Q1 2022 Brightsphere Investment Group Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by welcome.
Welcome to the bright Spirit investment group earnings conference call and webcast for the first quarter 2022 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 the star followed by one at any time during the call.
If you need to reach an operator. Please press the star followed by zero. Please note. This call is being recorded today Thursday may 1st 2022 at 11, a M Eastern town.
I now would like to turn the meeting over to Ali Sugarman head of strategy and corporate development. Please go ahead Ali.
Good morning, and welcome to <unk> conference call to discuss our results for the first quarter ended March 31 2022.
Before we get started please note that we may make forward looking statements about our business and financial performance. Each forward looking statement is subject to risks and uncertainties that could cause actual results differ materially from those projected additional information regarding these risks and uncertainties appears in our SEC.
Including the form 8-K filed today containing the earnings release, and our 2021 Form 10-K 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 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 certain Rada, our president and Chief Executive Officer will lead the call and now I'm pleased to turn the call over to Sara Sara.
Thanks Ali.
Good morning, everyone. Thank you for joining us today.
I'll start off with the financial highlights on slide five of the presentation deck.
We reported Eni per share.
Well <unk> 22, compared to a 27 or <unk> 21.
The increase in EPS compared to $1 21 was primarily driven by share repurchases.
Closing the large tender offer we did in the fourth quarter of 2021.
And also a performance fee was stronger in <unk> 22, compared to <unk> 21.
Turning to our investment performance.
We're pleased that our multi factor on investment process continued to produce outperformance for our clients across most of our strategy.
Through what was a very challenging macro and geopolitical environment.
As of March 31, 22.
96%, 86%, 88% and 90% of our strategies by revenue beat their benchmarks over the prior 135 and 10 year periods respectively.
Our net client cash flows at <unk> 22, or negative $2 2 billion.
But the annualized revenue impact of that.
[noise] was negative $1 1 million.
Which is about 3% of Acadian management fee revenue for 2020.
Looking past, one or two quarter, we are very well positioned on our trajectory.
Our investment performance was impressive.
Has continued to strengthen and you believe flow should follow.
We generally do see a few quarters of lag between performance strengthening and flows.
We also have a very healthy pipeline across a few different strategies and from a longer term perspective, we are very excited about our newer strategies such as ESG equity alternatives in China.
<unk> strategy.
Calvin that we expect to drive long term growth for us.
Turning to capital management and.
In <unk> 'twenty, two we bought back about 90% of our outstanding shares for $100 million.
We also completed the previously announced redemption of $125 million of senior notes, which now Lee.
To under 75%.
Majority.
A majority of 2020 as our only long term debts.
As of March 31, 'twenty, two we did have $88 million outstanding on our Acadian its.
The revolving credit facility.
The agenda for somebody that's been in place to support our regular first quarter.
And we expect the outstanding amount will be fully paid down by the end of the year.
What we did in 2021.
We had a cash balance of $89 million as of March 31, 2002.
And as our business continues to generate strong free cash flow.
We expect to continue deploying capital to support our organic growth and buyback our shares.
Now turning to some operating highlights for Acadian on slide seven.
Acadian generated $48 1 million of adjusted EBITDA and <unk> <unk> to.
Compared to <unk> 45.
121 please.
The increase in EBITDA compared to <unk> 21.
Mainly driven by stronger performance of 10 million and <unk> 22 versus $4 6 million and $1 21.
EBITDA in the prior sequential quarter or to 'twenty, one was $87 6 million.
Which was driven by seasonality as we typically earn a majority of our performance fee in the fourth quarter and that quarter included $56 million a performance fee.
Given our continuing strong investment performance and.
And a stronger performance fee, we are seeing in <unk> 'twenty two.
<unk> to $1 21.
We are optimistic about our performance fee for the full year 2002.
Majority of which is expected to accrue in the fourth quarter.
Turning to slide nine briefly.
I would just like to highlight that our investment performance is very strong across short and long term horizons.
And we believe this performance will generate positive flows in due course.
I want to end my prepared remarks with slide 14.
Or is some of our ongoing initiatives that we expect to drive growth over the medium to long term and then we can move to Q&A.
First as we discussed last quarter.
Execution of investors around the globe are looking for yields, but the downside protection and low correlation to broader markets.
We are very well positioned to meet the secular demand and we have data some strategies.
Which are now getting ready to market it more broadly.
One example of that on our systematic macro strategy, such as multi asset absolute return and commodities absolute return strategy.
With these strategies, we basically apply our multifactor model, including macroeconomic factors across asset classes like equities fixed income currency commodities and others generate uncorrelated absolute returns.
We have been getting very good reception from clients and consultants, but this strategy and the pipeline is building.
Another example is our group of equity alternatives strategy, which includes a few different strategy new technology alternative data.
Unique portfolio construction techniques.
Produce uncorrelated returns.
Pleased with the investment results and the momentum we're building here.
Secondly, we continue to see growing demand for ESG focused mandates.
And we expect this to be a secular trend for a long time.
We're very well positioned to be a big beneficiary of this trend.
ESG factors are anyway, a key part of our Covid investment process.
ESG factors such as sustainability are often not given due consideration by the markets and.
And on mispriced, allowing our models to generate excess returns.
Additionally, and importantly, we are seeing an increasing demand from clients to customize their portfolios to match that.
For example on the environmental factor in some cases, they want to make their portfolios carbon free or in other cases, it's a three or five or attending our glide path to getting to zero carbon.
Our big advantage in helping clients optimize their portfolio.
Their ESG value.
And then we can leverage our data and technology to exploit.
The measure of the carbon exposure is today and then decarbonize their portfolio by the desire targets with precision and we can also measure of the associated impact on best in return of the portfolio.
We are increasingly deploying that capability for clients across our strategy.
Unexpected to help retain existing assets.
And with the new assets, especially with regards to ESG focused mandates.
Lastly, I will touch on China market in which we EBITDA strategy two years ago, our China Ishares market.
But just coming along well.
China market is of course large liquid but quite rich in opportunity since this retail driven and is often inefficient.
In fact that strategy to scale in due course.
These ongoing initiatives underscore our ability to leverage our unique quant platform into new areas.
Over time, we expect a similarly apply our quant edge in other parts of the market, but we haven't yet touched on.
Jonathan credits.
And we expect to distribute our products in newer channels, such as retail where we're not present today.
In summary, we are very excited about our longer term growth prospects.
Now, let me turn the call back to the operator, how did we answer your questions at this point.
At this time those with questions should lift our phone receiver and press star followed by the number one on their telephone keypad to cancel a question. Please press star one again.
Please hold for a brief moment, while we compile the Q&A roster.
Your first question today comes from the line of Kenneth Lee with RBC. Your line is now open.
Hi, good morning, and thanks for taking my question.
I'm just wondering if you could just share with us.
In terms of the <unk> that you saw in the quarter.
Are there any particular.
Contribution from certain strategies, either positively or negatively and <unk>.
More specifically what have you been seeing across your managed volatility strategies in terms of net flows recently thanks.
Yes, good morning, Ken.
We're not seeing any particular patterns yet.
From the first quarter.
It was just.
Idiosyncratic as probably the best way to describe it.
Of course.
A couple of larger.
Outflows that determined that number.
And I guess, specifically on your question about the managed vol. Yeah. We did have some outflows from managed vol.
But that again is sort of as we've touched on last quarter that has been reducing so there were some lagged.
Numbers are manageable.
We believe managed wireless is mostly played out and <unk> done.
And now actually.
Let me turn to performance as you've seen that in a more than 85% of our strategies are beating their benchmarks on a longer term basis, but.
If you look at the one year is 96%. So of course that includes managed vol and performance in the managed wallet.
Has at least our near term performance has been has been great and leading core benchmarks.
Does this environment.
Produced a rather.
And a good environment for managed model. So we would expect.
Given the performance.
At some point to show that that should actually be inflows.
So well see.
But as I mentioned earlier.
Essentially if you go if you look past.
One or two quarters than than the bases loaded well. The performance is good pipeline is healthy.
So we would expect the flow situation can be to be better and then we have these.
Looking out even further we have these.
The growth drivers that we expect to see.
Will kick in.
But specifically this quarter, but nothing nothing specific to really point to that it would just.
A few idiosyncratic things that that's sort of determine the outcome.
Got you very helpful and just one follow up.
If I may.
Maybe if you could just give us a bit more update around ongoing cost reduction efforts.
Okay.
Yes, certainly.
Yes.
And going forward.
<unk> is a lot more on growth and we're actually looking and have been investing in hours.
And these new initiatives.
Reflected in our.
Opex P&L, we would also be seeding.
These newer strategies.
But one area, where we are looking to continue to be disciplined on expenses and reduced as we've touched on is the is the center.
And that we continue to evaluate.
And then looking probably more.
Thank you.
Towards the end of the year or beginning of next year, when you would sort of see that.
Fully fully baked in.
Got you thanks very much.
Thank you Ken.
Your next question comes from the line of Michael Cyprus with Morgan Stanley . Your line is now open.
Great. Thanks, Hey, good morning, Sir and thanks for taking the questions here.
Maybe just going back to your last point just around organic growth talking about investing in the business there around organic growth seeds strategies that you're deploying into can you just maybe help quantify how much of the overall cash flow of the business you see putting into the seed book, which I think is maybe <unk>.
$53 million today like how do you expect that to sort of grow and trend from here versus how much cash flow would you envision being available on a go forward basis for buybacks.
Yes, Thanks, Mike.
Yes.
We don't sort of allo.
Allocate any specific budgets and those two are definitely the primary use says no.
Seeding new strategies.
And repurchasing our shares and so we ended the quarter with about 89 million.
Total cash.
And and as we sort of.
Continue to go forward on cash, but will build up more.
We'll look to spend it on the organic growth in repurchases.
It's hard to say sort of a specific allocation at this point.
Timing.
Could very well also.
Generally it will be opportunistic in both with regards to repurchases.
And also with regards to opportunity to deploy cash.
Capital towards growth.
In a sense if they are a great team that comes available for a new asset class that could be where we could leverage our quant capabilities that.
That could be interesting.
So we'll hold a little bit of or just to support organic growth.
And seed new strategies.
But we'll also look to repurchase.
Shares Opportunistically.
And just as we think about the cash flow generation and the ability to buyback stock and use that for organic purposes. I guess, how should we think about the cash flow generation here. It looks like about $48 million of adjusted EBITDA from the Acadian business, maybe you could just help flush out sort of what costs, we should be thinking about.
<unk> wood.
B sort of counting against that and sort of getting down to a run rate cash flow generation that would be available for use for buybacks and for organic initiatives.
Yes, generally our Eni is a pretty good proxy for the cash generation.
Because of course, we do have to pay interest and taxes.
No.
So that Eni has.
Fair proxy.
And that of course.
For this <unk> was about $23 four.
And for and the fourth quarters is generally higher because of the.
Performance fees of <unk> event.
So.
And those are probably a couple of data points to keep in mind.
Got it and if I could just maybe sneak in another one here just on the buyback maybe you could just a little elaborate a bit on what sort of buyback program. You have in places that are 12, B, one five program and when might you be able to be in the market next.
Sure.
Yes, so the repurchases we did in <unk> or open market repurchases.
Because there was a dose.
Enough time in the entirety of the quarter to put that capital to work. So we felt we felt we didn't need anything else.
And we think that that's clearly a good option.
Market repurchases due to <unk>.
Take advantage of.
Whenever levels are.
Are you attractive.
And the tender offer we did in the fourth quarter. It was just that there was simply no other way to put that in that large an amount to work.
Right No open market is not the right method. So we think we can.
We could we can do open market doors.
Or.
And those capital building up in levels are attractive when we're going into an earnings window. It could there's can be five months.
Safe Harbor available as well.
So between those two it can we think we have.
Good tools.
Great. Thanks, I'll get back in queue.
Thank you Mike.
Your next question comes from the line of Gerard Sweeney with K VW. Your line is now open.
Hi, good morning, calling in I'm, asking Rob Lee and just wanted to ask about that kind of share repurchases any restrictions you see for the rest of the year in terms of debt levels or excess capacity what could.
Restrict any repurchase plant plans.
Yeah, I guess another there of course there are.
Closed windows during the earnings period. So for example.
April was a closed window after after we.
Closed the quarter in before we released earnings.
That could also be times that we are having.
Any partnership type conversations.
With potential partners when we get restricted.
That's a possibility.
That hasn't happened.
In the past over the last few years as we've been.
Selling and affiliates.
But other than that.
Other other restrictions that could.
<unk> does from repurchasing our shares those are the primary ones.
Great. Thank you and then just a quick follow up to that could you share your ending share count for the quarter.
Okay.
Yes, certainly I guess it'll be it'll be in the Q and the 10-Q, which is just.
Should be upcoming shortly.
But we have about.
$41 4 million.
<unk> shares.
Diluted count would be about 42.
Yeah.
Okay perfect. Thank you very much.
Your next question again comes from the line of Michael Cyprus with Morgan Stanley . Your line is now open.
Hey, Thanks for taking the follow up just on broadly thinking about strategic actions.
You mentioned the possibility of maybe adding a team just curious how your views on M&A and strategic actions, where their strategic alternatives, but similarly on potential.
Additions to the platform how that thinking is evolving.
Yes, certainly thank Mike.
It's a good question.
We are we're basically focused on leveraging our unique platform to other asset classes.
They're running fully.
Monetize what we have and we have lots of opportunities in front of US right. I mean, we touched on a few.
Which we've invested in.
For a long time.
S. G capability for example is a deal.
It sort of goes right.
Right, along with our Quant capability, we've been investing in it for a while similarly, our uncorrelated returns that we've seen that these strategies.
The teams and the capabilities as well as China.
But there are others, where we haven't invested as much historically, but these are great opportunities and that align well.
With.
With what we are able to do and what our capabilities are.
Credit is one example of that for example, then similarly in terms of distribution.
We can.
Increase our distribution on the institutional side, but retail or RIAA and things like that are our NIM.
So we would essentially.
We are investing organically both through our P&L in seating strategies to access these areas.
But there was an opportunity to.
If there was a team available to accelerate these things now.
Look at it.
What we're not looking at is.
The legacy multi boutique.
Kind of M&A, right, where you added unrelated.
Affiliate.
<unk>.
To the business.
We're essentially looking at.
Basically it was purely from a mono line.
<unk> focused on our quant platform and adding capabilities that.
Where we have that.
Well in our culture, and that's where we can get synergies and by definition that would be.
Generally smaller things like a like a team.
Good example of that.
Great and maybe just on the retail point I was hoping you might be able to elaborate a bit how you think about accessing the retail channel would that require an acquisition or partnerships such as maybe sub advisory I guess, how do you think about accessing that channel and what sort of actions would you need to take there.
Yeah, I've got a bit of it as opportunistic went in on something.
Right that comes available, but yes, but yes, it could take many forms it could be it could be a JV or.
Our revenue share relationship with with.
With somebody who has that R. R.
So if it's a merger type partnership of course.
That's one of the things that can be very synergistic.
So we're looking at it from from mobile.
Multiple angles, then it will just depend.
On what sort of comes through this a little bit of.
Great.
That's clearly an opportunistic element to it.
Great. Thanks, so much.
This concludes our question and answer session I'd like to turn the conference call back over to Suren Rana.
Great. Thank you everyone. Thanks for joining us today.
We look forward to.
Seeing everyone next quarter.
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