Q3 2020 Brightsphere Investment Group Inc Earnings Call

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During the call all participants will be in a listen only mode.

After the presentation, we will conduct a question and answer session to be added to the queue. Please press star followed by one at any time during the call. If you need to reach an operator. Please press star followed by zero. Please note that this call is being recorded today Thursday October 29, 2020 at 11 am Eastern time.

I would now like to turn the meeting over to Elise Sugarman, managing director strategic development. Please go ahead Shelly.

Good morning, and welcome the Bread Trust conference call to discuss our results for the third quarter ended September Thirtyth 2024, we get started please note that we may make forward looking statements about our business and financial performance each.

Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected additional information regarding these risks and uncertainties appears in our SEC filings, including the form 8-K filed today containing the earnings release and in our 2019 form 10-K.

And our form 10, Qs for the first and second quarters of 2020.

Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update them as a result of new information or future events.

We may also reference certain non-GAAP financial measures information about any non-GAAP.

As referenced including a reconciliation of those measures to GAAP measures can be found on our website along with the slides that we will use as part of today's discussion.

Finally, nothing herein shall be deemed to be an offer or solicitation to buy any investment products.

<unk>, our president and Chief Executive Officer will lead the call and now I'm pleased to turn the call over to Sarah Sarah.

Thanks Ali.

Good morning, everyone. Thank.

Thank you for joining us today.

As usual I'll focus my initial remarks on the key highlights in the quarter laid out on slide five of the presentation deck.

We reported you know I pershare of 47 cents for the third quarter, which was 12% higher than the 42 cents, we reported for the third quarter last year.

While our revenue declined compared to the third quarter of last year due to the cold with 19 related market impact on our average are you.

Our <unk> increased due to the cost savings from our corporate repositioning and the continuing discipline on the opex by our affiliates.

And then our share repurchases in the first half of the fee or how to further boost the night on a per share basis.

You know I first shared or 47 cents in the quarter is also 15% higher than the 41 cents, we reported for the second quarter up to see or what's.

Which reflected the increase in area, one and management fee revenue from the continuing market recovery.

While our expenses remained largely flat compared to Q2.

We previously announced divestitures, Oliver Barrow, Hanley, and copper rock or somebody else.

As a reminder, we completed the sale of copper rock early in the quarter in July.

And we still expect the sale of Barrow Hanley could be completed in the fourth quarter.

Our net client cash flows in the quarter on a pro forma basis.

That is exploding Barrow Hanley in copper rock weren't negative half a billion.

Bobby annualized revenue impact of these loans was a positive 1.4 million.

As the fee on our inflows was higher than the fee on outflows.

And the alternative segment, we had net inflows of 0.7 billion.

In this quarter, which reflects a modest pickup in the pace of our fund raising but.

But we still continue to see a delay in the timing Oliver fund raise it.

Because of the restrictions imposed by the pandemic.

As we have previously discussed we still expect the bulk of our fund raising to come and 2021 and 2022.

Our investment performance remained generally stable.

And the quantum solution segment, our investment performance continued to be strong.

45%, 49% and 88% of strategies by revenue, beating their respective benchmarks over the prior three five and 10 year periods.

Moving to capital management.

Do you see the borrowing on our corporate revolver from 130 million at the end of Q2.

<unk> 80 million at the end of Q3.

Which reduced our net debt ratio to one point fivex.

Compared to one point Sevenx earlier.

Additionally, we fully paid off the remaining $22 million of outstanding amounts on our non recourse feed facility.

We have an adequate amount of capital to feed new strategies for our affiliates.

Now as we look toward closing the Barrow Hanley fail in the fourth quarter.

We intend to use the proceeds from that clothing to fully pay down our revolver and we plan to use part of the proceeds towards repurchases.

We're still on track to deliver annual cost savings of over $20 million by Q1 of 2021.

From the previously announced repositioning of our corporate center.

Next to your slides highlight the strength of our differentiated business mix where.

With 87% of.

I'll be denied post the divestitures.

Moving from quantum solutions and alternatives segments.

We already walked through this a fair bet on our last earnings call. So I'd like to now move to slide 14 to provide some more color on our flows by segment.

Looking at the chart on the left hand side of the page and the second column the pro forma column.

Let's see in the alternative segment, we posted net inflows of.

One $7 billion jump.

You may recall this number with a small part.

Positive in Q2.

In the pro forma liquid asphalt segment, that's excluding Barrow Hanley we've.

We posted net inflows of $1.1 billion for the quarter.

And that number was positive 0.1 billion in Q2.

In the quantum solution segment, we had net outflows of $2.3 billion this quarter.

Q2, the segment had net inflows of 0.3 billion.

But net outflow in Q3 was primarily a result of two large withdrawals driven by rebalancing considerations.

Now I'd like to turn the call back to the operator I'm happy to answer questions at this point.

At this time those with question should lift their phone receiver and press star followed by the number one on your telephone keypad to cancel a question. Please press the number sign please hold for a brief moment, while we compile the <unk> roster.

Your first question comes from the line of Michael Cyprys from Morgan Stanley. Your line is now open.

Hi, sorry, this is actually Stephanie filling in for Mike. My question is around the outflows in a quantum solution in particular the redemptions. That's picked up this quarter. So wondering if you can give us some more color on that rebalancing with girls and you called that out an update of what you're seeing in terms of the latest trends in client activity and.

What strategies are well positioned at this point.

Hi, Stephanie.

Yeah, certainly so.

As I pointed out that largely was up to a specific withdrawals speech, where withdraws not terminations bike withdraws well driven by rebalancing considerations one.

One of them in fact was a it was a tactical.

Rebalancing that we had received earlier in the year spend up and the environment was starting to change and it was understood to be a short term tactical or did you know about allocation that we received and so so that it sort of ran ran its course, we don't generally have a lot of that tactical.

Oh things coming in and out so so it was a little bit of an aberration, but generally we have longer term applications that we have received and the other one was a drag.

Driven by Astellas equity markets moved around a bit and that job.

Yeah Pete.

<unk> are rebalancing, so sometimes youre on the receiving end up but sometimes you run them, giving kind of it.

But generally as we see as we look at our quantum solutions business.

Very broad base business with Oh somebody the core is the the multifactor approach that we have powered by decades of data and research.

And but the strategy is our very diversified across regions and and approaches in terms of all the client goals, whether its targeting low volatility or for a longer term performance.

So we see now we see ins and outs in a variety of strategies, but generally the business. We see is very well positioned.

Given the differentiated capabilities that we have.

Okay, great. Thank you.

Your next question comes from Kenneth Lee from RBC.

Please go ahead your line is open.

Hi, Thanks for taking my question I'm just in terms of the alternatives fund raising you mentioned are the bulk would occur in a 2021 2022 time frame wondering if you could just provide any additional granularity whether you would expect the fund raising to steadily increase throughout that 2021 timeframe or or.

Perhaps the pick up might be a little bit limiting your what you would have originally thought thanks.

Hi, Ken Yeah, you know the exact timing is of course, you know hard to to pack no given.

The dynamic of you know the situation with the with the with a pandemic.

But but generally we are encouraged that that fundraising has kicked off and and and is moving along and clients are starting to to commit.

But there are you getting crowded issues with up with a new fund raised for example, with new clients not being able to meet them in person.

As an issue or its specific jurisdictions people have to meet in person no and they aren't able to do that no from an investment committee perspective.

But notwithstanding that no we are moving along well with the with the dialogue with the appliance.

So I would say that we still are targeting does the same size as we always work we are I'm very hopeful that wouldn't get toward our targets.

Big this exact timing maybe hard to pinpoint but that was the delay that that means that we have discussed previously.

About two quarters, it's hard to get no more specific than that just given the dynamic situation.

No, but I would say that if things were to normalize very quickly then we would definitely be a beneficiary of that because the Israeli depend any restrictions.

No no no that's slowing things down a bit.

Gotcha very helpful and just one follow up if I may just given all the recent focus around potential interest industry consolidation wondering if you have any updated thoughts on potential M&A. Thanks.

Yeah, I guess no we're definitely seeing increased activity in the sector, which is encouraging to some extent of that and does that the people are realizing.

The the value in the industry.

From our perspective that as we've always said, though we we like our pro forma business as.

As as evidenced by.

Our.

Flows.

And our improved fee rates and margins, but also be still.

I believe that know our intrinsic value is higher than than where we trade. So.

So with that in mind, we as a public company, we are always open to consider.

Consider things that might unlock value.

And and that's all but you know that's the that's really our overall approach, but no but we're also hopeful that overtime to market will recognize.

The intrinsic value of our businesses.

Very helpful. Thank you very much.

Your next question comes from gas Shriram Krish from men Bank of America. Your line is now open.

Hi, This is actually on top of my Kathy.

It was great to see some off the strong expense management. This quarter I was wondering if you can sustain double faulted to 2021, and how you're looking at expense management isn't yet down the dumps EPS differently, but that you can call.

Hi, Guy three yeah, Yeah, just on the expense management front that as we've said we were on track.

To deliver the savings that we were expecting from the corporate repositioning and might have a slight upside on.

On that front as we as we continue to execute over the next couple of quarters.

And then our affiliates saw operate autonomously as you know, but they also.

Our very mindful of expenses, we also benefited from from things like T any being being lower so on at least on T., a new front, we can't wait for things to be normalizing and we would have very happily write those checks so that our sales force.

Can be out and about and service clients.

But generally no we continue to be mindful on the expenses front I wouldn't expect on a lot lot of upside, but more of a continuing discipline.

Got it thank you so much.

This concludes our question and answer session session I'd like to turn the conference call back over to Sharon Renna.

Thank you Oh, yeah in summary, I would really say, we continue to execute on our longer term strategy of really focusing on our differentiated business mix and we continue to deploy capital toward paying down debt and.

And doing accretive repurchases. So thank you for joining us today, and Ah stay healthy and well.

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