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Legg Mason (NYSE:LM)

Q4 2011 Earnings Call

May 03, 2011 8:30 am ET

Executives

Peter Nachtwey - Chief Financial Officer

Mark Fetting - Chairman, Chief Executive Officer and President

Alan Magleby - Director of Investor Relations & Communications

Analysts

Craig Siegenthaler - Crédit Suisse AG

Michael Kim - Sandler O'Neill & Partners

William Katz - Citigroup Inc

Michael Carrier - Deutsche Bank AG

Alexander Blostein - Goldman Sachs

Glenn Schorr - Nomura Securities Co. Ltd.

Daniel Fannon - Jefferies & Company, Inc.

Roger Smith - Macquarie Research

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Cynthia Mayer - BofA Merrill Lynch

Roger Freeman - Barclays Capital

Operator

Greetings, and welcome to the Legg Mason Fourth Quarter Year End Financial Results Conference Call. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Alan Magleby, Director of Investor Relations for Legg Mason. Thank you, sir. You may begin.

Alan 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 2011 fourth quarter and fiscal year ended March 31, 2011.

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 in management's discussion and analysis of financial conditions and results of operations in the company's annual report on Form 10-K for the fiscal year ended March 31, 2010, and in the company's quarterly reports on Form 10-Q.

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

Mark Fetting

Thank you, Alan, and welcome to all. Today, we will walk you through Legg Mason's results for our full year and the current quarter.

Year-over-year, Legg Mason achieved real progress on our key fundamentals. We are sharing this progress with our shareholders through the capital management actions of a dividend increase and an acceleration of our previously announced stock buyback.

We enter fiscal '12 with confidence that we will conclude our streamlining and deliver our projected savings to our shareholders in the March '12 quarter, though not in a straight line.

During the March quarter, there was a number of shocks to the global economy, ranging from the popular uprisings in the Middle East to the earthquake and tsunami in Japan. These events had immediate impact on the global economy, both psychologically and fundamentally, including significantly higher oil and gas prices, which are slowing down the U.S. growth story.

The U.S. stock market has risen to its highest levels since '08 on improved earnings in the corporate sector even with these headwinds. As the Fed ends its QE2 program in the U.S. in June, it will be important for the private sector to begin investing and hiring in earnest for the economic recovery to be self assuring.

In Europe, the ECB [European Central Bank] raised interest rates, sending a clear signal to European governments that they need to do more to resolve their region's sovereign debt problems. Our managers are carefully monitoring how the peripheral economies in the eurozone will navigate this challenge in a rising interest rate environment.

We continue to believe that China is likely to engineer a soft landing, as it continues to take steps to reduce its reliance on external markets for its goods and services. With all these factors in mind, Permal sees opportunities for tactical investments in each of these markets. While we believe that the global economic recovery should pick up in '11, it should remain gradual. Inflation should remain relatively benign over the near-term, though there are risks as the Fed begins unwinding its balance sheet.

Our team at Western Asset, while still overweight credit sectors, did bring down risk in these portfolios during the quarter, based upon the much higher valuation of risk assets today.

Our U.S. equity managers continue to see the best valuations and opportunities in high-quality companies that are flush with cash. The Fed has overtly endorsed the idea of a rising stock market as key to the economic recovery. Also critical is lower unemployment, which should begin to stabilize the housing market, which in turn, is critical to a complete turnaround.

Let us begin our deck review by reviewing the highlights for the fiscal year on Slide 2. Legg Mason increased our GAAP net income 24% to $254 million or $1.63 per diluted share over the prior year, and adjusted income grew 15% to $439 million or $2.83 a share.

Over the course of the year, we launched a number of initiatives that we believe will create value for Legg Mason clients and our shareholders. We streamlined our business model and solidified our strategic objectives. We realigned our management team. We raised $4.1 billion in new product launches, in collaboration with our investment affiliates, that, coupled with improved investment performance, helped to drive a reduction of 43% in our long-term net outflows. We continued to execute on our capital management strategy, outlined at the beginning of last year.

During the year, we repurchased approximately 9% of our outstanding shares, and because of our strong cash generation, we also maintain a strong balance sheet and available cash position.

Let's go to Slide 3, and you'll see our Assets Under Management by asset class. As you can see, equity assets are at $190 billion, fixed income at $3.57 billion and liquidity assets are at $131 billion. Importantly, equity assets increased 28% of our total AUM, up from 26% in the year-ago quarter, while the fixed income percentage remained at 53%.

Slide 4 breaks out our Assets Under Management along several dimensions. As we highlighted in our strategic priorities, one of our goals is to improve our balance sheet across products and asset classes, geographies and channels. Assets by client domicile breaks out at 65% in the U.S. and 35% internationally. Over time, we'd like to see that evolve into a 50-50 split. In terms of total revenue, 43% is derived from equity, 34% from fixed income, 15% from alternatives and 8% from liquidity.

Slide 5 shows our net flows by asset class for the quarter. Fixed income outflows were $6.7 billion, the lowest level since December of '07. Compared to the December '10 quarter, fixed-income outflows have declined 48%. Equity outflows were $1.3 billion, which is the second best quarter of equity flows since June of '06. And liquidity outflows were approximately $700 million for the quarter.

Now some of you correctly surmised, we did have overall positive flows for the month of March. While there is still work to do to make that a long-term trend, we are gratified by this achievement.

Separately, as we've discussed in the past, Morgan Stanley Smith Barney is converting sweep assets that we had managed for them to a proprietary platform. That is largely occurring in this June quarter, and we have seen over $16 billion transferred in April related to that shift.

There is approximately $7 billion in a secondary sweep that we expect to transfer over the next 15 months. You will recall that the financial impact of the $16 billion is modest, it's about $3 million pretax annualized as we've been waiving a large part of our advisory fees in this low interest rate environment. We continue to work with Morgan Stanley Smith Barney as a key distribution partner across many fronts.

We go to Slide 6, we'll break out our assets by affiliate. First is Western [Western Asset Management] at $455 billion. We'll discuss Western in more detail in the next slide, but at a high level, we are pleased that long-term outflows have declined 60% from the previous quarter and were positive for March.

Permal is at nearly $21 billion, driven by 4 straight quarters of positive flows. They are seeing significant payoff for repositioning the business toward the institutional market in '09. Institutional has grown to 40% of Permal's business mix and accounted for all of the net inflows for the year, evenly split between sovereign wealth funds and U.S. institutions. Asia, particularly China, and the U.S. are high potential markets for them going forward.

Permal has unfunded wins of over $550 million, reflecting future institutional flows. At the same time, in the June quarter, a restructuring related to a single manager fund will result in a drop of AUM of approximately of $500 million. However, fees will be unaffected for 3 years.

Royce is at $44 billion, also driven by continued positive flows, strong performance and market appreciation. They saw particularly strong flows in the special equity and global value, and launched 4 new funds during the quarter which saw some early sales.

ClearBridge is at nearly $58 billion, driven by market appreciation offset by modest outflows. They continue to make progress in diversifying their business. A public fund client added a $600 million all cap value mandate in the quarter, and they continued to see allocations into their strategies across independent advisers and sub-advisory clients.

Retail clients are slowly coming back into the market. ClearBridge is seeing some modest benefit from renewed retail interest, particularly at firms where they have new relationships. In April, we filed a registration with the SEC to launch a new energy MLP [master limited partnership] closed-end fund managed by ClearBridge.

Batterymarch is at nearly $24 billion. Positive flows were primarily directed toward their emerging markets product, although some clients took the opportunity to take money from the asset class to rebalance over all allocations.

Legg Mason Capital Management is at just over $15 billion. Here, performance continues to be challenged for longer and shorter time periods, but in the past 2 years of the recovery, all 6 funds managed by Capital Management ranked in the top quartile of their Morningstar peer groups. Their newest domestic refund, the Disciplined Equity Research Fund, has performed well since its inception in July '10. This is a stock picking fund designed to have lower tracking error.

Brandywine is at approximately $32 billion. Assets were driven by market appreciation, offset by outflows, primarily in a performance-fee-only mandate. Elsewhere, Brandywine saw inflows of $600 million by an existing client in Asia and $150 million in a new global fixed-income mandate from a public fund. Legg Mason and Brandywine launched an absolute return fund during the quarter, and expect to roll out a usage version in our cross-border range.

Let's turn to Western in Slide 7. While this continues to be a multi-quarter turnaround effort, the current period showed progress in net flows. Subscriptions reflecting flows from new accounts were the highest they have been in 6 quarters, while net long-term outflows are the lowest they have been since the December of '08 quarter.

From a performance standpoint, more than 75% of marketed composites managed by Western are beating their benchmarks over the 1-, 3-, 5- and 10-year period. Long-term outflows were down 60% from the previous quarter. The low yielding sovereign mandate we have mentioned in prior quarters, accounted for $3.6 billion in outflows in the quarter. In the month of March, long-term flows were positive, despite over $1.2 billion in outflows from that same mandate.

Western is increasingly seeing wins in international products, sector-specific and specialized mandates, which is increasingly offsetting money coming out of broad market mandates, consistent with trends by larger corporate and public pension funds.

In international mandates, Western is over $3 billion in inflows in the quarter across Asia, where local currency, Australia, Brazil and emerging market products are particularly in demand.

From a pipeline and RFP [Request for Proposal] perspective, there is approximately $4.4 billion in unfunded wins, with over 90% of those falling in the specialized product category. Domestic finals presentations are up, after a low during the financial crisis, and that trend continues to improve. This is the second best quarter in terms of numbers of finals since June of '09.

Performance remained relatively strong over the 3-, 5- and 10-year periods. Performance over the 1-year period was down, driven by some of the tax-exempt funds.

If you go to Slide 9, you'll see a sampling of awards given to our affiliates over the past year. Funds managed by our affiliates drove a strong showing in this year's Barron's mutual fund ranking, particularly the taxable bond funds managed by Western. And our affiliates were recognized by a number of organizations across asset classes.

Slide 10 shows trends in America's distribution. Overall, net outflows improved from the previous quarter, though the retail unit continues to manage through headwinds in the tax-exempt fund space. Flows in our institutional unit were modestly positive for the quarter, driven by a number of takeover wins across affiliates. And we continue to diversify across channels, with the independent advisor channel now representing 15% of total sales, and those sales were up 33% for the year.

Slide 11 shows the progress of our International Distribution group, which saw its ninth straight quarter of positive inflows. Net flows increased 11% since the December quarter. Fiscal year flows increased 140% over the prior year, driven by flows into Brazil, Australian bond funds and flows into specialty bond and equity cross-border funds. Four out of 6 of the regions in which we operate had net inflows for the year. And there is good diversity across product categories.

Now I'm going to turn to Pete Nachtwey, who's been a delight to join our team as our CFO. Ball to you, Pete.

Peter Nachtwey

Thanks, Mark. As Mark noted earlier, fiscal year 2011 was a year of progress and focus. We streamlined the business model with the aim of reducing expenses, while increasing our operating margins and, more importantly, our net income. We have seen marked improvement in our financials and look to further strengthen bottom line results in fiscal 2012, more precisely, in fiscal Q4 when the streamlining is complete.

I want to emphasize that next year's results will be somewhat fluid, with significant transition costs hitting some periods with corresponding savings starting in others.

Now let's turn to Page 12 in the deck to review the financial highlights for the year and the quarter. Our results over last year are up significantly, as we reported net income of $254 million or $1.63 per diluted share compared to $204 million or $1.32 in fiscal year of 2010, up 24%.

Average AUM for 2011 was $669 billion, down 1% from fiscal year 2010, as lower outflows were mostly offset by improved market performance. Operating revenues of $2.8 billion increased $149 million or 6%, driven by a more favorable AUM mix and higher performance fees. As I mentioned last quarter, the mix of assets is shifting towards higher-yielding equity, and in the case of fixed-income assets, we are also seeing a positive shift from outflows in lower-margin products to inflows in the higher-margin, more specialized products.

Specifically, equity as a percentage of AUM increased to 28% of our total assets, up from 26% at the beginning of the year. Operating expenses of $2.4 billion increased $84 million or 4% and included $54 million of transition-related costs.

Operating income of $387 million increased 20% or $66 million. Adjusted income was $439 million or $2.83 per diluted share, and increased 15% from $381 million or $2.45 in fiscal 2010.

Operating margin as adjusted was 23.2% compared to 20.7% in fiscal year 2010, and our effective tax rate declined to 33%, down from 36%, reflecting the impact of a U.K. tax rate reduction on certain deferred tax liabilities, which we highlighted in the September quarter.

Page 13, I'll skip over that. We've already talked about most of the financial highlights. Go right to Slide 14. Fourth quarter 2011 net income of $69 million resulted in $0.45 in earnings per diluted share and included $16 million in transition costs that reduced our diluted earnings per share by $0.07.

Operating revenues were down 1%, principally due to lower performance fees. You will recall that last quarter's results included $35 million in performance fees versus $20 million in the 3/31 quarter. Excluding that decline, operating revenues were actually slightly higher despite two less days in the quarter, largely as a result of the continuing mix shift, which drove another full basis point increase in our advisory fee yield, which I'll discuss on Slide 16.

Operating expenses were 2% lower as last quarter's results included $10 million in closed-end fund launch costs and $24 million in streamlining costs, while this quarter we adjust $16 million in streamlining costs. I'll go into more detail on the expenses in a bit. The adjusted income for the quarter was $118 million or $0.77 per diluted share, the highest level of adjusted income since September of 2008.

As you can see on Slide 15, our effective tax rate for the quarter was 31%, down from our prior guidance of 35% to 36% due to year-end adjustments, taking our year-to-date tax rate to 33%. Our effective tax rate remains at approximately 35% to 36%, although we do expect our fiscal year 2012 rate to be favorably impacted by another U.K. tax rate reduction.

Turning to Slide 16. This is a slide we rolled out at several investor conferences during the quarter, and I think it's an important one for shareholders. Our advisory fee for the quarter, at 36 basis points, was the highest it has been since the September 2008 quarter, and up from 35 bps in the prior quarter. This is attributable to the mix of assets which is trending towards higher-yielding assets in both equity and fixed-income spaces. What's particularly important from this slide is the percentage of our equity AUM, increasing from 20% in early '09 to 28% this quarter, a 40% increase over that period.

Flipping to Slide 17. Operating expenses for the quarter decreased by $11 million or 2%. The decline over last quarter resulted from the third quarter having closed-end fund launch costs of $10 million, primarily in distribution and servicing, along with $4.3 million of occupancy costs related to our streamlining initiative. Those positive impacts were partially offset by this quarter's increasing communications and technology, which are driven by system conversion costs related to our streamlining initiatives.

The GAAP comp and benefits highlighted on Slide 18 were basically flat quarter-over-quarter, but excluding transition-related costs and the mark-to-market on deferred comp and seed investments, our comp and benefit to net revenue ratio came in at 53%, in line with our targeted level. The quarterly comp and benefit costs included seasonally higher payroll taxes and other benefits.

Turning to Slide 19. The slight decline in fourth quarter operating margin, as adjusted, reflects lower performance fees and increased payroll taxes and incentive accruals. The improvement year-over-year was driven by both the change in AUM mix and a reduction in non-comp expenses.

Speaking of streamlining and flipping to Slide 20, we're now a little over halfway through our streamlining initiative, with 10 months completed and about 8 months left to go. To date, we have achieved $32 million in annualized savings, while incurring $54 million in transition-related costs. We are estimating that we will incur approximately $75 million in transition-related costs in fiscal 2012, with $15 million of that in fiscal Q1. So we remain on target to achieve the $130 million to $150 million in run rate savings by the fourth quarter of this fiscal year.

As you can see on Slide 21, the impact on our GAAP financial results in fiscal 2011 of the streamlining was a negative $42 million. This reflects $54 million in transition costs I mentioned earlier, net of savings that we achieved from actions taken in this year.

In fiscal 2012, we expect a positive net GAAP impact of approximately $20 million. This $20 million benefit includes the impact of additional transition-related costs, which will be more than offset by the expense savings in fiscal 2012. And again, ultimately, we expect to achieve our $130 million to $150 million in run rate savings by fiscal Q4 2012.

Slide 22 depicts share repurchase activity through our fiscal year end. As you can see, we repurchased 14.6 million or 9% of our shares outstanding as of March 31, 2010. $555 million remains of the original repurchase authorization of $1 billion. As I will discuss in more detail below, we expect to accelerate our share repurchases over the upcoming fiscal year by repurchasing up to $400 million in stock during fiscal 2012, subject to market and company performance, actual cash flows and other capital needs.

In terms of other share activity, accounting rules effective last year now require us to include in our share calculations, unvested shares of restricted stock if holders have dividend rights. Previously, only vested shares were includable in basic weighted average shares. And unvested shares were includable in diluted only to the extent impacting our treasury stock method calculation.

While this accounting rule was effective last year, the impact was immaterial to Legg Mason in fiscal 2010. However, in fiscal '11, we had a significant increase in restricted stock awards, approximately 2 million shares, primarily from new deferred comp arrangements along with special retention awards associated with our business streamlining initiatives. Therefore, we are now including those restricted shares fully in our weighted average shares beginning in Q4 2011.

So you need to think of this as simply a timing issue, as the shares would've been included as they vest. Now, we are required to fully include them upfront as they are awarded.

We will continue to utilize restricted stock with dividend rights, so our weighted average shares will continue to be impacted when the awards are granted. We anticipate approximately 1.1 million shares to be issued in our fiscal -- first fiscal quarter of 2012. In addition, the mandatory convertible debt that we issued several years back is converting on June 30. This will reduce our debt by approximately $100 million, but increase our diluted share count by 1.8 million shares.

So, as I mentioned earlier, we are looking to accelerate our share repurchases in fiscal '12. And Page 23 shows how we've determined that this is a good use of cash by looking at our enterprise value to EBITDA ratio. As illustrated here, we calculate our fiscal year end enterprise value at $4.5 billion, using the March 31 closing price as the starting point and adjusting for the items noted in the bridge on this slide.

Excluding the transition expenses in the March quarter, we estimate our annualized fourth quarter EBITDA to be $612 million, which equates to an enterprise value to EBITDA multiple of 7.3x. In comparison, the peer group generally trades at a multiple of 9x or 10x. Additionally, if you consider the savings from our streamlining efforts underway, I believe Legg Mason's valuation is one of, if not the most, compelling values in the industry. And for that reason, we intend to accelerate our share repurchases in fiscal 2012.

Looking forward to next year and flipping to Slide 24, we are encouraged by long-term flow improvement, given improved performance in current markets. Our global distribution teams continue to build momentum, adding to our growth expectations. We will continue our product innovation. We have planned additional closed-end fund launches across 3 affiliates, and we believe it is likely that we'll also launch an energy master limited partnership fund this quarter.

Longer-term initiatives include a close-end fund focused on emerging markets and currency investments, and a fund that would be the first to have a listed structure to invest in hedge funds, which we're working on with the relevant regulators at the moment.

Our streamlining is on track to deliver the annual savings of $130 million to $150 million by fourth quarter fiscal year '12. At the same time, improvement in our results will not be a straight linear function, as Mark mentioned, over the course of the fiscal year. This will be driven by a number of factors as follows: As many of you will recall, in prior years, we set up a program for Western to reimburse Legg Mason for a portion of the losses we absorbed on their behalf during the financial crisis. This program reduced Western's cash compensation for a period of years, partially offset by deferred comp awards to serve as a retention tool to protect against talent flight.

In fiscal 2012, we will reach a turning point, whereby the reduction in Western's cash bonus pool begins to decline, while the vesting of prior awards ramps up. The impact will be an approximate $74 million increase in compensation expense during the year, of which $23 million relates to non-cash vesting charges.

Then in the second fiscal quarter, we will realize the largest improvement in savings, with 235 positions being eliminated, taking our head count down 25% from current levels at the corporate level, and an additional 100 positions as of January 1, resulting in a full 36% decrease by January 1 of 2012.

In the third fiscal quarter, we will incur the largest amount of quarterly streamlining costs. And finally, by the fourth quarter of the upcoming fiscal year, we will achieve all cost savings with no additional streamlining costs.

So although it's not our practice to provide guidance as to expected future results, given the number of moving parts in 2012, we thought it would be helpful to give you an idea of what our expectations are for Q4, which is the first quarter fully reflecting the benefits of our streamlining initiative.

So I'm pleased to let you know, that we project fiscal Q4 earnings per share will be in the current range of analyst estimates. So I'll repeat that, we project fiscal Q4 earnings per share to be within the current range of analyst estimates.

Moving on to the balance sheet, we have a strong cash position heading into the fiscal year. Also, I'd like to highlight that we've just updated a thoughtful review of our working capital, and we have determined that $350 million is the appropriate level of cash needed to meet our operating needs.

So let me outline broadly how we intend to utilize that cash in 3 key areas. First, we announced the 30% increase in our dividend, that's payable on July 11. Our dividend is now double the level of a year ago. Secondly, we will invest in our affiliates for growth. And last but not least, we will accelerate share repurchases during the fiscal year.

So now, let me turn it back to Mark for closing comments, and we look forward to answering your questions in the Q&A portion of the call. Mark?

Mark Fetting

Thank you, Pete. As we've outlined in previous quarters, looking on Slide 25, our strategy is focused on 3 components. First and foremost, outstanding independent investment managers. Each of our managers strives to deliver excellence to their clients and create superb franchise businesses of their own.

Secondly, a corporate center that delivers strategic value. We continue to sharpen our focus on those activities where the parent can add value. This includes distribution, capital allocation, selected services and governance. As part of this priority, we will be disciplined on tracking our corporate revenues, which come principally from affiliate revenue share and joint products, versus our corporate costs. The key will be to make sure all are generating good value for our clients and shareholders.

And thirdly, diversity and balance. As we expand our business, we seek strategic balance across products and asset classes, geographies and channels.

Go to Slide 26. If you look back on fiscal on fiscal '11, earnings were improved, net income up 24%. We initiated the streamlining. We have a strong balance sheet with $1.4 billion in cash and approximately $1 billion in available cash.

We improved our performance flows and asset mix, realigned the management team and our distribution teams continued their partnership with our affiliates on product innovation. We launched 3 closed-end funds, leading the industry in terms of assets raised. And we bought back 14.6 million or 9% of shares outstanding, and the board authorized, as Pete said, a dividend increase of 1/3 to $0.08 on a quarterly rate.

If you look forward to fiscal '12 key themes: Support our affiliates in client performance and franchise expansion; complete our streamlining, on time, on task and on budget in the March '12 quarter; focus on quality business, revenues and bottom line earnings are priorities over just AUM; exploit growth opportunities for our outstanding managers and accelerate their growth through LM distribution; and seek targeted bolt-ons and/or acquisitions where appropriate, while deploying capital smartly to our shareholders.

And now we'll take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Daniel Fannon of Jefferies & Co.

Daniel Fannon - Jefferies & Company, Inc.

So first, if, Pete, you could give us a little bit more color on what you talked about in the first quarter with the Western reimbursement step down. I missed some of those numbers. But if you could maybe be a little more granular and talk about what that -- if that's a full year impact and kind of just a little bit more of the mechanics behind the math.

Mark Fetting

Dan, before Pete gives you that specific question, I thought I'd kind of give some perspective on that, because it's clearly an important item for everybody to understand. As many of you know, we've had -- really, this is the fifth year where we've had some reimbursement activity from Western, from the investments we made during the crisis. And this is a program which we confirm annually, which we did with Western in the last couple of weeks. We really believe this is the year to support Western in growing going forward, and lowering the reimbursement of this legacy issue of the past is the right thing to do, albeit something that is impacting the quarterly numbers. Pete, you want to give the specifics?

Peter Nachtwey

Yes, sure, Dan. Good question. And the $74 million is an annual number, and it pretty much will be incurred ratably over the course of the year. So it's a combination of a step down in the reductions of their cash bonus pools that we've had in prior years, and then a ramp up -- again, we awarded equity to make sure that we retained key people as we were reducing the cash comp in prior years, and the vesting on that equity now ramps up a bit. So, again, both of those items would be pretty much ratable over the quarters for 2012. Does that make sense?

Daniel Fannon - Jefferies & Company, Inc.

Yes, I guess so. In thinking about the broader context of you said on a quarterly basis, you're projecting that you can hit the fourth quarter number of what's generally out there, but -- and that includes this incremental $74 million that we didn't really know about. But you're assuming -- so the first 3 quarters, you're going to have a negative impact by that, offset by basically a full run rate hitting in the fourth quarter. I'm just trying to get a sense of, you obviously looked at everyone else's numbers for the remainder of the year. And this guidance assumes some step down here for the first 3 quarters, is that...

Peter Nachtwey

So the step down, the Western impact is through all 4 quarters. But then our cost savings really start kicking in, as I said, when we have the 235 positions that will effectively be eliminated at the beginning of the second quarter, and then another further 100 positions eliminated at the end of the third quarter. So the $74 million, you effectively just divide by 4 and that's the impact in each quarter. And then again, we'll have kind of some lumpy cost savings coming in as headcount goes out the door. But by the end -- by fourth quarter 2011, we expect to be right kind of in the range of where all the analysts are right now.

Daniel Fannon - Jefferies & Company, Inc.

Okay, and then, I guess, a question in terms of the flows. For April, maybe, Mark, if you can give me a little color on that? And then you gave some unfunded wins for Western. I think that number was close to that last quarter. And I guess, is that kind of a transition of things that came in, in the March quarter and, in addition to that, backlog into the April period, or kind of give us a little color on how that's moved?

Mark Fetting

Well, you can see in the mutual fund data, kind of April, Western's retail funds, specifically the Western Core Plus and Core Fund, is performing very well and kind of flows are coming in very well. In fact, if you look at their current numbers -- and you can get this data. They're kind of running at 18% to almost 30% kind of organic growth rates in terms of current monthly flow rate. On the other hand, the institutional side, things are coming in a bit slower, and so that pipeline is, as you said, kind of similar to prior quarter. It reflects definitely some new wins, but there's also some carryover, as is always the case.

Operator

Our next question comes from Bill Katz of Citigroup

William Katz - Citigroup Inc

What's the -- what's your new margin target, if you have one, in light of the pro forma WAMCO [Western Asset Management Co.] discussion today?

Mark Fetting

Yes, Bill. Clearly the margin, over time, is going to be a bit less because of this. Our real focus is on kind of the absolute earnings and delivering that $130 million to $150 million fully in the March '12 quarter. And I think if you kind of work through the guidance, while the margin would mathematically be a bit lower, we're kind of affirming the earnings growth. And we think that's key going forward in terms of delivering those earnings.

Peter Nachtwey

Right. The other thing that impacts the margin is the nature of our revenue share agreements with our affiliates. So you can actually have some pretty big ramp ups in revenue in some of the affiliates, but if the rev share is lower, we actually -- the margin improvement isn't as great as what you'd expect. So that's -- as Mark said, we're much more focused in terms of bottom line earnings at this point.

William Katz - Citigroup Inc

So is the delta here -- before I ask my second question here, just to clarify. So the delta here is really, is it the share count? I'm just trying to figure out where the leverage is going to come from to offset the $0.30 hit you're taking here.

Mark Fetting

Well, clearly, you've got the $130 million to $150 million. You've got some assumptions around kind of growing the business, modest market assumptions, et cetera. And then you've got offset against that would be the guidance we're giving on this Western step down. And then in addition to that, actually kind of the -- whatever we do in buyback would be a plus per the assumptions that we've made. So that's still something that probably could improve things a bit.

William Katz - Citigroup Inc

I'm sorry, I still don't understand. I don't mean to be so dense here. If you're not changing your cost savings and you're not changing -- and you have sort of this new charge of $74 million through the year ratably, is it just that your initial cost saving assumptions were conservative? Because you're not saying the share count -- that's a delta to the discussion.

Peter Nachtwey

Well, for us, this actually hasn't been a new item. This has been known for quite some time and it's been in our kind of annual budgets. We just don't talk about individual quarters until we get into the new year. And then as Mark said, right now what's kind of reflected in our assumptions is a $200 million buyback. And we're actually looking at increasing that to $400 million over the course of the year. So that extra $200 million isn't really factored into my comments about where we fit in the analyst range right now.

William Katz - Citigroup Inc

Okay, maybe we can follow-up offline, I don't want take up more time. The other question I have is, just in light of what is sort of observed in discussion, relatively low year-on-year earnings growth now. Was there any contemplation of having more of an earn-out arrangement with WAMCO so that, as the earnings would build, there would be more of a ratable rad than sort of a fixed impact here that could protect the margins and the operating levels a little bit more deeply?

Mark Fetting

Well, as I said, in my kind of first response to Dan, Bill, the idea is that we kind of put this program together, look at it annually, and we really see Western turning the corner. And I think everyone can see it, and we're very encouraged in terms of the performance and the opportunity to grow the business. Hence, this is the time to kind of take this step down now. It's not good timing in terms of getting this out, but we thought it was appropriate. And in doing it this way, the upside that they -- both they can enjoy in terms of kind building their business and attracting and retaining talent, and the benefits we can get are free and clear on a relative basis going forward.

Operator

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

Michael Kim - Sandler O'Neill & Partners

First, would it be possible to maybe quantify some of the other items besides the step up in comp at Western in terms of headcount reductions and the related cost savings as they hit through the quarters? So that we can get some comfort around hitting that fourth quarter number that you guys talked about?

Peter Nachtwey

Yes, Michael, good question. And again, some of this, we've got absolute clarity on timing when it's going to hit. There's still some things that are fairly fluid. But as we talked about, we're going to have a transition costs -- the net impact, first of all, for the year, we anticipate being a $20 million positive. So the implication there being, we'll get $95 million of our savings actually embedded in the year. And net that against $75 million in transaction costs, kind of gets you down to the $20 million impact that we've disclosed in the deck.

Michael Kim - Sandler O'Neill & Partners

Okay. And then just as it relates to kind of the positive flows in March overall, and at Western more specifically, just curious if there were any kind of lumpy fundings during the month? And then just stepping back, how sustainable do you think that is as we move forward?

Mark Fetting

Well, we think the directional progress is quite clear and sustainable. Kind of month-in and month-out, it's going to continue to have some ups and downs. In the month of March, I can't say that there was anything kind of exogenous. We had a reduction in the outflows in the muni [municipal] side. And by the way, that continues. You can see that in the April mutual fund data. We had continued inflow in really all of Western's taxable retail funds in aggregate, both kind of in the U.S., principally Core, Core Plus, and then internationally, where we're getting a lot of flows off of those Asian funds. And then in the institutional side, as we said, 90% of their wins were in these specialized mandates, and that was across-the-board. And that has really helped those specialized wins offset still some kind of legacy outflows tied to the global sovereign and some embedded shifting going on by institutional clients from kind of broad market into kind of specialized or, in some cases, active versus passive. Remember, this was the quarter where we had kind of one client go, a public fund client, move some money out, and that was shared by kind of 4 other managers.

Operator

Our next question comes from Roger Freeman of Barclays Capital.

Roger Freeman - Barclays Capital

I guess, could you possibly quantify or give us a sense for -- if you look at in blended, in total, the blended fee rate on the AUM outflows at Western versus the inflows, right? The specialized ones clearly are higher than what's coming out of particularly the legacy redemption. But maybe just in aggregate, is it like a 4x order of magnitude?

Mark Fetting

It really varies. The more specialized, the closer you get to probably that 4x, in some cases, extremely plus. But broadly, I'd say that's not the norm. But you've got some very low fee business where you can be into a single-digit category, and then you can be into a 4x plus. The average is probably somewhere in the middle.

Peter Nachtwey

And in addition to that, that market, some of the things have gone out have been performance fee only. So it just gets very hard to quantify in terms of a blend. But I'd agree with Mark's comments overall, with the caveat that, again, some of these things bear no fixed fee, and it depends on performance. And some quarters we're in, and some quarters we're out.

Roger Freeman - Barclays Capital

Okay, that's helpful. And then, I guess, the second question. It's just, as I look at the Slide 26, kind of look at your 2012 outlook and kind of some of the comments, the increasing buyback, potential buybacks, I don't see that anywhere on the list. I'm just wondering kind of why it doesn't make it to the key themes for fiscal 2012, even though you're obviously focused on it. And kind of the same thing around acquisitions. Because in the past you've kind of talked a little bit more about acquisitions, maybe internationally, to grow scale, but your comments didn't really reflect it. I'm just wondering.

Mark Fetting

The concluding slide was more on the business side. The capital management I thought we hit pretty hard, so let me hit it very clearly, that we -- as I said at the very beginning, we want to pursue things smartly from a capital management standpoint, and I concluded with that. And with that is a commitment by the board to agree to kind of pick up this to the $400 million level, dividend increase, and that remains very much a priority, very much a priority.

Peter Nachtwey

And then if I could add to that, Mark, we thought we highlighted it pretty well, Roger, by including the slide here on enterprise value EBITDA.

Operator

Our next question comes from Michael Carrier of Deutsche Bank.

Michael Carrier - Deutsche Bank AG

Pete, just on the share counts, I just want to make sure I understand it. So If I look at the authorization and what you're planning to do this next year, maybe it's somewhere around -- depending on obviously the stock prices, somewhere around like 12 million shares. But if I look at the convert, I think you said that's 1.8 million, then you mentioned in the first quarter, about 1 million in equity comp-related shares. Just wanted to make sure that first quarter, is it weighted or should we be expecting further, I guess, compensation shares either to flow through throughout the year, just given some of the changes on the comp side?

Peter Nachtwey

Most of the shares, the comp shares will hit in May, and so it will be partway through the quarter. So they'll have only a partial effect in the quarter. And then our share buyback, we've continued to kind of be on a ratable amount. Again, we'll opportunistically look at how we deploy the incremental amount that the board's -- that we've talked about with the board. But when we do those share repurchases, just kind of on a normalized everyday-in-the-market basis, they kind of come in, again, on a weighted average during the quarter.

Roger Freeman - Barclays Capital

Okay, got it.

Mark Fetting

Is that helpful?

Roger Freeman - Barclays Capital

Yes.

Peter Nachtwey

And the hybrid conversion will happen right at June 30, so it will have a full effect in the third quarter -- or second, third calendar but second fiscal quarter.

Michael Carrier - Deutsche Bank AG

Okay, got it. And then just a follow-up. I think a lot of the focus so far for you guys has been on the streamlining, and obviously we're seeing the products of that and where the margins are heading over the next 4 quarters. So I think when you look at what's going on in the industry, you guys have been busy on the product launch front. But when you do balance, either continuing to generate these streamlining initiatives or even the buybacks versus growth opportunities in the market, at some point you kind of shift and the focus is more on growth. So when you look at the opportunities out there, and based on where Legg Mason is today, like what are the areas where, if you see those growth opportunities, you're willing to make that investment?

Mark Fetting

Yes, and thank you for letting us underscore that, because we've been on kind of growth front. We've got to nail down the streamlining, hit this March '12 quarter. But in parallel, we want to do all that we can to grow the business, first and foremost, organically. And so in that regard, we're working very closely with our managers, as you've noted, with product launches where appropriate to kind of pursue any kind of lift-out or bolt-on opportunities, and we've done a number of those with several of the managers. And then, very selectively, where can we, down the road, kind of add some -- fill some product gaps with targeted acquisitions. So the growth dynamic is very important, and we get it, that we're not going to capture the full value of Legg Mason by streamlining and capital management alone. We want to grow the business, and I think you'll see us make some progress on that front.

Operator

Our next question comes from Craig Siegenthaler of Crédit Suisse.

Craig Siegenthaler - Crédit Suisse AG

On previous conference calls, you kind of referenced 2 ratios out there. One is kind of a 30% long-term operating margin, the second comp margin about 50%. Given the WAMCO step down today, it sounds like we shouldn't expect that 30% level in the operating margin 4 quarters from now. So I'm wondering, is it delta about 3%, because that's what I'm backing into, given the $72 million of additional annualized expense at Western. So how should...

Mark Fetting

I'll let Pete hit the specific, but I think the key here is a focus on growing our earnings, our absolute earnings, nailing the $130 million to $150 million, and working with our affiliates to grow the business.

Peter Nachtwey

Yes.

Mark Fetting

Do you want to go ahead?

Peter Nachtwey

In terms of the 30%, again, we think that's a good place for us to be targeting, but it's going to take us a little longer to get there. And that's as much an issue around, again, the mix of revenues -- well, it's combination of things: One, it's taking outflows a little longer than planned over the course of the last year, but we're very pleased with the improvement trend there, but we're starting from a lower base. And then we've got a mix issue just in terms of where the revenues come in terms of different affiliate models. And then on the comp ratio, I think it's something that's in the low 50s. I'm not sure if we ever said 50%, but it's something as more in the 52%, 53% range is kind of what we've been thinking. Is that helpful?

Craig Siegenthaler - Crédit Suisse AG

That is. And then just to follow up on flows here. It seems like there's going to be more than kind of a few lumpy items in the upcoming quarter. One is this roughly $23 billion from Smith Barney. Also, you referenced kind of $500 million redemption of Permal, a closed-end fund, too -- I also wanted an update on that Japanese kind of flowing redemption at Western, see if there's any news there? Is there anything else that I'm missing, because we're just trying to get the flow number right for next quarter.

Mark Fetting

Well, you've hit the key components and the theme line, going forward, is really focusing on our revenues and bottom line and really migrating away from, candidly, less-quality-oriented business. And so kind of the Morgan Stanley Smith Barney was a block of business that's going to have a de minimis impact. And specifically, you asked about the global sovereign mandate that we have in Japan. It's a large, important client, but the actual fee impact is modest, and that will continue. So while we are going to be reporting some outflows there until the kind of market environment there changes in terms of the combination of interest rates and currency, it won't have much of an impact at all on the bottom line.

Peter Nachtwey

And, Craig, just to be clear on the Morgan Stanley, the $16 billion that's going out in this quarter and then another $7 billion that will kind of bleed out throughout the rest of the fiscal year. But as Mark said, the bottom line impact of the total of that is relatively de minimis on us.

Operator

Our next question comes from Alex Blostein of Goldman Sachs

Alexander Blostein - Goldman Sachs

Sorry to go back to this again, but the analyst range or estimates for the fourth quarter is fairly wide. Can you just be a little more specific in terms of, what it is that you guys are seeing in your expectations? And then as a follow-up to that, it doesn't seem like you're assuming any buybacks in your projected fourth quarter number? At least that's what's in the footnotes. So why not, given the fact that it sounds like it's going to be a pretty big part of the story next year?

Peter Nachtwey

In terms of range, so kind of take out the high and low, just a couple of outliers, we're looking at the range as being in the 55% to 65% range for analyst estimates. So at this stage, we're comfortable falling in that range. And then, as it relates to the buyback, this has been a relatively recent decision on our part, as we're kind of doing our multiyear planning process and putting the deck together, we just decided to focus on the $200 million, which we've talked to you about before. So you're right to point out that the additional $200 million is not reflected in the numbers that you're seeing in the deck.

Operator

Our next question comes from Cynthia Mayer of Bank of America Merrill Lynch.

Cynthia Mayer - BofA Merrill Lynch

Maybe just to follow up on that last one. So the additional $200 million is also not then reflected in the 55% to 65% that you're saying you're comfortable with?

Peter Nachtwey

Correct.

Cynthia Mayer - BofA Merrill Lynch

Okay. And then the $74 million Western comp, just to clarify, that doesn't continue into the following year?

Peter Nachtwey

So, again, there's a piece of it that's a reduction in cash bonus and a piece that's vesting. And so over the course of the next several years, it'll stay about flat. And then after that, it'll decline, ultimately going down to 0 when the vesting fully burns off.

Cynthia Mayer - BofA Merrill Lynch

Okay, because it vests over what, 4 years or something?

Peter Nachtwey

Approximately.

Cynthia Mayer - BofA Merrill Lynch

Approximately 4 years, okay. And then on the equity flows, it look like they improved sequentially, and on the separate accounts, and I'm wondering if you could talk about where that improvement was? And just generally, what the outlook is? Which of your equity managers, if any, do you see the most promise for in terms of maybe turning to positive flows? And then update on ClearBridge in particular.

Mark Fetting

Yes. Well, Cynthia, the contributors have been Royce and Permal in the equity side. And ClearBridge has been kind of reducing modestly its rate of outflow. Still an outflow. There's some strategies there that we think are well-positioned for this opportunity in large-cap equities, dividend paying, et cetera. Records are good, momentum's being developed. But we'll have to kind of keep working on that. And then Brandywine and some of its equity business has made some progress on some fronts, and Batterymarch in the emerging market equities. Capital Management continues to be in a rate of outflow that you can pretty much see in the mutual fund data that's somewhat consistent at the moment. The key there is going to be, if you get out of this very directional market, energy commodities, which happened at the beginning of the calendar year, kind of rewarding the kind of intrinsic value investing, contrarian investing that Capital Management does, that gives them an opportunity to take advantage of this 2-year record from the market bottom. But for the moment, it's been a bit of headwind.

Cynthia Mayer - BofA Merrill Lynch

Okay. And then also the -- I apologize if you covered this already. But the tax rate seemed lower than usual. What was that about?

Peter Nachtwey

A couple of things. In this quarter, we always kind have a rebalancing quarter at the end of the year as the apportionment becomes fully known amongst the various tax jurisdictions. So it's a combination of that. And then kind of the previously announced U.K. tax rate reduction. For guidance purposes, we'd still look to 35% to 36%. Although, again, we do think we'll get another onetime pop when the U.K. formalizes their planned rate reduction for our next fiscal year.

Cynthia Mayer - BofA Merrill Lynch

Okay, and maybe last one. The performance fees were also lower year-over-year, but they had been trending higher year-over-year. Any particular reason they stepped down?

Peter Nachtwey

Yes, nothing other than, again, it's a function of which funds kind of enter high water marks and which segments of the market that -- we thought it was still a strong year, even though slightly different from last year.

Operator

Our next question is from Glenn Schorr of Nomura Securities.

Glenn Schorr - Nomura Securities Co. Ltd.

One quick question on the gain line. You have a little bit larger gains on corporate investments and then another 8 associated with the consolidation of investment vehicles. Could you give a little more color on that, so we know how to think about that going forward? In other words, what were the contributions this quarter?

Peter Nachtwey

Good question. And again, GAAP doesn't do us or you guys any favors in trying to understand our numbers. But we've put the, I think, the fifth financial sheet after our press release. it de-consolidates the consolidated investment vehicles. You can actually see just kind of what the parent-only impact is. And the mark-to-market on our seeds was roughly about flat, $9.5 million both this quarter and last quarter. And again, it's difficult for us to predict how our seeds going to perform in the future. But we've got about $400 million marked, $425 million, I think, on a mark-to-market basis in the ground today.

Glenn Schorr - Nomura Securities Co. Ltd.

And you show that 9.7, you show that not offset by compensation. That's a net number, not a gross, correct?

Peter Nachtwey

Correct.

Glenn Schorr - Nomura Securities Co. Ltd.

And should we think of the comp ratio as in-line with the overall firm's or lower given the nature of these investments?

Peter Nachtwey

So the comp ratio, so again, we effectively, again, award people -- it's a retention tool when you look at what the deferred comp arrangements are. So for the piece that goes into the comp, these are awards that we make to people and then put it in our products. So as the product goes up or down, it will impact compensation. But in terms of our -- the comp numbers that you're seeing in the deck, they back out that effect, so it's net.

Glenn Schorr - Nomura Securities Co. Ltd.

Got it. And then, not repeating all past comments on the call so far, but just specifically on the closed-end funds and the 1 MLP that you mentioned earlier, are those -- timing-wise, are those a near-term event? Do you expect to close them this quarter? And can you give any thoughts around relative size?

Mark Fetting

The way I can handle that is I think you can see we're very proud of the progress we've made in the business, and we look forward to continuing it. We're in registration on a couple of things, which prevent us from talking about it. But you can be certain that we're going to be pursuing these opportunities across our managers and the MLP in particular.

Glenn Schorr - Nomura Securities Co. Ltd.

Got it. And then maybe one last, I apologize, final question on the comp ratio. Given all your previous comments and thoughts, I'm just curious, what's different about Legg? And is it the multi-boutique structure? What's different about Legg that brings just a generally higher comp ratio relative to just about every other asset manager?

Mark Fetting

Well, I think if you look at firms that have specialized experts, you're going to see kind of higher comp ratios than kind of integrated firms, if you look at some of the specialized firms out there. And in that regard with us, we try to attract best-in-class managers and tends to be, as you point out, a bit of a higher comp ratio than some of the more integrated firms. That's not to say anyone's right or wrong, but that's a fact.

Peter Nachtwey

And also, again, this is my second quarter with talking to you guys on these calls, but as I've come to understand the model better, keep in mind the majority of our affiliates are revenue share. So we have a fixed revenue share. And whatever they don't spend on, whether it's occupancy costs or T&E, et cetera, they will pay themselves in comp. So you're going to see -- when comp goes up, it's kind of like paying taxes. It means we did better on the revenue line, but they'll be getting an increase in compensation once all their other costs are covered.

Operator

Our next question comes from Jonathan Casteleyn of Susquehanna.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

I'd just like to understand the source of your new Capital Management strategy. You're talking about getting more aggressive on the share buybacks, also mentioning some bolt-on acquisitions. So is the earnings power or the cash flow yield of the company prospectively up? Or, Pete, have you sort of found some unlocked capital you think you can put to work here?

Peter Nachtwey

It's a good question, Jonathan. Thanks. And It's a combination of 2 things. So we talked about kind of a decrease in the amount of cash we think we need, just kind of on a "working capital" basis. We've done a more thoughtful review of that and believe that we can take that down from $500 million to $350 million. So that kind of gives us another $150 million to work with. And then as the business models ramped up and the markets improved, again, all of the factors we've talked about throughout the call, our increasing yield, et cetera, is now allowing us to more solidly generate that $100 million to $125 million per quarter in additional cash. Some of which we're going to deploy in the dividend and the buyback, but as Mark has said, we're actively looking for opportunities to help our affiliates grow. Or if a great acquisition comes along that's better than buying our stock back, we'll certainly look that as well.

Jonathan Casteleyn - Susquehanna Financial Group, LLLP

Great. And have you vetted this new strategy with the rating agencies? The last time I checked, I think they still had you one notch above junk. So I'm just wondering what information you provided to them, and do you expect any feedback from them?

Peter Nachtwey

Well, Jon, I would take issue with your one notch above junk, but it depends on where your junk level is. We're BBB+. That's 2 solid notches above where you need to be for an investment-grade. So we're solid investment grade. Yes, our normal reviews with the agencies will be happening over the next quarter. We've continued to keep them fully informed, and they're very aware of what we're planning. And, on the other hand, they've got committees that meet all the time and might they have a different view of the business down the road? Possibly. But we've gotten pretty good feedback from them in terms of how the business is doing.

Operator

We have time for one last caller. Our question comes from Roger Smith of Macquarie.

Roger Smith - Macquarie Research

I do notice that the fee shift is going up because you are getting this revenue shift mix going on. Can you give us some indication by sort of the affiliates of what -- which one of them has the greatest impact on the revenue share? And so that we could sort of -- as we model each one of these guys grown, we could sort of get an impact on what that might do to the margin?

Mark Fetting

Generally, you can see that the equity managers themselves tend to be higher fee, and in most cases, kind of higher-margin businesses for the shareholder. So that's really it. We don't give kind of specifics on each and every firm, as you can understand for competitive reasons.

Roger Smith - Macquarie Research

Okay. And, I guess, if we just stay back on that $350 million of cash. I guess, in the presentation, you put out that you have about $1.4 billion of cash on hand right now. How quickly should we expect that number to sort of move towards a $350 million, or is there some other reasons that you would keep this cash level elevated such as maybe looking at a net debt number or -- and I appreciate if you might keep some of that cash on hand just for the flexibility of acquisitions and stuff like that.

Peter Nachtwey

As you mentioned, net debt we're effectively $0. And we're in no rush to take it from $1.4 billion to $350 million. We're going to look at every opportunity we have to deploy cash thoughtfully. We're just kind of indicating to both you folks, as well as our conversations with the agencies, that we think that kind of a run rate basis, the right amount of cash that we need to think about keeping around is $350 million. You wouldn't see us going below that number. But, again, you're not going to see us to rushing to get down to that number anytime soon either.

Mark Fetting

Let me come back also on the mix issue. One of my colleagues has probably pointed out, when I say equities, that we should also include alternatives and Permal in that kind of umbrella.

Operator

I would now like to turn the floor back to management for closing comments.

Mark Fetting

Okay, well, I'd like to thank everybody. I want to kind of reaffirm how we started in terms of, proud of the progress we've made in 2011; confident as we enter '12 that we're going to nail the streamlining and deliver our projected savings to shareholders in the March '12 quarter. We have indicated that we're not going to get there in a straight line, but the confidence we have in getting there is important, and the affirmation of kind of coming in, in consensus is indicative of that. I also just want to talk about the enthusiasm we have and the encouragement we have in the opportunities at our managers and what we deliver at Legg Mason. And so we look forward to keeping you posted on our progress. Thank you very, very much

Operator

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

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