My name is Stephanie and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners' quarterly Conference Call. The slide presentation for this call is available in the Investor Relation section of the Virtus Web site, www.virtus.com. This call is also being recorded and will be available for replay on the Virtus website. [Operator Instructions]. I will now turn the conference to your host, Jeanne Hess. Please go ahead.

Thank you. Good morning everyone. On behalf of Virtus Investment Partners, I would like to welcome you to the discussion of our operating and financial results for the second quarter of 2015. Before we begin, I direct your attention to the important disclosures on Page 2 of the slide presentation that accompanies this webcast. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of facts or guarantees of future performance and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those discussed in the statements. These statements may be identified by such words as expect, anticipate, believe, outlook, may and similar terms. For a discussion of these risks and uncertainties, please see the Risk Factors and Management Discussion and Analysis sections of our periodic reports that are filed with the SEC as well as our other recent filings, which are available in the Investor Relations section of our website, virtus.com. We do not undertake any obligation to update forward-looking statements. In addition to results presented on a GAAP basis, Virtus uses certain non-GAAP measures to evaluate its financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our earnings press release which is available on our website. For this call we have a presentation, including an appendix that is accessible with the webcast through the Investor Relations section of virtus.com. Now I would like to turn the call over to our President and CEO, George Aylward. George?

Thank you, Jeanne and good morning everyone. Let me start by reviewing some of the items that contributed to the results this quarter beginning with sales and flows. I will then provide a high level discussion on capital before my Mike discusses the financial results and the balance sheet in more detail. So I will begin assets under management. We ended the quarter with assets under management of $52.4 billion which represents a sequential decline due to net outflows and market appreciation. Total assets remained diversified by asset class with domestic equity at 35%, fixed income at 31%, international at 26% and alternatives at 8%. Total sales were $3.3 billion compared with $3.7 billion in the sequential quarter as continued strong sales in international equity were offset by lower sales in the other asset classes primarily the AlphaSector funds. Lower second quarter sales were generally consistent with what we have seen in the retail intermediary channel across the industry. Total net outflows improved in the quarter to 1.3 billion from net outflows of 2.2 billion in the prior quarter primarily due to the decrease in net outflows in the form of AlphaSector funds to 2.1 billion from the previous 2.9 billion. The outflows in these specific funds offset positive flows in the remaining open end funds as well as in all other product categories, institutional, high net worth and ETFs. Excluding the former AlphaSector funds total net flows were positive 0.8 billion, a 20% increase from the sequential quarter and open end net flows increased 2.6 billion from 0.5 billion sequentially representing an organic growth of 8%. Fixed income net flows were modestly negative in the quarter consistent with the first quarter in industry trends. Flows into international equity remained very strong as our emerging markets opportunity fund continue to…

Thank you, George. Good morning everyone. Starting on slide 7, assets under management. We ended the quarter with assets of $52.4 billion, which represents a decrease of 13% from the prior year excluding money market accounts and a 4% decline from the prior quarter. On a sequential basis, the $2.4 billion decrease in assets is primarily attributable to open-end funds which decreased 2 billion or 6% due to the net outflows and market depreciation. he $7.7 billion year-over-year decrease in assets under management is primarily attributable to $5.3 billion of net outflows, $1.1 billion of market depreciation and 0.5 billion from changes in leverage. The decrease in open end fund AUM offset the growth in all other product categories, institutional, high net worth and ETFs. I want to point out two changes we made to the AUM tables in our earnings release. First we added a separate product category for ETF assets to reflect our acquisition of ETF issuer solutions now known as Virtus ETF Solutions. As they are new product for us with differentiated economic characteristics. Second, the open end mutual fund line item now includes variable insurance funds as these categories have similar characteristics. We have updated the prior period roll forwards and fee rates to reflect this change. We will continue to provide detailed roll funds of open end funds separate from variable insurance funds as well as open end funds by asset class in the appendix to our earnings debt. Turning to slide 8, asset flows, in the second quarter we had total net outflows of 1.3 billion, an improvement from 2.2 billion of net outflows in the prior quarter. As net outflows in the former AlphaSector funds improved to 2.1 billion from 2.9 billion sequentially. Excluding the former AlphaSector funds total net flows were positive…

Thanks, Mike. And that concludes our prepared remarks, so let's take some questions. Stephanie, can you open up the lines please?

[Operator Instructions]. Our first question comes from Michael Kim with Sandler O'Neill. Your line is open.

First, can you maybe just give us any incremental color on how existing shareholders are sort of digesting the transition to the Virtus trend funds and then related to that I know that’s still early in the process but just given the slowdown in retailed outflows. Any expectations as it relates to where AUM for those funds ultimately sort of settle out once the redemption stabilize?

So after the announcement on the 11th obviously a huge amount of effort and energy was put into communicating at multiple levels to the financial advisors who have put their client moneys into those funds, who obviously with whom we have had ongoing discussions with through the last few years as well as with firms that we do business with. So it was really full core press to make sure that everyone understand and I don’t know if you had a chance to look through all the material that has been put out related to those funds but to welcome through the rule changes, the introduction of Dorsey, Wright capability and how that differed from the previous ability and the rationale for some of the rules changes which we believe could have a positive impact in certain types of market environments. So generally as I said in the prepared remarks, I think those changes were very well received, Dorsey, Wright is held in high regard in the industry. They deal directly with a large number of financial advisors with their other resource and model portfolios and the work that they do but we spend a lot of time because it was very important for us as well as for our distribution partners to make sure that people really understood the differences because again when you’ve both the change in the signals input as well as rule changes you know it's a substance of change and as I’ve indicated a lot of our firms took their time to review those changes and that did result in having limited availability for sales during that period but as I’ve indicated those processes are now done. I would actually say we were pleased with the initial reaction. We would not have been surprised to have seen a large surge out of assets under management from people that have traditionally held it when it was managed by the former sub-advisor so several of those were very pleasantly surprised when we did not see that and we look forward to now that people have absorbed the changes and understand what they are trying to more thoughtfully use them in their portfolios. So again we think it's a great strategies, I think the improvements we made and the changes in the rules will have potential benefits and we’re very hopeful that FAs at previously liked the product will like this as much and just as importantly FAs who previously did not employee this product but maybe very enamored of Dorsey, Wright will see this as a great way to provide a risk managed strategy for their clients book.

And I know in the past you’ve soft closed the EM ops fund to new investors just due to some capacity constraint. So just wondering if you could maybe give us your updated thoughts on capacity for that fund and any insight you may have from Vontobel on that front?

Sure and to repeat, I know you’re well aware the capacity related to that fund is not really technically at the fund level, it's the overall Vontobel level but Vontobel fully appreciate the importance of a retail opening fund being that source of constant replenishment of assets. So we currently have no soft close or any close on that fund? Vontobel continues to be an incredibly successful firm with incredible performance but the fund we believe is a great opportunity to continue to have ongoing inflows. Emerging markets as an asset class has been under some pressure and I think we have been one of the few funds that continues to have strong positive flows but yes the class is under pressure and as you’ve seen in the past there are periods where there is reweightings and underweights and overweights, so keeping those funds open I think we believe is an important thing but the number one consideration for the capacity fund will be driven by Rajiv and the folks at Vontobel will being comfortable that they can continue to manage the fund and at this point they are very comfortable.

And then maybe just one last one from Mike, looks like margins were actually up slightly quarter-over-quarter even with revenues coming in a bit. So I know there is a fair amount of variability in the expense space but just assuming revenues continued to maybe trend lower at least in the near term, what might be the implications be for profitability?

As you indicated margins went up 20 basis points to 41% and we have talked about the variability and the cost structure and some of the drivers that will impact our margin notably what type of revenue changes there are whether they are from sub-advised third party product or internally managed product as we have stated before our internal affiliates pools and employment levels are unaffected by changes the revenue profile from the third party affiliate. So those will be the factors that impact the margin. We have talked about the incremental margins in the range of 50% to 60%. I think if you look at that level and evaluate where the type of revenue changes come from that gives you a good indication of the direction of the margin going forward.

Our next question comes from [indiscernible] with Credit Suisse. Your line is open.

Just quickly on the institutional flows, it looks like they have definitely got a tailwind over the last three quarters and it sounds like I heard you correctly, the activities coming from existing relationship. So can you just give us some color around the discussion you’re having with non-existing relationships and do you guys see this as a significant area for growth and are you allocating resources to growing it? Thanks.

Yes on the institutional that’s an area we’re actually, probably about three years ago. We started making some more investments. We were very disappointed over the years that even though we have strong investment capabilities from some of our affiliates that we didn’t have a larger institutional presence. So few years ago we made some changes in the approach for the institutional distribution. We brought in some resources at our affiliates and generally when we speak about institutional it's only our affiliated managers so it's new fleet, it's Kayne Anderson Rudnick, Duff & Phelps [indiscernible] actually and Rampart. So we invested those resources, I think what we have been pleased with over the last few quarters that you’re seeing growth is I think in many of those quarters it was actually different one of our affiliates that drove the growth so we have had one quarter where we have had a great opportunity from Kayne Anderson Rudnick with a brand new mandate. Similarly with Duff & Phelps it was a different quarter where they had a close related to an opportunity and NewFleet has had several including some ongoing sub-advisory mandates. So we sort of see that as something that we have invested in, that’s been a strategic area of focus. It's a long tail business so we’re pleased to be seeing the positive results. Obviously we want them to be much greater but I think we have multiple affiliates that have the investment performance and the capabilities to be much more institutional and after having invested the time in building relationships are now starting to get into the finals and actually win assets. So we’re sort of optimistic that that really should be a much bigger area of growth for us.

And just going back to the new alternative products, can you just give some color on they are being received by the retail gate keepers at the wire houses given a lack of track record?

So liquid, so for us the three funds that we launched late year. I think not limited to our funds but I think generally risk managed funds in this equity market have not found as much traction as you would like and I believe I may have said in our previous call, you know sometimes investors forget to think about what happens after a prolonged bull run pulls back. So again I think they continue to be attracted to those FAs that do understand that this maybe the time that you really need to start thinking about those more negative markets but generally what you’re seeing flows I think has unfortunately been a little more overweight, some of those more ongoing equity participating types of strategies. So we still think we have a compelling offering, they all have to build track records, generally has been a great market for risk managed funds, but it also takes is one small correction and then people will be reminded of why having a more non-correlated protective type of strategy is more attractive. So I think we will see more of that coming forward.

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

Just had a question, when you look at the current like product mix that you’ve and if you’re in an environment with some more volatility maybe some higher rates. Just wanted to get a sense in the distribution channels, you know where you’re likely to see demand across you know whether it's the equity VM [ph] fixed income. I mean it definitely sounds like some of these risk in the managed product it would likely gain some traction given that environment but just wanted to get an higher rate backdrop.

Well you see different impacts from a higher rate, and just remember generally if you were to ask us which market environment is the better market environment for our aggregate product set. It's actually not an up market because most of our strategies are risk managed, they are even traditional equity side. Both Vontobel and Kayne Anderson Rudnick are actually high quality managers, so they are actual best periods of performance will generally be in the weaker markets or specifically the Vontobel when the junkier stocks under perform. So generally you know a continued bull market is probably the weaker kind of market for our product set and if there were to be a correction and some more negativity in the equity markets it would actually be a positive for us. I think with rates it's going to be - clearly there is going to be a reaction to rates and statistically we can see what has happened in some of the markets when the fed starts raising rates. I believe this has been the most long expected increase in fed rates than anyone's had. But with alternatives you know the actual impacts on a more liquid [indiscernible] side I don’t think it's going to be universal because I think it depends on whether you’re talking about alternative income types of products or whether you’re talking about total return type of products. I do think when there is more volatility and more uncertainty there will be more attraction to non-correlated more risk managed strategies. I think you will definitely see that. Well the hard part to understand is really the fixed income side. What will happens with flows and fixed income in terms of right now where people are in terms of their expectations of how duration risk they want to take and I think there is a change whether it's September or December, you it will be interesting to see if that settles down in terms of where they put their money in fixed income.

And then I guess a follow-up, just on the liquid alts, it makes sense in terms of the environment I mean it's being a very long bull market. So maybe there is a lack of interest. When you think about just getting the distribution platforms or the gatekeepers like up to speed on the products and partially just given that there is a tons of liquid alterative products out there so how to differentiate. You know what you guys doing on that front? Because if the environment dos change or when it does change then you just want to be well positioned to make sure that the information is out there or the like the attraction can start to grow on the environment becomes more favorable. So just wanted to get an update on it, because I understand what you’re saying in terms of environment but just wanted to see from an educational standpoint where do you think the platforms are?

And I actually commend all the platforms because I think we all - the forms that we sell through as well we believe that really you know alternative products have a place for the retail investor but they are different than what they are used to dealing that and their expectations need to be much different, so I think all of our distribution partners have done an incredible amount of work trying to make sure that their systems, and their financial advisors understand how these should be positioned and used and I think that has taken a lot of their resources and I think and I would - I'm very comfortable of all of our peers I have been trying to work with the firms to help their financial advisors understand but I think it has taken a lot of time and the other thing I think that has created a difficulty in this space is there was such a deluge of these types of products and each of the firms obviously does a lot of work on a complex product and so just using ours for example which has up to 12 underlying hedge fund managers, it takes a lot of work for people to understand and we think it's really important for us to spend a lot of time with financial advisors to make sure that they understand how it works and as we all know having a little bit of a track record behind you makes it a lot easier to communicate. So I think everyone agrees that these are the right things to include in people's portfolios, I think a lot of education has been done. I do think the best education will be any kind of a pull back. We will sort of give the financial advisor a proof point for his or her client and we continue to work and we do a lot of stuff specifically around not our products but around just educating FAs on how to utilize liquid alternatives in their clients books. So it's a big area of focus.

Our next question comes from Steven Schwartz with Raymond James & Associates. Your line is open.

Just a couple of quickies, first on the flows to ETFs, I just want to make sure that outside money, that’s not your money?

That is outside money, it's not our money.

And then just on that subject, when you mentioned or maybe you can fill this out, you mentioned I don’t know which of you said, but you mentioned active ETFs. I was just wondering if you were thinking about - are you talking about ETMFs or you’re talking about non-transparent ETFs? And how you think about this whole market?

Well right now, in terms of ETFs again we think ETFs are going to be a very important part of retail investors book of business and I think we’re amongst good company in terms of having initiatives around ETFs, we’re pleased with the team at Virtus ETF Solutions, previously ETF Issuer Solutions. So what we have been doing is really, we now have that capability where as we announced I believe last quarter we actually filed for an actively managed ETF at our fixed income affiliate NewFleet that will be a actively managed but it will be transparent and again at fixed income it's a little bit easier to do a transparent than it would be for an equity fund. So we do believe that with the ETFs that we have opportunities in the active space, obviously we would prefer there to be semi-transparency but what we can do with our fixed income managers. We think there is opportunities on the smart beta site where we probably don’t have a lot of interest, it's just in the generic if that’s just an area for us but in the other two areas we think it's an opportunity and we do think the industry will ultimately have a way to do a more semi-transparent actively managed which would give us more abilities to do things some of our sensitive managers, who are sensitivity to transparency given their nature of their active strategies. So we see that as a future and definitely a good opportunity.

And then I just want to, whatever you can say going back to the loss contingency, I know you don’t want to say a lot but the increase if you can see this the increase that you put up there - can you say just reflects your discussions with the SEC like previous first quarter accrual or is this for a couple of few losses have been filed?

What we said this is a contingency related issue of that matter and that we maybe increase and I think we also said that this represents the most likely, we believe is the most likely outcome of this matter. However we can no assurances that that will be true.

Our next question comes from Surinder Thind with Jefferies. Your line is open.

Again just wanted to touch base on the Virtus ETF solutions, given that it's a relatively unique offering, can maybe you talk a little bit about what the competitive landscape looks like there and then maybe kind of the dialogue of what you’re seeing in the pipeline of maybe bringing on new clients for new assets and things like that.

Specific to the ETFs, correct. I mean I think in terms of the competitive landscape I think you’ve seen many of us in the industry that either developed or partnered with the firm to have the appropriate exempted orders and technology to be able to offer ETFs, so with Virtus ETF solutions I believe we now have 4 or 5 ETFs and we have a significant idea of pipeline for what we want to do there. I think the competitive environment, again ETFs - the majority right now has been in the more low cost passive area which is again is an area that is not a focus to us. We’re big believers in active management and the value that you get for active management and I think that gives opportunities on both the truly active managed or in the middle of the two where you’ve more of the smart beta. We do believe that there are some capabilities that we have that combine their selves there. I think one of the challenges for all of us, we have been trying to ETFs when you’re a traditional mutual fund provider is two things, how do you integrate that or do you integrate it into your normal distribution of open-end mutual funds and until recently how would you get the information that you would need to do so effectively and I think the industry luckily has evolved where there is an ability to get the information that might be helpful for us to have our traditional sales force of wholesalers, be much more participative in the distribution of ETFs. So I think that’s a really important evolution and they actively managed ETFs, I want to say this only about a 128 or 130 somewhere around 148, it's not a lot of those but that’s going to be a growing area and really goes back to the earlier question, is until there is a solution that allows less transparency. You’re going to see hesitation from a lot of active managers in terms of using that but I do believe there will be a solution there and that will even create more opportunity but I think traditional open-end mutual fund companies have an advantage once we can fully leverage our existing capabilities and wholesalers inside our traditional channels which I believe pretty much everyone is working towards. I can only speak for us.

And then just one quick follow-up, maybe a little bit unrelated but would the pending areas acquisition of Kayne Anderson, the private equity firm, I'm assuming is there any impact or any linkages to Kayne Anderson Rudnick in the sense that I assume there is some overlap with the management, teams and stuff but any thoughts or color on that?

No to clarify, our Kayne Anderson and the Kayne Anderson you’re referring were one company 15 years ago or so. We acquired the traditional side of the Kayne Anderson which is our subsidiary Kayne Anderson Rudnick and while we have obviously our folks still have relationships and know many of the people there, they are two totally separate companies and have been so since at least 2002 I believe.

So it's just meaning the relationships are there but there is no tie-ins though, correct?

There is no tie-in, you know again it's just sort of relationships because people used to work together but there is no primary business tie-in.

Our next question comes from [indiscernible] with Credit Suisse. Your line is open.

Just a quick question on the new DWA relationship and the fact that F-Squared is now out. Mike, can you just give us some color on how we should, that’s going to impact the model and the P&L and how we should think about that going forward? Thank you.

I addressed in my prepared remarks the impact on the fee rate to look to the second quarter open end fee rate as an appropriate base line for your models on a go forward basis and we will continue to provide transparency because there are a couple of things that are going in different directions inside the basis points related to the change. Clearly the change from the former sub-advisor to Dorsey, Wright had a slight favorable impact but that was offset by reductions in the fee rate on the product side. So I think that those things are generally netting, so using that fee rate from this quarter is a baseline for your models. I think it's a good way to start for the extent there are changes going forward based on changes in the asset mix. We will continue to provide that transparency to help with your model.

Our next question comes from Michael Kim with Sandler O'Neill. Your line is open.

Just in terms of capital management, I know you mentioned a couple of incremental seed capital needs and the level of share repurchase activity and continues to pick up but just given the strength of the balance sheet and the recent weakness in the stock, just curious to get your thinking about a more meaningful step up in share repurchases.

Sure, I mean I do believe we have had a very meaningful focus on share repurchases and again our outstanding shares that we were down 3.3% year-over-year. So we do see that and we’re at the level of basically having return a 102% of our net income as adjusted. So we think those are meaningful share repurchases. Again that is one of the uses of our balance sheet and we continue to consider the appropriate levels but we’re at our highest levels of repurchases. But fundamentally you know having the balance and the strong balance sheet we have $55, so for the cash and investments as you know is $52 per share and if you subtract that it's still $52 per share. But with that you know the focusing on the future of the business and the growth is really a priority and we’re very pleased with the fund that we seeded recently, the multi-strategy target return fund. It's just a great opportunity that the incredible expansive nature of that product required $50 million of seed. We think it's a great use of that capital. We’re very optimistic about the opportunities for that fund given the success that that strategy has had outside of the U.S. with Aviva directly not through any relationship with us. So we’re very excited about that and we continue to see as our obligation to balance returning meaningful capital to shareholders but to making sure that we’re continuing to invest in sustainable long term growth for our various market cycles so that’s really where we’re really focused.

This concludes our question and answer session. I would like to turn the conference back over to Mr. Aylward for any closing remarks.

I just want to thank everyone for joining us today and obviously we certainly encourage you all to call if you’ve any further questions. Thank you.