Q2 2021 Brightsphere Investment Group Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by welcome to the bright from your investment Group earnings Conference call and webcast for the second quarter 2021.
During the call all participants will be in a listen only mode.
After the presentation, we will conduct a question and answer session.
The average.
Thank you please Brett.
<unk> followed by the number 1 at a time during the call.
Did you need to reach an operator, please press star followed by zero.
Please note that this call is being recorded today Thursday July 29th 'twenty, 'twenty, 1 and 11 a M eastern time.
I would now like to turn the meeting over to at least Sugarman head of corporate development and Investor Relations. Please go ahead aly.
Good morning, and welcome to Breakfast conference call to discuss our results for the second quarter ended June 32021, before we get started please note that we may make forward looking statements about our business and financial performance. Each forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
Lee from those projected additional information.
Information regarding these risks and uncertainties appears in our SEC filings, including the form 8-K filed today containing the earnings release, our 2020 form 10-K, and our form 10-Q for the first quarter of 2021.
Any forward looking statements that we make on this call.
Material 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 measure 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> Rana, our president and Chief Executive Officer will lead the call and now I'm pleased to turn the call over to CERN Suren.
Thank you Wally.
Paul Good morning, everyone and thanks for joining us today.
I'll start with slide 5 of the presentation deck net unusual items.
And let me begin with a summary of a few recent developments that collectively mark an important shift in our business model.
We closed on the divestiture transaction of landmark.
In may.
And as we announced in the press release last week.
Earlier. This month, we also closed on the divestiture transactions up 2 other affiliates DSW and ICM.
And we still expect the closing of the announced transaction first day of another affiliate Campbell global in the third.
Third quarter of this year.
After that sale is completed our solar business will be Acadian.
Market, leading quant manager with a great track record of outperformance.
So at that point, we will have completed a flow transition from what's referred to as a multi boutique or multi manager business.
Partner to a single focused investment manager model.
Providing our investors pure play exposure to Acadia and highly differentiated business.
Now moving to our financial results for the quarter.
We reported Eni per share of <unk> 40 for the second quarter of this year.
Model here to 'twenty 4.
The second quarter of last year.
For both these periods exclude landmark and tfw since they have been moved into discontinued operations.
But these numbers do include ICM and Campbell.
Just given how the accounting guidelines work.
It seems several analysts may have included DSW and their earnings estimates.
<unk> sales closed in July after the end of the second quarter.
So to make it easier to compare I want to point out that if tfw wasn't included in our zone. It would have added another <unk> <unk> for the EPS.
For <unk> 'twenty 1.
It would make the second quarter EPS <unk> 46.
As I mentioned ICM and Campbell are still included in these results.
But since ICM sale is now closed and.
And Campbell sale is expected to close in the third quarter.
Now really focused on ourselves.
The go forward business Acadian.
Let's now turn to slide 8 to zero in on Acadian.
As you can see in the first column relating to <unk> 'twenty 1.
Within the AUM of 118 billion Acadian has significant scale, particularly for our very focused.
Our <unk> business.
The business generated 53 million of EBITDA in the second quarter of 'twenty, 1 compared to $33 million in the second quarter of 2020, and 46 million in the first quarter of 2021.
The biggest driver for the increase in EBITDA.
Relative to both the.
French low quarter in the prior sequential quarter with higher revenue.
Driven in turn by the increase in our AUM from market appreciation.
Our Canadian net flows in the quarter were negative $1.3 billion.
Primarily driven by Reallocations from select strategy.
A year, a bunch of low volatility strategies, given the generally rising markets we have had.
Looking at investment performance.
You can see on the chart on the lower left hand side.
That Acadians investment performance strengthened further in this quarter with 82%, 85% and 88.
Percentage of strategies by revenue.
Beating their respective benchmarks over the prior 3.5 and 10 year periods.
We are optimistic that the strong long term track record will help generate robust net flow and organic growth over time.
Turning to our balance.
And capital management on Slide 14.
Our cash balance as of June 30, 'twenty, 1 was $11.75 million. We expect this balance to grow to more than $1.3 billion over the next few months. When we include the after tax proceeds from DSW ICM Campbell sales.
She'd pay the taxes on gain on sale of landmark, which hadn't been paid since they werent deal with just yet.
We expect to deploy this cash balance to pay down debt and return capital to our shareholders.
As of June 32021, we had outstanding notes of $400 million.
Sorry.
And cash balance net of debt would be $900 million.
So basically you can think of the company currently has 2 distinct parts.
Our operating business is generating $53 million of quarterly EBITDA, and our cash balance net of debt of more than $900 million.
Now let.
Start to call back to the operator happy to answer your questions at this point.
At this time does have a question should lift their phone receiver and press star followed by the number 1 I got telephone keypad to counsel. The question. Please price.
The numbers line. Please hold for a brief moment.
While we compile the Q&A roster.
Your first question comes from the line of Robert Lee with K B W.
Please go ahead, Sir your line is open.
Right.
Excuse me good morning, Thanks for taking my questions.
Maybe suren.
We're off with.
I mean understanding.
The goal here is to return capital and pay down debt, but I guess, maybe you would've thought.
From what the earnings would have been a little bit more.
Specifics on that could you maybe talk to.
You know what maybe why you Havent had.
The specifics yet, but certainly with the retail notes already callable I believe at par and then as a follow up question the adjusted EBITDA for.
Acadian does that how much of that is related to maybe the performance fees in the quarter. What can we think of as kind of a core EBITDA.
For Acadia. Thank you.
Hi, Thanks, Thanks, Rob.
The first question.
You're right, we still have not finalized our action plan and decisively around the capital.
It's a rather large amount of capital so and so we continue to tinker.
Kurt.
However, as we've said hi.
High level it is for debt pay down and returning capital to shareholders.
And in terms of sequencing, yes, we are trying to at least pay the retail nodes.
$125 million.
First before.
Returning capital to shareholders.
But yes there is.
Yes.
It's at least that part is straightforward gets I agree we just dog.
Non execute the entire plan more holistically.
And the second part regarding EBIT.
Oh for Acadia.
Yeah, So it's a.
This quarter, we've had performance fees similar to.
<unk>.
As you know our performance fees largely.
<unk> is generally the quarter, where we have the largest amount of performance fee.
So when you sort of normalize.
<unk> of that we would say maybe on performance fee at least it's probably.
Middle Middle of the fairway this quarter.
Because <unk> was larger and there may be certainly here's when we don't have performance fee in earlier quarters.
But this quarter its probably.
And call. It an average if you were to average out a full year.
Does that answer your question.
Well, maybe as a follow up so it was that was it.
$20 million of performance fees is that driven mainly by Acadian may be bad.
Canadian EBITDA was also Campbell global and I guess the.
Aliens $53 million of adjusted EBITDA, which had a nice increase sequentially.
Sequentially.
And then obviously some of that is going to be just a market improvement in asset levels, but I guess I'm just trying to get a sense how much net EBITDA increase we can kind of carry forward versus maybe being kind of more onetime related.
Hey, Columbian season quarter.
I see what you mean.
So the performance fee that that at the.
$20 million that you see there was really only $5 million.
And Acadian.
And more.
About 15 million was.
From the Campbell global.
Which I guess he knows that we.
We provide that net.
Break up into our segment information, but you're right. It is a performance fee doesn't get broken out so that's the breakup and of course.
We've announced sale of Campbell global and so what's included in the quantum solutions segment.
It's only.
5 million performance fee, which as I mentioned earlier is more sort of you know.
You can think of at an average run rate because.
<unk> would typically be higher and there may be times in earlier quarters don't have performance fee.
Okay, Great that was helpful. Thank you.
Either.
Your next question comes from the line of Kenneth Lee with RBC capital markets.
Please go ahead your line is open.
Alright, Thanks for taking my question.
Just 1 on Acadian.
Talked about seeing some client reallocation.
Tvs in the quarter.
I'm wondering what your expectations are for the near term what are you seeing interesting positioning.
And which products and strategies.
Garner some some potential growth in this environment. Thanks.
Hi, Ken.
No.
As we.
We are very pleased with the performance.
Of the firm overall, because we look at the performance right.
On a 1 year base assets, 87% 3 year is 82.
5 and tenants like more than 85.
So vast majority of our strategies are beating their benchmark.
<unk>.
So it's really.
Some I guess the.
Gory of low volatility strategies that index kind of rising market environment, while they are delivering low volatility you.
You would expect in volume, but would expect I guess.
Or should expect in this and.
Environment that they don't necessarily beat the core benchmarks.
But because of that we do have some clients that take directional.
Our macro positions.
Choosing.
Market over low volatility targets for example.
So that's where essentially we would we're seeing.
The negative flows.
But most other strategies that track record is good.
And so these things change by the market, but essentially given that more than 80% across all time periods in some cases more than.
Percentage of strategies that are beating their benchmarks, we are optimistic about the about the outlook going forward.
Got you that's very helpful and 1 follow up if I may.
With the pending divestitures, such as Campbell global.
And.
Within a few quarters, you'll just essentially be Acadian I'm wondering if you could just share with us any thoughts around longer term strategic plans any changes that you could expect as you're operating it and its come down fashion. Thanks.
Yeah. Thanks, Ken.
85 zone, essentially we really.
Have essentially would have completed our transition to a single manager model. So we won't be a multi boutique.
Anymore and.
With the with the affiliate sales and as we've said our focus.
Focus has always been.
Value maximization for the shareholders and when we got.
Prices for our.
Assets legwork more than we're.
The market was.
Valuing them.
We took that to the accrete value to shareholders.
But also another net.
Sure.
Youre, saying dichotomy.
The market is that we've always had what was a multi boutique discount.
So now that we are single manager.
<unk>.
It's much easier as a pure play exposure that investors can can expect.
So very differentiated and scaled business, so investors know what they're getting.
And just strategically as we have discussed in the past.
Which is which was the reason for these divestitures.
We had found that.
Very limited.
And because of having multiple.
Having multiple different businesses under 1 roof.
In fact, there were some dis synergies.
From the coordination work.
<unk> initiatives that maybe not necessarily warrant in tune with customized needs of each business.
So so that simplified.
Business.
And also providing a much simpler story for our investors to understand.
We think it has operational benefits and we also think it has.
Marketplace benefits for us.
Great very helpful. Thanks again.
Thank you Karen.
Your next question comes from the line of Michael Cyprus with Morgan Stanley.
Go ahead your line is open.
Hey, good morning, Thanks for taking the question just on capital management front I know in the past you've.
Is that a when you're in conversations around selling certain businesses you might be restricted our or you are restricted from from buying back stock. Just curious if that restriction also extends to redeeming debt and how.
And to what extent are there any sort of restrictions there on the debt side how that.
Differs from from the equity side.
Yeah, I guess, it's a we've discussed that from time to time, we don't think that restriction would apply to redeeming debt.
And you know and I guess as I mentioned the retail notes are.
Morris.
Straightforward, we can probably do that in advance.
Having said that we just are with like a line of sight on the on the entire <unk>.
Capital plan because throughout the retail nodes are relatively easy to redeem.
There isn't much.
Oh, you know.
Mike.
<unk> risk to it.
But on the repurchases, yes from time to time, Inc.
If there are non public.
Things going on we would be restricted.
And just any color on the timeframe for the retail notes you mentioned.
And that is pretty straightforward.
Is that something we can expect here in the third quarter or is that maybe more later in the year next year.
Yeah, I think it's when it happens it will be quite good I hesitate to give a timeframe because.
Uh huh.
We just arent.
Necessarily very sure but.
It's relatively straightforward I guess, it's just really when we have a holistic plan, we will start with the retail notes first.
Okay, and just a follow up question on the.
Quant <unk> solutions segment, just wanted to clarify so that's now all entirely Acadian.
We reported it in your segment results.
Wanted 1 affiliate there in the a $53 million or so of EBITDA in the quarter, that's that kind of the right run rate to be thinking about on a go forward basis. If I hear you right just in terms of thinking about the movement of performance fees kind of kind of ebb and.
This is a good run rate, but then maybe you could also elaborate a bit on the other segment, which I think had the impact of ICM and Campbell and the quarter, just how to think about what the right run rate for that other segment should be which historically had been more of the center costs and just how to think about some of the moving pieces there.
Yeah.
Yeah. So we were.
We're really focused on the content solutions segment, which is just Acadian and yeah, that's a that $53 million of service.
<unk> run rate in the ball Park of course quarter to quarter. There are some some things that happened a million or 2 you know seasonal items no, but that's about the right run rate.
The flow of foreign quantum solutions. The other segment I would say is temporary because and they already know we used to have liquid alpha.
Segment.
And since you know ICM, which already closed but is included in the results for.
For Q2.
Other now it's moved from liquid Alpha to 2 the other Campbell global again used to be in the alternatives segment.
And is expected to close but that's in the other now and in the center so with the closing of ICM and Campbell.
You know I'd say I'm already closed Campbell will be closing in this quarter.
And the other.
Then that other segment booked basically just become center again like it used to be.
And we'd think of center really more as not as.
Not as a non holdco anymore or center as we used to call it but it's really now its like its a departments a team of people.
People.
That's focused on handling public company responsibilities given that is just 1 business now.
So over time, we would expect more efficiency in handling public company costs, so that the fall.
Acadian EBITDA of 53 million and growing from there.
A quarter of the shareholders.
We have of course proven over the last year and a half that way.
It can continue to get more and more efficient.
So wherever the law was always look.
To minimize the overheads.
Also if they were ever to be an acquisition.
That scenario.
A buyer.
There would not need the public company costs.
So for those reasons, we don't really view these costs are in the other as core.
And really from a management perspective, much more focused on the EBITDA.
Reduced by our operating business.
Great. Thanks, So maybe just a quick follow up there just on the other.
Goes from I guess, what can we expect near term into <unk> and for Q4 for that sort of corporate overhead and then what sort of timeframe would it take for that to get a I guess in your view are eliminated where you basically kind of get really closer to that 53, what sort of actions have to be taken and how realistic is that as a public company to really achieve.
Segment.
Yeah. So in <unk>, you know, we would have a now a.
A month of ICM.
We would have probably 1 quarter of Campbell, but for Q is when the you know when you were really just see the.
The headquarter costs, which was in that.
$20 million.
Ballpark.
And we will continue to.
What other down.
Over time.
It's not a quarter or 2 it's probably probably longer.
<unk> done that.
Got it.
As Acadian continues to scale.
Cheap.
That would be.
More that we can do on the other side.
But yeah over time, we'd expect that continues to get smaller and smaller.
Great. Thank you.
Your next question comes from the line of Glenn Schorr with Evercore. Please go ahead. Your line is open.
Thank you Hi, Sharon.
Quick.
Question with the benefit of hindsight is now sold off 6 or 7 of the boutiques to get down to this.
Single manager model.
And I think <unk> gotten some good fair value to shareholders on the prices was there.
Any specific staging or order or was that more a function.
Of.
How the Hell.
Had the deals just came in and where investor or our partner interest shook out.
As a follow up on that.
Yeah, Hi, Glen.
Yeah.
And as we've said we've been open minded.
Unlocking value for shareholders.
And and Thats been known to the marketplace.
As legitimate inquiries have come in we've had we have had those conversations and where things worked out.
For us.
For our team and 4.
The buyer.
We moved forward.
So so I would say no particular staging except that now you know acadian being our largest and most differentiated business.
You know it would it would make sense that that's the business.
No.
Yeah, we'd be have now saved the best for last as they say.
And and also because its largest if you were to sell.
This business as an asset tax bill would be would be hefty.
So that's the only 1 I would say, it's probably by design.
Okay.
And then just a follow up I had is is what.
It was our worst Acadian on the list of <unk>.
Things you take calls on meeting is it just you havent found the right partner at the right price yet.
Or is it that tax.
Sure.
Potential liability that is just.
Delaying the conversation in other words is this just a matter of time.
And where are we.
So we're very happy with the business now it's a it's a scale business and a very.
Differentiate it area I think it's a great team.
Yeah.
And track record to serve their clients very well. So so we think it's a it's very.
It's a very good business for the public markets.
And and we're happy to keep going.
At the same time, we've always.
You know the.
Maintain that it is our fiduciary duty to.
To our shareholders that to the extent there was a party that.
Was really able to reward our shareholders.
We would consider it.
Okay cool thanks, Thanks, Sean.
Your next question is a follow up question from.
The line of Michael Cyprus with Morgan Stanley. Please.
Please go ahead your line is open.
Thanks for taking the follow up just on the accounting and business I was just hoping you might be able to remind us of the top 3 or 5 strategy that acadia and how much they contribute in AUR and if you could also maybe help.
So maybe some of the flow trends that you're seeing in each of those strategies, which ones would you say are seeing more positive flow trends versus ones that are seeing more challenges in flows and if youre able to also help quantify that as well across the top 3 or 5 strategies at Acadia. Thank you.
Yeah. Thanks.
Mike.
Actually you are something that we will we.
We are job working working on it in terms of what you know, how we slice and dice on a on a consistent quarterly basis and provide that.
To you all.
So so we will.
US we won't do that probably next quarter onwards.
In terms of the level.
That's that's but that's the right level.
For people to have enough granularity.
But as we've as we've said we have.
The.
And then the managed vol low vol group of strategies, that's about a less than.
Maybe about 18 or 20% of our AUM.
That's a little bit above.
Slightly different.
Objectives.
And then we have recovered emerging markets that's.
It's about 20%.
And there's a variety of geographic.
Geographical regional strategies.
Yeah.
Europe non U S.
For.
Then there are some there is global as well, which is the U S and developed markets.
So.
And then where there's there are some newer strategies like monkey.
Asset class net are that are doing well and getting great traction.
So it's.
It's quite diversified and that's that's why no.
When you have some strategies that are lessened demand and rising.
Our market environment, you have other strategies that are.
That are getting demand.
So we will sort of.
Figure out the right the right slice and dicing, slicing and dicing and well.
Well, probably report back next quarter with that.
Got it okay that that'll be helpful and if I could just maybe just 1 more.
More just around the quantitative strategies. It gets what portion of the AUM would you say are in quantitative strategies versus more fundamental and how do you think about that spectrum of more quant informed strategies and their imagine the managed vol. That's more quant, but what about some of the E M and global equity strategies are there was also a quant or is that just part.
Comes from process, but more fundamental just any help there would be appreciated.
Our entire business is monkey factor Quant.
So you know all the strategies that we have are informed by the by the same core data core technology.
And core investment philosophy, right, which is informed by.
Decades of data that we have and the technology that we've continued to investing.
And the team of <unk>.
Researchers and academics.
That continued to improve the process.
So.
The line across all strategies, and including our newer strategies like multi asset class, where we're applying the same philosophy and approach.
And.
LNG beyond equity.
Great. Thank you.
Okay.
This concludes our question and answer session I would now like to turn the conference back over to Suren Rana.
Thank you operator.
Thank you everyone for for joining us out and then as I said, we are excited about this by this transition to.
Our singles.
Focus day.
French weighted business and we look forward to reporting on our progress next quarter.
Thank you.
[music].