Q3 2022 Brightsphere Investment Group Inc Earnings Call

Ladies and thank you for that.

Welcome to the bright spear Investor Group earnings Conference call and webcast for the third 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 star followed by one anytime drink.

The operator or starve holidays.

Please note all is being.

Today.

Number three issue.

Eastern time.

I would now like to turn the meeting over to you early sugarman head of strategy and corporate development. Please.

Please go ahead aly.

Morning, and welcome to Breakfast conference call to discuss our results for the third quarter ended September 32022. So.

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 from those projected additional information regarding these risks and uncertainties appears in our SEC filings, including the 8-K filed today.

Containing the earnings release.

'twenty, one Form 10-K, and our Form 10-Qs for the first and second quarters in 2022.

Any forward looking statements that we make on this call are based on assumptions as of today.

To take no obligation to update them as a result of new information or future events.

We may also reference certain non-GAAP financial measures.

Formation about any non-GAAP measures 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.

Our president and Chief Executive Officer will lead the call and now I'm pleased to turn the call over to Sarah.

Alright.

Thanks Ali good morning, everyone and thank you for joining us today.

As usual, let me start off with the financial highlights on slide five of the deck.

We reported Eni per share up 30 cents for the third quarter of this year.

7% higher.

<unk> to 'twenty eights that.

That were reported for the third quarter up 2021.

Our size about share buyback in Q4 of 'twenty, one and Q1 of this year more than offset the decline in our earnings caused by the impact on our AUM from the significant equity market decline that you are and a stronger U S. Dollar.

We're pleased however that through this volatile market environment, our investment performance continues to be strong.

As of September 30, 96%, 87%, 86% and 90% up strategies by revenue beat their benchmarks over the prior 135 and 10 year periods respectively.

Next our net client cash flows turned positive in the quarter was <unk> 6 billion of net inflows as we saw flat to modestly positive.

Pretty much across all of our major strategies.

And we are encouraged that our sales pipeline remains healthy.

From a longer term perspective, we continue to build out our effort and systematic crowded and equity alternative.

But we announced on our last earnings call.

During the quarter, we added more people to these teams.

Adding to the data and technology infrastructure.

We won't be Kickstarting, the equity alternatives platform with 15 million of feed capital this month.

We also continue to make progress on our ongoing growth efforts like the thematic macros.

These initiatives will tap into the secular growing demand or uncorrelated returns and we expect them to help generate long term organic growth for our business.

Turning to capital management.

We had a cash balance of $101 million as of September 30 or 22.

As 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.

Opportunities come up.

Turning to some operating highlights for Acadian on slide seven.

Acadian generated $30 5 million of adjusted EBITDA in the third quarter of this year.

Compared to $49 1 million in the third quarter of 2021.

The drop in EBITDA compared to a <unk> 21 was mainly driven by the approximately 27% decline in AUM.

Over the last 12 months.

Due to equity market decline globally.

A stronger U S. Dollar gave on a substantial portion of our AUM is invested outside the U S.

The EBITDA in the prior sequential quarter second quarter of this year was $38 8 million.

Drop in EBITDA for the third quarter compared to the second quarter of 'twenty. Two was also mainly driven by continued market decline.

And also performance be in the third quarter was even lower at 1 million versus $2 million in the second quarter.

As a reminder, majority of our performance fee generally comes through in the fourth quarter.

Now, let me turn to slide 11 for a minute.

As it provides a good snapshot of the expanse that capability.

Acadian franchise.

And the future potential of the platform.

Most of our AUM today reside in the top two rows.

Equity, while we seek to consistently produce alpha for our clients.

Cross various equity strategy.

And managed volatility.

While we seek to produce alpha in equity strategy.

With reduced volatility.

However, we are positive that our platform will prove to be equally good and generating alpha outside equity.

We discussed on the last call outside it is a very large market.

We have started our systematic quant FRP in credit with building the team and we will start with high yield and investment grade areas.

We've previously launched our systematic macro strategy multiyear lap absolute return, which continued to move along and now have $2 billion of AUO.

I touched on seeding our equity alternatives platform with 15 billion update capital this month.

To provide investors uncorrelated returns.

And our ESG capabilities date back more than 20 plus years.

And our integrated in our investment process throughout our strategies.

We continue to see demand from investors for <unk>.

Our thoughts around ESG factors to mitigate ESG at Red.

And the customized portfolios for their ESC.

So in summary, each of these pockets of demand are very large and continue to grow and our unique quant capabilities.

Allow us to effectively serve this demand.

To conclude on slide 15.

Our long term strategy remains the same way.

We will continue to invest in our core capability.

And leverage our unique quad platform to expand into new areas.

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

Whenever opportunities are available.

And we 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.

Thank you.

At this time, those whose question should lift their phone receiver and press star followed by one on your telephone keypad to.

To cancel a question please press star one again.

Our first question is from Kenneth Lee with RBC capital markets. Your line is open.

Hi, good morning, and thanks for taking my question.

I'm wondering if you could comment on any recent discussions that.

You may have had around potential value enhancing transactions.

Hi, Ken as we've said.

We remain focused on maximizing shareholder value.

And as such are always open to any shareholder value enhancing.

Partnerships are transactions.

I can't specifically comment on anything particular, but suffice to say, we remain open and whenever any such opportunity come up we do engage.

And to see whether something shareholder value maximizing.

Where possible.

Gotcha.

And one follow up if I may just just in terms of.

Excess capital allocation.

Mentioned that you could support organic growth or repurchase stock as opportunities allow just wanted to clarify.

Further expand.

What that means in terms of our opportunities, allowing that.

<unk>.

Yes, Thanks, Ken.

But you know for our excess cash flow of the business of course producers.

Good cash flow.

Even.

For example in these markets when.

The cyclically low.

And the use of that cash flow is essentially to fall once they've been clear.

Seeding new strategies and repurchases.

And with regards to the seating.

The opportunities that didnt come up yet.

Some of the credit and equity alternatives, which we think are very compelling opportunities.

So and as we outlined we probably use about $75 million to $80 million over the next three years.

And those two opportunities.

Call it $20 million to $25 million a year.

And that and with repurchases whenever opportunities come up we do that.

But from time to time, we are.

You know in some kind of restriction or whether it's an earnings related blackout window or if we are having.

These strategic kind of conversation.

Gotcha.

And to clarify.

Was there any repurchases in the most recent quarter and do you expect to.

Resumed share repurchases.

Given where share prices are currently.

There were not any repurchases.

In the most recent quarter.

But we always are.

You know remain open.

Whenever.

We have the.

Great opportunity in an open window.

That's clearly one of the key users.

Got you.

Thats all I had very helpful. Thanks again.

The next question is from Michael Cyprus with Morgan Stanley . Your line is open.

Hey, good morning, Thanks for taking the question, maybe just continuing with the buybacks theme.

So here you that there weren't any repurchases in the quarter, but I was hoping you might be able to elaborate on why that was and does that have anything to do with any sort of restrictions that I think you were alluding to potentially in the prior answer that could happen from time to time and we've seen that in the past.

Yeah.

Hi, Mike.

That's right probably for repurchases.

Of course, we monitor the market.

And then when the when it's the most attractive to buy back but also the other factor is whether we have an open window.

So it's a combination of those things.

But but I'll reiterate that whenever.

The markets are attractive and we and we have an open window between purchases it's clearly.

The.

The desire views.

I already touched on.

In terms of seating, we have our Turkey opportunities identified.

There's about $20 million to $25 million a year.

So rest of the capital is flowing purchases whenever we can.

Did you have an open window.

In the third quarter.

I can't comment specifically on that but it did not do any repurchases.

Third quarter.

Okay fair enough, maybe just changing topics over to organic growth and flows I was hoping you might be able to elaborate a bit on which strategies contributed to the outflow strength in the quarter, and then which if any strategies had outflows or may be a bit softer.

Yeah.

Yes, generally we got you.

Flat to modestly positive flows across all of the strategies, which of course is very encouraging considering the market backdrop, we were.

We're in.

So Darren there arent any particular areas of.

Pressure in terms of at risk.

And we do see.

Good healthy sales pipeline across strategies.

And including the numerous strategies like the multi asset class. We are seeing good traction there from consultants and buy ratings coming.

Coming in so that's all encouraging.

So it's not I wouldn't say that any particular strategies.

And that.

What contributed to most of it we of course did get some impact from the <unk>.

The UK pension funds L.

LTI.

So it's encouraging that in spite of that we.

We ended up.

At a good place.

No doubt that the numbers would have been even better.

So I would say good.

But expensive.

Support level across strategies.

Great and just final question for me just on the expense guidance. It looks like you're largely kept your prior guidance for this year, except I think the variable expense variable comp guidance moved a little bit I was hoping you might be able to elaborate on what's driving that and then maybe it's a little early for 'twenty three but just as we think about your guidance for 'twenty two.

Is that a good sort of starting point for thinking about 'twenty, three or why might that look any sort of different end to about 23. Thank you.

Yeah on the expense guidance.

On the Opex.

This basically sort of relatively I think the dollar amount of spec. So so as the as the management fee level goes down but the ratio.

And then it goes up so there wasn't much change there except that we have started to invest.

And in the in the new initiatives and started building the teams or structured credit and equity alternatives.

We're growing those teams.

In both those initiatives.

Adding new sources of data.

And technology modules that we need.

So that's that's one area where expense.

It's starting to build up and build up more.

Next year.

But also.

At the same time, we will bring expenses down.

<unk>.

On the center and corporate overhead side.

So that will offset some of that.

Sorry, just on the variable expenses and they feel like distribution guidance as well the moving pieces there and then on in 'twenty three.

Yeah, no the variable expenses of course no. They are they are variable.

A large part of it.

Just a you know a fixed ratio.

The pre pre variable comp earnings.

So it moves up and down but with that but there is a portion of variable comp.

<unk>.

That's sort of amortization from prior periods.

What skews that ratio a little bit.

And as we are building.

The new efforts wherever.

Bringing on people.

With.

Comp.

The guidance on expectations that that don't move of course, we don't have any revenue with these new initiatives yet.

So that's also.

It's something that would skew the variable comp ratio little bit otherwise other than it's generally should be moving up and down in line with the pre variable comp.

<unk>.

Okay. Thank you.

The next question is from John Dunn with Evercore ISI. Your line is open.

Alright, Thanks, you talked about the sales pipeline could you maybe try and size it a little bit for us and then.

As far as the mix you talked about multi asset maybe just some more color on the mix and then.

Has the composition changed over the past several months.

Year to date, let's say.

Hi, John Yes.

Yes, we generally havent provided sizing on our pipeline, but they are but in terms of relative level.

It's a very good sales.

Sales pipeline.

As robust as we've had.

So thats encouraging.

In this environment, we have a good pipeline and various.

Stages.

Searches in a late stage early medium.

That's good.

Spread across.

The various strategies.

The strategies that I can global equity emerging markets, new international or a specific regions like Australia.

That's pretty good a lot of it is also.

Some with some ESG.

Angles.

Where clients have specific.

Sustainable goals.

So.

It's a pretty sort of diverse.

Healthy sales pipeline.

And with the newer initiatives with multi asset.

We are seeing good interest from the from the earlier early adopter clients.

From an good good feedback from the consultant community should also always good.

Good leading indicators.

So that's one.

We're encouraged to see all of that.

Does it answer your question John .

Yes. It does yes. Thank you.

Then a follow up on the direction of the fee rate over time, you're just thinking about what's in flowing now in the newer stuff you guys are rolling out just how those different fee rates.

Compared to one another in the direction overtime.

Yes no.

The fee rates do do vary.

A fair bit.

For some of the.

For some of the absolute return strategies that fee rates are higher.

<unk> for example in the structured credit side will initially focus on on high yield.

They are the fee rates are are higher.

So depends on.

Which items pick up first and how fast but there are also some simpler.

The strategies that we offer where the fee rates are lower than our current average fee which would be.

Simpler solutions, where clients are looking for.

To increase their exposure to value factor for example.

Or the growth factor.

Those are easier to do in <unk> and low fee.

So it's hard to peg we of course have no.

It's good to have.

Multiples multi.

Multiple irons in the fire.

And and we are encouraged about all of them.

So I would say it looks like there is a bias to the upside that fee rate will increase over time, because we do have a number of offerings that are.

Absolute return uncorrelated, which are higher fee.

But we also are getting good traction on some simpler lower fee.

Mandate.

Makes sense, thanks very much.

As a reminder, please press star one on your telephone keypad, if you'd like to ask a question.

It appears that we have no further questions and this will conclude our question and answer session I'd like to turn the conference call back over to Suren Rana.

Great. Thank you operator.

Thanks to everyone for joining us today I appreciate it.

[music].