Virtus Investment Partners Inc (VRTS) Q4 2018 Earnings Conference Call Transcript
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Virtus Investment Partners Inc (NASDAQ: VRTS)
Q4 2018 Earnings Conference Call
Feb. 01, 2019, 10:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning. My name is Kevin, and I'll be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners Quarterly Conference Call. The slide presentation for this call is available on the Investor Relations section of the Virtus website at www.virtus.com. This call is also being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question and answer period and instructions will follow at that time. I will now turn the call over to your host, Joe Fazzino.
Joe Fazzino -- Assistant Vice President, Corporate Communications
Thank you, Kevin, 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 fourth quarter of 2018.
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 earnings release and discussed in our annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in the statements.
In addition to the results presented on a GAAP basis, Virtus uses certain non-GAAP measures to evaluate its financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our earnings press release, which is available on our website.
Now I would like to turn the call over to our President and CEO, George Aylward. George?
George R. Aylward -- President and Chief Executive Officer
Thank you, Joe. Good morning, everyone. Today, I'll start with an overview of the quarter before turning over to Mike on more detail on the financial results. Our results this quarter clearly reflect the impact of the volatile and challenging market environment that started in October and accelerated into year-end with significantly influenced investor behavior. In terms of equity markets, the quarter was one of the most difficult in recent memory, with the major broad indices having negative returns, and certain specific asset classes such as leverage loans and high yield were significantly impacted.
With this market backdrop across the industry active mutual funds saw outflows accelerate to record levels by year-end with December being the worst month for long-term fund flows -- outflows since 2008. Given the markets, investors sought to derisk and move into cash. Asset managers were meaningfully impacted by the market dislocations and investor behavior, which affected assets under management flows and operating results.
So, let me (ph) review our results for the quarter. Long-term assets under management decreased 13% sequentially to $90.4 billion as a result of market depreciation and net outflows. Total assets which include liquidity strategies ended the period at $92 billion. Total sales of $4.4 billion declined from $6.3 billion in the prior quarter. Total net outflows of $4.8 billion reflected the lower sales, as well as elevated redemptions, both of which were significantly impacted by the market environment and this was particularly evident in open-end funds.
Net outflows in open-end funds were $3.9 billion for the quarter. Sales declined $0.9 billion, a significantly lower sales in small cap domestic equity strategies, offset increases in other asset classes. Open-end funds had elevated redemptions in the quarter across asset classes notably leverage finance strategies. Our retail separate accounts were positive in the quarter as net flows remain positive of $0.2 billion, Kayne's small cap and mid strategies maintain positive net flows, particularly intermediary sold channel. Institutional net outflows were $1 billion in the quarter compared with $0.1 billion on a sequential basis as sales decreased by $0.7 billion from the prior quarter, which included several new mandates.
In terms of flows in January, open-end fund net flows have stabilized as redemptions have declined to more typical levels, particularly in the second half of the month where flows have been relatively flat. We've been seeing solid demand in all of our equity strategies, particularly in emerging markets in international offerings. We also continue to see good flows in retail separate accounts, which remain positive even if you exclude a redemption from our mid cap fund, that transferred into a retail separate account. On the institutional side, we are aware of several new mandates that are expected to fund in the quarter and thus far only one modest (inaudible).
Moving over to the financial results. Operating income as adjusted was $41.5 million compared with $48.2 million in the prior quarter, and the related margin decreased to 35% from 38%. The prior quarter's earning and margin benefited from $3.6 million of performance-related fees. Revenues as adjusted were down 8% sequentially primarily due to lower average assets fee rate and performance fees. Operating expenses as adjusted decreased 4% sequentially, primarily reflecting lower employment expenses as adjusted, due to lower profit and sales-based variable compensation.
Turning to capital on the balance sheet, the level of cash flow generated by the business allows us to maintain a balanced approach to capital management across the priorities of investing in the business returning capital shareholders and maintaining an appropriate level of leverage. This quarter, we repurchased $15 million of our common shares, an increase of $10 million from the prior quarter. As a return to capital of shareholders with a higher priority for us given the relative valuation opportunities in the market. In addition, we paid down $10.9 million of debt during the quarter, and ended the year with gross outstanding debt of $340.6 million, and net debt to EBITA of 0.7x.
Lastly, before I turn over to Mike, let me comment on investment performance. Our managers continue to generate strong performance across strategies and products, and this was also the case in the fourth quarter. In spite of the challenging equity market conditions, many of our equity managers employed strategies that have a high quality or high conviction orientation. So in periods of equity market volatility, those strategies generally tend to deliver strong relative performance. In the fourth quarter with an 83% of our equity assets beat their benchmarks and 79% of our equity AUM were in the top-third their peer groups. In terms of the one-year period ended 12/31, 73% of total equity assets were in the top third of their peer groups. As we mentioned in the past our broad array of distinctive product offerings with strong relative performance, positions us well looking forward.
So with that let me turn it over to Mike. Mike?
Michael A. Angerthal -- Executive Vice President, Chief Financial Officer & Treasurer
Thank you, George. Good morning, everyone. Starting on Slide 7, assets under management. At December 31st, long-term assets were $90.4 billion, which reflects the sequential quarter decrease of 13% and an increase of 1.8% from the prior year quarter. The sequential decrease included $8.1 billion of market depreciation and net outflows of $4.8 billion. Market depreciation of $8.1 billion was reflective of the market dislocations that affected equities as well as leverage loans during the quarter.
The change from the prior year reflects the addition of SGA's assets of $11.3 billion, partially offset by market depreciation of $4.5 billion and net outflows of $3.7 billion. AUM continues to be well diversified by product type, asset class and channel. No single asset class represented more than 19% of long-term AUM and at year-end, open-end mutual fund AUM accounted for 42% of total long-term assets, down from 48% a year ago. As a reminder, we include additional detail on our AUM by asset class in our financial supplement.
Turning to Slide 8, asset flows. Total sales were $4.4 billion, a decrease of 29% sequentially as the market environment pressured investor demand across all asset classes, except money market. We had net outflows of $4.8 billion in the quarter primarily due to the lower sales and elevated redemptions reflective of investor sentiment.
Looking at open-end mutual funds by asset class. Domestic equity funds had net outflows of $0.9 billion, compared with net inflows of $0.8 billion in the prior quarter. The sequential change in net flows is primarily attributable to net outflows in small cap strategies, which overshadowed higher sales in mid and large cap strategies. Mid cap strategies generated positive net flows of $0.1 billion in the quarter as sales increased 55% on a sequential basis.
International equity funds, which include both developed and emerging markets had net outflows of $0.7 billion in the quarter. Positive net flows of $0.1 billion in the International small cap fund were offset $0.8 billion of net outflows from the emerging and developed markets, large cap funds. Fixed income funds had net outflows of $2 billion for the quarter. Bank loan strategies accounted for net outflows of $1.1 billion, almost all of which occurred in December, significantly impacting our fourth quarter flows.
As George mentioned, our managers continue to deliver strong relative investment performance across our many strategies. As of December 31st, 28 of our funds representing 80% of fund assets at 4 or 5 star ratings, and 94% of fund AUM were 3, 4 or 5 star funds. Each of our five largest mutual funds is a 5 or 4 star fund, representing a diverse set of strategies from five different managers. In addition to this very strong relative fund performance, 69% of institutional assets were beating their benchmarks on a five-year basis at the end of the year and 80% of assets were exceeding the median of their peer groups on the five-year basis.
Regarding flows and other products, retail separate accounts generated positive net inflows of $0.2 billion for the quarter, representing an annualized organic growth rate of 4.4%. We had continued strong investor demand for Kayne's equity strategies, particularly in the intermediary sponsor channel, where we now had 12 consecutive quarters of positive net flows. In the institutional channel where flows can vary significantly from quarter to quarter, we had net outflows of $1 billion, primarily related to lower sales compared with the prior quarter and three meaningful new mandates funded.
Turning to Slide 9, investment management fees as adjusted of $113.3 million, decreased $10.1 million or 8% sequentially, due to lower average assets under management and a lower average fee rate. Average long-term assets under management decreased 4% as a result of the market depreciation and net outflows during the quarter. The average fee rate on long-term assets for the quarter was 45.3 basis points, compared to 47.4 basis points in the prior quarter, which included $3.6 (ph) million of performance-related fees. Excluding the performance-related fees in the third quarter, the average fee rate decreased 0.7 basis points from 46 basis points.
With respect to open-end funds, the fee rate decreased modestly to 54 basis points from 54.3 in the third quarter. The decline reflected the impact of negative equity returns in the level of equity assets, partially offset by the ongoing positive fee rate differential between sales and redemptions. This quarter, the blended fee rate of mutual fund sales was 57 basis points, while the rate on redemptions was 52 basis points, continuing the trend of the first three quarters of 2018. The structured product and institutional fee rates of 36.7 basis points and 29.2 basis points respectively were generally flat on a sequential basis, when excluding performance fees in the prior period.
Slide 10 shows a five-quarter trend in employment expenses. Total employment expenses as adjusted, of $58.1 million decreased 6% sequentially from the third quarter. The decrease reflects lower profit and sales-based incentive compensation. As a reminder, in the first quarter of each year, we incur higher levels of incremental payroll taxes and other benefits, which amounted to $6.8 million in the first quarter of 2018. We would expect these seasonal items, which now include the addition of SGA to be approximately 10% to 15% higher. As a percentage of revenues as adjusted employment expenses were 49%, an increase of 100 basis points sequentially.
The trend in other operating expenses as adjusted reflects the timing of product, distribution and operational activities. Other operating expenses as adjusted were $17.8 million, an increase of $0.4 million or 2% from the prior quarter. The increase was primarily due to higher distribution-related activities, which as we noted on last quarter's call will increase relative to the third quarter. As we look ahead, the range of $16.5 million to $18.5 million for other operating expenses as adjusted is generally still appropriate. Clearly, we are mindful of market conditions and while we continue to prioritize investments in key areas of strategic growth, we also remain focused on cost efficiency opportunities, particularly as a result of recent transactions.
Slide 12 illustrates the trend of earnings. Operating income as adjusted of $41.5 million, decreased $6.7 million or 14% sequentially and increased $2.4 million or 6% from the prior year quarter. Operating margin as adjusted was 34.9% compared with 37.5% in the third quarter and 35.7% in the prior year quarter. The prior quarter included performance-related fees of $3.6 million. Net income as adjusted of $3.06 per diluted share decreased $0.58, or 16% from $3.64 per share in the prior quarter and increased 18% from $2.60 per share in the prior year quarter. It's important to note that the third quarter included $0.30 attributable to the performance-related fees. Excluding those fees diluted EPS declined $0.28 , or 8% on a sequential basis due to lower operating income as adjusted.
The effective tax rate as adjusted for the quarter was 27.9 %, an increase from 26.7% in the prior quarter. It's important to note that there are two items of economic value that are not included in net income as adjusted. Interest and dividends earned on balance sheet investments were $4.2 million or $0.36 per share on an after-tax basis in the quarter compared with $3.4 million or $0.30 per share in the prior quarter. An intangible tax asset amortization will continue to provide a cash tax benefit of approximately $10.5 million per year at current tax rates over the next 15 years.
Regarding GAAP results, fourth quarter net income per share was $0.01 compared with $3.19 in the third quarter. Fourth quarter net of tax GAAP earnings included the following items, $3.40 per share of net unrealized losses on investments along with associated tax valuation allowances; $0.16 per share of acquisition and integration costs, partially offset by $0.35 per share of net realized gains on investments, primarily related to recycling seed capital.
Slide 13 shows the trends of our capital position and related liquidity metrics. Working capital at December 31, 2018 of $140.2 million, increased $12 million or 9% sequentially primarily reflecting operating earnings partially offset by share repurchases. Gross debt outstanding at December 31st was $340.6 million as we repaid $10.9 million of debt, representing $0.9 million scheduled payment and an additional $10 million. As we mentioned on previous calls, our working capital includes an estimate of the required debt repayment over the next 12 months.
At December 31st, our estimate of the excess cash flow sweep obligation payable in March 2019 with zero, as a result of $20 million of debt payments made in 2018. It's important to note that our fourth quarter cash balances is typically the high point for the year as annual incentive compensation is paid in the first quarter of each year. The net debt to EBITDA was 0.7x at December 31st, down from 0.9x at September 30th, primarily reflecting cash generated from operations. Bank EBITDA for the fourth quarter was $51.7 million.
Regarding balance sheet investments, seed capital declined 15% to $92.8 million due to market depreciation of $12.3 million as well as $6.7 million of net reduction in our seed capital as a result of actions taken during the quarter. CLO investments were $90.1 million compared with $100.8 million in the prior quarter due to mark to market unrealized losses, primarily related to the decrease in bank loan prices in the fourth quarter and were driven by technical factors.
Our CLO investments continue to distribute strong cash flow and as noted earlier, we received $4.2 million of interest and dividends in the period with $3.2 million of that generated from our CLO investments. Regarding return of capital to shareholders, share repurchases in the quarter totaled $15 million or 160,147 shares of common stock, which represented approximately 2.2% of beginning of quarter total outstanding common shares. For the year, total outstanding common shares as adjusted decreased 1.1%.
With that let me turn the call back over to George. George?
George R. Aylward -- President and Chief Executive Officer
Thanks, Mike. With that, we will take all your questions. Kevin, can you open up the line please?
Questions and Answers:
Operator
(Operator Instructions) Our first question comes from Ari Ghosh of Credit Suisse.
Ari Ghosh -- Credit Suisse AG -- Analyst
Hey, good morning everyone.
George R. Aylward -- President and Chief Executive Officer
Good morning.
Ari Ghosh -- Credit Suisse AG -- Analyst
So just on the buyback, while you increased your allocation last quarter, curious like, what's the appetite to get more aggressive from this $15 million per quarter level that you noted? And then also maybe, just like talk about, how you're thinking about cash generation versus investment and seeding needs versus buybacks for 2019? Because, this looks like, you could get a lot more opportunistic here given -- given the attractive price point.
George R. Aylward -- President and Chief Executive Officer
Yes, absolutely. And as we sort of indicated in my remarks, we -- very closely look at what are the relative opportunities, because with the cash flow that we're currently generating and we continue to expect to generate, we have sufficient capacity to address each of the three things and on -- in any given quarter or in any given year, some will have a higher priority or a lower priority. So as you saw in the third -- in the fourth quarter, we increased from the third quarter significantly the stock repurchases to the $15 million and it was really our assessment that is based upon the relative opportunities, we have to use capital, that was a higher opportunity than the prior quarter.
And we -- in terms of seed, I think we sort of saw -- we actually took some actions reducing seed, unlocking some realized gains and then recycling some other things. So we feel very good that we have the cash flow that allows us to have the flexibility to do different things and we do prioritize and last quarter -- clearly given how our stock was trading relative to the values that we think of. It was a great opportunity and our cash generation going forward will allow us continue to do that. In terms of seeds and other investments, again, we have a very full product set, particularly on the open end side.
So really, the only thing you've seen us really doing in terms of seed have been, from the global stuff historically, we've now built out a couple of global funds. So really our focus is really on -- we have debt, we feel very fortunate to have a leverage ratio at the lower end of the range given some of the challenges in the market. So we feel we have a lot of flexibility to take advantage of opportunistic windows in the market.
Ari Ghosh -- Credit Suisse AG -- Analyst
Got it. And then maybe Mike, just on the expenses for 2019. Can you -- can you help us think about growth rates, maybe just for like comp and the core expenses? Thinking about the comp ratio, it still is 49%, still a reasonable rate for 2019, all else equal. And then on some of the core expenses, as you think about your 16.5 to 18.5 range. What's the flexibility you can managed that, is it going to be primarily driven by market factors or could you pull back any investments that you're looking at, to kind of get to the low end of that range?
Michael A. Angerthal -- Executive Vice President, Chief Financial Officer & Treasurer
Yes. Thanks Ari. And I think we talked about the first quarter to be mindful of the seasonal items and as you model and I'm sure (ph) you think about that. We expect that to be 10% to 15% higher than the $6.8 million in the prior year. As we think about the range of 48% to 50%, have the employment ratio range of 49% in the fourth quarter, certainly that ratio will be affected by market conditions, but as we sit here today, that seems like as good of a modeling assumption as any from the employment side. We talked a little bit about on the operating expense side to ensure that we are still focused on strategic growth priorities and they sort of dovetail on George's outline on our product set, which is continued on ETFs, continuing on non-U.S. and institutional focus. So those remain our strategic priorities on the cost side and will enable to execute on that by looking at cost efficiencies on non-critical support areas, which enable us to keep in that 16.5 to 18.5 range. So looking forward, we are investing in key strategic priorities, focused on -- continued focused on the costs and feel good about how we're positioned at this point.
Ari Ghosh -- Credit Suisse AG -- Analyst
Got it . Thank you very much
Operator
Our next question comes from Michael Carrier with Bank of America.
Sameer Murukutla -- Bank of America, Merrill Lynch -- Analyst
Hey, good morning guys. This is actually Sameer Murukutla on for Michael Carrier. Can you just give us some details on where you see the fee rate kind of trending in 1Q, given some of the positive 1Q markets especially in EM (ph)?
George R. Aylward -- President and Chief Executive Officer
Yes, for the fee rate -- over the last few quarters as you know, we've had a positive fee rate differential, were -- so over the last four quarters, I believe, three or four quarters, we've had the differential with a much higher fee rate on the sales versus the redemptions and that's being driven by some of the equity products, particularly those that are more capacity constrained, which demand a higher fee level and that continued in the fourth quarter, where the differential was a little lower, it was still a positive differential.
As Mike sort of alluded to, when you look at the total average fee rate for mutual funds quarter over quarter, one part of the modest decline was just because the market impact brings down the relative value of equity assets. So you do weighted average fee rate, it technically comes down. The market has now gone up in January, been very strong month in January. So mathematically that would have the reverse impact, where that would increase the relative value of equity assets to fixed assets. Then in terms of sales, as I sort of alluded to in the color I'm seeing in January, we are very pleased to see demand across all -- actually all of our equity strategies and particularly in areas like emerging markets and some of the international strategies, which again are generally at the higher end of the fee rate.
So I don't know what the rest of the quarter will look like, but the market, obviously, the equity markets have an impact on what the average fee rate is on the assets in place and the sales -- the differential between sales and redemption if they will continue with the trends we've seen in prior quarters and continue going forward, the same thing would occur, but again I can't predict what the rest of the quarter or the rest of the year will look like.
Sameer Murukutla -- Bank of America, Merrill Lynch -- Analyst
Perfect. And just one follow-up, can you just talk to us of what you're seeing with SGA? How the integration is going and maybe how SGA held up relative to rest of this?
George R. Aylward -- President and Chief Executive Officer
SGA is doing is doing wonderfully. We're very pleased with the investment in SGA and having them as part of the family of boutiques. They are a great firm. They continue to execute on their investment strategies and again they have more of a high conviction orientation. So they continue to do well, perform as they historically have done, which is very strong and we're just very excited about having them part of the group and continuing to build out their institutional business.
Operator
Our next question comes from Sumeet Mody with Sandler O'Neill & Partners, L.P.
Sumeet Mody -- Sandler O'Neill & Partners, L.P. -- Analyst
Hey, good morning guys.
George R. Aylward -- President and Chief Executive Officer
Good morning,
Sumeet Mody -- Sandler O'Neill & Partners, L.P. -- Analyst
A follow-up on, on Ari's question on seed. I appreciate you guys are looking at global strategies. Are there any particular geographies you're excited about or maybe products, alternative less liquid strategies you're more focused on expanding and going forward?
George R. Aylward -- President and Chief Executive Officer
If you're speaking, just to offshore non-U.S. product structures, we had launched two -- I think two file (inaudible) sometimes during the course of last year, which were fixed income. There are not any other filings out there for new products. So, we have a couple of good products there. What we've really been focused on is the distribution side. So we had sort of, in the middle of last year, we had increased some focus on the offshore distribution here in the U.S. to get some traction with the funds.
Because as you recall, we sort of set up funds few years ago, it took them a few years to build a track record. It took us a few years to get turned on in some of the distribution channels and now we've augmented that with support on the distribution side. So, it's still early in that process, but we now have track records. We now have access and we now have distribution. So we're looking to sort of, hopefully get results -- better -- more results,
we've actually seen, it's still very, very small, but we are still seeing -- we've seen more sales in those products than we have historically and we continue to look to those opportunities outside of the U.S., either in Latin America and then ultimately further out in Europe. So they again, that is just something we'll organically try to build out with our own resources. So in terms of other product. There is nothing else that we've done any filings for, put out there that you should be thinking of in terms of -- in the short term any kind of seed needs.
Sumeet Mody -- Sandler O'Neill & Partners, L.P. -- Analyst
Okay, thanks. Appreciate that color. Just a quick one on the CLOs. We've seen a lot of recent volatility in the high yield spreads, widening and coming back in. Just wondering, how the changing markets has impacted? How you're thinking about the timing, some of the CLOs and warehouse space? And then maybe how it's affected the way you're approaching equity tranche investments if at all?
Michael A. Angerthal -- Executive Vice President, Chief Financial Officer & Treasurer
Yes. Sumeet, good morning, it's Mike. We have one CLO in the warehouse phase, $7.5 million investment and we entered into that warehouse in the mid part of 2018, and obviously that market was impacted in the fourth quarter of '18. There have been some transactions that have gotten done in January, the market seems to be settling down, certainly it's the technical dislocation in the fourth quarter. So our expectation would be to see execution of that structure product in the first half of 2019. As we think about the CLO investments and that comprises about $90 million of the $94 million that we talked about in other investments, that's really generating a good portion of the $4.2 million of interest and dividend income that we recognized in the fourth quarter, $3.2 million of that $4.2 million was attributable to the CLO investments. And certainly we -- or in that business as our affiliates and think the -- that market is one and sponsoring and supporting our affiliates to launch CLOs is an important aspect to be a participant in the leveraged loan market and we're certainly watching it carefully and working closely with our affiliate teams on those structured products.
George R. Aylward -- President and Chief Executive Officer
The structured products as Mike mentioned in the call, have been continued to have generated cash distribution and proceeds, which while they're not included in our non-GAAP earnings, they are actually adding to the cash flow generation that we can then make available for other things like stock repurchases et cetera.
Sumeet Mody -- Sandler O'Neill & Partners, L.P. -- Analyst
Okay, great. I'll leave it there. Thanks guys.
Operator
(Operator Instructions) Our next question comes from Jeremy Campbell with Barclays.
Jeremy Campbell -- Barclays Capital -- Analyst
Hey, thanks guys. You know, obviously, just the market was pretty bad backdrop for you guys in 4Q and it was a tough year for small caps. So, just kind of wondering, is there any kind of idiosyncratic driver of some of the open end fund redemptions like, did you guys see any kind of tax loss selling element that maybe you got back here in the first quarter or is really the open end stabilization in January more just for me is stabilizing redemption rate?
George R. Aylward -- President and Chief Executive Officer
Yes, no, it's a great question because really, as a sort of I think through the fourth quarter, right. So they were -- there are whole bunch of factor, right. The main factor was just the backdrop of everyone de-risking and really across the board asset classes, investors were de-risking and moving to cash, so we absolutely participated in that.
And then on top of that, we sort of had two elements that I would really sort of focusing on, small caps and basically leveraged loan strategies. Because as you remember, we previously had several quarters of positive flows and some of that was driven by high levels of demand in small caps, which were absolutely in favor earlier in the year. So they sort of -- we had done soft closes on those and those strategy sort of fell out of favor and then actually the Russell Index really performed poorly in the fourth quarter.
significant decline in sales of the small cap, but at the same time, we actually saw an increase in large cap equity, mid cap equity and I think -- of our fixed income strategies. So we're actually seeing those sales go up, but the the sharp decline in small caps stood out and then Mike sort of reference, the leveraged loan strategies, that asset class goes in and out of favor with more frequency than other asset classes. So you see some periods where a lots of money will come in that asset class and in December, as Mike alluded to, we had a huge draw down and that was about $1.1-ish billion (ph) in really in that one month.
So then really January, really is almost like a different environment, right. Beginning of January we saw the residual of the -- of what I call the fourth quarter cleansing. But then really the demand for equity strategies was clearly evident. Many of those days are starting to be positive, slightly positive, slightly negative. So you saw the decline of the redemptions from the de-risking, you saw the increase in the demand on equity assets and for us, more optimistically, the emerging markets and international strategies, which had been previously out of favor.
The only thing I'd say we haven't really seen yet is for fixed income. We haven't seen that gotten back to the place where we're hoping it we'll get to. So it's not redeeming, but certainly haven't -- we haven't seen that sales level quite up to where we would like it to be, given some of the really strong performance we have with several of our managers.
Jeremy Campbell -- Barclays Capital -- Analyst
Got it. Great. And then in the institutional sleeve, I think you guys had mentioned that the $1 billion net outflow was a little bit more from lower sales rate as kind of 3Q is a little bit more robust, but I guess when I kind of look at the net flow rate in institutional over the past couple of quarters and even going back several quarters. So kind of flattish to slightly negative at best, so is that wasn't really a good win rate environment. I guess -- I know this can be chunky, but when you kind of look from here forward the setup into '19, I know you mentioned you have some stuff that you think might kind of fund in the first quarter. But, are you kind of starting -- still starting from a hole and having to dig yourself back up to even each quarter or is it just really the year that you think, OK, well redemptions may stabilize and we can -- we can use these win rates to generate net inflows?
George R. Aylward -- President and Chief Executive Officer
Yes. The way I would sort of describe it is and we sort of look at the outflow rate versus the inflow rate. So really for us, it's been a relatively stable outflow rate as a percentage of AUM, the outflows has been relatively stable. Where more of the volatility has been is on the chunkiness of inflows, because we have only been building up some of the institutional pipeline for several of our managers over the last year or so.
So that's why sort of still seeing primarily on the sales side. One quarter we have three managers with meaningful mandates like we did in the third quarter and then you're seeing effectively, the absence of that in the fourth quarter and have alluded to the fact that I'm aware of a couple of wins that we have coming in and only one modest outflow.
So I think we have a book of business that is sort of operating as it should in terms of the stability of the assets on the redemption side, but we're still haven't yet gotten to a more regular rate of inflow. So, the pipeline continues to be bigger now than it was last quarter or the quarter before or the quarter before. The fourth quarter unfortunately, nothing landed, and even if things were scheduled to land, you might think that maybe the market scared people from funding a mandate in the middle of a horrible quarter.
So, it really is about us getting up to a more normalized level of sales and so far the actual outflow rate has actually been relatively stable for the book of business that we have.
Jeremy Campbell -- Barclays Capital -- Analyst
Great, thanks a lot.
George R. Aylward -- President and Chief Executive Officer
Yes, you're welcome.
Operator
This concludes the question-and-answer session. I would like to turn the call back to Mr. Aylward.
George R. Aylward -- President and Chief Executive Officer
Great. I just want to thank everyone for joining us today and we certainly encourage you to call if you have any additional questions. Thank you very much.
Operator
This concludes today's call. Thank you for participating . You may now disconnect.
Duration: 41 minutes
Call participants:
Joe Fazzino -- Assistant Vice President, Corporate Communications
George R. Aylward -- President and Chief Executive Officer
Michael A. Angerthal -- Executive Vice President, Chief Financial Officer & Treasurer
Ari Ghosh -- Credit Suisse AG -- Analyst
Sameer Murukutla -- Bank of America, Merrill Lynch -- Analyst
Sumeet Mody -- Sandler O'Neill & Partners, L.P. -- Analyst
Jeremy Campbell -- Barclays Capital -- Analyst
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