Q2 2023 BrightSphere Investment Group Inc Earnings Call

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 the one 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 August .

Third 2023 at 11, a M. Eastern time, I would now like to turn the meeting over to melody Wang SVP Director of Finance Investor Relations. Please go ahead.

Good morning, and welcome to <unk> conference call to discuss our results for the second quarter ended June 30th 2023.

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.

Additional information regarding this risk and uncertainties appears in our SEC filings.

Including the form 8-K filed today containing our earnings release.

Our 2020 to Form 10-K, and our Form 10-Q for the first quarter of 2023.

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 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, none.

Nothing herein shall be deemed to be an offer or solicitation to buy any investment products.

Sharon Rana, our President and Chief Executive Officer will lead the call.

And now I'm pleased to turn the call over to <unk>.

Thanks, Marty good.

Good morning, everyone.

Thank you for joining us today.

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

And then we can jump into Q&A.

So for Q2 'twenty three.

We reported Eni per share of <unk> 28.

Compared to <unk> 41.

In the second quarter of 2022.

And compared to 28.

In the first quarter of 'twenty three.

The drop in earnings compared to a year ago was primarily driven by higher opex.

Due to the impact of foreign currency changes inflation, and our ongoing investment in growth initiatives and operational infrastructure.

<unk> investment performance continues to be strong.

As of June 30, 'twenty three.

1%, 81% and 90% of strategies by revenue.

Beat their benchmarks over the prior three five and 10 year periods respectively.

We reported modestly positive net flows.

Zero point $1 billion of net inflows.

And it was our fourth straight quarter of positive net flows.

At the same time, our sales pipeline remains strong.

We continue to be on track to execute on our growth initiatives.

<unk> equity alternatives platform is off to a promising start the.

The investment track record is building well.

We see that the platform a couple of quarters ago.

On systematic credits the team continues to build out the model and infrastructure.

We expect to start investing seed capital and the strategy in Q4 of this year.

Turning to capital management, we had a cash balance of $141 million as of June 32003.

Acadian has continued to pay down revolving facility and ended the quarter with an outstanding balance of $38 million.

Compared to $87 million at the end of the last quarter.

Like in prior years, we expect the facility to be paid down by year end.

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

Whenever opportunities come up.

Our long term strategy remains the same.

We will continue to invest in our core capabilities and leverage our unique quant platform to grow and expand into new areas.

We will continue using our free cash flow to support organic growth and to buy back stock.

And we remain focused on maximizing shareholder value.

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

I'm happy to answer your questions at this point.

At this time, those whose question should lift their phone receiver and press star followed by the number one on the 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 comes from Morgan Cyprus from Morgan Stanley . Please go ahead. Your line is open.

Hey, good morning, Thanks for taking the question maybe just on kicking off on buybacks I don't think I saw it in the quarter. So just hoping you could update us on just your latest thoughts there.

We're thinking about opportunities there to repurchase shares is there just any sort of limitations in place right now around available windows. It may have prohibited you on the quarter and when do you think you might have a window begin to open up again as you look out.

Hi, Mike.

Yes, yes, yes, no buyback.

In the last quarter, either we do have cash on our balance sheet.

As Jim noted.

And the users ourselves so no change really in our approach but uses are to support our organic growth.

We've already laid out.

Our near term plans.

And the rest of it is really toward buyback when we have windows available.

We don't know yet when we when we might have thought we're probably looking out at least a couple of quarters before we can.

Look at any buybacks.

Great and then just maybe a follow up question on the institutional pipeline, maybe you could just update us elaborate a bit on how that looks today versus last quarter and maybe you can give us a little bit of flavor for the types of strategies that you're seeing in the pipeline as well. Thank you.

Yeah, Thanks, Scott Yeah the pipeline.

<unk> to be to be strong and healthy.

As we reported last quarter there were some.

Delays by you know a couple of weeks or three weeks.

As we approached summer.

But generally.

Things are moving through the pipeline July was.

July was good and then I guess last quarter as I said it was just modestly positive, but we had a good July so.

Really that momentum.

Continues.

And there's a there's a variety of strategies as you know the firm overall as a large number of strategy. So we're pretty diversified and.

And that reflects in the pipeline too.

It's across a.

A variety of strategies.

<unk> small cap international.

There is a launch interesting long short as well.

Enhanced versions of our various strategies.

So it's pretty well.

Pretty robust we got we got sales from global equity from.

Our country ex U S.

Hopefully that gives you a flavor.

Great. Thank you.

Our next question comes from John Dunn from Evercore ISI.

Please go ahead your line is open.

Hi, good morning, and thank you.

I had a question about the fee rate maybe in the back half of the year, just with kind of like emerging markets down so far in the quarter.

U S up a little bit what do you think like the trajectory of the fee rate.

Might look like.

Yes, our fee rate is affected a lot by the mix.

So it's a it's a.

It's hard to tell but.

But by Mexican My Best guess would be we continue to be at around the 38 bps.

In the near term, where we are.

The emerging markets has a higher fee rate and.

And as you know U S markets.

At least in the last couple of quarters.

And beat the emerging market indices.

But there are other factors still weren't getting some higher fee inflows and losing lower fee outflows. So so the result, we have 38 bps now compare to 37 bps a year ago.

I'd say at least probably stay post here longer term there are.

Things.

Particularly our initiatives for example, where we have higher fee strategies that would hopefully pull that fee rate higher.

But at least in the near term I would my best guess would be we stay around here.

Okay.

Got you and then just on G&A in the second half.

Thank you.

Generally the expense ratios probably go down from here, but in terms of dollars, where do you see fixed comp and G&A.

Going over the next two quarters.

Okay.

Yes, more or less at this level in the in the last few quarters.

I mentioned in my remarks, we have.

Invested in our operational infrastructure over the last couple of quarters. We also have invested in the new initiatives, we were added to.

The head count we've added too.

Uh huh.

The data et cetera.

We've done a fair bit and then we probably have.

Also built up some scale as we have done that.

And we've some of the Opex has increased because of inflation as I said earlier.

Terms of just the higher cost of data.

And in.

And comp increase for that.

Forward to help to help folks with inflation.

And there has been some temporary things as well.

Forex impact.

Last year, we had a benefit.

Out of the Forex impact this year, where it's going the other way.

Some of that shift.

So it should go away, but I would say that basically we are probably in terms of dollars or probably stay stay at this level more or less.

Great. Thank you very much.

Thanks, John .

Your next question comes from Kenneth Lee from RBC. Please go ahead. Your line is open.

Hi, Good morning, Thanks for taking my question just at a high level more broadly I Wonder if you could just talk about what youre seeing in terms of.

Sentiment or positioning.

And perhaps maybe some kind of indication what that potential implications for organic growth over the near term. Thanks.

Yes, Thanks, Ken.

As you know we are.

Basically primarily institutional business so are our clients.

And the consultants tend to have longer term views.

The sales cycles, often going in a nine to 12 months.

So it doesn't change that much quarter to quarter.

As I said earlier, we've seen.

Pipeline is good we are seeing.

Interest across a number of strategies.

So thats.

So that's really good but they also don't see.

<unk> much.

Much of any kind of extra dose from any particular strategies or in groups of strategies.

So that's good as well maybe one exception I would say is that in.

In terms of the outflows that we had.

A good part was still under managed vol.

Both strategies, maybe that's probably one area, where we saw some clients.

Take a position that they're in.

And they're trending better rewarding market, maybe they cut down some exposure to the managed vol.

Longer term of course, our clients believe that managed vol strategies.

<unk> for the for the risk.

Adjusted return.

It is better than.

And many others, but we believe that.

That's where I would say maybe.

Had some directional.

Decisions, but other than that.

Really our clients want to invest and.

They're taking the meetings and the pipeline is good.

So so we're cautiously optimistic.

Got you very helpful. There that's all I had thanks again.

Thank you Ken.

This.

<unk>, our question and answer session.

I'd like to turn the conference call back over to Suren Rana.

Thank you I'd like to thank everyone for taking the time and look forward to.

Starting next quarter.