Calamos Asset Management, Inc. Q2 2008 Earnings Call Transcript

Calamos Asset Management, Inc. (CLMS)

Q2 2008 Earnings Call Transcript

July 17, 2008 5:00 pm ET

Executives

Philip Kranz - Dresner Corporate Services

John Calamos - Chairman, CEO and Co-CIO

Cris Wasiak - Interim CFO

Mark Infanger - VP and Corporate Controller

Analysts

William Katz - Analyst

Craig Siegenthaler - Analyst

Cynthia Mayer - Analyst

Robert Lee - Analyst

Presentation

Operator

Good afternoon. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2008 earnings call for Calamos Asset Management conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).

Mr. Philip Kranz, you may begin your conference.

Philip Kranz

Thank you. Good afternoon. 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 risks and uncertainties that could cause actual performances or results to differ materially from those expressed in or suggested by the forward-looking statements.

Such risks or 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 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 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.

With me today is John Calamos, Chairman, Chief Executive Officer and Co-Chief Investment Officer; Cris Wasiak, 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, Phil, and thank you for joining us on the Calamos Asset Management second quarter 2008 earnings call. We appreciate your interest in our company and for taking 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 Wasiak, our CFO, will then give greater detail on our financials prior to the opening of the conference call to the Q&A. And then before we open the call on the Q&A, I’d like to recap our investment performance and provide a brief market outlook.

On slide 5, our second quarter 2008 results. This is a complex slide. There is a lot of information out there. I want to focus on the adjusted results for the quarter as it’s represented of how we look at the business and make for a better comparison of period-over-period results.

As we have discussed in the past, because of the volatility in non-operating earnings, we think it’s important to reinforce operating results. Operating income was $49.1 million in the current quarter and contributed to $0.32 diluted earnings per share. This compares to operating income as adjusted $47.3 million in the second quarter of ‘07, which contributed to $0.28 of earnings per share and $44.4 million in the first quarter of ‘08, which contributed to $0.27 per share earnings.

As you may recall, operating results for the second quarter ‘07 were negatively impacted by the $26.4 million one-time marketing and sales promotion expense, which reduced operating income by $26.4 million and operating earnings per share by $0.16.

Non-operating income expense net was at net income of $17.1 million in the second quarter of ‘08, contributing to $0.11 per share to diluted EPS. There have been recent developments in the state of Illinois that have resulted in significant income tax savings for the company beginning in 2008. As a result, our state tax rate decreased by 3%, which we view as a tremendous positive to business as we expect this to translate into approximately 7.5% reduction in tax payments.

The reduction in the state income tax rate resulted in a one-time tax expense of $6.8 million in the second quarter of ‘08, which negatively impacted diluted earnings per share by $0.34. Cris will address this impact in more detail in her section.

Slide 6, assets under management. As of June 30th of this year, assets under management were $41.2 billion, down 11% from December of ‘07 and down 6% from June 30th of 2007. Second quarter revenues were $112.2 million, down 2% from second quarter of ‘07 and up 1% from the first quarter of ‘08.

On slide 7, the net flow trends are improving as second quarter net redemptions of $199 million are down from $343 million in first quarter ‘08 and down from $1.3 billion in second quarter of ‘07. We are pleased that in this difficult market environment our net purchases are improving, especially on our strategic growth initiatives. Specifically, institutional net purchases for the quarter were a positive $233 million.

Slide 8, our assets under management by strategy is shown on the left side in pie charts. Equities represent about 48%. Our convertible area, both in the balanced and specific convertible, represent about 42%, high yield about 6%. By product, as you can see, open-end funds still represent a large portion, about 58%, whereas the institutional and separate account business represents 26% and closed-end funds 16%.

We have announced two new products to add to our family of funds, a 130/30 fund, Calamos 130/30 equity, and an evolving role fund, which will be emphasizing emerging markets. We also have continued with our usage product in [near term], the Dublin-based funds, to offer mutual funds outside the United States.

On slide 9, managing in difficult times, we’re obviously in a very difficult market period. And what we have done is really, in this period, tried to control our expenses as best we could. Early in the year, we had cost initiatives that we think are helping us through a very difficult market period here.

We had $3.5 million decrease in employee comp from last quarter, resulting in consulting and other expenses. So the idea here, of course, was to hold the line on increase of expenses as we go through a very difficult period.

Part of that was the restructuring of the senior management team to better align operational control in our growing mutual fund business and the corporate finance. Those two areas have been split where corporate finance does not oversee mutual fund business. So, we feel that’s a much more effective way to manage the business. It has resulted in a much more cost-effective structure, and we feel that that’s working well for us.

Page 10, the other initiative is reorganizing the sales marketing for better focus. The leadership has changed here. Jim Boyne, Senior VP, adds to his duties role of Chief Operating Officer for Distribution. Our six-year veteran, Tim Brand, Senior Vice President, becomes National Sales Director for intermediary distribution.

The flattening of the organization we think will have good benefits for us as we proceed here. It will leverage our opportunity across many distribution channels. So, we went from a silo approach to a much flatter organizational approach to really emphasize the different segments of our business.

We named 16 leaders to enhance that communication, and we feel this will give us a much better impact in the six areas that you see there; institutional, wealth management, our non-U.S. or international initiative, our intermediary channels, more emphasis on retirement plans, and also a better way to serve the RIA community.

On slide 11, again, part of the sales marketing restructuring was to focus on some of the opportunities that we think we can execute on; the institutional wealth management and the retirement plan area. The results thus far have been favorable, increased flow of $233 million in institutional assets in the quarter. The Calamos wealth management sees growth of more than 20% and continues to have very good client retention rates in a very difficult market environment.

Even with the reduction in expenses here we have added resources to areas we think are beneficial to our future growth, like, for example, the retirement plan initiative. In addition to the retirement plan, we also have added resources to our international initiative, and the results are gaining some traction here. And again, in a very difficult market, we had $80 million net purchase for this quarter and $109 million net purchase year-to-date.

With that, I’ll turn over the financial review to Cris.

Cris Wasiak

Thank you, John. Good afternoon to everyone. As John mentioned, assets at the end of June was $41.2 billion, which is slightly up from March 31, ‘08 and down 6% from a year ago. Average assets for the quarter was $42.9 billion, which is an increase of 2% compared to the $41.9 billion in the first quarter of ‘08, and a decrease of 1% compared to the $43.5 billion in the second quarter of ‘07. Our asset mix by strategy has been relatively stable over the last year, with equity and balanced strategies making up 48% and 30% of the assets at quarter end.

To recap the more detailed flow information previously presented by John, for the quarter we experienced net redemptions of approximately $200 million compared to net redemptions of $343 million and $1.3 billion in the first quarter of ‘08 and the second quarter of ‘07, respectively.

Mutual fund net redemptions for the quarter were $282 million compared with net redemptions of $449 million in the first quarter of ‘08 and $766 million in the second quarter of ‘07.

Within our separately managed accounts, we had net purchases of $83 million and $106 million for the second and first quarters compared to net redemptions of $540 million in the second quarter of ‘07. The net inflows were due to several new large institutional accounts that opened during 2008, and as John indicated, our strategic efforts are paying off.

Earnings to revenues on the next slide, we had total revenues of $112.2 million for the second quarter, which is up approximately 1% over the first quarter of ‘08 and down 2% over the second quarter of 2007. Management fee revenues were $78.4 million in the second quarter, up 2% from the first quarter and flat with the second quarter of ‘07. The increase for the period was mainly due to higher average assets under management. Our management fee rates for the second quarter were 73.5 basis points, up 1.4 basis points from the second quarter of ‘07 and down slightly from the first quarter.

Slide 15, operating income for the second quarter was $49 million, which is an 11% increase when compared to the first quarter of 2008 and a 4% increase from the adjusted results of the second quarter of ‘07. Again, please recall that the as-adjusted results that we reported for the second quarter of ‘07 eliminate the adverse impact of $26.4 million in one-time marketing-related expenses.

Total operating expenses were $63 million for the second quarter of ‘08, a 5% decrease from the first quarter and a 6% decrease from the adjusted second quarter of ‘07. The decrease in operating expenses is a testament to the difficult cost containment measures that we undertook in the first quarter of this year.

Compensation and benefits expenses were the largest contributors to the expense savings and were down $3.5 million, or 15%, from the first quarter, which primarily reflects the reduced staffing level and the non-recurrence of the payroll-related taxes that spiked in the first quarter with our bonus payments.

Operating margins increased to 43.8% for the second quarter of ‘08 compared to an operating margin of 40.1% for the first quarter and 41.2% for the second quarter of ‘07 when it’s been adjusted for the one-time charge.

Moving on to slide 16, our non-operating activities contributed $17.1 million to income in the second quarter compared to $41.6 million of expense for the first quarter and $5.9 million in income for the second quarter. You can see from the chart what is happening on the interest income and interest expense side, so I’d like to focus on the investment and other income activity for the current quarter.

Unrealized market appreciation, net of minority interest, was $2.1 million in the current quarter, which primarily represents the changing value of our investments and consolidated partnerships and offshore funds. This appreciation does represent a small recovery of the $36.6 million unrealized appreciation that we reported in the first quarter of 2008.

During the second quarter, we also executed a series of securities trades that generated capital gains of $20.6 million as part of our tax planning efforts, which also includes an offset to losses realized upon liquidation of our Equity Opportunities Fund.

Moving on to the next slide, this provides an overview of actual results from operating activities presented as a green line, non-operating activities presented as the pink line, as well as the impact that non-recurring one-time items have on our reported results, which are presented as the stacked boxes. It should be noted that our non-operating activities create volatility in our earnings, primarily as a result of gains and losses generated by our investment portfolio.

Onto the tax rate impact on our deferred tax assets, as John alluded to earlier, positive developments in the Illinois tax statutes resulted in a modification to the company’s state tax apportionment methodology, creating a lower statutory income tax rate for the company.

Slide 18 is an illustration of two things. First, it’s a summary of the change in our statutory tax rate from 40% to 37%, and second, that changes impact on the deferred tax asset, which is a reduction of $6.8 million. While I don’t want to get into a whole lot of detail, I do think that it makes sense to provide some background of the deferred tax assets to gain a clear understanding of how this asset impacts the financial statement.

The net deferred tax asset represents a future tax benefit of timing differences at the current statutory income tax rate. Any change to the statutory income tax rate will result in changes to the valuation of the net deferred tax asset. The change in valuation of net deferred tax asset is reflected in current period net income. While it’s not intuitive, decreases in the tax rate thus result in a reduction of value of the deferred tax asset, which is reflected as an increase in tax expense in the period of revaluation.

As is illustrated on the bottom half of slide 18, the decrease in tax rate of 3% reduces the value of the net deferred tax asset, which results in a one-time non-cash income tax expense of $6.8 million during the second quarter of 2008. We consider the $6.8 million an adjustment item for period-over-period comparisons, since it is relevant only in this quarter.

Slide 19, with respect to net income, our net earnings for the quarter were $8.7 million as adjusted for the one-time increase in income tax expense compared to net income of $449,000 for the first quarter of ‘08 and $7.4 million for the second quarter of 2007 as adjusted. Diluted earnings per share as adjusted were $0.43 for the second quarter, an increase of $0.41 from the first quarter of 2008, and up $0.11 per share from the second quarter of 2007. And this is represented by the green line on the chart.

Finally, focusing on liquidity and our investment portfolio, our financial position remains highly liquid. Our investment portfolio, which is comprised primarily of cash, investment security, and partnership investments and offshore funds, were valued at more than $850 million at quarter end. The changes in the balances of the portfolio components are principally due to the tax motivated investment transactions that we previously discussed as well as the liquidation of the equity opportunities fund.

Now, I’d like to turn the call back over to John for a discussion of our investment performance and market outlook.

John Calamos

Thank you, Cris. As you know, this business is all about taking care of clients and performing well. And we all know we’re in a very difficult market environment. So on page 22, briefly, some of the bullet points of our market outlook. In fact, we’ve just published our market outlook on our website, so some of this can be read in more detail on our website in the “Market Outlook”.

We feel, as we all know, that the credit market and the housing markets and some of the problems we’re having liquidity-wise still seems to be hanging out there a little bit longer than we would’ve expected here. So, as we position our portfolios in here, we’re of the view that, although we are in a slowdown here, we are positioning looking out 6, 12 months, and that as a long only manager we are positioned as we come out of this. And we think the valuations right now of the portfolios are pretty attractive in here.

Obviously, globalization is still a formidable force. You will see that we do have a fair amount of weighting in technology as productivity gains here as companies strive to maintain their margins.

What’s really also, I think, important is many of our assets are growth oriented. And we think the growth versus value that’s been pushing back and forth here, that value has outperformed growth for many, many years. We think that’s about to change. Whenever that’s happened, that’s been very beneficial to us. So, much like ‘07 where growth did very, very well versus value, we think as we finally come out of this, growth will lead us out of this and be the leaders in the market.

The big question, of course, for everybody is when this is going to happen. So basically our investment philosophy has been long-term bullish, short-term scared all the time. And we have enough watching the market day-to-day to be scared, but we’re looking further out and we feel we are positioned well.

Since it is all about investment performance on slide 23, I’ll quickly review our long-term performance from a convertible manager. You can see we started in ‘79 all through the various strategies where we have done a good job of beating our bench work – benchmarks over the long-term. That’s our institutional strategies on slide 23.

Our fund strategies are on page 24, and there again, I think we’ve done a good job over the long term of beating our benchmarks. Of course, this business is all about performance. Especially the mutual fund business seems to be very short-term oriented. So one of the things that we need to do is educate and communicate with the financial advisory community, the RIAs as well as our shareholders.

So, on page 25, what we have been trying to illustrate there was on a rolling three year average, which we think is much more effective than looking at every week, every quarter, even every year, gives a little bit better idea of relative performance, which is particularly notable is during the last recession how well we did.

And as you could see from our AUN, that really created a lot of momentum of our growth by doing well in difficult markets, and we have had a history of doing that throughout the years. So on our growth strategy on page 25, you can see we have our near-term performance has been good as well as showing how well we’ve done in the difficult market period.

Also on page 26, similar results with our global opportunities strategy using that same rolling three years. And on page 27 you could see one of our newer strategy with not so long a track record, three year track record, that again we have performed well in a difficult market over this past year.

Another strategy on page – on slide 28 is our market neutral income, which is a defensive equity or enhanced fixed income strategy. We are seeing some positive flows in that strategy, and it continues to be a very acceptable strategy. This market neutral fund has been around since 1990. So there again, it shows the returns there.

Near term, it’s all about what have you done for me lately in the investment business, how have we performed in this difficult market environment. On page 29, we’re showing the performance over the last year. We kind of look like the market over the last two quarters. It seems like you are either in energy or in short financial is the only place to be.

But if you look at the chart on 29 there, you can see with the market down 13%, the convertible strategy is doing well. The growth strategy is actually flat with the equity markets down 13%. So, I think again we’re preserving capital for clients and we hope – that’s one of the reasons we’re seeing our flows gain in here. We show that for the institutional strategies on 29, and in page 30 we show it for our mutual funds as well.

So at this time, obviously we’re in a very difficult market period. I have been doing this for a long time. I started in business in 1970, so I was around to see the 1974 market debacle as well as other periods. And so having lived through a lot of these, you would think these would be any easier, but every time you go through them they’re all tough.

So at this point, I’d like to open it up to any questions you may have. And we have Cris Wasiak and Mark Infanger to help me with the technical areas.

Operator

(Operator Instructions). Your first question comes from the line of William Katz.

William Katz - Analyst

Good afternoon. Couple of questions actually, if I may; no specific order. But I was really curious trying to reconcile, and I apologize, maybe I should have gotten this just from the press release and your comments. If I look at the tax charge of about $7 million non-cash, just trying to reconcile that to the $0.34 you’re putting out there on a fully diluted basis. I get $0.34 if I use the 20 million shares. But if you use the 97.1 million shares, it’s a lot lower. Can you just help me out on my thinking on that?

Mark Infanger

Yes, Bill, and I think what you need to look at is what really created that tax asset. And that tax asset was a result of the Calamos Family Partners sale of interest to CAM. So in order to go to the fully diluted basis, we have to assume that the remaining interest of CFP is sold to CAM, which would then increase a commensurate fully diluted impact, as you are seeing on the basic basis.

William Katz - Analyst

Okay, all right. Second question I have is just in terms of the funds themselves. And you talk about $200 million of new sales coming in, which is terrific. But you pour a number of $83 million of separate account net influence, which is the second consecutive quarterly decline, which is really sort of a tepid track record more recently. Where is still the vulnerability on that? And what is it going to take to maybe break that out a little bit more positively in terms of sort of a step-up of organic growth?

John Calamos

Bill, on the – remember on the SMA side of the business, several strategies, in fact our convertible strategies, remain closed. So, there is a natural bleed-off on that, and we have seen a little bit more accelerated in this. But we are emphasizing more the institutional type of business than the SMA business. So, our emphasis on the institutional where we put a little bit more resources to it, we hope that that counters off the bleed-off on the SMA business on some of the areas that are closed.

William Katz - Analyst

How big are the closed funds now?

John Calamos

The closed funds are probably – what do you think, Mark?

Mark Infanger

The convertible fund itself is about $600 million in assets.

John Calamos

But there is also SMA accounts that are another billion or something.

Mark Infanger

Yes, probably closer to $2 billion on the managed account side.

John Calamos

So, it’s about $2.6 billion.

William Katz - Analyst

Okay, that’s helpful. And then just sort of curious, very impressive set of charts on the back there in terms of long-term track record and the relative. On the mutual funds side, which I see you getting less negative, but just sort of given the market volatility and the absolute performance of some of these funds more recently, what’s it going to take to see that part of the business turn up, particularly now that you seem like you are putting a little more emphasis on the institutional side?

John Calamos

Well, I think a lot of – I think what we have seen here is as our performance, our near-term performance improves, especially last year coming off a difficult ‘06, we did see the trends reverse quite nicely in there. So we had very good relative performance, not only over the last 12 months, but in calendar year ‘07. And unfortunately we didn’t get to enjoy that very much, with the difficult market during the first and the second quarter.

So part of it is really, I think, market related. What we have done internally, we can’t control the macro factors here, but what we can control is to look at areas that we think we can participate in and gain assets, like the retirement area, like the institutional area, without decreasing our emphasis on the mutual fund area, but really looking at those areas. They typically have much better redemption numbers than the mutual fund area. So we’ve chosen to emphasize those particular areas.

William Katz - Analyst

Okay, in July may be a little early yet. But have you seen any noticeable changes on mutual funds either way?

John Calamos

No. No, we have not.

William Katz - Analyst

Okay. And just a couple of others. I appreciate all the time here. The revenue yield ticked down a little bit sequentially. Is that merely mix at this point in time?

Mark Infanger

No, I don’t think so. I think that’s probably a good indication of where we expect it to be in the short-term. As you recall, last quarter it ticked up. So, I think it’s really more or less coming back in line with our expectations as opposed to really ticking down for any reason.

William Katz - Analyst

Okay. And then just have a one last one. In terms of the expense initiatives that you’ve announced last quarter, so it took place this quarter, is there further expense leverage from here or the expense base now is sort of the run-rate on a go-forward basis?

John Calamos

Well, we are not anticipating any additional. We are holding the line on the expense at these levels. So, it’s – we don’t expect significant changes on the expense side going forward.

William Katz - Analyst

Okay. Thank you very much.

Operator

Your next question comes from the line of Craig Siegenthaler.

Craig Siegenthaler - Analyst

Hi. Thanks a lot for taking my call. First question is on the non-operating income line, and actually I’m going to reference slide 16 from your presentation there. Looking at capital gains and dividend income, very high lift this quarter, wondering your view about – is your view about $20 million so that it’s kind of one time. And then I looked down at unrealized appreciation and that had a very good sequential improvement. And looking what the marks look like in July, do you anticipate negative marks in that item in the third quarter?

Cris Wasiak

The $20 million is the realized gain that we took for tax planning purposes that I referenced as we were talking through it. It is –

Craig Siegenthaler - Analyst

So is it exactly $20 million?

Cris Wasiak

$20.6 million.

Craig Siegenthaler - Analyst

Got it.

Cris Wasiak

That’s that and is it one time. I mean, it was one time for that quarter. As we further refine tax planning, I’m not going to predict what our tax planning strategies goals require us to do over the rest of the year. And the change you’re seeing in the unrealized appreciation, if you remember April and May were significantly good months in terms of market appreciation. And so what you’re seeing in the improvement is two months of very good market and essentially the last two weeks of market depreciation. So that’s what one of the reasons why nets apps is such a small number.

Craig Siegenthaler - Analyst

Well, two points on that; first, I believe, this item, it’s not calculated the same way your fund management fees are, so it’s not an average daily calculation throughout the whole quarter. I believe it’s a point-to-point. And the other point was I believe there is $200 million of roughly, I think that’s your Dublin funds which support that and also $90 million from your hedge fund, so almost $300 million of assets. It might be down a little bit from that. But I believe that’s where the marks will flow through, where the appreciation and the depreciation will flow through. So, I’m wondering, is that right? Is it point-to-point? And is that right also on the asset base?

Mark Infanger

I’m not tracking the asset base, but it absolutely is point-to-point. So, we are going to revalue at each quarter end and flow through all of the unrealized appreciation and depreciation in those consolidated partnerships through that line item.

Craig Siegenthaler - Analyst

Okay. And what is the asset base for that roughly? Is it a little under $300 million?

Mark Infanger

Yes, I think if you go to slide 20.

Craig Siegenthaler - Analyst

Okay.

Mark Infanger

That probably gives you a good sense for it. There is $241 million in partnership investments and offshore funds.

Craig Siegenthaler - Analyst

Okay.

Mark Infanger

And that all rolls through that line item.

Craig Siegenthaler - Analyst

Okay, that looks like it’s it. Second question really is, I mean, looks like you’re getting great growth from the institutional global channels. That probably is where you have your strongest momentum and it’s also coming from a low base. Do you view them as your two main growth drivers here? And what other areas do you think you’ll pick up, such as I think you referenced mutual funds could improve because of a style transition towards growth and also better relative performance? But maybe you could just comment on momentum of your different business channels and strategies.

John Calamos

Well, part of that, I think, that’s kind of been historical where institutional growth is not necessarily as market related as mutual fund growth. So obviously I think the growth versus value, if the market turns as we hope it does in here, I think we’ll see some good growth in that area as well as hopefully continued growth in the institutional area. We are getting favorable responses there. We think the institutional area is really pretty – it’s just, we’ve just begun there. We actually only have one person on the international side, and we expect to put more resources there and take advantage of those markets. So both those areas can provide some future growth.

On the mutual fund side, the retirement side is one area that we feel we’ve underserved and we’ve put more resources in that. So we hope to see some traction in the retirement 401k market.

Craig Siegenthaler - Analyst

Great. Thanks a lot for taking my questions.

John Calamos

Next question?

Operator

Your next question comes from Cynthia Mayer.

Cynthia Mayer - Analyst

Hi. Good afternoon. Just a couple questions. It looked like really good expense control in March. I’m just wondering how sustainable are those cost cuts? If the market were to turn around, would you restore spending? Would you consider expanding the headcount or you really feel like you are the right size for now?

John Calamos

Well, it does all depend, Cynthia. We wanted to – I think we made a good decision back six months ago, now seven months ago. We did not predict this kind of a market. So, it’s a little bit worse than we had anticipated. But it’s really more of reallocating resources in the right area and making sure our investment in those areas makes sense for our future growth, so it’s hard to say.

At this point, though, I think we would – before we would increase expenses dramatically or even off these levels, we would have to have some real indication that the -- that things were turning. So we’re not anticipating doing any of that right now. So, most of the areas we think we’re adequately staffed, and so more of the investments in the future might be around the edges rather than any major initiative.

Cynthia Mayer - Analyst

Okay. And in the institutional channel, since you’re working on that more, putting more power into that, are you developing any kind of a pipeline that you can discuss? And can you also talk about which particular products are actually selling? Is it your large cap growth or is it your international growth?

John Calamos:

Actually, it’s our global opportunities, which is a bit of a unique product. Global opportunity is really a defensive equity area where we use both equity and convertibles on a global basis. So, we have been seeing some traction there as well as our equity area. So, it’s – we’re finding interest, and the pipeline, it’s really hard to say what comes out of the pipeline. I think it’s just gratifying that we’re invited, and we have RFPs in progress. And we have made presentations, and we continue to see that that pipeline seems to be – continue to fill up here.

Cynthia Mayer - Analyst

Okay. And then more generally, it seems like there’s an up-tick and interest in convertibles, and I guess that’s related to the volatility in the market. Do you find, since you guys go back to the 1970s for convertibles, that you’re able to, I mean, is that something that helps you out in RFPs? If you’re thinking about developing new products, are you focusing on blends like the one you just mentioned? How do you think you can exploit convertibles or does it not really make any difference to you at this point?

John Calamos

Well, yes, it sure makes a difference. It’s a core competency of Calamos, our convertible expertise. And on the institutional side, convertible products like we have are a bit unique. So, as a money manager, we do not fall into the neat style box. So, the appeal is a bit more limited in that sense. We are not out there in the various style boxes. So, it’s a bit more of a much more difficult learning process for institutional investors to understand what we do and how attractive that is. We are getting some traction. Maybe it’s because of the more difficult markets investors are looking for more defensive type of strategies.

And that’s really how we position that product, as a more defensive equity area, where in financials we can use some of the convertibles. In energy we can use some of the convertibles and take out some of the volatility in the market and still have good performance on the upside. So, it is a little bit more difficult than being just the style box guy.

Cynthia Mayer - Analyst

Do you feel like you have any limited capacity in convertibles?

John Calamos

Well, we, in the pure convertible strategies, have been closed and been closed –

Cynthia Mayer - Analyst

Right, right.

John Calamos

Yes, so we –

Cynthia Mayer - Analyst

So you’re – okay, what would it take you – what would it take for you to reopen that?

John Calamos

Well, we keep hoping that the convertible universe continues to expand. The fact of the matter is the convertible universe or our opportunities set in convertibles have not expanded very much over the last four, five, six years. We’re seeing some of that, I mean, it takes a couple conditions for convertibles to expand. And the market is -- those conditions are becoming in place.

One, it’s difficult to access the market in straight debt because the rates are too high. Therefore, decrease that debt cost, you issue convertibles and that’s definitely occurring here. We’re seeing spread rise. We’re seeing more convertible issuance. The whole financial service sector is issuing converts because of that reason. And we’ll probably see more cyclical companies issue convertibles here.

And so, we’re always aware of that and excited about having more convertibles. We’re seeing more interest in convertibles in the global markets and some of the emerging markets. So anywhere you have growth you see convertibles being issued, and that’s our core competency. And we’ve chosen to use that core competency in defensive equity type of strategies. And we think that’s really appropriate for what we feel will be a volatile market going forward.

Cynthia Mayer - Analyst

Okay, just another couple quick ones. I noticed you guys had outflows from alternatives. I’m wondering if you could talk about performance there, and at what point in the year investors can withdraw assets.

John Calamos

Well, we don’t have a very much other monies in the alternative than the seed money that we’ve had. And so –

Cynthia Mayer - Analyst

So, that was really just the closing?

John Calamos

That’s really just a closing.

Cynthia Mayer - Analyst

Okay. And the last one is on buybacks. I think you said in the press release you completed the authorized buyback. Does that mean that for now you’re sort of between buybacks that you’re – you can’t buy back shares or what’s your position on buybacks in general in this market?

John Calamos

The Board authorized – the latest buyback was two million shares. We had done a previous buyback of another two million shares. So, we have completed both of those buybacks at this time, and we have not had authorization by the Board for an additional buyback at this time.

Cynthia Mayer - Analyst

And your Board meets what, this month?

John Calamos

It meets the first week in August.

Cynthia Mayer - Analyst

Okay, thanks.

John Calamos

Okay. Thanks, Cynthia.

Operator

(Operator Instructions). Your next question comes from Robert Lee.

Robert Lee - Analyst

Most of my questions have been answered, so just have a couple of quick ones. Just the first thing, I’m just kind of curious, I mean, since it’s pretty unusual for a public company to, I guess, have an interim CFO for an extended period of time, could you kind of update us on what your thoughts are about filling the spot on a permanent basis? And I think to some degree it’s probably something that, at least I would, I think, some investors would like to see.

John Calamos

Sure, Rob. I mean, basically what we have done on the senior management staff and the CFO position is reorganize our senior management staff. And we split the corporate duties from our mutual fund. As you can see from the pie charts and as you all know, our mutual fund business has become quite substantial. And what we had before was the CFO was in charge of both the mutual fund side of the house as well as the corporate side. By the restructuring that we’ve done here was we split that into the corporate side. And Nimish Bhatt, who has been with us many, many years, has taken on the duties of chief accounting officer on the mutual fund side.

So, that gave us time to restructure. And Cris Wasiak is our temporary CFO, and she comes very well qualified, former CFO of T. Rowe Price. So, we don’t feel that we’re under a gun by any means to do it. So we’re going through our restructuring, which is about complete, and we will – but we are not under any time constraint to, we feel that, to fill that slot.

Robert Lee - Analyst

Okay. And maybe if you can give us some color on the wealth management business, I mean, you’ve referred to it, I guess, at different times over the past couple years as a business you’d like to grow. You’ve done some hiring in there. You’ve rolled out some products, I think, geared towards that market. Although, I guess I’m still a little vague in terms of what are we talking about in terms of size of that business and the resources towards it. And kind of may be update us on your plans there, understanding that there’s expense control initiatives in place. Are we going to see growth out of that or how should we think of that?

John Calamos

Well, we have seen growth. Actually, it’s one of our – it’s still a small base. From a total asset base it probably only represents 2.5% or 3% of our total assets. But we’ve had good growth this year again in that business, so over the years it continues to grow. It’s one of those areas where we feel we have good competency. We literally have had clients for more than 20 years in that wealth management business, so we’re trying to leverage off that, and that business continues to grow. And we are a little bit different in the wealth management area in that we do use a closed architecture. We only use our particular products, and maybe we’re limited somewhat there. But it works well for us.

So, we do have resources committed to that area to continue to grow that, and we feel that we can continue to grow the wealth management business. It’s been our – the redemption rates have been the most favorable of any of our segments of our business. So, being able to grow the area and keep assets on the book is surely a goal of ours. And we think it’s profitable at this point, and hopefully, we can continue to grow it as we’ve done in the past.

Robert Lee - Analyst

Okay. And may be a similar question related to the alternative business. I mean, as you’ve pointed out, you’ve been in the convertible markets since the start. You have a pretty successful and sizable market neutral mutual fund. And I know – and I believe that the alternative products in, I guess, the institutional market are high net worth and is a place that you wanted to grow, but really seems like you just haven’t gotten been able to jump start it. Why do you think that is? And am I thinking that correctly in that that is a priority for you to try to grow that business?

John Calamos

Yes, we’ve had a couple initiatives there that we have not been able to fulfill. It has more to do with us being predominantly a long-only mutual fund and institutional management business. So, it’s really – it’s whether or not the resources in the alternative area are there for us. We have our resources pretty much devoted to the long-only side, and it’s difficult to have the same teams manage the alternative side as well as the long-only side. So, the way we’re structured doesn’t really allow for us to kind of put the resources on the alternative side. So, we still struggle with that, Rob, to how we might do that.

Robert Lee - Analyst

Okay.

John Calamos

But we obviously are, if you look at the market neutral fund, it’s an alternative strategy. And we’ve been doing that since 1990 and it’s gaining traction. We have now $1 billion plus and it continues to gain traction. So, it’s whether or not we want to devote resources, and culturally it’s a bit different – difficult to do with the way we’re set up.

Robert Lee - Analyst

Okay, great. Thank you very much.

Mark Infanger

One more question?

John Calamos

Sure.

Operator

Your last question is a follow-up question from William Katz.

William Katz - Analyst

Just sort of trying to reconcile sequentially the change in the investment securities in the cash lines, can you tell me where the biggest change was in terms of the investments portfolio? Whether it was in the available for sale portfolio, I presume, and then within that, what asset class it was?

Mark Infanger

The sales that we executed for tax purposes were done toward the end of the quarter. They were primarily available for sale securities. So, they would have come out of the investment securities line item. And I think it was pretty much a full stroke, across the board asset allocation selection. So, I don’t know that I’m able to answer specifically on what securities were sold, but it was primarily mutual funds. And you would see that increase go into the cash line item. So, it’s really just a flip.

Again, if you go back to slide 20, you see the increase in cash and cash equivalents. You see the decrease in investment securities. And again, primarily a result of those tax motivated transactions.

William Katz - Analyst

Okay. And I apologize for the question, but can you just help me out with the tax planning element of this? Is there other strategic investments expected to be made or capital being pulled out of the franchise?

John Calamos

No, there is no capital being pulled out. It’s really again to – we have a portfolio base supply that we asset allocate for, and obviously, we want to be tax efficient as well in doing that. So, we’re making decisions on an asset allocation process that we’re doing as well as seeding new funds. We mentioned two new funds that are come – just came out in June. One’s been seeded already. Another one will be seeded very shortly. So again, it’s seeding opportunities, investment opportunities, we think.

William Katz - Analyst

Okay. Thank you very much.

John Calamos

Okay, thanks. And thank you all for joining us today on the call. We appreciate your interest in Calamos Investments. And if you do have any questions feel free to give us a call. Turn over to you, Phil.

Philip Kranz

Thank you.

Operator

This concludes today’s conference call. You may now disconnect at this time.

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