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Legg Mason Inc (NYSE:LM)

Q1 2014 Earnings Call

July 25, 2013 8:00 am ET

Executives

Alan F. Magleby - Director of Investor Relations & Communications

Joseph A. Sullivan - Chief Executive Officer, President, Director and Member of Finance Committee

Peter Hamilton Nachtwey - Chief Financial Officer, Principal Accounting Officer and Senior Executive Vice President

Analysts

Christopher Harris - Wells Fargo Securities, LLC, Research Division

Daniel Thomas Fannon - Jefferies LLC, Research Division

William R. Katz - Citigroup Inc, Research Division

Macrae Sykes - Gabelli & Company, Inc.

Matthew Kelley - Morgan Stanley, Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Roger A. Freeman - Barclays Capital, Research Division

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

Michael Carrier - BofA Merrill Lynch, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Greggory Warren - Morningstar Inc., Research Division

David J. Chiaverini - BMO Capital Markets U.S.

Operator

Welcome to the Legg Mason's Fiscal First Quarter 2014 Earnings Call. [Operator Instructions] Please note that this teleconference is being recorded. It is now my pleasure to introduce your host, Alan Magleby, Head of Investor Relations and Corporate Communications. Mr. Magleby, you may begin.

Alan F. Magleby

Thank you. On behalf of Legg Mason, I would like to welcome you to our conference call to discuss operating results for the fiscal 2014 first quarter ended June 30, 2013. This presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of facts or guarantees of future performance, and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those discussed in the statements. For a discussion of these risks and uncertainties, please see Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations in the company's annual report on Form 10-K for the fiscal year ended March 31, 2013, and in the company's quarterly reports on Form 10-Q.

This morning's call will include remarks from the following speakers: Mr. Joe Sullivan, Legg Mason's President and CEO; and Mr. Pete Nachtwey, Legg Mason's CFO, who will discuss our financial results. In addition, following our view of the company's quarter, we will then open the call to Q&A. Now I would like to turn this call over to Mr. Joe Sullivan. Joe?

Joseph A. Sullivan

Thank you, Alan, and welcome to the Legg Mason earnings call for our first fiscal quarter of the year. And as always, we appreciate your interest in our company. We are pleased with the overall performance of the company during the period despite what was a very challenging market environment, particularly during the last half of the quarter. Our results included long-term inflows, representing our first quarter of long-term net positive flows since September 2007. Although admittedly modest, these flows were positive and we're very pleased, though not satisfied with that. During the quarter, long-term flows were driven by inflows to fixed income and sharply reduced equity outflows.

While the first 2 months of the quarter were strong, the markets were especially volatile in June and we experienced fixed income outflows that month, as did the industry overall. That said, the impact on our fixed income flows seems to have been less extreme than the broader market, given the fact that institutional clients represent over 80% of our total fixed income AUM, and institutions tend to be less reactive than retail investors to short-term fluctuations. Overall, I like the capabilities that our managers have, in terms of navigating the changing and sometimes volatile fixed-income environment. Our active fixed-income managers have expertise across various sectors of the market and the ability they have to adjust duration, sector or currency exposures in a rising rate and/or volatile credit and spread environment is essential to investment performance.

Now in finishing my thoughts on the last quarter. Overall, our investment performance remains strong. We continued to aggressively manage our expenses. We continued our shared repurchase in line with expectations, and in terms of our strategic initiatives, we feel very good about our progress as we move the ball forward in a number of areas. As previously indicated, we intend to address small, non-core affiliates in a thoughtful manner. And along those lines, we reached an agreement to sell private capital management to its management team. The transaction should close by the end of the September quarter. We expect a $3 million charge associated with this transaction, while the ongoing P&L impact to Legg Mason will be immaterial.

We completed the review of our operations and that exercise informed our thinking, as we further flatten our distribution organization this week to bring senior distribution leadership closer to the field and our advisor clients. We also confirmed that much of the low-hanging fruit in terms of cost reductions has been realized. And so now, we are focused on reengineering our business processes in an effort to make our operations more efficient and scalable. This process will take a bit more time to implement, but when complete, will allow us to reinvest savings in growth initiatives, although we may realize some modest incremental saves.

So in summary, I believe that we had a good quarter. We were pleased with the financial performance that I will discuss in a moment. And equally important, we continued to make progress on a number of fronts, including performance, cost, distribution and portfolio initiatives, all of which will increasingly position Legg Mason to drive improved profitability and cash generation over time.

Now let's move on to our results for the quarter starting on Slide 3. We reported GAAP net income of $48 million or $0.38 per share and we recorded adjusted income of $85 million or $0.68 per share. Our financial results include $26 million or $0.14 per share of costs related to the $1.2 billion closed-end fund MLP that we raised with ClearBridge Investments. This transaction was, by far, the largest closed-end fund raised in the market this quarter, underscoring the continued interest that clients have in specialized income solutions.

As with our other closed-end funds, we expect to reach breakeven on our upfront costs on the transaction in about 3 years. This particular raise was also our second largest closed-end fund launch ever, which I think is quite an accomplishment in what was a very challenging market in general, and for closed-end funds in particular. We continue to return capital to shareholders, purchasing 2.6 million shares during the quarter, and over the last 4 quarters, we have reduced shares outstanding by 8%. By prudently managing our cash, we ended the quarter with nearly $700 million in cash after seasonal bonus payments and a scheduled debt repayment. This was better than expected.

Investment performance continues to remain strong with at least 80% of all strategy AUM beating benchmarks across all time periods. And as I mentioned, we had net long-term inflows this quarter for the first time in 5 years.

Slide 4 presents our AUM by affiliate in order of their quarterly contribution to earnings. And I'd like to talk about our affiliates in the quarter across key asset classes, but first, let me just say this. While there are numerous ways we can better evolve our affiliate portfolio, we feel very good about our overall breadth of investment capabilities, and we think that the recent volatility in the markets only serves to reinforce the potential value that active management can deliver for investors. So let's start with fixed income focusing on Western and Brandywine.

We recorded fixed income inflows of $900 million for the quarter, offset by foreign exchange and market depreciation. Because our fixed income book of business is largely institutional, our flows and overall AUM held up comparatively well versus the industry during the month of June. Fixed income flows at Western were nearly breakeven, excluding the sovereign mandate that we've referenced for some time. Our momentum through the first 2 months of the quarter was offset a bit by retail focused redemptions in June. Western earned a number of new institutional mandates during the quarter, all of which were in specialized strategies. Western's won, but not yet funded business at the end of the quarter was $2.7 billion.

Now Brandywine had net flows of $2.2 billion, driven by absolute return and global fixed income, most of which occurred in April and May. Brandywine's won but not yet funded pipeline is approximately $500 million. Both firms have absolute return and unconstrained funds that also have the potential to perform well in a rising rate environment, and which are garnering renewed attention from investors in these choppy markets.

Now on to equities, where we experienced our second quarter of significantly improved outflows, driven by strong performance at ClearBridge Investments. ClearBridge ended the period at nearly $71 billion, another strong quarter with $2.6 billion of net inflows. The won but not yet funded pipeline of ClearBridge stands at approximately $2.5 billion. While the closed-end fund raised was certainly meaningful, quarterly net positive flows also included a number of their core equity strategies, specifically dividend and income products, the small-cap growth and aggressive growth strategies. ClearBridge is also seeing strong interest in a variety of newer growth channels for them, including institutional clients, Japanese investors and the firm's momentum at a variety of U.S. platforms within retail distribution is also growing and broadening.

Royce at just under $37 billion, is down slightly from last quarter. Continued outflows in the U.S. were partially offset by inflows into offshore funds, where they have had modest positive net flows for the past 2 quarters. More normalized interest rates, particularly tied to an improving economy, should be a positive at Royce. The focus at Royce remains on shares in high-quality companies that have strong balance sheets and the potential to perform better as the market returns to an emphasis on fundamentals, rather than a preoccupation with a search for yield.

Batterymarch, at $12.1 billion, is also down from last quarter. Investment performance continues to improve across some strategies at Batterymarch. However, we do expect determination of $1.4 billion from a single, large sovereign fund in July. Batterymarch continues to be very focused on improving investment performance and are seeing the RFP activity picking up. Finally, Batterymarch has been partnering with our global distribution team to work on a solutions-based opportunity that, if successful, could result in some significant mandates.

Now let's finish with alternatives. We're seeing many of the themes play out that I discussed last quarter related to the alternative space and Permal. Specifically, the scale is important in the fund of hedge fund segment with allocations going to the bigger players. Also, that the high net worth space internationally remains challenged in terms of outflow, though at a moderating pace. And that the strongest opportunity for growth, especially for Permal, continues to be in the institutional space. As I've said previously, Permal is significantly better positioned today with over 60% of their AUM in that segment, up from virtually no presence with institutions when we acquired them in 2005 and Permal is seeing new institutional opportunities in a number of regions. Permal's AUM at the end of the quarter was approximately $20 billion, and their pipeline of unfunded wins stands at $600 million, which is higher than they've seen in several quarters. We continue to work with Permal on retail product launches in the U.S. for this coming fall and on opportunities to expand our capabilities into other alternative asset classes. So the pipeline of unfunded mandates for our affiliates at quarter end totals $6.3 billion, up from $6 billion last quarter.

Slide 5 shows investment performance, with over 80% of our strategy AUM beating benchmarks over all time periods. Performance of fund AUM versus the Lipper category average is a bit more mixed, reflecting some equity funds underperformance in the 1-year and 5-year periods. Slide 6 provides an overview of our global distribution platform. You'll notice the diversification in balance that we enjoy in our retail distribution platform across the U.S. retail, quasi-institutional and international channels. Two quarters ago, we benefited from the U.S. being strong when components of our International business were soft, and then realized the opposite of that last quarter, with significant improvement internationally, offsetting some softness domestically. Now certainly, I'd love for all the teams, U.S. retail, U.S. quasi-institutional and international to be firing on all cylinders at the same time, but that won't always happen, so in the meantime, I am very happy with the diversification that our distribution platform provides.

Specifically for the quarter, we achieved record growth sales of $17 billion across the platform. Though our net outflow increased a touch due to market conditions and acceleration of fund outflows in the U.S. and continued, albeit, lower redemptions in Japan. Importantly, we saw positive inflows across a number of channels driven primarily by the national broker-dealer, an independent advisor channels in the U.S. and our European team, offset by outflows in Japan and in the U.S. quasi-institutional channel where flows can tend to be a bit lumpy. We saw solid improvement overall from our international distribution team with strong interest in U.S. equity products and slowing outflows in non-yen denominated products in Japan. We also recognize, on this slide, the strength of our closed-end fund business which has been market leading over the last several years. Now let's have Pete walk through the specifics of our quarterly results.

Peter Hamilton Nachtwey

Thanks, Joe. Turning to Slide 7. I'll start with the financial highlights for the quarter. As Joe noted, we generate earnings of $48 million or $0.38 per share. This quarter, our earnings were negatively impacted by $26 million or $0.14 per share of costs related to another very successful ClearBridge closed-end fund launch. This one for $1.2 billion, assuming the green shoe is exercised. Adjusted income was $85 million for the quarter or $0.68 per share and was also impacted by the costs for the closed-end fund raised. Average AUM in total was slightly lower than the prior quarter, but average equity AUM increased 7% reflecting higher markets and reduced outflows. The mix shift to more equity AUM contributed to a slightly higher advisory fee rate in the quarter. Operating revenues were slightly higher than the prior quarter due to an additional day in this quarter, a full quarter of Fauchier revenues and a higher average fee rate, all of which more than offset an $11 million decrease in performance fees. Here, you should recall that last quarter included approximately $16 million in performance fees with the annual locks as compared to $11 million this quarter. This quarter's total performance fees of $22 million were primarily from Western, Permal and Brandywine. While impossible to predict with any precision, we project that next quarter's performance fees could be in the $10 million to $15 million range. Operating expenses included the $26 million closed-end fund launch costs and I will provide a little more color on overall expenses later.

On the balance sheet front, this quarter, we repurchased an additional 2.6 million shares for $90 million. Going forward, we continue to anticipate share repurchases of $80 million to $90 million per quarter. As always, subject to markets and other opportunities, which is consistent with our plan to use up to 65% of our operating cash flow for buy backs. Moving on to Slide 8, the only item to highlight here is our GAAP effective income tax rate of 34%, which includes the impact of consolidated investment vehicles. Excluding these SIVs, the effective tax rate came in at 35%. Going forward, we are forecasting our effective GAAP tax rate for fiscal 2014 to be around 30% which reflects another U.K. corporate tax rate reduction to take effect in the September quarter. Also, as you will see on a later slide, the actual cash taxes we currently pay are at a substantially lower level than our GAAP rate.

Turning to Slide 9. Our assets under management were down 3% from the prior quarter due to market declines of nearly $12 billion, of which $6 billion was due to currency movements. In the quarter, equity as a percentage of total AUM, increased to 26% from 24% in March, while fixed income assets as a percentage of total AUM declined to 54% from 55% last quarter. In large part, these moves are due to positive equity markets versus the negative fixed income markets, which were driven by the rising rate environment at the end of last quarter. Long-term flows on Slide 10 improved dramatically from the prior quarter, and in fact, were positive for the first time since September of 2007. This, despite significant retail fixed income redemptions in June. Despite these retail headwinds, we had fixed income inflows this quarter of $900 million compared to outflows of $400 million in the prior quarter. And this quarter's results still included $1.3 billion in ongoing redemptions related to the low fee global sovereign mandate.

Equity outflows declined to $700 million from $2.6 billion last quarter. This includes $1.1 billion of inflows related to the ClearBridge closed-end fund that was launched in June. Liquidity outflows were $5 billion and reflected the large sovereign redemption in April that we highlighted on last quarter's call. Slide 11 shows the advisory fee trend with this quarter's rate increasing by 60 bps, reflecting the improving AUM mix. Though our total average AUM decreased slightly, average equity AUM was up by $11 billion, while average fixed AUM was down by $4 billion. Operating expenses on Slide 12 decreased to $587 million from $625 million, largely due to last quarter's charges related to our real estate downsizing. I'll discuss comp and benefits on the next slide, but on the other expense categories, distribution and servicing expense increased $28 million from the prior quarter, primarily due to the closed-end fund launch.

Occupancy expense decreased due to the $53 million in real estate related charges in the prior quarter and the $2.4 million in quarterly savings that we generated as a result. The other expense increase is largely driven by the currency impact on non-U.S. dollar expenses during the quarter as well as higher T&E expense.

Turning to Slide 13. Compensation and benefits, overall, decreased by $11 million. But as you can see, the primary drivers of the decline were the lower management transition costs and severance, as well as the mark-to-market on deferred comp and seed investments which are offset in other income and expense. Benefits and payroll taxes increased due to the taxes on fiscal year end 2013 bonuses which were paid in mid-May. These taxes were also the driver behind the reduction in the salary and incentives line as incentive accruals at revenue sharing affiliates were constrained by the higher taxes. The closed-end fund launch increased our compensation ratio by 3% in the quarter, reflecting $2.4 million in higher commission payments and $24 million in distribution and servicing expenses which lowers net revenues.

Slide 14 highlights the operating margin as adjusted, which increased to 17.9% from last quarter's 10.4%. The previously mentioned closed-end fund costs reduced our adjusted operating margin this quarter by 4 percentage points. Last quarter's operating margin included the real estate costs and senior management restructuring charges, which combined to reduce the operating margin as adjusted by 11 percentage points. Slide 15 is a roll forward from fiscal Q4's earnings per share of $0.23 per share to this quarter's $0.38 per share. Fiscal Q4 included the real estate and management restructuring charges that totaled $0.31, while this quarter included $0.14 related to the closed-end fund launch.

In addition, the mark-to-market on corporate investments, not offsetting comp, were $0.06 lower than last quarter as a result of lower markets, particularly in emerging and fixed income asset classes. The net of all other revenues and expenses for the first quarter increased by $0.04, reflecting increased revenues, reduced net interest expense, lower occupancy cost, the reduced effective tax rate, as well as a lower share count. On Slide 16, you can see that our effective tax rate for the quarter was 35% but the forecast for the full year is for a 30% tax rate, as I mentioned earlier. This lower rate reflects the benefit we will see in fiscal Q2 from a new round of U.K. corporate tax rate reductions that were just signed into law. As of now, we're anticipating a GAAP rate in the mid to upper teens for next quarter. However, the key once again, is our actual cash tax rate which dropped to 4% from 7% last year, primarily due to state tax adjustments, but we expect the cash tax rate to bounce back to approximately 7% in fiscal 2015. This low cash tax rate allows for both additional investments in the business and additional return of capital to shareholders.

Specifically, the low cash rate results from our NOL carryforward and our ability to amortize our goodwill and indefinite live and intangibles for tax purposes while these are not amortized for GAAP. When you translate our cash tax rate into dollars on the right side of the schedule, you see that over time, we continue to expect to realize a positive cash savings of $1.5 billion.

I'll wrap up on Slide 17, which highlights how we both returned capital to shareholders and maintained a sizable cash position, thanks to strong cash generation, as well as providing some color around our seed investment portfolio. In the upper left, you can see that we have reduced our share count by 30 million shares or 19% over the last 3 years, and while not shown here, we've retired a total of 47 million shares or 29% since we began our prior authorization back in 2010. As of the end of June, we still had $640 million of board authorized repurchases remaining.

In the bottom left, you can see that our ending cash balance dropped to approximately $700 million. The June cash balance is usually our lowest quarter end for the year due to bonus payments in mid-May. We also continued our share repurchases and we made an annual amortization payment on our bank term loan of $50 million. But as we look ahead over fiscal 2014, we would expect the cash balance to rebuild towards last year's ending level. Finally in the upper right, we provide a summary of our seed investment portfolio. As you can see, the portfolio is fairly diversified and with alternatives, a significant percentage of these seeded products are in emerging market vehicles. The decline in both the fixed income and emerging markets led to the approximately $11 million drop-off in seed mark-to-market, not offsetting comp, relative to last quarter. So thanks for your time and attention and now, I'll turn it back to Joe.

Joseph A. Sullivan

Thanks, Pete. Before we go to Q&A, let me reflect on our 4 key operating priorities depicted on Slide 18. As I've said, we will measure our success against these priorities which we expect to accelerate our total revenue growth, evolve the mix of our business by asset class, by client type and by geography, and improve the balance and consistency of our earnings. Our first key priority is ensuring that our affiliate investment managers have a lineup of relevant products in high investor demand categories. Our successful closed-end launch with ClearBridge brings the AUM and MLP products to $5.3 billion and reinforces our leadership position in the space. We are continuing to work with ClearBridge to expand this franchise, including the launch of an open-end fund later this year. We have launched income funds managed by ClearBridge in conjunction with our Japanese team that have seen significant interest. In China, we have obtained a QC [ph] clearance to launch funds for Permal and Western. We expect to launch funds with daily liquidity with Permal in the fall, a macro opportunities fund with Western in the late summer, and are looking at new product opportunities across a number of affiliates to invest in infrastructure. And as we've stated, we are actively looking at opportunities to expand our capabilities in areas that we believe have high-growth potential.

Our second operating priority is compelling investment performance, and we consider this priority to be industry table stakes and that compelling long-term performance is critical to our success. We saw some improvement in our equity manager strategy performance, particularly in the large cap space year-over-year during the quarter. Not surprisingly, fixed income performance was impacted by volatility that included both interest rate increases and spread widening during the quarter. While absolute returns were negative in the latter half of the quarter, our relative fund performance was solid, with nearly 2/3 of our fixed income assets beating the Lipper category average. But to be clear, when it comes to investment performance, ours is a never-ending quest to improve and we will continue to work with affiliates on tools to enhance performance and ways to attract and retain world-class talent.

Our third priority is delivering world-class distribution. Now I've talked a lot about our global distribution platform and how we see it as an important strategic asset, one that we believe is a key growth driver for our business. Here again, our closed-end fund launch demonstrated the strength of our U.S. distribution effort with the largest closed-end raise in the market during the quarter. Increasingly, Legg Mason, in partnership with our affiliates, provides solutions to the investment challenges of our many clients across asset classes and among our many managers. The solutions business itself is becoming an increasingly important approach to how the industry works with distribution platforms and investors. And in this regard, we believe that Legg Mason has a unique opportunity and that our model is a particular strength.

Our diversified portfolio of top investment managers is a natural fit with the evolution of the solutions business, and that we are able to customize investment products from among our many managers to deliver high alpha strategies with risk mitigation attributes that are increasingly desired in the marketplace. And while we have a nice start to this aspect of the business, we intend to invest more resources in our solutions capability and believe that we can effectively leverage our model for even greater success. Quite simply, our focus in distribution continues to be on working with our affiliate partners to expand market share, improve our sales productivity and increase persistency in asset retention.

And finally, our fourth priority is continuing to drive operating efficiency. As I mentioned, while our operational review confirmed that most of the operating efficiency gains have been achieved, opportunities remain to control costs and redirect resources to growth opportunities and to serving clients better. For example, we are working with our key vendors to simplify our workflows and eliminate manual processes. In so doing, we can reallocate resources internally to more productive uses or in some cases, eliminate certain functions altogether. This process may result in some incremental one-time charges, which we will quantify along with the related savings as we finalize them. And in closing, creating shareholder value starts with executing on these priorities because we believe that collectively, they will position us for sustainable growth.

These priorities are basic and fundamental and yet, successfully executing on them in a consistent fashion is both difficult and challenging, but we are steadfast in our determination to do so. This effort will be complemented by an equal commitment to returning capital to shareholders, through buybacks and dividends. And as most of you know, over the last 4 years, we've returned more than $1.5 billion to shareholders, an important use of capital, of which we are very proud. I am certainly excited about and remain increasingly confident in our future. And with that, I'm now happy to open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Chris Harris from Wells Fargo.

Christopher Harris - Wells Fargo Securities, LLC, Research Division

My one question is on Western. Pretty heroic to have inflows in this quarter, I think everybody would agree there. You highlighted the institutional channel as being a factor. Can you guys maybe help us understand the mix a little bit better, exactly what -- who comprises that institutional channel? And then as you speak to these investors, do they seem willing to allocate more money to fixed income now given the higher rates we've had recently, or are they perhaps a little bit more cautious?

Joseph A. Sullivan

What I would say is a couple of things. We -- in the first couple of months of the quarter, I would say both retail and on the institutional side, we started out quite strong. And we, like others, saw outflows on the retail side, more elevated in munis than in taxables but we did see some outflows in June due to the volatility and the significant rate rise. That said, what we didn't see was a significant move out and in fact, we saw positive net flows on the institutional side. I think what you're also seeing is a greater interest and an increased interest in sort of more alternative fixed income strategies, specifically around total return unconstrained. What we're seeing is some of our clients, both considering adding to fixed income as you suggested, and in some cases, that's really rebalancing, right. So as fixed income gets cheaper, as rates move higher and prices lower, many institutions just simply are forced to rebalance and add to fixed income. But in addition, we're seeing more the managers, the upper -- or more of our clients on the institutional side be opportunistic by looking at specialized mandates from core or otherwise, indexed products. So it's -- the institutional side was much more measured in their response. I think much more thoughtful, which is typical is what we expect but also opportunistic in looking at either sort of total return unconstrained or other specialized products.

Operator

Our next question comes from Dan Fannon from Jefferies.

Daniel Thomas Fannon - Jefferies LLC, Research Division

Can you expand upon the comments around the PCM. I think you said $3 million charge. Maybe tell us how much AUM that is and if there are other kind of smaller affiliates that haven't been on the list that could be out there for a similar type of restructuring? And then also maybe a little more color around the flattening of the distribution efforts which I think you talked about, Joe, and what that ultimately means, is that personnel reduction or just realignment of where people have been focusing their efforts?

Joseph A. Sullivan

Sure. Dan, first of all, as it relates to Private Capital, the AUM associated with that currently is about $1.2 billion. The $3 million charge that I mentioned, by the way, was pretax and it's just really related to things like some severance and acceleration of vesting of some equity, et cetera, et cetera. But it's really from a P&L standpoint, the impact on a go forward basis to the company is really immaterial. And it is consistent with what I've said in the past, which is we're not going to be speculative or kind of discuss prospective thoughts that we may have on other smaller, non-scale affiliates, nonstrategic or subscale affiliates. But we are working with them and we'll continue to look at them and then we'll simply announce it, if and as we do something. As it relates to the distribution question, succeeding me was Terry Johnson, the Head of our Global Distribution team, and he announced this week, earlier this week, his new organization, which is really an evolving organization. But he took the opportunity, as part of this to flatten a little bit, which meant we did announce one particular exit of one of our executives that really brought Terry down closer to the field, closer to our clients to allow him to kind of get deeper and frankly, be more accountable for our results there. So it's evolution, it's not revolution. But it's continuing to improve and evolve that structure and our distribution because frankly, it's such a key part of our future going forward.

Operator

Our next question comes from Bill Katz from Citi.

William R. Katz - Citigroup Inc, Research Division

When you look at your margin at 22% for the quarter, it's basically been flat now for a bit of time, and it sounds like you're still in the process of maybe a bit more cost saves [ph] but somewhere down the road and maybe more modest in scope, and then the closed-end funds, it's going to be 3 years to break even. What gets this margin moving in the right direction, so what milestones should we be looking at before we think about a lift in profitability?

Peter Hamilton Nachtwey

Bill, this is Pete. I think, again, what you're seeing is a reflection of what we've been saying all along that we're going to -- we have a very leverageable corporate and distribution model. So as we see increased revenues, we're holding a very tight line on costs and that's what's going to drive the margin higher and we're starting to see that impact this quarter. And you're -- on the closed-end fund costs, you're right, just for the benefit of others, in thinking about the payback on that we look at the revenues that we get. We get a little bit of extra hair cut off the top for the role that LMGD plays in this so it's about a 3-year payback. And that will start contributing to the margin as well.

William R. Katz - Citigroup Inc, Research Division

Is that payback the same? It seems like that's a bit extended. Are the economics of the closed-end business changing at all?

Peter Hamilton Nachtwey

No. It's similar to what we've seen in the past. So we paid some additional commissions to our people upfront on the sales and then there's some structuring charges, both with legal costs and with our distribution partners. So 3-year payback, we're quite frankly quite happy with given the permanent nature of this capital.

Operator

Our next question comes from Mac Sykes from Gabelli & Company.

Macrae Sykes - Gabelli & Company, Inc.

Joe, could you comment on the environment for acquiring equity AUM? We've certainly seen expansion of multiples in the public markets and it seems like the return spread relative to your own share repurchases has not improved. So if you could just give us some comments there, it would be great.

Joseph A. Sullivan

Sure. The way I think about it is this, that I want to be clear that our objective is to develop or acquire, we -- at the end of the day, we need a capability and we've talked about this. We need a capability in non-U.S. equity strategies. Now we can do that in a number of ways. We can do that through acquisition. We can do that through organic build-outs but clearly, doing a deal and finding a partner would get us there presumably a little bit faster. Now as you know, and as others know, kind of courting relationships and building relationships with potential partners does take time. I work on doing that and working on the acquisition concept, the M&A concept, literally every day. People say how much do you work on it, I work on it in some way, shape or form, almost every day, whether it's connecting and building a relationship, meeting new people, talking to bankers, whatever. I believe strongly that we are, and should be, and will be considered a preferred acquirer and I think so for a few reasons. One, we can provide the capital to affect a transaction, a generational transfer transaction for somebody much as others can, but we do, we do certainly have that capability. Secondly, one of the things we offer which I think certainly distinguishes us from an integrated model is we offer a potential seller who, think about it, a person who's devoted their life to building a franchise and a good quality franchise but is looking and feeling the need to transition it. We -- our model offers them tremendous, certainly investment independence, as well as operational autonomy and I think that's important. We've seen several of our managers that we've acquired over the years, not want to give up that independent -- investment independence and operational autonomy and we don't force them to. The third piece and I think the most distinguishing piece that we have that will weigh in and make us a meaningful a player will be our distribution platform. So we've got 500 people globally, over 500 people globally. Last year, that platform generated $57 billion in sales, being able to access that distribution pipeline that we've laid, that foundation that we've laid globally, is a huge factor and should help them to leverage their growth going forward. And then the fourth piece is that -- and I think this is also unique is that we have shown a willingness to continue to invest our capital into these franchises. Certainly, whether it be received capital, but also through potentially bolt-ins and add-ons as we did with Permal recently. Not many managers, once they -- not many firms, once they acquire a manager, continue to invest in the manager as we do. So in terms of pricing, clearly, pricing varies all the time and the multiples that are getting paid vary all the time. But when you bring a greater -- when you bring more to the table and more to the equation, presumably, you have a little bit more leverage in terms of pricing.

Operator

Our next question comes from Matt Kelley from Morgan Stanley.

Matthew Kelley - Morgan Stanley, Research Division

Joe, just to follow up on that a little bit in terms of the international affiliates. I'd love to get your thoughts on the buy versus build decision, whether you would -- what you think is important essentially for this affiliate in terms of which regions that they should be able to invest in, where they're located, if that's the most important part for you guys so there's boots on the ground or how you're thinking about that. And if it's potentially you could partner with one of your existing affiliates, such as ClearBridge, to launch such a strategy, if that's potential.

Joseph A. Sullivan

So Matt, you've actually identified one of the key things that we wrestle with, which is do we sort of put our eggs and build it organically basket and do it with one of our existing affiliates or potentially acquire another smaller non-U.S. equity manager and then work to build them organically or do we go a little bit bigger? We're not going to do a massive kind of transformational deal but do we go a little bit bigger? What we're looking for, candidly, is a platform, much in the way we have platforms in the U.S. with Brandywine and Western in fixed income, and that's a platform that we can -- we leverage globally, marketing Brandywine and Western globally. With U.S. equities, our predominant efforts, not exclusively, but predominantly we're marketing ClearBridge and Royce. We need, in the alternative space, we're going to be predominantly, at least for now, marketing Permal. What we need is a good quality non-U.S. equity manager whose brand we can elevate, who we can continue to invest in and cover kind of the gamut in terms of asset class so that would be international equities, it could be global equities, it could be emerging market goodies, could be local equities. Don't really care where they would be headquartered, could be in Europe, could be in Asia, could be in the U.S. It's more a matter of the people, the cultural fit, their investment process, their investment results and the potential for us to leverage what they have into our distribution channel. And then at the end of day, it all kind of comes down to price and the valuation there but it's more about acquiring good people with good capability on a go forward basis or if we don't think that we can do that in a timely fashion, then working to build it more organically.

Operator

Our next question comes from Craig Siegenthaler from Crédit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

How sensitive is the $1.5 billion of NOL? I'm looking here at Slide 16 and how sensitive is $1.5 billion of NOL to the level of earning? So you and your auditors are assuming a slower run rate and let's say it occurs at a fast run rate, can you harvest more NOL in different domiciles because we obviously don't know where they're all structured. I'm wondering could this level move up a lot or potentially move down a lot?

Peter Hamilton Nachtwey

Craig, that really shouldn't have a lot of volatility to the P&L unless there's tax law changes like what we're seeing with the U.K. So all of our tax benefits are based on the jurisdictions where we have NOLs today and where we also own intangible assets and goodwill that are going to be amortized going forward. So again, unless there's -- the volatility will come from 2 places. One is to the extent that we get revenues and earnings in different jurisdictions and what we're forecasting today. But we've got a pretty good handle on that so it doesn't drive a lot of variability. The key thing is really more anything you might see in terms of tax legislation that adjust rates up or down.

Operator

Our next question comes from Roger Freeman from Barclays.

Roger A. Freeman - Barclays Capital, Research Division

Just back on the strategic topic. Is your preference still to do partnering arrangements or the affiliate type arrangements? I think there had been some discussions, maybe a year plus ago that might be reconsidered as well, taking full ownership or is your requirement that existing owner managers come into the business?

Joseph A. Sullivan

Let me answer what I think you're asking. On the acquisition front, to the extent that we acquire a standalone affiliate, we would look to change our model and not acquire 100%. We would probably end up somewhere in the 75% to 80% area. We want -- we would want to leave some equity within a new franchise that we were to acquire and that's why we're working with our other existing affiliates on creating management equity plans because we just think that's a better model. As it relates to, and this is something that we are working on, so in addition to kind of working on this non-U.S. equity manager, we are working with literally, I would say, every one of our affiliates at ways to do lift outs or smaller acquisitions that can strengthen their operating franchise and again, I mentioned this earlier, is something that I think is distinguishing. My colleague, Jeff Nattans in M&A, and I were talking the other night. And he said, "Joe, very few people actually continue to invest and put their capital into their affiliates after they acquire them." And I think that's true. We're willing to do that. So we're working with virtually everyone in areas where they need to get better. If we do an acquisition as we did Fauchier with Permal, we will then acquire 100% of them and rolled them into the existing affiliate. But then as is with the case with Fauchier, they are participating in Permal's management equity plan, so they will have a piece of that.

Operator

Our next question comes from Michael Kim from Sandler O'Neill.

Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division

In terms of kind of the institutional business, I know you spent some time going through the pipeline across the various affiliates. But just more broadly, curious if you're seeing any signs of any meaningful shifts in allocation trends beyond the rebalancing that you mentioned earlier. And then maybe any insights into where sort of underlying demand trends may be going looking forward?

Joseph A. Sullivan

Michael, I think what I would say is this and I think I mentioned it earlier, what we witnessed last quarter, particularly with Western, was that 100% of their wins came in the specialized strategy. So we are seeing a continued migration, sort of away from core and sort of index strategies towards more specialized mandates. We did see it and Brandywine has experienced recently clients moving out of some of their products or considering moving out, as I mentioned, into absolute return type products. We're seeing that trend continue and I would suggest to the extent we get into a higher rate environment and increased volatility, I think we'll see that continue.

Operator

Our next question comes from Mike Carrier from Bank of America.

Michael Carrier - BofA Merrill Lynch, Research Division

Maybe, just a question on the cost or the re-engineering. You guys have been focused on cost for quite a few years now. So when you think about some of maybe the efficiencies that you can realize as you go through this process and you look at some of the opportunities that are in front of you on the reinvestment side, what stacks up is some of the more attractive opportunities, where you look at what's going on in the industry, what you haven't be able to do, maybe over the past 3 or 5 years, but you think there's some pretty decent like revenue upside potential?

Peter Hamilton Nachtwey

In terms of the cost streamlining that we've been doing, again recall that since the peak of the crisis, we've taken out over $300 million of the cost and reduced our headcount at corporate by 50% going from 2,000 to 1,000. So obviously, that gets at most of the low hanging fruit. Having said that, we've got a pretty complex footprint and we inherited a very complex footprint when we bought the Citi Asset Management business and what we're finding now is there's a lot of surgical opportunities, particularly in processes that touch lots of different departments and different geographies to streamline those and we're also looking at some outsourcing opportunities of things where the things that we do for ourselves have become more commodity based and there's vendors out there that can provide the service. But being in a highly regulated business with a global footprint, a multi affiliate, the first order of business is the whole merit code of first do no harm. So we're being very thoughtful about where we go forward from here but you'll see us do things like we did in the fourth quarter on real estate where we were able to free up real estate. So I think it's going to be incremental but meaningful, but it'll be incremental over time and then, where some of that, as Joe has said, will fall to the bottom line and then the remainder we're really looking at making investments particularly in distribution and why don't I turn that back to Joe to talk about how he thinks about that.

Joseph A. Sullivan

Thanks, Pete. Mike, the way I think about it, first of all is that, and your comment was you've been focused on costs for a long time and what I would submit to you is that we're going to be focused on costs forever. We're going to constantly challenge our organization to be increasingly efficient and increasingly effective. And so I'm constantly kind of banging on Pete to free up more resources that we can then turn in and plow into the business in growth areas. And if you think about our 4 key priorities, the first one being product, we do see that we need to continue to invest in talent and people that can help us to be more innovative, create more product and get it to market faster, and so we need to invest in that. And kind of as sidebar to that is really our solutions business. So we have an affiliate by the name of Legg Mason Global Asset Allocation, has about $9 billion under management. That's really our solutions affiliate that kind of brings together our various affiliates and helps to create "solutions for both retail and institutional investors". We need to continue to invest in that because we do see the business moving that way. So that's an area in terms of our 4 key operating priorities, freeing up resources to invest in product. In terms of performance, as we work with our affiliates and look to improve their performance if they have a gap in their capability or if they have a capability that's not performing and they need to look to do a lift out to improve a team, et cetera, et cetera. Sometimes you can do that in terms of an acquisition but other times, not. Other times, we need to work with them and see if we can support them in improving their team. And then in distribution, as Pete mentioned, we've laid the pipes, we've been investing for the last 4 or 5 years but we can do more there, not hugely, but we can continue to thoughtfully and tactically grow our distribution capabilities to gain market share.

Operator

Our next question comes from Robert Lee from KBW.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

So I guess my 2 questions I'll give you. First one is Joe, the positives get a -- just given how volatile flows have been over the last several months inflows, outflows and bond funds, any incremental color on, I know it's early in the quarter, but just kind of what you're seeing, maybe at the start of Q3, particularly in the retail channel. And then second question is the movement away from core into, I guess I'll call it, higher alpha product structure strategies, maybe now global and whatnot has been ongoing for a while and one of the things I guess I always assumed is that there was a maybe a positive fee pickup as assets kind of shifted from core to some of these other strategies. But that doesn't seem, at least, it's hard to see that it's manifested itself too much at least in the fee realization rate which is being driven mainly by equity. So is that happening at fixed income? Are you seeing kind of a positive fee shift as kind of the book of business changes or is there really kind of just ends up being an even trade at the end of the day?

Joseph A. Sullivan

So Rob, let me answer kind of the first part of your question and I'll ask Pete to kind of jump in and get into the math a little bit. But I think your opening question was on July and I don't want to go over our skis here because we've still got about 5 days left in the month but I would say that overall, I'm encouraged, particularly you asked especially about the retail business. I did mention in our remarks that we know that we've got a $1.4 billion mandate, sovereign mandate, a single mandate, that's going out at Batterymarch. But away from that, what we're seeing right now is that in the U.S., our retail business is about flat in equities but positive in fixed income, both at Brandywine and at Western. So we're encouraged by that because that seems to be bucking at least modestly bucking industry trends. On the international side, we're also positive month-to-date on the retail side which feels pretty good. The flow differentials right now for us are primarily at ClearBridge and Western, and when I say differentials, meaning the delta between last quarter, the ClearBridge equity and then the Western fixed income strategies. And then the improvement, the reduced outflow, the kind of currency related redemptions that we're seeing in Japan have continued to reduce. So we're seeing improvement there. So we see both Brandywine and Western positive for the month in fixed income and that's both in retail and institutional, and that's inclusive of the global sovereign outflow that we've talked about for a long time at Western. In terms of where we're seeing the flows going, kind of the top categories would be Western Asset short duration high income, Western's global high yield, Brandywine's global and international opportunities funds and their absolute return funds. So to your point, we are seeing a continuation of this move into more alpha-driven strategies, more absolute return type strategies. Pete, do you want to pick up maybe on the fee rate that Rob was asking about?

Peter Hamilton Nachtwey

Yes, I'm happy to. So a couple of things. I guess the challenges in terms of moving the needle on our 34 basis point advisory fee yield right now is the fact that we've got a very large book of business across the multiple asset classes, as you know. We've also got a little bit of a headwind, so just that large book by itself makes improvements, are going to be somewhat incremental. We also have a little bit of headwind with Royce, which draw the highest fees in our equity space and while their performance is improving, they're still slightly in outflows. And then the third factor is a lot of these specialized mandates come with performance fees and I think you're seeing a general upward trend in terms of performance fees for us. And that's in part because advisory fee yield on some of these things might be flat or slightly up on the newer products but then there's a bigger opportunity in terms of performance fees. And then the final thing I mentioned there, because we haven't talked about it I think in a while is just to remind everybody on the money fund waivers that we're still waiving, approximately $100 million on an annual basis of money fee, money fund fee waivers that will also have a big impact once rates start to rise.

Operator

Our next question comes from Marc Irizarry from Goldman Sachs.

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Great. Joe, can you just go back, going back to the multi asset product or the asset allocation product from Legg Mason, can you talk a little bit about how much of that business you see as institutional versus retail? And then also is securing a non-U.S. equity manager key to the vision for that product in both the retail and institutional channels?

Joseph A. Sullivan

So as it relates to LMGAA, it's currently split, I would say, about roughly 50/50 or thereabouts between sort of institutional and retail business right now but we do see -- we are seeing continued interest from institutions in our ability to kind of bring together our managers. I actually sat in and was part of a pitch for business last week, a significant pitch for business that we're hopeful for. But it's going to be a ways off until we know, but we're seeing more and more institutions looking for this. And then as we work with our partners and our distribution partners in the retail channels, they're looking for more and more sort of managed volatility solutions type business. Now certainly, having a non-U.S. equity manager or really a non-U.S. equity capability would only add to that. And so that's part of just our rounding out our overall portfolio. So again, whether we do a deal or do it organically, we do need to add that non-U.S. equity capability and that will certainly impact positively LMGAA but it will also impact our overall business. The GAA business, I can just tell you, and that LMGAA runs our 529 business and we have been consistently very highly ranked for performance there. So we've got a good capability there. I think that team punches above its weight. We need to leverage it and do more and that's where the business is going, we think.

Operator

Our next question comes from Jeff Hopson from Stifel.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Just on the fixed income. You may have given this but the mix of flows this quarter between Brandywine and then Western, and then in terms of the Western flows themselves. So it sounds like the specialty products had positive flows and core had negative. Can you put any numbers on that?

Joseph A. Sullivan

Sure, Jeff. As it relates specifically to fixed income for the last quarter, largely, we had an improvement in net flows of about $1 billion and largely, that was attributable, the delta was attributable to improvement at Western. So when I say that I want to make it clear, Brandywine had its second best quarter in net flows since December of '07. So they continue to do terrific. But Western, if you take out that specialized mandate -- excuse me, if you take out that global sovereign outflow that we've been talking about forever, if you take that out, they were actually breakeven for the quarter. So we think both firms had a good quarter.

J. Jeffrey Hopson - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then on ClearBridge, other than the closed-end fund costs, can you break down, I guess, retail versus institutional flows there?

Joseph A. Sullivan

I don't know that I have the breakdown between the institutional and retail. What I will tell you is that ClearBridge is continuing and this is one of the things you're kind of hitting on, Jeff. ClearBridge continues to diversify their business and that's really an incredible story. I was talking the other day to Hersh Cowen, who's been there for a long time since it's been ClearBridge and its predecessor firms and Hersh made the comment to me, he said, "I could have never envisioned where we are with ClearBridge today." In terms of their diversification, they've moved from being just a domestic manager to now accessing the international markets through our global distribution platform. Terrence Murphy, I give him a lot of credit for working to diversify this book of business. They've now become increasingly institutional. Now that's an early stage for them but they are getting wins institutionally. Their business is still -- the preponderance of their business is still retail but they are getting business institutionally. But then within the retail channel, the other thing that was so impressive was to see how they've diversified across all of the major wirehouse firms as well as the independent channel. Again if you recall, when we acquired them in '05, they were pretty much of a firm that was dependent on a single wirehouse firm for almost all of their business. Today, they've diversified substantially within the retail channel, begun to do more internationally as I mentioned and then beginning to do more institutionally.

Peter Hamilton Nachtwey

And Jeff, I'd just add to that. The pipeline of RFPs, and to a certain extent, unfunded wins, has been building very strongly for them. It just takes a while, as you know, to get into that institutional channel, not only to get recognized by the consultants but to start getting into the RFP processes. And then rough breakdown, had $1.1 billion in the MLP which will go up, we think by another $100 million with the exercise of the green shoe, and then some additional leverage that we'll put on it this quarter. So that's going to have a salutary effect to Q2 as well. And then the remaining portion of their flows were split probably 80%, 80% to 90% were retail, roughly $200 million to $300 million that was institutional.

Operator

Our next question comes from Greggory Warren from MorningStar.

Greggory Warren - Morningstar Inc., Research Division

I just had a quick question on profitability. How should we be thinking about it longer term? I mean if we go back to sort of pre-financial crisis, you guys were running about $1 trillion in assets. Margins were in sort of that mid-20-ish range. Arguably, over the last 5 years it's been about rightsizing the organization, getting it down to where it's managing more in the $600 billion to $700 billion range. But we're still not back where we were on a profitability level and you're telling us now that basically, all the low hanging fruit is gone. What are your thinking 5 years out where margins might actually be?

Peter Hamilton Nachtwey

Good question, Gregory. And say, if you go back to actually the peak precrisis, we were probably -- we were definitely at margin that was north of 30%. But the mix of business has changed and so a number of the equity affiliates that we have back then aren't at anywhere near the same level of AUM, unfortunately. However, what we have done on the cost structure is to get it into a very leverageable model, where as revenues increased from here as AUMs go up from here, we think we can that margin up fairly quickly. It's a bit difficult to predict exactly when it will happen but virtually all of our corporate spend is very leverageable, just pure corporate admin, and in LMGD, or our global distribution business, as I've said before, probably 75% of their cost are relatively fixed in nature and only 25% that vary with the level of sales and net flows. So we think we have a very leverageable model from here that can benefit both from organic growth, as Joe has talked about, but even more so with acquisitive growth, there's a lot that we can add to the platform, very big pipes in distribution that can handle a lot more products. So we're cautiously optimistic on the ability to move that margin in a way that's meaningful.

Joseph A. Sullivan

Greg, I would just add, I think, we've done a lot of work on the cost side. I think we've done a lot of benchmarking to feel comfortable that our spend is in the zone. We can maybe optimize it a little more and that's what we're doing now. But as Pete talks about, we do have the opportunity for operating leverage, particularly through distribution but broadly we can improve our margins and 22% is not acceptable, and I want to be clear about that. We can do better and we will but it's going to be tied to growth and not only growth in absolute flows but the mix of those flows, which is again why we want to move into higher-margin products like additional alternatives and non U.S. equities, but as we grow and as we change that mix of business and as we increase the retail component of that business, and as we increase the international component, all of those things can have a positive impact on our margin and we expect to do that.

Operator

We have time for one more question. Our question comes from David Chiaverini from BMO Capital.

David J. Chiaverini - BMO Capital Markets U.S.

Curious about what percent of fixed income AUM is floating rate versus fixed rate? And also could you comment on any duration variance versus benchmarks?

Joseph A. Sullivan

David, good question. We have a modest -- to be candid with you, I don't know exactly the amount of Western's book or Brandywine's book that is floating, right. We can kind of try to get that for you. I think what I would tell you is that I know both Brandywine and Western have tended to manage to the short end of duration versus benchmark over the last several quarters. And candidly, that's impacted a little bit their performance. They weren't as strong as they could have been have they been further out but I think that is part of why they performed better in this downdraft. They had managed through, particularly Western I know, had managed their duration towards the short end. I will tell you that while we do think and I think Western believes this, while we do think the rates are going to gradually move up over time, and if they were to move up sharply quickly, I think we'd probably move out on the duration. I think Western would probably move out. They would consider, or at least consider it, because, again, we think longer term there will be a rate rise but it will take time, it will be gradual. And so if there are spikes, I think Western and maybe Brandywine would take advantage of that.

Peter Hamilton Nachtwey

Yes and I think in terms of go forward, that's a good question in terms of being able to break out those numbers for you but as you've seen, Western actually launched a bank debt product last quarter. They've already got some things in their portfolio that where the rates do move up with the general rise in rates. But the other things they've been doing to manage the risk around a rising rate environment is they've got some significant exposure to high yield, a lot of products that are multicurrency and outside the U.S. and not a subject to U.S. rates, and then also some inflation-protected products. So again, this isn't something these guys just woke up yesterday and said we can have a rate rise. This is something that they've been planning about for years. But we'll take the point in terms of breaking out some of that floating rate product for future calls.

Operator

Thank you. That concludes our question-and-answer session. I would now like to the turn the floor back to Mr. Sullivan for closing comments.

Joseph A. Sullivan

Terrific. Thank you, operator. First of all, I'd like to close by thanking everyone on the call once again for your interest in Legg Mason. I want you to know that we are very, very cognizant of our roles as stewards of the capital entrusted to us by both our clients and our shareholders. And our daily passion is to deliver to both in a very compelling way. We believe deeply that our model, the combination of some of the world's top investors and a multi-affiliate structure, leveraged through our global distribution platform, when well coordinated and well executed, is unique and provides meaningful benefits first to our clients as well as our shareholders.

I want to pick up on this morning's daily Bloomberg quote and I always -- my folks around here know I love quotes, this morning's daily Bloomberg quote by an American lawyer, Louis D. Brandeis. And he said, "We know that there are no shortcuts in evolution." So I remain grateful for all of the hard work by our board, by our affiliates and by my colleagues here at Legg Mason as we move Legg Mason forward together. So thank you, and have a good day.

Operator

Thank you. This concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time.

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