Q4 2022 Brightsphere Investment Group Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to Bright sphere investment Group earnings Conference call and webcast for the fourth quarter 2020 to 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 the number one on your telephone keypad.

If you have if you need to reach out to an operator, Please press star followed by zero.

Note. This call is being recorded today Thursday February 2023 at 11, a M eastern time.

I would now like to turn the call over to Eli Sugarman.

Head of strategy and corporate development. Please go ahead.

Good morning, and welcome to <unk> conference call to discuss our results for the fourth quarter ended December 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.

Our 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, our 2021 Form 10-K, and our Form 10-Q for each of the first.

And third quarters of 'twenty 'twenty to 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.

May also reference certain non-GAAP financial measures information about any non-GAAP measures reflected including a reconciliation of those measures to GAAP measures.

And 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 Doran.

Thanks Ali.

Good morning, everyone.

Thank you for joining us today.

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

Our Q4 2002, we have reported our highest ever quarterly eni per share up 67%.

26, 4% higher.

<unk> 53.

We reported for Q4 of 2021.

Our sizable share buyback in Q4 of 'twenty one.

In Q1 of 'twenty two.

More than offset the drop in our earnings from the significant equity market decline in 2022, and the resulting impact on our AUR.

We are pleased that throughout the volatile market environment. Our investment performance has continued to be strong.

As of December 31, 2002.

88%, 87%, 87% and 90% of our strategy by revenue beat their benchmarks over the prior 135 and.

10 year periods, respectively.

We also reported second straight quarter of positive net client cash flows.

With $1 3 billion of net inflows.

As we saw robust sales across a few different strategies.

Our sales pipeline remains healthy with ongoing searches across a range of strategies.

Turning to capital management.

We had a cash balance.

$8 million as of December 31, 22.

After funding $15 million upbeat capital for Acadian equity alternatives platform.

And fully paying off Acadian ease in our credit facility.

Acadian generally draws on that facility in the first quarter for <unk>.

And they fully paid off over the course of the year.

As our business continues to generate strong free cash flow, we expect to continue deploying capital to support our organic growth.

Buying back shares whenever opportunities come up.

Turning to some highlights for Acadian on slide seven.

Acadian generated $50 9 million how much jeopardy.

Adjusted EBITDA in the fourth quarter of 'twenty two.

Compared to $87 6 million in the fourth quarter of 'twenty one.

The drop in EBITDA compared to <unk> 21.

It was mainly driven by the approximately 20% decline in AUM.

For the last 12 months due to equity market decline globally.

And lower performance fees than last year.

Turning to slide 11 for a minute.

A reminder, overview.

What Acadian capabilities.

The top two rows equity and managed volatility.

Historically been Acadian color capability.

Thats, where most of our AUM reside currently.

The bottom four rows represent the growth initiatives underway.

These are all large and growing market.

We're acadian systematic approach is particularly suited to serve that demand.

As a quick update on these initiatives.

We continue to build out our Acadian efforts and systematic credit.

With the current investment team now mostly in place.

And we continue to add to the investment model and data and technology infrastructure.

We expect to start investing in the strategy in the second half of 2003 with seed capital.

We kickstarted Acadian equity alternative platform in Q4.

15 million in seed capital and have now started to build our track record here.

We continue to make further progress on systematic macro with ongoing traction with clients and additional buyer rating from consultants.

And we continue to see more investment mandate focused on responsible investing.

All of these initiatives tap into a secular growth market and.

And over time, we expect them to how to generate sustained organic growth for Acadia.

To conclude with our long term strategy on slide 15.

We will continue to invest in our core capability.

And leverage our unique platform to expand into new areas.

We will continue using our free cash flow.

Organic growth and four share repurchases whenever opportunities are available and.

And we remain focused on maximizing shareholder value.

Now, let me turn the call back to the operator happy to answer questions at this point.

At this time those with your question.

Should lift their phone receiver press star followed by the number one on your telephone keypad.

To cancel a question press star one again.

Our first question comes from Glenn Schorr with Evercore.

Hi, Thanks very much.

So.

I'm very curious on some of the new build outs you talked about the team mostly being paid since systematic credit.

So one is that the case for equity alternatives as well and then at the highest level I'm curious of what you see the differences between systematic equity and systematic credit from from process standpoint, and why what Acadian just be getting around to it now it does seem like a big opportunity.

It's not as big in the marketplace. So curious if you could talk to those two things. Thanks.

Yes, hi.

Thanks.

Yes, you are right the team in on the call.

Our team at least in both of these.

Area that is mostly in place.

There are about.

Eight to 10 people in both strategy.

There'll be more people added as we as we go in.

In select areas.

And data et cetera, but the core team is mostly in place.

And what's happening now as we continue to add more infrastructure or more trading infrastructure more data infrastructure.

Particularly in credit.

QWERTY alternatives.

Little bit ahead, as I mentioned earlier.

You've already seen it.

And the feed capital is being invested and.

And we're building a track record here.

Credit Youre right. It is it is a big opportunity as large as equity.

And it is a market.

That is.

It is it is quant driven and so our unique.

Quant capabilities, what would have an advantage here.

What come along over the past few years clearly this market was.

<unk> market over the phone market.

As much electronic trading that's changed a lot.

So there is more and more electronic application of trading here and that is also in turn led to more data.

Being available.

So thats that made this market.

I would say more.

More and more for their taking now.

Florida Acadian.

And secondly, it's also.

Our data.

Has built up we can leverage a lot of that.

Core credit it is it has similar kind of analysis as you know.

And so we can leverage a lot of that data, but there was also.

We have been on the lookout for a good team for a while.

And that's critical.

<unk> bet.

People, who are who have the same systematic quant mindset.

But also have credit experience. So we were fortunate to really find.

As we announced.

Few quarters ago, and Scott Richardson really one of the pioneers in <unk> credit card.

We brought on more people with deep experience in the area.

Really just a lot of things coming together at the right time.

Which is which is a bit of a coupe.

Great I appreciate all that thanks.

Our next question comes from Kenneth Lee with RBC capital markets.

Hi, good morning, Thanks for taking my question.

It doesn't sound like you repurchased any shares in the quarter.

So wondering if you could just comment on any discussions you may have had around potential value enhancing transactions.

Hi, Ken.

Correct, we havent purchased.

Any.

Any shares in the quarter.

We of course don't specifically comment on any conversations.

But yes from time to time, we are.

In blackout windows.

As we mentioned during earnings blackout Windows, but also if you have any.

Any nonpublic material conversations.

Got you.

And one follow up.

If I may.

I Wonder if you could talk a little bit more about the.

Key drivers for the performance fees you saw in the quarter I think in the past you've mentioned that that some products were above their high watermarks than men.

Could have been.

A favorable setup just wondering if that was a factor as well.

Any other drivers there thanks.

Yes, yes, yes last year was.

Was definitely as you alluded to not bid.

<unk>.

Loaded base.

And.

So that was unusual.

Things were setup.

Correct Lee.

And this year also performance in many of the accounts was dividend.

We ended up at <unk> I think of it at a decent place.

The blood was slipping out last year, so that's clearly.

Very high end record hopefully we can get that.

Again at some point, but it is.

It is up there this.

This year, we had good performance.

And we got.

Performance fees from the from some of the accounts that were eligible.

But clearly the set of last year.

It was favorable.

Then this year.

We're happy with what we got this year.

Got you very helpful. There. Thanks.

Our final question comes from Michael Cyprus with Morgan Stanley .

Great. Thanks, good morning.

Hoping you might be able to elaborate a bit more on the sales pipeline, how does that look today versus a year ago and if you could maybe comment on some of the strategies youre seeing strengths as well as the customer channels as well, where you are seeing more strength than maybe even on from a geographic standpoint too. Thank you.

Yes, Thanks, Michael.

We are seeing.

Generally it's a very healthy pipeline in terms of comparing historically comparator.

Compared to historical levels.

It's at a healthy level, we're seeing searches across a range of strategies, including our flagship strategies like global equity emerging markets.

Even managed volatility, which we which we talked about maybe a year ago.

Out of favor.

Seeing searches there.

And in our newer strategies like the multi asset class.

Our country non U S as.

As well so it's a pretty good.

And abroad.

Bradley.

Broadly.

Diversified pipeline.

And we are seeing.

Maybe about a fourth of the strategy have some kind of sustainability angle.

To them as well, so we're seeing more and more ESG.

Type of searches as well.

So that's all encouraging.

C G.

Geographically you guys know.

Not much of a Florida as you know to note.

A lot of our <unk> currently is.

<unk> is within the U S.

Non U S clients represent.

Both area for us.

Our.

Im trying to do more of that but it is in line with our current search pipeline is in line with.

Historical levels.

Does that.

Cover your question.

Yes. Thank you. Thank you maybe just a follow up if I could just on expenses, hoping you could maybe elaborate a bit around your expectations for.

Expense growth next year, So you put out the guidance on the variable comp and the affiliate distributions in the operating expense guidance, but maybe you could just elaborate a bit on kind of what went into those ranges. How you thought about that and what sort of underpinning it around market performance expectations are you baking in a strong start to the year that has already been.

Playing out in equity markets or would that be sort of upside.

Yes, now guidance I guess.

We put this together relatively recently so it does factor rainy.

All that we know.

Currently.

And it reflects essentially where the market is today.

What are we are going to invest more in these new initiatives.

We touched on earlier.

On people as well as data and infrastructure and credit equity alternatives.

Multi asset class ESG all of these areas.

It reflects the investment in.

In addition to.

Our P&L there reflect some inflation.

As well.

So.

Filming of course, the ratios can change depending on.

If the markets were to change significantly.

But in the normal range, we should be we should end up with our within our guidance.

Great. Thank you.

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

Thank you operator.

Thank you everyone for joining us this morning.

Appreciate it thanks.

[music].

[music].

Thanks.