Q3 2020 Artisan Partners Asset Management Inc Earnings Call
[music].
Hello, and thank you for standing by my name is Andrew and I will be your conference operator today.
At this time, all participants are any listen only mode.
After the prepared remarks management will conduct a question and answer session and conference participants will be given instructions at that time.
As a reminder, this conference call is being recorded if.
If you require operator assistance. Please press Star then zero on your telephone keypad.
At this time.
I would like to turn the conference over to Mackay Luxoft born.
Director Investor Relations for artisan partners asset management.
Thank you welcome to the artisan partners asset management business update and earnings call.
Todays call will include remarks from Eric Colson, Chairman and CEO and P.J. Daley CFO.
Our latest results in Investor presentation are available on the Investor Relations section of our website.
Following 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 your question, maybe all the scores lucky statements, which are subject to risks and uncertainties.
He said and done.
Yes, Indeed, yes, I, we see.
PC.
We are not required to update or revise any of these statements following the call.
In addition, our remarks today will include references to non-GAAP financial measure.
You can find reconciliations of those measures the most comparable GAAP measures in our he told me.
I will now turn the call Okay, Eric Colson.
Thank you Mike.
Thank you everyone for joining the call or read the transcript.
Today Artisan partners is managing more assets for more clients across more autonomous investment teams and strategies than ever before.
We are compounding wealth for clients.
We are creating new growth opportunities for internal and external talent.
Family are generating results for shareholders.
In the third quarter were in more revenue than ever before in our history and we recently declared our highest quarterly dividend ever at 83 cents per share.
These outcomes results from investments we have made in the firm over long periods of time.
Identifying recruiting and retaining great investment talent.
Investing a new people and reinvesting in our existing franchises.
Watching high value added investment strategies that fit with long term asset allocation trends.
Building, our flexible and resilient operating platform.
And developing our high quality leverage distribution model and team.
In today's highly uncertain and rapidly changing environment, we are operating well.
We are getting the day to day job done.
At the same time, we are making forward progress with business initiatives that we expect to yield further long term sustainable growth.
Turning to slide two.
As previously announced in the third quarter to.
Two experienced portfolio managers deniers out and on non Bassett gearing rejoined artist and international value team.
And watch the artists and international small cap value strategy.
Earlier in their careers.
On non worked at an analyst under David Samara, the founder and leader of our international value franchise.
And then on the on our wells burst.
The teams of value investing philosophy and process.
The new strategy is a natural extension for David and the international value franchise, providing.
Providing the group an opportunity to exploit and inefficient part of the market and further develop the franchises expertise and business.
Also I think shout and you and you Angie joined the artisan global equity team.
We are currently working with Tiffany and you anyone to build and resource their team and design and launch a strategy to invest in most venture firms in greater China.
We expect the strategy will include both public and private investments.
Guiding investors with differentiated access to the Chinese growth story.
The strategy should also fit what long term demand from sophisticated clients or increasing allocations to China to capture growth and catch up with China's status as the world's second largest economy.
On slide three you can see.
Where the recent additions fit into the longer term development of the international value and global equity franchises.
Two of our longest tenured groups.
Our Thomas investment team model was extremely flexible.
We tried to develop a common set of franchise trades across all the investment teams.
But the path and the form the trade to take our unique for each team.
David Samra, and Dan O'keefe founded the international value team in 2002.
On the strength of the performance of the flagship international value strategy. They launched the global value strategy in 2007.
They develop their franchising business to the point that in 2018, it made sense to evolve into two separate teams create an opportunity.
Space for further growth.
Earlier this year Dan's global value franchise launch the select equity strategy.
Now David just taken another step, but benitez and on on and the international small cap value strategy.
For 25 years, Mark Yockey has been developing the global equity franchise today within marks investment ecosystem.
We have the flagship first generation international growth strategy.
A second generation global equity strategy.
The third generation International small mid growth strategy managed by Renzo kind of edge.
And the next generation strategy, we're working on with Tiffany and you and you add.
This team within a team approach allows us to provide the space autonomy and ownership necessary to attract great talent.
The same time, we are injecting you experience expertise and ideas into established franchises.
Which creates new options for growth and should ultimately extend franchise duration.
When we talk about growth.
We always say thoughtful growth.
That means growth that is consistent with who we are as a high value added talent driven investment firm.
Slide four shows some of the areas, where we've been thoughtfully growing.
It all starts with investments.
We continue to add great new investment talent.
And to reinvest in existing tower.
We continue to add degrees of investment freedom within existing strategies and with new strategies.
We continue to develop all three generations of strategies and we are exploring the next generation.
The first generation strategies continue to represent about half of our business and we expect these strategies to remain an important part of asset allocations for many years to come.
Our second generation global strategies continued to experience strong demand in particular from non U.S. institutional investors.
Year to date, the second generation strategies have raised 1.6 billion and net client cash flows.
And our third generation strategies.
Continued to see extremely strong business development, particularly in the U.S. wealth channel.
Which we expect to be a source of long term secular growth.
Year to date, the third generation strategies have raised 5.7 billion in net inflows and annualized organic growth rate of 63%.
As part of our thoughtful growth mentality, we are trying to bring together great investment talent.
Investment resources and degrees of freedom and long term demand.
Within that framework.
What might the next generation of artisan strategies look like.
We see public and private securities coming together.
Multiple degrees of investment freedom and the same strategy.
And more ways for clients to access our investment ideas and expertise such as through co investments.
As we match great investors.
The additional degrees of freedom. They will have the ability to further differentiate themselves and clients will have the ability to access multiple expressions of our investment ideas and expertise.
Our thoughtful approach to growth extends beyond investment.
We have always maintain a lean distribution model that.
Complements our investment first approach.
By keeping our fixed sales costs low.
We are not under pressure to generate or manufacture product defeated distribution machine.
Our distribution team is high quality and flexible they minimize the time our portfolio manager spend on distribution and they serve multiple client types across our target geographies around the world.
We maintain this approach by focusing on points of leverage.
Recently, we have spent more time, cultivating and developing strategic relationships with clients and allocators, who invest across multiple investment teams and strategies.
These clients and Gatekeepers know, who we are and trust us as a firm.
We are working to build on that trust and deepen those relationships.
Our firm wide year to date net inflows of 5 billion includes multiple investments from strategic client relationships.
Our investment and distribution operations are enabled by our flexible operating platform.
We have methodically developed our people technology mobility and resiliency over long periods of time.
We were well prepared for work at home.
And we have operated extremely well throughout this extended period.
We'll continue to invest in this critical part of our business.
[noise] [noise] or long term investment outcomes are shown on slide five.
Since inception, 12 of our 18 strategies have outperformed their indexes by more than 300 basis points per year after fees.
We have generated long term alpha and outperformed peers in first second and third generation strategies.
We have diversified and broadened our sources of alpha across investment teams asset classes and generation arc.
Our greatest asset and our greatest source of future growth.
It's a long term performance shown on this page and the people behind it.
[noise] turning to my final slide I want to emphasize our focus on thoughtful growth.
By placing our from within the larger industry contacts.
On this slide we've laid out a simplified model of a horizontally and vertically integrated asset management company.
The group that packages together investments sold.
Options and advice to deliver a holistic outcome for end clients often retail clients.
These asset managers are intensely focused on scale.
Packaging and pricing much.
Much of the recent industry consolidation is driven by this pursuit of breadth and scale.
There's nothing wrong with this but it's very different from what we do.
And we want to make sure that our clients and other gate keepers, our people and our shareholders understand the difference.
Artisan partners as an investment firm focused on high value added investing.
Red box shows are part of the investment universe we.
We focus on talent investment resources and culture.
And degrees of freedom.
We compete on the quality of our people and our net of feed performance and.
And the trustworthiness of our brand.
These are the things that we are most focused on.
These are the areas, where we have a competitive advantage.
As long as we continue to get investments right.
It will be multiple ways for us to reach and clients and for us to continue to generate long term sustainable outcomes for all of our constituents.
I will now turn it over to CJ to discuss our third quarter and year to date results.
Thanks, Eric Good morning, everyone.
I'll start with our financial model principles, which are on page seven.
Focus on long term growth requires discipline in patients the stability of our recurring management fee revenue.
Coupled with the variable nature of our expenses, resulting in increased profitability and operating margins in the September quarter.
We remain thoughtful about where we focus our time and resources, making targeted investments in talent distribution and operations to support sustainable financial outcomes for our shareholders.
We concentrate on compounding client assets by generating excess returns.
Her benchmarks rather than focusing on net client cash flows.
In 2020 and be able to achieve both access performance and net inflows and the results, which follow reflect the success of executing on our model.
And you know where I'm at September Thirtyth was 134.3 billion up 11% compared to last quarter and up 19% compared to the September 2019 quarter.
The increase in at you I'm over the quarter reflected a continued recovery in global equity markets and strong excess returns generated by our investment teams.
In addition, net client cash inflows were $2.1 billion in the quarter, representing 87% annualized organic growth rate.
In the current quarter, we continued to see elevated levels of gross client activity driven by both institutional and wealth clients.
Flows were driven primarily by large institutional non U.S. mandates and our second generation strategies and continued strong flows in our third generation strategies.
Yeah, you went by generation slide, which we have provided in prior quarters is on slide nine.
Hey, who I'm across all generations benefited from strong market performance and excess returns during the quarter and year to date went.
On a weighted average asset basis, our strategies outperformed their respective benchmarks by over 275 basis points in the third quarter.
Both second and third generation strategies had net positive flows in the quarter.
Third generation strategies now accounts for 16% of total why you went up from 14% last quarter.
As a result of boats and strong investment performance and organic growth.
Average alun grew 20% in the third quarter compared to the June quarter, and 16% compared to the third quarter of 2019.
Year to date average anyway and grew 8% compared to the same period in 2019, despite the significant downturn in global equity markets in the first quarter of 2020.
Our complete GAAP and adjusted results are presented in our earnings release.
My comments on our financial results will focus on adjusted results.
Revenues in the third quarter of 2020 grew 15% and operating expenses increased 7% compared to the second quarter of 2020.
Recurring management fees, which exclude performance fees increased in line with the increase in average AUM for the quarter.
Expenses increased in the current quarter, primarily as a result of variable incentive compensation adjusting to higher levels of revenues.
Other expenses continued to be lower primarily as a result of reduced travel in the current environment.
Our operating margin in the quarter increased to 41.8% compared to 37.8% last quarter and 37.2% in the third quarter of 2019.
Adjusted net income per adjusted share of 90 cents grew 27% compared to the previous quarter and 29% from the September 2019 quarter.
Year to date revenues were up 8% and a higher average AUM and an increase in performance fees.
Operating income grew 20% and our year to date operating margin was 38.3% an improvement over 34.6% in 2019.
Adjusted net income per adjusted share was $2.27 up 18% compared to the same year to date period in 2019.
Key balance sheet metrics on slide 13, our balance sheet remains healthy healthy.
We maintain approximately $100 million of excess cash to fund operations.
<unk>, new products and make continued investments.
In addition, we maintain an undrawn line of credit of $100 million.
Our board of Directors has declared a cash dividend of 83 cents per share with respect to the third quarter of 2020.
The 83 cents per share is consistent with our policy to distribute approximately 80% of the cash generated each quarter and represents an annualized yield of approximately 7.5%.
For consideration of the special annual dividend.
As in prior years in January following the end of our fiscal year. Our board will consider the distribution of a portion of the retained cash generated in 2020 in the form of a special annual dividend.
Each year when determining the amount of the special annual dividend. The board will consider the amount of cash needed for general corporate purposes investments in growth.
And strategic initiatives as well as the current market environment.
Looking forward to next quarter's results, our U.S. mutual funds make their required annual income and capital gains distributions in the fourth quarter.
The majority of these distributions are reinvested.
Some clients choose not to reinvest.
We estimate that the total cash outflows in the fourth quarter, resulting from distributions reinvested will be approximately $450 million.
We intend to break this amount out separately in our A.M. roll forward next quarter.
That concludes my comments and we look forward to your questions I will now turn the call back to the operator.
We will now begin the question and answer session to ask a question you May Press Star then one.
On your telephone keypad.
If you are using the speakerphone, please pick up your handset before pressing the keys yeah.
Yes any time your question has been addressed.
Like to withdraw your question [noise].
Press Star then too.
Please limit yourself to two questions in.
In order to allow time for hobbies like [noise].
At this time.
Momentarily to assemble our roster.
The first question comes from Mike Carrier of Bank of America. Please go ahead.
Hi, good afternoon, thanks for taking the questions on the air mortgage strategy question did you hired new teams and more recently added count the Fourg, which has gone very well.
When you think about adding more strategies is there a limit like in the third generation, particularly from a distribution standpoint, you seen spend less time or is there a constant focus on talent. Yeah, you start thinking about building out that that next guarantee.
Yes, certainly yeah, there's we've always said, there's an operational limit to how.
We onboard talent.
We've always done it in a fairly thoughtful way to make sure that the operations can support that the new strategy.
Without taking away from.
Existing resources supporting our current maturities.
We've thought about the the vehicles and the channels and the geographies that we go into do we have the right.
So important gaps to move into newer strategy.
Strategies and teams.
And if we're going to.
Start a new strategy or a new team in and set it up from day, one properly we have moved slower than probably most firms on finding talent and bringing them into the organization.
To me Thats, the real limitation and it's.
It's a good good practice to make sure that we fundamentally set up strategies for success day, one as opposed to going with a a strategy of launching Ted and hoping two or three work inside of a distribution platform.
So that does that govern.
The amount of teams we are looking at.
But we.
From the number of meetings are just opportunities, where we're seeing quite a few opportunities. So we're we're always in the marketplace looking for talent and we continue to see a good array of opportunities.
But the properly onboarded team does.
Doesn't limit the amount we can do.
Okay that makes sense and then just on the just how to think about modeling margins and you guys had shown margin premier time, but as you continue to bring in healthy flows in it yeah. Some of these strategies scale up is anything shift you mean in terms of the compensation.
Compensation.
Whether the Outdry structures that you you see more coming to the bottom line.
Just more curious and you know how it works or if there is like you know kind of tipping point that that level.
[noise] Yeah, Mike.
You know I guess as we onboard teams all teams are different but.
Generally you know.
Well not generally but specifically every team will will come onto the same economic model you know.
The only difference it could be the amount of startup cost, but it's in sort of a tight range and and as you've seen in the past it hasn't been.
Material to our to our results in any one thing instead.
We do fund that from occurring.
Earnings So there's no.
Pressure on the balance sheet, but.
But.
The other the other thing is as you know the timeframe in which it takes teams to get to scale, which means you know they're fully supported by the 25% revenue share versus.
You know affirmed supplement.
You know that we generally as you know guarantee for the first three years.
So there I don't think there's anything material that you should know with respect to the teams were bringing on.
For the model that we've employed from the past.
Yeah, Thanks, a lot.
The next question comes from Chris Shutler of William Blair. Please go ahead.
Hey, guys. Good afternoon, I'm on the new international small cap value and greater China post venture strategies realize it's very early days, but any thoughts on how yes, lurch those could ultimately be and or how comfortable.
Or you were.
Where you'd be comfortable and.
How we should think about fee rates in those.
[noise] both those strategies.
You know I think like most things we do in the early phase are capacity constrained strategies a capacity.
Capacity constraint strategies ticket yield a higher fee rate.
And then the case with the post venture greater China find a this is a a a new.
Newer fund that has more degrees of freedom that will move slower than most to make sure that were set up properly in the region and that were set up properly.
Properly to support the team.
So I would expect both of those strategies to.
Move and grow at a slower pace than we've we've seen more recently with some of our strategy.
Strategy is to come to market.
Okay got it and then Eric you talked about working to deepen relationships with gatekeepers made maybe just.
If there's anything you're doing differently today versus a year or two ago or that you're emphasizing more today, so anymore color there.
I think the environment oxy quite different were all working from from home for the most part so seeing clients seeing gatekeeper seeing prospects and operating it is quite different.
We fortunately over the last five years have.
Invested in a new CRM, we put in a new backbone to our web site Weve bought and brought in software tools for tracking and for tracking and connecting with clients consultants and prospects now that that's yielding a great investment now we're starting to utilize those.
Capabilities more than I ever thought and I think more than anybody with thought given the environment.
So that's helped us out a normally in that that's different than just sending people to offices and.
Flying around the world. So that's quite a bit different I think we're well set.
Set up for that environment. We've had the same time invested in riders to create a more.
More content, we launched a blog called artisan canvas we've.
Put more video out so I think we are doing quite quite a few things differently, just because of the environment and given our trusted brand coupled with the content and connectivity.
We are doing well in this environment.
Okay makes sense and lastly, one for CJ just on the the occupancy expense was up a little bit in the quarter or is this a.
Kind of a new level jumping off point to maybe just what caused the increase.
Yeah, we Chris we had a charge in the quarter, we were some leasing some space.
And in New York.
And the firm that was subleasing it run into difficulty given the current pandemic and so we took a write off for for that space.
Got it okay. Thank you.
[noise] [noise]. The next question comes from Kenneth Lee with RBC capital markets. Please go ahead.
[noise] isn't my question, just one around a potential for cash and James you mentioned in the prepared remarks.
Keep your side roughly about $100 million for potential needs Wonder if you could just call out any special uses of cash or any initiatives or investments that we should be aware of within that fourth quarter timeframe I'm, especially as the board goes when considering a special dividend. Thanks.
[noise] yeah. Thanks can you know our policy on our on our dividend has remained the same.
And you know to date, we have both distributed all the cash we have earned an eight year through the special and then there have been a few years, where the market environment.
You know caused us to hold back a little bit.
So you know.
You know as of now you know its a same policy to be the same process.
We'll wait to see how the year turns out from an earnings standpoint, we'll we'll consider any other uses will consider the market environment.
And at that point in time, and when we get to January.
Love a recommendation and the board will weigh in on then we'll decide to the level of the special.
Great and just one one follow up if I may just on slide six appreciate see.
The slide.
Could you just talk about at a very high level longer term as the industry potentially consolidates.
Do you see any additional pressure on the firm in terms of maintaining distribution relationships I think some some larger peers talk about some seeing some benefits of scale. When it comes to to maintain a distribution relationships just wondering from your perspective, how that could work out. Thanks.
[noise], Yes, certainly I think that was part of the the comments sound strategic relationships and how we interact with distribution partners.
We've seen.
A slight up tick in our strategic partners that were working with and as we can.
Continued to deliver more.
More strategies across more asset classes than we've ever done and having the performance that we've delivered.
We're seeing a.
Greater breadth.
Brett than.
And deeper relationships with some of these partners and.
As as the world moves forward.
As we laid out there is always going to be a need for.
Good and bad.
Smith strategies and opportunities embedded in.
Whatever eco system is out in the marketplace and we feel that the high value added investment.
[noise] structure that we offer it will always fit and some segment and you don't have to build out and be all things to all people.
Great very helpful. Thank you very much.
The next question comes from William Katz of Citigroup. Please go ahead.
Okay. Thank you good afternoon, everyone. Thanks for taking the questions. So Eric made so two comments I sort of thought to treat you what was the gen. Four opportunity and then one was some of these more strategic relationships that silicon <unk> multi asset opportunity did.
Could you on the ladder maybe size.
What kind of assets you have and.
Maybe the tenor of those assets and then on the Gen. Four could you maybe expand a little bit more about sort of the the multiple investing opportunities I just didn't quite see the linkage to that but it sounded interesting to me. Thank you.
[noise], Yeah, I guess on the the size and tenor of strategic relationship. It really runs the gamut we've seen.
Really an uptick with some of our large institutional corporate clients.
This this past quarter, we have seen some more.
Larger broker dealers, we have seen some.
Some regional broker dealers.
Probably the most interesting though comes into the the regional Ri EA and.
Financial advisers, we're starting to see a little bit of an uptick there. It may not have the scale and size of a larger broker dealer, but though that wealth channel and the growth that's occurring in the our A's and many of the financial advisors has been growing.
And the number of products. They are using so it's both sides of dollars in size at a number of products that that's peak in our interest in the reason for the comments around strategic relationships when it comes to the Gen four or using.
Multiple degrees of freedom. Originally we started broadening out by geography or started broadening out by types of securities.
Now you're starting to see teams wanting to use.
Oh private securities. They want to also be able to hedge in those strategies they want to use multiple asset classes and different securities. So.
They're in the future you could see teams wanting to use public and private it also using on the publics and ability to hedge a bet and those degrees of freedom will come into play as opposed to just a one dimensional change that we've seen.
And the last.
That's the last change of going from generation two to three.
Okay. Just a quick follow up for me you had mentioned earlier that the Gen. One which is about half your assets.
You know continues to be an area of interest to investors is there a tipping point would that platform can get back into positive flow or are there more structural headwinds to be considering at this point.
That's a tough one to look forward on and.
Yeah, we've been.
Fighting the active passive and so there has been quite a bit of a passive movement in that segment.
You know I feel confident that you're going to have a.
Market cap style.
Structure, that's going to continue its been prevalent and many of our clients for a long period of time, and we don't see that changing and we see that the strategies that we're offering producing very competitive performance, that's given us good flow, but with regard to the.
They used to have more passive or.
Pressure on that it that it's hard to forecast that.
Thank you.
The next question comes from Ryan Bailey of Goldman Sachs. Please go ahead.
Good afternoon, and thank you for taking my questions actually wanted to come back to the very first question for Mike I'm about adding investment professionals NPM strict testing teams.
Is this a change in preference strategically from years that you would rather have more robust investment professionals go to existing teams to benefit from scale and reputation or is it more about another tool in the toolkit and maybe just part of that TJ on there any additional comp expenses, we should be thinking about for fourq.
[noise] above sort of the usual comp payout rate.
[noise] Yeah, Ryan This is Eric I, there's no change in how we.
Think about.
Bringing talent into the organization and we highlighted that we have quite a bit of flexibility of how we bring in Thailand and.
They may vary inside of an existing team such weve.
Done more recently or Onboarding, a new team so well I.
I think it's just that go another tool that we're highlighting and showing them the flexibility of our model of how we can bring talent and to to the organization.
And Ryan with respect to expenses.
You know our.
Both.
Additions to our firm occurred during the third quarter. So there there will be a little bit more expenses, but nothing material that you know I would guide you to model in.
To your to your existing expectations.
Got it thank you and maybe if I could just follow up on a point that you made around the differences in.
And the sources of close the Genthree that being more well focus on I'm just curious considering how good the performance has been with some those strategies is there a reason why you haven't seen as much interest from <unk> I guess less interest from the institutional side.
Can you restate that question again.
Sure. So I think during some of your comments you had said that Genthree is seeing a lot of growth from the wealth and intermediary channel and maybe a little bit less.
Net flows from the institutional channel. So just wondering why you haven't seen as much demand from institutional side when performance has been so good in the Genthree strategies.
[noise], Yeah, I'd, we do see good inside a good interest from the institution and some and consultants.
I think when you break down the institutional clients.
Base of corporates endowments foundations and the like are there still continuing down that trend of a private equity and into private debt into real estate and so given the opportunities that that group has to really pushed deep into alternatives.
We've seen the institutional marketplace, having a greater focus there I think you are starting to see the commercialization of those strategies back into a wealth or into the retail market. That's starting to occur and you saw the tipping point, there with bringing it into.
Potentially target date funds.
But I think the real difference is institutional clients, our focus that deeper into the alternative space.
Got it makes it makes perfect sense. Thank you.
Okay.
Next question comes from Dan Fannon of Jefferies. Please go ahead.
Hi, Thanks, just wanted to ask about capacity given the move in markets and you're a U.M. from both flows and beta if there are certain strategies that are closed for that you're watching in terms of managing that capacity.
[noise], Yeah, there's a you know.
A few strategies that we've.
We're keeping an eye on and we've seen really strong interest in the [noise].
The the growth team and so global opportunities is something that weve kept an eye on as well as the U.S. small cap growth strategy that.
That we're very.
Mindful of.
Finding the right clients on the right terms, given where those strategies are at.
[noise] otherwise we have been managing a few other strategies.
I think I said this last quarter, it's been a bit more difficult given the uptick in gross flows of both what's what's coming in and what's coming out so.
We're still leaning towards.
Looking at replacing dollars that are going out given the gross outflows.
But probably the only those are the growth team is probably the one thing that we're really monitoring.
Okay, then ceded just kind of a follow up on on expenses and given the environment, obviously certain discretionary things are lower but as you think about next year is there anything on the technology side off is other things that we should just be thinking about that might be out of a.
More of the natural flow of expenses and then just as a follow up with that performance fees. If there is more of a say you when it's coming in through its amazed that we might be thinking about being a bigger contributor yeah, well into next year or two or beyond.
[noise], yeah, so I'll start with a with expenses you know, obviously, the pandemic and work from home and.
The ability to travel has had a positive impact on what our expenses traject trajectory.
But that remains to be seen I generally aware of the belief that those expenses already returned back to normal.
Wed like term returns back to normal when that happens is obviously anybodys guess at this point with respect to technology.
We're we're running.
You know pretty pretty flat to last year.
Maybe up just slightly and I would expect in 2021, you would you would see maybe a mid single digit growth and and technologist as market data.
Data costs go up and and contracts renew it.
Higher and higher rates. So we're you know inflationary plus a couple of percent growth.
Growth there other than that.
There really isn't anything.
With that I would see worth mentioning.
[noise] [noise] then on their performance fees, we do have.
You have seen an uptick this year in performance fees given.
Our performance there is you know about.
About 3 billion of separate account to you on that subject to performance fees as well as.
Our two.
Hedge funds private fund.
Vehicles.
So there there are opportunities coming up in the fourth quarter, it's our it's our largest opportunity and there.
There are a few accounts that are tracking towards performance fees and then you go into next year given performance.
You know being measured on an annual basis and then the strong performance. This year you know, there's probably likely some some good opportunities for next year as well, but as you know.
No it's all predicated upon performance.
Thank you.
The next question comes from Robert Lee of KBW. Please go ahead.
Great good afternoon.
Good morning, Keith maybe taking.
Taking my questions.
I apologize maybe came up ready, but no urgency Jay with a new teams and new structures no private funds. The illiquid assets I'm just curious I mean do you feel.
You had me.
Fully up the necessary infrastructure to handle those types of funds structures and reporting requirement was kind of.
Incremental costs pretty pretty.
Pretty small and just kind of curious is that more of a discrete fund.
Like one fund raising invested or is it going to be something more akin to slightly better analogy.
[music].
Perpetual fund that's absolutely right.
Exactly.
[noise], let me with for Windows.
[noise] rabbits, Eric Elliott.
CJ make come after.
I talked about just a little bit on the fund structure. It said that the strategies that we're reporting now and the the vehicles that we're thinking about no really the vehicles are in place. We we've had a private funds.
We have invested in the the distribution.
So really it's it's setting up the team appropriately it is making sure that's done in a prudent manner, but with regards to your comments on the vehicles.
Yeah we're.
We have a handful of private vehicles in place and you know we believe the operational infrastructure is in place so our expectation as you win.
See any uptick.
<unk> expense requirements to move forward with regards to vehicles.
Yeah, I don't really have anything to add our operations is ready we've been preparing for this.
Right I'm just curious.
Yes, you should listen I was curious if it was more like an interval fund type structure you know.
As opposed to just discrete raise capital invested and return on utilization structure.
No we're going to be using <unk>, we're not going to be launching a new vehicle.
Okay.
My last question I apologize. If this was asked earlier I may Miss.
That's having maybe students in the second generation strategies, no or even some third generation that should be thinking as we look ahead.
Assuming trends continue we look ahead into the.
Strategies and other teams to make sure that we have a <unk>.
Long duration client base, a robust fee mix.
And we certainly intend to continue that practice on a go forward basis, so that certainly will come down.
And come into play years to come.
Thanks to my questions.
Mhm. Thanks.
This concludes our question and answer session and today's conference.
We're sending today's presentation you may now disconnect.
[music].