Waddell & Reed Financial Inc
Q1 2009 Earnings Call Transcript

Published: 28 Apr 2009

[Operator:]

Good morning. My name is Christie and I will be your conference operator. At this time, I would like to welcome everyone to the Waddell & Reed first quarter conference call. (Operator instructions). Thank you. I would now like to turn the call over to Mr. Hank Herrmann, Chief Executive Officer of Waddell & Reed. Mr. Herrmann, please go ahead.

[Hank Herrmann:]

Thank you, Christie. Good morning. With me today are Tom Butch, our Chief Marketing Officer, Mike Strohm, our Chief Operating Officer, Dan Connealy, our Chief Financial Officer, Mike Avery, our Chief Investment Officer and Nicole McIntosh, our Director of Investor Relations. Nicole, would you read the forward looking statements, please?

[Nicole McIntosh:]

During this call some of our comments and responses will including forward-looking statements, while we believe these statements to be reasonable based on information that is currently available to us, actual results could materially differ from those expressed or implied due to a number of factors including but not limited to those referenced in our public filing with the Securities and Exchange Commission. We assume no duty to update any forward-looking statements. Materials relevant to today’s call including a copy of today’s press release as well as supplements and schedules have been posted on our website at waddell.com under the corporate tab.

[Hank Herrmann:]

Well, thank you, Nicole. Good morning again everybody. Today we announced our first quarter results. Net income of $15.5 million included two items that obscured our underlying operating results. The first was a non-cash write down of $3.7 million or $0.03 per diluted share to our investment portfolio for other than temporary decline in value. The second related to the adoption of a new accounting standard that changed the method for calculating shares outstanding and resulted in the reduction of $0.01 per diluted share. Excluding these two items, net income would have been $17.8 million or $0.22 per diluted share. The quarter was challenging obviously. Despite the difficult environment, we did achieve a number of important successes. First our investment performance remains top-notch. In February, Barron's annual survey highlighting the best mutual fund families ranked both our Advisors Fund and our Ivey Fund in the top ten. Over the most recent five-year period, the Advisors Funds claimed top spot while the Ivey Funds claimed third. As of March, 78% of our funds and 82% of our assets beat their peers by ranking the top half of their leper peer group over one year, three years and five years. These results speak to the effectiveness of our disciplined, consistent approach to investing, which was manifest again in the first quarter when the weighted average return of our equity funds was minus 1.8% compared to minus 11% for the S&P. Secondly, despite the challenging market environment, our distribution channels have continued to perform well. During the quarter, we saw consistent month-over-month improvement in the sales volume in each of our three distribution channels and inflows in two of the three. Combined sales in all three channels in the quarter were $3.5 billion, an increase of 15% compared to the fourth quarter, while net inflows of $1 billion were a welcome development in the difficult environment. As mentioned in our release, we believe our organic growth rate of about 8% was among the strongest in the asset management business if not the strongest. Our momentum has continued into April with net inflows of approximately $900 million. Third, our advisors have done an exceptional job at helping our clients through this tumultuous period. Although sales volumes was slightly weaker sequentially, redemptions moderated leading to 110 basis point improvement in redemption rate compared to the previous quarter. Fourth, in the wholesale channel, we made further progress broadening the number of funds enjoying strong flows. In addition to the asset – and Global Natural Resources Funds which continued to see healthy interest. Our large cap growth, science and tech high income and limited bond funds all experienced solid inflows. And last, but not least, the pipeline in our institutional channel is healthier than has been in a long time, though the funding process is stilling running a little longer than we would like. Growth sales in this channel during the quarter were $395 million and net inflows were $118 million. April to date, inflows totalled $175 million and there is another $150 million we expect will fund shortly. Our relationship with (inaudible) say remains important while the defined benefit business is reviving. Looking at our financial situation through a combination of headcount reduction at year end and strict expense discipline we were able to improve our operating margin to 17.4% compared to the adjusted operating margin of 16.3% in the fourth quarter. Our balance sheet remains strong with no net debt. Unrestricted cash and securities exceeds $170 million. Operator, at this time, I would like to open the call up for questions.

[Operator:]

(Operator instructions) Your first question comes from the line of Marc Irizarry of Goldman Sachs.

[Marc Irizarry:]

Great. Thanks. Can you just elaborate a little bit on your investment portfolio, we continue to see these mark-to-market heads. But what sort of the size of that now, so we can get a sense of what we should think about for that line item going forward?

[Dan Connealy:]

Well, Marc, this is Dan. We have $54 million invested in these securities and are primarily invested in our mutual funds. So, if there were marked down this quarter as we reported because they have been below our cost for a period of time more than six months. So, that’s why we were required to write them down. And I think we should acknowledge that if the markets should go no where and they have already gone up since the end of the quarter but we will probably have another million write off next year – next quarter. But we of course won’t know until we see the market action.

[Marc Irizarry:]

Great. And Dan, if you could just stay on the financials for just a second. Just in terms of the operating margin, how should we think about the progression from here on and on a quarterly basis and what sort of your prognosis for margin if the markets stay flat from where they are now?

[Dan Connealy:]

Well, if the markets stay flat, we should continue to gradually improve through the year and we still believe that we are on target that by the fourth quarter we would have an operating margin of about 20%.

[Marc Irizarry:]

Okay. Great. And Hank could you just speak to the diversification of the flow and obviously as things are trying to attack in couple of other areas and may be in fixed income funds. Can you just elaborate a little bit on what you are seeing in April and what you are seeing throughout the first quarter in terms of the – in that sort of on concentration of flows?

[Hank Herrmann:]

Well, go ahead. I’m going to let Tom Butch answer that.

[Tom Butch:]

Hi, Marc. I think Hank mentioned those funds which are capturing share in addition to the ones which traditionally have done so. I think one of the silver linings if you will of the market is that we have been able to go to market and gain good reception for certain products which really weren’t in asset classes that were in favor for a long time. For example, our high yield product is our third fastest grower year to date. We have a very good short-term high quality bond product that also is gaining a lot of sales and so we have seen fixed income flows become a more important part of the business. Generally we have been able to participate in that. And as Hank indicated previously, we have seen continued flows especially in asset strategy to lesser but meaningful extent in Global Natural Resources. And a couple of fund which have been good steady growers over the lat few years, the Large Cap Growth fund, the Science and Technology fund continue on that pace. So, we have been in this market take advantage of the opportunities it’s given us. You asked about kind of the pattern of sales and whole sale in the first part of the second quarter. And I think the easiest way to describe that as we have seen per the numbers that Hank went through, they suggested and it is in fact the case that we have seen substantial uptick in growth sales and actually redemptions have backed off a bit and so both of those trends have been quite encouraging. Quarter to date, I would only say that it’s still – it’s still I can feel like a market of great conviction. It still feels little tentative and I think that’s borne out in industry data but so far the science for us as a participant in that in April have been very, very encouraging.

[Hank Herrmann:]

Marc, this is Hank. I would just say that if there is a certain element of schizophrenia in the marketplace that I’m sure you observe on a daily basis on the tape. And we sort of benefiting from that in a interesting way. One, if you don’t know what to do at all, you just give it to the asset strategy fund, and if you have deep conviction that it’s deflation, you give it to our bond funds and if you have deep conviction, it’s inflation you buy Global Natural Resources. And that somewhat numerous commentary on my part of attempt to it, but it has a lot of validity to it.

[Marc Irizarry:]

To knock the edge off the hook there, that is a – Hank can you give us your assessment of which of those camps you think we are heading into and what sort of your outlook?

[Hank Herrmann:]

Well, I’m more in the camp that says inflation is a long way off. I’m more in the camp that thinks its low levels of disinflation or may be tiny bit of deflation. I’m still agnostic in terms of deciding whether or not we are in for a flat to up period in the economy. We still see it in a down trend, but no where near as steep as it was earlier obviously. Now I have left – we have the tendency to be a little more defensive rather than more aggressive. So, that’s where I stand and now there are 32 portfolio managers in our place and they would all answer the questions somewhat differently and I have Mr. Avery here and I would encourage him to respond as well.

[Mike Avery:]

Hi, Marc. This is Mike. I guess the best way to describe it is we are fairly defensive. I’m not convinced that the crisis that we are incurring is close to being over given the amount of time that is taken our economy to reach the state that it’s in. As you probably have been around some place, you go back around and look at the amount of debt that it took to create $1 GDP going back 30 years, 20 years, 10 years to present day, you can see that acceleration has being occurring at a normal business cycle pull back have given their response to in essence tried to recreate the boom by employing monitory policies such as aggressive reductions in interest rates, aggressive stimulus of the monitory supply, stabilization policies have been very aggressive. And to date given that that has not been as productive as the policy makers may have wanted. The add on has been aggressive physical stimulus policy as proposed by the administration. And our view is that this may be a period and time and that is somewhat unique and that it may take more than aggressive monitory stimulus, aggressive physical stimulus to move a US consumer which to date represents 70% of the US global – 70% of the US economy and therefore 24% of the global economy. If the US consumer may be at the point where they are in need of repairing their own balance sheets and as a result aggressive monitory stimulus may not be as productive this time as it may have been as recently as say post 9/11 environment or even in the more recent past. So, given that, we are fairly defensive. If you look at how the asset strategy fund which I call manager structured were about 20% cash, were 13% in bonds and in order to get a yield improvement on that portion of the portfolio. We have about 17% in Gold Bullion. We have 50% exposed to equities but we have hedged most of the equities so that our net equity exposure is only 20%. And the equities that we have are focused on growth outside the US primarily in Asia more specifically China given our view that physical stimulus, the monitory policies and given the current pace of their economic growth will result in GDP growth for ’09 or ’10 in the mid to high single-digit rate during the next 12-month to 24-month period of time. So, that’s how we have focused the portfolio. It is interesting that the market is here in the last three weeks even though it doesn’t seem like on a day-to-day basis because of the amount of volatility but the market as measured by as articulated the S&P has kind of stuck to the 850 level almost like a magnet for the past three weeks. And that’s pretty impressive to us given that from March 9th, the market is up about 25% from March 9th to the present day. It stabilized – and I’m not – we are not exactly sure that that’s a level that we can go higher from but it is interesting that it is kind of stabilizing at the 850 level. So, I don’t know. I think that our – and going back to where I started I think our concern was with regards to an outlook that is going to result this time and perhaps a slow workout period for the US consumer versus a quick fix, it just can take a longer time for the US economy to show any meaningful growth. Long answer, sorry, but..

[Marc Irizarry:]

No. Thank you for the detailed insight.

[Operator:]

Your next question comes from the line of Robert Lee of KBW.

[Robert Lee:]

Thanks. Good morning everyone.

[Hank Herrmann:]

Good morning, Rob.

[Robert Lee:]

Hank, I have a question for you. In institutional business, you spoke about the revival of the Ivey business. I’m just curious if you have any sense or color on where you are seeing the RFP activity from it. What I mean by that is, are you seeing – is it mainly kind of market share shift from other growth managers or do you feel like may be more of it’s actually coming out say the hedge fund industry, you could may be characterize it little bit?

[Hank Herrmann:]

Well, it’s of course always hard to tell because it don’t necessarily give you all the inputs. But it’s market share gain versus other managers at the present time little more so than any idea that it’s money coming out of the hedge funds. And that’s guess work on my part.

[Robert Lee:]

And could you talk a little bit about fixed income business, you seem to be having some success in expanding sales than the whole sales channel? I mean in the past you kind of mentioned here that from a cost structure may be from – you weren’t really where you needed to be in some of those products. I mean the – that doesn’t seem to be an issue at least recently. How you think about that going forward? Do you to need to change anything on the fixed income side?

[Tom Butch:]

I think – this is Tom. Yes, from a product perspective I think we are in good steed in terms of having all the categories covered. With the high-yield products that’s performing well, I mentioned also in limited term bond fund. You may remember that last year we imported over from the advisors fund family, Global Bond fund into the Ivey family and thus I would say are the three core offerings. We also have the mortgage portfolio and the high grade in the immediate portfolio. On the cost – you are talking about the cost relative to the industry and the overall operating ratio?

[Robert Lee:]

Yes.

[Tom Butch:]

Yes. I think there are some places where we are still little high to the industry. I think those will be cured largely by scale.

[Robert Lee:]

Okay. May be just one last follow up question on the advisors channel. Have seen any improvement against the overall and new business in April? Can you give a bit of color on the advisor channel what you are seeing? How – may be how you see your customer [ph] is there, you know, do they still – does that channel may improve as much as some of the others or how is the – investors there reacting?

[Tom Butch:]

I think as we have talked about historically that the channel where the investors are based on the demographics of that channel tend to be a little more conservative and tend to be lag on both ends of markets that go up and down. And so they were little late to flat line last year and may be a little later they come back. This year I would say that’s sentiment there. It’s a little bit tentative although is quite encouraging in terms of the growth sales on a daily basis having gone up in the low 20%. So, I think as I said it’s sort of a timing in that channel almost precariously predictable and that sentiment seems to come back later than it does in the general market. And I think we are seeing that in April.

[Robert Lee:]

And actually could – is one more question I apologize. In the number of advisors I know in the first quarter you usually have some decline if you kind of may be read through some weaker performers? Could you update us on where your thoughts are there over the coming year, I mean I’m assuming given the – what’s going on in some of the bigger broker dealers and just the economy in general, your pricing, more opportunity to hire more may be somewhat qualified advisors?

[Tom Butch:]

Yes. Let me give you two answers to that. First of all, one of the statistics that we look very carefully at is the number of licensing kits received. That is people who are in the process of going through licensing with the ultimate goal of their becoming advisors. And that’s probably a more meaningful leading indicator early in the year than is for you point what happened between the fourth and first quarters. That number is up hugely over last year in the first quarter. Yes, the number of licensing kits received is up hugely year over year. So, we have a pretty good sense. It’s pretty predictable the percentage of those people whom we will license and so that is a very encouraging fact and I think it points to your point that the current economic conditions put a lot of people both in the financial advisory world and elsewhere and the elsewhere is where we typically recruit for our traditional business into the job market and that has been to our benefit. To your second question, you will recall that last year we put in place the Persian technology, which for the first time really enables us to compete and seek to recruit from other broker-dealers. That effort, from a recruiting perspective is going quite well. We had 50-ish people on the platform at March 31; that was an even split between Waddell and Reed people who chose to embrace that platform and people that we are bringing in from other broker-dealers. I will tell you April has been our busiest month in terms of putting new people on that platform and we have a substantial backlog of qualified people that we are working through. We have a great many offers out. We have to be careful in the number of people we put on that portfolio in that the transition process is quite complicated and we have to make sure that we are doing it well. But all in all, that effort is meeting our expectations or exceeding them in terms of recruiting.

[Robert Lee:]

Great, thanks for taking my question.

[Operator:]

Our next question comes from the line of Craig Siegenthaler of Credit Suisse.

[Craig Siegenthaler:]

Thanks and good morning. First question, with Waddell's operating margin still bound 260 bps below your previous fourth-quarter guidance, which is for – by the end of this year fourth quarter 2009. One of you can comment on the progress and improvement in profitability based on your target and also comment on how – recent rebound in the FD markets and good expense management, how that's really helped this target.

[Dan Connealy:]

Craig, this is Dan, I'll take that. Well, according to our projections, we are still on track to get to that 20% by the fourth quarter, even with the flat market; and as you pointed out, we have had better than a flat market so far in April. So the expense controls that we put into place, mainly the 169 people who left the company are obviously helping us to achieve some of that. We are also trying to be very sensible on the way we spend our money all over the organization. So we think we're still on target to reach that 20% by the fourth quarter.

[Craig Siegenthaler:]

Got it. And was there anything unusual on the comp expense this quarter?

[Dan Connealy:]

Not really. Bonus accruals were down a little bit and especially compared to the last year's first quarter, where we had very high bonus accruals.

[Craig Siegenthaler:]

Got it. And my second question is, you guys actually managed a small money market business for third-party channels in your wholesale bucket, it is very small, it is $300 million, I'm just wondering how you think about this risk award with new regulations essentially coming through; because I understand why you do on the captive channel, makes a lot of sense, but why the small business to the wholesale channel?

[Dan Connealy:]

Well, we have always thought it important to have a money market product there for exchange and other purposes and it serves really that purpose, principally as an exchange vehicle, to keep it in our family.

[Craig Siegenthaler:]

Okay. Great. Thanks for taking my questions.

[Operator:]

Your next question comes from the line of William Katz of Buckingham Research.

[William Katz:]

Thank you. Good morning. I want to speak on the distribution margin for a moment. I know you don't look at it specifically this way, but on the third-party sales in particular, I know that your sales increased sequentially and your direct expenses declined sequentially. Just sort of curious as to any structural change in the margin prospects for that part of the business?

[Dan Connealy:]

Well, one of the primary drivers of that would be the amortization of deferred acquisition costs. And you will recall we had a write-off of such costs in the fourth quarter, lot of FC shares, so now throughout the next coming months, some of that that be wrote off in December, we don't have to write off now. So that is probably contributing some to that.

[William Katz:]

So if you look at the margin calculation within wholesale, that is around negative 50%, is that sort of a reasonable run rate or would you expect that to deteriorate a little bit, given what you just said about the flows into April?

[Dan Connealy:]

Well, if we had very strong flows, you know the effect of that on the margin, it makes it more negative. So we don't really start out looking at a target for that distribution margin. That is really set by the character and the amount of sales in that channel.

[William Katz:]

Okay. And then Hank, this question just coming back to the margin more broadly for a second, given what seems to be a improvement in sales, markets have rebounded a little bit and the expense initiatives, is 20% now too low of a forecast to be thinking about as you think about just sort of rising productivity of the business overall?

[Hank Herrmann:]

No, I think that that is probably a good target from here and I would like to say yes, but I would have to base that assumption on much stronger markets from here and I'm not sure I want to do that. And the other thing is that we did cut back pretty good and if there were a lot of strength, I might say myself that I might want to incur a little more expenses here and there. So, for now, I think the right thing to do is just keep focused on that 20%.

[William Katz:]

Okay, and the just the last question on capital management. You have bought back some shares this quarter, is it safe to presume that you would look to minimize the dilution from the April grant as you look out at the rest of the share, via buyback?

[Hank Herrmann:]

Yes.

[William Katz:]

Okay, I thank you very much.

[Operator:]

Your next question comes from the line of Jeff Hopson of Stifel Nicolaus.

[Jeff Hopson:]

Okay, thanks a lot. Hank, can you repeat the sales that was $900 million did you say, and was that total sales or just from the wholesale channel? In April I mean.

[Hank Herrmann:]

In April, it was combined.

[Jeff Hopson:]

Combined, okay. For Tom I guess, Tom, it seems like you have now got a permanent seat at the table, so to speak, in terms of shelf space. If sales broadened from an industry standpoint, do you feel like – and if the asset strategy fund sales moderated or went down, do you think you're going to get your fair share of the sales from here? And then, the final question is, in terms of the sensitivity on the expense side to those higher sales, how much sensitivity do you have going forward relative to year two of going. You didn't have as much as scale in terms of underwriting clause. If sales remain very strong, are we going to get a significant negative effect in the next quarter?

[Tom Butch:]

I will answer that, at least the first part relative to getting fair share. I think you are right that we are I think well ensconced at the important distributors, those distributors as you well know are in a state of significant flux and transition and we have worked very hard to stay in touch with them and stay on top of what is happening in the distribution environment. So I guess the way to answer your question regarding fair share is that we think we are well covered off in all the most important asset classes; that is I don't see material gaps in the Ivey Fund's product line and to the extent that we do our work on the research side of our partners and continue the good wholesaling, we should be able to maintain that fair share. Now obviously, the asset strategy fund has been the flagship and the leader in that to a significantly disproportionate extent and it would be our goal to have the percentage that drives into that fund, the lesser part of the total, but that is an evolutionary process and in this quarter, we saw good progress in that regard, but we don't have other funds which are approaching that level of sales at this point. So that is the only way hedge the answer is, if there were I think in your question – if there were a significant drop-off in asset strategy, would replace all those dollars immediately. That would be a challenge, though obviously we are very encouraged by the breadth that we are seeing.

[Hank Herrmann:]

With regard to the margin and that distribution channel, we were improving margins as we went through the quarters up through June as you probably can see on your figures, but with the loss of assets that occurred in this market at this location, we then have to build scale further. So we would expect to see margin improvement if we have steady sales. If we have very strong sales, you are right, there would be some margin degeneration. But we are not going to be disappointed if we have strong sales.

[Jeff Hopson:]

All right. Thank you.

[Operator:]

Your next question comes from the line of Michael Kim of Sandler, O'Neill.

[Michael Kim:]

Hey guys, good morning. First, in terms of the asset strategy fund, obviously, you have seen a pretty sizable step up at flows, as relative performance remains strong. You touched on this a bit earlier, but I'm just curious, how correlated do you think the flows are to relative returns for that product, or is it more a function of kind of investors level of conviction or lack thereof to your earlier point, just in terms of kind of broader macro trends?

[Hank Herrmann:]

I will let several people respond, we will start with Tom.

[Tom Butch:]

I will take the first swing at it. I think if I were to put proportionality on it, I would say the highest proportion right now relates to it having proven itself to be a relatively safe harbor and for Hank's point, at a time when there is a lot of confusion about where things are going to go, I think the step up has mostly to do with the fact that Mike and Ryan have done such a good job historically of participating on the upside and protecting on the downside.

[Mike Avery:]

This is Mike. I guess what I would add is that the action that Ryan and I get when we go out and speak publicly or do conference calls and we try to do a conference call at least once a month for a broader audience and others on a selective basis, but generally, what people are looking for is somebody to give them confidence that will allow them to participate on the upside, but won't blow them up on the downside and the very uncertain market. We are – I think most of our clients realize that we are navigating treacherous waters and even though we have had a rally, I think most of the clients that we talked to don't believe it is going to be quick before we can see clear skies. So I think what appeals to them is the flexibility that the fund has to be defensive in an environment like this, but at the same time, capture some upside. Year-to-date, the fund is up about 3% and the S&P year-to-date is, even though we have had a rally, down about 5%; and even though that is not outstanding, it is going in the direction that we want to see it go as portfolio managers and not only is it got better relative performance but we haven't had the volatility in our performance like the market has. So I think that is very appealing and at a time when it is very uncertain.

[Dan Connealy:]

Mike, I would like to chime in with the last comment. In the wholesale channel performance weighs heavily, there is just no getting away from it that on the other hand, I would say that this fund, over the last year particularly, has proven itself and so my guess would be – proven itself beyond anything it had done in a prior environment obviously because this environment was so different and so difficult. My guess would be that the normal sensitivity to performance should be discounted by some amount going forward just sort of credibility that the fund has gained over this most difficult time.

[Michael Kim:]

Okay, that is helpful and then maybe just a bigger picture question, Hank, I would be curious to get your outlook for the mutual fund industry in general, coming out of what has all this he been a very volatile period. Where do you think kind of the next leg is going to come from, whether it is reallocating back to more traditional core equity funds or maybe more income oriented products or EPS or what have you?

[Hank Herrmann:]

First of all, I look at EPS separately. I don't think of EPS as really a retail product. I think it is an institutional product. And so I have always maintained that I didn't think EPS would take share from the mutual fund industry. You know, you could have a lot of debate about that, given the growth of EPS, but I still think most of what is happening to EPS is institutional money managers taking advantage of EPS to move around quickly. And then, what is the next leg of growth, I guess one thing I would say is that I think fixed and somewhat more defensive in the equity side will become a little bit more important than it had been in terms of closure for quite a while. And I don't think that the last couple of months is going to tell us what is likely over the next couple of years, because what has been going on very recently is what I would call a dead cat bounce as opposed to a clear indication of trend change. I think that is still in front of us.

[Michael Kim:]

Okay, thanks for taking my questions.

[Operator:]

(Operator instructions) Your next question comes from the line of Cynthia Mayer of Bank of America.

[Cynthia Mayer:]

Good morning. I guess just to return to be the dead horse in the margins just a little bit; Dan, I wonder if you could just talk a little about the comp number, is there any extra – what is the extra seasonal expense in there and when you look at comp and G&A, are all these saves in by now or there are some further saves which haven't shown up yet and same question for the indirect expenses in distribution, are those – those have been coming down for quite a few quarters, are they going to come down any more, or are you sort of in steady state?

[Dan Connealy:]

I think we are more steady-state, Cynthia. The compensation trends for the rest of the year, it may be up just slightly in the next quarter, because we have issued more restricted stock that has to get amortized in, but offsetting that, some of that may be issued at a higher share price or kind of going off the amortization, so I would say a number with a 26 in front of it for total compensation is probably a good – I don't think it can get much above that. In G&A, I don't think we should see increases in G&A either.

[Cynthia Mayer:]

Okay, and – go ahead.

[Hank Herrmann:]

Cynthia, this is Hank. There are some things that are not quite yet completed or words like that, but there probably will be positively affecting expense reduction programs over the next couple of quarters. They are not the sort of thing that will make your eyes look back, but they are all a little here, little there and there is enough of it that we will have some additional obvious benefit from them as things unfold. It is a little unhelpful because I can't give you all the details, but I think if I were silent on your question, that wouldn't be helpful either.

[Cynthia Mayer:]

Okay, thank you. And then on the DB improvement, what styles are selling there? Is that still large cap growth or is it something else?

[Hank Herrmann:]

It is mostly large-cap growth, it is in the Pictay [ph] but also DB. About equivalent in the terms of flows, maybe a little bit better in DB as time goes on. And we are seeing increased interest in small cap growth and we have – I'm looking at my associate here – maybe a little bit as well.

[Cynthia Mayer:]

Okay, so if you take out Pictay, you are positive on DB?

[Hank Herrmann:]

I would say in the April timeframe, DB and Pictay are about on a net basis equal to each other and if the flows come in the way I am anticipating, the DB will be most of that. That is not to say Pictay won't do anything, I just forgot what they are going to do until they do it.

[Cynthia Mayer:]

Okay, great. I think that is it from me. Thanks a lot.

[Operator:]

Your next question is a follow-up from the line of William Katz of Buckingham Research.

[William Katz:]

Thanks very much. Hank, just want to come back to your commentary about sort of dead cat bounce and sort of what you think about where the industry might be two years from now. And (inaudible) that you have exceptional performance in your fixed income slate of products currently. Do you feel like you have the requisite heft to compete against some of the potentially bigger players out there that are also focusing in very strongly on retailing or black rocks talked about and a few others. Any concern there, strategically how you have put in?

[Hank Herrmann:]

I will let Tom respond.

[Tom Butch:]

I think I would go back to my prior answer, Bill, which is first of all, I think we have the product line-up to compete with anyone and that will be borne out more as time goes on and we have the opportunity to tell more of our stories. We have the luxury, if you will, of not being able to get to some of the good products that we have, because there is a finite number of things you can effectively take to market at one time. So I have no concerns on the product side and if you were to look at our relative ranking at distributors of importance, that too would suggest that in the relatively short time we have been in the market, we have for one of the questioners comments, gain to see the table wherever really matters. And so, we don't have any ambiguity about our competitive capacity.

[William Katz:]

Okay, thank you very much.

[Operator:]

There are no further questions at this time. Are there any closing remarks?

[Hank Herrmann:]

No. I think we are done. I appreciate everybody listening in and look forward to visiting with you in the coming quarter and talk to you in July. Thank you all for filling in.

[Operator:]

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