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Edited Transcript of VRTS earnings conference call or presentation 25-Oct-19 2:00pm GMT

Q3 2019 Virtus Investment Partners Inc Earnings Call

HARTFORD Oct 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Virtus Investment Partners Inc earnings conference call or presentation Friday, October 25, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George Robert Aylward

Virtus Investment Partners, Inc. - President, CEO & Director

* Michael Aaron Angerthal

Virtus Investment Partners, Inc. - Executive VP, CFO & Treasurer

* Sean Rourke

Virtus Investment Partners, Inc. - VP of IR

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Conference Call Participants

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* Jeremy Edward Campbell

Barclays Bank PLC, Research Division - Lead Analyst

* Michael J. Cyprys

Morgan Stanley, Research Division - Executive Director and Senior Research Analyst

* Michael Roger Carrier

BofA Merrill Lynch, Research Division - Director

* Sheriq Sumar

Goldman Sachs Group Inc., Research Division - Business Analyst

* Sumeet Mody

Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research

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Presentation

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Operator [1]

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Good morning. My name is Kevin, and I'll be your conference operator today. I would like to welcome everyone to Virtus Investment Partners quarterly conference call.

The slide presentation for this call is available on the Investor Relations section of the Virtus website, www.virtus.com. This call is also being recorded and will be available for replay on the Virtus website. (Operator Instructions)

I will now turn the call over to your host, Sean Rourke.

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Sean Rourke, Virtus Investment Partners, Inc. - VP of IR [2]

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Thank you, and good morning, everyone. On behalf of Virtus Investment Partners, I would like to welcome you to the discussion of our operating and financial results for the third quarter of 2019. Our speakers today are George Aylward, President and CEO of Virtus; and Mike Angerthal, Chief Financial Officer. Following their prepared remarks, we will have a Q&A period.

Before we begin, I direct your attention to the important disclosures on Page 2 of the slide presentation that accompanies this webcast. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and as such are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in the statements.

In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with the GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in today's news release, which is available on our website.

Now I'd like to turn the call over to George. George?

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [3]

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Thank you, Sean. Good morning, everyone.

We are pleased with our third quarter financial results and operating performance, which were characterized by our highest level of earnings per share as adjusted, an increase in our operating margin, meaningful growth in revenue, continued excellent investment performance and consistent stock repurchases and debt reduction. And while overall net flows were negative, primarily due to an institutional redemption, each of our other products delivered improved net flows on a sequential basis with positive net flows from retail separate accounts and ETFs and open-end funds improving to their best net flow results in a year.

Regarding the net outflows, as I indicated, they were largely in institutional, primarily due to a $0.9 billion redemption by a single client predominantly invested in bank loans. As we've said previously, institutional is an uneven business, but we like the momentum we see building and continue to invest in growing the business.

So let me turn to our results for the quarter. Long-term assets under management of $102.8 billion were down modestly on a sequential basis as market appreciation was offset by net outflows. Total assets, which include liquidity strategies, ended the period at $104.1 billion. Total sales of $4.8 billion decreased 7% from the second quarter, which included a large institutional subadvisory mandate. Excluding that win in the prior period, sales were up 13% due to higher sales of retail separate accounts and open-end funds, which included the model wins and reallocations we mentioned on the second quarter call.

Net outflows of $1.1 billion compared with modestly positive flows in the prior quarter. Other than institutional, each of our product areas generated a sequential improvement in net flows, with significant improvement in funds and positive net flows in retail separate accounts and ETFs.

Looking at each product. Retail separate accounts had positive net flows of $0.4 billion due to organic growth in both intermediary-sold and private clients. Kayne's SMID strategies continued to be key contributors to net flows in the intermediary-sold channel, which has now generated 15 consecutive quarters of positive net flows. ETFs had positive net flows for the third consecutive quarter.

Open-end fund net outflows were modestly negative, but as I noted, improved significantly from the prior quarter. Outflows in funds were primarily due to bank loan strategies. Institutional net flows were negative $1.4 billion compared with net inflows of $0.5 billion in the prior quarter due to the large client redemption.

In terms of what we're seeing so far in October, the trend in mutual fund net flows is generally consistent with the third quarter, with positive equity net flows more than offset by bank loan outflows. For institutional, we're pleased with the pipeline, have seen some smaller wins across our affiliates, and there's nothing new to report since last quarter in terms of notification of meaningful redemptions.

Regarding other product initiatives, we are in the process of warehousing a new CLO for early 2020 issuance. We also recently launched a new fund employing Kayne's international SMID strategy.

Moving to the financial results. Operating income as adjusted and the related margin were $47.7 million and 38%, up from $43.7 million and 36% in the prior quarter due to strong revenue growth, lower other operating expenses and the inherent leveragability of the business. Earnings per share as adjusted of $4.03 were up 11% from the second quarter, with the increase due to higher revenues as adjusted and lower other operating expenses as adjusted compared to the prior quarter, which included the annual equity grants to the Board of Directors. Compared to the prior year period, third quarter earnings per share as adjusted increased 3%.

Turning to the capital on the balance sheet. We continue to maintain a balanced approach to capital management across the priorities of investing in the business, returning capital to shareholders and managing our leverage. During the quarter, we raised our quarterly common dividend by 22%, the second consecutive annual increase; repurchased or net settled approximately 72,000 common shares or about 1% of shares outstanding; and continued paying down debt on our term loan, ending the quarter with net debt to bank EBITDA of 0.5x.

With that, I'll turn the call over to Mike to provide more detail on the results. Mike?

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Michael Aaron Angerthal, Virtus Investment Partners, Inc. - Executive VP, CFO & Treasurer [4]

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Thank you, George. Good morning, everyone.

Starting with our results on Slide 7, assets under management. At September 30, long-term assets were $102.8 billion, down modestly from $103.3 billion at June 30. The sequential decline reflected $1 billion of market appreciation that was more than offset by net outflows primarily in institutional accounts.

Though total assets were relatively flat with the prior quarter, domestic mid-cap strategies demonstrated solid growth, up $0.7 billion or 7% during the period, partially offsetting the impact of continued negative sentiment in leveraged finance strategies, which declined $1.2 billion or 9%. Domestic mid-cap AUM increased 29% over the past year and now represents 20% of domestic equity AUM, up from 16% at September 30, 2018. Despite several funds being soft closed, domestic small-cap assets have grown modestly due to strong investment performance. Our asset mix by product type remains diversified and essentially stable with the prior quarter.

Turning to Slide 8, asset flows. Net outflows of $1.1 billion in the third quarter were due almost entirely to the loss of one institutional client compared with modestly positive inflows in the second quarter. Open-end fund flows were negative due to bank loans but improved meaningfully to $0.2 billion from $0.7 billion in the second quarter due to an increase in emerging market flows. Retail separate accounts and ETFs continued to generate positive flows.

Total sales were $4.8 billion, a sequential decline of 7% as stronger open-end funds and retail separate accounts sales were more than offset by a decline in institutional. Fund sales of $3 billion increased $0.5 billion or 19% due to higher sales of emerging markets and domestic mid-cap funds, primarily due to model flows. Retail separate account sales of $0.8 billion were up 12% sequentially with growth in both the private client and intermediary-sold channels. Institutional sales declined by $0.9 billion from the second quarter, which included a $0.9 billion global real estate subadvisory mandate.

Looking at mutual fund flows by asset class. Equity funds had positive net flows of $0.3 billion, an improvement from $0.1 billion in the prior quarter. Domestic equity net flows were modestly positive. Similar to last quarter, strong net flows from mid-cap strategies were partially offset by net outflows in both small and large cap. Mid-cap funds, which we offer in growth, value and core strategies, generated $0.3 billion in positive flows in the quarter, reflecting an annualized organic growth rate of 30%. This continues a strong trend for our mid-cap products.

International equity funds had positive net flows of $0.3 billion in the quarter, a meaningful improvement from breakeven net flows in the prior quarter. Inflows into emerging market equities, which included a model reallocation, drove the improvement, though developed markets also generated positive flows. For fixed income funds, bank loan strategies were the primary driver of net outflows of $0.5 billion for the quarter.

Our managers continue to deliver strong relative investment performance across our strategies. As of September 30, 25 of our 54 rated retail mutual funds, representing 81% of retail-rated fund assets, had 4 or 5 stars; and 94% of rated retail fund AUM were in 3-, 4- or 5-star funds. Each of our 5 largest mutual funds is a 5- or 4-star fund, representing a diverse set of strategies from 5 different managers. In addition to this very strong fund performance, 93% of institutional assets are beating their benchmarks on a 5-year basis as of September 30, and 86% of assets were exceeding the median performance of their peer groups on the same 5-year basis.

Turning to Slide 9. Investment management fees as adjusted of $122.1 million increased $5.6 million or 5% sequentially due to a 2% increase in long-term average assets under management and a higher average fee rate. Fees for the quarter include $1.2 million in performance-related fees on institutional accounts compared with negligible amounts in the prior quarter. On average, we have generated approximately $2 million in performance-related fees annually. The average fee rate on long-term assets for the quarter increased to 46.6 basis points, up 0.6 basis points from 46 in the prior quarter, continuing the trend we have seen of late.

With respect to open-end funds, the fee rate increased to 56.3 basis points from 55.4 in the second quarter, reflecting the impact of favorable equity returns on the level of equity assets and the ongoing positive fee rate differential between sales and redemptions. This quarter, the blended fee rate on mutual fund sales was 58 basis points while the rate on redemptions was 52 basis points.

Slide 10 shows the 5-quarter trend in employment expenses. Total employment expenses as adjusted of $60.1 million increased 5% sequentially from the second quarter. The increase largely reflects higher profit-based incentive compensation in the third quarter. Employment expenses represented 47.2% of revenues, essentially flat sequentially and down 1.8 points from the prior year given revenue growth primarily attributable to market appreciation. For modeling purposes, we believe this level is an appropriate expectation for the fourth quarter.

The trend in other operating expenses as adjusted reflects the timing of product distribution and operational activities. Other operating expenses as adjusted were $18.1 million, a decrease of $0.9 million or 5% from the prior quarter. The decrease was primarily due to the $0.8 million annual equity grants to the Board of Directors last quarter.

Slide 12 illustrates the trend in earnings. Operating income as adjusted of $47.7 million increased $4 million or 9% sequentially, primarily due to higher revenues as adjusted as well as lower other operating expenses as adjusted compared with the second quarter, which included the annual Board grant. The operating margin as adjusted for the quarter was 37.5%, an increase of 140 basis points sequentially and unchanged from the prior year period. Adjusting for performance fees in both periods, the margin increased by 120 basis points to 36.9%.

Net income as adjusted of $4.03 per diluted share increased $0.40 or 11% sequentially. Interest and dividend income as adjusted, which includes income generated on seed and CLO investments, was $3.5 million or $0.31 per share, a decrease from $3.8 million or $0.34 per share last quarter due to lower CLO interest income. I would note that our investment in the CLO we issued early in 2019 will pay its first dividend in the fourth quarter, and I would remind you that there will be variability from quarter-to-quarter in interest and dividend income based on market values and timing of distributions.

The effective tax rate as adjusted for the quarter was 27%, stable with the prior quarter and a reasonable run rate for modeling purposes.

Regarding GAAP results, third quarter net income per share was $2.95 compared with $3.26 in the second quarter. Third quarter net of tax GAAP earnings per share included the following items: $0.67 of net unrealized losses on investments; $0.59 of amortization of intangible assets; $0.17 of other costs, including acquisition, integration, restructuring and severance; and a $0.04 benefit from net realized gains on investments.

Slide 13 shows the trend of our capital position and related liquidity metrics. Working capital at September 30 of $158 million increased $9 million or 6% sequentially primarily reflecting operating earnings, partially offset by debt repayments and return of capital to shareholders. Gross debt outstanding at September 30 was $301 million as we repaid $15 million of debt. The net debt-to-EBITDA ratio of 0.5x at September 30 was down from 0.7x at June 30 and from 0.9x a year ago due to continued cash generation and consistent debt paydown. Gross debt-to-EBITDA was 1.5x at the end of the quarter, down from 1.7x in the prior year.

Regarding return of capital to shareholders, we raised our quarterly common dividend by 22% to $0.67 per share. We repurchased $7.5 million or 70,949 shares of common stock, which represented approximately 1% of beginning-of-quarter total outstanding common shares. Over the past year, we have repurchased 446,767 shares, representing 6% of September 30, 2018, common shares outstanding. And on a net basis, shares outstanding have declined 4% over the past year.

On February 1, 2020, our mandatorily convertible preferred shares will convert to common. While the conversion will not impact the shares used to calculate EPS as adjusted, it will increase the market float of our common shares by approximately $1 million or 15%, depending on the conversion price. The conversion will also have the effect of increasing our annual free available cash flow by $5 million to $6 million. Finally, as a reminder, we have intangible assets that will continue to provide a cash tax benefit of approximately $10 million per year at current tax rates over the next 14 years.

With that, let me turn the call back over to George. George?

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [5]

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Thanks, Mike. So we'll now take your questions. Kevin, can you open up the lines, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jeremy Campbell with Barclays.

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Jeremy Edward Campbell, Barclays Bank PLC, Research Division - Lead Analyst [2]

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Just a question about the open-end funds. I mean you guys still have nearly like $5 billion in leveraged finance funds inside the open-end area. Obviously, it remains out of favor. I think you guys called it out as a key driver of your drag on your flow profile in the open-end class. So I was just hoping you could help us with the year-to-date cadence of outflows in that bucket, in the bank loans. Has it kind of slowed? Is it accelerating? Anything that might help us think through how much of a drag this asset class will be on the flow profile going forward would be helpful.

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [3]

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Yes. I mean, generally, in that asset class, bank loans are either -- they vary greatly with expectations on interest rates and whether they're increasing or decreasing. So with the expectations, I think interest rates will not be going up. That sector -- that asset class had been out of favor since pretty much the fourth quarter of last year, maybe even a little before that. But in terms of the cadence, I would say generally flat in terms of the level on the open-end fund side. And again, I think, ultimately, there'll be a conclusion by the market of sort of how it feels about that asset class because they still generate very good returns and they fit well into a diversified portfolio.

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Jeremy Edward Campbell, Barclays Bank PLC, Research Division - Lead Analyst [4]

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Got it. And then, I guess, just one on the capital side as a follow-up. I mean you guys have successfully delevered here. You have dry powder and a flexible balance sheet at this point. And I'm just kind of wondering what the M&A landscape looks like right now and whether there might be something accretive out there that might be more public share-friendly than using capital to repurchase your stock when it already has kind of a pretty limited float here at this point.

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [5]

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Yes. No, it's a good question. I mean we continue to evaluate all sorts of opportunities. The activity -- in the M&A market, there is activity going on. I think our model lends itself in many ways to that type of activity while -- although we've always said our long-term growth strategy is not contingent upon M&A. So to the extent that we identify opportunities that we think are the highest and best use of capital, absolutely do consider those. We're very disciplined about how we approach it.

So we haven't announced anything since the SGA transaction but continue to look at that as one of the many opportunities we have because, as you point out, we're generating consistent strong cash flows, we're at a lower leverage. We're below 1 turn, we're 0.5 turn of net debt in terms of that. And simultaneously, we've been consistently buying back our shares even though, as you correctly point out, the float is not optimal. It will improve in February of 2020, which we look forward to, but we certainly do consider any of those alternatives that could be accretive and helpful in terms of the return to shareholders.

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Operator [6]

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Our next question comes from Michael Carrier with Bank of America.

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Michael Roger Carrier, BofA Merrill Lynch, Research Division - Director [7]

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Maybe first one just on the -- I guess, from a product or flow outlook. It seems like the closed-end fund market has gotten a bit more active. So just more curious, just given that you have some presence in that part of the market, if you are seeing more dialogue for some potential product launches.

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [8]

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Yes. No. We like the product line of closed-end funds, and as you point out, we have multiple closed-end funds managed with several of our affiliates. And there was a prolonged period where that product structure was sort of out of favor. We're very happy to see the increased activities. We look very closely at all of the issuances. We have several strategies that clearly lend themselves to that structure. So we do view that, once again, as a great opportunity. And certainly, we'll evaluate if there's an appropriate structure for us to introduce.

We're -- we follow closely the evolution of what the structuring is on the newer term trust types of structures, et cetera. And again, we feel, between several of our affiliates, we have strategies that would be attractive, and we maintain a very active dialogue with the issuers and underwriters of those products.

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Michael Roger Carrier, BofA Merrill Lynch, Research Division - Director [9]

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Okay. That's helpful. And then just as a follow-up, on the fee rate side, you guys have done a good job in sort of maintaining or even increasing just given some of the products that you offer and where you're seeing the demand for inflows versus outflows. Recently, you've had some of the distribution platforms change some of the pricing dynamics, most recently with one of the platforms looking at SMAs and changing that pricing dynamic. So just more curious in terms of how your products are lining up, what you're seeing from the distribution platforms, anything changing meaningfully and how you think your products stack up on the platforms.

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [10]

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Sure. So some background. So we have actually had a trend period of an increasing average fee rate rather than a decreasing fee rate, which is much more common in the industry. And really, what drives that is -- our view is it's being driven a lot by just consistently strong performance and particularly in areas that are more capacity constrained and less susceptible to competition from passive types of strategies. So our fee rate is going up because some of our very strong performing product that is less challenged by passive challenges has been raising assets, and it includes capacity constrained products as well as those that are a little less capacity constrained. So that has been driving -- and that is really where a lot of our core strengths are, are on some of the more capacity constrained or at least less likely to be competed with, with passive strategies, so more complex strategies, multi-sector strategies, et cetera.

And in terms of the -- some of the stuff you've been seeing in terms of the press in terms of where some of the intermediaries may be going with their fee levels, again, we have a very diverse business with a lot of our managers that do make themselves available through those intermediaries. Again, a lot of those strategies are some of our more capacity constrained strategies where we currently have more demand than we actually have capacity, and we feel very good about how they're priced and what the opportunity set is for those products. So we actually feel very positive from a product positioning standpoint that our set of products and their relative performance gives us a good opportunity in this environment and the environment that may emerge.

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Operator [11]

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Our next question comes from Sumeet Mody with Sandler O'Neill.

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Sumeet Mody, Sandler O'Neill + Partners, L.P., Research Division - Director of Equity Research [12]

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One from me. Just, I guess, stepping back on a high level, looking at the strategy medium to long term. I mean how do you feel about the kind of geographical, maybe channel mix, maybe asset class mix? Are there certain areas that look appealing that you feel you're under-penetrated, maybe emerging markets alternatives? And do you have any kind of plan for the mechanism for growth within those asset classes as well?

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [13]

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Sure. Well, I'd say the area that -- we focus a lot in terms of the diversification of our business and continue to look in opportunities to increase that diversification, right? So you've seen that manifest itself through our expansion into ETFs, our expansion on the UCITS side. We have been, over the last few years, investing in building out the institutional channel and particularly the non-U. S. institutional channel. So we continue to think that those are great opportunities for us.

While there's still a lot of opportunities here in the U.S. market, our managers have not had as much penetration outside the U.S. as their incredibly compelling investment performance would allow. So we see that as an area. You'll recall from the second quarter we referred to a European subadvisory mandate. So we think there's great opportunities. So our focus really has been on growing the institutional, growing the institutional in the non-U. S. We have solely built out a product suite of UCITS, I think we're up to 5 now at this point, all of whom have great performance and now are at the 3- and 5-year record. So we see those as opportunities for us to leverage those strong capabilities and further diversify our business, which doesn't mean we'll spend less time and effort in the U.S. retail space and the U.S. institutional space. It's just another opportunity and where we're putting our efforts in terms of future growth.

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Operator [14]

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Our next question comes from Alex Blostein with Goldman Sachs.

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Sheriq Sumar, Goldman Sachs Group Inc., Research Division - Business Analyst [15]

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This is Sheriq filling in for Alex. I had a question on the separate accounts. Can you give us some color as to what's driving the inflows over here? And which product are you seeing like the most demand in the separate accounts business?

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [16]

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Sure. And we've been very happy with the retail separate accounts. As I noted in the remarks, 15 consecutive quarters of positive flows in that category, and I think you're seeing that. In terms of the industry, it's one of the opportunities for active managers to really add a lot of value in terms of a well-diversified portfolio. So we're pleased to partner with a multitude of the intermediaries that we partner with to offer a variety of strategies.

A lot of our growth has been, as we sort of noted, in the SMID and the -- the mid and small-cap area, but we do offer other capabilities as well. And in addition to the areas that I mentioned on the previous question in terms of areas of growth, we continue -- we see retail separate accounts as a big area of growth, and that is -- continues to be one where we think we have many compelling investment strategies in terms of continuing to grow in that channel.

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Sheriq Sumar, Goldman Sachs Group Inc., Research Division - Business Analyst [17]

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Understood. And just a follow-up on the expenses. Any color on the 2020 outlook for the expenses? I mean Mike gave a good guidance for the next quarter, but if you can just provide as to how you're thinking now for the 2020 expenses.

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [18]

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Mike, thoughts?

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Michael Aaron Angerthal, Virtus Investment Partners, Inc. - Executive VP, CFO & Treasurer [19]

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Yes. Thanks. And we typically will update you as appropriate when elements of the portfolio or the business change. We talked about the fourth quarter and both the employment expense ratio sort of tracking, using the third quarter level as an appropriate position for modeling, all else being equal. Other operating expenses, we've talked about the last couple of quarters $18 million, $18.1 million being appropriate. And certainly, those levels will be dictated by market condition.

One of the things we've seen is incremental margins in the 50% type of range, and that's something we continue to believe is an appropriate expectation. One thing for modeling that you'll recall, first quarter does have seasonal items. We have the payroll tax items and -- that come through in the first quarter. That will be an expectation for modeling as well. So hopefully, that's enough to kind of frame the beginnings of 2020.

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Operator [20]

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Our next question comes from Michael Cyprys with Morgan Stanley.

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Michael J. Cyprys, Morgan Stanley, Research Division - Executive Director and Senior Research Analyst [21]

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Just on the debt paydown, it was really nice to see another solid quarter of continual debt paydown here. It also seems like it's stepped up a bit. So just curious how you're thinking about -- how you guys are approaching it. Is it sort of like a 4% paydown a quarter you guys are targeting or a certain percent of EBITDA? Just curious how you're approaching it and how you're thinking about the velocity of paydown from here, what we should be expecting.

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [22]

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Sure. Well, a couple of things. We're pleased with the level of cash flow that we're currently generating, and as we always say, we want to balance it amongst the various priorities of the business in terms of investing in the growth, returning the capital and managing our leverage. And as you saw again the growth in the cash generation in this quarter, so we continually balance that. We like to have a certain set of consistency, balanced with those opportunities that we have to make investments. So we do view that as something that is a tool to be used going forward. So Mike, do you want to just give a little color on...

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Michael Aaron Angerthal, Virtus Investment Partners, Inc. - Executive VP, CFO & Treasurer [23]

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Yes. I think you kind of framed it as we think about it, and we've been consistent in our paydowns over the last 4 or 5 quarters. And certainly, at 0.5x, we do have financial and operating flexibility, which we think is important going forward. And I mean, as we talked about, the -- there'll be a little pickup in the free cash flow that we retain in the first quarter when the mandatorily convertible preferreds do convert to common. So that's another consideration for us as we think through balancing investing in the business, paying down debt and returning capital to shareholders. So we feel really well positioned as we head into 2020.

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Michael J. Cyprys, Morgan Stanley, Research Division - Executive Director and Senior Research Analyst [24]

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Great. And just another question maybe just on performance fees. It looked like you had -- I think it was about $1.2 million or so come through in the quarter. Can you just remind us of the AUM that's earning performance fees, how that's maybe changed over the past year or 2 and how we should be thinking about performance fee revenues over the next 12 to 24 months?

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Michael Aaron Angerthal, Virtus Investment Partners, Inc. - Executive VP, CFO & Treasurer [25]

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Yes. We did, in the prepared remarks, talk about experiencing approximately $2 million of annual performance fees, has been historical levels over the last couple of years. And that comes through in 2 ways really. On the CLO structured products, we experience performance fees on there at certain periods of time. And then we have hybrid fees on certain institutional accounts that are measured with a base fee and a performance fee on an actual results versus benchmark. And that's really what you saw contribute into the performance fee in the third quarter of 2019.

So it will vary. But again, I think that $2 million per year is as good a benchmark as any. And to the extent there are more products that come through with this type of hybrid fees, we'd make you aware of them for modeling purposes and otherwise.

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Operator [26]

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This concludes our question-and-answer session. I would like to turn the conference back to Mr. Aylward.

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George Robert Aylward, Virtus Investment Partners, Inc. - President, CEO & Director [27]

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Thanks. And I want to thank everyone as always for joining us today, and we certainly encourage you to call, reach out if you have any other further questions. Thank you very much.

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Operator [28]

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That concludes today's call. Thank you for participating. You may now disconnect.