Q2 2022 Brightsphere Investment Group Inc Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the Bright Spirit investment Group earnings Conference call and webcast for the second 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 that this call is being recorded today Thursday July 28, 2022 at 11, a M eastern time.

I'd now like to turn the meeting over to Ali Sugarman.

Strategy and corporate development. Please.

Please go ahead aly.

Good morning, and welcome the breakthroughs conference call to discuss our results for the second quarter ended June 32022.

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 to differ materially from those projected.

Information regarding these risks and uncertainties appears in our SEC filings.

The form 8-K filed today containing the earnings release, our 2021 and Form 10-K, and our Form 10-Q for the first quarter of 'twenty to 'twenty two.

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

For future events.

We may also reference non-GAAP financial measures information about any non-GAAP measures referenced including a reconciliation of those measures to GAAP measures can be found on our website.

So 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.

Sure.

Our president and Chief Executive Officer will lead the call.

Please turn the call over to Sir sure.

Sure.

Thanks Ali.

Good morning, everyone and thank you for joining us Tonight.

As usual I'll start off with the financial highlights like five of the deck.

We reported Eni per share of 41 for the second quarter.

3% higher compared to 40.

That we reported for the second quarter of 'twenty one.

The EPS for second quarter of 'twenty, one included about seven.

Contribution from a couple of them.

ICM and Campbell global both of which have since been divested.

Excluding the seven.

EPS for Tokyo in 'twenty, one would have been 33%.

And so on an apples to apples basis, the EPS by <unk> 41 for Tokyo 22.

24% higher than Tokyo 21.

The adjusted EBITDA $4, so on the operating business Acadian.

By 26, 9%.

It was $38 8 million in the second quarter up 22.

Compared to $53 1 million in the second quarter up 21.

Primarily because Acadian AUR declined 23%.

Do you have that depreciation and equity markets globally in 'twenty, two and also a stronger U S. Dollar given a substantial portion of our U S.

Invested outside the U S.

However, our size the most share buybacks over the last several quarters more than offset the decline in EBITDA and earnings and drive EPS higher year over year.

And I'll get into this in more detail later, but let me also quickly touch on two important initiatives.

We are investing in to support our long term.

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First our Canadian and now launch of an effort to expand into the large credit market, where our systematic credit strategies are currently Nathan but poised to grow well as industry dynamics become more and more.

Second in Q4 of this year, we will be fielding Acadian multi strategy equity under debt.

Platform.

How is that real equity alternative strategies that are uncorrelated to the broader markets.

Our investment performance continues to be strong through volatile markets.

As of June 30, 82%, 87%, 86% and 90% of strategies by revenue beat their benchmarks over the prior 135 and 10 year periods respectively.

Our net client cash flows until 'twenty two.

Negative $2 8 billion.

Narrowly driven by portfolio reallocation from a couple of clients.

Looking at the most recent data we are encouraged that the net flows for June and month to date July are positive.

Also our sales pipeline remains robust across the cross section of our strategies.

And from a longer term perspective, we have several irons in the fire.

Clothing credit and equity alternatives that I just touched on.

Industrial benefits from secular tailwind and that we would expect to drive more consistent organic growth for us.

Turning to capital management.

We have $50 million outstanding on our Canadian revolving credit facility.

Third to $88 million at the end of <unk> 'twenty two.

As a reminder, this is a facility that supports Acadian seasonal leads in the first quarter.

Typically paid down in subsequent quarters.

So we expect the outstanding amount to be fully paid down by the end of the year similar to what we did in 2021.

Our cash balance was $92 million as of June 32002.

To reiterate our capital management priorities.

Our business continues to generate strong free cash flow, we expect to continue deploying capital to support our organic growth and to buy back shares.

Now turning to some operating highlights for Acadian on slide seven.

Acadian generated $38 8 million of adjusted EBITDA until 'twenty two.

Compared to $53 1 million in <unk> 'twenty one.

The drop in EBITDA compared to <unk> 21 was mainly driven by approximately 23% decline in AUM.

Over the last 12 months due to market depreciation and a stronger U S dollar.

The EBITDA in the prior sequential quarter, <unk> 22 was $48 1 million.

And the drop in EBITDA for the second quarter compared to the first quarter of 'twenty two.

It was also mainly driven by market decline.

Secondly performance fee in the second quarter was lower at $2 million.

That's $10 million in the first quarter.

As a reminder, majority of our performance they generally come through in the fourth quarter.

In second quarter, and third quarter performance fees generally lower than the first quarter.

Turning to slide eight minutes.

Last quarter, we spent some time to discuss the unique capabilities of <unk> platform.

Which include our powerful combination of a team with deep quant experience wealth of data on traded assets around the globe.

And our technology platform.

All of which have been built up over decades.

Together these capabilities allow us to uncover sources of alpha and available to most other managers.

And you can look at the secular trends on slide 11.

They highlight that Acadia has capabilities that are coming on the floor.

There continues to be an explosive growth in alternative data and Acadian advanced techniques to extract useful taking out some of the data.

Continually improving.

Which will increase our ability to produce alpha for their clients.

At the same time.

Scale of investment needed to bring all these resources together.

A bigger and bigger which provides us strong protection for barriers to entry given our decades of Lee.

But demand from institutional clients for uncorrelated returns and customized solutions continues to grow.

And our strong quant capability allow us to meet this demand.

Profit range of asset classes.

On slide 12, we cover some of the ongoing initiatives.

As we have stated in recent years in this regard.

We already discussed systematic macro strategies, including multi asset class.

Our ESG capability.

China onshore strategy on our last call.

Today, let me discuss our newest initiative, a systematic credit and equity alternatives platform a bit more.

On slide 13, we summarize some key highlights for our systematic credit effort.

The business will be led by Scott Richardson.

An industry pioneer with long experience in Quant and credit from Blackrock AQR and academia.

We have started building a team of data and trading infrastructure.

We're looking to build a team of about 15 people over the next two or three years.

The plan is to initially focus on corporate credit market, which is a 14 trillion dollar market.

In terms of the data on resource Thats between corporate credit and equity have meaningful overlap and we have a unique advantage in the segment.

Systematic strategies Nathan right now in the corporate credit market.

Less than 1% penetration.

But poised to grow for several reasons.

Trading is becoming increasingly electronic with 30% of volume electronics.

There is more and more fixed income data becoming available.

And the returns from systematic strategy generally uncorrelated with fundamental credit managers.

On slide 14, we summarize some key highlights for Acadian equity alternative platform.

There is a growing demand for our strategies with truly low correlations with the broader markets.

This demand severely underserved because often correlations turned out to be much higher than investors expected.

In the fourth quarter, we would be ceding Acadian overall equity alternative platform, which will combine <unk> unique capabilities in multi asset macro equity long short.

Signal research alternative data.

Full year construction techniques.

We have a core team of seven people already in place.

And this will grow over time.

To conclude on slide 16.

Our long term strategy remains the same.

We will continue to invest in our capability and leverage our unique platform to expand into new areas.

We'll continue using our free cash flow to support organic growth and for share repurchases.

And we will remain focused on maximizing shareholder value.

Now, let me turn the call back to the operator.

And we're happy to answer questions at this point.

At this time those with questions should lift their phone receiver and press star followed by the number one on their telephone keypad.

Cancel a question. Please press star one again please.

Please hold for a brief moment, while we compile the Q&A roster.

Our first question comes from Kenneth Lee from RBC Capital markets. Please go ahead. Your line is open.

Hey, good morning, Thanks for taking my question.

Wondering if you could just provide any update around that potential discussions around value enhancing transactions and wonder.

I'm wondering if you could also just.

Talk about whether the pause in share repurchases.

Would it be due to the state of discussions thanks.

Hi, Ken.

Yes, so as we've said we've been consistent that we're focused on maximizing shareholder value and remain open to.

All possible ways in which that can be accomplished.

And our capital deployment is an example of that.

In terms of using it.

And the places, where it's best used either repurchases or beating our organic growth strategies.

Because that will ultimately help generate a better.

Multiple lives, whether it's public markets multiple over an acquisition multiple.

And we remain open to strategic discussions.

It hasnt been they would happen.

And the repurchases.

We'll definitely find them to be accretive.

But you may not necessarily do that every quarter is not that large in amount compared to what they used to have where we were almost needed to do the tender and there was no other way too.

Deploy that much capital.

But now.

With the amount of capital we have.

We could we could always catch up in the quarter.

And yes, there are times when when we are in blackout windows.

Weather related to earnings calls, our conversations et cetera.

When we cannot be in the market.

Got you very helpful. There.

Just one follow up if I may you talked about.

Our priority for free cash flow to support organic growth and you mentioned the systematic credit and the equity alternatives platform wondering if you could just quantify how much.

Much capital would be needed to help build out those capabilities. Thanks.

Yes, certainly.

So those two combined we would probably expect about.

About $15 million to $25 million.

Per year for the next call it three years.

It's about 15 to 20 this year another 20 to 25 next year and then.

In 'twenty three and then maybe another 20 or so in 'twenty four.

Got you very helpful. There. Thanks again.

Thank you Ken.

This concludes our question and answer session I would like to turn the conference call back over to Stern Rona.

Okay. Thank you operator, if there are no more questions.

Thanks, everyone for joining us today.

Understand that it's.

It's a busy day for earnings calls so thank you everyone.

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Yeah.

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