Good morning. My name is Christie 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 Web site, www.virtus.com. This call is also being recorded and will be available for replay on the Virtus Web site. At this time, all participants are in a listen-only mode. After the speakers’ remarks, there will be question-and-answer period and instructions will follow at that time. I will now turn the conference to your host, Jeanne Hess.

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

Thank you, Jeanne and good morning everyone. I will start by providing an overview of the quarter followed by a discussion of capital, including an increase to our share repurchase program that was announced this morning. Mike will then discuss the financial results and balance sheet in more detail. Third quarter market conditions were challenging for the asset management industry and for us. Our ending assets under management were 47.9 billion a 9% sequential quarter decrease resulting broad market declines and the impact of investor uncertainty during the quarter. Total sales were 2.5 billion compared with 3.3 billion in the sequential quarter due primarily to lower sales of international equity as concerns on the effectiveness of emerging markets impacted investor interest in that asset class. Lower third quarter initial fund sales were consistent with what we’ve seen in the retail intermediary channel. Total net outflows were 1.6 billion in the quarter compared with 1.3 billion in the sequential quarter as outflows open end funds offset positive flows in ETFs and institutional. Current quarter mutual fund net outflows reflect an improvement in the flows of the former AlphaSector funds offset by declines in flows in international equity. Net outflows in domestic equity and alternative asset classes improved sequentially reflecting the lowest level of redemptions of the former AlphaSector funds since the third quarter of 2014. Net outflows in these funds improved 2.9 billion grew from 2.1 billion in the prior quarter. International equity was in outflows even though our emerging markets opportunity funds continue to have strong wells performance and ranked in the top-decile on a 15 and 10 year basis at September 30th. We've been pleased with the flows we've seen in this fund in October. In terms of total open-ending flow funds closed October is expected to be the…

Thank you George, good morning everyone. Starting on Slide 8 assets under management, we ended the quarter with assets of 47.9 billion which represents a decrease of 20% from the prior year, excluding money market accounts, and a 9% decline from the prior quarter. On a sequential basis the $4.5 billion decrease in assets is primarily attributable to market depreciation of 2.7 billion reflecting decline in global equity markets and net outflows of 1.6 billion primarily due to net outflows in open-end fund that offset positive flows in institutional and ETFs. The 11.7 billion year-over-year decrease in assets under management is primarily attributable to 7.4 billion of net outflows, 2.7 billion of market depreciation, and 0.9 billion from changes in leverage. The former AlphaSector funds accounted for 7.9 billion of the net outflows on a year-over-year basis while our other mutual funds had net outflows of 0.5 billion. Turning to Slide 9, asset flows. In the second quarter we had total net outflows of 1.6 billion compared with 1.3 billion in the prior quarter. Net outflows in the former AlphaSector funds improved to 0.9 billion from 2.1 billion sequentially. At September 30th, these funds had 3.3 billion of AUM which represented 7% of total assets. Partially offsetting the sequential quarter improvement in outflows from the former AlphaSector funds was a 1.3 billion decline in net outflows in our emerging market opportunities fund, reflective of overall industry trends in the asset class. Gross sales in open end mutual funds were 1.9 billion which represented a decrease 0.8 billion or 29% from the second quarter. As I noted the current quarter results primarily reflect lower sales in international equity strategies. Let me provide some insight into mutual fund net flows by asset class. International equity had net outflows of 0.3 billion compared…

Thanks Mike. That concludes our prepared remarks. Let’s take some questions. Christie, can you open the line please?

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

First, can you maybe just walk through the negative variable incentive fee that hit this quarter just in terms of which strategy that related to and sort of the underlying structure behind the financial impact if you will?

Yes, so we have one fund that has a variable incentive element related to it and as we pointed out this is not a fund where previously that element of the fee was borne by the former sub-advisor. And generally the way you should think about the way the fee works is it does have a performance related variable element and the calculation sort of takes into consideration average historical assets. So previously the portion of the negative fee that you are seeing the impact in our quarter would have been appropriately absorbed and paid by the funds sub-advisor but fund sub-advisor is no longer that sub-advisor. So you are seeing the impact in this quarter for us. And Mike indicated in his comments, you can expect that to continue in the fourth however, we are indicating for 2016 we do not expect that impact to continue. So is that helpful?

It is, just to follow-up. Is that based on sort of some underperformance rolling off, is that why you kind of sort of expect that to normalize if you will, looking out to next year?

Yes our expectation is that it won’t continue into 2016 and the reason that there is the magnitude of the number in this quarter was because of the underperformance from the previous sub-advisor prior to their termination so.

And then just wondering where you are sort of in terms of distribution partners reviewing the transition from F-Squared to DWA? And then just sort of in light of the slowing outflows from the trend funds which I assume have been mostly a function of slowing redemptions. Have you started to see any step up in new sales or do you think you sort of need those funds to sort of vintage a bit more if you will?

Yes, and I will start with the end pieces. Absolutely I think with the help of the funds, the vintage and the new strategy but just to revisit the whole scenario. So upon the termination of the former sub-advisor and the introductions of the strategies where we employ input from Dorsey Wright, as you know that occurred May 11th and as appropriately all of our distribution partners invested time and work in understanding how strategies would work and how they were different than what we previously had. So it was a period of time when those funds were not available for sale. If you think in terms of we indicated in the second quarter that most of them had made it available at that point where we knew when they would be making it available. So that was in probably late August-ish time frame when that happened. So I think everyone admires the contributions that Dorsey Wright has made in their area of expertise in terms of relative strength and as we indicated when we made the change their firm in sort of very widely known, so people know what they are. I think what was very interesting for us in this quarter as you know those are risk management strategies that invest in effectively the sub sectors of the borrowing universe and then can pivot to cash based upon relative strength and whether the market is in a higher or lower risk state. And the third quarter as challenging as it was for all of us, was actually a great quarter to sort of test those types of strategies, and the larger funds, the equity trend fund and the sector fund had very strong performance over that quarter, both in the top decile I think one was probably 8 and one was in the top 1% and that’s because they did move into cash for a period of time. So it’s very good to have an opportunity to actually demonstrate the value proposition of those types of products. Now they won’t do as well obviously when the market goes up and up and up. But it was great to have an opportunity right after the introduction of the Dorsey Wright inputs and the rule changes that we made that we had a volatile quarter and the funds did what they were expected to have done. So that was very positive outcome. But absolutely the financial advisors, those who previously like the old strategy, getting comfortable with the new strategy, and again we still think that new financial advisors who maybe previously never used the old strategy would find a place for this in their finance portfolios.

And then maybe just one for Mike, just at high level, curious to get our take on the outlook for margin looking out to next year just assuming more normalized flow in market assumptions. And then sort of related to that, does the 50% to 60% incremental margin range still hold sort of at these AUM levels?

Yes, it's a good question and certainly we've talked about the incremental margins at 50% to 60% I think that’s still a good target to think about. And when we’re looking ahead and the assumption is based on sort of current asset levels and current revenue levels certainly the third quarter was somewhat tumultuous environment, but we look at the three key elements when we do the modeling and it’s on the investment management fees and provide some insight with respect to the fee rate to think about and the open-end fund fee rate. So when we just sort of get into 2016 and that gets into a more normalized environment when this variable incentive fees sort of runs off early in 2016 I think 52 to 53 basis points is probably a good way to think about your modeling. And then that sort of drives the employment expense row as we talked about there is a significant degree of variability in employment expenses and as profits change and sales change we should expect to see that on the employment row and I would think about that at about this quarter it was 47% as the fee rate gets normalized you are at about a 45% level of your revenues, I think that’s a good way to think about it. And then other operating expenses we've talked about that in an absolute dollar range, and we've been between 11 million and 12 million consistently over period of time I think in any given quarter we would vary within that range but I think that’s a good way to think about modeling going forward. And again that’s all else being equal on the sort of current asset levels.

Thank you. And our next question comes from the line of Ryan Sullivan with Credit Suisse. Your line is open.

I just wanted to take big picture here on the ETF business, I mean I know the Newfleet product seems to be doing really well there, is there anything else near-term and maybe I missed this in the prepared remarks but, is there anything near-term that you would also consider using that as a distribution tool for?

ETF's we completed our investment in majority ownership from Newfleet Virtus ETF Solutions because we fundamentally think that, that is a critical opportunity and product set for us to employ and financial advisers I think you see some reporting where in many firms the first times sales in ETFs were sort of greater than mutual funds. And in the ETF space I think as we said before we’re not focused on the fewer data lower cost type of product we think they are so very differentiated either smart data type products or as you have seen the Newfleet a true actively managed ETF. So we want to make sure that we have that offering available to financial advisers to find the benefits of ETF versus an open-end fund we want to make sure we have that available to them. So we made that investments because they are an important part of our strategy we've a great team at Virtus ETF Solutions, they have introduced that product in addition to their existing products, and again we don't have any specific in terms of the next products but our goal there has been to build out our capabilities which we've in a little bit of that in our employment expense but we've a very robust plan in terms of the product introductions that we intend to execute over the next few quarters.

And are those going to be mostly fixed income type products or is there consideration to introduce an active equity product into that as well?

Well the issue with the active is the transparency of ETFs because there is not yet a solution in terms of how to not be too transparent and own equity manager but have more sensitivities about being front run on their strategies. So when we actively manage [Technical Difficulty] fixed incomes will probably the more likely of those introductions. And so there is a solution on the transparency side of the equation for equity managers.

Our next question is from Michael Carrier with Bank of America/Merrill Lynch. Your line is open.

I guess a question on the kind of the growth outlook. And I think on one hand the third quarter was pretty volatile kind of across the board obviously not a good proxy but wanted to get a sense of where the assets has been in the form out sector fund remaining balance. And then when you look some of the momentum you're seeing kind of outside of that product in the year and for the quarter. Just wanted to get sense of you mentioned the range for your seed capital and it seems like you're in that range. But on the flip side it seems like there is still some opportunities doing work on creating some new strategies. So just wanted to get a sense on can the seed portfolio like turn meaning are some of those products getting to like a material standpoint where you can continue to innovate create and new products generating further future growth.

Yes I would break the growth opportunities the purpose of answering your question is two pieces, one being mutual funds and one being outside of mutual funds, and I will start with the latter. We have been -- the previous question in terms of the ETFs and somewhat what you’ve seen is speaking about in terms of the institutional and Mike’s color around the CLO. Our mutual fund business has clearly been -- was the strongest part of our business and where a lot of our legacy was and the expansion and the growth in the non-mutual fund areas have been more recent investments. We are very pleased that institutional albeit still being a small part of our business has now consistently generated some positive flows for several quarters at this point. I am very happy with the start on the ETF business. And as I indicated in response to the earlier question, that really is a very important part of our strategy going forward and we think we have great opportunities there. And then items like CLOs which gives us an opportunity to leverage the very strong management capabilities at our Newfleet affiliate and couple that with the fact that we have a balance sheet that allows us to make the types of investments that are really required to launch those types of structures. And again those as opposed to open end funds have sort of a finite life where you sort of have a stable book of assets and we think that’s a nice balance. So the more volatile open end fund business we have to deal with the daily investments and redemptions and obviously the cyclical periods. So for that, growing the non-mutual fund part of the business continues to be a very important area of focus.…

And then just a quick follow-up just on the buyback, given the authorization and then given the pace that we’ve seen this quarter, just wanted to get a sense, you obviously still have a decent amount of cash on the balance sheet. So just what you like to maintain or keep on the balance sheet versus how much flexibility do you have to maybe continue at this pace or take advantage given where the valuation is?

Sure, but again I will start with as we said in terms of the increasing and the Board authorizing the increase of 1.5 million shares to the program as we said, we do think that, that is important to give us the flexibility to be more opportunistic than we had previously been. And that’s sort of just alludes the fact that generally what we’ve said, historically when we first launched the share repurchase program, where it was primarily used to offset a dilution created by issuing of equity but obviously above and beyond that there’s opportunities given where our stock is trading for us to return capital to shareholders through repurchases. And as Mike alluded to and I alluded to as well, this last quarter was the highest level we have previously done. So we increased it by 1.5 million. You may recall the last increase we made was a year ago and that was 0.5 million of shares. And we do think having that flexibility is a great thing for us to have as we balance those things. But we do balance investment and growth with the repurchases of the shares, so we continue to find things like investing in the multi-strategy sort of return fund and CLO as important uses of our capital but as you alluded to we do have $51 per share of cash in investments on our balance sheet so we do have the ability to also focus on the return of capital side and again that is important parcel reason we increased those shares outstanding. In terms of how we books a capital just few of the metrics that might pointed out on this call and we pointed out previously, we look at working capital as a percentage of annual spend, we pointed out to a little lower than the range that we normally have spoken about but because the seed capital higher than range we think when you put those things together that those are reasonable levels. But we still think the seed capital level that Mike indicated of 200 and 250 is the reasonable ongoing pipeline seed capital level that we had originally targeted and that working capital a little higher than it currently is, is a good level. And we continue to generate cash as you know on a ongoing basis and this quarter we took 137% or 136% of that and returned to shareholders. So we worked on protecting the business in terms of the working capital, investing in the business in terms of 250 million of seed as you know we've no debt and we do think that there is opportunities on the share repurchase side above and beyond offsetting dilution of equity plans.

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

Let’s just start with a point of [clarification regarding the variable incentive fee. In terms of like when you talk about that you don't expect that to be a non-recurring expense or element in terms of 2016 is that that the funds will fund no longer as an incentive variable component or just that it's a getting back to kind of normalized performance level?

Well we’re giving the indication that we don't expect that it will continue as we get into the beginning of 2016 and you get and it is the variable fee and it's not something obviously that we would want to continue in terms of having such a negative impact. So our expectation is it won't continue in the first quarter.

But the fund is still subject to having the variable fee on an ongoing basis?

Yes it is, and again that is based upon the calculations of average assets, and performance and all of that. But we would not want to continue to have that situation so we've indicated we do not expect to continue in to the first quarter.

And then in terms of any update on the JV moving to the quarter and kind of may be penetration would be on any platforms with the three liquid oil products?

No on the liquid oil product in terms of the three products that we have for the quarter and again in the third quarter when you have the volatility that you do alternative products come back in to attention I think I had mentioned on previous calls and earlier year in the year as the market was seemingly just going up and up and up a lot of investors had less interest in those risk managed and those alternative strategies but obviously there has been a few in the industry that are being able to gather significant flows based upon how they are doing. In terms of our funds we experienced that we’re having for those funds during those periods of which investors were a little less interested in those alternative strategies the firms that we do business with were also not pushing them as much. So there hasn't been a change in terms of the availability of that fund. And so the availability is still a little bit on the limited side. I think that’s really more of a function of where the firms are trying to focus their clients and their product offerings at this point.

And then maybe one quick question one of the things that you mentioned there is some just on headcount over within the ETF segment, how should we think about general headcount from like going forward as we look into 2016 and beyond?

Sure, in terms of our overall expense structure we've a very variable expense structure obviously a large part of our employment expense and even a lot of our operating expenses it's essential we can have the variable, we like that because it lets us go down you have some self-correcting. Clearly with the market declines and the impact of the order it makes everyone a little more focused and conscious on any kind of expenditure in terms of headcount what we've indicated in terms of the costs on the cost side that it really has been focused on those of our affiliates that are growing and we want to keep up with the resources for their growth ETF Virtus ETF Solutions being one of those, other than that we are being very crude in terms of any kind expenditures.

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

I want to revisit the variable incentive fee again if we could. Looking at Page 10 of your presentation we see a net fee rate 52.7 to 51.5 through Q3 ’14 and Q1 ’15 and then it goes down in Q2 ’15. Was there -- did you have to eat some of the variable incentive fee in the second quarter?

Yes…

It wasn’t mentioned, I am just wondering if looking back on it now.

Yes, Steve this is Mike Angerthal. If you recall in the second quarter we had multiple moving parts in the fee rate discussion. It was during that quarter where we changed the former sub advisor on the trend funds and shifted to a new model provider. So that was partial quarter impact in the prior quarter fee rate and we tried to normalize that in some of the fee rate discussion that we had. So I think the best way to think about the fee rate is as we’ve described it this quarter with the impact of the variable incentive fee this quarter’s fee rate of 47 basis points is how we recorded it and then adjusting for that is 53. And I think I alluded earlier that when I think the open end fund fee rate into 2016 52 to 53 is probably the best way to think about it for modeling.

Okay. And then one more for me, George I didn’t catch this totally. Were you indicating that you’ve reached some type of agreement with the SEC at least some type of initial agreement with the SEC?

Yes, as I said in my prepared remarks, we reached an agreement with principal with the staff of the Securities and Exchange Commission to resolve the matter. But that is subject to the commission itself and really other than that we can’t make other comments or answer any questions.

Okay, I just wanted to make sure I understood that correctly. Thanks guys.

Thank you. Our next question is from Alexander Blostein of Goldman Sachs. Your line is open.

I am sorry to beat the dead horse but I guess just another one of the variable fee component. Is that ultimately measure against a benchmark or when you try to assess whether it is a positive or negative number and maybe for us to kind of think through that math on a go forward basis? I guess maybe some clarity around specifically which funds, specifically which benchmark and just kind of how to think about the mechanics of this component of your revenue stream? I understand that you prefer not to have that next year but I guess unless you change the actual structure of it, it could happen again. So just trying to understand the details there?

Yes, and to be a little more affirmative in what we are saying is we do not expect it to continue into next year and we would not continue to incur that type of charge managing a fund. So that is what we are saying in terms of to sort of think about it in terms of I am not going to get into details of the overall calculations and all that. But it does relate to a circa periods of performance and the calculation relates to historical assets. And again I think we’ve been clear in terms of our expectation that you should expect it to continue into the fourth quarter and that we don’t expect it to continue much past that.

And then just a couple on modeling nuances, when we look at I guess distribution underwriting fees and then I guess to some extent the offsetting distribution administration expenses, that ratio of expenses to revenues has been grinding higher a little bit and I guess the fee rate on the distribution underwriting fees has been coming down over the last couple of quarters. I guess what’s just driving that and where do you guys ultimately expect that to shake out? Thanks.

Yes, in that row, as we talked about includes the fees, the distribution and administrative expenses and other asset based expenses includes the fee that we are paying to third-party technical service providers. So as those assets have sort of declined due to the elevated redemptions that we’ve talked about, that rate has drifted I think between 25 and 27 basis points and so I think that’s a good level to think about going forward.

It’s a kind of stable from here?

Yes, and you continue to think about it with respect to open end fund AUM.

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

Yes, I just want to thank everyone for joining us today and certainly encourage you to give us a call if you have any further questions. Thank you.

That concludes today’s conference. Thank you for participating. You may now disconnect.