Andrew Schlossberg: Great. Thanks for the question. It’s — let me start with how we’re seeking to improve fundamental equities, both from an investment standpoint and from a client standpoint. On the investment side, clearly, our investment leadership, we put new investment leadership in place. That leadership is focused on not just improving performance over time, but risk and tools and analytics and controls around it. Performance will be the biggest driver in addition to where market demand is and getting strong investment quality across the piece is a high priority. And you’re seeing some of those investment performance returns sort of play through into the results. And I think that’s what’s mitigating some of the redemptions in particular, on the international emerging and global equity side of things.
From a distribution standpoint, given our history in both the US and in the UK and Europe, where a lot of those assets are placed on retail platforms, we’re very well placed. We have strong distribution in place. We have high education there as well. So, it’s really about just being in front of clients more actively where when demand comes and when we have quality. The one thing I’d really want to point out as you kind of decompose that fundamental equities is really around the places in international, global, and emerging markets, which are the relatively high field and component parts. They are the component parts that are less susceptible to passive and there are places where we think we can differentiate on product, et cetera. And those are the areas where I was pointing out in my earlier comments as well, where we’re seeing the most improvement in terms of net flows.
In fact, for the quarter, those categories globally were just $1 billion of net outflows compared to many multiples of that in 2022. So, I think that’s our first port of call in terms of where we could see growth in time. And then I think it’s a little more challenging on the domestic equity side, but the same comments I made would apply. Allison, I don’t know if you want to add anything there. On the shift from mutual funds to ETFs, we’re well placed in the ETF platform. We’ve brought active strategies to market over many years. We’re going to continue to look for ways to take active strategies from the mutual fund vehicle to other vehicles in time and not just ETFs, I’d say SMAs are going to be another place, custom SMAs, both on the fundamental and index side, but on the fundamental side, in particular.
So, we’re going to look for ways to bring that forward. I think the development of active ETFs is going to take some time. But as it develops, we’ll definitely be a frontrunner there.
Brian Bedell: That’s great color. Thanks for that. And then maybe just on the expense side, Allison, just a clarification, the $10 million in the fourth quarter improvement in the compensation line. Does that exclude or include the dynamic of the charges between the two quarters, 3Q and 4Q?
Allison Dukes: That would be run rate improvement. So, that is independent of the $39 million of this quarter and the $15 million to $20 million that we anticipate in severance reorganizational costs in the fourth quarter, that would be true underlying run rate improvement. And we’ll — give you more transparency to that as we realize those savings.
Brian Bedell: Yes. No, that makes sense. And just I don’t know if you’re able to comment on other 4Q expenses in EMEA marketing is typically seasonally high but anything else on the property line and the G&A line, other than the — you made the State Street output commentary, obviously, but anything else on those two lines for 4Q?
Allison Dukes: Yes, I would say we do often see a little bit of seasonality in both marketing and G&A in the fourth quarter as there are just professional services fees and the like that’s usually true up there in the fourth quarter. So, there might be a touch of seasonality marketing those two line items higher. We are thoughtfully and very aggressively managing our discretionary expenses though.
Brian Bedell: Okay, great. Thanks very much.
Andrew Schlossberg: Thank you.
Operator: Thank you. And our next question comes from Alex Blostein with Goldman Sachs. Your line is open.
Alex Blostein: Great. Thank you for taking the question as well. Good morning. Lots of noise and expenses, obviously, for you guys this year. So, maybe you can kind of help us level set and as you go through all these changes provide some color on how you’re thinking about margins for 2024? Obviously, the revenue backdrop could be volatile as we know, but assuming more stable markets. It looks like you guys are doing sort of low 30s percent kind of clean operating margin. Assuming there’s no additional charges in 2024, is there room to build off of that into 2024 versus 2023? So any color you provide on that would be helpful.
Allison Dukes: Sure. Good morning Alex. Our expenses this year a little bit noisy for two reasons. One, a lot of the executive retirement, the reorganization efforts and the severance associated with that and then the fact that we no longer have TIR after the first quarter. So, I will say when you back that out, it’s actually quite consistent. They’ve been quite flat. And Alpha has been running in our expense base to the tune of $7 million or $8 million a quarter since the second quarter when it moved out of TIR and fully into our expenses. So, there’s sort of that — it’s a fully loaded expense base and we are trying to call out where there are some one-timers associated with that. We will continue our simplification efforts well into next year.
We aren’t going to let up and continuing to find efficiencies. I don’t know that they will be to the tune of the materiality we’ve seen in these last couple of quarters as we’ve sought to bring a lot of that forward. But we will continue with those efforts, and we’ll call it out when it is material. As I think about next year and what could help us improve operating margin above that 30%-ish range, it absolutely becomes — it’s largely a revenue story, and we are very, very focused on revenue and just the impact, again, that we have experienced with the remixing of our asset base and the market depreciation that has impacted us quite significantly starting late last year, again, in developing markets and global equities, especially as Andrew noted earlier.
I think independent of where revenue goes, we are highly focused on really managing that expense base next year. We will provide more guidance as we get into January. Alpha is a huge focus for us next year and Alpha is going to be fully loaded in our expense base. We’ll be giving more color to that as the quarters unfold. But that will impact our ability to really drive our expense base down in 2024 because we’ll be working on fully going live and running parallel on several systems at the same time. So, again, we’ll create transparency, but all of this is with an eye towards simplifying and streamlining our end-to-end delivery so that we can create positive operating leverage coming out of 2024 and anticipating further growth in our AUM. I just want to underscore, I mean, a lot of the flows that we’re seeing, we’re very pleased with what we saw in the third quarter.
We recognized it was quite a bit better than what the rest of the industry is seeing. And I think it really speaks to the diversification of our platform and how aligned it is with client demand. It’s giving us the opportunity to make really thoughtful decisions as we continue to simplify our organization and really invest in the capabilities and the technology that’s going to be necessary to create that positive operating leverage going forward.
