Virtus Investment Partners' (VRTS) CEO George Aylward on Q1 2016 Results - Earnings Call Transcript

| About: Virtus Investment (VRTS)

Virtus Investment Partners, Inc. (NASDAQ:VRTS)

Q1 2016 Earnings Conference Call

April 29, 2016 10:00 AM ET

Executives

Jeanne Hess – Investor Relations

George Aylward – President and Chief Executive Officer

Mike Angerthal – Executive Vice President and Chief Financial Officer

Analysts

Michael Kim – Sandler O'Neill

Michael Carrier – Bank of America Merrill Lynch

Craig Siegenthaler – Credit Suisse

Alex Blostein – Goldman Sachs

Operator

Good morning. My name is Bridget, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners’ Quarterly Conference Call. The slide presentation for this call is available on the Investor Relations section of the Virtus website, www.virtus.com. This call is being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers’ remarks, there will be a question-and-answer period and instructions will follow at that time.

I will now turn the conference to your host, Jeanne Hess.

Jeanne Hess

Thank you and good morning, everyone. On behalf of Virtus Investment Partners, I would like to welcome you to the discussion of our operating and financial results for the first quarter 2016. Before we begin, I direct your attention to the important disclosures on Page 2 of the slide presentation that accompanies this webcast.

Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. These statements may be identified by such words as expect, anticipate, believe, outlook, may and similar terms.

For a discussion of these risks and uncertainties, please see the Risk Factors and Management Discussion and Analysis sections of our periodic reports that are filed with the SEC as well as our other recent filings, which are available in the Investor Relations section of our website, virtus.com. We do not undertake any obligation to update forward-looking statements.

In addition to results presented on a GAAP basis, Virtus uses certain non-GAAP measures to evaluate its financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with GAAP results.

Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our earnings press release, which is available on our website. For this call, we have a presentation, including an appendix that is accessible within the webcast through the Investor Relations section of virtus.com.

Now, I would like to turn the call over to our President and CEO, George Aylward. George?

George Aylward

Thank you, Bridget, and good morning everyone. I’ll start today by providing an overview of the quarter, and an update on our capital strategy. Mike will then provide more detail on the financial results and balance sheet.

Now let’s begin with assets and flows. We entered the quarter with assets under management of $45.7 billion, which represents a sequential quarter decline of 3.7% as net outflows offset market appreciation. Total sales were $2.8 billion, a decline from $3.2 billion in the sequential quarter, reflecting lower sales and mutual funds. Mutual fund sales of $2.2 billion were down slightly by $2.5 billion sequentially and mutual fund outflows of $2.6 billion reflect elevated redemptions.

Both the lower sales and elevated redemptions were primarily attributable to our emerging market opportunities fund following an organizational change of the subadviser, Vontobel, in early March when it was announced that portfolio manager will be leaving. In terms of redemptions in the emerging markets funds, majority of the elevated outflows in the quarter came from changes made in certain specialized models. As we’ve noted in the past, this fund is widely held and had a meaningful presence in discretionary models.

Outflows from traditional FA driven business also increased the FUD organizational change, but have been more muted in those from discretionary models. Vontobel continues to employ the same bottoms-up investment approach and team based process that has its emerging markets and other global equity strategies successful over many years. It is important to note that while there was a change in the portfolio manager level, the rest of the team remains in place.

In April, the emerging market fund remained our bestselling fund and is available to all of our distribution partners. Net outflows in the fund are tracking to $600 million for the month, an improvement from the $1.1 billion of outflows in March.

Of course the remainder of our funds relative investment performance continue to be very strong with 17 of our rated funds having four and five stars at March 31. In addition, diverse global refund was recently honored with 2016 Lipper Fund Award for the three year period ended December 31, 2015. This performance demonstrates the institutional quality of the mangers we offer, including Newfleet Asset Management, Duff & Phelps Investment Management, and Kayne Anderson Rudnick. Our low duration, global REIT and small caps standable growth funds continue to gain investor interest in all three positive net flows in the quarter.

In addition, the Multi-Strategy Target Return Fund, subadvised by Aviva Investors generated $50 million plus net flows in the quarter, which we believe is a solid start for a very new fund. The strong performance has also help generate positive flows in other product categories. The separately managed accounts delivering positive net flows due to the strong performance of Kayne Anderson's small-cap strategies and with ETFs also generating positive flows.

While institutional was negative for the quarter, due to $115 million partial retention of a low-fee portion of a client account, solid investment performance has resulted in the strongest pipeline we have seen in years. Converting the pipeline is key, but we are optimistic on the outlook for institution.

Turning to financial results, revenue as adjusted declined sequentially, reflecting lower average assets and a $1.8 million negative variable incentive fee for the first quarter. The variable incentive fee was eliminated in early February.

First quarter operating expenses as adjusted declined as lower other operating expenses were partially offset by higher employment expenses due to incremental payroll taxes associated with the timing of our annual incentive compensation payments. Employment expenses as adjusted were at the low end of the range that we provided on the fourth quarter call and other operating expenses as adjusted came in below our indication, as we've been very focused on our expense levels.

Operating income as adjusted was $15.2 million compared with $19.4 million in the prior quarter with related margins of 24% and 29% respectively, excluding the impact of the higher payroll taxes and the variable incentive fee, operating income as adjusted was $19.3 million and $24 million and margins were 30% and 34% respectively.

Turing to capital and our balance sheet; in the quarter we returned $19.9 million of capital to share repurchases and dividends. As a result of continued repurchases our outstanding shares have declined by 1.7% from year end and 7.3% from March 31, of 2015. Even with that level of capital return, cash and investments at March 31 remained strong at $382 million and $46 on a per-share basis.

In terms of our capital management strategy, it remains focused on balance between maintaining adequate working capital, investing in future growth and providing a meaningful return to shareholders. The relative balance to each of these has evolved over time. After a period of significant product introduction, including products that require high level of seed, the new products in our current pipeline are not as seed intensive. In addition, as we made determinations of which products to focus our distribution efforts on, we're in the process of liquidating three of our alternative funds and the return of seed capital is expected to generate proceeds of approximately $114 million in the second quarter.

These liquidations will reduce our seed capital investments to approximately $167 million. As a result of this level seed and our current expectation of seed requirements, we have lowered our seed programs target level in the near-term to approximately $150 million subject to change as product opportunities emerge.

Due to that expectation and our strong balance sheet, we expect to use the majority of proceeds from the pending fund liquidations, primarily for capital return.

With that, I will turn it over to Mike. Mike?

Mike Angerthal

Thank you, George. Good morning, everyone. Starting on Slide 7, assets under management; we ended the quarter with assets of $45.7 billion, which represents a decrease of $1.7 billion or 3.7% from the prior quarter. The sequential decline is primarily attributable to the $1.4 billion or 14% decrease in assets in our emerging markets opportunities fund.

At March 31, the fund had $8.4 billion in AUM and represented 18% of our total assets. Our emerging market assets remained diversified across distribution partners with no single client account representing more than 10% of total assets. The $9.1 billion year-over-year decrease in assets under management is primarily attributable to $6.8 billion of net outflows, $1.5 billion of market depreciation and $0.8 billion of dividend distributions and other.

Lastly, total AUM remained diversified by asset class. 59% of assets are in equity, with 35% in domestic and 24% in international. 33% of assets are in fixed income and 8% are in alternatives and other. We also remained diversified by product type with open-end fund assets at 58% of total; separately managed accounts at 15%, closed-end funds 14%, and institutional 11%.

Turning to Slide 8, asset flows. In the first quarter, we had total net outflows of $2.6 billion that were primarily attributable to elevated redemptions in the emerging markets opportunities fund, following the organizational change of the subadviser in early March. Following that change, emerging markets had redemptions from discretionary models that totaled $0.8 billion. Separately on our last earnings call, we pointed out $0.5 billion rebalance from a discretionary model in January that preceded the organizational change. Excluding the total discretionary model redemptions of $1.3 billion for the quarter, fund redemptions were approximately $1.5 billion, which is the same level of redemptions we had in this fund in the fourth quarter.

For the quarter, excluding EMO, total net outflows were $1.1 billion, which is in line with the sequential quarter. Total sales decreased 10% sequentially to $2.8 billion, reflecting lower sales in mutual funds. Sales increased 20% in SMA's, reflecting higher sales of small-cap accounts managed by Kayne Anderson Rudnick.

Gross sales in open-end mutual funds were $2.2 billion, which represented a decrease of $0.4 billion from the fourth quarter. The decrease was primarily attributable to lower sales in emerging markets. Mutual funds net flows by asset class were as follows; international equity net outflows of $1.7 billion were primarily attributable to emerging markets as previously discussed; sales of fixed income funds were flat at $0.5 billion; net outflows were $0.3 billion, an improvement from $0.4 billion in the prior quarter.

Alternative strategies had sales of $153 million, an increase of 8% from $142 million sequentially. Net outflows were $0.1 billion in the quarter, an improvement from $0.2 billion in the prior quarter. Both our multi-strategy target return and global refunds contributed positive fund flows.

Sales of domestic equity increased slightly to $120 million sequentially. Net outflows were $0.5 billion, an improvement from $0.6 billion in the fourth quarter. ETFs had positive net flows in the quarter as we continue to leverage the capabilities of the new team at Virtus ETF Solutions.

Separately managed accounts from Kayne Anderson Rudnick contributed positive net flows of $35 million in the quarter. Institutional had negative net flows of $90 million in the quarter, due primarily to the partial redemption of a client account, but sales continue to be solid due to additional inflows from existing subadvisory mandates.

Turning to Slide 9; investment management fees as adjusted of $57.7 million, decreased 5% on a sequential quarter basis, and 18% from the prior year quarter. The components of the change in investment management fees are average assets and fee rates. Average assets under management of $45.7 billion decreased 6% sequentially and 18% compared to the prior year quarter. The 6% sequential decline is due to a 9% decline in open end funds. The average fee rate increased 1.3 basis points sequentially to 47.3 bps, due to a 1.3 basis point increase in the open-end fund fee rate that reflects the partial quarter benefit from the elimination of the negative variable incentive fee. When excluding the impact of the variable incentive fee, the first quarter open-end fund fee rate was 49.9 basis points compared with 52.1 basis points in the fourth quarter. The decline reflects both higher fund expense reimbursements and lower assets and higher fee products.

Going forward, we expect the open-end fund fee rate to be approximately 49 basis points given the current asset levels and mix of business. The average fee rate on ETFs increased to 35 basis points from 29 basis point in the prior quarter. The higher fee rate is reflective of the continued flows into the Newfleet multisector unconstrained bond ETF.

Slide 10 shows the five quarter trend in employment expenses. Total employment expenses as adjusted were $36 million, an increase of $1.6 million and $0.4 million from the prior quarter and prior year respectively. The increase from the fourth quarter reflects $2.3 million of higher payroll taxes due to the payment of annual incentive compensation, which more than offset lower variable incentive compensation. The $0.4 million increase over the prior year reflects higher fixed employment costs associated with the addition of Virtus ETF Solutions that was acquired in April 2015 and additional resources to support quantitative strategies, including the trend funds for which we took on additional responsibilities in May 2015.

In terms of thinking about employment expenses in the second quarter, I’d point out that the incremental payroll taxes will not recur, the profit base component of variable compensation will vary based on AUM and the sales-based component will vary primarily with gross sales.

The trend in other operating expenses as adjusted reflects the timing of product distribution and operational activities. Other operating expenses as adjusted of $10.4 million in the first quarter declined $1.6 million or 14% on a sequential quarter basis and $0.8 million or 7% compared to prior year. The $1.6 million decrease sequentially is both the non-recurrence of $0.8 million of discrete items we noted in the fourth quarter, as well as lower discretionary travel and marketing costs.

We will remain disciplined in managing other operating expenses and we are lowering our expected range to $10.5 million to $11.5 million per quarter, with variability driven by the level of distribution activity, portfolio management costs and professional fees. In addition, as we pointed out each year, the second quarter will include the $0.5 million annual equity grant to our independent directors.

Slide 12 illustrates the trends of adjusted results. In the first quarter, operating income as adjusted was $15.2 million, a decrease of $4.2 million or 22% from the prior quarter. The decrease primarily reflects $4.3 million of lower revenues as adjusted due to lower average assets. Operating margin as adjusted for the first quarter was 24%, a decrease from 29% in the fourth quarter and 40% in the prior year. Excluding the negative $1.8 million variable incentive fee and $2.3 million of incremental payroll taxes, our operating income as adjusted and margin would have been $19.3 million and 30% respectively.

While our margin is down from previous highs, we believe it is reasonable for a multi-manager model. That being said, we’re very focused on having an expense base that is appropriately aligned with current a AUM and revenue levels.

Earnings per diluted share as adjusted were $1.12 in the quarter and included $0.13 impact from the variable incentive fee. Excluding the fee and incremental payroll taxes, earnings per share would have been $1.42 all else being equal. GAAP net income attributable to common stockholders was $12.4 million or $1.45 per diluted share. The quarter included $2.4 million or $0.28 per share of unrealized gains net of tax on the company's investments and an effective tax rate of 39%, consistent with prior periods.

We ended the quarter with strong cash and investments, no outstanding debt and $75 million of unused capacity on our credit facility. During the quarter, we returned $19.9 million of capital, which represented 209% of our net income as adjusted. Our basic shares outstanding declined 1.7% to 8.3 million at the end of the period.

With regard to the capital management, we balance investments in the business with return to shareholders. With the proceeds from the pending fund liquidations, we expect to allocate a majority of that capital to augment return to shareholders.

As we stated on prior calls, we've been comfortable with maintaining a lower level of working capital due to significant seed capital investments. Given our revised lower seed capital expectations, liquidity from the seed liquidations will move our working capital ratio closer to 50% to 75% target level that will be important to ensure adequate levels of financial flexibility for investing in growth both organic and inorganic.

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

George Aylward

Thanks Mike. That concludes our prepared remarks. Now, let’s take some questions. Bridget, can you open up the lines please?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Michael Kim with Sandler O'Neill. Your line is open.

Michael Kim

Hey guys, good morning.

George Aylward

Good morning.

Michael Kim

First, so just wondering maybe sort of what, some of the feedback has been you’re your distributors or wholesalers as it relates to the PM shift and EM ops, obviously we saw a spike in redemptions in March and you sort of mentioned ongoing, those slowing outflows into April, so just trying to get a sense of maybe further redemption risks going forward specific to that portfolio?

George Aylward

Sure. Good morning Michael. So the event happened almost two months ago, so it will be on March, so much of that will be two months. The change that was made in terms of Rajiv leaving was communicated immediately to the people we do business with both at home office level, which control the discretionary models as well as the financial advisors, have been very familiar with the Vontobel approach to investing, which is very bottoms up research driven methodology that has been very rigorously applied by the whole team for a period of time. So in terms of the reaction, I think we gave you some of the color around that, i.e., that we noted and pointed out specific redemptions attributable to the discretionary models at the firm and also noted that while we did see some elevated redemptions in the traditional FA type of business that, that was less so, gave you sort of a trend line into April, right north of $600 million. I would also point out of the $600 million, a $150 million of that was also model related. So to think about it in that context, so at this point within a few days of the happening all the FAs and all the home office and everyone was very well aware of this, lots of meetings and on sites with Matthew who has taken over, so a lot of that has already gone through and FAs will continue to make their decisions of staying with the long-standing approach that Vontobel has employed.

Matthew has been with the team for 17 year or so. He never like to see a portfolio manager change and particularly someone like Rajiv who I consider one of the single best investors in the industry, I think very highly of him. But in this case, the portfolio manager has gone, the rest of the team is entirely in place, there are no new people being interjected into the process, no other members of the team have left, every single solitary member of that team who’d work at Vontobel is still there and committed to the future of that. So I think all of those things are very positives in terms of when you’re trying to describe a transition and we’re pleased to see the trend in April being less so than what saw prior to that.

The other point that Mike have included is if you exclude the modeled redemptions from the first quarter, the level of redemptions were actually the same as they were in the fourth quarter before there had been an organizational change. Yet I can’t give specific guidance on what will occur, but I feel very good that everything has been communicated, everything is being digested, and like any fund or any strategy I’m hoping it will be judged by how well it performs and how they feel about the team.

Michael Kim

Got it. That’s helpful. Maybe just a follow-up on that, any sense of how much of the – I think you said $8.4 billion of AUM still relates to sort of these discretionary models at this point?

Mike Angerthal

Yeah, so we spiked up the dollar amount that has come out to discretionary models to 0.8 and then I gave you another data point of $150 million of the $60 million, and we don’t give any specific guidance or detail related to the actual placement of our assets or firms. But I’d also point out that what we also indicated that as of March 31 no single client account accounted for more than 10% of the funds’ assets. So hopefully that's helpful.

Michael Kim

Got it. Okay. And then as it relates to the alternative funds that are being liquidated, if I remember correctly, I think they've only been up and running for about two years. So just curious about the rationale for the decision to why nose down, was it mostly performance related? And then, doesn't look like it, but did any of the funds have any third-party capital or was it just seeing at this point?

George Aylward

There was some third-party capital, the majority received, but there was some third-party capital. In terms of the liquid alternative funds, and it is a decision we need, I’d point to a couple of factors; the whole area I think of liquid alternatives, which many of us, the many asset managers think is a really important area for retail investors to play, and everyone have a lot of expectations. I think when we launched the fund a little over two years ago; we believe that, we still believe that today. So what's happened to make the decision to liquidate the funds before we even had a three year track record, which is absolutely slightly early to make a decision for liquidated fund, one I would say the expected demand of these types of non-correlated underlying hedge fund manager type of products did not as emerge as strongly as spending one wanted.

I think that you’ve also had a market environment that has not been overly conducive to some more of these risk managed risk controlled types of products. I think in addition to us you’ve seen a lot of liquidations of these types of funds, there's a couple of high-profile ones earlier this year, I think last year, in the year 2015 there was approximately 30 liquidation of liquid alternative funds. So it hasn’t really been a great environment for these types of funds to bringing out themselves.

In terms of the funds that we had they were again very differentiated and interesting in terms of the structure and the collection. They did have an overweight to real assets, which obviously in a period with commodities and oil being impacted as they were, did not give it a strong performance in the more recent period. But when we sort of couple all of those factors together and these really are funds that require a lot of resources for us to market and support and oversee, and at the same time we had launched the Aviva Managed Funds, Multi-Strategy Target Return Fund and we’ve been incredibly pleased with the early reaction to that fund, and it's very different fund, but it does appeal to the same types of potential investors. So as we look through that and the other funds we have to offer, we ultimately concluded we really wanted to focus in on those other funds, and that at this point in time even though it’s not even a full market cycle on the old funds, that the right thing to do will be to liquidate that capital, and as you say, I walk through some of our value paths, our capital strategy in terms of what we’re doing with the proceeds.

Michael Kim

Understood. And then just one last one for Mike, thanks for taking all my questions here. Just coming back to compensation, I know you mentioned sort of the variable components, with respect to profits and sales, but just from where you sit today any sense of what that could translate into in terms of either an absolute dollar range or maybe a percentage of revenue ratio as we think about the second quarter and beyond?

Mike Angerthal

Yeah, we gave guidance on the other operating expense row, where we’ve taken that down specifically a little over, about 5% with the new range. As it pertains the employment row, we are addressing and looking at expenses in light of new assets and revenue levels as we talked about, so the most specificity I can provide at this in point time is that the first quarter had the payroll taxes that won’t recur, so when you look at it, you’ll factor that in, and then certainly there's the variability with respect to asset levels and sales levels, and that variability will continue. But in terms of additional guidance, we’re not going to give additional guidance at this point.

Michael Kim

Okay. Fair enough. Thanks for taking my questions.

George Aylward

Thanks.

Mike Angerthal

Thanks.

Operator

Our next question is from Michael Carrier with Bank of America. Your line is open.

Michael Carrier

Thanks guys. I guess Mike, just wanted to get your take on – you when you liquidate this product and you have the extra capital, when we think about the pace of the buybacks that you’ve done over the past couple of quarters, is it likely to accelerate, are you likely to continue to that pace, just to give you more flexibility to do it over the longer period of time?

And then just – I just wanted to make sure I understand from a cash standpoint in terms of what you want to keep on the balance sheet in addition to see capital, just wanted to get an update on that level as well.

George Aylward

Yeah, this is George. I’ll just give you some and then Mike will get into that. As we sort of indicated in the release, as well as the comments, we reset sort of our expectations of how much of our capital we need to set aside for the seed in the near-term, and with that the proceeds from the liquidation of these funds will allow us really to sort of augment what we've been doing in terms of returning capital. We’ve traditionally targeted return of capital as you know our percentage of our net income as adjusted and we’ve been very high levels of that. But having these additional proceeds and not having a short-term or near-term need for the seed does give us additional capital to – as we make through our decisions on these levels and timing and magnitude and in what form to be honest in terms of the return of capital. Mike, do you want to?

Mike Angerthal

Yeah. I think, that's correct, we’ve certainly been above our earnings in terms of the level of capital we’ve returned and this enables us to provide additional return of capital to shareholders, which – there is no specific timeframe, we just made decisions to do liquidation, so we’ll evaluate all of that in multiple doctors when we do the returns. I think as it relates to working capital, as a percentage of our spend, we’ve for a while targeted the 50% to 75% range and have dipped below that over the last several quarters as we’ve had the seed program being higher than the level that we’ve targeted about as we’ve had products in the pipeline that required high levels of seed commitment.

As the seed capital level gets down to the level we indicated that 150 level, we would expect to start that working capital as a percentage of spend to direct back closer to our longer-term historical targets of 50% to 75%, so those are all the elements we consider in terms of having the financial flexibility, which we claim to also invest in the business, both organically and/or inorganically as opportunities arise. So we’ll continue to manage the business to have that financial flexibility and the working capital level is something we’re focused on as well.

Michael Carrier

Okay. That’s helpful. And then, maybe just taking a longer-term kind of growth outlook, obviously over the last two years you had a couple of hiccups with some of the products, but you still have – products had good performance and there is – you mentioned on the, highlights some of the products and the inflows, when you think over the next couple of years with that seed level and with some of the initiatives that you have in place and some of the new product development, just wanted to get a sense on where do you see kind of the avenues of growth for Virtus, and given the deal out rolled is that like impact anything in terms of your guidance exposure to certain channels more you’re relatively well positioned?

George Aylward

Yeah. One thing, just – I want to make sure is very clear, so in terms of our seed capital expectations for the near-term, we do have a very robust pipeline of new products. It’s just the nature of those products, is not as seed as some of our more recent launches. So generally for more traditional equity types of strategies, very low levels of seed from fixed income you need a higher level of seed and it’s really a much more comprehensive or alternative types of strategies that need a lot of seed. So basically what we’re saying is there is really no change in terms of the potential for new strategies and new products, just the nature of those will not be seed intensive, so I actually feel very good about some of the stuff that we may be doing going forward, but it just won’t be seed intensive.

And in terms of where are those opportunities for potential growth and more robust returning back to our previously strong levels of flow, as you correctly pointed out, we have two products, one – both of which were strong drivers of flows, one which is no longer, and then the market fund, which we’re talking about now, which again, is still our bestselling fund, and if all of our funds had the same level of sales as that fund we’d be very happy. So that fund is still doing well and we still believe that funds and the foreign opportunities fund, and the other Vontobel funds absolutely can still be opportunities for us to grow.

But as you also correctly point out, we’ve always been very fortunate that even though, you know there is two or three or four products that you’ve heard a lot of and have seen a lot of flows from beneath that, we actually have had a large number of other funds that were also very strong performing funds, albeit they didn’t get as much of the flows and the focus. So we named the few of the funds that we do feel very good about, and obviously just in terms of our resources and our focus they will obviously – they’ve always gotten attention, but we’ll obviously get a lot more attention, a lot focus, and some of them is a great environment, Kayne Anderson Rudnick, I mean their strategy and how their performance numbers ended the year are great testament to a manger with an incredibly long track record, and you’re seeing some of the receptivity that we would have liked to have seen a couple of years ago in those strategies.

And again, I turn to ETFs, which is a very small business for us and it's still in the early stages. But in terms of new products and in efforts going forward, I think there's a lot of time and effort being spent there, that’s becoming increasingly a much more important part of the retail investors diversified portfolio, we want to assist with that, so I think there's a great opportunities there. And it’s nice for us, institutional, which has not been a big driver of our flows and for us institutional is really, Kayne Anderson Rudnick, Newfleet and Duff & Phelps primarily, it’s good for us to see – we never really refer to our pipeline and I feel some of the things we’re seeing are actually more positive than we’ve seen in a really long time. So I think we still have lots of opportunities, it’s up to us to try to execute on those, and again the environment is also going to have a big impact, right? If you would have asked me in January and February where was our growth going to come and how the markets and how volatility was, I would have given you a different answer in early April.

But again, one of the benefits of our model is we do have enough diversity of different offerings and different managers. We generally do think of our opportunities in any of those environments.

Michael Carrier

Okay. Thanks a lot.

George Aylward

Okay. You’re welcome.

Operator

And our next question comes from Craig Siegenthaler with Credit Suisse. Your line is open.

Craig Siegenthaler

Thanks. I just have two quick ones here. Do you have the total net flow number for April?

George Aylward

We didn’t give out the total net flow number for April.

Craig Siegenthaler

Okay, you don’t provide that. Any color you can give on total flows in April or the EM Fund separately?

Mike Angerthal

For EM, we basically said it was trending towards $600 million, which is down from the $1.1 million, which we gave for the month of March. And in the $600 million is about $150 of discretionary, which compares to the $800 million of discretionary dollars that was in the post announcement period of March.

Craig Siegenthaler

Got it. Thanks for taking my questions.

George Aylward

Thanks, Craig.

Operator

Thank you. And our next question is from Alex Blostein with Goldman Sachs. Your line is open.

Alex Blostein

Thanks, good morning. Question on the operating margin, so clearly the seasonal impact was a hurdle this quarter, and I guess you guys kind of sensed 30% is what it would've been. If you think about the flexibility in the operating model, assuming that AUM levels kind of stay where they are, maybe a little bit more slow headwind, just because you know again to your point, EM is still lot slow in April, what’s the flexibility I guess to keep the margins around this 30% level or should we think of that coming down unless we see more robust return in equity markets?

Mike Angerthal

Hey Alex, it’s Mike Angerthal. We don't give specific guidance on margin. Certainly you’ve seen the leverage ability of our model where we’ve had historically high levels of profitability, we did point out that the current margin level as you indicated normalized by the variable incentive fee and the incremental payroll taxes, plus approximately 30%, which we believe is reasonable given our multi-manager model. But as you said, we’re cognizant of the recent change at our subadviser and we’re very focused on expenses and ensuring those expenses are aligned with current AUM and revenue levels and we’ll continue to focus on that and be very disciplined. If you’ve seen that – if on the other operating expense line and we’ll continue to manage business in that fashion.

Alex Blostein

Got it. Thanks for that. And then as far as capital return goes, I understand that you guys don’t want to get into too much detail in terms of the timing of a buyback, but just to give us a sense given the fact that have a little extra cash or actually a lot of extra cash after the decision of the seed portfolio, should we just at least think about the total amount of repurchases kind of stepping up over the next several quarters relative to where they were let’s say over the course of 2015?

George Aylward

Yeah, I mean, I think both Mike and I have sort of indicated that with the liquidation of these funds and the lower seed expectations in the near-term, which could change beyond the near-term that, that cash is additional – is additional capital that’s available for returns. So again, our expectation may change after the near-term what we foresee, so in terms of now having the additional capital focusing on that, and as you pointed out, we still have a lot of – we have a strong balance sheet with $46 per share of cash and investments and subtracting debt, which would still be $46 per share and I think some people have heard me sort of believing we don't get a lot of credit for that cash, and with our stock trading where it is trading I think having this additional cash at this point in time does allow us to have that additional consideration to do what we think is right in terms of return on capital.

Alex Blostein

Understood. Then one – one last one, it’s around [indiscernible], I think there is a broader question asked, but I was wondering if you guys could give any specifics in terms of exposures you have to various channels, whether it’s specifically on the IRA side, I don't think there is [indiscernible] money, but just kind of overall bucket of exposure will be helpful?

George Aylward

Yeah, for us it’s not a large part of our business, so it’s just a few percent of our business that's what we do have the CIO and some variable annuity money that may have some impacts related to that, it's a relatively – we have a very small exposure I would sort of say.

Alex Blostein

Got you. Thanks so much.

George Aylward

Thank you.

Operator

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

George Aylward

Okay, I want to thank everyone for joining us today, and we certainly encourage you to call us if you have any other further questions. Thank you very much.

Operator

That concludes today’s teleconference. Thank you for participating. You may now disconnect.

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