Hello, and thank you for standing by. My name is Steven, and I will be your conference operator today. At this time, all participants are in listen-only mode. After the prepared remarks, management will conduct a question and answer session, and conference participants will be given instructions at that time. As a reminder, this conference call is being recorded. At this time, I will turn the call over to Makela Taphorn, Director of Business Analytics and Reporting at Artisan Partners.
Thank you. Welcome to the Artisan Partners Asset Management business update and earnings call. Today's call will include remarks from Eric Colson, Chairman and CEO, and CJ Daley, CFO. Following these remarks, we will open the line for questions. Before Eric begins, I would like to remind you that our earnings release and the related presentation materials are available on the investor relations section of our website. Also, the comments made on today's call and some of our responses to your questions may deal with forward-looking statements which are subject to risks and uncertainties. Factors that may cause our actual results to differ from expectations are presented in the earnings release and are detailed in our filings with the SEC. We undertake no obligation to revise these statements following the date of this conference call. In addition, some of our remarks made today will include references to non-GAAP financial measures.
You can find reconciliations of those measures to the most comparable GAAP measures in our earnings release. I will now turn the call over to Eric Colson.
Thank you, Makela, and thank you everyone for listening or reading the transcript. On the call today, I want to emphasize our commitment to high value-added investing. High value-added investing starts with talented people. Working in a stable environment, consistently executing a stated investment philosophy and process. High value-added investing requires degrees of freedom, investment discipline, risk awareness, and thoughtful management of investment capacity. Lastly, high value-added investing takes time. Time to execute and time for benefits to materialize. We believe that each Artisan investment strategy has delivered on our commitment to high value-added investing. Looking forward, we believe the work we have done to develop our investment franchises, add degrees of freedom, and place renewed emphasis on investment discipline and risk awareness will translate into successful client outcome for years to come. The benefits of a high value-added approach are more apparent in certain market environments.
Since 2009, we have experienced a bull market with low volatility and high correlations across asset classes and securities. We have seen unprecedented monetary expansion and cash flows into market cap weighted index funds. It has been a difficult environment for active managers to differentiate themselves. As shown on slide two, over the last year or so, we have seen correlations decline. More recently, we have seen increased volatility and rising interest rates. We may be returning to a world in which investment returns are not overwhelmed by central bank policy. We believe that's an environment in which asset allocators will place greater importance on high value-added investing, and an environment in which value added should be more apparent. Having said that, we believe that our investment track record during the bull market has been very compelling, despite the challenging environment for the active management industry.
On slide three, the green portion of each bar is the average annual outperformance of the Artisan strategy since inception and after fees. 13 of the 15 strategies have generated alpha net of fees. 10 strategies have at least 10-year track record. Of those, 8 have generated alpha since inception, with average annual alpha ranging from 28 basis points to 513 basis points. A couple of points about the U.S. Small-Cap Growth and Value Equity strategies. Since 2009, when the U.S. Small-Cap Growth team was merged into the current growth team, the U.S. Small-Cap Growth strategy has generated 228 basis points of average annual outperformance net of fees. Regarding the Value Equity strategy, many clients measure its performance against the Russell 1000 Value Index. Measured against that index, the strategy has generated positive alpha since inception and after fees.
The two newest strategies on this page are both off to a strong start. The Global Discovery strategy, launched in September of last year, generated over 400 basis points of outperformance in its first seven months of operation. The Thematic strategy, launched in May of 2017, generated over 2,000 basis points of outperformance in its first 11 months of performance. Our business model has proven itself across eight investment teams, each with unique alpha sources and each working independent of any centralized research. Our model has also worked across multiple asset classes and time periods. As I mentioned earlier, returns are just one aspect of high value-added investing. Each of Artisan's strategies is managed by a talented investment team executing a stated investment philosophy and process.
The talent on these teams has been stable over time, and we manage investment capacity to protect the integrity of the investment process and the ability to generate alpha. Currently, we have constrained flows into seven of the strategies listed on this page. Lastly, I'd highlight our emerging markets team. Almost 12 years ago, Maria Negrete joined Artisan with three analysts. Maria and two of the three original analysts remain on the team today. That group has worked together for 18 consecutive years. The team's three additional analysts have all lived the emerging markets experience. The team's personal and professional experiences have instilled a resiliency and commitment to their investment process. They have remained focused and dedicated through some difficult performance and business periods. Artisan, as a firm, has remained committed to the team.
We know the high value-added investing requires experience, judgment, continuity, and ability to deliver in the future. Over the last five years, the Artisan Emerging Markets team has outperformed the index by an average of nearly 200 basis points per year after fees. That performance has improved the team's since inception returns. Gross of fees, the team has outperformed the index by 61 basis points over the last 12 years. There are very few investment teams that have been investing in emerging markets for as long and as consistently as Maria and her team. We are very excited about their future. Moving to slide four. As an investment-oriented firm, we want to communicate clearly about the long-term direction of our investment teams and strategies. As you know, we have been engaged in a long-term initiative to expand the degrees of freedom available to our investment teams.
Degrees of freedom is one important long-term trend. Another, which I will discuss in a minute, is risk awareness and management. Expanding degrees of freedom can mean a lot of things. It can be as simple as allowing a strategy to hold more cash or concentrate capital, or more pronounced, such as in our Credit Opportunities and Thematic Long/Short strategies. Our efforts to increase degrees of freedom include our first-generation strategies launched between 1995 and 2002. These strategies are designed for asset allocators looking for alpha within relatively narrow parameters, such as market capitalization and geographic constraints. Over the years, working with our clients, we have reduced these constraints, providing our teams with greater degrees of freedom. Our global strategies, which we began launching in 2007, provide the investment teams with broad flexibility to invest across geographies.
Our newest strategies, beginning with the High Income strategy in 2014, represents another step in the direction of degrees of freedom. The ability to differentiate from indexes and peers is an important part of high value-added investing. Degrees of freedom enable differentiation. They also give our investment teams more tools for managing risk, the importance of which increases as explicit investment parameters are reduced. Using degrees of freedom and investing with discipline, we expect our investment teams to generate results that have integrity and are not easily replicated by passive exposure products. Turning to slide five. One aspect of high value-added investing is managing a business that allows clients, employees, and owners to sleep soundly. We aim to compound results with integrity to benefit all of our constituents. Compounding and integrity requires discipline and awareness of a risk-reward trade-off.
We use a centralized risk management process to manage business and operational risk across the firm. By managing business and operational risks centrally, we're able to provide each investment team, no matter its size or tenure, with a business and operational infrastructure befitting a large firm with decades of experience. This also creates scale for adding new teams and new investment strategies when we find the right fit. Investment risk, on the other hand, is owned by each investment team and integrated into what each team does on a day-to-day basis. Our investment teams operate autonomously and have the freedom to take investment risk in the context of a well-defined process. We do not have a centralized investment committee. Management works with each investment team to appropriately match degrees of freedom, risk management, and return expectations.
To give you a better idea of how some of our teams approach risk management and how the approaches vary across teams, let me briefly summarize the Global Value, Credit, and Thematic approaches. While each is quite different, each is fundamental and integrated with the team's philosophy and process. These are not external or firm-wide approaches to investment risk management. This is about each team knowing its philosophy and process and applying a healthy and rigorous amount of skepticism. They're asking themselves, "What risks are we taking? What are our weaknesses? What are our biases? Let's make sure we understand these things, articulate them, and monitor them.
Let's also be transparent and talk to clients about them." With our earlier teams that have more guidelines or category expectations, their risk management guards against philosophical or process risk. In most cases, the team is not trying to manage risk to an index. Instead, the team is trying to be aware of and open about the risks inherent in their investment approach and process. For example, with our Global Value team, they seek to protect against time value of money and business value volatility, two classic value traps. With our Credit team and the launch of the Credit Opportunities strategy, the team manages more levels of risk. The team makes conservative financial projections and seeks investments that are effectively covered by an issuer's enterprise value. The team can also manage risk by moving up and down an issuer's capital structure to seek a better risk-reward trade-off.
The team uses floating rate loans and derivatives to manage duration risk. Lastly, the Thematic team incorporates risk management into each stage of its investment process, given the team's extensive degrees of freedom. The team evaluates multiple metrics, crowding, stress tests, liquidity, factor analysis, and macro drivers. These analyses help the team understand the risks they are taking and confirm that the risk-reward trade-offs make sense. The team also uses various derivatives in an effort to magnify alpha and minimize downside risk. We believe that understanding who we are and how we think about investments, people, and growth is critical for investing in Artisan. Our approach places investments, people, and trust above manufactured products, scale distribution, and factory-oriented structures. We are patient and remain disciplined, which often produces lumpy results.
We believe in high value add investing, outperforming benchmarks and peers, maintaining strategy and process discipline, stable talent, and thoughtful capacity management. We are confident that sophisticated allocators will continue to see and experience the benefits of our approach. I will now turn it over to C.J. to discuss our recent results.
Thanks, Eric. Financial results for the quarter are presented on slide seven and include both GAAP and adjusted results. I will focus my comments on adjusted results, which we as management utilize to evaluate our business operations. Our first quarter results benefited greatly from the impacts of tax reform, which reduced our adjusted effective income tax rate to 23.5% from 37%. Adjusted earnings per adjusted share rose 18% to $0.78 from $0.66 in the preceding quarter. The $0.14 benefit realized from the reduction in the effective income tax rate was offset in part by $0.04 of higher seasonal expenses that we incur in the first quarter of each calendar year. The adjusted operating margin was 37.7% in the current quarter, compared to 38.6% last quarter and 35% in the same quarter last year. A summary of our AUM is on slide eight.
The March quarter end AUM was $114.8 billion, down less than 1% compared to the previous quarter, and up 11% compared to a year ago. Markets were volatile during the quarter as intra-quarter AUM rose above $120 billion in January, and in part drove average AUM up 3% from the December quarter. Global markets, however, ended the quarter down over 1%. Strong alpha generation from active management across most of our strategies offset the majority of the market declines during the quarter. Net client cash outflows were $600 million, substantially improved from the previous three quarters as gross client inflows improved significantly across the firm. Our Global Value team had over $1 billion in net client cash inflows from U.S. and non-U.S. clients across its two strategies. Our newer teams, Developing World, Credit, and Thematic, continue to attract new client money into their strategies.
Balancing out these net client cash inflows, we continue to experience net client cash outflows from defined contribution clients, primarily in our Mid-Cap strategies in both our fund and separate account vehicles. We experienced net client cash outflows as our account clients balanced away from certain of our strategies after years of strong market returns. We have also seen the allocation trend from active to passive improve from prior quarters. We continue to remain disciplined when accepting new business, we will continue to diversify our client base in order to protect capacity and our ability to add value for clients. Our financial results begin on page nine. In the current quarter, revenues grew 1% from the previous quarter and 15% from the same quarter last year.
Both were generally in line with the increases in average AUM for those periods, after taking into account two less days in the current quarter compared to the December quarter. Our effective average fee rate remained at 73 basis points, reflecting our active equity high value add product mix. Given the variable nature of our expenses, our operating expenses increased on higher revenues. The current quarter also included typical seasonal expenses. Last quarter, I identified a number of strategic business reinvestment initiatives that we would expect to commence mid-year 2018. The cost for those technology and occupancy initiatives will begin to show up in the second quarter, we expect our technology and occupancy expense line items will remain elevated in the third and fourth quarters as well. Further details on our compensation and benefits expenses are presented on slide 10.
Seasonal compensation expenses are included in benefits and payroll tax line and include the annual reset of employer payroll tax obligations and funding of our employee health savings and 401(k) plans. Equity-based compensation expense increased in the current quarter from the employee equity grant we made earlier this year. As mentioned in last quarter's earnings call, we expect that equity-based compensation expense will peak at $15 million in the June 2018 quarter, before declining to $13 million in the September quarter and $11 million in the December quarter. The level of future expenses in 2019 and beyond will be impacted by the grant date values of future equity awards. Our compensation ratio rose slightly to 49.6% from 48.4% in the previous quarter.
Our adjusted operating margin, shown on page 11, was 37.7% in the current quarter, down from 38.6% last quarter due to the higher seasonal expenses and equity-based compensation costs in the current quarter. Adjusted operating margin was up compared to the same quarter last year, primarily due to higher revenues. The adjusted tax rate in the current quarter was 23.5%, compared to 37% in the previous quarter and the same quarter last year due to tax reform, which resulted in an additional $0.14 per share of adjusted earnings in the current quarter. Earnings per adjusted share were $0.78, up $0.12 or 18% from the previous quarter. Our strong dividend history is shown on slide 12. Last week, we announced that our board of directors declared a quarterly dividend of $0.60 per share. Supporting our quarterly dividend was healthy cash generation during the quarter.
Adding back equity-based compensation expense, the largest non-cash expense to adjusted earnings, we generated in excess of $0.90 per share in the current quarter. As I mentioned in last quarter's earnings call, over the course of this year, we will assess our capital management policy, including the levels of our current quarterly and special annual dividend. While we are not currently reconsidering our fundamental policy of distributing the majority, or if not all of the cash we generate each year, we are considering revising the way in which we distribute that cash during the year. The current $0.60 quarterly fixed dividend is set at a level that should enable us to weather considerable market volatility without the need to immediately cut the fixed payout.
We believe transitioning to a policy that sets our quarterly dividend rate at 80% of the cash generated each quarter would result in a more timely and consistent payout over the course of a year and in line with our fundamental payout policy. For instance, this quarter's dividend would've been substantially higher under the 80% variable quarterly policy than the current fixed policy. We will continue to assess our policy and expect to make a decision later this year after digesting the impact of tax reform and feedback from our shareholders. Our balance sheet metrics are on page 13 and remain strong. Our cash position is healthy, and leverage remains modest. Our leverage ratios have improved slightly from prior periods due to increased levels of earnings. That concludes my comments. We look forward to your questions. I will now turn the call back to the operator.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Please limit your questions to two to allow time for other participants. Our first question comes from Robert Lee with KBW. Please go ahead.
Great. Thanks, good morning, everyone. Maybe my first question, just to maybe drill down into sales and flows a little bit. It looks like particularly in your funds business, you had a pretty meaningful jump in gross sales in the quarter. I know maybe there's some seasonality in that, can you maybe give us some color if maybe there was some large fundings, or is this some evidence of what you've talked a little bit about, seeing a little bit more active demand? Maybe also how that progressed through the quarter, it'd be helpful.
Yeah. Hi, Rob, it's Eric. Yeah, clearly, first quarter does have the seasonality, we've seen that back through time. That does elevate the flow numbers. I think the active environment is a slight positive, I wouldn't read too much into that in the first quarter, given that we're still in the early innings of that effect. I think we've seen some of our clients, especially in the intermediary platforms and a few larger accounts in the mutual funds rebalance. We saw some of that in the Global Value strategies
Where the Global Value is open to pooled assets, International Value is also open to existing accounts that rebalance. I think you just saw some first quarter rebalancing occur there than any trend that we would want to highlight.
Great. I appreciate that. Maybe CJ, going to Capital Management, appreciate some additional color in your thoughts around, I guess, a quarterly payout ratio. I guess, particularly as this valuation on the stock has come in, can you maybe update us on thinking about at what point does maybe share repurchase become part in more of the mix? If I think since your IPO, I think the share count's up about 9%, at least the fully diluted share count. At what point do you start thinking, gee, maybe that other 20% we should start buying back stock? Just the latest thoughts there.
Yeah, Rob, I think as we consider the payout policy on the cash dividend, that's why we've evolved our thinking a little bit on our thoughts on moving to a variable and using 80% as the level at which we would distribute quarterly, saving that 20% for other type of decisions, and absent doing something else we'd pay out the special annual. We continue to favor the cash dividend. We like the consistency and the transparency, especially in a people business. We like avoiding mistakes, which happen in share repurchase program. We think that in a high cash generating business the dividend is an important element to the value to our current shareholders. I think in a prolonged period of depressed valuation stock price that is evident, we would, under the new policy, consider that. We haven't made any firm decisions on moving firmly in that direction.
Great. Thanks for taking my questions.
Our next question comes from Bill Katz with Citigroup. Please go ahead.
Okay. Thanks very much. Eric, I've been thinking about what you're talking about in terms of your footprint and how it's evolved over time. I guess the question is, I don't mean to be so crass with the blunt with it, but does it matter, right? What's happening on the LP side? Is there a migration back to appreciation for higher active share platforms? Is it still, you said it's getting a little bit better versus passive. Are you seeing any decisive change in allocation or even selections or like RFPs, anything to help us see any kind of momentum change that might lead to a better flow picture? The corollary to that, you have a lot of funds that are still closed with outstanding performance, as you highlighted.
Where are you in terms of capacity opportunity to reopen any of those funds?
Yeah, certainly Bill. From a high active share, and then evolving into the alternative space or hedge fund space, which we've labeled degrees of freedom because of that spectrum of unable to specifically define what a hedge fund is. We believe that space is very robust. I think you're over $3 trillion in just the hedge fund space alone. I don't think we're looking at it as a momentum of assets as much as a reshuffling of assets. If we can compete and deliver a high value add result, which is to us, a stable investment team, integrity of process, capacity control, and delivering talent, that I think differentiates in the marketplace, we can win a fair amount of assets in that category. We also look at the high value added active share category, and there's quite a bit of assets there.
Our mindset is competing on market share there, as opposed to forecasting a trend away from the current momentum of assets, which is in ETF and passive exposure. We clearly don't want to compete there because you're competing on scale and fees, and I think there's plenty of players in that marketplace. We'll continue to migrate, and shift our mix of strategies more and more into the higher degree of freedom. Bill, what was your second question on that? There was a second component.
Yeah, I'm sorry for the nested question. Just in terms of the capacity opportunity, obviously your slide with the excess alpha is rather high, and you also had said a lot of those have been either soft close or hard close, so you're just getting the impact of redemptions with not a lot of gross sales. Is there any opportunity to reopen any of those funds? Where do you stand on that scope?
We don't plan to reopen those. We will continue to manage the exchange of KICs, that's what I was referring to in the earlier question with regards to the rebalancing. If we get a higher attrition rate or know of redemptions coming in the future, we'll manage that capacity within closed strategies or soft closed strategies. One quarter might be a little elevated, the next quarter might be down a little bit because we're looking out and just trying to managing the rebalancing of the capacity-constrained strategies. Of the ones listed there, we are not contemplating opening those up in the near term here.
Okay. Thanks for taking the questions.
Our next question comes from Alexander Blostein with Goldman Sachs. Please go ahead.
Thanks. Good morning, guys. Just a follow-up to Bill's question, I guess, around capacity, just I guess, on the other end. Anything on your radar that's starting to flash yellow saying that, "Look, there might be some incremental capacity constraints that we should be thinking about on any of the products that are open right now?
I think we've mentioned in the previous calls just on the Global Opportunities strategy that we've been managing the pipeline of Global Opportunities. At $16 billion under management, we have a healthy pipeline, but we want to make sure we glide into the reasonable capacity numbers. That's one strategy that we've been managing a bit. That's the only one that's coming up that would be yellow.
Got you. CJ, just one for you around your commentary on the expenses. Sounds like tech occupancy you highlighted will pick up a little bit in the second quarter and progress through the rest of the year. Just again, remind us on the magnitude of the increase you expect in the next quarter and through the rest of the year. Is this just a 2018 phenomenon as you guys step up incremental investments, or do you expect some of that spill over into 2019 as well?
Yeah. Alex, on the last call, I indicated that both occupancy and tech spend would pick up in 2018. The occupancy spend is related to three investment team moves, which are scheduled to happen late third quarter, early fourth quarter. Currently we're estimating about $3 million of one-time charges related to sort of sublease charges for vacating the space and accelerated depreciation. Those will happen when we actually vacate the space. It's hard for me to give exact timing on whether it'll be the third quarter or the fourth quarter because the moves are primarily happening around quarter end. On an ongoing run rate expense, we'd expect fully loaded that we'd have about $2 million more of expense on an annual run rate basis. That's going to start to be the back end of the year and thinking more about 2019.
On the technology side, we talked about increased expenditures there, we expect that to pick up in the second quarter here. For the rest of this year, our average quarterly run rate, we would expect to be closer to $10 million a quarter versus the current eight and change. We would expect that to decline a bit for 2019 because we have a number of projects that we don't anticipate replacing next year with other projects.
Got it. Great. Thanks for taking the questions.
Our next question comes from Kenneth Lee with RBC Capital Markets. Please go ahead.
Thanks for taking my question. Thanks again for the updated thinking on the variable quarterly dividend. Wondering if there are any initial thoughts on potential floors or caps on that variable dividend. Just trying to see if there's any kind of flexibility within that 80% payout ratio that you guys are thinking of.
No. Thanks, Ken, for the question. We're still evolving our thinking, at this point, if we were to move to something like that, we'd want it to be transparent and consistent. If we indicated it would be 80% of the cash generated, we would want to stick to that and use that other 20% as sort of the variable piece that we would decide at the end of the year.
Got you. One follow-up. In terms of the outflows within the separate accounts, wondering if you could highlight any specific drivers for those flows. Are there key strategies or a certain set of clients that might have contributed somewhat elevated outflows? Thanks.
Sure, Ken. I can't think of any large separate accounts or terminations that drove the number. It is primarily just a variety of clients rebalancing.
Okay. Thank you very much.
Our next question comes from Chris Shutler with William Blair. Please go ahead.
Hey, guys. Good morning. You mentioned the emerging markets team has beaten the index pretty substantially over the last five years. Can you just talk about where you stand regarding marketing efforts around that team and the pipeline? Thanks.
Sure, Chris. We highlighted the emerging markets. Primarily last year, you saw the index up about 25%. You see quite a few clients below their asset allocation targets in EM. You're finally starting to get to three and five-year numbers that are attractive versus other regions of the world. On top of that, our emerging markets team, led by Maria Negrete-Gruson, has a differentiated approach to looking at it from a local perspective, as well as a more diverse team. We feel that the three and five years are quite strong. We echo those comments for Developing World as well. Again, it's a differentiated, an emerging markets outcome. We think both those strategies, given the backdrop of last year and continued into this year, will be of interest.
From a pipeline standpoint, we are seeing more inquiries, but I think we're in the early stages this quarter and next quarter, and we're hoping to see more in the back end.
That helps. Eric, how do you feel about fee rates right now at Artisan Partners? Are there any areas, any particular funds that you might need to reassess? How are you thinking about fee structures at this point?
That's primarily why we highlighted on our deck in the slide three with regards to our performance, and that performance is net of fees. We believe our clients look at performance net of fees. They also look at the stability and the integrity of the strategy. In a lot of cases, you look back and look at the performance, and the portfolio management team has changed over a couple of times over a decade, and that's why we highlighted the strategies that we did that have decade-long track records. We also have controlled the capacity of these strategies, and that capacity warrants a fee rate. When we say a high value-added outcome, we're looking at that in totality, and the returns speak for themselves on that page. With that, we are obviously aware that fees are a big topic of discussion.
The one area that we do see more fee discussion around is in the larger scale platforms that we're talking to. You do see a mindset around either a separate account for sub-advisory or other vehicles that you can play into for those platforms. What I find more interesting now is these platforms have been around and have come around to an institutional-oriented mindset. Which is having a research teams, having gatekeepers, and having groups that can extend the duration of our relationship, not reliant on a retail investor that may have a two-year duration in a fund. These platforms are showcasing the longer duration relationship, and those warrant a slightly lower fee because the present value is high. That's how we think of the fee context, is one, quality of services, and two, the total present value of the relationship.
We'll keep those two mindsets in place when we look at fees. At this point, we feel confident across our fee schedule.
All right. Thanks a lot, Eric.
Our next question comes from Michael Carrier with Bank of America. Please go ahead.
All right. Thanks, guys. First one, just on the open strategies, particularly some of the new ones. When we look at the track record, it's been impressive. You're seeing the inflows. Just trying to gain some understanding. When you look at the clients, whether it's U.S. versus non-U.S., could you accept more money at a faster pace? When you do get pushback, is it on the strategies that have more degrees of freedom and some of the clients not used to that? Is it on fees? What tends to maybe get the pushback versus where you're seeing more traction?
Sure, Michael. It's Eric. I think the real delta for early flows for startup strategies is how much time you put on the investment team to get on the road and sell. We have said over the years that we limit this and try to spend most of our time getting the resources, the investment team, the process, and the foundation working so that we have the opportunity in the long run to deliver to clients. If we wanted to increase flow, I think we would have to demand more time from our investment team, clearly our portfolio managers, and get them on the road so that investors could look across the table, especially early investors, and spend time and do due diligence. That's a time-consuming process for your most talented investors. We have opted to pace that in years one and two.
As we get into years two, three, and four, that gets elevated up, and we manage that cycle. The one way we really could increase it is just push the investment teams to get on the road, get out, and just sell. We've opted not to do that.
Okay, got it. Just a quick one. The long-term performance remains strong. I think just on the one year, there's a bit of a pullback. I don't know if there was anything specifically that was driving that across the strategies or if it's more just the cycle, but just any comments on that?
It was more cycle. I think just more of the quarter that caused maybe a slight pullback, but it really could've been around a product or two, and it could've been around what happened in that index. Probably the key one is around the Global Value team for the quarter had a slight pullback. I think their long-term record and their ratings speak for themselves.
Got it. Makes sense. Thanks a lot.
Our next question is a follow-up from Bill Katz with Citigroup. Please go ahead.
Okay, thanks. For you, CJ, just as you look out to 2019 on the stock-based comp, if the stock were to hold here, sort of a two-part question. One is what would be sort of the incremental savings in terms of the amortization? Then more conceptually, would you look to potentially increase the grant rate as an offset to the foregone value?
Yeah, I'll answer the second one first. No, that's not how we think about granting equity. The stock price and the grant date value are just sort of what they are. Our level of grant, size of the grant would not change based on where the stock price would be. I think the guidance I gave for the fourth quarter, I think was, what was it, $11 million. It probably would hold consistent to sort of that fourth quarter guidance that I gave.
Okay.
Of $11 million. Yeah.
Great. All right, thanks for the clarification.
Our next question comes from Alexander Blostein with Goldman Sachs. Please go ahead.
Hey, guys. Sorry, another follow-up. Eric, this one's for you. Just wanted to go back to the point you made earlier around larger intermediary partners. I guess the wire houses exploring ways to migrate more out of commingled funds into separate accounts, et cetera, against something that would just yield them a lower fee and totally get the NPV argument, given the longer duration of capital there. Is that something we're just starting to see now, or has that been happening for you guys for a while? I guess, do you anticipate to see a larger migration of assets from mutual funds to separate accounts if this kind of continues to unfold? Just something I don't think you guys talked a ton about in the past.
Yeah, sure, Alex. The migration's been occurring over the last few years. We've been more confident with some of our partners and how they think, and we can measure the duration of relationship. It's also been occurring just as you look at the classic institutional business of defined benefit and even the migration of DC moving out of direct mutual fund allocations into target date funds or some type of solution. The nature of those relationships has evolved our traditional separate account business that would've been more direct. You're seeing that attrition in the older institutional business of a defined benefit moving to an LDI type program. We've been seeing a slow shift going into other programs, net net, you're swapping one long duration, lower fee for another.
I think you haven't seen the overall mix change much, because it really is just a shift there.
Okay. It sounds more of the same. All right, thanks.
Yeah.
This concludes our question and answer session for today. This also concludes our conference call today. Ladies and gentlemen, thank you for attending today's presentation. You may now disconnect your lines.