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Legg Mason Inc  (NYSE:LM)
Q2 2019 Earnings Conference Call
Oct. 24, 2018, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Legg Mason Second Fiscal Quarter 2019 Earnings Call. My name is Michelle, and I will be your operator for today's conference call. At this time, all participants are in a listen-only mode. (Operator Instructions) Please note that this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Alan Magleby, Head of Investor Relations. Thank you. Mr. Magleby, you may begin.

Alan Magleby -- Investor Relations

Thank you, Michelle. On behalf of Legg Mason, I would like to welcome you to our conference call to discuss operating results for the fiscal 2019 second quarter ended September 30, 2018.

This presentation 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. For a discussion of these risks and uncertainties, please see Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2018, and in the company's subsequent filings with the Securities and Exchange Commission.

During today's call, we may also discuss non-GAAP financial information. Reconciliations of the non-GAAP financial information to the comparable GAAP financial information can be found in the press release that we issued this afternoon, which is available in the Investor Relations section of our website. The company undertakes no obligation to update the information contained in this presentation to reflect subsequently occurring events or circumstances.

Today's call will include remarks from Mr. Joe Sullivan, Legg Mason's Chairman and CEO; and Mr. Pete Nachtwey, Legg Mason's CFO, who will discuss our financial results. In addition, following a review of the company's quarter, we will then open the call to Q&A.

Now, I would like to turn this call over to Mr. Joe Sullivan. Joe?

Joseph Sullivan -- Chairman & Chief Executive Officer

Thanks, Al. Good evening, and welcome to those of you on our call tonight. We appreciate your interest in Legg Mason. And as always with me is Pete Nachtwey, our CFO. This quarter, we were pleased to deliver solid results even as the industry continued and continues to navigate meaningful challenges. These results reflect our strategy of expanding client choice, which has diversified our business and enhanced its resiliency over market cycles.

Over the past five years, we have been very clear about and have continued to execute on our plan to build a compelling platform for the benefit of our clients. And I am very proud of the capabilities that we have today across investment strategies, products and vehicles and global distribution. Our primary focus, every day is on the needs of our clients and leveraging our capabilities and platform to further meet their needs. We believe that the results we are delivering reflect that client commitments.

In particular, I find the mix of our business particularly encouraging. Our alternatives business has been in net inflows for three consecutive quarters, specifically, since the acquisition in 2016, Clarion Partners has generated positive net flows in 9 of 10 quarters, with consistent ongoing wins and fundings. EnTrustPermal with its best flow quarter in four years was net breakeven this quarter with record levels of unfunded wins and committed uncalled capital, across different client mandates, multiple geographies, and investment strategies.

Diversification by channel and client type has enhanced the resiliency of our fixed income business, where institutional demand remains strong, even as our retail business has softened a bit, given short-term performance. We continue to like our positioning in this rising rate environment having two world-class active fixed income managers.

Further, the diversification of our equities business positions us well, as investors increasingly look to rotate from a richly valued, tech-driven U.S. equity environment to attractive opportunities in the international and emerging markets, where our high active share strategies have strong interest and are building flows.

And looking ahead, as we discussed last quarter, our overall pipeline continues to be near and all-time high at $15 billion of unfunded wins and committed uncalled capital, even as we saw sizable fundings in September.

As we have previously discussed, the diversification of our business has helped us to deliver consistent improvement in our financial metrics, even as the markets and flows can be challenging and uneven from quarter-to-quarter. To that point, our operating revenue yield has remain stable despite rising fee pressures across the industry. And our operating income, as adjusted has grown at more than twice the rate of our operating revenue as adjusted, since 2013. These trends continued again in this quarter.

But let me be very clear, as good as we feel about what we have built, we see much more potential in our platform and we intend to more fully leverage our capabilities and deliver more for our clients. Realizing the potential of our platform, and as a result, unlocking the value in our stock will require us to think and operate differently.

We continue to believe passionately in the value of independent specialized investment expertise, as do our clients, and this belief will not change. However, as we have increasingly collaborated with our affiliates around growth, we've also realized that there is significant operational expertise embedded within both Legg Mason and all of our affiliates, expertise that can be leveraged across the entire organization to enhance innovation and efficiency. Whether it is the retail separately managed account platform at ClearBridge that we're in the process of extending to our other investment affiliates, the Data Management Systems at QS Investors or the state-of-the-art risk management system resident at Western Asset. These are capabilities that are scalable, and will collectively raise the ability of the entire enterprise to serve clients.

Further, there is growing leverage in our existing retail distribution footprint for local, region-specific institutional coverage in areas such as Australia, Asia and Japan. And increasingly across the organization, we are coming together to leverage the insights of our affiliate institutional and Legg Mason's retail distribution expertise to better serve our clients as their expectation shift.

This evolution in how we operate began over the last year, as we asked ourselves, how do we collaborate more intensely to identify operating efficiencies across the entire enterprise that can be invested in growth or return to shareholders. I'm very pleased that my Legg Mason and affiliate colleagues have been open and eager to identify and pursue areas, where we are stronger together, and we found some quick and easy opportunities.

The first two initiatives; contracting with IBM around enterprise procurement, which we referenced last quarter has yielded 20 quick wins with another 60 initiatives under way. And we are now working to implement a common financial platform across the entire organization, which while requiring some investment upfront will yield operating savings and deliver quicker consolidation of financial information across the entire enterprise. There are numerous other opportunities to more efficiently deploy our spend, and as a result, increased our collective ability to invest that capital in growth.

Similarly, we are working with our affiliates to create a more differentiated client expertise understanding that our clients want and expect a greater ease of access in their engagement with us. All of these collaborative efforts are designed to increase both our effectiveness and efficiency as we evolve how we operate to deliver more for clients.

And with that, I'll turn it over to Pete.

Peter Nachtwey -- Chief Financial Officer

Thanks, Joe. Let's turn to our results for the quarter on Slide Two. Legg Mason reported net income of $73 million, or $0.82 per share. Total AUM was $755 billion with long-term net outflows of $1 billion, comprised of outflows in equity of $1.1 billion and fixed income of $500 million, partially offset by $600 million of alternative inflows. And notably, as Joe noted, this represents our third consecutive quarter of positive net flows in our alternative asset class.

Also, we ended the quarter with a strong flow month in September with inflows of $3.4 billion for the month and a strong pipeline for the future, as Joe noted earlier. Our global distribution platform reported $1.4 billion in net outflows, primarily driven by slowing gross sales, consistent with industry trends, while the redemption rate held steady for the quarter. And as for investment performance 68% and 73% of AUM beat benchmarks for the three-year and five-year periods respectively.

From capital management standpoint, we paid down the remaining $125 million on our revolver and paid $30 million of dividends in the quarter. Finally, Western launched its first fully transparent active ETF in early October in a total return strategy. This product was launched with $25 million of third-party capital.

Now let's take a look at our affiliates on Slide Three. As I noted earlier, our long-term net outflows in the quarter were $1 billion driven by Western, their first outflow quarter after nine consecutive quarters of inflows. However, at $6.6 billion their unfunded wins continue to reflect strong demand for their products and strategies. We also saw improvements inflows that several affiliates quarter-over-quarter including ClearBridge, Clarion, EnTrustPermal and Martin Currie.

As noted last quarter, we had a record total of unfunded wins and uncalled committed capital and while some of those wins funded in the September quarter, the level of this pipeline remains near record highs at just over $15 billion.

Turning to Slide Four, you can see the mix of our unfunded wins remains well diversified with a little over 60% in fixed income and roughly 20% each for equities and alternatives. The $7.5 billion of unfunded wins in fixed income are nicely spread across multiple flagship strategies in a similar diversification story holds true for the $2.6 billion in equities.

Finally, on the alternative side, we are very pleased with our unfunded wins and committed capital remaining strong at a combined $5 billion with EnTrustPermal being the major contributor.

Slide Five highlights our global distribution platform. As I mentioned earlier, negative flows for the quarter were driven by slowing gross sales, while redemption rates were in line with the prior quarter. Seasonally, fiscal Q2 is generally our weakest quarter of the year for gross sales, exacerbated this year by global industrywide trends, which were significantly muted as increasing fears over trade wars, tariffs and rising interest rates, compounded local and regional uncertainties.

Moving to Slide Six, you can see that our results for the quarter included a discrete tax benefit of $2.8 million, or $0.03 per share related to the completion of a prior-year tax audit. They also included a real estate charge of $2.4 million, or $0.02 per share related to the sublease of office space in our Baltimore headquarters, as we continue to look aggressively at our space needs across the firm.

Operating revenues increased by $11 million, or 1% driven by an increase in pass-through performance fees. While our base advisory fees were up, reflecting an additional day in the quarter, this was offset by a decline in non-pass-through, or NPT performance fees. We estimate that next quarter's NPT fees should be in the range of $5 million to $15 million, also pass-through performance fees at Clarion, we estimate will add another $7 million to our GAAP revenues.

Our adjusted operating margin was 23.6% for the second fiscal quarter versus 22.3% in the prior quarter. This primarily reflects the reduction in seasonal compensation costs combined with our tight expense controls. In addition, our GAAP tax rate came in at 27% or at the lower end of our forecasted range, in part due to the impact of the discrete tax benefit I mentioned earlier.

Looking forward, our effective tax rate may vary with finalization of our analysis of the impacts from last year's tax reform, plus any new guidance on that front from our external advisors. Additionally, the fourth calendar quarter is typically, when we true up the impacts from our allocations across various state, local and foreign jurisdictions that could cause some fluctuations at our GAAP rate. But just a reminder that our cash tax rate was 7% for the quarter and we expect it to stay at that level for the remainder of fiscal '19 and then remain in the single digits until approximately fiscal 2023.

On Slide Seven, you can see that AUM increased primarily due to market appreciation and liquidity inflows and as previously mentioned, long-term outflows totaled $1 billion driven by equities and fixed, while alternative flows were positive for the quarter driven by Clarion. The operating revenue yield came in at 38 basis points due to a slight decline in the yield, leading to our rounding down to 38 this quarter versus last quarter's yield rounded up to 39.

Operating expenses on Slide Eight, increased by $1 million due to the combined effects from comp increases, the real estate charge and a slight increase in other expenses. These being partially offset by lower D&S expense and the impact of last quarter's regulatory charge.

Turning to Slide Nine, total comp and benefits increased by $3 million due to increased pass-through performance fees. This was partially offset by lower salary, incentive and benefits due to seasonal compensation factors in the prior quarter. Next quarter, we expect the comp ratio to be in the range of 53% to 55%.

On Slide 10, our operating margin is adjusted increased primarily due to the seasonal comp factors, which impacted the prior quarter. And finally, Slide 11 is a roll forward from fiscal Q1's net income of $0.75 per share to this quarter's net income of $0.82 per share. Last quarter's results included the regulatory charge of $0.04 along with acquisition and transition related charges of $0.01, while operating earnings were up $0.06 this quarter, reflecting lower seasonal comp impacts.

Non-operating earnings were lower due to mark-to-market impacts on seed investments. And lastly, fiscal Q2 items included the discrete tax benefit partially offset by the real estate charge for sublease space in our headquarters.

So, thanks for your time this evening, and I'll now turn it back over to Joe Sullivan.

Joseph Sullivan -- Chairman & Chief Executive Officer

Great. Thanks, Pete. Before we go to your Q&A, I've been thinking about a question that we've been hearing from a number of you recently. What is the catalyst for growth and I think that's a bit of an industry question, but let me address it from our perspective.

We see that growth catalyst driven by two factors at Legg Mason. First, as we've talked about, client behavior and their expectations of us are changing, across both retail and institutional channels globally, clients are migrating toward fewer, but larger and more comprehensive relationships. The expectation implicit in this client shift is that their partners will have deep and diverse investment capabilities, a broad availability of offerings and vehicles and world-class sales and client service capabilities across the globe.

Legg Mason's platform delivers that breadth of expertise, which can be leveraged in multiple ways to create more and better investment options for clients. But we also know that just having the platform and capabilities isn't enough. So, the second factor driving this real catalyst for growth is the opportunity that we have to create a significantly more powerful competitive position through collaboration, specifically creating the more seamless client experience about which I spoke earlier.

Supporting clients more effectively and in the manner they prefer, combined with a meaningful opportunity over time for much greater operational efficiency, which will drive an expanded investment in our business, can drive greater growth and deliver a meaningfully -- meaningful improvement in our earnings and margin over time.

As I said earlier in my comments, unlocking the potential of our model and the corresponding value in our stock requires us to think and operate differently. The change in our clients' needs is driving the change in how we operate and although it is early days, we are already seeing a shift in our culture to embrace this mindset of collaboration and a real recognition that we are stronger together, as we leverage our robust platform capabilities to meet evolving client preferences.

This confluence of a changing industry and evolving client expectations, with the change in how we come together in support of the client drives the catalyst for growth that we see at Legg Mason. We are excited about the opportunity that this catalyst presents and up to the challenge of growth that it implies.

I look forward to updating you further on our progress. But with that, we'll open it up for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question in the queue comes from Chris Harris with Wells Fargo. Please go ahead. Proceed sir.

Christopher Harris -- Wells Fargo Securities -- Analyst

Great, thank you. Joe, I'm curious about the increasing collaboration across your platform, you highlighted, it sounds like you guys are excited about it. Is there a way to size this potential for us, specifically wondering, what it could mean for lag in terms of financial performance or flow opportunities?

Joseph Sullivan -- Chairman & Chief Executive Officer

So Chris, I guess look, I'd answer this to be perfectly candid, it's early. It's still a bit too early for us to really size it. But I will tell you that we believe it's significant. And we think it really is in two context. One is, we've talked about the opportunity to potentially leverage our collective scale and find ways to be more efficient. And we do see significant opportunities there. As I mentioned, we have early days with respect to procurement, and Pete and team working on the common financial platform, and those will yield some real efficiencies for us. And that will allow us to do three things. One will be to compete more effectively on price; secondly, to be able to invest more in our business as that's being required and needed. And then thirdly, to potentially return more for shareholders. That's a great and sort of an obvious opportunity.

But once we do it, it's sort of done. The really, I think, powerful opportunity that we have through this collaboration initiative is around growth. And that's really what I'm particularly excited and we're seeing that ramp in a very, very significant way. Just by way of example, we've seen QS, RARE and Clarion, all in distinctive product development discussions with Western to create different and unique investment solutions. We've seen also a higher level of collaboration between our affiliates with our retail platform. I mentioned how in some cases, our retail footprint is more expansive in many cases than what our affiliates can do and so there's a greater, higher level of collaboration and taking advantage of that local or regional footprint.

We are just got word recently that we're launching a new completion portfolio with one of our major distributors utilizing the investment strategies at QS, Brandywine and Western in a managed multi-asset class portfolio. Now these are trends that are industry trends, but we've got the capabilities to do it. But this is the example, we've seen our affiliates come together on the institutional sale side to appropriately compare notes and think about how they can leverage the strengths of one another.

So, we see this collaboration as being significant, where it's a bit early for us frankly to be able to kind of size it for you, but we see it, both in terms of being able to capture synergies and efficiencies on the operating side and then be able to turn that into investment in our business or improved margin for shareholders. But then the real power of this is going to be again responding as clients want us to delivering the kind of client experience that clients expect and then tapping into the trends in the industry for multi-asset class solutions.

Christopher Harris -- Wells Fargo Securities -- Analyst

Great, thank you.

Operator

The next question comes from Robert Lee with KBW. Please proceed.

Robert Lee -- Keefe Bruyette & Woods -- Analyst

Great, thanks. Good afternoon, everyone.

Joseph Sullivan -- Chairman & Chief Executive Officer

Hi Rob.

Robert Lee -- Keefe Bruyette & Woods -- Analyst

Hi. Actually maybe a question for Pete on capital management. So, just curious, I mean, I know that the objective is to accumulate cash to paydown the 250 that matures in the spring, but you've paid down the revolver. I think you mentioned you have $600 million of existing cash on the balance sheet. So, I mean, what's kind of the ongoing cash level you feel comfortable running the business at? And considering what's been going on with the stock price? And is there any room or flexibility to maybe begin some share repurchase, earlier than, we maybe would have thought?

Peter Nachtwey -- Chief Financial Officer

Well, Rob, appreciate the question. I know it's one on lot of people's minds. But maybe as a reminder for everyone, who is on the call, might not follow the story. We drew down on our revolver $225 million back in December 2017 to purchase Shanda stake and we paid back $100 million of that back in March, and then we repaid the rest of it here this last month. So, that allows us to kind of look forward, where our capital priorities going to be. We've consistently said, we're going to paydown the subject to markets and other opportunities, we're basically know what we know today to paydown our $250 million of senior notes, when they come due next July, and that will be a significant de-levering event, which we know is of interest to a lot of folks, including our equity holders.

And then post that funding our increased stock dividend for the rest of the year covering cash taxes, covering CapEx, all the things you'd expect us to do. And then, as we've been talking about our normal time of year to talk to our Board about capital planning and strategy going forward is, typically the spring of every year, and we'll be doing that again. But we are doing in light of the fact that we'll be de-levered or be de-levering in the summer. So at that point, we really take a hard look at, how do we use excess cash to invest in the business, we see a ton of opportunities there, possibly repurchase shares, possibly increase our dividend, but the one thing we've consistently said is, we're not sitting on excess cash.

Robert Lee -- Keefe Bruyette & Woods -- Analyst

Okay. And then maybe just one quick follow-up. This relates to the pipeline, I mean, I know heading into the quarter, just ended good pipeline, some frustration around the pace of funding, notice given the environment, pipeline is still at healthy levels. Can you maybe update us, do you kind of still see, you obviously had a great September, but still kind of thinking that pipeline, maybe the funding of it's going to get extended with just kind of what's been going on over the last couple of weeks?

Peter Nachtwey -- Chief Financial Officer

We don't, Rob, we don't really see anything. We haven't gotten any color that anybody, any of our clients are in particular extending the funding or anything like that. We have not gotten that word, it's been, it's not predictable. We get tentative subscription days, when we think that the funds will be coming in, when the flows be coming in, but that can change for a variety of reasons. But look, we feel really good about the replacement grade from when we -- over the last quarter, we have $12 billion in unfunded wins and a total of $15, just over $15 billion with committed uncalled capital combined. Again close to a record high. We had 7, just over $7 billion fund in the quarter. We just had over $7 billion in new wins in the quarter. So, that's a pretty darn good replacement rate, when we're operating at a relatively high level for us. So, we feel pretty good about it. And we did -- but we haven't see anything in particular that suggest the clients are backing away from funding or anything new. It's just, it can be unpredictable unfortunately, but we feel pretty -- we feel very good about the pipeline.

Operator

Thank you. The next question comes from Kenneth Lee with RBC Capital Markets. Please proceed, sir.

Kenneth Lee -- RBC Capital Markets, LLC -- Analyst

Hi, thanks for taking my question. Just one on Slide 15, in terms, of the average field, looks like the trend was downward for equity and fixed income. Just wondering what the key drivers were there? And I presume that the alternatives fields were just down a bit due to mix shift from the commingled funds. Thanks.

Joseph Sullivan -- Chairman & Chief Executive Officer

Sure. Maybe just had each of the asset classes, that's highlighted there. If you look at that fixed, that one was virtually totally rounding, it was caused a bit by retail redemptions offset by institutional inflows, and the institutional mandates typically are lower fee because they're much higher volume individually.

On the outside, we continue to be impacted, little bit by outflows in higher fee legacy Permal commingled funds, but just given, where that asset balance sits and given the great work that EnTrustPermal has done to go out and then spend time with those clients, those outflows have been slowing. The other factor, we've been having there though was Clarion. So, Clarion somewhat of obtusely they're a higher fee than our firmwide average advisor yield, but they are lower than the average alt fee.

So, the Clarion was doing well both in terms of flows and in higher asset values, they pull the alt fee rate down a little bit, but they actually help pull the firmwide fee up. And then the last one is the equity yield, that was really driven by outflows in Australia, income products in Japan, and as you may recall from prior calls, we closed some of those because of capacity, they obviously are open for redemptions. So, but the good news there, the outflows started slowing toward the end of the quarter. Hope that helps.

Kenneth Lee -- RBC Capital Markets, LLC -- Analyst

Okay. Thank you. Thank you very much.

Operator

The next question comes from Mac Sykes with Gabelli. Please proceed.

Macrae Sykes -- Gabelli & Company -- Analyst

Good afternoon, everyone.

Joseph Sullivan -- Chairman & Chief Executive Officer

Hi Mac.

Macrae Sykes -- Gabelli & Company -- Analyst

There was a question about what competitive scale means on a call earlier this morning. And certainly, we've gotten a lot of discussion recently in light of that major deal being asked. Maybe if you could just refresh us with your thoughts and what competitive scale is? And how it relates to Legg Mason as a firm and also at the individual slate level?

Joseph Sullivan -- Chairman & Chief Executive Officer

Well, look I think scale is important. There's no question about it. But the way we tend to think about scale is, more than just the absolute amount of AUM. You can be a large AUM from with assets that don't yield a whole lot to be and so that, that's -- that doesn't really help you. I guess the way I think about scale Mac, as I think about the breadth of capabilities. That's why we're constantly talking about our investment capabilities, we're talking about our products and vehicles, we're talking about our distribution.

Are you able to service clients with the breadth of capabilities, the breadth of vehicles with a field sales force to support those strategies and those vehicles in the marketplace, and we are. Obviously, when you have that kind of scale, you're able to -- you're able to do more. You're able to do more with marketing, you're able to do more with technology, you're able to do more working with clients to be able to come together with solutions. I mentioned earlier that we just got word of a completion portfolio with a major distributor, that completion portfolio, as I mentioned included QS, Brandywine and Western. Well, if you don't have the capabilities that QS has, it's pretty tough to be a participant in that kind of an opportunity.

So, as it relates to with our affiliates, I think, they I would like to thank, who would say, and I think they would say that, this notion that we are stronger together. We keep using that language. We find that to be really true that when we come together as an organization and again different affiliates working to provide a solution for a client, when we come together, when we are stronger together. So, I think of in terms of scale, we feel like we have scale. We sure, we'd like to be larger and as we have, as we get larger, we'll be able to invest even more. But if you look at the breadth of capabilities that we have on our platform, we think we have scale.

Macrae Sykes -- Gabelli & Company -- Analyst

Just on the collaboration, going forward, what do you expect the leadership to come from in terms of that? Essentially on a multi-boutique product, what -- is there, is the specific affiliate that will be expected to sort of drive that process, or as corporate, I guess, I'm trying to understand how you're going to kind of lead that whole process and getting the most out of the affiliate?

Joseph Sullivan -- Chairman & Chief Executive Officer

Look, the way we've been working on it, Mac, is that we've had all of the affiliates at the table talking about ways in which we can again operate from an operational standpoint. We can operate more efficiently and more effectively, but then also all of the affiliates at the table around how we can -- we can actually be more effective with clients. And in that context, it's not always about size, I mean, obviously the Westerns and the ClearBridge bring scale and a strength based on that scale. But even the smaller firms that have unique investment capabilities that clients want, they come, they get to the table with clients because they are part of our overall mix, right? And we've heard that from clients.

Some of our affiliates, notwithstanding the fact that they've got very good investment capabilities and performance. Their ability to get into platforms now, would be very, very difficult, were they not part of Legg Mason and combined with a Western or a ClearBridge. But I think it's going to be kind of all of us rowing on the oar together. And I know that sounds difficult in a multi-affiliate model and it is difficult to be honest with you. That's why it takes us a while. That's why we, -- why this process takes a bit longer, but it becomes very, very powerful, as it starts to come together and I think all of our affiliates are seeing that. So, it's going to be the way it's been working for us so far is, really the collective leadership of all of our affiliates.

Operator

Thank you. The next question comes from Dan Fannon with Jefferies. Please proceed with your question.

Dan Fannon -- Jefferies -- Analyst

Thanks. Good afternoon. I guess, Joe, my question is around performance and I look at Slide 21 and Slide 22, the one-year numbers and I think this is the same case last quarter, are slipping or a little bit weaker. And just how you think about that in terms of your enthusiasm around growth? And if I look at kind of global distribution, which I think, Pete mentioned seasonality, but this is that you've had really good numbers there in terms of net sales for a long time in that went negative this quarter. Just want to see if there's kind of a correlation there to the performance kind of slowing in the trend you're seeing in that channel?

Joseph Sullivan -- Chairman & Chief Executive Officer

Well, Dan, I would say, of course, I mean on the retail side, volatility in the markets is typically not the friend of the retail investor and then they tend to be a little bit more reactive from what we see the short-term performance trends. If you remember and I think it's really important to remember, north of 70% of our AUM is institutional in nature. And so those investors tend to have a little bit longer horizon, they tend to look at us from a 3-year perspective or 5-year perspective and they see through and look through kind of short-term performance bumps.

We're seeing that as I mentioned with fixed income. So, fixed income actually our capture of market share actually was fairly significant in over the last six months in retail fixed income. But the overall levels slowed down. But our institutional pipeline and appetite is quite high. And so I think I don't want to be -- I don't mean to be dismissive of kind of pressure on some short-term performance. There's nothing that gives me particular anxiety. We've had a little bit at ClearBridge in a couple of strategies, but again, people who are long-term investors and things like aggressive growth and things like that, understand Richie's investment thesis and style and what are the drivers of that underperformance. I think what we have seen though, is that our performance overall, particularly in this -- in this more volatile period in the last month or so, has actually improved a little bit and that's what we would sort of expect in this environment.

Dan Fannon -- Jefferies -- Analyst

Thanks. And then just a follow-up on the collaboration. It seems if it's a combination of investment for growth in terms of reinvestment of savings that you might get as well as potential margin. I think you mentioned maybe some upfront costs or some things. I guess is there anything that we should be thinking about in the coming quarters that would kind of manifest itself in the income statement that might either positive or negative as a result of these initiatives?

Joseph Sullivan -- Chairman & Chief Executive Officer

Look, I think we're going to be -- we will be absorbing some modest costs as we go forward here. And we're not -- candidly, we were not quite there, where we feel like we can give you good numbers at this point in time. But we will be absorbing some modest costs and we'll have some saves that go along with that. And the timing of those might not be exactly the same, but this is good stuff, Dan. We're making really good progress.

And I think we're early days with it. And again, I know that people want more transparency around it, and frankly we just don't want to give out numbers that we can't stand behind, and so we're not quite there. But we're working on being able to try to help you understand the potential of what we can do here and the timing of it, but we're just not quite there.

Peter Nachtwey -- Chief Financial Officer

And then Dan, this is Pete, I'd just to add. As we're racking and stacking the potential cost against the saves. So, I think, you will see some compelling kind of payback periods, where we are able to talk about specifics.

Operator

Thank you. The next question comes from Jeremy Campbell from Barclays. Please proceed.

Jeremy Campbell -- Barclays -- Analyst

Hey, thanks guys. Most have been asked and answered. But kind of given the backdrop, we've seen October date so far. Hope you can give us a little bit of color around kind of what the flow picture is shaping up to look like here? I know, we got a week left, but maybe some thoughts around that.

Joseph Sullivan -- Chairman & Chief Executive Officer

Yeah, I think we have a couple of weeks left. At least from our standpoint things kind of bleed into the next month a little bit. So, look, I would tell you that so far at this point, we're pleased with how the business -- with our business is shaping up for the month. But again, we still have not maybe two weeks or a little bit less than two weeks left in the month. Some of the wins that we kind of forecasted and expected to fund, moving from September to October have funded. But we -- we do expect to be positive for the month of -- for October and it's just going to be a question of what actually comes in and hopefully no surprises on the outflow side.

Jeremy Campbell -- Barclays -- Analyst

And I think you previously you just mentioned that the retail investor tends to be a little more fickle with like the market performance. Would it be safe to presume if you guys were inflow positive for the month, it would probably be driven primarily by institutional wins, offsetting some of that retail weakness?

Joseph Sullivan -- Chairman & Chief Executive Officer

I think that's probably true. And remember, again this is kind of the beauty of our model, right that for various times, when the institutional business was a little bit softer for whatever reason, we were strong on the retail side. And so again this just plays to our theme of diversification, the diversification of our business. I think the other thing is that, you can get a little bit caught up and well, Pete mentioned, the fee rates on the retail side are going to be are higher than on the institutional side. Remember, the costs are also lower on the institutional side. We have virtually no cost on new institutional assets that are raised. And so the margin on those to the Legg Mason to the shareholder are actually quite high. So, even we're largely an institutional shop and those flows are very, very profitable to us because we really don't have costs associated with them.

Jeremy Campbell -- Barclays -- Analyst

Great. Thanks a lot.

Joseph Sullivan -- Chairman & Chief Executive Officer

Thank you.

Operator

The next question in the queue comes from Michael Cyprys with Morgan Stanley. Please proceed.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey, good afternoon. Thanks for taking the question. My question is just more around growth and your expectations there for more about the industry net flows next couple of years, you have central banks withdrawing liquidity from the system. To what extent do you see that impacting overall asset flows and also the mix there? You also have demographic shifts, baby boomers retiring, drawing down on investments, how much of the headwind is that?

So, I guess just how do you think this all shakes out in terms of flows for the industry? Where is going to be coming from, if you look across client channels, asset classes strategies, how are the puts and takes, and is there a case, we could actually see positive inflows the next couple of years for the industry?

Joseph Sullivan -- Chairman & Chief Executive Officer

Well, in the next minute and a half, Michael, I'll try to answer that question. I'm teasing. Look, it's a big question, and I think -- I think we focus on what we think of the larger trends. And again we keep talking about the fact that the business is consolidating, that clients are looking to do more with fewer, with fewer partners. There is a scale, to the earlier question, there's a scale question in the industry. Are you able to, to provide multiple solutions across asset classes? Are you able to provide most multiple solutions across vehicles? Are you able to support in the field, the products and the strategies that you have out there? Are you able to combine different asset classes and put them together to create solutions? That's where we see the business going.

Look, it's a huge industry that's what 70 trillion, 75 trillion an AUM globally. There's plenty of -- there's plenty of AUM out, there's plenty to play for. We do think that, again, it's going to move increasingly more toward solutions. We think that the play and to be -- to be a one of the stronger players in the industry, you've got to have multiple capabilities across all the things that we talk about over and over again. So, I don't know exactly what the flows are going to be net. And we do see continued -- continued move to passive. But we think the rate of that growth probably slows a little bit. I think those that active managers we are believers in active management.

We believe that active, good active managers do deliver alpha, you've got to prove it. You got to earn your fees in that respect. People are looking for differentiated uncorrelated returns and we have that. We have that ability. We think it's going to be, we, as we look out, we see kind of the returns in the equity markets in the traditional sectors. The equity markets, we see the returns softening or at least being less than they have been, rates even though they've moved up are still low by historic standards.

So, there is -- for investors to get what they need, to get the returns that they need, you're going to need uncorrelated differentiated sources of alpha. You're going to get that through active management. We have a breadth of active managers that can deliver that. So, we feel like we're in a pretty darn good position to benefit. Our issue is not, do we have the platform or the capabilities? Our issue is, how do we put together and make it work better and execute on it.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. And just as a follow-up to that, to your point on, there's plenty of AUM to play for, how do you think about using the fee rate flexing that as a way to drive growth particularly on the equity side, which has historically had higher fees? And where you're seeing a little bit more outflows using that to drive growth, they're even extending the duration of your client assets on the retail side, which historically had higher fees. And then any color you could share on how you're thinking about using fees and pricing on the institutional book? And how that back book is priced today relative to where new mandates are coming in?

Joseph Sullivan -- Chairman & Chief Executive Officer

Well, I mean, look, I think, to your last question, I think in the industry, new mandates are typically coming in at fee rates lower than legacy mandates that are rolling off. I mean, I think we all know that. I think we don't want at a high level, I don't think any of our managers at Legg Mason want to be known as a price leader that only manner in which we can compete is to be the low cost provider. We will be competitive, there's no question, but we don't want to make our stock in trade be, where the WalMart or whatever of asset management.

I think that one of the things that we do believe and this really goes to the retail side, is that our breadth of vehicles allows us to offer the retail investor in particular and not only the retail investor, other institutional investors, more alternatives in terms of vehicles and vehicles that have lower cost structure. So, ETFs, CITs, SMAs things like that, where you can -- were fees do come down. And the good news about that, as we've talked about from our standpoint is, doing the right thing for clients, moving them into an SMA, for example, is good for the client in terms of tax efficiency, in terms of their ability to influence or customize that portfolio and also from a cost perspective. But when we do that we deepen the relationship with clients and that's where we see our persistency of those vehicles extend, so that the ultimate profitability is actually in line with what we've experienced at least so far on the mutual fund side.

So, it's a complicated question. We do -- we are competitive on price, we have to be or we'll never win any business and we are winning business. So, we have to be competitive on price. We don't want to be the necessarily known as the price leader, we hope that our performance and I think our affiliates would say that their performance warrants a fair level of pricing. But there are things that we can do in terms of vehicles. And when I talked -- going back to one of the earlier questions about what does it take in this industry, even institutional clients now in their RFPs and then their mandates, they want to know, what are the breadth of vehicles that you can offer this the strategy. And if you don't have the ability to do it in an ETF or the ability to do it CIT, that can be a limiting factor. We don't have that problem and so we're able to compete in terms of the breadth of vehicles that we can offer.

Operator

Thank you. The next question in the queue comes from Michael Carrier with Bank of America Merrill Lynch. Your line is open sir.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Hi, thanks, guys. Thanks for taking the question. Joe, maybe first one for you, just given the short-term performance it's a little weaker versus the long-term. Just wanted to get some sense if you have, some granularity, whether it's on the equity side, the fixed income side, just which way on it. And then on the fixed income side with Western and Brandywine, just how -- like where are their heads or how are they thinking about both the rate backdrop and maybe a potential credit cycle?

Joseph Sullivan -- Chairman & Chief Executive Officer

I think, first of all, I would say for our fixed income managers, what has impacted both Brandywine and Western and in both cases, they came back quarter-over-quarter and picked up in terms of their relative performance quarter-over-quarter. But what's really impacted them both, is just exposures in the emerging markets. And I think they continue to believe long term that those are -- there is real value in the emerging markets. But I think look with, as Pete mentioned in his comments, what's going on with trade and the dollar and all this kind of stuff, I mean, it's just really put pressure on the emerging markets. I think Western doesn't see at this point in time any particular stress on the credit side of the business and I think if we continue to see good and solid economic growth, you should see credit continue to do fairly well.

I think that the general view is that rates are going to continue to move higher. But that's, the central banks broadly will continue to be "accommodative". I know they're all withdrawing the liquidity in the system. I know they're all raising rates. But they're also not doing it in a reckless fashion, if you will. I don't know that's the right word. I think that we do continue to see rates moving up, but we don't see sharp rises in rates. I think on the equity side, we've had some challenges on large cap growth, a couple of other strategies. Royce Value Trust has been a little bit of a challenge, but we've also -- we have offsets to those two.

So, where we have -- certain strategies, where we've had some challenges. We've also got strategies that are doing quite well and our clients are pivoting. So, ClearBridge, the international growth strategy is just really performing well. So, that we have pivots. We have offsets to some of the challenges in our performance book. So again, I've been warned to never say, I don't worry about performance. I do worry about performance every night, when I go to bed and say my prayers, but there's nothing that's particularly alarming at the moment to us.

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks for the color. And then Pete, just in terms of the expenses you flagged a couple of the items, just going forward like anything that we should be thinking about. And just given the nuance with the market right now unlike the revenue, shares, anything to be thinking about going forward that if equities are under pressure, does that change kind of the dynamics for the outlook for the margin, or is it fairly doesn't just, basically any color on that?

Peter Nachtwey -- Chief Financial Officer

Yes, sure, Mike. I mean we don't manage the business obviously, what happens in the market daily. But we're also not blind or immune to it. I mean one of the benefits of our model is the fact that rev share kind of automatically means the affiliates absorb 60%. We want them to do well, but when markets are bad, this is kind of an automatic buffer there on their end. And then as you know the big chunk of our expenses at the parent level are comp, and a big chunk of that's incentive-based. So, we've got the ability to, I think, whether any meaningful downturn in terms of the levers that we've got. So, nothing that at this stage that I'd say, pleased with, still early in terms of what happens with the markets, but nothing that we'd see you guys need to put in your models.

Operator

Thank you. The next question in the queue comes from Patrick Davitt with Autonomous Research. Your line is open, sir.

Patrick Davitt -- Autonomous Research -- Analyst

Hi, thank you. In the second quarter, you've mentioned kind of some of the specific collaborations or collaboration discussions that are ongoing. We think the runway is -- we'd be talking about tangible product launches and then tangible measurable benefits from those launches?

Joseph Sullivan -- Chairman & Chief Executive Officer

I would tell you, I think, that we will see that increasing at an increasing rate, and we're already seeing. That the momentum around our collaboration is growing. And as I mentioned earlier, we have, I mentioned it a couple of times now, this completion portfolio is out in the marketplace. We've got RARE and Western talking about a potential product. The product development piece take some time, as does just the collaboration run institutional distribution. I mean, it just when you're bringing together a large group of independent affiliates, it just takes more time. But I think the runway is long, in terms of the opportunity and I think it's real. And look, but I think it will -- what we are seeing Patrick is that it's building in momentum. So, I think you'll be hearing us talk about more each and every time we are out there.

Patrick Davitt -- Autonomous Research -- Analyst

Great. Thank you. And then just a follow-up on the comment you made about this common system, systems you're building out could potentially allow you to be more competitive on price. Should we take that to mean that there could be a few rationalization process at some point once these expense saves come through?

Peter Nachtwey -- Chief Financial Officer

Patrick, maybe I'll take the first part. The common systems, I think, Joe was referring to our financial systems across the platform. So, we've got the parent, 9 affiliates and all 10 of us are on effectively different financial systems we're working on. But that wouldn't really go to pricing.

Joseph Sullivan -- Chairman & Chief Executive Officer

Yes, I think what my comment was Patrick is, when we think about realizing efficiencies, there's kind of three buckets, where that can go. One is, we know, we're no different than anybody else. We have fee pressure just like everybody else, and we have to compete, earlier questions on, how do you think about that. We don't want to run to be the lowest fee provider, but we do have to be competitive, and that one way to mitigate the impact of lower fees is to be more efficient. And we're not the only ones. I mean other firms in the industry are working as hard as they tend to be more efficient.

But in our case, that efficiency, the opportunity for efficiencies, we think much greater. And so, and our affiliates feel that. So, we can mitigate the impact on shareholders or mitigate the impact on affiliate bonus pools, if we can increase the efficiency with which we're operating. So, when we think about driving cost saves, if you will, it's, yes, it's about being able to be more competitive without impacting bonus pools or impacting margin. It's also about investing in the business. There are plenty of opportunities for us to invest in the business, whether it would be technology, whether it would be marketing and branding, whether it would be distribution and things like that. And then there's also the opportunity to return some of that to shareholders. So, those are the kind of the three buckets, we think about saves "are operating more efficiently". That's where we think it goes.

Operator

Thank you. And our final question comes from Bill Katz with Citigroup.

Bill Katz -- Citigroup Inc -- Analyst

Okay, well thank you very much for taking the questions. So Joe, a couple of big picture questions, if I may. You mentioned that you feel pretty good about the diversification of your platform and sort of building for like the next-gen of opportunity, and that sounds quite good. Some of the other dynamics, I think, is driving market share things such as digital distribution, risk management, and passive. Where do you think you are strategically on that score? And then related question is, are you thinking about potentially a merger of equals with another manager-manager to maybe drive that share rather than through some actual savings and offset by ongoing pricing pressure?

Joseph Sullivan -- Chairman & Chief Executive Officer

So, on the first one, I think our -- on the passive side, we're really, we've chosen not to be in the passive game. That doesn't mean we're not -- that not to be confused as we know what the ETF game because we are in the world of ETFs. And we think that whether it be -- that we can compete with lower cost alternatives through ETFs, through SMAs, through CITs things like that. As it relates to digital distribution, I don't want to overstate, where we are, we have financial guard, I was on actually yesterday spent nearly an hour with a client, who is considering, and I think we have a good shot at using Financial Guard is their digital solution. And so we're excited about that. We also recently made an acquisition, not an acquisition, an investment in Hong Kong with a company called Quantifeed, again another digital distribution solution and we're looking at a lot of different opportunities there. Just the idea, the notion of kind of putting chips on some different colors and numbers, to try to see, where we can participate in that. So, I would say we're early in the game, to be honest in the digital side, but not for lack of work, where we've got a fair amount of work going on and that will build over time.

I think Bill, as it relates to your second question, I think, the last time I was asked that question in a public forum, you asked it at a investor event. And I would say this, I will give you the same answer, and I won't give you the same answer, because I said something then I regret today. But look, I think consolidation from my perspective is a classic outcome for an industry that's frankly still enjoys pretty significant margins, but yes is dealing with overcapacity, is dealing with challenges in terms of differentiation is being massively disrupted. And but yet at the same time, the price of admission to the industry is rising. So, we're moving from what is historically been a capital-light business to one that requires greater capital investment.

And I think given that backdrop, we've been fortunate that notwithstanding the price of admission going up. Notwithstanding the industry being challenged and disrupted by passive and technology and all these kinds of things. The markets have gone up, and so it's sort of covered some of the challenges, I think that we have as an industry. But given the backdrop, we do expect greater consolidation and maybe meaningful consolidation to continue and I would say that, that likelihood is even increased if the markets continue to be volatile or even more challenging.

So, I would personally expect that we probably have many fewer firms, certainly fewer firms, but even maybe many fewer firms in the next three to five years. As it relates to Legg Mason, the way I answered this question, when you ask it a while back was that, we are open to anything as long as it meets a -- it's a high hurdle, but as long as whatever we do improves our prospects and our opportunities for our clients. If we can really look our clients in the eye and say, gosh, whatever we're doing here, if we don't do this, there's no way we can get to this place to serve and do what you need us to do for you.

So, the first hurdle is really how does this improve and benefit clients. And then from there, there's other considerations around shareholders and things like that. But that's a high hurdle, but if the right thing came on sure, we would -- we would look at it, we'd have to look at it, and we would want to look at it. So, hope that answers that, again?

Bill Katz -- Citigroup Inc -- Analyst

That's helpful. And just quick follow-up, if I may. Thanks for taking the questions this evening. So, you mentioned a couple of different things around potential efficiencies, I guess kind of counterbalance investment versus those savings. So, on the real estate side, is there a way to sort of think about how, is there another benchmark out there we can look at in terms of trying to size the opportunity?

And then on the common systems attempting(ph)and the affiliates, are there some periods we can look at, to say these are type of target margins, you can get to, try to sensitize based on some of your early stage discussions here?

Peter Nachtwey -- Chief Financial Officer

Bill, maybe I'll take that one, and Joe can jump-in. I think it's a little bit hard on the space side comparing, contrasting across the patch as we call it. We've got another manager roughly our size in the same town wherein they basically have all of their people up housed in Baltimore. They also have some things globally. We're much more global than that. I think maybe to answer the question in a different way. Do we see more opportunity there, absolutely. And our affiliates are, we all recognize coming together and doing things in scale. I think the phrase that Joe uses, which I think is really powerful and stronger together. We're stronger together on virtually every spectrum that you look at, which would include being more consistent in terms of how we do things with space. But in terms of the size and the opportunity, you know where our margin is, and you know where the median of the peer group is. We are not putting it out there as a target, but we are basically saying that if you wanted to look in terms of trying to size opportunity, there is a math you could do there.

Operator

Thank you. And our very last question comes from Brian Bedell with Deutsche Bank.

Brian Bedell -- Deutsche Bank -- Analyst

Great. Thanks for squeezing me in.

Joseph Sullivan -- Chairman & Chief Executive Officer

Hi Brian.

Brian Bedell -- Deutsche Bank -- Analyst

Maybe just -- hi, good evening. Maybe just one more on the IBM procurement side, on the enterprise management. Joe, you mentioned 20 wins and 60 initiative. Is there a way for you to just characterize maybe give a few examples, or just characterize, what this 20 wins, sort of comprise? And then on the initiatives, maybe it's not as easy because so many of them, but just give us a flavor of what -- what types of initiatives they are, I assume all this on the cost side?

Joseph Sullivan -- Chairman & Chief Executive Officer

Yes, I mean look, I'll let Pete, -- Pete's immersed in this stuff, more than I am to be candid. But look it's an opportunity for us to come together and leverage our collective scale and then added to IBM scale to get better pricing on a multitude of fronts. And Pete, can talk about that. What I want to mentioned to you all on this notion of collaboration is as follows. We've got nine pretty smart affiliates CEOs out there, they see what's going on. And a number of them have said to me because people have cash, are they really willing to come together and work together on the stuff and the answer is, yes.

And why is that, because things have changed. We all see how the industry is changing. These and our affiliates CEOs, there on the front lines of this every day. They're talking to clients every day. They're dealing with fee rates and challenges every day. They're figuring out what investments they need to make every day. And so the answer is yes. These are smart people, smart business people, who understand that the world has changed and to remain competitive, we have to evolve how we work together. And so there is a real spirit of collaboration of figuring out, where we come together. One of the places that isn't is on the investment side, except to the extent that we combine different independent investment expertise to create a solution. But, but we're not combining investors, because that's not part of where we think we are stronger together. But, Pete do you want to talk to Brian, a little bit about some of the really exciting stuff around what we ring cost out of it.

Peter Nachtwey -- Chief Financial Officer

He's saying that facetiously for anybody that can't tell. But the, this isn't -- this is more CFO stuff than CEO stuff, when we get down to into the weeds. And frankly we're only six months in. So, we've got a lot more opportunity here. But virtually everything that we spend money on over $100,000 individual spend is in scope, and IBM takes a look at every one of those. They only get paid, if they save us money and the things that they've been able to help us with dramatically. I mean just you can imagine, number one, that their scale globally just dwarfs ours and particularly in international locations, some of the other places were a much smaller. But everything from travel, we're seeing that in terms of all the contracts we have with airlines and then with hotels, we've got a major spend to exit upgrade our audio-visual, capabilities all around the world that will be many, many millions of dollars.

And they're looking at a percentage saves that is in decile percentages in terms of helping us there, they're helping us on technology, they help us on the common financial platform. We were going to get a significant discount from the vendor something in the magnitude of 40%, 40%, 50% of their list price and IBM was able to get us better another 25%, 30% off of that. So, it's really across, across the board. And, but it's early days it's still -- it is a lot of -- a lot of hard work by a lot of people, but we're cautiously optimistic. It's good be paying meaningful dividends to us as we go forward.

Brian Bedell -- Deutsche Bank -- Analyst

You think in a couple of quarters, you'll be able to give us a little bit more of a timeline on sort of the ins and outs of investment and the longer term cost save. Or is that really develop over many years?

Peter Nachtwey -- Chief Financial Officer

Yes, I think a couple of quarters is the right way to think about it. Then again, again we realized we have been talking about this for a while, but keep in mind it's 10 different businesses that are very, very focused on their clients and making sure that we're doing the right thing. The Hippocratic Oath of first do no harm, but yes, I think we will be, you'll be seeing us get more concrete here in coming quarters.

Joseph Sullivan -- Chairman & Chief Executive Officer

Yes, I think, Pete's right. Look it's all of this is with a very strong focus on not impacting clients and that's just paramount. And look we hear you loud and clear, we hear everybody that you'd like more transparency around this, and we will give it you. I think, we've always been very transparent, but we're only going to give it to you, when we feel confident in the numbers that we can deliver and that you can put in your models, so. Michelle, I think we're done with Q&A, right?

Operator

Yes, sir. We are done with Q&A. And I'll turn the call back over to Mr. Sullivan for closing remarks.

Joseph Sullivan -- Chairman & Chief Executive Officer

Thank you, Michelle. So, I hope that you hear tonight that we find opportunity in navigating what our turbulent markets and amid the changing industry backdrop and we're confident in our ability to win and take market share over time. Now, just as a heads up, I encourage you to keep an eye out for a save-the-date invitation from my colleague, Mr. Magleby, as we are looking to hold an Investor Day sometime in early 2019. It's been a while since we've gotten together in this way. Actually I think since we announced several transactions, almost three years ago. And we feel like it's a good time to go deeper with you on our capabilities and the progress of our business.

Until then, I'd like to thank you for your time and attention this evening and as always like to give a special shout out and thanks to my affiliate Legg Mason colleagues for another quarter of great commitment to our clients and our stakeholders. I'm very, very proud of you. So, again thank you and have a nice evening.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect your lines at this time.

Duration: 67 minutes

Call participants:

Alan Magleby -- Investor Relations

Joseph Sullivan -- Chairman & Chief Executive Officer

Peter Nachtwey -- Chief Financial Officer

Christopher Harris -- Wells Fargo Securities -- Analyst

Robert Lee -- Keefe Bruyette & Woods -- Analyst

Kenneth Lee -- RBC Capital Markets, LLC -- Analyst

Macrae Sykes -- Gabelli & Company -- Analyst

Dan Fannon -- Jefferies -- Analyst

Jeremy Campbell -- Barclays -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

Michael Carrier -- Bank of America Merrill Lynch -- Analyst

Patrick Davitt -- Autonomous Research -- Analyst

Bill Katz -- Citigroup Inc -- Analyst

Brian Bedell -- Deutsche Bank -- Analyst

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