Ladies and gentlemen, thank you for standing by. Welcome to the OMAM Earnings Conference Call and Webcast for the Second Quarter 2016. [Operator Instructions] Please note that this call is being recorded today, August 4 at 10 o’clock Eastern Time. I would now like to turn the meeting over to Brett Perryman, Head of Investor Relations. Please go ahead, Brett.

Thank you. Good morning and welcome to OMAM’s conference call to discuss our results for the second quarter of 2016. Before we get started, I would like to note that certain comments made on this call may constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by words such as expect, anticipate, may, intends, believes, estimate, project and other similar expressions. Such statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from these forward-looking statements. These factors include, but are not limited to, the factors described in OMAM’s filings made with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed with the SEC on March 15, 2016, under the heading Risk Factors and on the company’s current report on Form 8-K filed with the Securities and Exchange Commission on July 20, 2016. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. We urge you not to place undue reliance on any forward-looking statements. During this call, we will discuss non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release, which is available in the Investor Relations section of our website, where you will also find the slides that we will use as part of our discussion this morning. Today’s call will be led by Peter Bain, our President and Chief Executive Officer and Steve Belgrad, our Chief Financial Officer. I will now turn the call over to Peter.

Thank you, Brett. Good morning, everyone. Thanks for joining us on the call today. I will make some opening observations and then I will ask Steve to walk you through the financial results in a little more detail. And then as always, we will look forward to Q&A with you to talk about the business. Turning to the presentation that we have provided, if you start with the overview on Slide 3, I think what I will observe is that we are in what was a very challenging operating environment. We are very pleased to have delivered the solid results that we have. This has been an interesting macro-driven market. I will try and make it through the entire call without saying the word Brexit. I don’t know that I will be successful in that, but it is an interesting market environment we are in. Importantly, we accomplished a couple of very meaningful strategic objectives that those of you who have spent time with us know we are focused on, in announcing the acquisition of Landmark Partners and our 60% equity position in that affiliate going forward as well as completing a $400 million bond offering. Those two strategic accomplishments are material to our business strategy and to our growth going forward. We are very pleased to be able to execute on those this quarter. On the straight financial results front, our second quarter ENI per share of $0.30 is down about 6% from Q2 ‘15 and that was really driven by a decrease in our management fee revenue. Our second quarter GAAP EPS of $0.30 was a 26% decline from Q2 ‘15, but as you will remember, our Q2 ‘15 GAAP results included a $48 million nonrecurring performance fee. On a sequential basis, our ENI per share was actually…

Great. Thanks Peter and good morning. While the second quarter of 2016 was challenging in several respects, the business performed well financially and we made significant progress in positioning the company to drive growth in 2017 and beyond. If you think about the operating environment in the second quarter of 2015, markets have peaked and AUM was at the cyclical high. That makes for a challenging quarter-over-quarter comparison. However, if we consider both the operating dynamics of our business as well as the financial progress made relative to the first quarter of this year, the prospect is more positive. Please note that in my comments all ENI comparisons to 2Q ‘15 exclude the impact of $48.1 million extraordinary performance fee we received in the second quarter of last year, which we have consistently excluded from our core ENI results. Comparing Q2 ‘16 to Q2 ‘15, economic net income was down 4.7% quarter-over-quarter to $36.2 million or $0.30 per share, driven by a $7.8 million reduction in revenue and generally flat operating expenses, which increased only 1% to $61.8 million. While market declines and outflows resulted in a 5.4% fall in average assets from the year ago quarter, excluding equity accounted affiliates. Our continued shift in asset mix towards higher fee products enabled us to limit management fee contraction to only 4.7% during this period. Revenue was also impacted by the volatility driven lower performance fees, similar to what we saw in the first quarter. As net performance fees were actually negative at $0.8 million due to management fee rebates on sub-advised accounts in Q2 ‘16 compared to positive $0.5 million in Q2 ‘15. Combined operating expenses and variable comp decreased 1.9% year-over-year driven by lower variable compensation. However, this was not enough to offset 4.6% overall revenue impact caused by…

[Operator Instructions] Your first question comes from the line of Craig Siegenthaler of Credit Suisse. Your line is open.

Thanks. Good morning.

Good morning Craig.

So just trying to run the numbers during the call, but over the next 2 years, it looks like you need about $515 million to fund the seed portfolio repurchase, the deferred tax agreement and then also the Landmark acquisition and then you raised about $400 million of extra cash just from the recent debt deals, what I am wondering is, are you going to need to do another debt raise or some other financing for this and then also how should we think about free cash flow after dividends over the next few years going through its buyback, so I am just trying to weigh all these things together?

Yes. I will do the quick fundraising. Steve can talk about cash flow with you Craig. But from our perspective, we have got the $4 million in the bank. We have got all of our operating cash flow after dividend, which is substantial because as you know, our dividend payout ratio is only 25% and we have $350 million of incremental capacity on the revolver. So from our perspective, just accepting the numbers that you laid out, the five and change, we have got more than enough liquidity to cover it, so we are not troubled by it. We might go into the market and do financing activities we felt that were favorable. But we are well positioned to cover everything we need to do.

I think the other element here and that’s what I referenced in talking about seed capital is that the – even if you assume seed capital at $135 million, that doesn’t need to be financed entirely on balance sheet. There is a potential to finance that off-balance sheet on the non-recourse basis, which would significantly decrease the actual cash and leverage related to that funding. So, we have that as well. I think as usual and as we have done from where we are right now the decision of buyback versus other uses of cash is really based on where the stock price is and what alternatives we have. I think, we continue to explore and try to build out new affiliates and that clearly – I wouldn’t expect anything for the remainder of this year in that front. I think as we move into next year, we are continuing to build up dialogue. And I would think it would really be in connection with another strategic investment that we would be more likely to think about other financings to finance that. And that could be depending on what our leverage ratio was at the time and the size of that transaction that could be debt or it could be some combination of equity credit and debt. But that would be a fact-based decision we would make on the basis of the capital markets at the time as well as the economic value of the particular acquisition we have been talking about. So, our sense is the market will understand that at that point.

Got it. Very helpful. And then just a follow-up on modeling question on interest expense, you raised both bond deals just recently, but the retail bond I believe is going to start accruing interest in the third quarter and it’s a quarterly basis going forward, the institutional bond is semiannual and I think that’s probably December and then again in the June quarter of next year. So, you are going to have a situation where interest expense is stepping up in the fourth quarter stepping down in the first quarter and then sort of sell on, right?

No, I mean, I think we are just accruing it. From a financial point of view, we are just accruing it from when we borrow the money.

So, it won’t be related to the cash out, Craig.

Got it, got it. So, it’s just steady, okay.

Yes.

Alright. Very helpful. Thanks, guys.

Yes.

Okay, sure.

Your next question comes from Bill Katz from Citi. Please go ahead. Your line is open.

Okay, thanks. Good morning, everyone. What I normally say is I really do appreciate the nice structure to your calls, it’s very helpful. First question I have is just on the hard asset disposal, as you look out over the next 12 to 24 months, any sense of any large distributions you would anticipate many of the big funds, just trying to get a sense of the pace as we look out over the next few quarters?

Yes, it’s a good one. I will break it into the two principal components of our hard asset businesses, Bill, which are timber and real estate. I think as we look out over the next couple of years, certainly based on our discussions with Campbell Global, we don’t have kind of on the calendar, any aggressive or active disposition targets in terms of out of the ordinary hard asset disposals there. There maybe some restructuring of some of their forestry holdings, but that really is going to be a function of their conversations with the clients who are the participants in that particular forestry holding. And on the real estate side, I don’t see substantial uptick in dispositions. Having said that in the discussions we have with Heitman, I think there is a general view that valuations in the property markets currently are pretty high, there maybe strategic reasons to harvest and realize value in some of their holdings if they think its the right time to sell the property. And if they do that, that will get reflected in a hard asset disposal. So, I think if there is anywhere where you might see some disposal activity, it’s probably on the real estate side, but I don’t see it being disproportionate jumps from where we are now.

Okay, that’s helpful. And then you mentioned maybe the flows that Q1 was particularly strong and Brexit towards the end of the quarter and then perhaps maybe all the sort of discussion around the acquisitions and takeover also impacted sales trends. Can you give us a sense as you look into third quarter, anyone give specific numbers, obviously, maybe qualitatively, how RFP or general dialogue is going with investors as we think about sort of gross sales as we look ahead?

Yes, it’s interesting, because I didn’t hit this detail in the conversation earlier, but I will hit it with you now to give you a little more feel for it. Steve touched on the point that our outflows tend to be relatively stable and they tend to run in that kind of 3% to 3.5% beginning of period AUM on an annual basis. The variability that you therefore see in our net numbers really tends to be a function of sales. And if you remember and I know you will Bill, but if you remember, when we announced the first quarter results and the $2.4 billion net positive, it was the result principally of the best sales quarter we have had in over a decade. We had $9.5 billion of sales in the quarter. And in the second quarter again, we had about $7 billion therefore of outflow. In the second quarter, we had exactly the same $7 billion of outflow. But the sales dropped to like four and change we had thought in the first quarter, essentially we had to some degree, accelerated some sales and the inflow activity into the quarter and that would probably eat into the second quarter pipeline, that’s certainly is what happened. Now looking at the third quarter, we don’t see either of those, what I would say uncharacteristic levels either on the up on the downside. So I think we are seeing normalized, where I will be cautious in terms of sales this quarter, is the impact of the high correlation of benchmark returns, the challenges that active managers have had delivering in the short-term benchmark beating performance and the overall global concerns. And I swear I wouldn’t say it, but I guess I will say Brexit one more time here. So the – I am sorry, let me correct myself, the 3% to 3.5% on gross outflow tends to be a quarterly number, not an annual, just that you got the number right.

Okay. And then just one final question and maybe this is just equaling and you did say quantified by saying, hey, it’s all to the parent, but you were very specific that the $150 million this year, is there any reason to think that the dialogue with the parent has advanced at this point, I know they have been disposing other perhaps more difficult assets on their own side and they have a sort of 2018 timeline to bring down their ownership in OMAM, is there any sort of shift in the discussion with them that gives you a little more visibility that maybe will be 2016 revenues more open end to next couple of years dynamic?

No. I would tell you that the conversation among – between us and Plc is kind of steady and consistent. I think that I mean they are working on the managed separation and they have net bank in OMAM and OM Wealth and us to deal with and they are working on all of that correctly and with discipline and kind of with the all due deliberate speed. But we had our Board meetings in London in July and we had ongoing discussions with our colleagues there. I don’t see any shift in what Plc has said. And I believe they said in their interims that their view is, they anticipate a phase to sell down of us and that could include buyback. But I don’t think our mentioning $150 million represents a change, honestly. And it’s a brilliant function of kind of how they look at the stock, it’s not a unilateral discussion, it’s really a conversation between us is that at what level we think it makes sense to buy back and at what level they are willing to do it.

Well, that talent dropping looks even better, alright. Thanks so much.

Yes. I mean you are right, Bill, that’s correct and everybody is cognizant of that.

Thank you very much.

Yes. Thanks Bill.

Your next question comes from Michael Carrier of Bank of America/Merrill Lynch. Please go ahead. Your line is open.

Hi. Thanks guys. Just on the DTA, you mentioned and we had the updated timeline, just given the acceleration, but there is also the benefits that you get from that, so I don’t know if you can frame that because I think there is one is the cash flow that you will need to do that transaction but then there is the longer term benefit, so I don’t know if there is a way to just give us any color on that?

Yes. I mean it is a – it’s one of these items that from a – I just want to make sure we are clear, while there are benefits in terms of the fact we have discounted at 8.5%, so that’s a financing effectively of how the returns will come through. Those will primarily not be seen from an ENI point of view, you would really just see it on the cash flow statement. There will be – we will give more clarity next quarter, but I would anticipate that there obviously will be some financing costs related to the purchase and there will be some offsetting or partially offsetting amortization benefit of that. But from an ENI point of view, it’s not going to be that visible. So, it’s really going to be over the next sort of 5 to 7 years the usage of those cash benefits that will then come back through from a pure cash flow statement perspective.

Got it. Okay, that makes sense. And then just on the flow side, I think when we look at this quarter, it will make sense what you said in terms of the first quarter, in terms of the sales. Anything when you look at around Brexit that there are any potential things that funded that maybe slowed down in the month of June? And then probably more importantly just when I look at the buckets of whether it’s the U.S. equity, the international alternatives, when you had the conversations with the affiliates, are there certain ones where like the short-term performance is more of the way on kind of the RFP activity versus what you mentioned in terms of just some of the active versus passive impacting the industry. I mean, it seems like it’s not as impactful just given institutional money and thinking about it longer term, but I just wanted to get an update given the short-term pressure?

Yes, that’s fair, Michael. Look, I would absolutely tell you that the world, the institutional world kind of paused and took a breath in June and July thinking through Brexit. I mean, everyone sort of thinks about and maybe it’s just because we spent so much time in Europe and the UK, but everyone seems to think about Brexit as having started on June 23. It’s important to remember that this is a big issue in the European markets well before June 23. And then when the vote actually came, that triggered as everybody knows an extreme response, which on the large cap side, to some degree, has been clawed back. If you really look at where small caps are relative to that, they still haven’t recovered. So yes, the uncertainty created by how European economic relationships need to reformulate themselves, that’s a part of it. It’s hit the margin, but it’s there. I would tell you on in terms of our affiliates and their conversations with their client bases and their consultants, certainly, everyone is aware of near-term performance. But as I said earlier, the kind of strategies that our affiliates have built over years of discipline, the kind of relationships that they have built with their clients and the consultant community and the very specific mandates for which they are hired, really are designed to deliver alpha over a full market cycle. And it’s an occupational hazard that I get on the phone with you guys once every quarter, because the securities laws require it. But it really isn’t how we run the business, it isn’t how our affiliates manage client portfolios and it isn’t the way the clients and the consultants think about performance. So, we have that funky kind of mismatch that we just have to…

I think the other element when you look at the performance is one of the good things about having an institutional discussion with your clients is I think when you look at, particularly when you are talking with new clients, when they look at how the portfolios are positioned at this point, I don’t think it’s a hard stretch to see where the value is going to come from in the future because you are not going to have an environment where recent utilities go up endlessly forever and financials stay low, at least I think I hope that’s the case.

Well, it’s true. Again, if you look at that market data Michael, the Wilshire REIT index for the first six months was up almost 12%, right. And the Barclay’s global Ag fixed income was up almost 9% over six months in an environment where the Russell 2000 growth was almost 2%, MSCI EAFE was down 4.5%. That is not a sustainable environment, those relationships will revert. Our Affiliates during that reversion will meaningfully over perform and we know that. I guess there is one more fact point or empirical data I will share with you, which is if we look through our $218 billion worth of client franchise relationships. Lastly, we look at it our sort of weighted average relationship duration with the client is over 7 years, that’s entirely logical because if you think through market cycle durations, that’s where they tend to be. So if you are talking about a business that has on average 7 year relationships with clients, you are going to have a different perspective on 1 year performance numbers and we do.

That makes sense. Thanks.

And that really is how we look at the business.

Your next question comes from Robert Lee of KBW. Please go ahead. Your line is open.

Thanks. Good morning guys.

Hey Rob.

Hi, I actually had a question, doesn’t give much talked about too much, but the fixed income assets, I mean if you look back a few years ago, it was a nice incremental contributor at least the asset growth, in the last couple of years, it’s kind of been a modest outflow. Although, if you look around kind of broadly in the industry, it seems like fixed income certainly have been getting some flows, so can you maybe update us a little bit on that initiative, which I guess was mainly a Barrow, Hanley kind of what do you think has been kind of some of the headwinds there has been performance just kind of where the types of strategies they offer?

Their performance in the fixed income side is perfectly competitive, Rob. So, it’s a fair question. It’s a good one. I don’t know that I have a great answer for you other than their focus has to some degree been on LDI and LDI is a very tailored, very client specific portfolio construction discipline. And I think when you look at the way the velocity has moved in the fixed income markets generally, it has been into pretty straightforward asset classes, not LDI, so if I have any answer for you on it, probably that’s may best one.

Okay, fair enough. And then maybe as a follow-up, I was just curious I mean I saw in the press release you mentioned that I guess the Plc exercise, it’s right to add a couple of more executives to the Board, so I don’t know, I mean given what they have announced or looking to do, is there any implication or anything that we should you think we should be reading into there increasing the Board size and adding more executives to the Board?

Right. Ingrid and Russell, actually you should read into it, which is it’s consistent with the managed separation. There are a lot of moving parts. And we spend a lot of time making sure that we are coordinating with London. And I think we and London agreed look, rather than having this constant kind of dual track communication, when we are working with our Board and briefing them and having normal governance. And then we sort to have to replicate it to make sure that London is in the loop on everything. Ingrid is the FD she is talking to Steve all the time, Russell is Council, he is working through the legal implications of separation questions, it’s just so much more efficient for them to be on the Board, so that everyone is in one room and we can just get this done right. That is absolutely what’s driving it, what you should read into it, it’s just to do this better.

Okay, great. And then maybe just one last question or actually I have one or two last questions, but on Landmark, I know you have talked about them kind of entering their next fundraising cycle and I know there is a limit you could talk about that. But their existing funds, are those largely fully invested, so that once you kind of close and may get started, it should be relatively quickly that they kind of raise the assets and kind of turn them on and start generating fees or they have kind of first starting the fundraising then it’s kind of another year or so before you could start turning on fees?

Yes, it’s good question. The most recent cycle of fundraising was completed and those funds are well deployed. So, your first premise is correct, Rob. And then the way these funds are structured, when you have the closings, you start collecting fees on committed capital immediately. So, the issue of deployment is actually not relevant to the way it will impact our economics. Those fees will start flowing through revenue immediately upon the closings. And without – and I appreciate you are caveating for me in advance, without falling into the trap of offering securities on this call, which I am not doing, yes, they are well positioned to start that fundraising cycle promptly upon closing.

Great. Then one last question for Steve, if you make the – and I am sure you hope you do, if you make the follow-on payments to Landmark in a couple of years, so those will also generate some incremental tax benefits those follow-on payments?

Yes, they would. You would have the same 15-year amortization of the intangibles as well as the potential to re-lever some of the intercompany debt which creates tax benefits.

Okay, great. Thanks for taking my questions.

Yes.

Our last question comes from the line of Michael Cyprus of Morgan Stanley. Your line is open.

Great, thanks. Hi, guys. Just curious how you are thinking about your cadence of M&A as you are thinking about it, should we expect one sizable deal every couple of years, just trying to understand the likelihood of you guys transacting every say 1 to 2 years as we think about earnings and growth coming through?

I think, on balance, Michael, we certainly would as a core strategic component of our growth like to be in the market on an ongoing basis and we would like to see that generate a transaction and it’s interesting. I would actually tell you I think if I heard your question, right. Your question was would we like to generate a transaction every couple of years, I would almost like to flip that and say we would like to generate a transaction or so every year. Now, currently, we have got Landmark, which is fantastic. We now do need to work through getting that successfully closed this month and then having it integrated and working correctly. And we also have managed separation to manage through and other things at the moment, but in a steady-state ongoing basis, yes, I think we would like to be in the market and get something done every year.

Great. Now, private credit is an area, I know you have spoken about in the past in terms of an area of interest, is there any color you could share with us in terms of the properties that you see out there, are there lots on the box for sale, a lot on the sidelines, how those conversations are going, just anything you could share with us about that space, because it does seem like you are not the only ones that want to get involved?

Yes, I think that – I think there are good firms in the space. I don’t know that many of them are for sale. I don’t know that we are particularly interested in buying one that’s for sale. I think we like firms that aren’t for sale that decide it makes sense to partner with us. That certainly drives our thinking on it. And look to the extent, there has been some activity. I would point you toward the collateralized loan obligation space, the CLO space. And I think that’s really driven by changes in regulatory framework. There have been implemented some essentially what are some capital employments, some co-investment capital requirements in the CLO business. And I think that has led some privately owned CLO managers to seek out partners who provide the kind of balance sheet backdrop to support the new regulatory environment for CLO business. But other than that, I wouldn’t tell you that I think that there are necessarily a number of firms actively for sale.

Okay, great. If I could ask just one last question, given you have more of an institutional band with your business, just curious how you are thinking about the growth overall in the industry on the institutional side? There have been some reports that suggest that actually most of the growth over the next decade could be perhaps more likely on the retail side, just curious how you are thinking about sizing the institutional market and how you are thinking about the key drivers over the next 5 years, 10 years organic versus share shift etcetera?

I think that there will be – in the institutional segment, I think there will be substantial growth. And as you carve it up, I think that we believe there would be greater growth in the non-traditional asset class categories, which is I think a part why we are so interested, which is why we are so pleased to be partnered with Landmark to state the obvious. But I think that there are more opportunities in those alternative asset classes in the institutional space, because I think the institutional world is going to need to find ways to generate meaningful outflow in non-correlated asset classes to hit their funding requirements. I think that it will be more likely in the traditional long only classes where you see the money and motion being principally, but not exclusively replacement searches. That’s how I kind of carve up the institutional space, Michael.

Super. Thank you.

Yes.

This concludes our question-and-answer session. I would like to turn the conference call back over to Peter Bain.