Calamos Asset Management Inc. Q1 2008 Earnings Call Transcript

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 |  About: Calamos Asset Management, Inc. (CLMS)
by: SA Transcripts

Calamos Asset Management Inc. (NASDAQ:CLMS)

Q1 2008 Earnings Call

April 22, 2008 5:00 am ET

Executives

John Calamos Sr. – Founder, Chairman, CEO

Nick Calamos CFA – Co-Chief Investment Officer, Head of Investment, Sr. Exec., VP

Cristina Wasaik – Interim Chief Financial Officer

James Baka – Exec. VP of Wealth Management and Pres of Calamous

Nimish Bhatt – Sr. VP of Operations

Analysts

William Katz – Buckingham Research

Prashant Bhatia – Citigroup

Craig Siegenthaler – Credit Suisse

Cynthia Mayer – Merrill Lynch

Marc Irizarry – Goldman Sachs

Operator

At this time I would like to welcome everyone to the First Quarter 2008 Results Conference Call for Calamos Advisers.

(Operator instructions)

I would now like to turn the call over to Philip Kranz of Dresner Corporate Services. You may begin.

Philip Kranz

Thank you. 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, the 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 risks and uncertainties that could cause actual performance or results to differ materially from those expressed 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 redemption, our ownership structure, catastrophic or unpredictable event, unavailability of third party 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 risks and other risks, uncertainties, and other important factors that could effect future results, see "Forward-Looking Information and Management Discussion and Analysis of Financial Condition and Results of Operations" and, where applicable, "Risk Factors" in the company's annual and quarterly reports filed with the U.S. Securities and Exchange Commission.

Present with me today is John Calamos, Chairman, Chief Executive Officer, and Co-Chief Investment officer; Cris Wasaik, Interim Chief Financial Officer and Mark Infanger, Vice President and Corporate Controller. With that I would now like to pass the call over to John.

John Calamos

Thank you for joining us on the Calamos Asset Management First Quarter 2008 Earnings Call. We appreciate your interest in our company and for taking the time to be with us today. I will review some of the overall numbers for the quarter and make some comments about our overall business strategy. Cris Wasaik our Interim CFO will then give you greater detail on our financials. I will return to give you a market outlook prior to opening the conference call to the Q&A session.

On page four of your slides, you will see our first quarter 2008 results. Operating income was $44.4 million in the current quarter and contributed to $0.27 to diluted earnings per share. This is compared to an operating income of $50.2 million in the first quarter of 2007, which contributed to $0.30 to our earnings per share and $52.6 million in the fourth quarter of 2007, which also contributed $0.31 per share to our earnings.

Total other income or expense net was a net expense of $41.6 million in the first quarter of 2008 compared to a net income of $3.1 million in the first quarter of 2007. This change was mainly attributable to the market depreciation of our consolidated partnerships in offshore funds and the accounting treatment of those investments. Cris will talk about that in greater detail.

It is an important point here because of the way the accounting treatment did in the market-to-market of those investments. Diluted earnings per share was $0.02 for the quarter versus earnings per share of $0.32 for the year earlier period and $0.42 last quarter.

Finally we declared our regular quarterly dividend of $0.11 per share, payable on May 28, 2008 to shareholders of record on May 13th.

Slide five is showing our assets under management. As of March 31st of this year, assets under management were $40.9 billion, down 11% from December 31, 2007 and down 4% from March 31, 2007. First quarter revenues were $110.7 million, down 4% for the first quarter of 2007 and 11% from the fourth quarter of 2007.

Page six shows the net purchase redemption trends. We begin to get some traction in our offshore funds in the quarter with $28 million in net purchases. Sales during April have actually increased, adding another $58 million in net purchases for a combined $86 million to date. As a reminder, when new assets represent greater than 50% of total assets, we may no longer be required to consolidate these funds in our results. Without our substantial investment in these products, we do not believe we would have gained such a meaningful close so quickly.

As we have discussed from the past, the effort and lead time for institutional assets is expensive. We are happy with the recent production of our efforts, which is supported by the improved flows over the past year.

Finally, given the market turmoil, our heavy equity concentration and the fact that January was the worst month in the history of the capital markets, we view these relatively low net outflows to be a good indication of our 2007 investment performance across all strategies.

On page seven, we highlight a few of our diversification efforts. We have been investing overseas for many years. We continue to think there are very good opportunities in the global environment so we continue to think globally. We have done our studies and we feel confident that our investment tools, our work across borders, and we now manage $3 billion in global international strategies.

The products that offer options for three types of investors, our global growth and income, which is really a convertible type of strategy, International Growth which is similar to our US Equity Growth or with the non-US emphasis and then Global Equity, which is when we came out with last year. We feel that these diversification efforts will help us grow the business in the coming years.

On page eight, the pie chart show the diversification of our strategies and client based. As we build our business, we are focused on expanding our core competencies. We now manage eight funds each with greater than $1 billion in AUM and we continue to diversify our client-base both in the US as well as the non-US markets.

Some key strategic initiatives are listed on page nine. Corporate wise, we have reorganized our senior management staff as we have grown over the years. Our mutual fund business has become much more dominant so we are now separating out the corporate functions from the mutual fund functions.

Nimish Bhatt is our Chief Accounting Officer on the mutual fund side of the house and we are reorganizing the corporate side with Cris Wasiak as our Interim Chief Financial Officer. We also have initiated some cost containment efforts. Basically what we have done here is to have a goal of keeping our operating expenses in line with the total amount of 2007, not the fourth quarter run rates. We expect the full impact of these efforts to be reflected as reductions and compensation and benefit expenses flow through the second quarter and beyond.

Within our distribution efforts, while we continue stringently manage our operating expense, we are not loosing sight of focusing on the business in the key prospects for growth. As part of that organization or reorganization, I should say we are using a much flatter sales and marketing organization to refocus our distribution efforts on institutional, wealth management, and the non-US markets, as well as a much more focused on the retirement plans to grow our assets.

At this point I would like to turn it over to Cris Wasiak to review the financials.

Cris Wasiak

Thank you John and good afternoon to everyone. If you look at page 11, as John mentioned, AUM at the end of March was $40.9 billion, which is down 11% from the end of 2007 and down 4% from a year ago same time. Average assets for the quarter were $41.9 billion, which is a decrease of 11% compared to the $46.9 billion reported in the fourth quarter of 2007 and a decrease of 4% compared to $43.8 in the first quarter of 2007.

Equity strategies were 47% of our assets as of March 31, which compares to 49% a year earlier. while balance strategies grew from 30% to 31% of our AUM. Equity strategies were 49% of our AUM as of December 31, while balance strategies were 31% of the comparison.

To recap some of the more detailed flow information that John previously presented, with respect to the net redemption for the quarter, we experienced net outflows of $343 million compared to net outflows of only $59 million and $2.6 billion in the fourth quarter of 2007 and first quarter of 2007 respectively.

Mutual fund net outflows for the quarter were $449 million compared with net outflows of $263 million and $2 billion in the fourth and first quarters of 2007. Most of this improvement came from our growth funds. For separately managed accounts, we had net purchases of $106 million for the quarter compared to net purchases of $204 million in the fourth quarter of 2007 and net redemptions of $679 million in the first quarter of 2007. The net inflows we due to several new large institutional accounts that opened in the first quarter as our past efforts are starting to come to fruition.

Let’s look at revenues on the next slide. We had total revenues of $110.7 million for the first quarter of 2008, which is down 11% over the fourth quarter of 2007 and down 4% over the first quarter of 2007. Management fee revenues were $77.3 million in the first quarter of 2008, also down 11% from the fourth quarter of 2007 and a 2% decrease for the first quarter of 2007. These decreases were mainly due to lower average assets under management for the period.

Our management fee rate for the first quarter of 2008 is 74.2 basis points, up 1.5 basis points from the first quarter of 2007. On slide 13, we will talk about operating income and margin. First quarter’s 2008 operating income was $44 million, a 15% decrease when compared to the first quarter of 2007, and an 11% decrease from the first quarter of 2007,mainly due to lower revenues for the quarter.

To reiterate John’s earlier point, we do expect 2008 operating expenses to be kept in line with the full year 2007 expense level. Total operating expenses were $66 million for the first quarter of 2008, which is an 8% decrease from the fourth quarter and a 1% increase from the first quarter of 2007. Looking at some of the components of that, compensation and benefits expense for the quarter do reflect our incentives compensation accruals at less than target.

There are also several other off setting adjustments that we should review when we look at the first quarter of 2008 compared to the fourth quarter of 2007. If you recall in the fourth quarter of 2007, the bonus accrual was increased as a true up to reflect the impact of the increased assets and increased performance in the third and fourth quarters of 2007. In the first quarter of 2008, we also had a $0.07 impact for the 28 staff numbers that have been reduced and that was in $1.5 million. And as usual in every single year, FICA related expenses spike in the first quarter and that amounted to about $1.2 million.

Distribution expenses were $24.2 in the current quarter which has decreased from $25 million in the prior year quarter and from $27.8 million of the fourth quarter of 2007. And as we would expect are driven by the decrease in assets in the current quarter when compared to those periods.

Operating margins decreased to 40.1% for the first quarter 2008 compared to the operating margin of 42.2% for the fourth quarter of 2007 and 43.3% for the first quarter of 2007.

Looking on the next slide at non-operating income loss on page 14. Total other income expense net was a net expense of $42 million for the first quarter of 2008, which compares to a net income of almost $18 million for the fourth quarter of 2007 and a net income of $3 million for the first quarter of 2008. You can see from the chart what is happening with the net interest income expense side to less focus on the unrealized market appreciation, depreciation component.

Unrealized market depreciation was $36.6 million in the current quarter primarily on our investments in consolidated partnerships in the offshore of funds, reflecting the net impact to our finance statements after ceding the effects in minority interest investments in those products. We believe that it is important for investors to understand what causes this volatility in earning especially in non-operating activities. So I want to spend a couple of minutes discussing our investment philosophy and the results of consolidation in certain circumstances and not others.

As is described in our earnings release in the fourth quarter of 2007, we launched four offshore funds. And consistent with our practice of investing along side our clients and with our commitment to these products, we invested $50 million and to each of the four funds that were introduced. This investment is managed as part of an asset allocation within our corporate investment portfolio, which was $834 million at the current quarter end and our portfolio as a reminder is primarily comprised of product managed by us. Because our ownership represents more than 50% of the fund assets, we are required to consolidate these portfolios with our financial results. As such, market appreciation and depreciation or our investment in these funds is included in non-operating income expense net in our consolidated statement of operations.

This accounting treatment of the market depreciation in the first quarter was the primary driver of the decrease in earnings. But this consolidation may no longer be required once our investment represent less than 50% of the relevant fund’s total assets. And at that point, future market appreciation and depreciation would be included as a component of stock holder’s equity as it is for the majority of our investment portfolio.

This same consolidation treatment is also used to record the activity of our partnership investments which are consolidated with out results, creating volatility in current earnings. During the quarter, let us put this into perspective, our total investment portfolio decreased by $75.8 million. While $36.6 million of this decrease was recorded through our P&L, the remaining losses of $39.2 million will be reflected and accumulated other comprehensive income within stockholder’s equity.

Moving on to the next slide, I do not want to spend much time on these slide but we do believe that this graphic highlights the volatility in our earnings, resulting from the portion of our investment portfolio that has market-to-market treatment in our earnings versus the more stable performance of our operating results.

On page 16, with respect to net income, our net earnings for the quarter with $449,000.00 compared to net income of $9.3 million for the fourth quarter of 2007 and $7.5 million for the first quarter of 2007. Diluted earnings per share were $0.02 per share for the quarter.

Finally on slide 17, focusing on liquidity. Overall our financial position remains highly liquid and we expect to manage our portfolio to generate attractive investment results to enhance the return to our shareholders. We see cash and cash equivalents were about $69 million at the end of the first quarter, down approximately $39 million from the end of 2007. Investment securities sold $497 million at the end of March, a decrease of $38 million over year end 2007, again as a result of the unrealized depreciation in our investments.

Partnership investments and offshore funds were $268 million at the end of the first quarter compared to $304 million at year end as a result of unrealized depreciation.

Now I would like to turn the call back over to John for comments on our investment performance and market outlook.

John Calamos

Thank you Cris. I will briefly review our investment performance and also give you our outlook for the coming months. As we all know, especially in the mutual fund business, investors are very short-term oriented causing fund flows to be erratic. Calamos had an excellent year in investment performance in 2007 and during the first quarter of 2008, our performance reflects much more like the equity indexes. Unfortunately we did not have much of a time to capitalize on the good performance of 2007 as January, as we did indicated earlier, presenting one of the worst stock markets ever.

I thought what we would do is review our overall performance and discuss briefly some areas that we feel have good potential for future growth. On slide 19, is a listing of our institutional investment strategies and their long term performance records. We are proud of that performance; our strategies go back to 1979 with the newest one being a global equity strategy, just started just a year ago on April of 2007. We feel we are getting good traction in expanding our institutional business primarily based on this track record.

On page 20 it shows our mutual fund strategies and really, primarily some of the larger funds. Our mutual funds also have demonstrated excellent results over the long term. For example Calamos Growth Fund, Calamos Growth and Income, enjoy a 5-star Morningstar rating for the last 10 years while Calamos Convertible Fund and Clamos Market Neutral Fund enjoy a Morningstar 4-star rating for the last 10 years. So our long term performance is exciting and we feel over the years that we will prove to be very beneficial to our growth.

On page 21, I will highlight through strategies that really impact our growth. The US equity growth strategy, the Calamos growth strategy, the slide you see on page 21 is rolling through year returns. We think that growth strategy is poised to perform well as we continue into 2008. The chart showing the roll in three year numbers show how well it is performing over the market cycle; performing well not only in the up years but also in the difficult market in the previous recession period. We have done that over many many market cycles and we think this will help us as we go through 2008.

The next strategy is the Calamos Global Opportunity Strategy. This is a strategy that uses both convertibles and other securities to achieve its market objective. And you see similar numbers exist for the Calamos Global Opportunity Strategy. Notice the performance over the last three years, as well as the performance during the difficult recession years. We have had the history of growing the firm, coming out of very difficult times because we have been able to perform well in very difficult periods.

The last strategy is the Calamos International Growth Strategy. This is a strategy which is an offshoot from our US equity product that we started just three years ago. And again, it highlights the performance since the inception with good performance over the last three years as well as over the last 12 months. It now does have a three-year track record in the mutual fund business; this is a requirement to be placed on many distribution platforms. We feel this competitive track record will help us as we diversify our business into other products.

On slide 24, real quick bullet points on our outlook. Market volatility will continue in our opinion. However we have the sense that the liquidity crisis maybe behind us. We think growth will assert its leadership as it did in 2007 and the global market still offers good opportunities. The fed cuts will finally take hold and we think will be helpful for the remainder of the year.

There are still issues that remain from taxes, to sectors that have many many problems. But to us valuation is the key and we feel the portfolios are well positioned for the coming months.

At this time I would like to open up the lines to the Q&A.

Question and Answer Session

Operator

(Operator instructions)

Your first question is from the line of William Katz with Buckingham Research.

William Katz – Buckingham Research

Thank you and good afternoon. John, I was wondering if you could start a little bit then give a little more color about the headcount reductions, where they are and then given your view that expenses will be flat year-over-year, what kind of implicit revenue substance are you making against that?

John Calamos

Well the key to the cost reduction as you know, the revenue future is so based on what happens to the markets. So we came at it this way Bill, to say that what we wanted to do was hold the line on expenses to our total expense level and compensation for 2007. The reductions were pretty much across the board. We looked at areas and tried to cost contain with everybody taking a hit, including myself and Nick Calamos, our Chief Investment officer. So it was pretty much across the board. We wanted to continue to be in a position to grow the company, which we think we are and to put an emphasis on greater productivity with our staff.

William Katz – Buckingham Research

Okay, so as I understand, your conversation guidance is flat and not necessarily your overall expenses?

John Calamos

Really, we are not using the fourth quarter run rate. Our total expenses for 2007, we expect to be flat for 2008. So the mix may change Bill but in its entirety we are focused on keeping that 2007 expense structure pretty set back.

William Katz – Buckingham Research

Okay, that was helpful. Thank you. Next question is, just in terms of the revenue yield, I guess your one of the few companies to report so far, that has actually seen a little bit of improvement in the yield and it is a little counter intuitive. So I was wondering if you could walk through some color as to what is going on, is it just geographically driven? Is there some timing here, maybe just some add back from of the closed-end waivers, just trying to get a sense of what may have driven that sequentially.

John Calamos

Well you bring up a lot of good points and the closed-end waivers are something that will impact us later in the year. As we start to unwind a seven-basis point waiver on CHI and a three-basis point waiver on CHY. That will happen in June and July respectively, leading collectively to about $1.1 million or 1.2 million in revenue pickup. The actual realization rate is largely impacted because in a significant portion of our separately managed accounts, we bill on the beginning asset. So in a depreciating market, we actually have a little protection or installation to the fee revenue and what ends up happening, is our management fee is fixed for the quarter but your average asset is decreasing over the quarter. So that inherently about one-basis point to the fee rate. With that being said, I think the fourth quarter of 73 basis points is probably more in line with our expectations in the short term.

William Katz – Buckingham Research

Okay, that is helpful. And then, just John, as you build up the non-US business, where are those flows being captured, is that in the separate account bucket or in mutual funds or both?

John Calamos

The US sets are in our total mutual fund assets.

William Katz – Buckingham Research

Okay, and then last, I’m just curious you have been holding conference calls with the retail brokerage community about the auction rate preferred. Maybe a bit of an update from the sell-side perspective of where you stand on reconciling some of the auction rate preferred issues.

John Calamos

We are very intent on refinancing the auction rate preferred market. Basically we are working with several banks at this point Bill. We feel we are close to being able to announce some refinancing but as you know we do not have anything locked up at this point but we have been working very diligently to refinance the auction rate preferred. And we have had do-diligence meetings going on for the last several weeks so I am hoping we are very close to being to announce something very shortly.

William Katz – Buckingham Research

Okay, thank you.

Operator

Your next question is from the line of Prashant Bhatia with Citigroup

Prashant Bhatia – Citigroup

Hi, just on the total expenses I just wanted to get some clarity there. Last year the expenses were about $300 million, is that the number you are targeting for 2008 or are you excluding some of the closed-end fund one timed fees you had in 2007?

John Calamos

Yes, I think we are really looking to exclude the one-time charges as we do not expect those to recur. I guess the thing that you need to keep in consideration is the distribution expenses and the amortization is really going to ebb and flow with our assets and sales. So those are things that we can necessarily control. It is primarily the other three lined items, comp and benefits, marketing and sales promo and G&A. And again as I alluded to earlier, we are looking to focus our efforts on managing that in aggregate, as supposed to each of those line items individually.

Prashant Bhatia – Citigroup

Okay, and then just the $36 million loss that you talked about, was that all on the $200 million that was invested in the fourth quarter?

John Calamos

No, actually if you back track to slide 17 there are really three big components that run through our P&L. The one lined item there, partnership investments in offshore funds is really representative of our investment in the two partnerships, the market neutral opportunities fund, as well as the equity opportunities fund. And then that also includes the $200 million in the offshore fund. There is another small sliver for CFS Securities, which is about $3.5 million that also runs through our P&L. But if you really focus on slide 17 and you look at that $303 million investment, that is what took the majority of the, or that is what resulted in the majority of the depreciation for the period.

Prashant Bhatia – Citigroup

And then just on the buyback, I think to date you have bought back roughly around 15% of your public float. Is there a point where you start getting concerned that the public float is getting too small or did you just continue to buyback here?

John Calamos

Well we have authorization to buyback some additional shares at this point. In our board meetings, we do discuss that is an excellent point and so we are aware of that. So we will continue to make that a board item to discuss for the future and whether or not we will continue to buyback the program.

Prashant Bhatia – Citigroup

Okay just on the new product launches, the 130/30 and the emerging markets. Are you getting a lot of demand from your sales force, in terms of clients asking for those products or does it make it more attractive to offer those products in order to get on to certain platforms.

John Calamos

Well you know, we have always offered products that we feel have good investment merits. And we think we are well poised to offer the 130/30 strategy. As you know that is a short comp fund on that strategy and we have been managing a market neutral strategy since 1990, which has a short component. We like the flexibility of the 130/30 strategy as a permanent investment point of view. So we think it is a part of the future of being able to have a primarily long managers offer some shorting within their portfolios, so we are looking further ahead. As you know in the mutual fund arena, it takes a while for a strategy to get acceptance. So we feel the 130/30 strategy is well within our core competency. It has a strong investment opportunity and that is really the reason.

The other strategy which is the new world fund is a merging market type of fund. There again we are pretty excited about what is going on with globalization. We have been investing in international markets for many many years, not only on the equity side but also because of our international convertible experience that we have been doing since the late 80’s. So where we feel there too that there is a good investment merit, it is well within the competency of our investment team. So it helps to leverage that and we want to participate in what we think is over the longer term a very opportunistic market.

Prashant Bhatia – Citigroup

Okay, and as you continue to grow out the global side of the business, is there on the horizon and any plan to add investment professionals overseas or do you want to maintain that from home base right now. Right now we feel with the advances of information technology in all the needs that we have that we can do it from our staff internally here. We are not so much into the very small cap area where we feel would be necessary to visit companies.

We do go to conferences of course, so we do have a chance to visit companies and conferences but those strategies at this time are being managed right within our present head quarters and investment team.

Prashant Bhatia – Citigroup

Okay, thanks John.

Operator

Your next question is from the line of Craig Siegenthaler with Credit Suisse.

Craig Siegenthaler – Credit Suisse

First on the cost cutting initiative, I would be interested here on why management decided to pursue this cost cutting initiative now. I wondering if the stock price, sequential to client revenue is kind of what drove this.

John Calamos

Well the cost containment really was, we are obviously entering, or we are in a difficult market period with extreme volatility. Our asset base has been relatively flat over the last two or three years. And we felt that a cost containment here, given those various factors made a lot of sense. And the trick here, the balancing act for us is really without disturbing and trying to grow the business and it think we are doing that. It was a healthy exercise to go through. Everyone participated in there. So we feel we will be stronger for if, not weaker.

Craig Siegenthaler – Credit Suisse

And there has been some pretty senior people that have departed from the Calamos family over the past, I guess, three to six months. Were they included all in the head count reduction of 7%?

John Calamos

I do not think so in that number. They were included in the restructuring though. In our goal to restructure how we work, how we are organized in that case. And obviously they will be reflected in some cost containing.

Craig Siegenthaler – Credit Suisse

And then again on the auction rate, just another question there, can you remind us what your auction rate preferred balance is and what the assets within the funds are that they support.

John Calamos

The total auction rate preferred for Calamos is approximately $2.3 billion.

Craig Siegenthaler – Credit Suisse

And what are the asset classes within the fund of the convertibles or just pure…

John Calamos

No, remember the closed-end fund. We have five closed-end funds. Each with a slightly different investment objective and one of the reasons why we like the closed-end funds is that it really gives us flexibility to blend different asset classes to achieve the investment objective. So we have three of the funds that are really income oriented type of funds, converts, high yield paper and two of them where primarily CHI and CHY were primarily US type of securities. And then CHW was an income oriented fund but global. So we call that the global dynamic.

So those three strategies are all income oriented fund using primarily fixed income, convertibles, high yield, some equity, some option overlay to achieve the objective. CGO, which is a global total return fund and CSQ, which is also a total return from US, uses a combination of convertibles and stock with some option overlay. So it is a bit more complex than just a simple one security for the total strategy.

Craig Siegenthaler – Credit Suisse

That is great color. But the reason I asked is, if you look at kind of what Eaton Vance has done, or Nuveen or even BlackRock – in terms of which type of asset closed-end funds they have refinanced, the one a lot of companies are having trouble with are is the muni-high-end fund. It looks like, you didn’t really mention muni’s there, so I am wondering, when you look at bank financing solutions and repo’s or even TOBs now, it seems like that is very doable and I guess. Are they are the solutions you are looking at?

John Calamos

Yes, I would agree with that statement, we do not have any muni’s. Probably the securities that we need to focus on from a refinancing, are part of the high yield and the convertibles.

Craig Siegenthaler – Credit Suisse

And where have the reset rates in the underlying auction rate preferred’s reset to? I know its only a speard to LIBOR. But just so you know,its at 3.5%, what kind of ball park?

John Calamos

Yes, it is a right around 4%, maybe a little bit more than 4%. It is 1.5 times LIBOR is the maximum rate. So I did not see what the rate was just very recently but I think it is 4.2 or 4.1 or something like that.

Craig Siegenthaler – Credit Suisse

And are there any plans to replace Peter Nash at the investor relations helm. I am just wondering because I actually do not have a contact number for you guys anymore.

John Calamos

Well, all our press releases have a contact, so feel free to use that contact number. And we will be glad to talk to you typically and we talk directly to the analysts.

Craig Siegenthaler – Credit Suisse

Okay great, Thanks a lot.

Operator

Your next question if from the line of Cynthia Mayer of Merrill Lynch

Cynthia Mayer – Merrill Lynch

Hi good afternoon. Just a few questions to clarify on the comp one more time, I think you said there is about $1.5 million of severance cost in this quarter’s comp and about the same in seasonal FICO expense. So does that mean a more normalized run rate is a little over 20 at this point?

John Calamos

Yes, it is going to be slightly less than where we are at right now. So, I think those are both good assumptions in trying to determine where we are going to be in the second quarter.

Cynthia Mayer – Merrill Lynch

Okay, and when you say, not all of the savings are in this quarter, is that mostly the comp you are talking about?

John Calamos

Yes.

Cynthia Mayer – Merrill Lynch

Because, marketing promotion went down, pretty solidly.

John Calamos

Right, that was due to some timing efforts and also some of the supplemental distribution expenses that are really driven by our assets. So they will float with the asset levels. The reason that we say we do not have the whole pick up is because the crost containment was done at the end of February. So really you see, one month of reduced expenses, where in the second quarter you will have the full quarter impacted with the reduction.

Cynthia Mayer – Merrill Lynch

Okay, and then along the line of the personnel questions, how long would you expect it to take to move to a permanent CFO?

John Calamos

A couple of things that we are doing right now is restructuring our senior management staff as I indicated earlier. As we had grown over the years we did not separate out the mutual fund business from the corporate side. We feel at this point that makes a lot of sense to do that. Therefore with Cris Wasiak here helping us in structuring this, we have some time to do this. And what we want to do is accomplish the restructuring and go forward from there, and then make sure we have the correct person in place at that point.

So we are looking for a different structure that we have had in the past and we feel very confident that Nimish Bhatt as our Chief Accounting Officer on the mutual fund side, that we will be well served there, and then we will restructure the corporate side.

Cynthia Mayer – Merrill Lynch

Right, and you do not think separating it will lead to more head count?

John Calamos

We are not anticipating that at this point.

Cynthia Mayer – Merrill Lynch

Okay. Just on the offshore funds, I think that you mentioned it but I did not quite catch it; which styles are really selling at this point leading to that traction you are seeing?

John Calamos

Yes we have four funds out there in the use of sub platform. US Equity Growth, Global Equity, Global Growth and Global Opportunities from, which is a convertible blend product and then US Opportunities as well. So we are seeing some traction initially on growth, that is where we have seen some flows. And we wanted to see that with enough funds so that significant investors would come in. And we are seeing that happening today. Once we get above 50% of outside investors then we would not have to consolidate. I think at this point one fund is already at more than 50% or very close to it.

Cynthia Mayer – Merrill Lynch

So you can deconsolidate those on a fund-by-fund basis, right? So you can take that one fund off.

John Calamos

Well in the future quarters we would not have to consolidate it. To me not being the accountant or CFO here, it seems strange, but I think we have to keep that going in the quarter, right Mark? But if all our funds got below 50% then we would not have to consolidate that into our financials. That is one of the reasons we wanted to show you the operating income and the operating earnings to get a clear picture of how we were doing as a company.

Cynthia Mayer – Merrill Lynch

Okay and when you say you are getting traction on growth you mean global growth, right?

John Calamos

US Equity Growth.

Cynthia Mayer – Merrill Lynch

US Equity Growth okay. Alright, any update on the segregated cash for public shareholders? Any plans for that? What are you going to do a special dividend?

John Calamos

That is a board item we continue to review from time-to-time. The board has not made a decision on that cash.

Cynthia Mayer – Merrill Lynch

Okay and just a more general question, I recall from when you went public that one of the interesting aspects of your investment performance was a low beta and overtime a number of your products had a low beta; and I am wondering whether the volatility in the market has affected the beta of your products and whether that in turn affects the way you would market them or the way investors view you.

John Calamos

Of course there is a short-term beta and a long-term beta. Now our long-term beta is still very consistent with our longer term track records. Some of the slides that I had discussed, I think the rolling three years is a good indication of how our investments strategies had performed over a market cycle. Even in maybe our more volatile strategy, like growth, often the institutional investors will look at the semi variance, the upside volatility versus the downside volatility.

We compared very favorably their. So as the slide indicated in the difficult market times like in the past recession, we prove to have done well as we had in 1990 and 1987 and other periods like that. We are hopeful that through this period the results would be similar.

Operator

Your next question is from the line of Marc Irizarry of Goldman Sachs.

Marc Irizarry – Goldman Sachs.

On the expense side of the equation, I am just trying to get a sense for the cost containments. It appears that maybe you are trying to align the cost structure on a more variable basis and maybe taking some fixed expenses out if you can. First of all, is that sort of what you are after here? And then also in distribution, can you remind me what head count you have on the distribution side and that also seems to be a big bucket of your expenses obviously, and what you are sort of changes, what you expect sort of going forward there on the distribution expense line.

John Calamos

I cannot give you the exact head count there. But what the decision we made is to look at the resources that we had at bay in the distribution side of the house. And what were found was that most of the resources had been going more towards the mutual fund business and not as much towards some of the other key elements that we wanted to expand. So what we want to do is hold the line on expenses which we have and then reallocate resources towards key areas of the business. For instance, more resources towards the 401-K, maybe more resources towards our institutional business, the areas that we feel offer us good opportunities to help us expand the business.

The goal is to keep the total expenses contained and then shift resources to really focus on the key areas of growth.

Marc Irizarry – Goldman Sachs

And then obviously a lot of your cost structure is variable I mean. If the environment does change and sales do pick up and you would see the expense dollars in many of those variable buckets heading higher, but what about on the fixed side, are there fix cost coming out as well. I mean obviously your headcount is coming down? But anything else on the fixed side of the equation?

John Calamos

I do not think there is anything significant on the fixed side in a business like ours, majority of the cost is comp. We do have some fixed investments for our infrastructure go about that we are also trying to contain as well, that is mainly in the IT area.

Marc Irizarry – Goldman Sachs.

This is sort of goes back to the last question on the partnership investments in the offshore funds; can you just remind us how much your seed investments are as a percentage of each of the funds. And then also if you did deconsolidate one of the offshore funds, would there also be an accounting adjustment in terms of your P&L, the P&L impact?

John Calamos

The consolidation is, you realize we do not control the consolidation. These are accounting roles that require us to consolidate because of our seed money into these funds. And what primarily happened in this last quarter was during the first quarter we set up the USET’s funds worth $50 million of each fund. Each of those funds go with outside investors go above 50%, we will no longer have to consolidate those in the future. As far as our total investments, what were done are asset allocations among our strategies that we think is appropriate for our investment objectives as a firm and try to manage towards that.

Did I answer your question?

Marc Irizarry – Goldman Sachs.

I guess the question I was asking was what is your investments in each of those funds, so what percent ownership of the total fund size, what percent of each of the strategies do you own of the total fund?

Executive

Right now the three entities that we consolidate are the two partnerships equity opportunities of which we own 44%, market neutral opportunities of which we own 97%, and then all of the offshore funds, which as of 3/31/08 in its entirety, this is not on a fund-by-fund basis but in it entirety, we own approximately 87% of those assets or those investments.

With respect to the accounting adjustments, there will be no accounting adjustments. So we will either consolidate in the current period, or we won’t consolidate. To the extent that we consolidate, you will see the volatility in non-operating activity. And to the extent that we do not consolidate, you will see those unrealized appreciation and depreciation changes go through stock holders equity.

Operator

You have a follow up question from the line of William Katz with Buckingham Research

William Katz – Buckingham Research

Just want to gain understanding of how permanent these cost reductions might be as you look out into what potentially could be a more normalized 2009 environment. Would you envision snapping back the expensess to make up for 2008 like you have done in past practices? And, then a more conceptional discussion, if you are putting more money into the 401(k), the institutional platform in general relative to mutual funds; is it safe to assume that you move a little bit more of a volume story relative to margins?

John Calamos

Well I do not think it is safe to assume that. I think we are still focused on our margins. As we have grown over the years, we have distribution channels like retirement that we do not feel we have taken full advantage of. So it is really much of alignment of resources to key areas that we feel we have some good growth opportunities in, the wealth management business, the 401(k) business, the offshore business, the institutional business, so it is really the alignment of resources with opportunities that we want to take advantage of. I think the process that we went though in our strategic planning process was good for us. It is really again right sizing us for where we are today. If 2009 proves to be a different environment, and that it is hard to anticipate what changes we would make but we have always been able to leverage our staff well and we would hopefully expect to do that.

William Katz – Buckingham Research

And as you look ouy into a potentially more normalized environment, would you envision more of a snap back? Maybe you said that, I just missed it.

John Calamos

No, not necessarily. We hope that we have the leverage in place. I do not think if we had more of a “normal environment” that we would go out and increase our expenses overnight. That is not what we are contemplating.

William Katz – Buckingham Research

What about senior executive compensation including yours and the Co-CIO?

John Calamos

Well in a normal environment, we would expect that to go back to normal. But we felt that we needed to align ourselves with both the shareholders and our staff, so that is why we voluntarily decreased our expenses, our salaries.

William Katz – Buckingham Research

Okay, thank you.

John Calamos

Thank you very much for joining us today. As always we appreciate your comments and your interest in Calamos Investments. If you do have any questions, please give us a call, we are happy to discuss it with you. Thank you and good afternoon.

Operator

And this concludes today’s conference call. You may now disconnect.

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