Sculptor Capital Management, Inc.
Q2 2018 Earnings Call Transcript

Published: 2 Aug 2018

[Operator:]

Good morning, everyone and welcome to Oz Management’s Second Quarter 2018 Earnings Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Adam Willkomm, Head of Business Development and Shareholder Services at Oz Management.

[Adam Willkomm:]

Thanks, Kim. Good morning everyone and welcome to our call. Joining me are Rob Shafir, our Chief Executive Officer; and Tom Sipp, our Chief Financial Officer. Today’s call may include forward-looking statements, many of which are inherently uncertain and outside of our control. Before we get started, I need to remind you that Oz Management’s actual results may differ, possibly materially, from those indicated in these forward-looking statements. Please refer to our most recent SEC filings for a description of the risk factors that could affect our financial results, our business and other matters related to these statements. The company does not undertake any obligation to publicly update any forward-looking statements. During today’s call, we will be referring to economic income, distributable earnings and other financial measures that are not prepared in accordance with U.S. GAAP. Information about and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our earnings release, which is posted on our website. No statements made during this call should be construed as an offer to purchase shares of the company or an interest in any of our funds or any other entity. Earlier this morning, we reported a second quarter 2018 GAAP net loss of $12 million or $0.06 per basic and diluted Class A share. As always, you can find a full review of our GAAP results in our press release, which is available on our website. On an economic income basis, we reported second quarter 2018 distributable earnings of $7 million or $0.01 per adjusted Class A share, excluding a $13 million legal provision incurred in the quarter, second quarter 2018 distributable earnings were $18 million or $0.03 per adjusted Class A share. We declared a $0.02 dividend for the quarter. If you have any questions about the information provided in our press release or on our call this morning, please feel free to follow up with me. With that, let me now turn the call over to Rob.

[Rob Shafir:]

Thanks, Adam. Good morning. We continue to be pleased with our fund performance thus far in 2018. The Oz Master Fund returned 2.3% net for the quarter, the positive performance each month and 4.4% for the first half of 2018. Our disciplined consistent approach continues to deliver. all of our major strategies within the Master Fund were positive for the quarter in the first half of 2018. Specifically, this quarter’s performance was bolstered by strong capital markets activity and the performance of many of our large technology positions. We also saw a few of our merger arbitrage positions reach positive outcomes, which lowered our total capital allocation and strategy. In fact, the only substrategy, where we underperform was in Asian equities, but even there we outperform the markets, thanks to our focus on local consumer exposure and lower overall exposure. OZ CO, our global opportunistic credit fund was up 3.4% net in the second quarter and 6.2% net for the first half of 2018. Credit continues to be stronger performance largely driven by process driven trade as well as single name catalyst in U.S. corporate credit. In real estate, we continue to deploy capital in our opportunistic and credit real estate funds, but also realizing investments. In the second quarter, we invested over $37 million and had full or partial realizations of two investments with gross multiples of 2.1 and 2.2 times. In total, we have committed approximately 65% of our most recent opportunistic real estate funds generating 23.5 net return for investors since inception. Our real estate credit fund is currently 20% deployed. Our CLO franchise continues to perform and we remain an active issuer. In the second quarter, we closed to new U.S. CLOs and added approximately $947 million in new assets under management and we priced it approximately $480 million European CLO that closed yesterday. I’d like to take a moment to highlighting new transaction that we think is a first of its kind and a new line of business for us. In June, we closed at approximately $700 million aircraft securitization in partnership with GE Capital Aviation Services also known as GECAS, where Oz will serve as the asset manager. This is the first time the aircraft securitization has had an asset manager. We believe the structure will overtime, broaden the investor base in aircraft securitizations and bring increased institutional capital to the space similar to other securitization markets such as CLOs. We are excited to team up with a great partner in GECAS and are hopeful that this transaction will be the first of many together. We continue to be active in aviation related investments and this platform creates unique investing opportunities for our LPs. Turning to flows. On August 1st, assets under management were $33.5 billion, an increase of $1.1 billion as compared to the end of 2017. We are pleased that our total assets under management are stable in 2018. We continue to see positive net flow contributions from our CLO platform, new initiatives such as the GECAS transaction and anticipate growing our real estate business. These inflows have been offset by the net outflows we are still experiencing in multi-strat. As I said in the last call, we believe that a multi-strat investment program is timely given the current market dynamics. Our performance in the Master Fund is strong and we believe the close follow-up performance, but we have not seen the level of inflows that we would have expected to see at this point. We believe in multi-strat and remain optimistic that our product will resonate with clients and turn into flows overtime. Lastly, I’m pleased to announce that our Board of Directors has elected Richard Ketchum for the board, effective July 31st. Rick will be replacing Jerry Kenney, who is retiring from the board. We would like to thank Cary for his service to Oz. Rick brings tremendous experience in the financial industry with time and senior roles with various regulatory agencies, most recently serving as the Chairman and Chief Executive of FINRA from 2009 through 2016. We are extremely pleased to add Rick to our board and look forward to working together. Now, let me turn the call over to Tom to go through the financials.

[Tom Sipp:]

Thanks, Rob, and I’m happy to be joining the call. As Adam mentioned at the beginning of the call, we reported second quarter of 2018 distributable earnings of $18 million excluding the legal provision incurred in the period. Revenues for the quarter were $105 million down 26% as compared to the second quarter of 2017 and down 15% versus the prior quarter driven primarily by a lower incentive income. As a reminder, the bulk of our incentive income has recognized in the fourth quarter and the timing of incentive recognition in the first three quarters of the year is not consistent from period-to-period. Management fees were $66 million for the quarter 2018, 12% lower than a year ago and 2% lower than the prior quarter. The management fee decrease was driven primarily by a lower average management fee rate due to a shift in mix of – in our assets under management. Incentive income was $35 million for the quarter, 48% lower than a year ago and 32% lower than the prior quarter. The decline in incentive income was due to a low level of incentive crystallizations for more extended fee paying assets when compared to the prior period. As I just mentioned, the timing of the recognition of incentive income related to extended fee thing asset is not consistent from period-to-period and is driven by a number of variables including realizations at the underlying fund level as well as the specific client terms. As of the quarter-end, our accrued, but unrecognized incentive was $340 million, up 10.5% as compared to the prior quarter. The increase was primarily due to the performance in credit in real estate. As a reminder, with the exception of the balance associated with our real estate and energy funds, the remainder of this balance has no associated compensation expense as this was paid in the earlier periods. We expect to realize a majority of this vary over the next three years. Other revenues were $4 million for the second quarter of 2018, an increase of $3 million year-over-year, driven primarily by interest income on our CLO investments and 14% lower than the prior quarter as we begin to sell certain of the risk retention investments in our U.S. CLOs, which I will elaborate on in a moment. Now, turning to operating expenses. Our second quarter total expenses were $96 million, excluding the $13 million legal provision that we will discuss shortly, second quarter expenses were $83 million, up 10% year-over-year and up 19% versus the first quarter of 2018. We accrued a $13 million provision related primarily to the outstanding shareholder class action suit, previously described in our SEC filings. there was no previous expense recorded in relation to these matters in prior periods. For the quarter, compensation and benefits were $48 million, up 10% year-over-year and 45% higher than the prior quarter, driven primarily by increased bonus expense, which was $25 million for the quarter. Similar to incentive income, the timing of certain bonus expenses are not consistent from period-to-period. Relative to a year ago, the bonus expense was higher partly due to real estate incentive crystallizations in the period. Compared to the last quarter, bonus expense is higher due to the deferred compensation forfeitures experienced in the first quarter. That said, we continue to expect that full-year minimum annual bonus accrual will be between $80 million and $90 million. Salaries and benefits were $23 million, down 5% from the second quarter of 2017 and 4% lower than the prior quarter due to the lower headcount. We continue to expect full-year 2018 salaries and benefits to be between $90 million $95 million. For the second quarter of 2018, non-compensation expenses excluding interest expense and the previously mentioned legal provision were $28 million remaining relatively flat year-over-year and down 8% from the prior quarter. We continued to expect full-year non-compensation expenses to be between $100 million and $110 million, excluding interest expense and the legal provision. Our interest expense was $8 million in the second quarter, an increase of $2 million year-over-year. This increase was attributable to the overlapping interest on our term loan in our since retired senior bonds. We expect interest expense to step down below $5 million on a quarterly basis due to the smaller corporate debt load and a smaller balance of risk retention financing, which we’ll discuss in a moment. In summary, while there are some expense variations quarter-to-quarter, we are confirming our previous guidance for all of our three major expense categories. Our guidance for the full-year 2018 tax receivables agreement and other payables remained unchanged at 10% to 15%. As a reminder, tax estimates are subject to many variables that won’t be finalized into the fourth quarter of the year and therefore could very materially from the estimates provided. Now, an update on our balance sheet. Our cash, cash equivalents balance in longer-term U.S. government obligation investments as of June 30, 2018 were $435 million. As we mentioned in the last quarter, we redeemed a $400 million of senior notes through a combination of cash on hand and the issuance of a $250 million term loan. We subsequently voluntarily prepaid $50 million of the term loan. A combination of these actions reduced our corporate debt excluding CLO risk retention financing by 50%, consistent with our goal to strengthen our balance sheet. As a result of a recent court decision that vacated application of U.S. risk retention rules in certain CLO transactions, Och-Ziff will no longer be required to hold risk retention for our U.S. CLOs going forward. Additionally, as a result of this decision, we sold a net of $135 million in U.S. CLO risk retention investments and paid down $118 million in related financing during the second quarter. These transactions netted approximately $17 million in cash and will also serve to further reduce both the other revenues in interest expense line items beginning in the third quarter. We’ll continue to hold the risk retention on our European and our dual compliant CLOs. With that, let me turn it over to Rob for closing.

[Rob Shafir:]

In summary, we are focused on delivering performance across all of our products and strategies for our clients. Performance in multi-strategy, credit, ICS and real estate were strong in the first half of the year. I believe the strength of the platform gives us a unique opportunity to source investment ideas across the globe as we create innovative new management opportunities such as the GECAS transaction. We continue to push forward our plan to strengthen our balance sheet and prudently manage our expenses. I am pleased that we’re on track to hit our expense guidance and I believe that we are making progress in putting the legacy issues behind us. We are working diligently to turn around the flow picture around and continue to believe that our solid performance will resonate with clients and lead to flows. With that, we will open line up for questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Gerald O’Hara from Jefferies. Your line is open.

[Gerald O’Hara:]

Great. Thanks for taking my questions this morning. Just maybe, starting on the GECAS transaction, if perhaps you could provide a little bit more color on the size of the market opportunity there, and how we should maybe think about how that’s going to work in terms of kind of a fee structure, a revenue opportunity and mix shift similar to the CLOs or just kind of anything you can provide color wise there would be helpful? Thank you.

[Rob Shafir:]

This is Rob. Thanks for the question. We’re pretty excited about the GECAS opportunities. I mentioned it’s the first situation we’re on and one of these aviation financings we are actually acting as an asset manager, I’d say it’s early days, but it’s obviously a very big market, the aircraft market, and what we’re also very excited about is that GECAS we believe is the premier partner of what is a multi-year arrangement for us with them. So, I think it’s hard to model it frankly, but I’d say that there is potential for that to grow quite immaterially overtime, but I don’t know if it’s Adam or Tom, or we would literally be able to quantify that sizing at that point, if you could be a bit premature to do that.

[Tom Sipp:]

It’s a big – this is Tom, it is a large market. I think from a modeling perspective, Gerald, I would model it similar to see CLO fee rates. But we do believe it’s a big opportunity to big market, but it’s – as Rob said, it is early days.

[Gerald O’Hara:]

Okay, thanks. And just maybe, a quick one on the legal provision is that something that we should, is it sort of isolated to the current quarter or is there potentially something, we should consider modeling kind of going out into future quarters? Thank you.

[Rob Shafir:]

Gerald, no. This is associated with pending litigation that we’re limited in what we can say. The bulk of this provision is against the specific shareholder class action suit. The provision is really our best estimate of the outcome, the probable outcome based on current discussions. We believe the maximum exposure would be an additional $18.8 million.

[Gerald O’Hara:]

Okay. Thanks for taking my questions this morning.

[Operator:]

Your next question comes from Alex Golten from Goldman Sachs. Your line is open.

[Ryan Roderick:]

Good morning. This is actually, Ryan on behalf of Alex, just wondering previously spoken to potential opportunities to optimize the expense rates. So, as we look out to 2019, it is still opportunities around non-comp, where you could see some reductions?

[Tom Sipp:]

Yes. this is Tom. There are opportunities that we’re working hard to drive efficiencies across the platform. I think there’s opportunities from the technology standpoint and really this year, we’ve had elevated legal and professional fees associated with settling some of our historical issues that we don’t expect to continue in 2019. So, I think overall, from an operating platform perspective, we are continuing to make platform more efficient. So, we think we will improve in 2019 and beyond.

[Rob Shafir:]

Yes. Hi, this is Rob. I think to Tom’s point, you obviously have as we are putting legacy issues behind us, doing things like restructuring debt and so forth. There are – there’s probably some one off nature to part of that expense base. but in addition to some of the efficiencies that we’re going to achieve this year and Tom just contemplated going forward in terms of things like efficiencies around technology and so forth. We have reduced headcount. So, our headcount is down from 482…

[Tom Sipp:]

Our beginning of the year headcount is 483 and end of quarter is 442.

[Rob Shafir:]

All right.

[Tom Sipp:]

So, I think outside, that will affect some non-comp expense associated with headcount. But obviously, it will affect our salary and benefits as well going forward.

[Ryan Roderick:]

Got it. thank you. and then I guess maybe just one more talking about the multi-strat fund, I’m wondering if you could give us color around conversations you’ve been having with clients and particularly which clients are most interested in the fund right now and you know kind of spurring that with some thoughts about returning to the positive flows there?

[Tom Sipp:]

Yes, sure. As I said, I think we are still experiencing some of the hangover from some of our legacy issues that we’ve gone through in the last couple of years. and I’d say in general, different businesses are sort of turning green faster than others. As you know, you’ve seen obviously, very nice growth in our CLO franchise. We believe that real estate when we announced our next up and coming funds will be well received as well. My view on multi-strat has always been that I think it’s a very timely product in a market, where rates seem to be going up involved, seems to be more prevalent than it has been certainly in the previous few years. So products that are – that have nimble capital that can invest across the asset classes that are lightly levered and lowball products that are consistent returning product from the performance standpoint, I think were very timely products in this marketplace and that is what our multi-strat product is right now. It has been a consistent performer overtime. It protects the client money very well. I believe on a gross basis that fund has lost money only twice in its history of 24 years and that includes the prices. and if you look at our performance this year, we’re up nicely in that business, 4.4% on a net basis. So, I feel very good about performance there and I’d say the client conversations there have gone from red in the context of where we are in a legacy basis. So, I’d characterize it as yellow, I’d say a pipeline is building, but it’s very difficult to predict when we start converting those things to green. But my philosophy is that the product is timely. our performance is strong and then I think with time and distance from our legacy issues, we will ultimately begin to turn those light green or just being [indiscernible] I don’t want to overpromise and deliver, but we’re very much committed to the sticking to our knitting there.

[Ryan Roderick:]

Got it. Thank you very much. It’s very helpful color.

[Operator:]

Your next question comes from Mike Carrier from Bank of America. Your line is open.

[Mike Needham:]

Hey, good morning. it’s Mike Needham in for Mike Carrier. the first one I have is on disclosures, sorry if I missed, did you give the quarter to-date flows, it looks like the press release changed a bit? I can find it there.

[Adam Willkomm:]

Hey, this is Adam, which flow number you’re specifically looking for?

[Mike Needham:]

Just a quarter – third quarter to-date.

[Adam Willkomm:]

The – yes, we don’t…

[Mike Needham:]

Yes. I think, I thought in the past, you guys gave like day one and then the current month…

[Adam Willkomm:]

Yes. We released that in our 8-K this morning, the AUM as of July 1 was 33.3 and the AUM as of August 1 was 33.5.

[Mike Needham:]

Okay, got it. but just in terms of flows.

[Rob Shafir:]

Yes. So we just – in the 8-K, we got our performance for the month and the ending assets. Yes, it’s as of day one.

[Mike Needham:]

Okay, all right. Fair enough. So, the other – on the real restate fund, I think you said you committed 60%, the returns have been good and I guess what’s the timeline for raising the next generation fund?

[Rob Shafir:]

I don’t think we have a specific time in mind yet. but we are about 65% invested in the fund right now. So, it’s something that we are in the process is gearing up for. I don’t know we have not an official date for any specific fund warrant at this moment yet though.

[Mike Needham:]

Okay. And just last one on multi-strat and flows tracking to below your prior expectations, is it still the past legal issues that are the problem – is that the biggest pushback you get from investors?

[Rob Shafir:]

I think that’s a big part of it. I certainly think that, I think that frankly, the legal issues, the CEO transition issues and so forth. It definitely puts investors on pause, and I think obviously, stability in performance and time and just instead I said just a minute ago, I think is going to be the cure for that. We are – we’re somewhat frustrated that we haven’t seen those flows turn positive if I were to give you some more color on that. I think what you’re starting to see is on an outflow basis, those outflow numbers beginning to normalize or in the process of normalizing. there was typically an element of churn and something like a multi-strat fund given the liquidity provisions of that fund. But we’re not yet really seeing or the significant inflows to offset that or more than offset that. and that speaks the pipeline and that speaks to clients, turning from yellow to green. As I said, I do think there’s a lot of healthy conversations going on. I do think there’s a good story, but I do not want to sit here and overpromise and deliver, I’d rather deliver. So, it will happen when it will happen, but I do believe that the product is timely. I do think our performance is there and I think time and distance will be helpful to us, hard to say exactly when, but we believe that it will turn positive.

[Mike Needham:]

Okay. Thank you.

[Operator:]

Your next question comes from Bill Katz from Citigroup. Your line is open.

[Bill Katz:]

Okay. Thanks very much for taking the questions. Question number one is what – how far do you have to get invested in the real estate funds before you stock marketing any fund?

[Rob Shafir:]

75%.

[Bill Katz:]

Okay. And you said you’re at 65% right now.

[Rob Shafir:]

Yes, plus or minus, yes.

[Bill Katz:]

Okay. That’s helpful. And then just in terms of capital management from here, could you just sort of walk us through how you sort of see the second half of this year and 2019 playing out in terms of priorities?

[Tom Sipp:]

Yes. I mean this is Tom, I mean, as you know a lot of our incentives are realized in the fourth quarter. our priorities are to continue to strengthen our balance sheet. We’ll make recommendations to the board at the end of the year based on our cash position, regarding dividends, and working capital needs. But we do want to continue to strengthen our balance sheet throughout 2018.

[Bill Katz:]

Okay. This is a little bit of really modeling question. How much can we expect the other revenue line to come down as of likely offset to the interest expense reduction?

[Tom Sipp:]

The other revenue is I would model around $1 million reduction.

[Bill Katz:]

Okay. And then just come back to the discussion on the feedback on the hedge fund discussion, I mean you mentioned a little more time of distance, so what – if you could cheer it out, I know you give a little calls to another answer, but if you could cheer it out in terms of – is it a full year of results, is it just pending legal thing that they’re sitting out there that may spill into the third quarter, or is it just the combination of all of that, just trying to get a sense for when you might up take it, and then whether you question, the last question, so thanks for taking them all. Is pricing an issue as of at least to how it’s priced versus maybe other vehicles that are out there?

[Rob Shafir:]

Yes, Bill. It’s hard to pinpoint these specific assets. And obviously, these things are – to some degree, using credit to the specific client. I just think it’s the combination of things that have – I think good points on costs. As we said, the performance story is great. I don’t think I’ve had one conversation to the clients that have been here. That’s been anything, but pleased with our performance thus far. And it really has not been a pricing discussion either regarding that. I think it’s more specifically to just getting comfortable frankly with me in my seat and getting some of the timing distance as I said before. The fact that we’re getting more clarity on some of these legal provisions and beginning to put these things in the rearview mirror and we are hopeful that we will make significantly more progress on that in the very near-term, will be a good fact. Is it one specific thing versus the other, I’m not really sure it’s probably in my mind just a bit of a combination and just sort of getting things settled down back on track and continuing to do we do, we think it is going to be good for us. And in addition to that, there’s obviously a lot of new client conversations going on, as market conditions have changed, and different clients are thinking about things differently in terms of where they want to allocate money. So, there is healthy dialogue and it’s – it takes time, but as I said, it’s hard to say where and when. But again, I think it will be hard for us not to turn this thing into a more positive direction here if we continue to perform in my view.

[Bill Katz:]

Thank you very much.

[Operator:]

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

[Patrick Davitt:]

Hey, good morning. Thank you. I think, July might be the first month the Master Fund underperformed the HFRX. In this season, I’m just curious if you could give us any color around positions that have caused that and or any concerns around that play under performance?

[Rob Shafir:]

Sure. I don’t think we will not talk specifically about positions. I guess I would say that it’s hard about 1000 in this business and get every month right. I think if you look at our overall track record, not only in the course of this year in terms of what our performances. But over the history of these funds, I think it’s been quite remarkable. As I said earlier, I think we’ve had two on a gross basis down years in the context of the history of this fund, which is greater in 20 years since inception. But I would also say, if you look at our performance in the first half of the year, we were strategy basis positive in all strategies and on one regional basis, as I mentioned in the comments, which aging equities, we were slightly down, but significantly outperformed the market there. In the course of July, a couple of physicians did not go the right way for us, which will happen from time-to-time, but I would point out to you that in spite of that we were down very slightly on an absolute basis. So we certainly were able to protect the capital of our investors even in the scenario, where some of the physicians went against us. I think the last thing I’d say is, our focus is more in the longer-term in terms of our investment performance, and we feel it’s a very good about our people that are managing money on behalf of our clients. We feel very good about our process in terms of how we do it – so, but once in a while, we will get it wrong and it was not our finest month.

[Patrick Davitt:]

That’s helpful, thanks. And then I think you mentioned GECAS obviously, you’ve had a lot of excess in credit and real estate expanding away from Master Fund I’m just curious, if there’s a pipeline of other kind of step out businesses or news businesses coming through that we’ll be hearing about over the next year.

[Rob Shafir:]

That one is the one just sort of in front of us right now. I mean there – as I said, in terms of just the core strategy of the firm, it is about really kind of sticking to the core verticals that we are involved in. as we talked about in the first quarter, what we tried to do is eliminate things that we thought from non-core. So, things like some of our peripheral activities, which were not really part of either multi-strat or credit platform or real estate, we are eliminating. And the purpose of that is to focus on what – I think these core businesses are. The reason why we’re doing that is, because we happen to think that we’re good in these businesses, we have the performance to sort of back up or story, and we actually think there’s a lot of Greenfield opportunity in those businesses. As I said, I think multi-strat is a place, where we think it is a very timely product given where the markets are and we believe we’re likely to be. In the foreseeable future we think, we’re extremely good in credit, and in real estate, I think what you will see is extensions that are logical adjacencies to those core businesses. So, if you think about something like GECAS, it is right in the strike zone of what we’re good at. Credit is a place, where we have tremendous strength. Within credit, our structured products capability, our securitization technology and so forth, and how we think about complex transactions is kind of the special sauce of how we think about a lot of the things we do in credit, and to apply that technology and know-how into a different asset i.e. the aviation asset quest, to me is a logical extension. So, as I said earlier, it’s hard to sort of say exactly how big it is. There’s definitely other transactions we will be working on in that space alongside of GECAS, but the philosophy is to leverage our strength in those core verticals and grow there rather than store lots of new initiatives that are not core of our mission.

[Operator:]

Your next question comes from Ken Worthington from JPMorgan. Your line is open.

[Will Cuddy:]

Good morning, this is Will Cuddy filling in for Ken. So as we think about the much stronger growth of the CLO like businesses with the management fee of about 50 bps, and the slower growth of some of the other businesses like multi-strat, if this continues, how should this mix-shift impact your salary and benefits as a percent of management fees overtime to expect salary and benefits as a percent of management fees to continue to grow overtime?

[Rob Shafir:]

Yes. I think one, I think the CLO average fee rate would be a little lower than that 50 basis points. But as the mix-shifts, we’ll continue to manage our sense base across the board. So, we don’t model or have a specific target on salary and benefits, but we will – if the mix is change overtime, we will obviously plan for that and react and be more efficient overtime.

[Rob Shafir:]

I guess I would add a couple of things to that. I mean if you think about things like our CLO business, there is – there’s an economy of scale elements to that business. So, the marginal cost could be able to scale those businesses materially from where we are right now. We’ll have some operating synergies in it and some operating leverage and so forth. So, I think that will mitigate some of that potential pressure and to be clear, it is not our expectation that overtime, that – we’re going to continue to see material outflows and some of the higher margin products. Obviously, we have not seen those lights turn green, which we’re pretty transparent about that, you know how we’re thinking about that and strategically; we will again be disciplined about our expense base. We’ll get some operating leverage and things like the CLO businesses to mitigate things. But our intention is to grow things like multi-strategy and some of the other high margin products that is core to what we are trying to do here and expect to be able to do overtime.

[Will Cuddy:]

Okay. thank you for answering up and our other questions were actually answered. Appreciate it.

[Operator:]

I’m not showing any further questions. I will now turn the call over to Mr. Willkomm.

[Adam Willkomm:]

Thanks, Kim. Thanks everyone for joining us today and for your interest in Oz. If you have any questions, please don’t hesitate to contact me at 212-719-7381. Media inquiries should be directed to Jonathan Gasthalter at 212-257-4170. Thanks very much.

[Operator:]

This concludes today’s conference call. You may now disconnect.