Acadian Asset Management (AAMI) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the First Quarter 2020. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Please note that this call is being recorded today, Thursday, May 7, 2020, at 11:00 AM Eastern Time. I’d now like to turn the meeting over to Brett Perryman, Head of Corporate Communications. Please go ahead, Brett.

Good morning, and welcome to BrightSphere’s conference call to discuss our results for the first quarter ended March 31, 2020. Before we get started, please note that we may make forward-looking statements about our future business and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding these factors appears in our SEC filings, including the Form 8-K filed today containing our earnings release and in our 2019 Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update them as a result of new information or future events. We will also reference certain non-GAAP financial measures. Information about any non-GAAP measures referenced including a reconciliation of those measures to GAAP measures can be found on our website along with the slides that we will use as part of today’s discussion. Finally, nothing herein shall be deemed an offer or solicitation to buy any investment products. Suren Rana, our President and Chief Executive Officer will lead the call. And now I’m pleased to turn the call over to Suren.

Thanks, Brett. Good morning, everyone, and thanks for joining us today. First of all, I hope everyone on the call and their families are healthy and well. Our thoughts are with all the people who have been impacted by the virus. On behalf of the BrightSphere family, I want to sincerely thank the courageous healthcare workers who have been on the frontlines battling this crisis. Turning to our business, let me start with Slide 5 of the presentation and provide some key updates on our business in the first quarter. We reported ENI per share of $0.40 for the first quarter of 2020, same as what we reported for the first quarter of 2019. While our revenue declined compared to the year ago quarter, due to the impact on our AUM from the market decline, our continuing discipline on the operating expenses and the built-in variability on other major cost items helps reduce the impact of the revenue decline on our ENI. And then our repurchase helped us to maintain our ENI per share relative to the first quarter last year. We expect that we will see more of an impact of the market decline on our revenues and earnings in the second quarter due to the full-quarter effect of the reduced AUM. Net flows for the quarter were $1 billion, positive for the first time since Q1 2018 as we saw our gross sales increase, particularly in our quantitative strategies including managed volatility, non-U.S. and factor-driven strategy. Let me now share some key highlight on each of our three segments. In our Quant & Solutions segment, we were pleased with the strong investment performance as our largest business Acadian outperformed the respective benchmarks in the first quarter in 67% of their strategies by revenue, which helped them to further improve on their continued strong long-term track record across three, five and 10-year period. In our Alternatives segment, as we have shared previously, this year we are embarking on our next vintage fundraising cycle across three key secondary strategies: private equity, real assets and real estate. The demand for private alternative asset class continues to be strong. At the same time, the availability of secondary investment opportunities is expected to increase in this environment as potential sellers look to shore up liquidity or rebalance their portfolio. So we continue to be hopeful about our fundraising target in this segment as we have previously communicated. Though we do expect the delay in the timing of the asset raises, due to the travel restrictions and disruptions in the normal fundraising process as a result of the virus outbreak. In our Liquid Alpha segment, our largest affiliate in that segment Barrow Hanley posted improved sales in large cap value and global equity strategy, which turned their net flow positive for the quarter. For the segment overall, the flows are still negative, though much improved, being negative $1 billion in the first quarter of 2020 compared to a negative $3 billion in the year ago quarter. I’ll now turn to Slide 7 to recap our strategy for the company as well as share updates on this front. As we announced last month, we have made some changes to reposition our corporate center and simplify our growth strategy to be much more targeted. I stepped up to the CEO role to lead this targeted approach and I’m looking forward to the continued progress of our business. The primary data of our growth strategy is really the first section on this page. Our strong well-positioned mix of portfolio. More than two-thirds of our business comes from two areas: Quant & Solutions, which is primarily driven by Acadian; and Alternatives, which is primarily driven by Landmark. We are seeing secular growth tailwinds in both these areas. Each of Acadian and Landmark are leading scale players in their respective fields and both have completely self-sufficient operations and fully-built global distribution infrastructure. We have been maintaining additional distribution at the center to supplement the direct distribution we have at the affiliate level but we found that the supplemental efforts we’re not very productive. Given the specialized nature of Acadian’s and Landmark strategies, the specialist and distribution resources at the affiliate level are much better placed to produce sales, whereas the generalized resources from the center were less affected. With our other affiliate, too, in the Liquid Alpha segment will contribute the remaining third of our earnings, we found that the affiliate level effort were much more productive than centralized efforts due to closer coordination with investment in client service teams. So since the supplemental distribution and related efforts from the center were proving to be somewhat redundant, we decided to discontinue these efforts. Going forward, we will focus our distribution efforts exclusively at the affiliate level. Our larger affiliate, Acadian and Landmark already have fully built distribution organizations and the sales team at our other affiliates are appropriately sized for their business. We are doing select additions as appropriate in some cases. We believe that targeted approach is much more effective in generating sales and the cost savings at the center from the implementation of this approach will add $20 million to our pretax ENI by 2021. Going forward, the corporate center will focus primarily on capital allocation. Our businesses generates strong free cash flow and we will focus on deploying this free cash flow accretively to: one, leading new products for our affiliates that can drive future growth; two, maintaining a strong balance sheet; and three, repurchasing our stock, given that our stock trades at a meaningful discount to fundamentals. Our number one regarding feeding opportunities, we will continue to encourage our affiliates to consistently innovate for their clients and develop new strategy. Our number two, our balance sheet continues to be strong. Our net leverage ratio increased to 2x as of the end of the first quarter compared to 1.7x as of December 31, 2019. This increase was driven by seasonality as we pay the majority of our variable comp in 1Q, but we then built up cash Q2 to Q4. Looking ahead to the next few quarters, we plan to fully pay down the $220 million drawn on our revolver and we will then increase repurchases thereafter and continue repurchasing our shares as long as they trade at a discount to the fundamentals. Given our stocks trading levels we believe that repurchases are much more optimal way of returning capital to shareholders compared to dividend. Hence we reduced our dividend from $0.10 to $0.01 a quarter per share. Year-to-date, we have repurchased 6.4% of our outstanding shares for about $34 million. These year-to-date repurchases have been at an average price of $6.15 per share, which is 3.5 times our 2019 EPS of $1.76 per share. In summary, we have adjusted our approach to growing our business and creating value for our shareholders to be more simplified, direct and targeted. Slide 8 summarizes the key aspects of each of our segment and demonstrate the strength of our business mix. On the left is our Quant & Solutions segment comprising 53% of our earnings and is primarily driven by Acadian. This business is well-positioned because our broad Quant capabilities and technology allow us to effectively provide the specific exposures that the clients desire. For example in the first quarter, amidst the extreme volatility and market chaos, we saw increased demand for our managed to volatility and factor specific strategies. Another example is our multi-asset class strategy, which exceeded a couple of years ago and leverage the core technology to offer a customizable multi-asset class solutions beyond equity. We’re seeing very good client momentum in this strategy. In the middle is our Alternatives segment, comprising 18% of our earnings and is primarily driven by Landmark. This business is very well positioned for growth because the demand for private alternative continues to grow and secondary strategy is going to efficiently meet that growing demand by deploying capital quicker while providing diversification across GP, fund vintages and underlying investments. As I mentioned earlier, we are embarking on our next vintage fundraising across key strategies in the segment and are confident in our growth. On the right is our Liquid Alpha segment comprising 29% of earnings and is primarily driven by Barrow Hanley and TSW. In this segment, we provide a mix of fundamental long-only strategies in equities and fixed income across capitalization ranges and regions. This segment diversified and complement our overall business well. As you know, we generally have a value-oriented investment philosophy in this segment across the affiliates. As value has underperformed growth for almost 12 years, including recently amidst the virus outbreaks, we believe this segment will be well-positioned to benefit when value returns to favor. Slide 9 shows the current composition of our business by segment. As I mentioned, more than two-third of our business is in Quant & Solutions and Alternatives segment. With the upcoming fundraising in the Alternatives segment and continued growth in Quant & Solutions, we expect that this proportion will increase. Turning to our flows on Slide 13. We saw a positive flows of $1 billion as net inflows in Quant & Solutions and Alternatives offset net outflows in Liquid Alpha. Looking ahead, we are encouraged by these trends and are hopeful that the fundraising in the Alternatives segment will pick up pace near the end of this year and further help our flow. I would like to touch on one more point on our balance sheet on Slide 19. We discussed earlier how our net leverage ratio increased from 1.7x to 2x, due to the seasonality of paying bonuses in the first quarter. You may note that our gross leverage increased a bit more from 2x to 2.5x. This was because we drew down incrementally on our revolver to set aside a meaningful amount of excess cash compared to our normalized levels of cash. We would have been comfortable with around $50 million of cash compared to the $125 million we actually carried at the end of Q1 in order to be prepared for a variety of extreme scenarios. Now I’d like to turn the call back to the operator. Happy to answer any questions you may have. Thank you.

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

Good morning, everyone. Hope you all doing well. I wanted to start with the Landmark affiliate. Just given the restrictions on travel and in-person meetings, how should we think about the magnitude and timing for Landmark’s upcoming fundraising cycle, which initially was expected to be larger than the last one?

Hi, Craig. I hope you well. Yes, in terms of the size, we are expecting the same size -- if not larger -- as I said earlier in terms there continues to be demand for the asset class, particularly with all the volatility in the market. They have reduced consistent returns historically. And in terms of supply, we would expect more supply of investment opportunities to show up. As potential sellers look for liquidity, oftentimes the allocation to private asset class may become bigger than they would like. So there are a variety of factors that we saw around the global financial crisis last time that generated supply. So those are all the household factors in terms of the overall size and we are optimistic. In terms of timing, we did see some disruptions in terms of clients just getting settled into the work from home environment or just being distracted as to what was going on. We are continuing of course the client interaction through video conferences and audio, emails -- obviously all of the digital channels are available, but there is definitely an impact and timing. It’s hard to know how much, but we would expect one to two quarters delay. But the same size in terms of where we end up ultimately, we’d expect that in the same size if not better.

Got it. And for my follow-up, now that a lot of the essential functions are going be terminated, how would BrightSphere consider interest from a third party asset manager that is looking to acquire one or maybe all your affiliates?

Yes. As a public company, of course, we would be responsive to any, but during that indications of interest where that recognize our true value. So we would from time to time, if there are legitimate queries, we would look at them. But we don’t think it impacts to a material extent that dynamic. Because, obviously, if we had an acquirer that had fully built-in infrastructure, they would always be able to realize the synergies from comparing to headquarters. So that fact that we have already removed some of the redundancies that may help in the particular scenario that you were outlining, but our affiliates as I said earlier, are very self-sufficient and have welcomed this approach because they get greater autonomy, which their clients really like to see. They always had autonomy but with the supplemental distribution effort knowing there was a need for at times coordination and that frees up not only the bandwidth but also makes it easier to operate even more autonomously. So we think all of those factors are helpful from running our business as is or from the perspective, I guess you outlined, if somebody wanted to acquire.

Thank you, Suren.

Your next question comes from Kenneth Lee with RBC Capital Markets. Your line is open.

Hi, good morning, and thanks for taking my questions. Just wondering, given the changes in the overall distribution strategy, what’s your current thinking on distribution opportunities outside the U.S. and are there any changes in emphasis in particular regions? Thanks.

Hi, Ken. Yes, on that, especially one of the other things we found as we have reviewed our distribution, for a long time that’s always been a discussion of how it could be more effective in terms of distribution regarding the centralized efforts. So one, we’ve obviously found that it was just much more effective at the affiliate level. But the one other thing that we found was that any approaches to any new markets or channels are just much more effective whether specific product and a specific client as opposed to a broad entry into the market without having a product that’s ready for that market. So that’s what we will -- we will leverage that learning and as we go into new markets, we will be going with specific strategy. So, case in point, for example, China, we have a China A market strategy at Acadian that we see some time ago and that’s really showing promising results. So we would be approaching those markets with that specific strategy and that’s where we are getting more traction. So that’s going to be our general approach in terms of going into new markets; we’re going to be leading with the specific product as opposed to a basic entry and then later figure out what product it would be.

Got you. Very helpful. And just one follow-up if I may, you mentioned having a little bit higher cash on balance sheet than what you normally would. I’m wondering if you could just share with us any potential near-term liquidity needs or any kind of unfunded commitments that you may have. Thanks.

Thanks, Ken. Yes, we don’t have any liquidity needs. Obviously the business produces very strong cash flow and as I mentioned, we will use the cash flow for repurchases to see new strategies and to manage our leverage. So on our leverage, we have long-dated bonds and our revolver has the majority that’s far out as well. But we drew down on the cash and the excess cash from the revolver, just given the environment, it wasn’t clear what opportunities could arise as a result, particularly on our stock, for example, whether that could be blocks available. So essentially it was desirable to have extra cash. Essentially, I mean that as uncertainty, but now if you fast-forward a few weeks, it seems like the worst-case scenarios are out of the picture. So we will probably use that excess cash to pay down the revolver.

Great. Very helpful. Thanks again and hope everyone stays safe.

Thank you, Ken.

Your next question comes from Robert Lee with KBW. Your line is open. Robert Lee with KBW. Your line is open. Your next question comes from Patrick Davitt with Autonomous Research. Your line is open.

Good morning. As a quick follow-up to Craig’s question, is there anything in your affiliate contracts that are unique roadblocks that would make it more difficult to untie an affiliate? Say versus a fully-owned business, a more traditional asset manager model.

Hi, Patrick. No, there wasn’t anything unique. We own a majority of most of our affiliates. We did have one unique contract that you may recall, some time ago. We had one of our former affiliates Heitman, had a right to buy themselves back upon a change of control, which they did exercise. So that was the only unique arrangement we had. Other than that, we have very simple -- we own majority of our affiliates and don’t have anything unique.

Great. And my follow-up is on Acadian, I think the strength of flows there probably surprises everyone, given flows we saw at some other Quant-oriented businesses back in 1Q, can you maybe talk to a little bit around why you think that business has performed so well flow-wise versus other Quant businesses? And then, as we look forward to what extent you see sustainability of that demand or some sort of institutional pipeline building? So we can get more comfortable that quarters like the first quarter are repeatable as we look forward.

Yes, I guess, not all Quant businesses are alike obviously and they’re different in terms of specific approaches they have. So our Quant business Acadian is essentially primarily only focus business with academic route and focus on multiple factors, not one, but really covering all the key factors that have performed well from a longer-term perspective, and they are dear to that discipline in all times and that has done well for their clients. So as we looked at this first quarter as well, that approach helped on the investment performance because even though one factor, for example value, didn’t do well, other factors that they deploy performed well and produced Alpha for the clients. So I think that has helped in terms of flows and we do see that as a sustainable brand because the capabilities that Acadian has are very broad-based in terms of asset classes, as well as regions and tap ranges. So they can respond to a specific client needs, specific exposures the clients are looking to get or problems they’re looking to solve. And as I touched on some of those examples, for example, Multi-Asset Class is one such solution that responds to client needs across asset classes. Our managed volatility, strategies are helpful generally, but also there was increased demand for those strategies in this environment. And we continue to see demand for factors specific strategies, where clients are looking for exposure to certain factors. So that has helped. We have had a consistent approach and stuck to that discipline and we see that as a sustainable trend. Obviously, there may be quarters where things don’t tie in with the longer term secular trend. Obviously being that we are in the institutional business primarily, that could happen from time to time. At longer term we see that as a very well-positioned growth.

Your next question comes from Robert Lee with KBW. Your line is open.

Great, thanks. I apologize. Before I had my phone on mute by accident. Hope everyone is doing well. So maybe just a question on the expense objectives at the Holdco, I guess are pretty clear, but just kind of curious, I mean you have a profit share structure I believe with all the affiliates, some of them certainly see their own pressure on profitability. So I mean, are there any initiatives underway or things that they’re doing that you know on their end, kind of moderate spending and are there any kind of triggers within your agreements with the different affiliates when they have -- where maybe you get some protection on the downside or maybe they get some protection and downside keep their business going? Just trying to get little more granular on that end.

Thank you, Rob. Yes, at the affiliate level, we in fact have been investing all this while and continue to do so. So Acadian for example, we have touched on this that we’ve been investing in our technology and that investment does show up in our run rate expenses, similarly at Landmark, we have been adding to both the investment side and infrastructure side, as we continue to grow assets there. Similarly at Barrow Hanley, we are investing and adding people on the distribution side as well as on the investment side, and we can do that because the margins are very strong and those margins do allow us still to afford invariably the downturn, if that happens from time to time. So we don’t see that as a reason necessarily to hold back on continuing to build but capabilities that we need. So the expenses have really been on the center side, and I walked through the reasons earlier that it really was truly incremental expenses that we could remove without impacting the business and sometimes it is -- we do expect it to be more effective in terms of generating sales. So this approach allows us to pass on, if you will, more of our earnings, that the affiliates generate -- as a very strong cash flow that they generate, allows us to pass more of that on to our shareholders through repurchases. So that’s essentially how we see it. Does that answer your question, Rob?

Yes, thank you. And maybe as a follow-up, just want to clarify to make sure I’m clear on a couple of the moving pieces on the balance sheet and the capital management side. I think you had mentioned that you would have been comfortable around $50 million cash balance. And that also I think you mentioned you wanted to -- was it fully paid down the revolver, so should we take that to mean that about $75 million of cash on hand at quarter end can be used for debt reduction? And then, you generating I guess a little north of $30 million or so of quarter free cash flow, probably a little higher than that. I mean, that you want to kind of get the revolver to zero or is there kind of a level that you’re comfortable running that at currently?

Yes, thanks, Rob. So those numbers are directionally in line that we are carrying excess cash about that kind of side and we are generating strong cash flow, even with the reduced AUM. So, from the perspective of maintaining our balance sheet, to be very strong and just preparing for a variety of scenarios, we would want to pay down the revolver more or less fully. From the perspective of leverage, we are comfortable at the range that we have [indiscernible] up to 2.25 because that still provides ample cushions in downturn. So that’s essentially directionally what we’re thinking. And then repurchases are just very attractive use of our capital, so we would -- and we’ve done a good amount of repurchases last year in the first quarter, and so far in this quarter. So we would want then increase repurchases as long as that wide gap continues.

And so, you wouldn’t necessarily have the revolver down to zero before you would start repurchasing again, it’s more getting the leverage ratio maybe initially towards the low end of your comfort range and then kind of reloading as appropriate, is that the way to think of it?

Yes, that’s right. Yes, the distinction I was making was just really more on emphasis from a near-term perspective. So it’s depending on the levels where our stock is trading -- yes, there may be times when we increased the repurchases, while revolver -- a good chunk of revolver is still outstanding. Yes, we would want to keep all those options open. But I was just sharing more of where this -- qualitatively, we are focused on bringing down the leverage and paying off the revolver.

Great. Thanks for taking my questions.

Your next question comes from Chris Harris with Wells Fargo. Your line is open.

Once you get to the other side of the cost saves, how should we be thinking about the rate of expense growth, assuming normal markets?

Hi, Chris. In terms of expenses, I guess it’s really -- I guess inflation is the key factor there in terms of cost of living, et cetera. That would probably be the primary factor because as I said, we are fully built at most of our affiliates. We have been investing for some time. That’s already reflect -- that already is reflected in the run rate. But we don’t have any major need, aside from that essentially. And at the corporate center, we will continue to be to be lean, and we’ll continue to focus on primarily the capital allocation activity. So I think that essentially is a good run rate that we will reach maybe by the end of 2020, in first quarter 2021, and that run rate is essentially just cost of living increases, if you will, main question.

Okay, got it. And then unrelated, what are you guys hearing from your institutional customers more broadly about their appetite to take on risk in this environment? And what do those views mean for the potential demand for your products?

Yes, I guess the one area where we are maybe different than some other asset managers is that most of our clientele is institutional, and a lot of them are not only investors. So we didn’t see any risk-off type of moves from our clients so far in the first quarter, and in second quarter so far, they have been generally very thoughtful about what they would like to do and how they like to take advantage. So in some cases, we saw rebalance moved from our clients where they saw some particular areas where there’s regions. We’re a good value and they wanted to put more dollars to work there. And in those scenarios, they would often go to their go-to managers as opposed to running a manager search. So that’s a good positive dynamic that helped, and we’re still seeing that play. Sometimes they’re at the other end of that. That could happen. So I think, generally, declines have been patient and thoughtful, and aren’t making any half of their move. And we will we see that continuing. So in terms of where ultimately what that might mean for us based on so far what we know, is that we are seeing demand for strategies like multi-asset class, managed volatility. We are seeing -- we’re also seeing interest in large-cap value, given that a lot of the quality and large-cap stocks were also traded off. So generally, it’s all -- I think on balance, it’s been a positive for us.

Okay, thank you.

Your next question comes from Mike Carrier with Bank of America. Your line is open.

All right. Good morning and thanks for taking the questions. Just on the center distribution exit decision, the $20 million to your savings, obviously that’s attractive. Just curious, how much did that drive sales or flows in the past?

Hi, Mike. Yes, that was a key factor in our decision. We had been maintaining that supplemental effort. The productivity wasn’t much. So in terms of the sales, there wasn’t that much impact. There was very small sales, particularly last couple of years or so. And we do expect that there would be a bigger boost in sales from freeing up the bandwidth, if you will, of the sales force at the affiliate level, and we are making some select additions at some affiliates. So we think from a sales perspective, this would be a positive.

Okay thanks. And then just a quick follow-up. Just on the $20 million savings, I think you guys said that it would fully hit the run rate by 1Q 2021. So just given that you guys give some of these ratio guidances for 2020, how much of that savings is in 2020 versus how much will actually hit in 1Q 2021? Thanks.

We’ll see a decent chunk in 2020. All of the actions, or a vast majority of the actions, have been taken already in the second quarter. So we didn’t see much of that benefit in the first quarter, except some knowing that we had the shrinking, we were able to accrue a little bit less on the variable comp. But other than that, 1Q, we didn’t have much. So second quarter, we’ll have more. But there are some residual items, for example, leases, et cetera, that do take time. So we’re really reaching that run rate by the end of fourth quarter. So I guess one easy way to look at it, we do provide our segment level information. And if you look at the other segment, which is essentially our corporate center, the operating expenses and the variable comp last year was about $45 million for the full year. Before 2021, we’d expect that number to be below $25 million. And then in 2020, it will be somewhere in the middle, essentially.

Okay. Thanks a lot.

Your next question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Hey, good morning. Thanks for taking the question. I just wanted to circle back on capital allocation, just given the backdrop today. Just curious how this has sort of influenced your appetite for bolt-ons at affiliates or even adding new affiliate relationships. How has that appetite evolved? How much focus would you say there is today? And how are you seeing the opportunity set evolve there too?

Hi, Mike. Yes, we’re not looking at M&A at all for the reasons I outlined earlier. We see repurchases are very attractive in the cash flow that we generate. We have three primary uses that would add the most value to the shareholders, and that’s repurchases, managing our leverage, and supporting the growth of our affiliates receiving new strategies for clients. So if one of our affiliates wanted to bring on a team to serve their clients, we obviously would be supportive of that, but we see those things as more organic efforts. So that’s essentially where we’re focused from our capital allocation perspective.

Got it. And just as a follow-up, given the changes that you’ve outlined at the center, just curious why not go the other way and pull more resources to the center and away from the affiliates because each affiliate has their own middle and back office, and marketing functions, and distribution, and so forth and so on? Duplicative, I guess. Why not centralize to get more economies of scale?

Hi, Mike. I guess the answer is really that our business is -- it’s probably quite different from many managers where that centralization strategy could make sense. In our business, as I outlined, we have really scaled leading franchises, they are very cost-efficient. So Acadian is a leader in their business. Has a very specialized fully scale distribution infrastructure. Obviously, their technology capabilities are next to none so it wouldn’t make any sense to have any centralized resource reporting that business. Similarly, Landmark is a very specialized business for secondary alternative strategy. Their needs are very unique in terms of their technology capabilities, are focused on providing both the sellers of secondary assets as well as their clients really very sophisticated insight about what’s going on in the market. The professionals -- deal professionals are very capable, highly talented people. So again, and in the back office is customized for that. So that again is a very different and unique need. Where we do have some similarities is within our Liquid Alpha segment where the managers are focusing on long-only strategies across the cap ranges and equities and fixed income but there again, two of the franchises, Barrow Hanley and GSW are large and are in low-cost locations in Dallas and Virginia respectively. We have looked at it. Their current infrastructures are much more cost-efficient than any centralization could be. Then we have two very small boutiques, who are very specialized and are working on that basis. So really essentially because of the -- in the midst of our affiliates, this strategy makes the most sense for us and we did have some centralized functions including distribution, but what it ended up doing as we evaluated it more and more was just really essentially reduce ultimately the earnings that were coming from our affiliates a little bit before we pass them on to the shareholders. Essentially, our new approach is to really pass on most of that cash flow that we receive from our businesses on to the shareholders.

Great, thank you.

Thank you, Mike.

This concludes our question-and-answer session. I’d like to turn the conference call back over to Suren Rana.

Okay, thank you. Thank you, everyone, for joining us today and hope everyone continues to stay healthy and safe. Thank you.