Good morning. My name is Frances, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners Quarterly Conference Call. The slide presentation for this call is available in the Investor Relations section of the Virtus' website at www.virtus.com. This call is also being recorded and will be available for replay on the Virtus website. [Operator Instructions] I will now turn the conference to your host, Joe Fazzino.

Thank you, Frances, and good afternoon, everyone. On behalf of Virtus Investment Partners, I would like to welcome you to the discussion of our operating and financial results for the third quarter of 2012. Before we begin, I direct your attention to the important disclosures on Page 2 of the slide presentation that accompanies this webcast. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not statements of facts or guarantees of future performance, and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those discussed in the statements. These statements may be identified by such words as expect, anticipate, believe, outlook, may and similar terms. For a discussion of these risks and uncertainties, please see the Risk Factors and Management Discussion and Analysis sections of our periodic reports that are filed with the SEC, as well as our other recent filings, which are available in the Investor Relations section of our website, www.virtus.com. In addition to results presented on a GAAP basis, Virtus uses certain non-GAAP measures to evaluate its financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results, and should be read in conjunction with the GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our earnings press release, which is available on our website. For this call, we have a presentation, including an appendix, that is accessible with the webcast through the Investor Relations section of virtus.com. This afternoon, we will begin with remarks from President and Chief Executive Officer, George Aylward, who will review our accomplishments and operating results for the quarter. Mike Angerthal, Executive Vice President and Chief Financial Officer, will then discuss our financial results in further detail. We will conclude by opening the call to your questions. Now, I would like to turn the call over to George Aylward. George?

Thank you, Joe. Good afternoon, everyone. We appreciate having you on the call with us today, and Mike and I are pleased to have the opportunity to talk about the strong financial and operating results we delivered this quarter, as well as other developments we announced in October. These results continued the positive trend of significant growth in assets, sales, net flows, operating earnings and margins, and also reflects solid execution of an effective strategy. In particular, if you look at the results we achieved and the initiatives that we recently announced, you will see that we are leveraging our business model to build the future and continue to create shareholder value. Let me review some of our significant accomplishments from the quarter. First, we continue to produce high levels of sales and net flows from our mutual funds. We had a record quarter for long-term open-end mutual fund sales and a near record quarter for net flows, even after the impact of a large redemption from a single client retirement plan. We have maintained this very high level of sales and flows over multiple quarters because of the breadth of our attractive and distinctive investment products and very strong relative investment performance. Second, in addition to the consistent top line growth, we delivered higher operating earnings and margin as a result of the accumulated growth and the leveragability of the business. In the past, we've spoken about the upfront sales stream from a high level of sales, but that stream is now being offset by the growth in assets and resulting revenue from the cumulative effect of the strong sales inflows. Our long-term open-end mutual fund assets have increased by 58% in the past year, and the accumulated growth in assets with higher average net fee rates has generated…

Thank you, George. Good afternoon, everyone. In the third quarter, we continued to demonstrate consistently strong financial results across all the key metrics. And today, I'll provide perspective on the third quarter, starting with sales flows and assets under management. Then I'll review our operating results and our balance sheet and capital items. Starting on Slide 10, assets under management. We ended the quarter with total assets of $41.8 billion, $8.7 billion or 26% higher than a year earlier and $3 billion or 8% higher than ending assets of $38.8 billion at June 30. Long-term assets, which exclude cash management products, are also up 8% on a sequential basis and grew by 34% over the past year to $40 billion at September 30. The growth in our long-term AUM was balanced in the quarter, with strong organic asset growth of $1.8 billion from net flows and positive market appreciation, adding $1.4 billion of assets. Over the past year, long-term assets from both our open-end and closed-end funds have grown to $30 billion from $20.3 billion, an increase that has been driven by several factors: strong open-end fund performance, with 90% of our open-end fund AUM rated 4 or 5 stars on a load-weighted basis according to Morningstar; the effectiveness of our retail distribution, which is led by a long tenured, dedicated sales professionals who partner with financial advisers to achieve their clients' investment objectives; and closed-end fund initiatives over the past 4 quarters, including the global multi-sector fund launch, a rights offering for the DNP Select Income Fund and the DCA fund adoption. Touching on our asset mix, equity assets represented 57.8% of total assets at the end of the quarter, up 40 basis points from the prior quarter, a result of net flows into domestic and international equity products…

Thank you, Mike. We are now ready to take your questions. [Operator Instructions]

[Operator Instructions] Our first question is from the line of Michael Kim from Sandler O'Neill.

First, you've been a bit more active on the M&A front in terms of bringing in new capabilities. So how are you thinking about your product set these days in terms of any product gaps? And then looking ahead, how do you see the mix between M&A and ongoing product development playing out as you may be look to address some of those needs?

Well, a couple of things. In terms of -- as we look at our current offerings of the products, I think we're very pleased with the breadth and the diversity of the types of strategies that we can offer. So we feel incredibly well positioned for that. And I think -- generally, as we look at new product development and M&A, which in many instances for us, are really part of one thought process. The ultimate goal is to make sure that we maintain the wide variety of tractable offerings. We need to be thinking 3 to 5 years out in the future because it takes time to incubate strategies and build track records. So I think we're constantly looking at the horizon and where we think that there are opportunities to introduce differentiated strategies that will compete very well against things that we think are changing in the market in terms of what investors are looking for. We're constantly looking for those opportunities. And as you can see, one of the -- what we believe, one of the strengths of our model is the flexibility of our model. Because again, it starts with what is the capability that we want to bring to the market, and we do have the flexibility to either do it with the incredible resources we have amongst our existing managers. We're going to partner with very, very select sub advisers. And as you see in terms of either bringing on affiliates or creating majority-owned relationships to execute the efforts to bring those strategies to market, we have all of those options available to us. The other question in terms of what is it that we see that we don't have, again, I feel we have one of the best, most diverse offerings of products for a company our size that's out there. I think as we look in the future, we see increased demand for liquid alternative types of strategies that are non-correlated and things that are not like the strategies of the past. I mean, people are increasingly looking for different ways to access investment strategies. If they want beta and they want to play around in that space, there's ETF offerings and there's other more traditional strategies. We really try to provide those more differentiated alpha generating strategies and giving them a different type of exposure. But when we look at product development M&A, in many ways, they do intertwine. It's all about having the product set for the future being a strong as it is today and using the flexible business model we have to sort of achieve it in multiple ways.

Got it. That's helpful. And then maybe one for Mike. Has your thinking changed at all as it relates to capital management, particularly as the balance sheet continues to strengthen? So maybe more specifically, are you looking to maybe reinstate a more consistent share repurchase plan going forward?

It sort of touches on some of the elements of George's response in terms of capital management. We generated above $20 million of free cash flow in the quarter, and we were able to reposition our credit facility. But we'll continue to look to maximize opportunities in the business with our capital. And you saw, we did repurchase $3.1 million of shares this quarter. We've -- we'll look at various factors with our capital on a quarterly basis, and we've consistently demonstrated returning capital to shareholders in the form of share repurchases. We also alluded to the net settlement earlier this year. So we'll look at investing in the business and looking to continue to return capital to shareholders as appropriate.

[Operator Instructions] Our next question will come from the line of Steven Schwartz from Raymond James & Associates.

A couple of questions for you. First, I'd like it if you could possibly go deeper into Rampart. I know that you don't think it's going to be material anytime in the short term. But I'm kind of interested in -- I know there are option strategies. But the $1.4 billion or so that they have in AUM currently, what kind of product is that in?

Yes, with the current -- we'll give you a little bit of a detail. So again, why we look at Rampart as being an attractive opportunity is the capabilities they bring, we see several ways that we can apply them in either existing products or strategies, as well as new ones. In terms of what they're currently doing, they're applying their capabilities, really, in the SMA space in separate accounts for retail investors primarily. The $1.4 billion is all on that space. So when you see the assets come on, they'll come on primarily in the separate accounts, in the retail separate accounts with a little bit in institutional. That will be a smaller piece of that because currently what they're providing -- the retail piece is really in wire-house, doing concentrated overlay types of strategies. So as we've said in the original announcement as well as on this call, in terms of financial impact, again, I wouldn't look at it from that perspective. That will be nominal. But we really do see a lot of things that we can apply because you're familiar with how option strategies can be utilized. Obviously, we can utilize them in closed-end fund types of strategies that we haven't previously been able to employ. Obviously, in open-end strategies, there's applicability there, as well as just a whole host of ways. You can either use that type of a strategy to either generate yield or to sort of protect on the downside. So there's things that we can do, and we're very excited about the opportunity of adding that capability to our existing capabilities.

Okay, great. And then on the side of new funds that you put the seed capital in, is this a situation where before seeing anything really develop, we're going to have to wait for a track record to develop, you don't have to wait 3 years?

Yes. When we generally take the approach that whenever we launch a new fund that we fully expect that it may take 3 years still for Morningstar track record to raise assets. Now we have actually been very successful in raising assets well in advance of that in certain strategies. AlphaSector [ph] strategies from F-squared, we were very successful in raising assets, and they still don't have a 3-year track record. But our assumptions when we launch and this will take that period of time. But for the ones that I just described, we actually think that they're very compelling. And our wholesalers are already, obviously, very well versed in the investment strategies and how they might fit into a well-diversified portfolio. But we are fully prepared that it will take a while for those strategies to generate their track records. But we won't wait to try to bring those to market.

Okay, great. And then finally, if I may, it was a fantastic quarter, so I don't want to rain on anybody's parade. Performance in the quarter was kind of mixed. I'm looking at the Premium AlphaSector Fund and the Emerging Markets Opportunity Fund in particular, maybe you could address performance in the quarter for those 2 funds and kind of what drove it?

Yes, sure. And again, as we've pointed out and included in the slide, the performance of our mutual funds is incredibly high in the number of 4- and 5-star funds we have. In terms of isolating one quarter's worth of performance, generally, you have to be careful looking at any one quarter performance. But I'll speak to those 2 funds very specifically. We don't sell our performance even though we have good performance. We sell a strategy and a manager. So the AlphaSector, if you're saying -- if you're looking at performance and you're comparing it just against the equity index since it's a downside kind of protection product that really is mostly attractive to people for its low downside capture rather than its high upside capture, will generally in a period were a market is performing in a certain way, will underperform for that period. But as you can see from its long-term track record, over time, it outperforms because of its downside protection. That's exactly what it's sold for. So people that have bought that product and the gatekeepers that assess that product would expect it to behave that way given the last quarter. And emerging markets, I think is the other fund that you mentioned?

Right.

Similar thing. I mean, Ron Tobeles [ph] approach is an incredibly high-quality approach to managing money. And generally, they will be and have been in the 99th percentile, if junk year stocks rally. And they will look very good in terms of those periods, where their strategy is in favor. So again, we would generally not look at their -- at either of those managers or any of our managers just purely against the benchmark. But how is their strategy performing given the environment that it should be performing in? And I think we're comfortable with both of those that they're performing exactly as we would have expected given that short-period market behavior in the quarter last year.

Your next question is from the line of Austin Hopper from AWH Capital.

I just -- I wanted to ask you about the 5 funds. Are they launched? You seem to have seeded them with fairly different amounts of money, anywhere from $1 million to $25 million. I'm just curious what would drive that, why one versus the other.

Well, they're all different. The main thing is for when we're seeding a fund that we look at the investment strategy and what the typical holdings would be for that strategy to be executed as the portfolio manager intends. And then you make sure that you have enough seeds, so they can fully execute the strategy. So generally, if you do something that's going to invest mostly in S&P 500, right, you don't need very much to -- and you're going to have 35 holdings, you don't need to have a lot of capital to seed that. Once you're going into the less efficient markets in terms of like small caps, and say you're going to have 70 names and it's international in 30 countries, you're going to need a higher level of capital to do it. And fixed income are the strategies that need the most capital to fully execute their strategies. So for the emerging market debt fund, which is obviously going to be in multiple emerging markets, which again are not necessarily as efficient as our markets and if you want to make sure that you get the appropriate level of a lot size and fixed income security, the seed on those funds is really at the highest end of the range. So each one -- each seeding is very specific to ensure that there's absolutely enough capital for the manager to fully execute their strategy and not have to leave names off as they're managing the fund.

[Operator Instructions] We have a follow-up from the line of Michael Kim from Sandler O'Neill.

Just one more for me. So you've obviously had tremendous success in the mutual fund channel. But can you maybe just touch on some of the trends you're seeing across some of your other products or channels, like variable annuities or SMAs and -- or the institutional channel? So just how do you see kind of organic growth trends playing out maybe across some of those businesses?

No, it's a great question. And again, I think the success of the retail mutual funds, in many ways overshadows a lot of other things that we're obviously focused on. So I probably won't do it in the same way you gave it. But from managed accounts, retail managed accounts, I already mentioned that Rampart is available on that space. So in addition to leveraging them into other product structures, obviously, having another managed account salable product, which right now for us, our bigger products are Kayne Anderson Rudnick that gives us an opportunity to sort of have another investment strategy to sell in that space. We've actually -- many of the mutual funds that we do sell, we also sell in SMA. So even for some of the newer strategies, some of the AlphaSector derivations, those strategies, we actually also are making them more and more available in SMAs. Sometimes, it's dual contract SMAs, which are a harder sell, because you literally have to sell it directly. But we've expanded the number of products that are available in managed accounts. And our wholesalers have that as an increasingly additive set of opportunities for them to move forward with. On the institutional side, we had made some resource additions earlier this year. You may have noticed that Duff & Phelps as well as Kayne Anderson Rudnick. I think we're very pleased with the resource additions that were made there. And I think the activities that have gone on and get -- institution is a longer-tailed business. But I know, I personally have been pleased that to have those individuals and the activities that they have been focused on in terms of not only getting RFPs and RFIs, but actually getting into finals, obviously has improved for us because that has…

This concludes our question-and-answer session. I'd like to turn the call first back over to Mr. Aylward for closing remarks.

Great, okay. And thank you, everyone. I hope you appreciate that we think this is an incredible quarter, and in terms of not only the results that we were able to provide, but a lot of the initiatives that we're taking because as I mentioned earlier in my comments, for us, this is really the very beginning of a long game, and we're really building the capabilities we have and the opportunities that we have for continuing attractive levels of growth in creating value. So I appreciate that. And if anyone has any additional questions, please feel free to give us a call. Thank you very much.

And ladies and gentlemen, this concludes your presentation. You may now disconnect.