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Franklin Resources F4Q07 (Qtr End 9/30/07) Earnings Call Transcript

October 25, 2007 | about: BEN

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Franklin Resources, Inc. (BEN)

F4Q07 (Qtr End 9/30/07) Earnings Call

October 25, 2007 4:30 pm ET

Executives

Gregory Johnson - Chief Executive Office, President

Kenneth Lewis - Chief Financial Office, Senior Vice President, and Treasurer

Analysts

Kenneth Worthington - J.P. Morgan

Cynthia Mayer - Merrill Lynch

Michael Hecht - Banc of America Securities

Mike Carrier - UBS

William Katz - Buckingham Research

Marc Irizarry - Goldman Sachs

Christopher Spahr - Deutsche Bank Securities

Presentation

Operator

Welcome to Franklin Resources Earnings Call for the quarter ended September 30, 2007. Please note that the financial results to be discussed in this conference call are preliminary. Statements made in this conference call regarding Franklin Resources Inc., which are not historical facts are forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward looking statements. These and other risk, uncertainties, and other important factors are described in more detail in Franklin’s recent filings with the SEC. Including in the risk factors and MDNA sections of Franklin’s most recent form, 10K and 10Q filings. I will now turn the call over to Greg Johnson, CEO. Mr. Johnson you may begin.

Greg Johnson

Thank you and good afternoon and thank you for joining us today. This is Greg Johnson, CEO of Franklin Resources and joining me today is Ken Lewis, our CFO. I’d say it’s a solid quarter but a challenging quarter to look at the volatility that we’ve seen, really the first volatility that we’ve seen for quite a few quarters in the market.

Looking at the assets under management they increase slightly to $645.9 billion which is up 3.5% and the average assets increased from 605 to 627 or about 3.6%.

The mix really didn’t shift much but the net sales did shift towards fixed income and money funds and at quarter end equities represented 60% of our assets, fixed income 20.7, hybrid 18.1, and money funds 1.2%.

Looking at the over all net sales I think we are pleased with the 9.8 billion in flows and a very difficult quarter and also during the summer months which tend to be slower. This compares to 15.9 in the prior quarter and 2.4 in the September ’06 quarter. We had appreciation of 12.8 billion for the quarter. Overall sales were up 1.3% but redemptions were up 19% resulting in the 9.8 billion in net flows.

It was our twenty seventh consecutive quarter with positive sales and just looking at some of the fiscal year numbers gross sales were up 44% to 185.5 billion, redemptions were up 19% to 139 and net sales up 46.6 billion which compares very favorably to 12.2 in the prior year.

Some of the flows by region, the non US flows led the wave for the quarter, US sales sold off, or had the biggest increase in redemptions and US net sales were 2.7 versus 9.1 in the prior quarter. Non US sales were 6.1 billion versus 6.8 and again resulting in 9.8 versus 15.9.

In the non US we did have a strong quarter and it was led by institutional flows in Europe and Asia where existing Middle Eastern client funded an additional 500 million and Korean pension fund added 380 million to a global equity mandate.

The C CAV products had another very strong quarter led by the Templeton Asian Growth Fund, the Franklin Mutual European Fund, and they both had net sales of over 800 million.

For the year, the Templeton Global Bond Fund for non US sales had net sales of 2.6 billion and Mutul European had net sales of 2.2.

Looking at some of the country highlights year over year. Again C CAV was very strong in many of these countries. In Taiwan, assets increased to over 8 billion or up 66%, Italy up 86% over 7 billion, Switzerland up 64% over 5 billion and South America up 78% to over $3 billion.

India had another strong year and assets crossed 7 billion and Korea crossed 3 billion. We are pleased to see that institutional AUM in the Middle East more than doubled to almost $10 billion for the firm.

Looking at some of the net sales by client, retail sales dropped from 13.4 to 4.3 billion, institutional increased from 2.6 to 5.4 for the quarter.

The Franklin Income Fund continues to generate strong sales but as you’d expect in the kind of quarter with the volatility in the fixed income market place those net flows did decline from 3 billion to 1 billion.

Mutual shares continues to be very attractive in the retail channel with 840 million in net sales versus 1 billion in the prior quarter. Our fixed income campaign continues to attract assets and our Templeton Global Fund continues to be the strongest leader there with a 200% increase year over year.

We continue to see weakness in the Templeton Foreign Fund with 1.8 billion in outflows versus 1.5, but performance has improved considerably there in the one year numbers as Asia’s turned around on a relative basis for that fund.

In the institutional side, we funded a $260 million Japanese equity mandate for our group in Japan from a European pension fund and 100 million Indian equity mandate from a Middle Eastern institutional client.

The global fixed income flows remained strong. 7.7 billion year to date in over 20 different strategies, led by a merging market debt and the FTPA which is a separately managed high yield MUNI product had 2.9 and 1.3 billion in flows.

Looking at the net sales by investment objective, we had very strong equity flows again on the back of some of those international separate accounts but overall equity net flows declined slightly from 4.5 to 4.4 billion.

Hybrid led by the decrease in the income fund and dropped from 3.9 to 1.8 and fixed income sales had the biggest drop of 6.8 to 2.2, again what you would expect with the kind of market environment that we had, and one of the areas for the industry experienced quite a bit of net outflows with the floating rate funds and that had approximately a $500 million net outflow for our various floating rates.

Looking at investment performance it was really two stories. The fixed income actually got stronger and the one year moved and I think of note the municipal bond funds have been under pressure from some of the more aggressive funds out there that use leverage in other derivatives and we’ve always taken a plain vanilla approach there and they had very strong relative performance and I think that puts in a good position going forward.

Some of the underperformance at Templeton has led unto the three and five year numbers and that’s led to a decline there where the domestic equity and global international equity total assets have declined from higher levels.

I’ll now turn it over to Ken for the operating results.

Kenneth Lewis

Thank you, Greg. Hello everyone. Well, 2007 was a record setting year for Franklin Templeton. We couldn’t really think of a better way to mark our 60th anniversary than to set all time highs for sales, assets under management…

Comparing the fiscal year results we ended the yea with earnings per share of $7.03 which was an increase of 45%, net income of 1.8 billion, an increase of 40% and that was on revenues of 6.2 billion which was an increase of 23% year over year.

For the quarter, we were pleased to see operating profits grow 4%, driven by a 4% growth in average assets under management and investment management fees, but increased taxes and less non operating income caused quarterly earnings to decrease by 6.7% from the prior quarter.

So we enter the quarter with net income of 437 million and earnings per share of $1.76.

There are really three mean themes to highlight for the quarter. The first is that we were able to maintain consistent operating margins despite increased cost of distribution. Second, that we generated less non operating income. And third, we experienced a more normalized tax rate.

Taking a look at some of the line items in revenue, investment management fees increased 3.8% driven by increased outfits under management, the effective C rate was relatively unchanged.

You may recall last quarter we had about $5 million of performance fees that we didn’t have this quarter.

And I think that the big story here is the underwriting and distribution, the revenue decreased reflecting lower US retail sales and higher international institutional sales this quarter as Greg discussed.

And while net underwriting distribution revenue increased in absolute dollar terms our underwriting and distribution margin declined to 4.35% for the quarter, as institutional and international products are more expensive to distribute than their US counterparts.

Now I think it’s important to note here that this really is a point of sale issue and it’s not indicative of overall profitability of the various products. And we have seen a general decline in this underwriting distribution margin and that trend will probably continue as we expand our global reach for the year, that margin came in at just over 5%.

Shareholder servicing fees increased 1.3%, reflective of a 3% increase in open accounts. The decrease in total shareholder accounts is due to a decrease in closed accounts which have a lower fee structure. Open accounts increased 3% and that’s positive.

Other net revenue decreased, as we mentioned last quarter we had a gain of $2.7 million from a securitization and a non recurring revenue reduction this quarter of about $2 million. I think some of the expense line items, there is some discussion. Many of those line items were up, I think the good news is that most of the sequential increases were from discretionary items and even with that we experienced some margin expansion during the quarter.

The first item that I think pops up is IT in occupancy it increased almost 12%. As we mentioned in prior calls we are generally seeing an increased demand from the businesses for automation, which is a good thing. Not only because it’ll increase our scalability but also because it’s discretionary spend that can be quickly curtailed.

Advertising and promotion, this increase this quarter is due primarily through promotional activities, both within and outside the US.

An amortization of deferred sales commission increased by 5 million and that was indicative of increased sales of relevant share classes.

Other expenses decreased this quarter as last quarters level was unusually high. Much of the line, this expense line is comprised of variable expenses such as legal and professional fees as well as expenses that are AUM based.

The second theme was non operating income. One of the big drivers of that decrease was our sponsored investment product gains that decreased by $20 million, and that’s reflective of the market volatility this quarter.

And investment and other income decreased approximately $19 million, and that’s reflective of smaller gains taken in the corporate portfolio this quarter and also last quarter had about $13 million of equity from affiliates that did not occur in this quarter.

Interest expense is running less than historical levels as we’ve paid down some of our commercial paper, and then the third theme, income taxes, the effective rate for the quarter increased to 29.5% and the effect tax rate for the year was 28.1% and that was right in the range we expected. Last quarter’s rate was unusually low due to non-recurring tax benefit, and this quarter’s rate had approximately 2 million of non-recurring tax expense.

So, as I mentioned, operating profit margins remained strong, and consistent with historical trends both on the quarter and the fiscal year.

And a word about capital management, we repurchased almost 1 million shares this quarter. When combined with dividends, we returned over 80% of current year earnings to share holders this fiscal year, and total shareholder return for the year was over 20%

So, in summary, Franklin Templeton had a record fiscal year for a 60^th anniversary. Despite a challenging quarter, where we saw consistent margins despite increased distribution costs, and more normalized non-operating income and tax expense.

So I’ll turn the mike back to Greg who will go over some business highlights.

Gregory E. Johnson

Thank you, Ken.

Looking in the United States our fixed income sales and marketing campaign that we started last January continues to be very successful. Not only have we seen very strong growth in net flows but we’ve seen our market share within the retail channel continue to improve.

In Canada we had one of our best years in net sales, there on record.

We announced a strategic joint venture in Dubai with a new firm called Algebra Capitol, which really allows us to build out our local asset management strategy and offer and build a retail business in the Middle East and North Africa region.

In Europe, we acquired a majority stake in RIBA Financial Systems, which is a creator of the RIBA Transfer Agent Software Solution Suite, and it really allow us to control our next generation building our offshore transfer agency capabilities in multi-currencies.

In Poland we announced our second global servicing center outside of the US and that will help service the growing European business and especially Germany.

And in Japan, as I mentioned earlier, we won our first offshore Japanese equity separate account mandate.

On the institutional side we launched our fourth global private real estate fund, The Franklin International Real Estate Fund.

So, in sum, it was a strong quarter, a solid quarter, as far as earnings and flows go, in a somewhat difficult environment.

And we would like to now open it up for your questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Ken Worthington with J.P. Morgan

Ken Worthington with J.P. Morgan

(Inaudible) Question before, but with growth out performing value, what are you feeling towards Franklin having a more meaningful presence in growth style products, and given the magnitude of the outperformance of growth or of value, do you feel you have the time, the resources, and the desire to maybe continue to build those organically?

Gregory E. Johnson

I think that is obviously a timely question with the rotation that we have seen. In one of the areas that I didn’t mention that’s had very strong performance growth fund and the capitol growth fund the flex cap growth fundable had very good performance and we are starting to see flows pick up there so regardless of what we do in the future, I think we feel that we do have those funds and the track record now are at a period of time that make them very marketable and more importantly they’re performance has been very solid there. So I think we are in a good to position, to you know if the market continues to rotate and close and continue to go there to capture some of that.

Ken Worthington - J.P. Morgan

Thanks, and then maybe for Ken, on the two expense signs on IT spending, you said a bunch of the spending this quarter was discretionary. Is that recurring? Should we expect IT to remain at the elevated level for the next couple of quarters or is that going to fall back down to you to 1Q, 2Q, 3Q levels of 07?

Kenneth A. Lewis

Well, you know as the business expands I think that’s a good use of company resources. I would say that this sequential increase you know the 12% was a little bit on the high side but as long as the business expands I think you’ll see increased spending there.

Ken Worthington - J.P. Morgan

Ok and then lastly on other income I think in 3Q there was some litigation expense. 4Q is a little high as well. It was, I guess maybe that’s an unusual bucket anyway but is that that level of expense also recurring or should that fall back down also?

Kenneth A. Lewis

I think that in that line item there was kind of a mixed bag of recurring and non recurring items.

Ken Worthington - J.P. Morgan

So as we think about 1Q 08 and 2Q 08 any help there?

Kenneth A. Lewis

That’s a tough one there’s a lot of things in that line and don’t forget that that line is also driven by AUM so if you see a big change in that that’ll effect that line as well there is some expenses in there that are on a percentage basis (inaudible)

Ken Worthington - J.P. Morgan

Ok thank you very much

Operator

The next question comes from the line of Cynthia Mayer of Merrill Lynch

Cynthia Mayer - Merrill Lynch

Hi and good afternoon. Very quickly I sort of had a similar question on the amortization line. It seemed like a big jump for something that is just driven by sales of particular share classes. I guess that B shares outside of the U.S. I’m just wondering if that would be a good run rate.

Kenneth A. Lewis

This is the differed sales commission line I think you are referring to,

Cynthia Mayer - Merrill Lynch

Aha

Kenneth A. Lewis

Yeah that one is definitely dependant on share classes like D shares and C shares in our case it’s more C share driven and it has a lag effect too. So when you see the increase in rate is from sales from previous quarters so given the fact that in this quarter we had sort of a pullback in US sales relative to total you might expect that line to level out in the short term.

Cynthia Mayer - Merrill Lynch

Oh so it’s lagged but sometimes the lag is a little as a quarter?

Kenneth A. Lewis

It can be.

Cynthia Mayer - Merrill Lynch

Ok and than on the foreign fund, the performance has improved but of course the star ratings reflect three, five, ten years. I am wondering how you think the outlook is for a turn in flows there, and what controls more, the short term performance or the star rating?

Kenneth A. Lewis

Well I think the short term performance helps with the bulk of the redemptions which is around the investment only side which is a big part of that fund. but I don’t expect to see a turn around quickly I just hope the number redemption number should drop as the relative performance improves and than how quickly the retail new flows come in that’s going to lag more than the improvement in the redemption number.

Cynthia Mayer - Merrill Lynch

Kenneth A. Lewis

You are more dependant on the morning star ratings (inaudible)

Cynthia Mayer - Merrill Lynch

Right ok and then. And then I was just wondering if you could give us an update on the repatriated earnings at this point.

How are they being worked through the system or are you have any thoughts on?

Kenneth A. Lewis

Not much to report on that it’s working through the system nicely, and we will probably use those funds sooner than the five year time horizon.

Cynthia Mayer - Merrill Lynch

Ok thank you

Operator

Your next questions comes from the line of Michael Hecht with Banc of America

Michael Hecht - Banc of America

Hi guys thanks, can you hear me?

Kenneth A. Lewis

Yes thank you

Michael Hecht - Banc of America

Hi, sorry about that. I thought you could just update us on kind of a capital management thinking here I mean I guess your current assets I guess we’ll get the cash and stuff (inaudible) rather I’m (inaudible) to quarter end but can you give us a sense of how much cash or is excess is available (inaudible) for buybacks and such?

Kenneth A. Lewis

Well you know our we’re our strategy is going to continue to be opportunistic in (inaudible) repurchase as I mentioned before in terms of returning capital to shareholders we do try to focus on not adding to the cash coffers we think that having a strong balance sheet is strategic and a strategic competitive advantage and the preferred method of we like the flexibility of share repurchase. but anything we have done in the we open to anything that we have done in the past in terms of returning money to shareholders

Michael Hecht - Banc of America

OK that’s fair any updated thoughts on how the outlook for acquisitions you note that you feel pretty well positioned from a growth, in a perfect world any areas where you would like to be like to be bigger?

Kenneth A. Lewis

Nothing that we haven’t mentioned before we feel pretty comfortable about our prospects in the growth area organically, but we’re always out there beating the pavement and looking for new opportunities and we’ll continue to do that.

Michael Hecht - Banc of America

Ok and than can we talk a little bit more about the performance in Templeton is there any kind of FX impact that you had kind of in the quarter driving week of performance and I don’t know if that has any impacted mutual serious (inaudible) or given to have some international equity product as well and than any products you feel you are getting capacity constrained onsets flows and (inaudible) effects have pretty strong so I mean do you expect that the products?

Kenneth A. Lewis

We’re not seeing any capacity constraints I mean the big one is the income fund and that’s a question that we see quite a bit but I think the nature of the income fund with utilities and corporate bonds and highly liquid investments we don’t really feel that that is reaching capacity at this stage but as we have always said if we think it’s crimping performance we will go ahead and close that.

Michael Hecht - Banc of America

Ok and than just last question any expectations for growth and head count from here? I mean should we expect a similar trajectory that we saw last year? Just to get (inaudible) 2008 budgeting and stuff?

Kenneth A Lewis

You know, it’s going to be a function of how the business grows. Obviously having said that, we’re kind of partial to longer term planning around here. I can say this, the bulk of the growth you know we will try to fund in these lower cost centers going forward ,so if there is growth and head count per capita increase, I think than the expense line will not be as much as has been in the past.

Michael Hecht - Banc of America

Ok I will just sorry one more tax rate next year do we think similar to what you guys saw this year, full year?

Kenneth A Lewis

Yeah well you know putting the mix earnings aside which is of course a major factor in what drives the tax rate. There are probably I was looking for looking into the future there are at least a dozen of variables that drive the rate one way or the other and I think on balance id’ have to say that the variables that have an upward bias slightly outweigh the ones that have been negative bias in terms of tax rate.

Michael Hecht - Banc of America

Ok thanks a lot.

Operator

Your next question comes from the line of Mike Carrier with UBS

Mike Carrier - UBS

Thanks just a quick question you guys went over the underrating distribution margin and it came in a bit low then where it was kind of trending over the past (inaudible) quarters I know some of the new funds, when you have new funds, it has some impact on that. But I just wanted to get your color on what you were thinking of going forward?

Kenneth A Lewis

Yeah you’re gonna its normal to see volatility there. I think this quarter kind of illustrated what really drives that line, when you have kind of the sales mixed shift in a quarter towards non US retail. I mean from non US retail to non US and institutional, you are going to see that margin contract a little bit. So you will see that volatility quarter to quarter, but I do think over the long term we are seeing a downward trend there.

Mike Carrier - UBS

Ok and than just during the quarter you announced an outside joint venture with Algebra Capital. Just not too familiar with the region and just on (inaudible) side just curious just why them as a partner? What’s the competition there whether it’s local or international? And than also what the opportunity? Is it more than on the institutional side? Or any on the retail side? And if you can size it up at all?

Kenneth A Lewis

I’ll start it and Greg will probably add. You know it’s one of our strategies for growth. We look at that region, there’s a lot of opportunity there’s a lot of potential for business growth in that region. And we did not have local expertise and so we found some partners that we thought did have that local expertise. I think the opportunities are both the on the institutional and the retail side.

Gregory Johnson

I don’t, that’s fair.

Mike Carrier - UBS

Ok thanks

Operator

(Operator Instructions) Your next question comes from the line of William Katz with Buckingham Research.

William Katz - Buckingham Research

Thank you and good afternoon everyone. I am struggling a little bit with trying to see where the earnings leverage is going to come from. I’m trying to balance your discussion that the some of these lines that we were focused on are variable in nature. I mean you’ve had 12% AUM growth over the last 9 months of so, and you’re operating income growth has been lagging that. Just trying and then if I look even sequentially your revenues and I realize distribution has an impact here, but your revenues were flattish. And you had double digit growth on some of these line items. So how do we think about the margin on the go forward basis? Its sort of feels like things have sort of peaked out. Help me understand that better please?

Kenneth A Lewis

Well I’m going to start with the (inaudible) you know a lot of its driven by what happens in the market. The other thing I will point out is that this firm really is I think biased toward long term decisions. And so we don’t really manage the short term profit margin. But having said that if you look over at the year, you know we have been running at a fairly consistent operating margin which has just kind been a residual of all the things we do here. I think that so I guess in answer to your question, what I am saying is if we see a sharp increase in AUM in any given quarter, we’re not likely to go out and spend it all. The same thing would hold true on the down side.

William Katz Buckingham Research

Ok and than just so distribution margins (inaudible) and a tax rate is edging higher, you really need to see a sort of sort of a step up in the manufacturing margin at this point. Is that fair?

Kenneth A Lewis

For the margin to continue?

William Katz - Buckingham Research

Just so to see some material earnings leverage at this point?

Kenneth A Lewis

Thanks fair.

William Katz - Buckingham Research

Ok. The other question I have is going to set us back to capital management and I guess a million shares seems a little underwhelming relative to your capital base and your earnings leverage. Can you talk a little bit about your thinking in the quarter? I mean you have seen a lot of the other asset managers buying, stepping in, and being more assertive on capital management whether it’s adding leverage to the balance sheet, or whether it’s just being more proactive in terms of buyback. Is it just a husbanding of capital for uncertain times, product development, I appreciate the 80% of net income going out but, just trying to understand how you are thinking about incremental returns on capital?

Gregory Johnson

Yeah I think it’s a combination of product development strategic competitive advantage going forward, and from a capital perspective we are going to continue on the path that we’ve had in the last year, but we will be opportunistic, you know this was a pretty volatile quarter.

William R. Katz - Buckingham Research

Ok, just sort of curious you have not talked about it directly in a while Greg. This big focus, I guess this might be the year of a share from defined benefits and from defined contribution. Can you give me an update a little bit on where you stand in terms of the push into retirement services

Gregory Johnson

Well you know I think the view that we have always taken is that we try to provide our funds in as many retirement vehicles as possible and, you know, I think the shift from defined benefit, to defined contribution benefits, are our style more than the shift to the other way because of our mix of funds. And we’re not out there trying to develop retirement platforms or compete in record-keeping and we’ve gotten away from that. That’s really been our strategy, and really be an independent asset manager that can, you know, because of our scale, can have service teams really going after every part of the market where they have, where they are using outside funds. So that’s really been our retirement plan, and people talk about higher rollovers, “what’s your strategy there?” No, we are not in a position where we are losing assets, like many firms can from that trend, we are in the position of gaining assets. So our strategy is always to build as many relationships with as many advisors as possible and that’s really the best strategy to capture rollover assets. So I think we are in a very good position with regard to the bigger trend in retirement.

William R. Katz - Buckingham Research

OK, Just one more last thing, thanks for answering all the questions. As I look at the US business, at least based on the SIM fund data, it seems like you’re lagging the industry and some of your key peers in terms of the (chips) in equity. And just trying to understand how we should think about organic growth, if in fact there is a more decisive style shift here, is your growth platform robust enough to potential offset some attrition that might start to come out from the macro level on value.

Gregory Johnson

Well I think that’s a hard one to answer. I mean obviously it’s not as large it doesn’t have the brand awareness on the value side between Franklin and Templeton. But, you know, I think we have addressed that and it’s one thing going out to starting funds, and saying you are in a position to capture assets, these funds have been around they have significant assets in them already and they have very good track records. So I don’t think there’s any reason why we can’t go out and market those successfully and get very significant flows but whether or not you can capture whatever you are going to lose if there is rotation I think that’s a question for the distribution teams and how they execute.

William R. Katz - Buckingham Research

And, like your peers, are you seeing a big shift going on, sort of seemingly, at the moment?

Gregory Johnson

Well you see the numbers. I think we haven’t seen the big shift yet. We have been talking about a shift for a lot of years. I think the more recent relative performance you will start to see a movement because it’s fairly dramatic, but one could argue that it’s a shift to technology stocks instead of the whole large cap and growth versus value, I get more confused the more I look at it. I think that tech stocks, tech stocks have done very well, large cap stocks because of the decline of the dollar, and I see a lot of value funds that are positioned in both of those sectors. I just don’t think that we are going to see this kind of rotation that was so crazy a few years back for a lot of reasons, for the internet and tech stocks and things; and then it took a lot of years to get back to a more normalized valuation. And now you are seeing, you see both sides buying the two. So I think it really comes down to just relative performance and probably the dollar has been driving a lot of the large cap movement lately.

William R. Katz - Buckingham Research

Sure, ok thanks for answering all my questions

Operator

The next question comes from the line of Marc Irizarry with Goldman Sachs

Marc Irizarry - Goldman Sachs

Oh great thanks, Gregory Johnson you guys obviously mentioned the quarter in terms of being a little bit abnormal in terms of, volatility and seeing money market flows increasing and maybe some investor behavior that is maybe not sustainable. But what have you seen so far in terms of the way retail versus institutional investors have sort of reacted post -- maybe the Fed easing, thanks.

Gregory Johnson

Well figure you will always see there’s more volatility with retail relating to what’s happening, you know, with the marketplace and headlines and daily and that’s going to affect the redemption rates and certainly the new sales coming in a lot faster than it will the institutional markets. The institutional market, and that’s consistent with our results, didn’t really seem to be disrupted, disrupted by the volatility in the quarter and clearly the retail market was disrupted. And a lot of times people will just put off purchases until something like the fed cut and then you saw things move back pretty quickly in more of a normalized environment. But clearly as quick as the markets come back the mindset of the retail investor is probably not where it was four or five months ago because that, you know, really significant shock as far, and still today reading all the headlines and things people are going to be a little more cautious.

Marc Irizarry - Goldman Sachs

Okay great and, I know, there is probably not much more help you can give, just on the other income line can you give maybe a little bit of the, maybe color, behind the characteristics of those investment. So we can get a better sense of how we should be thinking about the change in that line item, thanks?

Gregory Johnson

Well I can give you a little color. Look at the last quarter; we talked about $13 million of earnings from affiliates; that is an annual event, that is seasonal, and so we did not have that this quarter. And then the sponsored investment products is, you’re probably talking mostly about equity funds there, whether it be international or domestic.

Marc Irizarry - Goldman Sachs

Okay, thanks

Operator

Your next question comes from the line of Christopher Spahr with Deutsche Bank.