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Virtus Investment Partners Inc (VRTS -0.66%)
Q1 2019 Earnings Call
April 26, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning. My name is Joel and I'll 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 Relations section of the Virtus website, www.virtus.com. This call is also being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer period and instructions will follow at that time.
I will now turn the conference to your host, Sean Rourke.
Sean Rourke -- Vice President, Investor Relations
Thank you, Joel and 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 first quarter of 2019. Our speakers today are George Aylward, President and CEO of Virtus; and Mike Angerthal, Chief Financial Officer. Following their prepared remarks, we will have the Q&A period.
Before we begin, I direct your attention to the important disclosures on page two 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 and as such, are subject to known and unknown risks and uncertainties including, but not limited to those factors set forth in today's news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in the statements.
In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our 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 today's news release, which is available on our website. I would also remind you that we made a revision to certain of our non-GAAP financial measures, effective with the first quarter 2019 results as described in the 8-K filed on April 10. Mike will provide more detail on those changes in his remarks.
Now, I would like to turn the call over to George. George?
George R. Aylward -- President and Chief Executive Officer
Thank you, Sean and good morning, everyone. I'll start today with an overview of the quarter, before turning it over to Mike to provide more detail on the financial results. The market environment and investor settlement improved significantly during the quarter, compared with a very challenging positions (ph) at the end of last year. These improvements coupled with the breadth of our strong product offerings contributed to an increase in sales and a sharp recovery in net flows over the course of the quarter, with positive net flows in February and March.
In terms of our results for the quarter, long-term assets under management increased 11% sequentially to $99.9 billion as a result of market appreciation. Total assets, which include liquidity strategies ended the period at $101.7 billion. Total sales of $5.5 billion increased 24% from the prior quarter, as a result of increased sales in all product categories. Net flows were essentially flat as positive net flows from structured products, ETF and retail separate accounts were offset by net outflows in open-end funds and institutional. Open-end fund net flows were $0.9 billion for the quarter, primarily due to $0.7 billion of net outflows in bank loan strategies as that asset class remained out of favor in the quarter.
Areas of (Technical Difficulty) equity mid-cap strategies at Kayne and Ceredex, as well as the international small-cap strategy at Kayne. ETF had net flows of $0.3 billion in large part due to the newly issued strategies. Retail separate accounts had positive net flows of $0.3 billion from both the intermediary sold channel and at Kayne's private client business. Kayne's small-cap and SMID strategies were the key contributors to net flows in the intermediary sold channel, which has now generated 13 consecutive quarters of positive net flows and Kayne's private client business was also positive. Institutional net outflows were $0.2 billion in the first quarter, compared with $1 billion in the prior quarter, as sales increased by $0.1 billion, while redemptions declined by $0.7 billion. Structured product net flows of $0.4 billion resulted from the issuance of a new CLO.
In terms of April flows, open-end funds are reflecting similar trends as in the first quarter, with relatively flat equity flows, more than offset by net outflows in bank loan strategies. Net flows continue to be positive in retail separate accounts. On the institutional side, we have seen the funding of one mandate and thus far only two withdrawals. We have two mandates that have been won and not funded, which we anticipate will fund late during the quarter and could total nearly $1 billion and we are very pleased with the momentum we have been seeing growing in the pipeline.
Moving to the financial results, operating income as adjusted in the related margin were $33.5 million and 30%, compared with $41.5 million and 35% in the prior quarter, as first quarter results were impacted by $7.5 million of seasonally higher employment expenses. Excluding these expenses, operating income as adjusted and the related margin would have been $41 million and 36%. First quarter earnings per share as adjusted of $2.73 were down $0.69 from the prior quarter, with nearly all the decline attributable to the seasonally high employment expenses.
Turning to the capital and the balance sheet, we continue to maintain a balanced approach to capital management, of course, the priorities of investing in the business, returning capital to shareholders and maintaining appropriate leverage. This quarter, we've repurchased approximately 148,000 common shares or 2.1% of shares outstanding, for $15 million and net settled an additional 48,000 shares for $4.8 million. In addition, we paid down $12.4 million of debt and ended the quarter with gross outstanding debt of $328 million and a net debt to bank EBITDA of 0.9x.
Let me comment briefly on investment performance, which continues to be very strong. As we highlighted on our last call, our managers did very well in navigating the challenging fourth quarter market environment and they continued to generate strong performance in the first quarter.
Delivering these results through an environment like we experienced late last year and then transitioning well into the first quarter, demonstrates the value that active managers can provide.
With that, I'll turn it over to Mike. Mike?
Michael A. Angerthal -- Executive Vice President and Chief Financial Officer
Thank you, George. Good morning, everyone. Before I begin the review of our results, I'd like to remind you of the change in our non-GAAP financial measures effective with first quarter results. Specifically, we revised the definition of net income attributable to common stockholders, as adjusted and earnings per share diluted as adjusted to include the interest in dividend income earned on seed capital and CLO investments, which previously had been excluded from these measures. It is important to note that the revision did not impact other non-GAAP financial measures.
As we've discussed on prior calls, interest and dividend income earned on seed capital and CLO investments is an element of economic value and we believe the inclusion better reflects the company's financial performance given changes in the business over the past several years, including the addition of the Seix CLO platform and related CLO balance sheet investments.
Starting with our results on slide seven, assets under management. At March 31st, long-term assets were $99.9 billion, which reflected a sequential quarter increase of $9.5 billion or 10.5% and an increase of $12.5 billion or 14% from the prior year quarter. The sequential increase was due to $9.7 billion of market appreciation as net flows were essentially flat. The market appreciation was reflective of strong equity markets, both domestic and international as well as an improvement in credit markets, particularly leverage loans. The change in assets from the prior year primarily reflected the addition of SGA's assets of $11.3 billion and market appreciation of $5.6 billion, partially offset by net outflows of $3 billion.
Our AUM continues to be well diversified by product type, asset class and channel. No single investment category represented more than 19% of long-term AUM and at March 31st, open-end mutual fund AUM accounted for 41% of total long-term assets, down from 49% a year ago. As a reminder, we include additional detail on our AUM by asset class in our financial supplement. This quarter, we expended that disclosure to include additional detail by product type, which we believe will be useful for modeling market performance.
Turning to slide eight, asset flows. Total sales were $5.5 billion, an increase of 24% sequentially as investor demand improved from the challenging fourth quarter market environment. Net flows were essentially flat, with $0.1 billion of net outflows in the quarter, a significant improvement due to the higher sales and a 40% sequential decline in redemptions. As a reminder, our asset flows exclude the impact of liquidity strategies, which generated $156 million of positive net flows in the quarter. Two items to highlight that contributed to overall flows. Seix issued a new CLO, that resulted in $0.4 billion in sales and two recently launched ETFs were incorporated into third-party models, and generated $0.4 billion of inflows.
Looking at open-end mutual funds by asset class, domestic equity funds had modest net outflows of $0.1 billion, compared with net outflows of $0.9 billion in the prior quarter. The favorable change in net flows was primarily attributable to a marked improvement in demand for small and mid-cap strategies. Net outflows for small-cap strategies were $0.1 billion in quarter, compared to $0.8 billion of outflows in the prior quarter. Mid-cap funds which we offer in growth, value and core strategies continued to generate positive net flows, with $0.2 billion in the quarter, reflecting an annualized organic growth rate of 25% as sales increased 25% sequentially to $0.5 billion.
International equity funds which include both developed and emerging markets had positive net flows of $0.1 billion in the quarter compared with $0.7 billion of net outflows in the prior quarter. The positive net flows were attributable to $0.2 billion in the international small-cap fund, that were partially offset by $0.1 billion of net outflows from the emerging markets, large-cap fund. For fixed income funds, bank loan strategies were the primary driver of net outflows of $0.8 billion for the quarter. However, this was an improvement from net outflows of $2 billion in the prior quarter. Bank loans remain out of favor industrywide and were the worst net flow category in dollars over the past two quarters according to certain industry data.
Regarding flows and other products, retail separate accounts generated positive net flows of $0.3 billion, representing an annualized organic growth rate of 7.6%. Kayne's equity strategies saw a continued strong investor demand, particularly in the intermediary sponsored channel. In institutional, where flows can vary significantly from quarter-to-quarter, we had net outflows of $0.2 billion. Sales increased $0.1 billion or 18% sequentially, reflecting several newly funded accounts at SGA and Kayne. Redemptions of $1.2 billion were primarily attributable to outflows on existing accounts.
Our managers continue to deliver strong relative investment performance across our many strategies. As of March 31st, 26 of our funds representing 79% of fund assets had four or five-star ratings, and 95% of fund AUM were in three, four or five-star funds. Each of our five largest mutual funds is a five or four-star fund, representing a diverse set of strategies from five different managers. In addition to this very strong fund performance, 98% of institutional assets were beating their benchmarks on a five-year basis as of March 31st and 80% of assets were exceeding the median of their peer groups on the same five-year basis.
Turning to slide nine, investment management fees as adjusted of $107.6 million, decreased $5.7 million or 5% sequentially due to lower average assets under management and two fewer days in the quarter, partially offset by a higher-average fee rate. I would note that neither the current nor prior quarter had meaningful performance fees. Average long-term assets under management decreased 4% sequentially, which reflected the impact of the significant decline in assets in December.
The average fee rate on long-term assets for the quarter was 45.6 basis points compared the 45.3 basis points in the prior quarter. With respect to open-end funds, the fee rate increased to 54.3 basis points from 54 in the fourth quarter, reflecting the impact of favorable equity returns on the level of equity assets and the ongoing positive fee rate differential between sales and redemptions. This quarter, the blended fee rate on mutual fund sales was 58 basis points, up from 57 in the prior quarter, while the rate on redemptions remained unchanged at 52. This trend is consistent with 2018, when the total year blended fee rate on mutual fund sales was higher than the rate on redemptions.
Slide 10 shows the five quarter trend in employment expenses. Total employment expenses as adjusted of $59.4 million, increased 2% sequentially from the fourth quarter. The increase reflects $7.5 million of seasonal items, partially offset by lower profit and the sale-based incentive compensation. The seasonal items included $4.2 million of incremental payroll taxes, $2.4 million of increased benefit costs, primarily the timing of the 401(k) match and $0.9 million of accelerated compensation expense as a result of annual equity grants made to retirement-eligible employees.
Excluding the seasonal items, employment expenses of $51.9 million declined 11% sequentially. The sequential decline was due to lower profit-based compensation, primarily due to the impact of lower revenues and the seasonal employment expenses. While the lower sales-based compensation was due to lower commissionable sales. For modeling purposes, we believe in employment ratio range of 48% to 50% of revenues as adjusted remains appropriate.
The trend in other operating expenses as adjusted reflects the timing of product distribution and operational activities. Other operating expenses as adjusted were $18.5 million, an increase of $0.7 million or 4% from the prior quarter. There were $0.6 million of identified items in the quarter, that included costs associated with consulting services, office relocation and logo redesign. For the second quarter of 2019, we continue to believe the range of $16.5 million to $18.5 million for other operating expenses as adjusted is still appropriate. This range does not include the impact of the annual board grants, which was $0.8 million in the second quarter of 2018.
Slide 12 illustrates the trend in earnings. Operating income as adjusted of $33.5 million decreased $8 million or 19% sequentially, due primarily to the seasonally higher employment expenses. Operating income as adjusted increased $0.7 million or 2% from the prior year quarter. The operating margin as adjusted for the quarter was 29.8% compared to 34.9% in the prior quarter. Excluding the $7.5 million of seasonal items, the operating margin as adjusted was 36.4%. Net income as adjusted of $2.73 per diluted share decreased $0.69 or 20%, which included $0.65 per share from the seasonally higher employment expenses.
Interest and dividend income which includes income generated on seed capital and CLO investments was $4.2 million or $0.37 per share, a decrease from $4.8 million or $0.41 per share last quarter due to lower dividends. While there is variability from quarter-to-quarter based on market values and performance of the investments, for modeling purposes, a general level based on recent experience is an approximate annualized yield of 12% to 14% on CLO investments and 1% to 2% on cash and seed capital, all else being equal. The effective tax rate as adjusted for the quarter was 27.1%, a decrease from 27.9% in the prior quarter. We believe the first quarter rate is appropriate for modeling going forward.
Regarding GAAP results, first quarter net income per share was $2.61, compared with $0.01 in the fourth quarter. First quarter net of tax GAAP earnings per share included the following items. $0.58 of net unrealized gains on investments, and a $0.15 discrete tax benefit, offset by $0.57 of amortization on intangible assets, $0.29 of net realized losses on investments, $0.13 of acquisition and integration costs and $0.10 of restructuring and severance costs.
Slide 13 shows the trend of our capital position and related liquidity metrics. Working capital at March 31st of $138 million decreased $2 million or 2% sequentially, primarily reflecting changes in debt and share repurchases, partially offset by operating earnings. Gross debt outstanding at March 31st was $328.2 million, as we repaid $12.4 million of debt, representing a $0.9 million scheduled payment and an additional principal payment of $11.5 million.
As we've mentioned on previous calls, working capital includes an estimate of the required debt repayment over the next 12 months. At March 31st, our estimate of debt due primarily the excess cash flow sweep obligation, payable in March 2020 was $13.4 million. The net debt-to-EBITDA ratio was 0.9 times at March 31st, up from 0.7 times at December 31st, due to lower cash balances as a result of the first quarter payment of annual incentives.
Regarding balance sheet investments, seed capital declined 4% sequentially to $89 million as market appreciation has more than offset by a net reduction of our seed capital due to actions taken during the quarter. CLO investments declined 4% sequentially to $89 million, primarily due to unrealized losses. Our investment in the new Seix CLO issuance was funded by the sale of our investments in existing CLOs as we actively recycled existing investments.
Regarding return of capital to shareholders, share repurchases in the quarter totaled $15 million or 147,962 shares of common stock, which represented approximately 2.1% of beginning of quarter total outstanding common shares. Notably, over the last four quarters, our basic share count has declined by 3.3%. As a reminder, our mandatorily convertible preferred shares will convert a common shares on February 1st, 2020. One additional item to highlight on the balance sheet, we have intangible assets that will continue to provide a cash tax benefit of approximately $10 million per year, at current tax rates over the next 14 years.
With that, let me turn the call back over to George. George?
George R. Aylward -- President and Chief Executive Officer
Thanks, Mike. We will now take your questions. Joel, can you open up the lines please?
Questions and Answers:
Operator
Thank you. (Operator Instructions) Our first question comes from Sumeet Mody from Sandler O'Neill. Your line is now open.
Sumeet Mody -- Sandler O'Neill & Partners -- Analyst
Hey, good morning guys.
George R. Aylward -- President and Chief Executive Officer
Good morning.
Sumeet Mody -- Sandler O'Neill & Partners -- Analyst
Just one quick one for me on the index funds in ETF, it looks like a pretty fast start. Can you talk a little bit about the client demand in those products and maybe how you're thinking about the gross net asset class, maybe more long-term?
George R. Aylward -- President and Chief Executive Officer
Sure, for ETFs as we have been building out our product strategy, they are the -- what you're seeing in this quarter, Mike alluded to it as he sort of went through it, we created ETFs in terms of providing exposure to certain asset classes that were going to be utilized in model portfolios which we see as an important growth area. So it's a good example of partnering within the intermediary to create an ETF, that's suited for those models and we hope to see similar opportunities going forward.
We continue to work on how to expand our ETF offerings, we actually just launched an ETF I believe yesterday, with the launch strategies out of site. So we see that there is opportunities for that product class and how we can be utilized by intermediaries directly or also as part of models going forward.
Sumeet Mody -- Sandler O'Neill & Partners -- Analyst
Okay great. Thanks.
George R. Aylward -- President and Chief Executive Officer
Thank you.
Operator
Thank you. And our next question comes from Michael Carrier with Bank of America. Your line is now open.
Michael Carrier -- BOFA Merrill Lynch -- Analyst
Thanks and good morning.
George R. Aylward -- President and Chief Executive Officer
Good morning.
Michael Carrier -- BOFA Merrill Lynch -- Analyst
First question, just on the open-end fund side, I think when I look at SMAs, the institutional new ETF and in structured products, you guys been making good traction there. And obviously, on the open-end funds, that channel and that product, you've got the industry headwinds and then, you mentioned, the bank loan. But when you kind of look at the different products that Virtus can offer, in those news channels, where are maybe some of the areas where you can start to see better momentum, if some of the headwinds with like the bank loan, products starts to fade. And anything like from like a performance standpoint, because you guys gave some kind of broad performance stats, but in specific on the fund side, not sure if things are shifting around or changing that can help you?
George R. Aylward -- President and Chief Executive Officer
Sure. So -- well, I'll start with the opening funds, it really has been a story about the bank loan category, which has been I believe the weakest performing flow category for the last two quarters. So that's really overshadowing a lot of other things that are going on in the other asset classes and sort of where we sort of highlighted where currently you're seeing some strength is in mid caps and some of the small-caps and some of the international. So really, generally our performance across the board, Mike went through some of the stats, is broadly strong across asset classes and market caps. As we look at our offerings of strategies, many of them either deal with capacity constraints or high conviction types of strategies. So generally, all else being equal, they'll be less susceptible to challenges from index looking type products.
So we sort of feel good about the product we lined up, we have in the open-end fund space, even though we acknowledge it's really a difficult -- still a difficult environment for active managers, but our active managers in strategy that they manage are very attractive. So -- but you're definitely seeing the impact of the loan fund category which has been out of favor. And that's also the kind of category, I always remind people, there is periods where it's the worst performer and then there is periods where it's the best performer. It has as a lot of volatility in terms of its flows and demand. So we are still very bullish on that category, hence the launch yesterday of an ETF, to also maybe attract interest, but in another product form.
So over the years, we have had periods where our best selling products, the multi-sector short-term bond fund, our best-selling fund has been an emerging market fund, we have had small-cap funds, we have had domestic equity funds. So we feel good about the diversity and the differentiation we have in our products and how they sort of compete against other things. So we really feel good about that opportunity and as I referenced in my early remarks, I truly do believe that the volatility that you had with the really challenging fourth quarter and then the transition into the first quarter, in our view, that's why you want to have an active manager for managing your portfolio. And in all honesty, we're really proud of our managers who actually helped perform in both of those periods on average. So we really feel good that we are positioned and our sales people are out there, making that story.
Michael Carrier -- BOFA Merrill Lynch -- Analyst
Okay, that's helpful. And then, can we -- just a quick follow-up for Michael. Just on the balance sheet, you gave the update on the working capital and the portion of the debt payment that's included in there. Just maybe a broader update on what you guys are thinking given the net debt to the bank EBITDA ratio, where your cash stands and just priorities at this point, whether it's like new affiliates, the seed it sounds like on the CLO side, you're reusing the seeds so we wouldn't expect that they will increase, but just wanted to get an update on your priorities given where the balance sheet is now and the cash flow that you're generating?
George R. Aylward -- President and Chief Executive Officer
Sure and this is George and let me just pipe in and then Mike will go through it a little bit more. As you -- we've sort of pointed to before, we really do continually evaluate the highest priorities we have as it relates to either the introduction of new products or to the maintaining adequate levels of leverage or to return of capital. I think as we demonstrated last quarter, the repurchasing of shares was the high-priority for us and in terms of our new product introductions, we did I think a good job of recycling equity from the CLO to fund another CLO and then, we also continued to look at that seed capital portfolio to be recycled. Generally with where I see our current product pipeline, which could change, we think we are at the lower end of our range. Mike will probably talk about that a little bit.
And at the same time, even though our long-term growth strategy is not predicated upon M&A, our business model is effectively built to support and maintain the addition of new affiliated managers. So we continue to evaluate those kinds of opportunities and again, we think, we have a very compelling value proposition for boutique managers who want to have good support in critical areas of their business in particular on the distribution side. So we'll continue to balance all of those items and with the cash flow that we're currently generating and including that the benefit we have some of our tax yields on a cash basis. We feel very confident that we can continue to execute on all three, given whatever opportunities are currently out there.
Mike do you want to elaborate?
Michael A. Angerthal -- Executive Vice President and Chief Financial Officer
Yes, I think George covered a good deal of our priorities there and I'd just reiterate the strength of our cash flow has enabled us to really balance our capital priorities among investing in the business, returning capital to shareholders and consistently paying down debt and maintaining net debt-to-EBITDA of 0.9 time below 1.0 and even gross debt-to-EBITDA at 1.6 times, which provides capacity to continue to invest in the business throughout market cycles.
I think we have been active in terms of recycling in existing investments in both the seed capital and the CLO side, to continue to drive the growth there and maintaining a pretty reasonable range in both the seed capital and CLO investment lines. And then -- as you did indicate, the first quarter is typically the low point of the year in terms of a cash basis and ending the quarter at 1.42 (ph) and through the rest of the year that we would generally expect to see that cash balance increase and continue to drive that operating flexibility.
Michael Carrier -- BOFA Merrill Lynch -- Analyst
Okay, thanks a lot.
George R. Aylward -- President and Chief Executive Officer
Thank you.
Operator
Thank you. And our next question comes from Alex Blostein with Goldman Sachs. Your line is now open.
Alexander Blostein -- Goldman Sachs Group -- Analyst
Hey, good morning, everybody. You guys had pretty decent momentum this quarter on the retail separate accounts out of things (ph) and I was hoping you could expand a little bit on which distribution channels is that coming through, which affiliates in particular are seeing more traction, sort of which products we should be really watching from a retail side of things? And then secondly on the institutional side again, you guys highlighted pretty healthy pipeline, so maybe a minute on the timing when you think that could come in and the affiliates that are driving most of it? Thanks.
George R. Aylward -- President and Chief Executive Officer
Sure. Sure. Now on retail separate accounts which over many quarters, we sort of been highlighting it because we really, really think that retail separate accounts are product type that, it provides great opportunity and as we sort of said in our remarks, it's now been 13 quarters for positive flows in the intermediary sold retail separate accounts and then, separately the private client business at Kayne Anderson Rudnick is also positive. So we sort of feel very good about that channel.
So on the intermediary sold, where we sell-through the intermediaries, is post directly to our own private clients, we have seen strength across different distribution partners. The strategies that resonate best there from what we offer has been the mid-cap to small-cap, the SMIDs, some of those, we also offer certain fixed income strategies as well as other larger cap. So again, getting back to the distinctive nature of some of our managers either being quality-oriented or high conviction, those are the kinds of strategies where we believe that people who utilize retail separate accounts, in lieu of funds because of the size of their ability to invest, which are lower costs for those clients.
We see a lot of growth and a lot of opportunity and we think a lot of financial advisors who don't currently use a lot of retail separate accounts may consider expanding their utilization of retail separate accounts versus open-end funds, and separately, ETFs because we think they could all fit into a good book of business for our clients. So we're very focused in on retail separate accounts and any other opportunities we have for other strategies or capabilities make available.
On the institutional side, we did reference couple of things. One thing I'd like to point out is we referenced one mandate that's already funded and that's from one of our affiliates. And then the other two that I referred to are each at other affiliates. So that's three affiliates in total. So we're sort of very happy that we're seeing a little bit of diversity in terms of where those institutional mandates are coming from, and as I indicated, in terms of the ones that we have won and have not yet been funded, again, while we don't control it, we expect that they would fund by the end of the quarter and that they fund at the levels we expect, I gave the relative size of being basically just a little short of $1 billion.
We don't have any other notifications of withdrawals that could happen at any time. So I can't say that there won't be other activity, but that we're really pleased to see the growth in the pipeline, the diversity of the pipeline and from the dispersion among our different affiliated managers. So we have been working on the institutional channel now for a couple of years, we are pleased to start seeing some of the activity that we have been speaking about.
Alexander Blostein -- Goldman Sachs Group -- Analyst
Great. Thank you.
Operator
Thank you. (Operator Instructions) Our next question comes from Michael Cyprys with Morgan Stanley. Your line is now open.
Michael Cyprys -- Morgan Stanley -- Analyst
Hey, good morning. Thanks for taking the question. Just wanted to follow-up on the seed and CLO portfolio. Just curious, how much excess is in there today, what should we expect in terms of those balances trending from here? I know you mentioned some recycling, so should we expect those balances to be largely, I guess flat from here or how much gross new ads would you be expecting to contribute to the CLO portfolio and the seed book from here?
George R. Aylward -- President and Chief Executive Officer
Well, I'll talk a little bit about -- the CLO -- Mike will talk about the CLO portfolio. So for the seed, again, it changes based upon where we are in terms of our product development and product introductions. So I made an illusion too, I think where we are literally today, we might be at the lower end of the range we had given before, which I think the last time we gave a range was $100 million to $150 million. Right now you're sort of seeing we are hovering around that $100 million kind of a level. So I think right now, so we've said that we have been introducing products, we do have other that has matured that we were able to recycle it. So our needs could change going forward, but that -- I think that will be a general way to sort of think about in short term, where we are with seed capital. Mike, in terms of CLOs?
Michael A. Angerthal -- Executive Vice President and Chief Financial Officer
Yes, I think on the CLOs, we have also kept that within a pretty tight range over the last four quarters or so as the risk potential rules were appealed early in 2018. Certainly, our preference is to fund new CLOs, as well by recycling existing investments as we did with the Seix's new CLO issuance this quarter. As well as co-sponsoring alongside third-party capital, which Seix has been able to attract. So over the next several years, it may moderately increase or decrease the level of investments, but certainly, that depends on market conditions and if there is any meaningful change, we would certainly update you as appropriate.
Michael Cyprys -- Morgan Stanley -- Analyst
Okay. Great. And then just a follow-up on the institutional channel, it seems you guys are seeing here some traction here, buying some, the pipeline. But just curious given the some of the trends that we're seeing in the institutional channel across the industry in terms of as Sonorous (ph) wanting a few of -- it wants strategic relationships, wanting thought leadership solutions. Just given all these challenge -- changes going on in the institutional challenge, just curious how you're thinking about evolving your approach to the institutional channel. How multi-affiliate that are going after the multi-affiliate channel -- coming after these institutional channel are -- could effectually succeed in that channel, how you're thinking about evolving your platform to benefit from these trends?
George R. Aylward -- President and Chief Executive Officer
Sure. Well, I mean, it really starts with the underlying managers, right? So even if you look at the whole institutional marketplace as a whole, ultimately it gets down to what is the individual opportunity for Duff & Phelps, for Kayne, for Ceredex SGA and it's a big world of institutional assets there. So the primary focus is really each of them executing on their highest and best opportunities of those who want either global equity strategies or small -- international small-cap strategies or global real estate strategies.
So it's really primarily focused in on what are the opportunities and institutional asset mandates are available to each of those affiliates and then, separate maybe just getting to the other part of your question which is sort of, what are the ways that we can do to help facilitate that and to fit into some of the growing trends and we continue to work with them to make sure that we are providing the support and the direction that could add value to what they're doing. But I would like think about, the institutional market is a huge market and there are trillions of dollars that are out there, and we just need to execute on an affiliate by affiliate basis on where the opportunity set is. We can bring in money into categories that are out of favor in the institutional market as long as our managers are better than the managers that we hopefully would like to replace.
Michael Cyprys -- Morgan Stanley -- Analyst
Great thank you.
George R. Aylward -- President and Chief Executive Officer
Okay, thank you.
Operator
Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Aylward.
George R. Aylward -- President and Chief Executive Officer
Well, I want to thank everyone for joining us today and we certainly encourage you to give us any calls if you have any further questions. Have a great day. Thank you.
Operator
That concludes today's call. Thank you for participating. You may disconnect.
Duration: 43 minutes
Call participants:
Sean Rourke -- Vice President, Investor Relations
George R. Aylward -- President and Chief Executive Officer
Michael A. Angerthal -- Executive Vice President and Chief Financial Officer
Sumeet Mody -- Sandler O'Neill & Partners -- Analyst
Michael Carrier -- BOFA Merrill Lynch -- Analyst
Alexander Blostein -- Goldman Sachs Group -- Analyst
Michael Cyprys -- Morgan Stanley -- Analyst
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