Q3 2023 BrightSphere Investment Group Inc Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to the bright stay investment grade earnings conference call and webcast for the third quarter of 2023.

During the call all participants will be in a listen only mode. After the.

<unk> 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 cold if you need to reach an operator. Please press the star for adviser right.

Please note that this call is being recorded today Thursday November 2nd 2023 at 11 am Eastern time.

Now I'd like to turn the meeting over to Melody Wong Senior Vice President Director of Finance and Investor Relations. Please go ahead melody.

Good morning, and welcome to <unk> conference call to discuss our results for the third quarter and at September 30th two.

2023.

Before we get started please note that we may take 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 these risks and uncertainties appears in our SEC filings.

Within the form 8-K filed today containing the earnings release.

Our 2022 Form 10-K.

And our Form 10-Q for the first and second quarters of 2023.

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

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 the 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.

Suren Rana.

President and Chief Executive Officer will lead the call.

Now I'm pleased to turn the call over to start.

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

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

Then I can answer the question.

So for the third quarter of 2023.

We reported Eni per share of 45.

Compared with <unk> 30 in the third quarter of 2022 and.

28.

In the second quarter of 2023.

With 50% increase in Eni per share compared with a year ago quarter was primarily driven by a 24% increase in revenue.

Due to higher AUM from market appreciation and higher performance fees.

<unk> investment performance remains strong and got even stronger in the third quarter.

September 32023.

83%, 88% and 91% of strategies by revenue beat.

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

We reported half a billion dollars of net outflows this quarter.

As we have some lumpy reallocation from select clients out.

Out of our managed volatility strategies.

However, we continue to have a robust sales pipeline.

The implementation of our growth initiatives continues to be on truck.

Acadians equity alternatives platform is off to a good start and is showing nice investment outperformance so far.

Okay systematic chronic illness or Deb will we see that this month, starting with our high yield strategy and.

Then that FERC will also start to build investment track record.

Turning to capital management, we had a cash balance of 143 million as of September 32023.

<unk> has continued to pay down its revolving credit facility.

And ended the quarter with an outstanding balance of $13 million.

Compared to $38 million at the end of Q2 and 80.

$87 million at the end of the first quarter of the year.

As in prior years, we expect that facility to be fully paid down by year right.

Our long term strategy remains the same.

While continuing to invest in and leverage our unique quant capabilities to grow and expand into new areas.

We'll continue using our free cash flow to support organic growth and to buy back stock whatever opportunities are available.

And we will remain focused on maximizing shareholder value.

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

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

At this time those with questions should lift ethane receiver on press star followed by the number one on the telephone keypad. If it comes from a question. Please press Star and then case. Please hold for a brief moment, while we compile the Q&A roster.

Our first question comes from the line of Kenneth Lee with RBC Capital markets. Please go ahead kind of your line is open.

Hi, good morning, Thanks for taking my question.

Just wanted to performance fees.

Wonder if you could just provide a little bit more details behind that were there any specific strategies that drove the performance fees was bit surprise in terms of the timing any.

Any other factors that we should be aware of either in terms of performance of our high watermarks. Thanks again.

Hi, good morning, Ken.

Typically most of our performance fee comes in Q4, although a bit in Q1 and Q2 and Q3 are generally light now having said that we do have some performance eligible strategy that holds that have measuring period at the end of Q2 and at the end of Q3 and then sometimes when.

Those are the strategies that outperformed that would be performance fee, but you're right that that is not.

Typical certainly the magnitude and that just goes to.

The performance the investment performance has been great and we had a great.

Quarter, so for the strategies with the measuring period, ending this quarter that worked out really well.

But for the rest of the fee in Q4, two more months to go.

So we'll see how it ends.

But we.

We are.

We are encouraged with the performance so far.

Got you very helpful. There.

And then in terms of the net flows in the quarter.

You mentioned some reallocation within the managed vol strategies.

Just as you look ahead.

Would you expect any continued weakness in the net flows in the neutral just given the market environment or.

Hum.

As the reallocation of at this point.

Predominantly done thanks.

Yeah the flows.

It's the managed volatility strategies generally have a low beta low risk and oftentimes that it's been.

Beta rewarding market.

So.

That's been challenging.

No.

Markets do you have a higher beta.

How has that held up their own but in some cases clients wanted to take on either more risk or they wanted to move on to fixed income.

So we'll see how that goes.

We really hope for our clients to be long term focused about but sometimes clients makes reallocation decisions.

So we're seeing now but are there other than back in.

In other strategies, we don't see that kind of pressure.

And as the sales pipeline is as I see as I said earlier is robust.

So let's say that's those ultimately the combination of.

The sales and what we made.

See on the outflows there always can be surprises sometimes.

So we're cautiously optimistic that we can stay flat to about.

Got you and just one more final follow.

A follow up question, if I could just squeeze it in just wanted to clarify it sounds like you just want to clarify that the the.

The share repurchase window it is still closed.

Thanks.

Yes, the status remains the same.

We still haven't had an open window.

So let's say.

Got you very helpful. There. Thanks again.

Thank you Ken.

Our next question comes from the line of Michael <unk> with Morgan Stanley. Michael. Please go ahead. Your line is open.

Yeah.

Great. Thank you and good morning, maybe just continuing on the buyback question. So it sounds like you did not have an open window in the quarter just wanted to confirm and I guess when do you expect you might have an open window. As you look out is that something that might happen next year any help on sort of framing the timing around that and if and when you do have.

Open the window, how should we think about the pace and magnitude of potential buybacks at that point just in terms of tender offer which would enable you to put more.

Cash to work in terms of buybacks more quickly.

Yeah, Hi, Mike.

Yes, that's right, we still Havent had an open window.

We don't.

No for sure when we might have one.

It's certainly possible.

And in the next in the next year that would mean that we may have one.

We can say that for sure.

But in terms of magnitude.

We're approaching close to $100 million in terms of what you might have available for buybacks, we got $143 million of cash.

So we'll use some of that foreseen.

And maybe call it $25 million or so.

For our cash balance.

Are they getting close to a $100 million.

No.

Which we would have flexibility could be a tender or.

It could be open market, but FSC.

Best execution at the time when we are.

Approaching that decision.

Okay. Thanks, and then just a follow up question with investment performance quite strong and improving as you mentioned earlier, maybe you could help us size up the opportunity for potential performance fees in the fourth quarter, which is typically seasonally strong for you and what's the scope for fourth quarter performance fees this year to be.

Even better than what we saw in a year ago fourth quarter.

Yes, there are still a couple of months ago. So it's always hard to say whether the performance the.

Because there are a variety of different strategies and different clients.

And so the measuring period.

That is coming up.

<unk> of those are for the full year of 2023, so it's hard to say we've.

We've had a couple of strong years of performance in 2021 would definitely be high we had $67 million for the full year.

22, we had four.

<unk> 9 million for the full year, so it's hard to say, but I would say.

Regarding the <unk> number.

I would be happy.

But it's hard to peg anything at this point.

Okay, and then just given the if I can squeeze another one in here given the commentary on the healthy pipeline, maybe you could just help unpack.

Any way of sort of sizing it isn't any bigger today than last quarter in may.

Maybe you can provide a little bit more color on kind of what's in there and any scope to kind of get back to positive inflows as you look out over the next quarter or so.

Yeah, the pipeline has been healthy.

It started at the same level as we've had for some quarters, which has been out there.

Historically healthy it's been moving a bit slower than we hoped for.

So hopefully that changes at some point, but.

It's robust.

As much speed as we want it.

But that that site is pretty good.

And then the flipside is if they've managed volatility is one strategy works.

What we're hoping.

Stay flat, but not that there could always be a reallocation decisions that could happen there. So.

So it depends on essentially the balance of the two.

We would hope to generally be.

Be flatter or positive.

Great. Thank you.

Thanks, Mike.

Yeah.

Our next question comes from John Dunn with Evercore ISI. Please go ahead, John Your line is open.

Okay.

Hmm.

Maybe you could talk about how you think about that.

Slow ramp for the equity all strategy.

In 'twenty four and then maybe any other strategies you think are set up well.

And one highlight for next year.

Yes.

<unk> got a core strategy that are generally.

Physician well most of them have had good investment performance.

That's why you see the long term results are early go to across the board.

And then the new strategy.

There are basically two equity alternatives and then systematic credit will actually be seated.

This month's they'll start to build a track record.

Equity all.

Already has.

You can start to build a track record with the seed capital.

And some.

Client feedback as well.

So so we're we're starting to talk to clients about that.

And the reception has been good so we would hope to get assets and in the coming years.

And that strategy.

Equity on strategy on a systematic credit strategy.

We'll probably spend the next few quarters.

To build a track record in sometimes some some clients come in early.

They have enough conversion, sometimes it could take.

Some time, but hopefully we can.

In the back half of 'twenty, four but can they can at least start to get some.

Similarly client wins.

Gotcha, and then answer your questions maybe just any.

Yes, it did.

Uh huh.

Any like for a fourth quarter seasonality, we should be thinking about either enclose or expenses or anything else.

Yes, there is some seasonality in the fourth quarter of course, there are performance fee is one which you out which we're all.

Well aware off.

There are some.

Seasonal adjustments and the on the Opex.

And do as well.

On the fourth quarter.

Yeah.

But you may see but nothing is business.

<unk> with.

Prior years.

Thank you.

Okay.

Okay. Thanks, Sean.

Yeah.

Our next question is a follow up from Mike who sit precedent Morgan Stanley Michael. Please go ahead.

Thanks for taking the follow up I just wanted to ask on the expense side over the past couple of years, you've made some investments launching some new products that you spoke about earlier here now that these strategies have been developed you've launched them how youre thinking about the pace of expense growth from here are we past the major investment spend or do you.

<unk> launching some meaningful new strategies that will require some investment spend from here.

And these two away, but we're mostly built out.

And that.

There may be some.

You know there are some selective additions here or there.

Mostly built out so I would say there is no material.

Additionally to expenses.

For these initiatives similarly on infrastructure, where we're about well built out we have spent.

A fair bit over the last few years on.

On adding to our infrastructure to make it more scalable.

So I think we're good there.

And nothing we're not taking on anything new that's that would be big place not not that we have any visibility on we're always open to.

Figuring out new areas that we can.

Leverage our capabilities and but nothing nothing imminent.

Okay and just final question for me just.

From the balance sheet standpoint, you have some maturities coming up in 'twenty six debt maturity I think it's like $274 million of senior notes.

These off in 'twenty six but just curious at this point, how you're thinking about that just in terms of would you look to pay that down entirely and building cash to facilitate there or would you look to refinance that and how much you know.

In advance.

Just curious how youre thinking about that.

Oh, yes.

<unk> has a prepayment penalty so we'll just.

We're trying to just let it be alone for for some time and.

And when an approach many waiting closer to about maybe a year.

We may we may refinance it and what we think.

We can.

Much Leverages is.

It's about it's about right. It's about it's prudent so we may we.

We may even just refinance at that same level.

<unk> as you know is more of a temporary thing.

No need to draw on.

The first quarter and then just paid down.

So we see that as separate.

So with the both the facilities combined out that that gives us adequate.

And a question for our needs.

But now we could probably bring it down a little bit in terms of size.

And we have that flexibility, but I think it's safe to assume that we would just keep those two.

Great. Thank you Sara.

Thanks, Mike.

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

Thank you operator.

Thanks, everyone for joining us today.

We appreciate your taking the time.

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