <unk> in all the time send data has done well for though.

Their clients.

So says we looked at love that this first quarter as well.

Oh, no doubt approach helped on the investment performance, because even though one factor for example, valued and do well.

Other factors that they deployed.

Performed well introduce alcohol for the clients.

So.

In data that has helped in terms of flows and we do see that as a sustainable.

Trend because because the capabilities that Acadian has a very broad based in terms of.

You know asset classes as well as regions and cap range is.

So they can respond to specific client need specific exposures.

Declines are looking to get or problems, they're looking to solve.

And as I touched on some of those examples for example, multi asset class is one such a solution that no response declines needs across.

Asset classes.

Our managed volatility strategy.

Well, our our health will generally but also they are there was increased.

Demand for for those strategies in this environment.

And we continue to see a demand for Dr specific strategies.

Where clients are looking for exposure to certain factors. So so that that has helped US no. We've had a consistent approach and.

And stuck to that discipline.

And we see that as a sustainable trend no not obviously there may be quarters.

Where where things don't.

Hi tie in with the with the longer term.

A secular trends are obviously big <unk> being that we are in the institutional business, primarily that could that could happen from time to time a longer term, we see we see that as has a very well positioned growth.

Your next question comes from Robert Lee with KBW. Your line is open.

Great. Thanks, I apologize for I had my phone on mute Yeah, that's everyone is doing well.

So baby.

Certain just a question not in the expense a objectives that bill hold co or I guess, a pretty clear, but I'm just kind of curious you have a profit share structure I believe with all the affiliates.

Some of them certainly.

See their own pressure on.

Profitability. So I mean are there any initiatives underway or things, they're doing that you know on their rents kind of moderate spending and.

Are there any kind of triggers within your.

Agreements different affiliates, you know where they have.

Where maybe you you get some protection on on the downside or maybe they.

They give some protection downside to keep their business going to try and get a little more granular on that.

Thank you Rob.

I think if somebody at level. So we are we are in fact have been investing.

All this while continuing to do so.

Right Acadian for example, we've touched on that said, we've been investing in and knowledge our technology.

And that investment does show up in our.

Runrate offenses. Similarly, a landmark we've been adding to <unk> on the both the investment size and infrastructure side.

As we continue to grow assets there.

Similarly, it in Battle Hanley.

We are.

We are investing in and adding people are on the distribution side as well as.

On the investment side, so and we can do that because of the margins are very strong and those margins do allow us to do.

To afford.

You know invariably the downturns that happen from time to time.

So we don't see that as a reason necessarily too.

You know to doing to hold backs on continuing to build.

Capabilities that had we need.

So you can defenses have really been on the on the on the center side.

Right and they walk to the reasons earlier that.

It really was.

The incremental expenses I know that we could or have you could do move without impacting the.

The business and it's something it is we do expect to be to be more effective.

In terms of generating sales.

So this approach allows us to the pass on if you will more <unk> earnings that the affiliates genereight she's a very strong cash flow that they generate.

Allows us to pass more of that onto our shareholders.

Through repurchases.

So so that's essentially.

How we see it does that answer your question Rob.

Yes. Thank you.

Maybe the Bob just wanted to clarify it makes from here on a couple of the moving pieces on the.

Balance sheet and capital imagine side. So I think you you'd mentioned that you would've been comfortable rather 50 million cash balance that also.

Thank you mentioned you wanted to was it fully paid down the revolver. So should we take that I mean that you know there about 75 million of the cash on hand at quarter end can be used for debt reduction in there.

You know you're generating I guess fall, a little north of 30 million or so quarter. It free cash for probably a little higher than that.

So that you want to kind of get the revolver to zero or.

At least downs. So is there a kind of a level that you're comfortable running that currently.

Yeah, Yeah, Thanks, Rob that those those numbers are directionally.

In line.

That we we are carrying though though that excess cash you know about that kind of died.

And we are generating.

On cash flow given that they would use you.

So.

The perspective, while maintaining our balance sheet.

To be Oh.

To be very strong and deeper and just preparing for.

Variety of scenarios.

I would want to pay down the revolver or the more or less fully.

From the perspective of leverage.

We are comfortable at the range.

No. That's we have said Ah you know up to 2.25, because that's still provides though.

Ample cushions.

No it's in downturn.

So just the that's dogs that's it that's essentially directionally what were thinking.

And then be purchases are just very attractive use of our capital. So we would dogs and we've done a good amount as we purchase as last year and.

The first quarter and Uh huh, so far in this quarter. So we would want to.

Then increase we purchased goods, so as long as that knowledge that wide gap and things.

And so you wouldn't necessarily haven't have there.

Volver, that's a zero before you would start.

Repurchasing again its weren't getting the.

The leverage ratios.

Maybe initially towards the low end of your comfort range, then kinda, though.

Reloading as appropriate.

The way to think of it.

Yeah, that's right. So yeah, the decision out with mission, which is really more on.

But.

Finds some money or some perspective, so so depending on.

The levels, where our stock is trading that yeah, there may be times when.

When we increased the repurchases.

While revolver a good chunk of revolvers allow saying, yes, we would want to keep all those options open.

But I was just sharing more off.

You know where this qualitatively.

We are focused on.

Bringing down the leveraging and are paying off their losses.

Okay, great. Thanks for taking my questions.

[noise]. Your next question comes from Chris Harris with Wells Fargo. Your line is open.

Once you.

That's the other side of the cost saves.

How should we be thinking about the rate of expense growth assuming normal markets.

Hi, Chris.

Then in terms of expenses.

Yeah, I guess, it's really a.

And because inflation is the key factor there in terms of.

Cost of living et cetera.

That would probably be the primary factor because as I said, we are fully bill.

At most of artists have yet.

We have been investing for some time, that's already reflect that already is reflected in and they run rate.

So we don't have any major.

Oh need aside from that.

It's actually and at the end of the corporate center would continue to be to be lead and we'll continue to focus on.

Well I never leave their capital allocation activity.

So the thing that so that's that's essentially is a good run rate or that we will reach by the by the end of.

20 in first quarter or 21.

And that run rate you know essentially just cost of living increases if you will need equation.

Okay got it.

And then unrelated.

What do you guys hearing.

From your institutional customers more broadly about their appetite to take on risk in this environment.

And what do those views mean for a the potential demand for your products.

Yeah, I guess in 111 area, where we are maybe different than some other asset managers is that most of our clientele is a institutional and a lot of themart or long only investors. So we didn't see any risk all type of.

Yes.

From our clients so far a in the first quarter and deal in second quarter. So far.

They have been generally very thoughtful about.

What they would like to do and how they like to take advantage.

So in some cases, we saw a rebalance moves from our clients where they are they saw some particular areas where there was regions.

Oh, where I'm worried at all good value.

I need and they wanted to put more.

Dollars to work there and in those scenarios. They would often go to that go to managers as opposed to running a manager surge I'm. So so that's a that's a good positive dynamic.

Data that helped and weight and we're still seeing that had played out sometimes you're on the other end up that that that could happen.

So it's I think well generally declines have been had been patient and thoughtful and aren't making any half of their move.

And we will we see that you know continuing so in terms of a weird ultimately that no what might that might mean for us based on so far what do you know a is that we have we are seeing demand for strategies like most like multi asset class.

Managed volatility.

We are seeing.

Also seen.

Interest in large cap value given that lot of the quality and a large cap stocks were also.

You know also traded off.

So generally to all along.

Although I.

I think on balance it sits in a positive for us.

Okay. Thank you.

[noise]. Your next question comes from my carrier with Bank of America. Your line is open.

Hi, good morning, Thanks for taking the questions.

Just on the centered distribution exit decision at the 20 million. She was savings I've said to track is I'm just curious like how much that drive sales are flows you know in the past.

And Mike.

Yeah, because that was a key factor in our in our decision. So we had been maintaining that supplement go like for a.

Oh, the productivity was ER wasn't wasn't much so in terms of the des sales.

They're there wasn't that much impact it was though a very small sales, particularly last.

Oh last couple of years or so.

And Oh, we do expect that no there would be a bigger boost in sales from a from freeing up the the bandwidth. If you will lovedale of the sales force at the affiliate level.

And we are making some select additions at a at some affiliates.

So we think come from a sales perspective this would be this would be a positive.

Okay. Thanks, and then just quick follow up selling the 20 million savings and he I said that it would fully you know hit the run rate by one Q 21.

So just given that you guys give somebody's ratio guidance is for 2020 like how much of that dating is in 2020 versus how much will actually it in and once you.

Thanks.

Yeah, what well see you know a decent chunk and and 2020 you know all of the auctions. So I guess majority of reactions have been taken already and the second quarter I'm. So we didn't see much of that benefit in the first quarter a except some.

Knowing that.

We had the.

The shrinking or we weren't able to accrue little bit less on the variable comp.

Other than that no. One two we didn't have much the second quarter, we'll we'll have more.

There are some.

Did you all items.

Oh for example leases et cetera.

That that do take time, so so we're really reach that run rate.

By the end of fourth quarter.

So you said one easy way to look at it and we do provide our segment level information.

And if you look at other segment, which is essentially our corporate center.

The operating expenses and the variable comp last year was about 45 million for the full year.

So for 21 would expect that number to be below 25 million.

And then.

In 20, it'll be it would be somewhere in the middle.

Eventually.

Okay. Thanks, a lot.

[noise]. Your next question comes from Michael Cypress with Morgan Stanley. Your line is open.

Hey, good morning, Thanks for taking the question just wanted to circle back on cap allocation just given the backdrop today just curious how this is sort of in Poland steer appetite for bolt ons that affiliates or even adding new affiliate relationships. How is that appetite evolved how much focus would you say there is today and how are you seeing.

Opportunity set evolve there too.

Hi, Mike Yeah, we're not looking at no M&A at all because no for the reasons I outlined earlier.

We see repurchases are are very attractive and the cash flow that region right.

We have three primary uses type would add the most value to the shareholders.

And that's me purchases, managing our leverage and and supporting the growth of our affiliates through seeding.

New strategies.

For clients.

So you know if all or one of our affiliates wanted to bring on a team.

To to sort of declines, which we're obviously it would be supportive of all of that but we see those things as more organic efforts.

So so that's essentially where we're focused from a capital allocation perspective.

Got it and just as a follow up given the changes that you've outlined at the center just curious why not go the other way and put more resources the center and away from the affiliates because each affiliate has their own middle and back office and marketing functions. Some distribution, so far and so on.

Duplicative, I guess why not centralize to get more economies of scale.

Yeah, I mean like nights against the answer is really that.

Hardware business, it's a it's probably quite different from money managers, but that centralization strategy could make sense.

And our business is out knowing.

We have really scale, leading franchises there are very self sufficient.

So opinion is a is a leader in the in there and their business.

As a very.

Specialized well fully scale distribution infrastructure.

Obviously their technology capabilities, our next to none.

So it wouldn't make any sense to have any centralized resource.

Supporting that business. Similarly landmark is a very specialized business four seconds the alternative strategy.

Their needs are are very unique or in terms of their technology capabilities are focused on providing both.

The the sellers.

Oh secondary assets as well as their clients are really.

You know very sophisticated insight.

About about what's going on in the market.

And in the professionals, our audio professionals Oh.

Very capable.

You know highly talented oh people so again.

In the back office is.

The customized for that.

So that and again, it's a very different and unique need.

Where we do have.

Some similarities isn't our within our liquid outside segment.

Our.

Whereas the managers are.

Focusing on.

You know long only strategies.

Across the cap ranges in equities and fixed income.

But there again you know two of the franchises. So Barrow Hanley and he has W are a large animal and are in low cost locations.

In Dallas, and Virginia, respectively.

Where where they are right and we've looked at it.

You know the the current infrastructures are much more cost efficient than.

Then any centralization could be.

And then we have to.

Very small boutiques who are.

Who are very specialized and dog you know or are working on on that basis.

So really essentially because of the all the miss although our failure.

This strategy makes the most sense for us and we did have some centralized.

Oh, you know functions, including distribution.

But what it ended up doing as we evaluate it more more was just really.

You know essentially you reduce ultimately the earnings that were coming from our failure.

Although the but before we pass them onto the shareholders. So so essentially our new approaches to really pass on.

No most of that cash flow that you received from our businesses onto the shareholders.

Great. Thank you.

[noise] thinking like.

This concludes our question answer session I like to turn the conference call back over to Sirona.

Thank you.

Thank you everyone for joining us today.

And hope everyone on continues to stay healthy and stage. Thank you.

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