Q2 2020 Artisan Partners Asset Management Inc Earnings Call
Standing by my name is Mike.
Be your conference operator today.
At this time, all participants ordinary listen only mode.
The prepared remarks marginal will conduct the question answer session.
The conference.
Participants will be given instructions at that time.
As a reminder, this conference call is being recorded.
At this time I will turn the call over 2 million became a top one.
<unk> Investor Relations for artisan partners asset management.
For the floor is yours.
Thank you welcome to the artisan partners asset management business update in earnings call.
Today's call will include remarks from Eric Colson, Chairman and CEO and TJ daily Yes.
Our latest results and Investor presentation are available on the Investor Relations section of our website.
These remarks, we will open the line for questions.
Before we begin I'd like to remind you that comments made on today's call.
Including responses to questions you deal with forward looking statements, which are subject to risks and uncertainties therapies in the earnings release.
Detailed filings with the assay thing.
We are not required to update or revise any of these statements following the call.
Additionally, some of her remarks made today will include references to non-GAAP financial measures.
You can find reconciliations of those measures the most comparable GAAP measures in the earnings release.
I'll now turn the call over to Eric Colson.
Thank you Mikael.
Thank you everyone for joining the call or reading the transcript.
Hope Youre well.
First a quick update on our operating environment.
Health and safety of our people remains our highest priority.
We continue to work mostly from home with some investment personnel back in the office.
Despite the environment, we continue to operate well.
Our investment teams have taken advantage of market volatility to invest opportunistically.
Our distribution professionals have you have technology to communicate with existing clients prospects and new relationships.
Our operation professionals continue to support our mobile and flexible environment.
At artisan, we focus on people investments and trust.
Pandemic and social unrest has resulted in more volatile and uncertain environment for people and investments.
Responding well requires patience and trust.
Right, Okay components of our thoughtful growth mentality.
Our approach allows our teams to remain focused on their investments and utilize degrees of freedom to produce differentiated long term performance.
We allow people to operate and trusted and economists working environments.
And our patients and commitment to doing things right reassures clients and consultants.
As we've always stated the outcomes are lumpy over short periods.
But over the long term, we compound capital for clients.
Great opportunities for our people.
And grow business value for our shareholders.
Slide two shows that we have consistently added value for clients for 25 years.
Your today.
Well the 18 investment strategies have outperformed their benchmarks after fees.
Across the firm we have generated over 600 basis points a firm wide gross alpha.
That translates into approximately 7 billion.
Additional well for our clients.
Our recent performance rivals that have any period in our history, except for around the T. M T bubble.
When we were a smaller less diversified firm.
Our performance overtime demonstrates an ability to add value and all manner of markets.
But in periods of heightened uncertainty volatility and dispersion such as the T. M. T bubble the great financial crisis, and most recently with the pandemic our investment teams have performed particularly well.
And those times experience judgment.
Deep knowledge of company fundamentals and the conviction to act through security selection make a big difference.
And the value of artisan partners active management clearly shows through.
What we do works.
Across investment teams and asset classes and through time and over market cycles.
Turning to slide three I want to recognize several recent milestones at artisan partners first we recently celebrated the fifth anniversary of Louis Kaufman, joining the firm and launching that developing world strategy.
The developing world team has outperformed their index by nearly 700% since inception after fees.
Artisan developing World Fund is rated five stars by Morningstar ranks number two of 178 funds and its Morningstar category and has 5.4 billion at assets.
Second Chris Smith, and the automatic team recently passed their three year Mark at artisan partners.
Since launch the teams to Maddox strategy has generated a cumulative return of 95% after fees compared to 39% for the S&P 500.
The team's focus fun also has a five star Morningstar rating and ranks in the top decile of its category.
But the medic team also manages a long biased private fund, which has performed well and have 747 million in a U M.
Lastly, Red Oak candidate has now been with artisan partners for more than a year.
Since inception after fees.
Yes in international small mid growth strategy has returned more than five times its index.
Louis, Chris and rather, though our each unique investors.
The portfolios. They built are extremely differentiated from the index and from peers, what they do and what they produce cannot be replicated by an exposure or index based strategy.
We provide all of our investment teams with degrees of freedom in order to differentiate themselves.
Generate alpha and manage risk.
The teams use degrees of freedom in different ways, some use cash more strategically others use market cap or geographical flexibility.
Or concentration.
Or new instrument.
Or differentiated takes on E.S.G. it varies from team the team.
But they are all using degrees of freedom and all doing so in pursuit of outstanding long term outcomes for clients.
Turning to slide for the spectrum of business models in our industry continues to expand and involved.
Large integrated firms are evolving their structures into more segmented investment units cedar firms are developing more support functions and hedge fund platforms are growing their strategies and solutions.
In this environment, we must communicate who we are maintaining an active dialogue with investment talent. Most importantly, we must continue to recognize that our greatest asset as our current investment teams and we must continue to partner and work with them to maintain healthy and growing investment franchises.
We use the franchise development framework on this slide for all of our investment teams.
Well, what a franchise ultimately looks like and how it gets there is different in each case, usually very different.
Our approach is personalized and patient.
We provide autonomy to developing culture structure and environment owned by the investment team.
We treat people as individuals and remain flexible.
We know that people value and manage things differently and their preferences and priorities change over time.
We have a long term horizon, giving talented people resources and time to generate successful outcomes.
Our approach to talent is different.
Fair to starting your own from our model offers the support of a business management team with deep experience developing and sustaining investment franchises. In addition, we offer a strong brand and long term client relationships for business development.
Compared to large integrated asset managers.
We offer investment autonomy no centralized research our CIO no overarching from philosophy about how money should be managed.
And compare to the hedge fund platforms.
We are more partnership driven with a longer term more patient mindset.
We attract investment leaders, who want to build something special and unique over an entire career and leave the legacy that indoors.
Slide five shows all of the investment teams, we have ever launched.
In 2009, we merged our U.S. small cap growth team into the growth team.
And in late 2018, we evolved the global value team into two separate teams global value and international value.
We have never shuttered and investment team.
All of our teams have performed well for clients over the long term.
We work with each team to continue building and maintaining the franchise characteristics necessary for sustainable success.
Having discuss some shorter term milestones, let me point out to longer term ones.
The artist and small cap growth strategy recently passed a 25 year Mark a quarter century.
It's the firm's first strategy originally managed by from co founder Carlene Ziegler.
Lead portfolio manager, Craig Sep Mackaness has been a leader on the strategy since 2004 and lead portfolio manager since 2009.
Over the trailing 10 year period. This strategy has compounded capital at an average annual rate of nearly 18% after fees.
Thats more than 700 basis points of outperformance per year relative to the broad benchmark and more than 500 basis points relative to the growth benchmark.
Craig on the growth team have done a tremendous job.
The other milestone to mention is the global equity strategies 10 year anniversary since inception, the strategy has outpaced the benchmark by 447 basis points per year after fees.
Portfolio manager Mark Yaki as a protein has 25th anniversary with artists.
He and his team are applying the same philosophy and process used on their flagship international strategy to the global universe.
Are doing very well.
Our growth and global equity franchises are very different.
But they have both built developed and maintain franchise characteristics for 20 plus years.
The combination of net of fee Alpha and investment franchise as shown on this slide do they scarce and powerful combination.
In closing on slide six I want to return to the subject of thoughtful growth.
Over the years, our business expansion has occurred when we matched our talent based high value added model with secular change in the industry.
We usually talk about these expansions by reference to our investment strategies.
But there is much more to it than that.
We align investment strategies with asset allocation trends.
Distribution resources.
Right investment vehicles and operational support.
For example, with our second generation business.
We expanded into global oriented strategies.
Leveraging global institutional consultants.
And using Usats pooled vehicles.
More recently with our third generation business, we have built out operational support for degree greater degrees of investment freedom.
Cap further into the high net worth channel.
And used private fund structures.
Today similar to the interesting investment opportunities our investment teams are finding.
We're seeing interesting opportunities to partner with new talent launched new strategies and further develop our business.
As exciting as these opportunities are.
We will remain patient and thoughtful about talent, our model and long term trends.
We will keep the artist and talent bar very high.
The goal that each additional artist and Investor Ratifies, our model and strengthens our brand across the business.
We will refrain from entering perpetual transaction mode.
We will keep a healthy amount of spare capacity, which helps us function through volatile times and capitalize on the best opportunities whenever they arise.
This patient.
Full long term approach is serving us well right now.
There are doing much more than keeping our heads above water we are executing.
Our investment teams are performing well.
We closed more new business in the second quarter than ever before in our history.
We are actively working on new investment ideas and engaging with talented investors looking for a long term home.
We see lots of disruption.
And we are confident in our ability to capitalize.
I will now I'll turn it over to CJ discuss our financial results.
Thanks, Eric.
Good morning, everyone.
Just as Eric described our business model functioning well, our financial model principles, which are on slide seven has served us well during these uncertain times.
RPL continues to act as intended and our financial results for the quarter and year to date are inline with our expectations.
Strong alpha generation led to meaningful increase in performance fees earned this quarter.
In addition.
Bottom line benefited from the variability of expenses that fluctuate with revenues.
As well as reduced expenses as our associates observe travel restrictions and predominantly work from home.
Are you I have is on slide eight.
I am ended the quarter at 120.6 billion up 27% compared to last quarter and 6% compared to the June quarter of 2019.
The change in eight UN over the quarter reflected a recovery and global equity markets and strong excess returns generated by our investment teams.
In addition, we benefited from broad based inflows across our investment teams and strategies.
Net client cash inflows totaled 3.3 billion this quarter, representing a 14% annualized organic growth rate.
For the first six months of the year net client cash flows totaled 2.9 billion or a 5% annualized organic growth rate.
During the quarter the volume of client activity drove record levels of gross inflows.
These inflows were across a broad range of clients strategies and distribution channels, both in the U.S. and outside the U.S.
Our recent flows also included some sizable withdrawals from clients needing liquidity to navigate the covert 19 crisis.
Including endowments and hospital operating goals.
These withdrawals, we're also broad based across strategies and distribution channels, although primarily from U.S. clients.
Changes in the U.N. by generation or on slide nine.
The net impact of client activity in the quarter, resulting net client cash inflows across all three generations of strategies.
Our third generation strategies continue to achieve impressive growth with 2.2 billion of net inflows during the quarter and $3.3 billion of net inflows for the first six months of 2020.
Third generation strategies now account for 16.8 billion of total way you end up from 12.1 billion at the start of the year.
Average AUM is on slide 10.
Average or you I'm was 109.3 billion for the quarter down 4% from the first quarter, reflecting the sharp decline in global markets during March.
However year to date average you I'm is up 4% compared to the first half of 2019.
The financial metrics are presented on the next few slides.
Our complete GAAP and adjusted results are presented in our earnings release, My comments will focus on adjusted results.
Our financial results for the quarter compared to the prior quarter reflect 4% lower average.
Higher performance fee revenue and lower seasonal and travel related expenses.
Recurring revenues, which exclude performance fees declined with average or UN, but the decline was more than offset by higher performance fees earned primarily from two separate account clients and our global equity and global opportunities strategies.
Seasonal expenses, primarily compensation related were lower compared to the first quarter.
Travel costs were negligible and down 1.6 million as we observed travel restrictions.
The resulting operating income for the quarter was up 8% from the prior quarter and our operating margin was 37.8%.
Adjusted net income of 55.9 million and adjusted net income per adjusted share of 71 cents were each up 8% from the prior quarter.
Improved results relative to the second quarter 2019 reflect higher revenues from from performance fees as well as lower operating expenses, which decreased primarily as a result of lower equity based compensation expense a decrease in travel expenses and lower technology.
Costs.
The expense decreases were partially offset by higher incentive compensation expense related to increased revenues.
As a result or operating margin improved to 37.8% from 35.3%.
Financial results year to date reflect higher revenues and flat operating expenses, resulting in 15% growth in operating income.
Our year to date operating margin was 36.4% an improvement over 33.2% for the same period last year.
And adjusted net income per adjusted share was $1.37 cents up 12% compared to last year.
Turning to slide 13.
Our balance sheet remains healthy we maintain approximately 100 million of excess cash to fund operations seek new products and make continued investments in new teams operational capabilities and technology.
In addition, we maintain an undrawn line of credit of 100 million.
Get up 200 million is supported by Apple cash flow in EBITDA.
Our leverage ratio as 0.6 times, EBITDA and well below the limits specified in our covenants.
As a result of our strength of cash flows and balance sheet, we remain committed to our dividend policy distributing approximately 80% the cash generated by the company each quarter in the form of a variable cash dividend.
Our board of directors declared a cash dividend was 67 cents per share with respect to the second quarter of 2020.
That concludes my comments and we look forward to your questions I will now turn the call back to the operator.
Hi, Thank you Sir.
We will now begin the question that success.
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The first question will come from Dan Salmon of Jefferies. Please go ahead.
Hey, good afternoon, and this is actually James steel filling in for Dan.
So my question is just on kind of the cadence and flows throughout the quarter.
It looks like they were predominantly occurred in April in June and May was a bit later so.
I was just curious if theres any explanation for why that might have been indication then.
Just wanted to any color that you might give on July flows to the extent possible. Thanks.
Hi, James et cetera.
I think we in our remarks, Weve said over the years and reinforce this quarter.
That the.
Lumpiness of flows.
Will persist going forward just as theyve done in the past its very hard to pinpoint why a single month or a single quarter, even given year.
When you look at how.
The institutional due diligence process works the clients that we go after.
Tend to take a long time evaluating.
And doing quite a bit of due diligence on us and thats, hence, we like having a high bar and a long process because.
It eliminates a lot of the common it competition.
That allows us to get sophisticated clients that typically extends the duration of the type of client, we get so through years or even months of work.
Why the flow occurred and that given month to us.
It is irrelevant and.
We think that on a go forward basis.
Given.
Our our performance and given the current environment, we are working and where we're having good dialogue with a broad base of clients that have done due diligence and know us well and we still have quite a bit of active dialogue going on with.
The client base and as well as.
Interested parties.
Got it thank you.
But we have bill Katz with Citigroup.
Okay. Thank you Bill, which taking the questions. This afternoon I just coming back to the three teams that you highlighted in your prepared commentary how large of an opportunity do you think collectively.
Those three teams can you can get too and then related Lee you had mentioned that you can some pretty robust opportunities here just given so the migration into gen. Three talk a little bit that we see the incremental opportunity from there.
Yes, certainly it's.
Yeah, I think it's very hard to predict how large a given team our strategy.
Could be calm or what they could look like.
View some of the teams we highlighted in the long around if you went all the way back to you as small cap growth I think back then yeah, we really thought though it would be amazing to get a billion dollars and small cap growth, our and mid cap growth. So we would have been allowed by three to 4 billion and then now you look the combination of.
Growth platform and the breadth and size.
No its expanded to a variety of areas up and down in the market cap and then also geographically and so when we look at our new teams.
We don't really look at the mindset of what could the size of this single strategy be com, a we work with each of the leaders to envision a franchise that can develop with multiple strategies with multiple decision makers and have.
You know a robust.
No group of clients that make the sustainable so.
While we want to any of these single strategies may be limited in some form you have to think much bigger than that that we're going to develop talent and strategies from this and I think all three that we've highlighted.
With regard to how the developing world thinks about the emerging markets outcome or how from matic.
Thinks about various scenes and segments. They can apply their process to could expand quite nicely. So.
It's very hard for me to come up with an exact number or forecast for that of how large those could become.
Ill.
Okay.
That's helpful. Thank you I'd, just the buffer cgeight even noticed peak.
The CK just on the cost side could you sort of maybe update thinking on some of the maybe the discretionary items and how you sort of see that playing through in the second half of the city appreciate the fluidity of the backdrop that we're all operating in but.
Any sense on what may be structurally different versus more transitional in terms of benefit.
Yeah, I mean, I would say obviously the majority of the declines in expenses are related from our current work from home situation and that's driven.
GRT of of the savings.
And so I think you know the outlook for the rest of your really remain.
As to how long were working from home.
So I would expect you know in the current environment, you would see a similar type of run rate for the year, but as you know as we get back into the office and and travel picks up you'll see that that will gradually increase so I'd worked from where we were this quarter.
And based on the environment depends on where where that expense goes.
Okay terrific. Thank you.
Next we have kind of slowly with RBC capital markets.
Hi, good afternoon, and thanks for taking my question very interesting slide slide number four on terms of franchise developments wondering if you could you share with us some of your thoughts on where in terms of the progression of developments are the three investment teams that you highlighted where they currently.
And perhaps wondering if there's any kind of related thoughts in terms of progression in terms of organic growth for those teams as well. Thanks.
Yes, certainly if I'm using slide for NAV say, we bring individuals into the mix. So there is there's a whole court shipped period before the whole development of bringing in an individual or a group of individuals and.
Usually it takes 345 years to really build the correct foundation of the team the resources.
A foundational group of clients.
Most.
Consultants and.
Intermediary isn't advisers like to see.
Three to five year track record to occur.
So I would say that the developing world now with a five year track record is moved out of the development phase in into a growth phase and thinking about the the franchise.
The breadth of their franchise, which would include the mix of clients the mix of fee rates the.
The breadth of the business.
At the three or Mark where it's a matter because that is clearly in the midst of the development stage and.
It will probably stay at least there till the five year and when you operate in a.
US equity strategy with a and SMP benchmark, there's quite a bit of competition, both active and passive.
With that big of supply you have to expect a little bit longer gestation period. There until you really had a real good growth curve, but we've had good movement in that strategy and then clearly raz, though with only a.
Less than two years isn't that development has asset gathering has been very strong though.
With regard to.
The rest of the business and how we think about teams ease.
In the development phase or a squarely in that development phase and as we think about these franchises when you hit those milestones whether it's a performance track record.
At the value add them or the additional strategy that really gets into the heart of the curve of what we say as business management and franchise development.
Okay that helps yet.
Very helpful and just one quick follow up if I may and this is just following up on your prepared remarks wondering if you could just further expand on some comments you mentioned on striving to maintain spare capacity. Thanks.
Yes, certainly we.
Yeah, We've always stated that we try not to be all things to all people, we try not to just you know.
Bring in every opportunity we can.
Because then you're stretching the business.
Out to a level that it's very hard to take advantage of.
And from seen opportunities, whether it's a new team that we never really thought about that came to us and we felt that this is a a no brainer opportunity and you've got you need either to drop a few things to move on that new team or.
What weve occurred right now during the the pandemic that we had no spare capacity in the operations and distribution to be able to pivot.
Focus on more of a digital distribution model, we launched a.
Blog, which we've called artist in Canada, if we've upped our.
Video and podcast content to market in this environment and you need some spare capacity in the system to be able to have the leveraged due to take advantage of those unforeseen situations versus.
Trying to push the model too fast and and to broadly.
Not allowing you to execute the level you want.
Very helpful. Thanks again.
Next we have Robert Lee with KBW.
Great. Thanks.
Good afternoon or good morning, please a b thanks for taking my questions.
I guess first one is.
One of the thing that that.
I think in the quarter was level of inflows and soon.
Would you categorize and sometimes so which had been in kind of stay outflow for awhile.
So and you've talked in the past about investments you've made in.
These types of intermediary distribution capabilities really since you've been building so was there.
This quarter at any time soon well, maybe there's two in a and B question here is there.
Maybe there was some type of inspection point you reach with some of these initiatives starting to pay off in better sales.
And or May be was there kind of a couple of outsize platform win that kind of came on board.
No so think of helping future.
Gross sales.
Yeah, I do think that our long term relationships than the reputation we have built with many of our intermediary partners in the broker dealer the bank trust and even some larger advisors.
Has paid off more recently.
Given the breadth of success across.
The entire platform.
Hey, broadly we've been successful on.
An array of clients and opportunities.
We did have.
One good.
Outsized land with our mid cap growth strategy with a existing intermediary partnership.
And that.
That helped out the mid cap growth strategy, but if you look at the the rest of the strategies. Its just been solid blocking and tackling and I think with the environment. We're in.
Leaning on.
Yes ill partners that you've already done due diligence with that you have a history with and.
Our performing we've just seen broad success with those intermediary partnerships.
And maybe as my follow up the maintenance.
Leverages that.
In response.
So how often do you see.
Clients utilizing multiple strategies understanding the.
Diligence each investment team, but kind of once you add the relationship misspoke.
Intermediary institutional once you have that relationship.
Do you find that.
Oftentimes those.
As clients may need and investing in other teams strategy just trying to get a sense of how much you kind of leveraging our existing brands speed in that sense.
During the.
During this a shelter in place.
I would say that act the activity of.
Existing clients weather.
Large scale clients with multiple strategies or even small scales clients with just one strategy.
I have been broadening their interest in the artist and brand.
And we've seen an uptick and.
Clients looking at multiple strategies and.
We've been benefiting during this period.
Of.
Many clients.
Increasing the dialogue with us and in some cases acting on newer strategies or increasing their allocation to the existing strategies. So.
Like most people would call that a cross sell opportunity.
Those are those opportunities have increased.
Great. Thanks for taking my questions.
Next we'll have Chris Shutler of William Blair.
Hi, guys good afternoon.
Couple of questions first.
Can you talk about the institutional pipeline and second.
The investment performance at artisan has obviously been tremendous so how how do you look at the the potential for what are you hearing from clients around the potential for some rebalancing decisions.
Over the near to medium term, just given how strong things happen.
Yeah, I guess two parts. There you know first is the institutional pipeline.
And we we have a fluid dialogue with a male.
Additional clients and consultants I think the idea of a pipeline is very hard.
Theres not a widespread.
Lift up people, just saying they have searches going on and there's a big pipeline, but there is a very active dialogue with our clients of how to work with us.
Broader manner.
It's hard to translate that to any number and give you a sense of what pipeline is but we are having robust conversation with.
A broad array of clients.
With regard to performance we've had some.
Very strong performance and many of our strategies so.
The the.
The amount of rebalancing has been a little bit more elevated with us probably than a few other firms out there.
And we saw.
Outsized gross inflows and outflows some of the outflows were clearly around rebalancing of some strategies that have justice performed extremely well and.
Yes.
That's elevated our numbers so.
That'd be my comments on the performance and rebalancing.
Okay.
And then this this this one maybe a bit tricky to answer, but I'll ask anyway. So.
Looking at the strategies into his Dallas the across artisan.
Many of them most of them outperformed.
In the first quarter, one markets, where we can then outperformed again when markets rebounded in the second quarter.
Usually we don't see that happened quite that way, so I guess or there is there anything you would call out.
In terms of like how your teams are why your teams you feel like they pivoted.
So well and then as you look across the firm today I know you are cognizant of like factor exposures and things like that is there anything you.
You see or that you wanted to talk about that does that you're just wary of.
With everything performing so well same Tom.
I feel like that.
We're a little bit more into a normal market in that sense that there's ups and downs and that you can.
Act on you know the volatility you can act on you know a little lower cross sectional correlation among individual securities that allow active managers to showcase.
The the process and skill set that's embedded there.
So I think from a from a performance standpoint, it's.
That's what we should be doing is participating and up markets in protecting and down and it's nice to see some movement. There versus you know that 10 year run we've had whereas single factor was dominating the bring up factors that was clearly field by cheap money and it was field.
Hi, government action and it was fueled by a massive amount of index.
Perpetuating a long.
One way market.
So it yeah, we did quite well during that period.
And now that we're in an environment with a little bit more activity where showcasing.
Why active management works and more importantly, why it works at artisan I don't want to defend all of active managers, it's hard to do that I can certainly the fans.
The active management at artisan partners and that's why we showcase that 25 year history.
Producing alpha and where showcasing and again right now across the entire platform.
Alright, Thanks, Eric.
Next we have run Bailey with Goldman Sachs.
Good afternoon, and thank you for taking my questions, maybe maybe a question for TJ to begin with.
On the separate account you rate so quite a quite a strong improvement Bob.
Wondering if you could decomposed some of the puts and takes us and you see any sustainability in a positive trends.
Hearing it from from the generational ships, but there was anything else underlined maybe losses of.
Losses of mandates from both periods or anything else I'd be very helpful.
Yes sure Ryan.
Good question, it's it's actually.
Really more of a function of the fact that the first quarter was.
Hello, abnormally low because we had.
Such a low quarter, ending AIU endpoint as well as you know at the end of the end of March you know very low.
Average balances and so the billing, it's really a billing cycle issue that the first quarter was low because those clients that are built on quarter end assets had had very low at you and me and the clients that were built at the end of this past quarter were higher than normal so.
I would say if you know this quarter was a little more closer to normal. Then then then last quarter, which was a bit low.
Okay, Okay, maybe maybe kind of shifting gears, a little bit a question on new talent.
I just walked through the initial shock of what from harm.
And at the same time, we've seen some of your logic competitive space and some sort of platform challenges.
So I guess just I guess I was just wondering if there's been any change to the peso the number of conversations you've had with potential new talent.
Yeah, I think the the disruption and work from home we've.
We've had a fair amount of ER inquiries.
I'd say that.
The pace of inquiries and the outgoing.
Reach out that we do has been pretty consistent I would say.
Maybe.
A few more individuals that we're interested in that we're spending more time with.
Than normal and.
I would I'd point to there's there's a decent amount of activity out there, we lifted out and our prepared remarks that different.
Firms, whether it's a larger integrated firms all the way down to the hedge fund platforms and if you saw some of the activity around some of those the hedge fund platforms. There as you know quite a bit of movement of talent inside of those so there are people out there I'm interested in making the move during this environment.
There's a decent amount of conversations going on.
I don't.
I wouldn't describe it is really out of the norm or abnormal in any which way on either direction, but oh.
Clearly.
We have time and with individuals working for home you have more time people privately looking at making some different moves so.
Slightly elevated I guess I would say.
[music].
Great. Thank you.
Great. That's question one hub will come from Mike Korea Bank of America.
Good afternoon, thanks for taking the questions.
Given the strength and diversity of flows.
Just a question on like the sustainability.
As mentioned the mid cap growth when a lot of blocking and tackling you've got the performance on any differences strategies.
The third generation plans are more weighted.
To the intermediary channel.
On the give you been added 20, new platform your portfolios that could be more like recurring in nature, whereas had been more driven by other kind of decision makers or on the institutional side.
And with the with the generation three strategies, we definitely had a tilted mix towards the intermediary tilted towards the U.S. and tilted towards pooled vehicles.
And we're starting to broaden that interest out with some institutional a dialogue.
And looking at the the breadth of that client base the mix of that client base with with many of the generation three and the reason for hitting those milestones.
Yes, it does introduce other client types and two of the discussion and brings up opportunities. So.
We would expect that.
We'd be able to broaden out the mix and those strategies on a go forward basis.
Got it.
Just a quick one getting elevated performance fees in the quarter, how does it make tend to impact the comp ratio seem fairly straightforward between nature, there's no new launches there and then so we expect.
More of that ahead, I think theres still not much that generates performance fees, but just want to make sure that hasn't shifted two months.
Yes no.
Obviously it did impact.
The comp ratio, we have a higher payout on performance fees.
Then we do on.
You know recurring management fees. So there was some some extra comp.
In the TNL for performance fees this quarter.
And we're still running.
Around 3% of of a U M two to 2% to 3% little little under 3 billion a value on this subject to performance fees and Thats really as we've said it's spread over.
A number of quarters with June in December being the largest opportunities for performance fees.
And you know given the performance and you've seen this year it.
So it's no surprise that.
You know the performance fee number spiked a bit this this quarter.
Got it looks like.
The next question.
Well, it's on Bill Katz Citigroup.
Okay. Thanks, very much just take a couple of things I'm just in terms of the engine out you'd mentioned, a few lumpy outflows rebalancing anyway to sort of size how much pressure.
And maybe incremental pressure you might have experience just given some of that needs to draw down the cash and then any commentary around sort of July trends.
Yeah the.
In the elevated flows and we've talked a bit about the.
Success of a variety of strategies of people just wanting to rebalance.
Given the strong performance thing we continue to perform you'll see some natural rebalancing that occurs especially in the more sophisticated institutional clients that have a strong investment policy statement strong oversight and sticking to.
They are asset allocation that that's going to be natural.
You have a little bit of structural outflow going on and the intermediary space, we saw elevated outflow in the.
International.
Space So.
Both international growth international value I saw a little bit higher outflow as you saw some of the intermediaries.
Bring in some path of exposure strategies into the asset allocation and balance that mix of passive and active.
So that happened across both the strategies.
That would probably persist a bit.
I've called out a little bit more secular as people. We then.
The active passive mix into the Internet International space.
And so.
I think on a go forward and.
I think the situation still.
And the environment still the same and I think that.
Our brand and reputation and Thats why we focused on no.
Really sticking to who we are in building trust is going to shine through on a go forward basis right now.
But I would.
Matt clearly thank you know as I mentioned on the month to month, it's very hard to say any given month or any given quarter that we can.
Give you any outlook with any accuracy given our client base.
Thank you.
Well this will conclude our question answer session of today's conference call, we would like to thank the management team for their time today. Thank you all for attending today's presentation.
To sum it may disconnect. Your lines. Thank you give everyone take care another great.
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