Cohen & Steers Q4 2009 Earnings Call Transcript

123jump.com Staff
09 Feb, 2010
New York City

Revenue rose 38% to $39.9 million & net income was $11.6 million or 27 cents a share. pretax profit margin for the quarter was 37% up from 28% in the 3rd quarter and operating margin rose to 28% this quarter from 17% in the 3rd quarter. For the year assets under management rose $2 billion or 47%.

Cohen & Steers Inc. ((CNS))
Q4 2009 Earnings Call Transcript
January 27, 2010 11:00 a.m. ET

Executives

Salvatore Rappa - Senior Vice President, Associate General Counsel
Matthew S. Stadler - Executive Vice President and Chief Financial Officer
Martin Cohen - Co-Chairman and Co-Chief Executive Officer
Robert H. Steers - Co-Chairman and Co-Chief Executive Officer

Analysts

Alexander Blostein - Goldman Sachs
Cynthia Mayer - Banc of America/Merrill Lynch
Michael Carrier - Deutsche Bank Securities

Presentation

Operator

Ladies and gentlemen, thank you very much for standing by. And welcome to the Cohen & Steers Fourth Quarter and 2009 Financial Results Conference Call. During this presentation, all participants are in a listen-only mode. Afterwards, we will conduct the question-and-answer session and if you should have a question at that time feel free to press the one followed by the four on your telephone. If at anytime during this conference you need to reach an operator, press the star followed by the zero. As a reminder, this conference is being recorded on Wednesday, January 27, 2010.

It’s now my pleasure to turn the conference over to Mr. Salvatore Rappa, Senior Vice President and Associate General Counsel at Cohen & Steers. Please go ahead, sir.

Salvatore Rappa

Thank you. And welcome to the Cohen & Steers fourth quarter and full-year 2009 earnings conference call. Joining me is Co-Chairman and Co-Chief Executive Officers Marty Cohen and Bob Steers; our President, Joe Harvey; and our Chief Financial Officer, Matt Stadler.

Before I turn the call over to Matt, I want to point out that during the course of this conference call we will make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and are important factors that could cause actual outcomes to differ materially from those indicated in these statements.

We believe that some of these factors are described in the risk factors section of our 2008 Form 10-K, which is available on our website at cohenandsteers.com. I want to remind you that the company assumes no duty to update any forward-looking statement.

Also, the presentation we make today contains pro forma or non-GAAP financial measures, which we believe are meaningful in evaluating the company''s performance. For detailed disclosures on these pro forma metrics and their GAAP reconciliations you should refer to the financial data contained within the press release we issued yesterday, as well as, our previous earnings releases, each available on our website.

Finally, this presentation may contain information with respect to the investment performance of certain of our funds. I want to remind you that past performance is not a guarantee of future performance. For more complete information about these funds, including charges, expenses and risks, please call 1-800-330-7348 for a prospectus.

With that, I will turn the call over to Matt.

Matthew S. Stadler

Thanks, Sal. Good morning, everyone. Yesterday we reported net income of $0.27 per share, compared with a loss of $0.05 per share in the prior year and net income of $0.18 per share sequentially.

The fourth quarter of 2008 included charges of $0.09 per share resulting primarily from the impairment of intangible assets and restructuring costs, after adjusting for these items earnings per share were $0.04.

We reported revenue for the quarter of $39.9 million, compared with $28.9 million in the prior year and $33.8 million sequentially. The increase in revenue from the prior year is attributable to higher average assets, resulting primarily from market appreciation and institutional net inflows. Average assets under management for the quarter were $23 billion, compared with $15.7 billion in the prior year and $19.5 billion sequentially.

Our effective fee rate for the quarter were 63 basis points, down from 63.5 basis points last quarter. The decline was primarily due to a higher proportion of institutional inflows from new and existing sub advisory accounts, which are lower fee paying.

Pretax income for the quarter was $15.3 million, compared with a pretax loss of $2.9 million in the prior year and pretax income of $10 million sequentially. The prior year''s quarter included approximately $5.9 million of charges resulting primarily from the impairment of intangible assets and restructuring costs. After adjusting for these items, pretax income for the fourth quarter of 2008 was $2.9 million.

Our pretax profit margin for the quarter -- for the fourth quarter was 37%, up from 28% in the third quarter and our operating margin increased to 28% this quarter from 17% in the third quarter. The increase in operating margin highlights the operating leverage of our business, as revenue increased 18% but expenses increased by only 2%.

For the year we reported a net loss of $0.04 per share compared with net income of $0.60 per share last year. The 2009 results include charges of $0.69 per share resulting from the impairment of available-for-sale securities.

For 2008 results included charges of approximately $0.32 per share resulting primarily from the impairments of intangible assets and available-for-sale securities. After adjusting for these items earnings per share were $0.65 for 2009 and $0.92 for 2008.

Now let''s review the changes in assets under management. As a result of our third consecutive quarter of strong investment performance and net inflows assets under management increased to $24.8 billion from $22.5 billion at September 30th.

Market appreciation of $1.4 billion and net inflows of $894 million accounted for the increase in assets. At December 31, U.S. REIT common stocks comprised 43% of the total assets we manage, followed by international REIT common stocks at 28%, large-cap value at 10%, preferreds at 8% and listed infrastructure and utilities at 7%.

Our open-end funds had assets under management of $6.3 billion at December 31, an increase of $382 million or 6.5% from the third quarter. The increase was due to market appreciation of $336 million and net inflows of $46 million. So far in January we have continued to record net inflows into our open-end funds.

For the year assets under management increased $2 billion or 47%. The increase was due to market appreciation of $1.5 billion and net inflows of $517 million. Our 2009 organic growth rate for open-end funds was 12%.

Assets under management in our closed-end mutual funds totaled $5.5 billion at December 31st, an increase of $354 million or 7% from the third quarter. The increase was the result of market appreciation, for the year assets under management increased $1.3 billion or 30%.

Assets under management in our institutional separate accounts totaled $13 billion at December 31st, an increase of $1.6 billion or 14% from the third quarter. The increase was comprised of net inflows of $848 million and market appreciation of $708 million. This marks the fifth consecutive quarter of net inflows into institutional separate accounts.

For the year assets under management increased $6.4 billion or 98%. The increase was due to market appreciation of $3.2 billion and net inflows of $3.2 billion. Our 2009 organic growth rate for institutional separate accounts was 49%.

Moving to expenses. On a sequential basis expenses were up 2%. The increase was primarily due to higher distribution and service fee expense and G&A, partially offset by lower employee compensation. G&A increased 12% from last quarter, which was primarily due to higher consulting and some recruitment fees.

Employee compensation decreased 7% from the third quarter. On our last call we mentioned that the third quarter had a catch-up adjustment to incentive compensation and that the nine-month compensation expense should be used to estimate the fourth quarter. The increase in the fourth quarter from that estimate was due to a year-end compensation adjustment.

Now turning to the balance sheet. Our cash, cash equivalents, marketable securities and seed capital investments, excluding amounts attributable to the consolidation of our global real estate and long-short fund, totaled $210 million, compared with $179 million last quarter.

We continued to consolidate the global real estate long-short onshore fund. As a result, approximately $46 million of assets and approximately $16 million of liabilities are included on our balance sheet. Due to the addition of sufficient third-party investors during the fourth quarter, we have deconsolidated the global real estate long-short offshore fund.

Our stockholders equity was $285 million, compared with $271 million at September 30th. With respect to our available-for-sale portfolio, the majority of the portfolio continues to be comprised of investment grade preferred securities and seed capital investments in our mutual funds.

All of our available-for-sale investments have been other than temporarily impaired. Subsequent recoveries will be recorded to comprehensive income, therefore, the marks on these securities have been appropriately reflected in our liquidity position and in stockholders equity.

Let me briefly review a few items to consider for 2010. Our effective tax rate will normalize in 2010, based on our projections we estimate that our effective tax rate will be between 35% and 36%.

With respect to compensation, we expect our compensation to revenue ratio to be in the upper 30% range for 2010. We expect G&A to increase slightly from 2009 levels. The increase, which we project will be a little less than 5% is due to increased levels of business activity.

As mentioned earlier, all of the available-for-sale investments have been other than temporarily impaired. Therefore, further impairments would only be recorded to the income statement should the market value decline to a level below where the securities have been repriced. These would be recorded to the income statement if we elect to sell a position at a price above where it has been impaired.

With respect to alternatives, including both funded and unfunded commitments, we have approximately $200 million of third-party investments in our global real estate long-short strategy.

As a result, we may receive a performance based incentive fee for 2010. Performance fees will be recorded when earned, which will not be until the fourth quarter. And finally, during 2010 key waivers will expire on three of our closed-end funds. Based on December 31st asset values this will generate approximately $1.9 million of incremental revenue in 2010.

Now, let me turn it over to Marty.

Martin Cohen

Thanks, Matt. Good morning. And thank you all for joining us. I would just like to take a few minutes and add some color to Matt''s remarks. First, if I could review some of our accomplishments, most important of which is that our investment performance across nearly all of our asset classes was excellent last year and we exceeded many of our benchmarks by a very healthy market -- margin.

Our institutional asset gathering has been extremely strong, as Matt mentioned and the $3.2 billion of inflows were into all of our major strategies, domestic and global REITs, large-cap value and listed infrastructure.

This has already continued into 2010 we have already added net new money totaling $238 million. In addition, we continue to have a very full pipeline of awarded but not yet funded, commitments, as well as, further mandates for which we are candidates.

We enjoyed excellent client retention in 2009, in fact many of our clients added to their portfolios or initiated new mandates and we gained net 25 new accounts. Interestingly, the majority, 13 of them were large-cap value very satisfying for us. While eight were global REITs and two were listed global infrastructure.

We brought on 12 entirely new relationships with many of these clients large and prominent domestic and foreign investors. All year despite market uncertainties, we stay the course with respect to our internal infrastructure and personnel. As usual, we had very little employee turnover and this is paying off today, as it has enabled us to gain market share in all of our strategies.

Very importantly we achieved critical mass in two critical areas, our long-short global REIT strategy and our listed global infrastructure strategy.

In the last year we also faced and met a number of challenges. We needed to refinance $1.6 billion of auction rate preferreds in our closed-end funds. We replace them with line of credit of equal size not a small feat in this capital constrained environment. Nonetheless, the biggest detracts from our AUM and revenue recovery was in the closed-end fund area, where we needed to deleverage many of them, as we were forced to take even more during the beginning of the year than we did in late in the 2008.

Once closed-end funds were about third of our assets, these funds are now more like 25%. I can say that today we currently don''t see the prospect of having to further deleverage any of these funds.

Our net flows into our open-end funds, the $500 million or so was a very positive turn the first in a couple of years. Our strongest channel was the registered investment advisor channel.

Please note that this really bucked the trend of very lackluster industry flows into equity funds altogether. I can also say that the positive flows into our open-end funds has continued in January.

Despite the decline in AUM in late 2008 and early 2009, we managed to achieve positive and increasing operating profit, excluding special items in every quarter. And as Matt just mentioned for some time we suffered impairments in some of our available-for-sale investments but they seem to be all behind us now. We have fully reserved for any losses and the recovery of the markets has been very positive for their current values.

Now let me take a minute to discuss our 2010 initiatives and challenges. We are working hard to further expand the presence of our products in various investment platforms. As we have mentioned in the past, many of the traditional distribution channels have dramatically changed and they will continue to evolve and we are changing with them.

We continue to focus on key accounts and asset allocation disciplines used by professional investors and advisors.

We have successfully positioned ourselves as a manager of alternative investments, be it in real estate, hedge portfolios or listed infrastructure. As investors at large become more and more attracted to this our type of investing, our market opportunity continues to grow. We think this is the best driver of our future asset growth and everyday we work to maintain our strong reputation in these areas.

And finally, we are hard at work in the lab, as we actively pursue the development of new products to build on our existing capabilities.

We clearly have some challenges in the coming year as well and they include the further buildout of our retail distribution capabilities. We have made some key personnel changes and though our flows remain positive, we think we can do a lot better and have taken steps to make sure that that happens.

For some time now flows into fixed income funds have dwarfed flows into equity funds. At some point we expect this headwind to dissipate and we want to be positioned to gather our share of assets.

We are continuing to build out our multi-manager private real estate effort. As a firm we offer a full suite of global real estate investment portfolios and private real estate is an important component.

Frankly, so far not many investors are interested in private real estate but we are confident that this will change once there is a perception that real estate markets are bottoming, which by the way, we think we are beginning to see already.

Finally, we continue to have the high-class problem of having no debt and growing cash and investment portfolio. While we are not in any rush to deploy this capital, we are beginning to sense that opportunities are starting to surface now and Bob and I are spending a great deal of time examining them.

In the meantime, though our cash is earning very little, we do expect to continue seeding new strategies and co-investing in those strategies and portfolios that warrant such co-investment.

I’d like to stop there and now would be happy to answer any questions you have.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we’ll now proceed to the question-and-answer session. If you would like to register for a question feel free to press the one followed by the four on your touchtone phone, you’ll hear a three tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration press the one followed by the three. Ladies and gentlemen your questions and comments are highly valued feel free to press the one followed by the four now.

And our first question comes from the line of Alex Blostein from Goldman Sachs. Please proceed with your question.

Alexander Blostein - Goldman Sachs

Good morning, guys. Thank you very much. A quick question on the institutional pipeline, it sounds like things continue to progress pretty well early in January. Can you help us get a sense on what the size of other mandates that you have won but have not yet funded and then I have a follow-up.

Martin Cohen

Matt, you have that number exactly. It’s about $200 million that has been awarded but not yet funded.

Matthew S. Stadler

Right. And that is mostly in the alternative area. Most of -- about half of that has already been funded and the other half will be funded in the next couple of weeks. Besides that, as Marty indicated, the institutional pipeline as far as finals and other activity that is out there is still pretty full. But it is not like we have something that we are going to be receiving a flow in the next couple of weeks there but it is progressing nicely.

Martin Cohen

And they are typically large mandates. In our space, interestingly in the REIT area the accounts are getting larger and larger, as more and more investors are getting interested in liquid real estate alternatives. Clearly in a large-cap value area that’s a core investment strategy and in the institutional side potential mandates there tend to be in the large category.

And we have had great success on the listed infrastructure side with hundred plus mandates already funded. And we think that this is an area that is going to be of great interest in the coming years and there is a lot of money being spent on infrastructure. There is a lot of private money that went into or a lot of money that went into private infrastructure.

A lot of that failed and the liquid alternative into companies that are building roads, cell towers, ports, seaports, airports, et cetera, in both in the United States, overseas and in emerging markets is very substantial and there is a substantial amount of interest there. So on the institutional side we could be seeing some good sized mandates there.

Alexander Blostein - Goldman Sachs

Understood. And then just briefly on capital management. The balance sheet obviously remains in pretty healthy shape. Could you give us a sense of priority-wise dividend, buybacks or potential add-on acquisitions?

Martin Cohen

I think, you know, we have always had a dividend policy. We believe in dividends and we practice that. We practice what we preach. We reduced our dividend as our profits went down and we will probably increase the dividend as profits go up. But that is up to the Board to decide.

We make that an annual decision, which will make it on our March Board meeting. So that is a high priority but that is not, frankly, not a great -- a large use of our existing cash.

I think the next priority really is co-investing. A lot of the strategies that we seed or incubate require capital and as we get into the alternative deeper into the alternative world, co-investment with clients is going to be required. So we want to have sufficient capital for that.

Acquisitions, you can''t -- you can make it a priority but they don''t happen until they are available and sometimes it can take a long time, sometimes it can happen quickly. If and when the right acquisition takes place we believe we will have sufficient capital and certainly sufficient resources to accommodate that, if that were to happen.

Alexander Blostein - Goldman Sachs

Understood. And then the last question just on the structure of the performance you see potential in for 2010. I guess you mentioned the size of the product is around $200 million. Can you help us understand exactly what the fee rate and is there a hurdle in that product?

Matthew S. Stadler

Well, the fee rates, I think we said on a prior call, it is 1.5% in 20, if it is in the hedge fund. And some assets are coming in that is in the same strategy but it is outside the hedge fund. So the fees would be a little bit lower.

We get the management fee from day one and the performance fee would just be based upon profits that are generated in the account from the time that you get into December 31. So to the extent that there is an appreciation in your investment, there would be anywhere from 15% to 20% of that profit would be recorded as an incentive fee.

We are not going to record incentive fees until December 31, when it is earned.

Alexander Blostein - Goldman Sachs

(Inaudible)

Matthew S. Stadler

Management fees will always be recorded and collected, correct.

Martin Cohen

As earned.

Alexander Blostein - Goldman Sachs

Great. Thank you very much.

Operator

Thank you for your question, sir. Considering on our next question comes from the line of Cynthia Mayer, Banc of America/Merrill Lynch. Your line is open. Please go ahead.

Cynthia Mayer - Banc of America/Merrill Lynch

Hi. Thanks a lot. Let''s see, I guess, in terms of the positive flows you''re saying on the retail side in the mutual funds. Do you have a sense of whether investors are interested in buying for the yield at this point? How important is the yield versus capital appreciation and are you seeing more interest in non-U.S. versus U.S. REIT funds?

And also, just in terms of the institutional flows in 4Q, how much of those flows were to large-cap value versus real estate?

Robert H. Steers

The retail side, it is hard to generalize, Cynthia. We are seeing interest in both yield and total return. But I think the story that is increasingly gaining traction out there with investors, both retail and institutional, is the strategic positioning REITs have in front of what is likely to be a significant acquisition opportunity looming out there, which could as an external growth possibility could really have an impact on growth rates.

So I think the yields are attractive, I think REITs are looked at as a sort of bridge to equities from fixed income and so we are seeing interest on both sides. Our retail focus, as Marty mentioned, is changing and shifting a little bit and our salesforce is mainly focused on the larger corner office teams whether they are in the BD or RIA channel.

So we are having more sophisticated conversations about strategies and as such, they are less focused on just a simple dividend yield than they are the comprehensive story.

Cynthia Mayer - Banc of America/Merrill Lynch

Okay.

Robert H. Steers

Matt, do you have the breakdown of value versus the other strategies?

Matthew S. Stadler

Yeah. Large-cap value came in about $1.1 billion of the $3.2 billion of net inflows were into large-cap value strategies and the other one you wanted…

Cynthia Mayer - Banc of America/Merrill Lynch

No, no, no. I was just wondering for 4Q, if it was about the same a third of it.

Matthew S. Stadler

Yeah.

Cynthia Mayer - Banc of America/Merrill Lynch

Okay. And then you mentioned you are seeing more opportunities and I know you talk about this every quarter. But can you just update us on what kinds of opportunities you would be most interested in, in terms of acquisitions or investments?

Martin Cohen

We are most interested I think in acquisitions that are related to the things that we are already doing. But we would also be looking at things that are related maybe one step removed. But we are looking for acquisitions that make sense from a size standpoint, from a strategic product positioning standpoint.

And whereas historically, as you know, we have added strategies mainly through lift outs of teams and generally they didn''t bring any assets with them. And given our balance sheet and given the current environment, we are less interested in lift outs and more interested in adding capabilities that bring assets with them.

Matthew S. Stadler

Cynthia, let me just mention here as an update, for the quarter -- the fourth quarter the majority of the inflows, the net inflows that we saw in the institutional area where for global and international mandates and global infrastructure. Large-cap value was a bigger component for the year but not for the fourth quarter.

Cynthia Mayer - Banc of America/Merrill Lynch

Okay.

Matthew S. Stadler

You know, we have received some mandates subsequent to year-end of pretty good size that is incremental to the $200 million that I mentioned to Alex when he was on the call and that went into large-cap value. So our large-cap value is starting for the first quarter of this year picking up again through the institutional mandates.

Cynthia Mayer - Banc of America/Merrill Lynch

Okay. Great. And just a last question on closed-end funds. We have seen some other managers offer shelf registrations for new shares. Is that something you would be interested in doing?

Martin Cohen

We think that adding supply to the market does not help the fund shareholder necessarily, so we are not that interested in adding shares. We have and we are in the process of continuing to combine some of our closed-end funds, so that our asset levels don''t change but the shareholders can achieve an economy -- some economies of scale.

You know, we want to do something, if we are going to do anything it is going to have to be very shareholder friendly. And merging funds does create some accretion and that is what we are focused on, not adding to the share counts.

Cynthia Mayer - Banc of America/Merrill Lynch

Okay. And I guess just last question, a more general question on the margin. Your margins obviously come back quite a bit and assuming that the market stabilized a little bit, should we expect continued margin expansion at this point or should we sort of expect this is a decent level, considering you are reinvesting and that you expect the 4Q comp was a bit of a true up went down for a true up?

Matthew S. Stadler

You know, I think the way to look, we never really managed through margin but I think you plug in an upper 30% comp ratio and you put in some assumptions on asset growth and appreciation, the margins should grow.

I think if you look at our headcount we ended 2009 exactly where we were in 2008, which illustrates the leveragability in the business. And anything that we might do externally would need to be accretive, so it would essentially not hurt the margins.

And I think that to the extent that we are going to be expanding the infrastructure, it will be in response to assets gathered and results growing on the topline, so that we are mindful always of margin compression not happening because we are growing expenses. That’s why…

Cynthia Mayer - Banc of America/Merrill Lynch

Okay. Great.

Matthew S. Stadler

Now, G&A being up a little bit less than 5% I think illustrates that we are still serious about cost control and we are going to be very diligent in implementing that.

Cynthia Mayer - Banc of America/Merrill Lynch

Okay. Thanks a lot.

Operator

Yes. Thank you Ms. Mayer for your questions. Once again ladies and gentlemen, we welcome your questions and comments feel free to press the one followed by the four now. And our next question comes from the line of Mike Carrier from Deutsche Bank. Please proceed with your question.

Michael Carrier - Deutsche Bank Securities

Thanks. I always thought you guys were in the retail distribution channel, you know, were fairly well entrenched. So just in terms of the buildout there, I guess, what are you trying to do and where do you see the opportunities?

Robert H. Steers

Well, what we are trying to do is to, as Marty mentioned, adapt to a changing market and you''re well aware of the trends whether it is large teams going independent or and so on and so forth.

And we are simply sharpening our focus, starting at the corporate level where we are making a big effort to work with a half-dozen firms to really first be involved with them at the strategic planning level so that we can fit into their business plans and then getting, translating that into field activities, having our regional wholesalers focused on the larger teams that are of more sophisticated investors that are more asset allocation oriented and that could be in the BD channel, RIA or independent.

You know, we are really pursuing a follow the team strategy, as opposed to simply focus on certain firms. And as a result, we have begun to make several changes at the senior levels in the national sales group and bring in people who have these relationships and have implemented these strategies previously.

Michael Carrier - Deutsche Bank Securities

Okay.

Robert H. Steers

But it shouldn''t result in any change in our cost structure.

Martin Cohen

You know, that leads Mike. The old model of pretty much every fund every product goes on the shelf because it doesn''t cost anything. That is out. That is gone. It is really now a much more selective model that most brokerage firm investment advisors are using, you''ve got to be best in class.

You have to have the all the right attributes in order to get there and to get in there. And that is at the firm level, so you''ve got to be very -- that have good relations there. And then you have got to deliver something to that more sophisticated financial advisor.

I don''t know what the exact numbers are but there is probably an 80-20 rule. You''ve got the biggest advisors the advisors that manage the most money are the ones that are using the most sophisticated models and methods. And those are the ones that we appeal to, because we are very targeted in what we offer them.

Robert H. Steers

And Mike, the conversations that we are now having, starting with the gatekeepers in the home offices, are more comprehensive. So for example, today we offer the full range of real estate strategies from listed, hedge and private on a global basis.

The conversations we are having is whether it is with a large distribution entity or some large regional teams, is you should really think of us as a firm that you can outsource your entire real estate allocation to.

Really look at us as being your real estate CIO, as opposed to years ago when the conversation was, hey, we''ve got an industry leading performance in a U.S. REIT fund, what do you think?

So we are having those conversations with some of the largest institutions in the world, and we are having those same conversations with distributors both at the gatekeeper level and in the field with the teams.

Michael Carrier - Deutsche Bank Securities

Okay. That''s helpful. And then, Matt, maybe just on the fee rates and the waivers, the color on the waivers, that''s helpful. Just so we can balance that with the shift in assets from institutional to retail. Can you give us just a rough ballpark on the institutional fees versus the retail fees?

Matthew S. Stadler

Well, the institutional fees, you are saying in general and then trying to give you the composition of the 60, you know the 60…

Michael Carrier - Deutsche Bank Securities

Yeah. I guess, the retail, we can go through the funds and get it but institutional it is a little tougher.

Matthew S. Stadler

Yeah.

Michael Carrier - Deutsche Bank Securities

So just the incremental, just the institutional continues to grow at a faster rate, we just bother?

Matthew S. Stadler

Right. The way we are thinking is that if the mandates that we are getting in on the institutional side with a bigger piece of being from sub advisory relationships that we have nurtured and started to get significant flows from, have been compressing the institutional fee rate over the past few quarters.

So I think if you''re looking into 2010, you''ll probably see that tick down closer to 40ish. We have been over 40 all along and I think the more sub advised business that we get there will be a little compression there.

On the open, the closed then will go up a little bit because of the fee waivers. On the open-end we are starting to get, as the assets increase we are starting to get back to the breakpoints that caused some asset decline. Like in CSR, we are going to hit another plateau and we are going to go down 10 basis points there. But offsetting that is that IRF, if you look at third quarter versus fourth quarter average assets in IRF, that actually increased and IRF is a 95 basis point fund.

So I think the open-ends, assuming that the flows continue to offset one another, should be pretty static. Closed-ends will move up a little bit and institutional will move down a little bit.

Michael Carrier - Deutsche Bank Securities

Okay. Thanks a lot.

Operator

Thank you, sir. Gentlemen, that does conclude the conference in terms of the questions that we have currently online. I’ll turn it back to you once again, gentlemen, for your conclusion. Thank you.

Salvatore Rappa

Well, again, thank you all for joining us and we look forward to speaking to you on our next quarter. Have a good day.

Operator

Thank you, sir. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and announce that you please disconnect. Thank you once again. Have a great day.