Calamos Asset Management Q4 2007 Earnings Call Transcript

Calamos Asset Management Inc. (CLMS)

Q4 2007 Earnings Call

January 28 2008 5:00 pm ET

Executives

Peter Nash - Director of IR

John Calamos - Chairman and CEO

Pat Dudasik - EVP, CFO and COO

Analysts

William Katz - Buckingham Research

Craig Siegenthaler - Credit Suisse

Cynthia Mayer - Merrill Lynch

Marc Irizarry - Goldman Sachs

Presentation

Operator

Good afternoon. My name is Holly and I will be your conference operator today. At this time, I would like to welcome everyone to the Calamos Advisors LLC fourth quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions)

From time-to-time information or statements provided by us, including those within this conference call may contain certain forward-looking statements relating to future events, future financial performance, strategies, expectations, competitive environment and regulations. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events and are subject to risk and uncertainties that could cause actual performances or results to differ materially from those expressed and/or suggested by the forward-looking statements.

Such risks and uncertainties include but are not limited to loss of revenues due to contract terminations and redemptions, our ownership structure, catastrophic or unpredictable events, unavailability of third party retail distribution channels, damage to our reputation, our interpretation of and positioning relative to the market, fluctuations in the financial markets, and the competitive conditions in the mutual fund, asset management, and broader financial services sectors.

For a discussion concerning some of these and other risks, uncertainties, and other important factors that could affect future results, see Forward Looking Information in management's discussion and analysis of financial conditions and results of operation, and where applicable, risk factors in the Company's annual and quarterly reports filed with the US Securities and Exchange Commission. Thank you.

I would now like to turn the call over to Mr. Peter Nash. Sir, you may begin.

Peter Nash

Thank you, Holly. To continue with the disclosure please note that this presentation contains non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. In calculating operating performance for the 12 months ended December 31, 2007, operating expenses, operating income, net income and diluted earnings per share are presented in accordance with accounting principles generally accepted in the United States, and also on an as-adjusted basis, which constitute non-GAAP financial measures.

Items presented on an as-adjusted basis exclude the impact of terminating two closed-end funds, additional compensation agreements and the CHW closed-end fund structuring fees. Because these one-time items are not expected to recur, management believes that excluding these items better enables it to evaluate the company's operating performance relative to prior period.

Management believes these non-GAAP financial measures provide the reader with the necessary information to analyze the company's operations for the periods compared. For a more comprehensive discussion of these non-GAAP financial measures, please refer to the September 30, 2007 Form 10-Q filed with the Unites States Securities and Exchange Commission.

With that, I'll turn the call over to John Calamos, Chairman, Chief Executive Officer and Co-Chief Investment Officer and Pat Dudasik our Chief Financial Officer will then join us for a conversation on the financials. John?

John Calamos

Thank you, Peter and good afternoon. And, thanks for joining us on the Calamos Asset Management fourth quarter 2007 earnings call. We appreciate your interest in our company and for taking the time to be with us today. This call is about reviewing the fourth quarter in this past year.

With January being the worst January for the financial markets in the last 100 years, it's seems that last year was a long time ago. I will give you our outlook at the end of our discussion here, but we will review the historical financial growth of our company. We will review the financial performance for the fourth quarter and for the year.

We talk about the expansion of our distribution capability and the continued diversification of our product, and our view on the markets going forward. Pat Dudasik, our CFO will then give you the financials and that will be just prior to opening the call for question-and-answers.

Let's go to page 6 or slide 6. There are some key financial statistics in there. In six years we've seen our assets under management rise at a compounded annual rate of 23.7%, total revenues increased at a compounded annual rate of 32%.

Operating income and net income have grown significantly during that time as well. But recently they've been impacted by certain one-time charges that occurred in the second quarter of '07. Pat can go into more detail on those one-time charges in his section.

We believe the recent investments in product and business development, which we will discuss in a moment will have a positive impact going forward. What's obvious with the charts is that our growth over the last three years has flattened out and we'll talk specifically about what we have done, and where we think we will continue to grow.

Let's us look at slide 7, which is an overview of the fourth quarter and the full year of last year. Assets were 3% higher than a year ago. Revenues, fourth quarter was $124.5 million, a 2% year-to-year and for '07 total revenues were $473.5 million, slightly less of 2%.

Diluted earnings per share were $0.42 for the quarter versus $0.38 for the year earlier period and $0.32 last quarter. For the year, diluted earnings per share were $1.22. It does include the one-time charge, again that we took earlier in the year.

Finally, we declared a regular quarterly dividend of $0.11 per share payable February 27th '08 to shareholders of records on February 12th. For the year, dividends on the common shares totaled $0.44.

As we move to the next slide, let's look a bit about our investment strategies and what we're doing here is contrasting '04 is when we went public to where we are at today. As you can see the assets under management grew from $28.8 billion to $46.7 billion as of the end of December.

Since our assets have shifted considerably, equities now comprise 49% of our assets based with convertibles down to 10%. As you know, we've been a convertible institutional manager over the years and out of that we grew into different product areas.

Even with the 10% of our asset-based in convertibles, we still have many convertible securities in our balance product areas. So, we remain to be one of the largest convertible bond managers around. In fact our convertible products still remain closed.

I think what we try to indicate here is that we've made an effort to diversify our asset-based going forward and we are accomplishing that. Also note that the growth fund has been a flagship front for us as a considerable impact on our performance. It now accounts for 35% of our assets under management down from 41% in April of '04.

Lets look a bit specifically at the growth fund because it does impact how we are performing as a company. On slide nine, we give the bad news and the good news. The bad news in the sense is that it is a large fund, it is 35% of our total assets. The other bad news is we are in a business where investors chase performance, especially short-term performance and that makes our flows in and out very volatile.

The other part of the bad news is that diversification of assets into new funds have been slower than we would have liked over the years and we continue to work on that. I haven't said that this is a business all about investment performance. The good news is we've had outstanding performance in the US equity growth fund over the long-term. It's compounded out at 19.5% since inception.

Furthermore, in 2007, it again had outstanding performance in our minds and that performance I'll you give in just a bit. 41% of our assets in '04 have continued to diversify and now it's 35% and we've had good flows or fairly good flows in three of our international/global market neutral funds totaling $1.1 billion in '07. As far as diversifying the business, we now have eight funds that have assets over a $1 billion.

Let's take a look at long-term performance on slide 10. It's really chronological; it starts with our original strategy of being convertibles. In fact our convertible program pre-dates, convertible indexes which we were pioneers in that particular area.

Convertibles were considered a defensive equity strategy. What we show you there is that we've been able to match the equity markets and if you look at the data or the risk it's significantly less than the equity market and significantly has outperformed the bond market.

We blend the different strategies over the years and we have good long-term performance as you can see in that particular slide, in fact, on all of the strategies there was growth and income, US equity growth which I had talked about earlier, our global opportunities, high yield, and international equity. So, we're proud of the performance that we have accomplished over the long-term.

But as I said earlier, our flow seems to be focused on near-term performance. So, let's take a look at just last year in 2007, again, across the broad, we thought we had a good year performing in convertibles, growth and income, US equity growth, not only are performing in the market, which was single-digit but US equity growth was almost up 25%.

So significantly they are performing there as well as our global opportunity strategy, high yield and a very difficult year for high yield, and international activity which were coming on our three-year track record, again, good performance in our new fund which we launched just in '07 global equities. So it was a very strong year for our investment team across the board and we're proud of that.

On our mutual fund side, which is on slide 12, again, the bar chart shows the performance against the S&P, which was up 5.5% as you know. And then the three-year track record, five-year track record, and 10-year track records, all are showing strong returns that we hope to convert into good flows as well.

As far as diversifying our business, if we look on slide 13, this gives you an idea of how we'll diversify the business over our longer term. What we did here was to go back to 2000, where we had $6 billion under management. You can see the number of strategies that we've instituted over that period of time, again, introducing new products, all we feel ate within our core competency of our investment team of over the years. So we have really been able to leverage the core competency of our investment team.

We continue to look at the closed-end fund market. Some of those are mixed in with the open-ended funds. And of course, there are corresponding institutional strategies along with the mutual funds. We continue to look at closed-end funds as an opportunity. Our goal there has been to look at good investment opportunities and then bring up, hopefully a closed-end fund to take advantage of those opportunities.

Let's talk a little bit about our recent initiatives. On slide 14, again, one of our business strategies is to expand our product base as well as our client base. You'll see there that a very important launch for us occurred late last year. We're going global with the Calamos Global Funds and we've taken four of our current strategies that we are managing.

We've exceeded those strategies with the $200 million commitment; Global Equity Fund, The US Equity Growth Fund, US Opportunities Fund and a Global Opportunity Fund to take advantage of our convertible expertise and our equity expertise, and to launch offshore funds that will allow us to present our strategies to not only the European market, to the Middle East, to the Far East, offshore is a very exciting launch for us. And we've just begun their process.

Also, last year we added our fixed income team. In that we've added a government money market fund and a total return bond fund, and we continue to build up the product area in the fixed income team. This helps us diversify our business and it also is an important ingredient in complementing our Wealth Management business. These areas are areas that are important to the Wealth Management business and we needed that expertise.

In addition, we continue to have target markets with the broker dealers, and independent financial advisors. We have pension, public and endowment fund, in other words the institutional investors. High net flows to the family offices. We manage money for banks and insurance companies. And last year we made a much more considered effort for an important growth area for us which is a 401(k) retirement platform.

Some business developments that occurred last year is on slide 15. Earlier in the year, we secured $375 million private placement debts offering to add to our balance sheet. I think our timing was pretty good on that. We have probably more luck than timing, but we will take credit any way we can there. Our corporate investment portfolio now is $1 billion. It allows us to see new strategies and allows us to manage for both capital gains and income with the corporate portfolio.

The Board of Directors authorized a repurchase of up to 2 million shares; we purchased 452,100 shares during the fourth quarter. We purchased another 1 million shares under this plan to-date.

That finishes the highlights for the fourth quarter in '07. What I thought I would do is just quickly give you our market outlook and then have Pat give you some more of the financials.

Our economic outlook is on our website. The fundamentals that we felt were pretty secure in here at least for the underlined companies that we own. We've been minimally impacted by the subprime. We think there are powerful global trends that are remaining in place.

Obviously, we are concerned about what's going on with the credit crisis. Earlier last year, in fact a year ago now, we had thought that as we get further along the markets will become more volatile. Quite frankly, we had no idea of the extent of the volatility that we are experiencing now. I think there is a potential for increase inflation, the markets are worried, we are worried and quite frankly we think that the stocks, in fact, where we own our portfolios, the underlying panel fundamentals are very strong.

But clearly, we are on a verge of a bear market. 20% is the number. We are pretty close to the bear market. I guess that's the bad news. The good news is that the market has predicted the recession before it happens here. And we think there are good opportunities here, especially in high quality growth companies as where we are positioned. And there is, we have been emphasizing growth companies that have significant revenue and really have a global thought as well. So, from that point of view, we are very positive.

Not to worry about here in the market. Obviously, the Fed action hopefully provides some relief to the bank. The credit insurance industry, we hope gets the funding they need. There is a threat here of the decoupling of the global markets is actually being questioned here. If you've been following what's been going on in Davos, the more coordinated regulation around the worlds probably need is well as more transparency.

So, deleveraging is continuing, and if we look at some of the other risks that we think are important. I think the market is reacting to maybe on an unfavorable capital gain and dividend tax. Right now that's in jeopardy from the political climbing and the market typically does not look at that timely. So, inflation risk is increasing and the administration has been winking at our strong dollar policy and I think that is concerning the market as well.

So, we are in the midst of this. We are continually looking at this as an opportunity very hard to judge, the short-term moves in the market, but we are restructuring portfolios to take advantage of the volatile nature of the market that we happen to be in.

Hence, then I will turn over to Pat Dudasik, our Executive VP, Chief Operating Officer and CFO. All right Pat.

Patrick Dudasik

Thank you, John. Good afternoon. On slide 18, as John mentioned assets under management at the end of December was $46.2 billion, flat with the end of September and up 3.3% from year end 2006.

Average assets under management for the quarter were $46.9 billion, an increase of 6.1% compared to $44.2 billion in the third quarter of '07. For the year average assets were $44.8 billion, down 2% from 2006.

Equity strategies were 49% of our AUM as of December 31st compared with 51% a year earlier, while balance strategies grew from 29% to 31% of our AUM.

We will move to net purchases. For the quarter, we experienced net outflows of $59 million compared to net inflows of $374 million in the third quarter '07. While we had slight outflows for the quarter we have seen a continuation of the turnaround in net inflows from the second half of '06 and in the first half of '07.

Mutual fund outflows for the quarter were $263 million, mainly from our growth fund. We did have net inflows of over $400 million for the quarter in our other non-money market mutual fund. Net inflows were the strongest in all three of our international global funds as well as our market mutual funds.

On the separate account side, we had net purchases of over $200 million for the quarter versus net redemptions of $137 million in the third quarter '07. This improvement of net flows was mainly due to a combination of new equity accounts as well as additional cash flows received from existing equity accounts.

Over the year, we saw net redemptions of $3.6 billion, of which $2.5 billion was from our mutual funds products, mainly the growth in income funds. Encouragingly, we did have record net flows on our three international global funds of roughly $500 million for the year.

We turn to revenues on slide 19. We had total revenues of $125 million for the fourth quarter of '07, up 5% over the third quarter '07 and up 2% over the same quarter '06. Management fee revenues were $86.4 million for the fourth quarter, up 5% from the third quarter and a 4% increase from fourth quarter '06.

These increases were mainly due to higher average assets under management for the period. Our management fee rate for the fourth quarter was 73.1 basis points down seven-tenths of basis points from the third quarter '07.

As I mentioned last quarter, there was significant market appreciation in the later half of September that favorably impacted the fees we earned on our institutional accounts. So the 73 basis points we earned in the fourth quarter is a better reflection of our run rate.

Turning to revenues for the whole year of 2007 on slide 20, revenues were $473 million, a decrease of 2.5% from '06, but up 13% from 2005. Management fees were $325 million even with 2006 and a 14% increase from 2005. Our management fee rate continue to decline reaching 72.7 basis points for the full year 2007, nearly 1.5 basis points better than 2005.

The increasing fee rates, we have seen over the last couple of year reflects the increase in equity and international strategy and closed-end fund assets we manage, which generally have a higher management fee rate.

On the next slide, slide 21, we see fourth quarter 2007 operating income was $53 million, an increase of 8% when compared to third quarter '07 due to higher revenues in the quarter. Total operating expenses were $72 million for the fourth quarter, an increase of $3 million or 4% from third quarter '07.

The increase in operating expenses for the fourth quarter were mainly due to increased employee compensation and benefit expenses, reflecting increased incentive compensation accruals based on higher operating and net income. Incentive compensation accruals did however finish the year below target. The operating margin improved to 42.2% for the fourth quarter '07 compared to an operating margin of 41.7% for the third quarter.

For the full year 2007 on slide 22, operating income for 2007 was $173 million, a decrease of $58 million from '06, and a decrease of $33 million from '05. As John mentioned, 2007 results were reduced by two one-time closed-end fund charges of $26 million, which reduced operating income and operating margins.

When evaluating performance, we consider operating income as low as net income, which we calculate in the accordance with the GAAP. We also calculate adjusted operating expenses, operating income, net income, and diluted earnings per share to exclude the adverse effects of these one-time expenses, because they are not expected to recur. These adjustable results are not, and should not be construed as, a substitute for GAAP results.

Adjusted operating income for 2007 was $199 million, a decrease of $32 million or 14% from 2006. The decrease in adjusted operating income was mainly due to lower management fees and that distribution revenue, and increased adjusted operating expenses.

Total adjusted operating expenses were $274 million for '07, an increase of $19.8 million from 2006. The increase in adjusted operating expenses was due to higher employee compensation and benefit expenses reflecting staff additions in investment management, information services, sales and marketing functions.

In addition, general and administrative expenses increased by $5.7 million to $37 million, generally due to increased facilities and occupancy costs as well licensing fees and system development expenses related to the implementation of a trading and portfolio accounting system to handle our fixed income and global investment strategies. Operating margin was 36.6% for '07 compared to 47.6% for 2006.

Looking at net income on slide 23, we start with income before the minority interest adjustment in taxes. $70.2 million for the fourth quarter, a 33% increase from the third quarter and 11% increase from the same quarter '06.

Other income was $17.6 million in the fourth quarter, an increase of $14.3 million from the third quarter 2007 due to significant capital gain distribution of our mutual funds in the fourth quarter of $17 million.

Net income for the quarter was $9.3 million, an increase of 31% from the third quarter 2007 and a year-over-year increase of 5%. Diluted earnings per share was $0.42 per share, a $0.10 increase from third quarter. For the year adjusted diluted earnings per share was $1.37, an $0.08 decrease from 2006.

On slide 24, we look at our cash and investment security position. Cash and cash equivalent were slightly over $100 million at the end of the fourth quarter, down approximately $220 million from the end of '06.

This reflects investments that we have made in our Dublin-registered funds which brought our total investment security up to $749 million at the end of '07. Partnership investments increased to over $90 million at the end of the fourth quarter, as we made significant investments in our equity opportunity hedge strategy.

Overall, our financial position remained highly liquid, our debt is prudently laddered maturing over the next 12 years allowing us to manage our portfolio to generate attractive investment results to enhance the returns to our shareholders.

Now, I would like to turn the call back over to John for his concluding comments, John?

John Calamos

Thank you, Pat. Challenge in the coming year with the recent market activity, we feel though we have good competency in the investment area and we are able to leverage that talent going forward.

We also feel that the building that we have done over the years with the expansion of our headcount is behind us. One of our goals was to light size a firm from the headcount point of view to service the asset base that we have, where we felt at this point that we've done that. And going forward, we feel we have a lot of leverage in this business and obviously the challenge for us is the challenge for all of us - the market environment that we find ourselves in. With then, I'll open it up to Q&A at this point. Holly, please.

Question-and-Answer-Session

Operator

(Operator Instructions) And your first question comes from William Katz with Buckingham Research.

William Katz - Buckingham Research

Okay. Thank you and good afternoon. A couple of questions, John. Maybe so I'll start where you ended off and just try to look at some of the data points and it looks like your revenues, either sequentially or year-on-year relative to your compensation ledge sharply. I'm just sort of curious, is that a function of relative performance in 2007?

I’m really trying to triangulate the relationship between revenue and expenses on a go forward. Particularly when you mentioned I think, Pat, in your own commentary that incentive accrual still ended the year below target. So, how should we think about that in the construct of your closing remarks that your headcount is mostly behind you at this point? Hello?

John Calamos

Yes, well, I think Pat will get the numbers, but we feel, as I said earlier, that we’ve kind of right sized the firm all year long with the fluctuation in flows and in that type of thing. The big variable has been the accruals on our incentive bonus structure. So that's and as we have been proved over the last four, five, six months or the ending two quarters that impacted the fourth quarter. Pat, do you have any additional comment there?

Pat Dudasik

Not too much, I think in the fourth quarter we moved in much closer to our run rate or our target bonus numbers even though because of flat revenues et cetera. We did not get there that's why we said we’re under target. But again, I think we don't necessarily target compensation expense to revenues on a quarterly basis or anything like that. So, again our total incentive comp comes from a number of measures that they re-buy like the partnering and function. But I think, again, as headcount stabilizes, comp should pretty much stabilize. If performance picks up, we'll see some pick up in comp but it should not be a dramatic pick up.

William Katz - Buckingham Research

Its sort of fourth quarter is more indicative of run rate, so what you are saying?

Pat Dudasik

A little bit, yeah. Again, it's probably still under, if we hit target compensation levels. I'll remind you that first quarter you will see a pickup in expense, because we record FICA expense on our year-end bonuses that are paid in February. So you will see a pick up, I think last year it was about $1.4 million in additional FICA expense that really shows up in the first quarter, but definitely much closer to -- I guess I'll call it the target compensation level.

William Katz - Buckingham Research

Okay. That's terrific. And so second question on flows, let me say, I am curious, John you've been sort of alluding to it a couple of times in your prepared remarks. How do we think about, sort of, the very weak January? As you said, it was last 100 years relative to the very strong long-term performance, as we think about retail flows in particular?

And I guess the two things I worry about are, one, even in the fourth quarter when growth was making a bigger comeback for the industry, it was still lagging behind the industry, and now it seems like the area of potential risk might be the international and global funds. So, I am trying to get a sense of where would organic growth come from on the mutual fund side? That's sort of part A.

John Calamos

Well, we did see through the last quarter, the fourth quarter, that the trend had been much better than the previous quarters. And there is this lag between the performance of the funds and the flows. Obviously, January is kind of up in the air here with the market's following of the end of the table, so to speak.

But definitely, we've seen improvements in net flows, which is reflective of the good performance. So, we're in a kind of a very difficult market environment. Nothing seems to be very normal here, Bill. I mean it's so volatile. It's really hard to say. I mean we've had some good things happen that we're excited about as far as flows. But we're in a very, very difficult challenging market environment here.

William Katz - Buckingham Research

And then, on the separate accounts side, or maybe more generally, given these step-ups in market volatility, any sense of where you stand in terms of reopening the convert funds?

John Calamos

We continue to look at that on an ongoing basis. One of the factors there, of course, is the convertible market universe did expand last year a bit, so that's hopeful. We have not yet decided. We still use a lot of convertibles in other strategies. So when we say growth in income, it's really a convertible strategy.

Our global opportunities are convertible with equity strategy. Our closed-end funds had a significant amount of convertibles in those. So we continue to use them. So, whether or not the convertible fund by itself opens or not, we still utilize and continue to grow our convertible business.

So we like, quite frankly, as a money manager, we like the flexibility of blending asset class. So we are a little bit, maybe, different than a sort of pure style box manager. And therefore, we would rather use convertible capacity more effectively by blending asset classes than by this heavily pure product out there.

William Katz - Buckingham Research

Excuse me and last question, I know it's still early days, but can you give us a sense of how the four funds are doing offshore and particularly ever since we have greater volatility outside the United States and within?

John Calamos

Well, we just started, we just begun this effort here, it's a different regulatory requirement, so that takes literally months to do. We are in the process of getting the blue sky nature in which is offshore completed. We think our timing, you're right the dollars weakened here. So, you have non-US investors that one are quite frankly United States is on sale here and one other way to participate is hopefully through our funds.

So, we are trying to leverage-off some of the relationships that we've had over the years. So, we are not exactly new to the international markets because of our good relationships with our distribution channels over the years. We've had separate accounts in Europe, in the Middle East and Far East as well.

So, we are hoping that that translates into flows into those funds, but it's really too early, Bill, to say. The whole market here is really quite worried as you know. But it is, to us, a key initiative that we are going to focus on in '08 here.

William Katz - Buckingham Research

Okay. Thank you very much.

Operator

Your next question comes from Craig Siegenthaler with Credit Suisse.

John Calamos

Yes Craig?

Operator

Mr. Siegenthaler. Your line is open.

Craig Siegenthaler - Credit Suisse

Sorry about that. John, one question with retail investors and how they normally react to this type of cycle, when you have the equity markets down 10% in the short period. I am just wondering is there, growth in our performance last year and that is going to maybe help you a little bit, but is there any reason to think that retail investors are going to put more money into equity funds right now versus money market and some other strategies?

John Calamos

Well, it's harder to predict. You tell me what the market is going to do, I'll tell you what I'll do. So, its really hard, I mean, you are trying to predict that, I mean, I think the challenge we all have is to try and keep investors thinking longer term instead getting whips side out of the market and that's what's going on right now to a large extent is been whips all out and I think the retail investor often tends to a thing that they are perfect market timers and so do with the lot of financial advisors quite frankly.

So, it definitely is a challenge, the best we can do is perform as best we can, communicate what we are doing and perform. So, I don't think the retail investors dead in here in that sense and we think internationally I don't think they are dead at all either. There is still a lot of liquidity out there. So, we hope we get our share there.

Craig Siegenthaler - Credit Suisse

Well, two questions on that. Have you seen any recent generating of low trends to see how the investor really reacted to the performance done thus far, and also in terms of international domiciled AUM, what actually is your percentage of AUM overseas?

John Calamos

Well, I can't put a number on it. Obviously, we've had relations over there. The retail investor in offshore is a speckle as the retail investors are here. There is not much difference in that sense. So, again, we think, performance is the key there. We did see that as our performance got better understood last year, there definitely was a more positive trend inflows as the year progressed, and we still see that here in January.

Craig Siegenthaler - Credit Suisse

Yeah, that is still -- but one thing is if you take out the close-end fund, preferred in the third quarter net flows trends are roughly flat to down, at least in my view over the last quarter-to-quarter. So would you -- which actually would you or do I see positive in January?

John Calamos

No, I didn't say they were positive, I said the trend had improved from the quarters previous to that. And so I think we are on track pretty well and then this market kind of just fell of the end of the table. So it has really put all the investors acting like a deer in headlight so to speak.

Craig Siegenthaler - Credit Suisse

And John, one more question. You guys actually did a very large close-end fund, I believe it was towards the bear market about three, four years ago? And I am wondering could you guys do something like that now, I mean everything I guess, whatever that indicator was is probably saying no, but is there a chance to do a sizeable or close-end fund upwards of $300 million plus.

John Calamos

No, that's a really good point Craig. It was in 2002, we did our first close-end fund, when debt spreads were very, very wide and we saw as a company, we saw tremendous opportunity in past two converts and because a lot of convert back then were issued by tech companies and with the tech plus and the high yield paper was very cheap to us.

We were getting paid to take that kind of risk and we did one close-end fund in '02 and I think '03 wasn't hit. We did CSQ which was at that point the largest closed-end fund offering ever. I think it was $2.5 billion, something like that. Does that opportunity exist today? You bet. Can we translate that in to a fund? I don't know. But we think we have tried in all the closed-end funds we brought out, we tried to be opportunistic, investmently opportunistic. And we think that has bode well, that CHI Fund from 2002 to maybe mid-year last year. Somewhere around there had compounded out it, 18% or 19%.

So the timing was good on it and we had performed well and continue to perform well in the closed-end fund. So the closed-end funds are all about income producing funds. That's how they differ from open-end funds. So you need, you need the income producing strategies there to make those funds work. Open-end funds are much more total return, so we continued to look at ways that we can generate the kind of income that would make a closed-end fund buyable.

Craig Siegenthaler - Credit Suisse

Great. Thanks a lot, John.

Operator

Your next question comes from Cynthia Mayer with Merrill Lynch.

Cynthia Mayer - Merrill Lynch

Hi, good afternoon. Just a couple of questions. I guess one is, if we go into that bear market you talked about, what leverage can you pull on expenses to try to keep expenses more in line? How flexible is the marketing promotion? That G&A. you talked a little about the employee comp, but what leverage can you pull?

Pat Dudasik

Yeah. It's a good question, Cynthia. We may already be in the bear market maybe not the recession but the stock market surely indicating that. What we're trying to do on, as you know on investment firm one of the largest expense item is comp and what we try to do is make our comp not only in accrued based, but also incentive base.

So part of the lever that we can pull if we are in that type of situation, is going to be reflected in the incentive part of the comp. We need to be able to manage that in that situation and we're very, very cognizant of that. And maybe there are some other things we might be able to do as well, but it's an excellent question.

And we do think we have some levers to pull in the incentive and they are almost automatic, the way we've structured the incentive comps. So for some reason we're not performing as well because of the macro factors that are going and that's going to be a reflected throughout the quarter-to-quarter as we go on.

Cynthia Mayer - Merrill Lynch

Do you mean the incentive comps is due to absolute performance instead of relative? Could you get into a situation where you were outperforming on a relative basis, so the comp was quite good and yet the numbers were going down on an absolute basis?

Pat Dudasik

No.

John Calamos

We're trying to align everybody and the same goes. Its all about net-net, its not about -- it all about what we try to do is get everybody thinking along the same lines. So if we're not performing as a total company then we're not performing.

Cynthia Mayer - Merrill Lynch

Got it.

John Calamos

No matter you could have the best investment performance but if we're still in negative flows, then we're not doing something right, we're not performing.

Cynthia Mayer - Merrill Lynch

Got it. And I wonder if you can give us little more color on how your corporate portfolios invested right now and did you plan any changes on that? And the money that you put in July is that -- are you ahead because I know one of your motivations, you said was basically to beat the cost to capital?

John Calamos

Yeah. Last year, we were successful in doing that. We've gone at this in a relatively slow fashion. And we've all the securities that -- I don't know if you have that number better than I do, but all liquid type of securities that we're invested in. And we obviously are invested in some of our own funds as you saw the impact of that on the fourth quarter. As the growth fund and some of the other funds had a good capital gains distribution on the fourth quarter, it impacted our finances as well because we had investments in there.

So, right now, it's all liquid in that sense, we consider even though they are very highly liquid, we do consider them long-term investments, and we do asset allocation trying to manage a risk and obviously beat the cost of capital. I think we are fortunate in raising that debt when we did. It probably be a bit more difficult in the current environment to do even though, the quality was high as far as our investment rating.

Cynthia Mayer - Merrill Lynch

Okay. And on the separate account flows, I thought I was just seeing that that one deposit its flows and I am wondering if you could just give a better sense of which types of clients were adding and opening equity accounts and also how sustain -- is that the beginning of a trend or was it more of a sort of a one-off thing? And finally, what percentage of separate accounts now is equity versus converts?

Pat Dudasik

Well, converts are closed. So they continues to go down just because of...

Cynthia Mayer - Merrill Lynch

Yeah, it can only go one way.

Pat Dudasik

Yeah, exactly right. I think what happened with our flows in the SMA account or institutional account, we harbor, we want to package those up, is that. There was some short-term performance related outflows there that I looked at our performance and institutional money sometimes looks very similar to retail money. They tend to come out exactly at the wrong time. And so, as our performance turned we are getting very good reception on the institutional side as well.

And so, we think at least again given the fact, I don't know what's going on with the volatility of this market and surely in the fourth quarter we had very good SMA opportunities and we closed on some of those and we think we will have more. So, I would agree with you that our trend is, continues to be positive there.

Cynthia Mayer - Merrill Lynch

Okay. And last question, you mentioned the growth funds, 35% of assets. Do you know what percentage of revenues it is at this point?

John Calamos

It's probably pretty closer. There is not, we are still primarily, if you look at the amount of equity products we have and the underlying fees are relatively similar. Our fixed income which tends to have lower fees are such a miniscule part of our total asset base that they have not impacted that at all. So, it is pretty similar to that. Wouldn't you say, Pat?

Pat Dudasik

Yeah, our management fee on the growth fund is running about 74 basis points. So with our overall management fee at 73, it's basically better. It represents a bigger percentage of total revenues because of the distribution fee revenue. But when you look at management fees, it's probably about 37% or so. And there are breakpoints down there. So, there is, as a firm we get bigger there are some breakpoints in that restructure.

Cynthia Mayer - Merrill Lynch

Okay, great. Thanks.

Operator

Your next question comes from Marc Irizarry with Goldman Sachs

Marc Irizarry - Goldman Sachs

Great. Thanks. My question is that on the other income line obviously that was a -- they contributed to the quarter. Can you just give us a little bit of help in terms of how we should think about that line item going forward?

John Calamos

Well, Marc, we have about a $1 billion invested right there and basically what we are intending to do there is invest our capital wisely to beat our cost to capital, to add to income, to make it as stable a income as we possibly can without simply not think in long-terms. So it's all about managing risk and managing the asset allocation and make sense to us from a long-term investment point of view. It's what we would do with any clients.

So we are cognizant of the risk that we need to take, and then we are managing for that. And we also look at it as an opportunity in the sense of seeding new areas that we think have good investment, the international fund was a good example, it's coming up on a three-year track record and we are excited about the performance reflective of that. And then, the differences might be between equity types of strategies, which require a higher fee then fixed income strategies that are priced somewhat below that. It isn’t so dissimilar from the mutual fund business.

And the offshore business is also similar to it, there may be more expenses but we try to price that correctly because being offshore you do have more, say, marketing expenses, just pure travel and other things like that. So we try to make sure that hasn't been detrimental to our margins.

Marc Irizarry - Goldman Sachs

Okay. Thank you very much.

Operator

And there are no further questions at this time. I'll turn the floor back to Mr. Calamos for closing remarks.

John Calamos

Well, thank you all for joining us this evening and we will continue to work hard on our shareholders behalf here and we thank you for your interest in Calamos Asset Management. So good night.

Operator

Ladies and gentlemen that concludes today's conference call. You may now disconnect.

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