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Lege Mason (LM), C-1-7, Buy Presenting from LM was Joe Sullivan, Chairman & CEO, and Alan Magleby, Head of IR. Joe was optimistic on the flow outlook for LM given the repositioning over the past few years, mostly favorable investment performance, and a healthy institutional pipeline, and does not expect a significant change in the DOL impact because of the election or a lower corporate tax rate on their cash tax rate. e When asked what would get you more interested in investing in LM stock, investors overwhelmingly (82%) replied “strong organic growth, particularly in equity/alternatives” while the absence of deal noise (12%) and higher margins/operating leverage (6%) were less interesting for investors. Nobody said that a stronger balance sheet or more affiliate deals would get them more excited about LM’s stock. Chart 58: What would get you more interested in investing in LM stock? 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Stronger organic The absence of deal Operating leverage and A stronger balance More affiliate deals growth, notably in noise higher margins sheet equity/alternatives Source: BofA Merrill Lynch Global Research e« LM was relatively upbeat on the flow outlook, despite some ongoing headwinds for the industry. Management sees the following drivers offsetting some of the industry headwinds to position LM to flow better than the industry: strong investment performance, notable progress with consultants over the last several years, a healthy institutional pipeline ($8B of unfunded wins/$3B uncalled committed capital), highest level of search activity in active equity in several years, large cash balances in Europe (20-50% cash allocation across the continent}, increasing demand for real estate / infrastructure / alts (Clarion, RARE, and EnTrustPermal), and a diverse / differentiated product/vehicle set. « Management also mentioned that besides offering well performing products across strategies, it also wants to be able to deliver to clients in different vehicles, including ETFs. The firm has been launching some ETF products and also has an interest in Precidian, which has its non-transparent ETF submission under the review process. ¢ Regarding potential changes from the election, while very early, regarding the DOL fiduciary rule, LM sees it getting delayed and watered down some as the most likely outcome. However, they mentioned the fiduciary rule was just an accelerant for trends that were already occurring (i.e. the shift to fee based accounts and away from brokerages) and whether or not the rule goes through as expected or gets Bankof America 2 2016 Future of Financials Conference | 17 November 2016 39 Merrill Lynch HOUSE_OVERSIGHT_014353