U.S. Markets open in 1 hr 23 mins

Edited Transcript of MN earnings conference call or presentation 3-May-17 9:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Manning & Napier Inc Earnings Call

New York May 16, 2017 (Thomson StreetEvents) -- Edited Transcript of Manning & Napier Inc earnings conference call or presentation Wednesday, May 3, 2017 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Beth Hendershot Galusha

Manning & Napier, Inc. - Principal Financial Officer

* Ebrahim Busheri

Manning & Napier, Inc. - Director of Investments

* Paul Battaglia

* Richard B. Yates

Manning & Napier, Inc. - Chief Legal Officer and Secretary

================================================================================

Conference Call Participants

================================================================================

* Arinash Ghosh

Crédit Suisse AG, Research Division - Research Analyst

* Christopher Meo Harris

Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Research Analyst

* Robert Lee

Keefe, Bruyette, & Woods, Inc., Research Division - MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good evening. My name is Stephanie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Manning & Napier First Quarter 2017 Earnings Teleconference.

Our host for today's call are Richard Yates, Chief Legal Officer; Ebrahim Busheri, Director of Investment; and Paul Battaglia, Vice President of Finance.

Today's call is being recorded and will be available for replay beginning at 8:00 p.m. Eastern Standard Time tonight. The dial-in number is (404) 837-3406 and enter the PIN number 6864798. (Operator Instructions) It is now my pleasure to turn the floor over to Mr. Richard Yates.

--------------------------------------------------------------------------------

Richard B. Yates, Manning & Napier, Inc. - Chief Legal Officer and Secretary [2]

--------------------------------------------------------------------------------

Thank you, Stephanie, and thanks, everyone for joining us today to discuss Manning & Napier's First Quarter 2017 Results. Before we begin, I would like to remind everyone that certain statements made during this call not based on historical facts, including any statements relating to financial guidance, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. Manning & Napier assumes no obligation or responsibility to update any forward-looking statement. During this call, some comments may include references to non-GAAP financial measures. Full GAAP reconciliations can be found in our earnings release and related SEC filings.

I'll now turn the call over to our Director of Investments, Ebrahim Busheri, for a discussion of our first quarter results, and then we'll open it up to any questions, Ebrahim?

--------------------------------------------------------------------------------

Ebrahim Busheri, Manning & Napier, Inc. - Director of Investments [3]

--------------------------------------------------------------------------------

Thank you, Richard. Good afternoon and thank you, for joining us today. Before reviewing our performance of the year, I want to provide some context with an update to our economic overview. We continue to have a slow growth economic overview in the U.S. and global markets, which are a function of debt levels, demographics and productivity among other factors. That having been said, following the U.S. election, we see policies being pursued like lower regulation and lower taxes that if successfully implemented are likely to lead to better growth. We're also seeing conditions improving in international economies. While we felt there would be an incrementally better economic backdrop, we did not share that optimism that caused the markets in the fourth quarter to reflect a significantly more positive view with financials and other economically sensitive areas are performing. Thus after 3 strong quarters in 2016 in most of our products, we had a challenged fourth quarter. Instead of chasing the markets, we added to our growth exposure following the U.S. election. This has stayed off significantly this year, and some of the best performing sectors in the fourth quarter have been among the weaker performers this year. As some of the policies have been more difficult to implement then was expected. The strong start to the year has recently given us an opportunity to slightly cut back on our growth exposure and to add to some of the economically-sensitive areas. This year, we have started to see a favorable environment, with markets becoming less correlated, creating an optimal environment which favors high conviction, high-active share managers. In reviewing performance for the year, I will refer to performance year-to-date through last Friday, April 28. We are most pleased with the returns in the blended asset franchise that are so important to our business. Our Pro-Blend maximum fund, the most aggressive of our life cycle options has returned 11.23%, or more than 400 basis points ahead of its blended benchmark, and is ranked in the first percentile in the MorningStar rankings.

Our Pro-Blend Extended and moderate funds are both ranked in the second percentile of their respective categories, and are outperforming their benchmarks by more than 300 basis points and 200 basis points, respectively. Our targeted products have also had a strong start to the year, and are generally ranked in the first percentile year-to-date. Similarly, the Manning & Napier Equity Series, which is our U.S. equity product is outperforming and is up 12.75%, which is 550 basis points ahead of the S&P 500.

Our overseas series, which is our non-U. S. equity product is up 11.37% and more than 100 basis points ahead of its benchmark. Beyond the core products mentioned above, we have continued to have strong performance across many additional products. These products have been prioritized from a distribution standpoint and we have shared our optimism about them on prior calls. Our Disciplined Value fund returned 5.92% compared to 3.07% for the Russell 1000 Value index, and is ranked in the tenth percentile. It's also outperforming our 1 and 3-year basis. The real estate series, has exceeded its benchmark by more than 300 basis points, returning 3.45% and is outperforming overall a 1, 3, and 5-year time period. The International Series has returned 10.77%, outperforming the All Country World ex-U. S. Index by 60 basis points and is outperforming over a 5 and 10-year time period.

Several of our fixed income strategies, including our high-yield bonds fund, our global fixed-income fund and the unconstrained bond fund all have strong absolute and relative returns for the year.

Before turning the call over to Paul, I would like to close by reaffirming that Manning & Napier is a high conviction, highly-active manager. As a truly active manager, our clients know that we do not outperform in every time period, but over the long term, we have added value for our clients and demonstrated an ability to make up ground quickly, and we look for that to be the case again in 2017, given where we are in the market cycle. As a highly active manager, with much of our assets in high-conviction, high-active share portfolios environments where the market are less correlated and there's more differentiation between winners and losers tend to favor our approach in investing and this is the environment we are now experiencing. That concludes my prepared remarks on the investment team. Thank you, for your time, now I'll turn the call over to Paul Battaglia, for additional remarks. I look forward to your questions. Paul?

--------------------------------------------------------------------------------

Paul Battaglia, [4]

--------------------------------------------------------------------------------

Thank you, Ebrahim. Good afternoon, and thank for joining us. I'll start with an update on distribution before we moving to our first quarter results. Net client flows remain under significant pressure. While short-term performance was strong, we continue to face difficult, relative performance over most long-term time periods, especially among our traditional product set. Institutional and intermediary flows are highly sensitive to past performance over trailing 3 and 5-year periods. And therefore, we likely remained challenged until we replace the difficult performance from prior periods with better returns in 2017. As an update from prior calls in April, we saw the transition of $2.5 billion away from our life cycle Collective Trust funds. Further, we have received notice of additional institutional client outflows that we expect later in the year. Simply stated, institutional and intermediary distribution is likely to remain challenged for us in the near term. By contrast, we are seeing better traction through our direct regional sales force focusing on high net worth in midsize institutional clients. These sales have traditionally been smaller in size and concentrated in our blended asset portfolios, but recently we have seen opportunities with larger mandates, including interest in some of our key products. This has historically been good sticky business for us, involving deeper relationships where we can take a more solutions-oriented approach, by acting as a trusted adviser while providing other value-added services. We are hopeful that these trends will continue to gain momentum and begin to affect our overall flow outlook in the quarters to come. Looking more specifically at our first quarter results, AUM was generally unchanged during the quarter and ended the period at $31.6 billion, with net client outflows of $2 billion being offset by $1.9 billion of market appreciation. When compared to March 31, 2016, AUM has decreased by $3.1 billion or 9%. The first quarter net client outflows do not include the $2.5 billion outflow from our lifecycle products previously mentioned. We've received notice of additional institutional outflows of approximately $1.5 billion to $2 billion in the form of both partial redemptions and full cancellations. These outflows are specific to a few of our larger dated blended asset and non-U. S. equity relationships. We continue to work with these relationships on the specific transition terms, and we expect to see the impact of these outflows to be concentrated in the next 2 quarters. While client flows especially on the traditional products remain challenged, we are encouraged by the traction we have gained in some of the key strategies that we have mentioned on prior calls. Specifically, we saw over $100 million of inflows into strategies such as, real estate series, disciplined value, International Series, strategic income, our managed ETF strategies and our fixed-income products. While these inflows have not been significant enough to offset the client outflows, these products continue to maintain attractive track records and are priced competitively to support distribution in the current environment. Further, starting in March, we saw the first group of new accounts coming in with respect to the new distribution relationship we have discussed on prior calls. Well not yet a meaningful contributor to client flows, we feel confident that, that this new partnership will provide long-term stability to our Target Date inflows and could be a foundational relationship as we continue to build our Target Date asset base.

Turning to the first quarter financials. We reported revenue of $55.5 million in the quarter, down 6% from revenue of $59.1 million reported last quarter.

Our overall revenue margins were 71 basis points in the quarter and are in line with last quarter. Operating expenses were $38.8 million in the quarter, an increase of $1.5 million compared to the previous quarter and a decrease of $500,000 compared to the first quarter of 2016. The sequential increase in operating expenses includes a $5.7 million increase in compensation-related costs, partially offset by decreases in distribution, servicing and custody expenses and other operating expenses. Compensation-related costs were $23.4 million for the quarter and represent 42% of revenue. Approximately $4.5 million of this sequential increase is attributable to lower fourth quarter 2016 incentive compensation accruals, reflecting the impact of negative investment performance at the end of last year. The remainder is primarily [trudel] to increases, increasing first quarter analyst bonus accruals, stemming from the strong absolute and relative returns in the quarter. Looking ahead, we are expecting that our compensation ratio will continue to remain in the low-40% range, given the expected pressure on AUM and revenues. Distribution, servicing and custody expenses continue to be approximately 23 basis points of fund in collective average assets and the 6% decrease during the quarter was driven by decreasing average assets. Other operating expenses were $8 million in the quarter and represented 14% of revenue, which is generally in line with what we've reported in recent quarters. As a result, we reported pretax income for the quarter of $17.9 million, a 19% decrease since last quarter. Economic net income for the quarter was $10.9 million or $0.13 per adjusted share.

Economic net income includes an adjusted tax rate for the quarter of 39%, which is the full year rate we expect for 2017.

Turning to equity ownership. The adjusted share count decreased from 81 million shares outstanding at year-end to 79.2 million adjusted shares outstanding as of March 31, 2017, with the change resulting from the annual exchange process that was completed earlier this quarter.

As part of that process, legacy shareholder exchanged approximately $1.8 million Class A units of Manning & Napier group for $9.8 million. And subsequent to the exchange, the Class A units were retired. The exchanged was accretive to all current shareholders and after the transaction, the public investors now own approximately 17.5% of the comp. Turning to the balance sheet. We continue to maintain a debt-free capital structure, with cash and short-term investments of $127.7 million and $15.6 million invested in seeded products as of March 31, 2017. The strength of our balance sheet allows us to continue to support strategic initiatives designed to help us grow the business. Including pursuit of new solutions-oriented services and technologies, enhancements to our existing infrastructure to help us better serve our clients and prepare for future growth as well as potential fee reductions or modifications to certain products to ensure we have a competitive product set for distribution.

Along these lines, the dividend reduction announced during the quarter, now $0.08 per Class A share, further contributes to our financial flexibility.

That concludes my formal remarks. I'll now turn the call back over to the operator, and we look forward to your questions. Operator?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from Arinash Ghosh with Crédit Suisse.

--------------------------------------------------------------------------------

Arinash Ghosh, Crédit Suisse AG, Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

My first question is around your targeted products. Just wondering if you're seeing increased pressure here from cheaper passive funds? And even like near-term performance aside, I guess in 1Q, we recently have been seeing a lot of active-targeted fund managers losing flow to cheaper target date alternatives, so just wanted to get your thoughts around this issue.

--------------------------------------------------------------------------------

Paul Battaglia, [3]

--------------------------------------------------------------------------------

This is Paul Battaglia. I mean, I think that observation is right. I think that we are facing similar pressure that you discussed. The conversations that we're having are focused on trying to justify the positioning that we have right now and why that is useful given the uncertainty that the market may hold in the future. Clients in the past have also been receptive to the idea that we've talked about on prior calls, about a glide range, more flexibility that we have in our Target Date products. So I mean, I think the challenges are there, but we've been having positive conversations with the clients as part of our normal servicing efforts and it continues to be -- the DC space continues to be a strategic focus for us.

--------------------------------------------------------------------------------

Richard B. Yates, Manning & Napier, Inc. - Chief Legal Officer and Secretary [4]

--------------------------------------------------------------------------------

Richard here, just want to add on to Paul's comments that, we have -- and we continue to look at our product set in the Target Date space, specifically as well as broader DC products to be looking at cost structures there as well as our hybrid product, our GOAL funds and the collective swarm, which we think are great alternative to the passive conversation that we're seeing. And we continue to look at the pricing on that to make it as competitive as possible and we're excited to see some of the rating services been moving towards putting scorecards on collectives, not just mutual funds and we feel with our collective product suite, that could put us in good stead in the Target Date space.

--------------------------------------------------------------------------------

Arinash Ghosh, Crédit Suisse AG, Research Division - Research Analyst [5]

--------------------------------------------------------------------------------

Got it. And then, correct me if I'm wrong. But I believe that most teams are evaluated on absolute performance versus compared to relative to peer benchmark. So just in the event that some of this good performance doesn't translate into flows, what levers do you have sort of to protect the margin going forward, given your updated guide of comp in the 40 range?

--------------------------------------------------------------------------------

Paul Battaglia, [6]

--------------------------------------------------------------------------------

There are, this is Paul again -- there are absolute and relative components to the incentive calculation. I mean, I think it's something that we are mindful of between -- the 2 largest components of compensation are the sales commissions and the analyst bonus, which are both variable in nature. So we will continue to keep an eye on those, and I mean I think the other way we look at this is that, we have seen -- if I go back to 2013 and compare to 2016, we've seen about $30 million come off the comp line. So we want to be mindful of that as well and make sure that we retain talent, we're at the same time managing the margin and making sure that we're being mindful and prudent about spending going forward.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Your next question comes from Christopher Harris with Wells Fargo.

--------------------------------------------------------------------------------

Christopher Meo Harris, Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Research Analyst [8]

--------------------------------------------------------------------------------

Just a question about the market backdrop, international equity markets are obviously doing a lot better, EM picking up, euro picking up. Just wondering, how that's translating in your conversations with prospective investors? Are you getting any sort of interest or picked up interest, renewed interest as a result of some of these strong international returns we're seeing?

--------------------------------------------------------------------------------

Beth Hendershot Galusha, Manning & Napier, Inc. - Principal Financial Officer [9]

--------------------------------------------------------------------------------

This is a Ebrahim. If I could I'll address the market backdrop both in the U.S. and international markets.

We've seen pretty strong dynamic in both markets that have continued to move up significantly this year. And as you mentioned that we've outperformed. We do have a fairly important franchise in the international markets in particular with the World Opportunities Series and the overseas series and also some other products in that area. So while we continue to be optimistic on the return profile of the markets both in the U.S. and internationally, we think valuations are incrementally more attractive in international markets, and we continue to have important conversations with clients into potentially raising assets in that area.

--------------------------------------------------------------------------------

Christopher Meo Harris, Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Research Analyst [10]

--------------------------------------------------------------------------------

Okay, and you guys made a comment there about your direct sales getting a little bit of traction. I'm wondering, if you can expand on that a little bit more? Maybe quantify what you're seeing? And are redemptions also slowing? Or are they slowing in that area?

--------------------------------------------------------------------------------

Paul Battaglia, [11]

--------------------------------------------------------------------------------

Yes. This is Paul, I mean I guess to take the first part of the question. I think that -- as we mentioned on the call, with -- in the mid-market space, especially, we're able to have broader conversations around complete sort of solutions, consultative approaches that we can take with clients. And you know clients have also been receptive to some of the products that have been strategic focus for us. We mentioned Disciplined Value, we have an international version of Disciplined Value that sort of takes some of the capabilities that Ebrahim just talked about. Fixed-income some of our lower fee defensive-oriented strategies that are attractive to the clients in this environment. The trick here is that on the pipeline, these may be smaller mandates, but we do have some good sized opportunities on there. The timing of them is still uncertain. $100 million raised in the first quarter is not enough to offset the institutional outflows, but there are some exciting opportunities for us out there. In terms of redemptions, I'd say that the more meaningful relationships our -- have transitioned out now, we have fewer concentrations left in the book. So some of the bigger mandates are working their way through, and so that's going forward, I think and impact the redemption rate.

--------------------------------------------------------------------------------

Christopher Meo Harris, Wells Fargo Securities, LLC, Research Division - Director and Senior Equity Research Analyst [12]

--------------------------------------------------------------------------------

Okay, cool. And then just one really quick one if I could, on Slide number 7, I think it's a really interesting slide that you guys show of Interest rates and active fund performance. I just wanted you guys to maybe opine if you have an answer as to why you think there's such a strong correlation between rates and active equity performance? That's the first part of the question. And the second is, do you think a return to a set funds rate of like 1% to 2% is enough to really move the needle, as it relates to the active performance? Do you need something much higher than that, do you need like a 5% set funds? Because if it's a later, I'm not so sure too many people optimistic that that's a realistic scenario. So anyway just if you can comment on that, that would be great.

--------------------------------------------------------------------------------

Ebrahim Busheri, Manning & Napier, Inc. - Director of Investments [13]

--------------------------------------------------------------------------------

This is Ebrahim. If I could make a couple of comments before getting to page 7 and also reference page 6 before that as well. As we all know, there's been a secular move over the long period of time now, towards passive investments, with ETF index funds gaining share. What we try to show on page 6 and paid 7 is, there's a cyclical aspect to this trend as well. So on page 6, what you see is the percentage of active funds that are outperformed over a 5-year basis, and you see that it [seek] tends to go in cycles. And currently, we are backed to the lows that we've seen in the past. And that data that we've provided year it goes all the way back to 1970. We seem to imply that we are at an inflection point in terms of the number of active funds outperforming being at very, very low levels. The graph that you're referencing on page 7, shows the correlation between active managers outperforming on a cumulative basis and measure that against interest rates. To answer your question, as to why the graph -- as the graph shows when interest rates are generally rising, active managers tend to have an easier time outperforming, and then conversely, when interest rates are decreasing, our active managers tend to have a harder time outperforming. As a -- to the reason why I'll use the last many years as a backdrop in lower or decreasing interest rate environments, we tend to see generally more correlated markets, environment that I would call there, rising tide lifts all boats, and typically less volatility. This has been the environment that we've had over the last many years, and in these environments it's harder for active managers to take advantage of discrepancies that resist in the market, because fewer discrepancies do exist and most areas tend to go up somewhat in lockstep fashion. Conversely when interest rates are rising, and that's the environment that we think have we have now started to see, although we expect it to happen in a slow fashion, it tends to create less correlation between different parts of the market. It tends to create more uncertainty and more variability in the markets. While that can create some uncertainty overall, that's the environment that we as an active manager love. It gives us an opportunity to use our deep research team to find opportunities, and it's typically in those periods that we've managed to have significant outperformance.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Robert Lee with KBW.

--------------------------------------------------------------------------------

Robert Lee, Keefe, Bruyette, & Woods, Inc., Research Division - MD [15]

--------------------------------------------------------------------------------

I guess my question is kind of more strategic in nature in a bit. When the firm went public back in 2011, I believe one of the rationales at the time was that over the course of say, 4, 5 years Mr. Manning would be selling down his stake, control would be transitioning. And obviously, we're in a much different -- things didn't pan out quite that way. So here we are today, almost 5.5, going on 6 years down the road Mr. Manning has taken the back over the CEO's role. So I'm just try to get a sense of where strategically are -- as a firm do you think it's headed with Mr. Manning being 80 at this point. Obviously, we'd have some estate planning needs. Is there still an intention that he may need to start selling down some of his stake going forward? Or and if you kind of just fill us in how we should think of that?

--------------------------------------------------------------------------------

Richard B. Yates, Manning & Napier, Inc. - Chief Legal Officer and Secretary [16]

--------------------------------------------------------------------------------

Yes. Sure, Rob. Richard here. It could be a fair question and, I think it is fair characterization of 2011, in terms of the structures that were built in the transaction. I think it's important to keep in mind that, while the capacity to have sell downs over time and in an orderly sell down for Bill Manning, over time to be there, there wasn't a baked in plan to do that, and that's where we are now. And so I think it's important to understand that this remains Bill's firm and he is in it CEO, and his ownership level is where it's at, at 75%. And I think we have a very deep research team, a very deep sales team and a deep and long-tenured management team that continue to work away. And so I think we have jobs to do in terms of providing the best solutions we can to our clients and the most competitive products to the marketplace, particularly in the DC space as well. And so we're all working towards that with Bill and the board, and there is no stated or intended plan for Bill reducing his stake currently and to the extent there would be, we'd obviously be in touch with the markets about that and appropriately disclosing things, but no plans now to do that, and the marketplace is what it is, and we just continue to push the business forward to be as good as we can to our clients and hope for the rest takes care of itself in terms of shareholder returns and our employees.

--------------------------------------------------------------------------------

Robert Lee, Keefe, Bruyette, & Woods, Inc., Research Division - MD [17]

--------------------------------------------------------------------------------

I mean does it at all enter into your discussions with institutional investors because certainly they like to make sure that there's long-term stability in the managers that they deal with. So I mean does that at all come into play when you talk to consultants about Mr. Manning's controlling stake ,and not to sound crass, but his age and maybe the -- not clear succession planning?

--------------------------------------------------------------------------------

Richard B. Yates, Manning & Napier, Inc. - Chief Legal Officer and Secretary [18]

--------------------------------------------------------------------------------

Sure, Richard again. It does. And I think The institutional investing community, and the -- I guess I would say that the deeper-dive consultant community is definitely focused on management stability at the firm, generally speaking, and which includes whose at CEO the spot, and also who's on the board. And it does enter the dialogue and we're aware of that. And that said, Bill has always been a visionary macro investing successful investor. And so we're still pushing the business forward with what we've got here. And that's how it's working.

--------------------------------------------------------------------------------

Ebrahim Busheri, Manning & Napier, Inc. - Director of Investments [19]

--------------------------------------------------------------------------------

Robert, if I could just say the, sorry, go ahead.

--------------------------------------------------------------------------------

Robert Lee, Keefe, Bruyette, & Woods, Inc., Research Division - MD [20]

--------------------------------------------------------------------------------

No, no, no. Go ahead, please.

--------------------------------------------------------------------------------

Ebrahim Busheri, Manning & Napier, Inc. - Director of Investments [21]

--------------------------------------------------------------------------------

Ebrahim, I was just saying, in the dialogue that we have with clients, I would reference 3 factors that often come up. One is the move towards passive investments, that's clearly part of what impacts client dialogue and decisions that they make. The second one is performance, clearly clients who have chosen to be clients for us, are clients, because they believe in our highly-concentrated, high-active, share active-management strategies. And that's really the biggest part of the focus and dialogue that we have with our clients. And thirdly, I would mention that issues that you've referenced related to the firm overall, occasionally our part of the dialogue as well. From an investment team point of view, our focus is on basically delivering the best performance we can and doing that in a manner that is consistent with our investment strategies and our pricing disciplines.

--------------------------------------------------------------------------------

Robert Lee, Keefe, Bruyette, & Woods, Inc., Research Division - MD [22]

--------------------------------------------------------------------------------

Okay, great. Maybe just a follow-up. Thinking about the direct distribution, can you help us kind of size that and kind of and also think about the footprint? I know, again, kind of post-IPO one of the goals was to expand that footprint into new locations in new cities and some new marketing people, and I'm not quite clear where that stands right now in terms of the scope of that. And then maybe, also is there a way of giving us a sense and trends there seem to be better. That proportion of assets that you kind of attribute to that direct distribution channel?

--------------------------------------------------------------------------------

Paul Battaglia, [23]

--------------------------------------------------------------------------------

Yes, this is Paul. I would say that the opportunity is there, and it varies from small mandates to some larger opportunities, timing is still the question. It represents probably 60% to 70% of the business right now across all product types and client types. And it has been relatively stable compared to some of the other channels that we've had. In terms of the geographic expansion, I'd say that we know, you saw the initial push after the IPO into the Southwest. More in the Midwest, I think and more recently we've had a little more of a presence in the Northwest as a result of the acquisition of Rainier last year. I think that we've been trying to be mindful of -- that the product set and where we are in our market cycle in terms of -- we're doing further expansions on that. The regional team that we have locally especially has had a lot of traction. And it continues to be a source of growth from us -- for us in terms of I guess that mid-market size in the consultative multi-touch-point-type relationships. So I think that's an update on the direct channel from my perspective.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Thank you. This does conclude today's conference call. Please disconnect your lines at this time, and have a wonderful day.

--------------------------------------------------------------------------------

Paul Battaglia, [25]

--------------------------------------------------------------------------------

Thanks, everybody.

--------------------------------------------------------------------------------

Ebrahim Busheri, Manning & Napier, Inc. - Director of Investments [26]

--------------------------------------------------------------------------------

Thank you.