Q3 2023 Westwood Holdings Group Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the <unk> 2023, Westwood Holdings Group, Inc Earnings Conference call.
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Today's conference is being recorded and would now like to hand, the conference over to your speak today.
Jill Meyer.
Please go ahead.
Thank you and welcome to our third quarter 2023 earnings conference call. The following discussion will include forward looking statements that are subject to known and unknown risks uncertainties and other factors, which may cause actual results to be materially different from those contemplated by the forward looking statements.
Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today as well as in our Form 10-Q for the quarter ended September 32023 that will be filed with the securities and Exchange Commission, we undertake no obligation to publicly update or revise any forward looking.
Whether as a result of new information future events or otherwise you are cautioned not to place undue reliance on forward looking statements.
In addition in accordance with SEC rules concerning non-GAAP financial measures. The reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today.
On the call today, we have Brian Casey, our Chief Executive Officer.
Terry Forbes, our Chief Financial Officer, I will now turn the call over to Brian Casey.
Good afternoon, and thank you for listening to our quarterly earnings call. We are planning to share with you this quarter.
Today I'm going to tell you about our ongoing efforts to create positive investment outcomes for clients.
The successful transitions, we've made in our smid cap, all cap and broad Mark tactical plus and tactical growth strategies, and our initiatives to diversify and grow our offerings and revenue streams.
As you know at Westwood, we focus on helping our clients achieve their objectives by using our disciplined investment processes to generate portfolio alpha without taking excessive risk.
This approach has delivered excellent compound rates of return for our clients throughout our 40 plus years of history.
While the overall economic backdrop for asset managers has certainly been challenging. These past few years, we feel really good about the significant progress we've made so far and the terrific opportunities that lie ahead.
Click first the capital market conditions.
The fed's rate adjustments have created difficulties for equities and fixed income alike taken together with the fed chairman <unk> comments, the fed action strained bond prices as rising interest rates pushed yields up and prices lower.
The equity market experienced a sharp rise in volatility and price pressures at sentiment shifted lower.
Selling waves did not differentiate between styles or market capitalizations.
Driven largely by fears of an interest rate trajectory that might be higher for longer.
Against this backdrop of market volatility across a broad spectrum of securities and sectors.
80% of our U S value strategies outperformed their benchmarks in the third quarter and remain ahead over the trailing one year period.
Over the trailing five year period, all our U S value strategies with track records extending into this length are ahead of their benchmarks.
Our U S value investment team is highly experienced with remarkably long tenures, averaging 11 years at Westwood and double that amount of time and overall investment experience.
Our research driven culture, along with a team based portfolio management approach and history of promoting from within underpinned our investment process.
These are the elements that have allowed us to smoothly transition portfolio management of our smid cap.
And all cap strategies.
Long tenured portfolio manager recently left Westwood.
We seamlessly adjusted by bringing in two other long tenured team members each of them with more than 25 years of investment experience Smith.
Smid cap and all cap have strong long term track records ahead of their respective benchmarks over trailing 157, and 10 years and since inception.
Within our multi asset team the group's scale and asset allocation was clearly on display in their overall performance results.
Of our three strategies outperformed for the quarter and all three are outperforming for the trailing three year period.
As of September 30, all three ranked in the top 40% of their Morningstar peer categories for trailing three years.
Top 26% for trailing five years and top 21% for the trailing seven years.
Our absolute return strategies, all performed well in an environment, where the S&P 500 dropped more than 3%.
They performed as expected highlighting an ability to protect investor capital in times of uncertainty.
These strategies posted positive results, while the third slipped just 38 basis points for the quarter, placing them at strong relative positions against their peer universes.
The fed's higher for longer stance could well prompt U S corporations to continue moving towards the convertibles asset class when raising capital.
A dynamic shift like this would benefit our alternative income strategy.
Creasing the supply from traditional convertible issues and also expanding issuance from new sectors and industries.
All of this could create opportunities for investment teams with the kind of long standing relationships and deep expertise that we have at Westwood.
Tactical growth in tactical plus funds are designed to help investors sidestep market downturns.
As you know equity valuations remain above historical averages and we remain vigilant as the road ahead could be bumpy.
If global economy, Zentaris synchronized recession end markets correct.
We expect these strategies to shine as investors look to protect capital.
I'd like to take a moment to talk about Chris Guptill, who passed away suddenly this summer.
Crestwood founder co Chief investment Officer, and co Chief Executive Officer of broad Mark asset management. The majority owned subsidiary we acquired in last year's salient transaction.
As plan Christmas long term colleagues and partners Ric Demicco and Rick Cortez have taken over the roles they shared with him as CIO and CEO respectively.
The tactical growth in tactical plus strategies led by Chris for the last 18 years are now being managed by Rick Demicco, Rick Cortez and dire Kennedy.
All three are committed to their time tested disciplined investment process based on the four pillars of valuation monetary policy investor sentiment and volume and breath base momentum.
Chris was well respected and will long be remembered for his friendship.
Leadership in.
<unk> acumen and discipline work ethic.
Our Westwood salient strategies outperformed their benchmarks this quarter.
Real estate and select income funds performed especially well and have topped 30% Morningstar peer rankings year to date top 15% over the trailing one year and top 10% over the trailing three years.
Our energy infrastructure strategy has benefited us crude oil rebounded by over 30% and they ranked among a small group of asset classes that posted positive absolute returns for the quarter.
Asset outflows continue in the MLP space as investors take profits following a period of strong performance, but we believe MLP fundamentals sure performance potential remain attractive.
These westwood's strategies are specifically designed to provide investors with alternative sources of income along with inflation protection via exposure to real assets low correlation to traditional asset classes and market volatility mitigation.
And that is exactly what <unk> been doing.
Our wealth Division performance was mixed with half of our strategies outperforming their benchmarks, even as they provided exposure to large cap blue chip equities consistent with the investment objectives of our high net worth client base or.
Our wealth Division has made great strides in supporting clients, while bringing on new clients and improving efficiency.
Made a lot of progress in building out an <unk> platform to efficiently serve a wider range of client needs.
We're especially pleased that our holistic wealth management services, and our nimbleness and reacting to client needs is resonating with the younger entrepreneurial clients. For example in the last five relationships we've on boarded with over $10 million have all been clients in their thirties and <unk> as a result of these efforts Westwood Trust.
Economic earnings increased 8% year over year.
As mentioned previously Vista Bank has now completed its acquisition of <unk> holdings, and our ownership stake in <unk> means that we are now a shareholder investor Bank.
This is known as an entrepreneur as bank, serving north central and West, Texas through 14 banking locations.
Our partnership with Vista brings us a range of services to deepen our client relationships, including access to a robust private banking practice for vista's Ultra high net worth clients.
Shifting now to distribution, our institutional channel experienced net outflows of $133 million, primarily due to redemptions in our U S value strategies, including a few partial redemptions and a loss of two clients one to a passive ETF strategy and one to a broader change in asset allocation strategy.
Outflows were partially offset by U S value inflows, primarily for small cap or.
Our overall client base remains stable.
And following the recent transition our distribution and portfolio management teams worked hard and successfully to retain key consultant approvals for smid cap and as a result, we had no smid cap client losses. In fact, we remain under consideration for several DC plan allocations in both smid cap and small cap.
Overall, institutional outflows improved but an industry wide lack of inflows to these categories have negatively affected net flows.
The overall market environment continues to be challenging for gathering new flows given recession fears along with an attractive 5% risk free rate of return in cash products.
As investors begin preparing to deploy capital differently, our pipeline has grown this quarter, reflecting increased search activity.
Some context around this growth in the pipeline. It literally grew 10 times in three months.
We have two large searches in the $200 million to $400 million size range now and we're particularly excited about those.
Capitalize on this trend we've added a seasoned sales professionals Pete Mccarthy to the institutional team.
That he sees him because he previously worked here at Westwood and he is coming back to resume as coverage of the northeast.
Our institutional team is also working hard to expand our presence and brand awareness in the <unk> outsourced Chief investment officer, and multifamily office spaces.
Intermediary flows continue to feel the impact of a buyers' strike due to economic uncertainty and higher cash yields offering attractive safe Haven for risk averse investors.
Westwood has been outperforming peers as measured by redemption as a percentage of assets under management in the key categories, where our strategies compete.
Spite these headwinds our team continues to work hard and wholesaler activity remains robust financial advisers may not be allocating many client funds of the noncash strategies, but theyre exploring investment opportunities for an environment in which cash is no longer the most attractive option.
Overall, our intermediary channel experienced net outflows of $159 million for the quarter, driven primarily by tactical growth in MLP redemptions.
Outflows were partially offset by demand for our small cap select income and alternative income strategies.
Recap this market environment has caused many investors to take a pause and industry activity has slowed overall market fluctuations may impact revenues or AUM temporarily our focus remains on executing our investment disciplines and delivering strong client service.
This is a great time to deepen existing relationships and forge new relationships with added offerings.
As part of our efforts to diversify our product range and revenue sources, we've begun to build out our private market capabilities and are exploring the actively managed ETF space.
We expect that our initial product focus in these areas will leverage the deep experience of our energy infrastructure team.
In private markets, we've launched a new strategy called the Westwood Energy Secondaries Fund.
This product blends our in depth bottom up investment process.
With our ability to source investments our reputation as a leading institutional investor and public energy markets and our strong relationships with leading sponsors that allow us unique access to energy related private investments.
It's an exciting time to invest in oil and gas because institutional investors are selling fossil fuel related investments for ESG and other non fundamental reasons, which creates a supply demand imbalance and provides opportunities for secondary investors.
And two the outlook for commodity prices as bullish due to our global under investment in recent years and finally valuations are historically low while companies see elevated levels of profitability, which opens an opportunity to buy mature assets at large discounts in the secondary market.
I'm also excited to share a significant development with the potential to transform our business earlier today, we unveiled our latest edition the cutting edge managed investment solutions team man.
Managed investment solutions Chicago based team boasts an average of 25 years of institutional experience.
With proven track records, and providing customized index solutions for institutional clients, including public plans sovereign wealth funds corporate pension plans defined contribution plans endowments foundations and consultant groups.
Managed investment solutions Consultative and customized approach has gained the trust of clients and the team has developed several asset management capabilities.
Our managed investment solutions business is an important addition to our product suite, allowing clients to access different market and thematic exposures.
Our new capability is adaptable transparent and tailored to address the shifting needs of a multifaceted client base.
Managed investment solutions teams approach is a commitment to understand client needs and depth.
Assess current exposures and overarching objectives to ensure that desired outcomes aligned with the prospects portfolio as a whole.
By identifying tradeoffs between various methodologies investment solutions fine tunes answers to fit the customer's unique goals and objectives. We're energized by the opportunities. This new development brings to Westwood. We continue diversify our product offerings. We are working hard to broaden our client base and we continue to enhance our revenue streams.
Operator: Good day and thank you for standing by.
We believe that current market conditions are right for the successful introduction of managed investment solutions and our new team members are ready to go officially joining Westwood next week.
Operator: Welcome to the 3Q 2023 Westwood Holdings Group Inc, earnings conference call. At this time, all participants are in a listen-only mode.
It represents another important entry for Westwood into a substantial market segment that is signaling strong demand for our solutions business and it fits nicely within our existing investment capabilities.
Operator: After the speaker's presentation, there will be a question and answer session. To ask the question during that session, you'll need to press star 11 on your phone. You will then hear an automated message advising your hand is raised. To destroy your question, please press star 11 again.
As you know our primary focus has long been to deliver superior risk adjusted returns excellent client service and an expanded array of investment opportunities and solutions we.
Operator: Please be invited today's conference is being recorded.
Jill Meyer: And we'll now like to hand the conference over to you or speak today is Jill Meyer. Please go ahead. Thank you and welcome to our 3Q 2023 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks and certainties and other factors which may cause actual results to be materially different from those contemplated by the forward-looking statements. A digital information concerning the factors that could cause such a difference is included in our press release issued earlier today, as well as in our form 10Q for the quarter-end is September 30, 2023, that will be filed with the Securities and Exchange Commission.
Continue to invest in strategic initiatives to improve our business and underpin westwood's returned to a long term growth trajectory and we're looking forward to keeping you updated on our progress.
Jill Meyer: We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with FEC rules concerning non-gap financial measures, the reconciliation of our economic earnings and economic earnings per share to the most comparable gap measures is included at the end of our press release issued earlier today.
Thanks again for your time today and for your interest in Westwood I will now turn the call over to Terry Forbes our CFO.
Thanks, Brian and good afternoon, everyone. Today, we reported total revenues of $21 9 million for the third quarter of 2023 compared to $21 9 million in the second quarter and $15 4 million in the prior year's third quarter revenues were comparable to the second quarter revenues were higher than last years third quarter, reflecting higher.
Our average AUM following the acquisition of salient partners asset management business during the fourth quarter of last year.
Our third quarter comprehensive income of $3 4 million or <unk> 41 per share compared favorably with $2 9 million or <unk> 36 per share in the second quarter.
The receipt of life insurance proceeds offset by changes in the fair value of contingent consideration.
non-GAAP economic earnings were $6 3 million or <unk> 77 per share in the current quarter versus $5 7 million or <unk> 70 per share in the second quarter.
Brian Casey: On the call today, we have Brian Casey, our Chief Executive Officer, and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey. Afternoon, and thank you for listening to our quarterly earnings call. We have plenty to share with you this quarter. Today I'm going to tell you about our ongoing efforts to create positive investment outcomes for clients. The successful transitions we've made in our smid cap, all cap and broadmarked tactical plus and tactical growth strategies, and our initiatives to diversify and grow our offerings and revenue streams.
Our third quarter comprehensive income of $3 4 million or <unk> 41 per share compared favorably with last year's third quarter loss of $1 2 million or <unk> 15 per share primarily due to higher revenues and insurance proceeds.
Offset by changes in the fair value of contingent consideration and higher employee compensation and benefits expenses.
Brian Casey: As you know at Westwood, we focus on helping our clients achieve their objectives by using our disciplined investment processes to generate portfolio alpha without taking excessive risk. This approach has delivered excellent compound rates of return for our clients throughout our 40 plus years of history. While the overall economic backdrop for asset managers has certainly been challenging these past few years, we feel really good about the significant progress we've made so far. And the terrific opportunities that lie ahead.
Revenues and expenses were higher following the acquisition of sailing partners asset management business in 2020 to economic earnings for the quarter were $6 3 million or <unk> 77 per share compared with $8 million or <unk> 10 per share in the third quarter of 2022.
Firm wide assets under management, and advisement totaled $15 5 billion at quarter end, consisting of assets under management of $14 4 billion and assets under advisement of $1 1 billion.
Assets under management consisted of institutional assets of $6 7, Billion% to 47% of the total wealth management assets of $3 8 billion or 26% of the total and mutual fund assets of $3 9 billion or 27% of itself.
Brian Casey: Look first at capital market conditions. The Fed's rate adjustments have created difficulties for equities and fixed income alike. Take it together with the Fed Chairman Powell's comments, the Fed actions strain bond prices as rising interest rates pushed yields up and prices lower. The equity market experienced a sharp rise in volatility and price pressures as sentiment shifted lower. Selling waves did not differentiate between styles or market capitalization. We're driven largely by fears of an interest rate trajectory that might be higher for longer.
Over the quarter, our assets under management experienced market depreciation of <unk> 3 billion and net outflows of $289 million and our assets under advisement experienced market appreciation of $2 million and net outflows of $63 million.
Our financial position continues to be very solid with cash and short term investments at quarter end totaling $48 $5 million and a debt free balance sheet.
I'm happy to announce that our board of directors approved a regular cash dividend of <unk> 15 per common share payable on January three 2024 to stockholders of record on December one 2023.
Brian Casey: Against this backdrop of market volatility across a broad spectrum of securities and sectors, 80% of our U.S, value strategies outperform their benchmarks in the third quarter and remain ahead over the trailing one-year period. Over the trailing five-year period, all our U.S, value strategies with track records extending into this length are ahead of their benchmarks. Our U.S, value investment team is highly experienced with remarkably long tenures averaging 11 years at Westwood and doubled that amount of time in overall investment experience.
That brings our prepared comments to a close we encourage you to review our investor presentation, we have posted on our website, reflecting quarterly highlights as well as a discussion of our business product development and longer term trends in revenues and earnings.
Thank you for your interest in our company and we will open the line to questions.
Thank you.
As a reminder to ask a question. Please press star one one on your phones.
<unk> to be announced.
Your question. Please press star one again standby as we compile the Q&A roster.
Brian Casey: Our research-driven culture along with a team-based portfolio management approach and history of promoting from within underpin our investment process. These are the elements that have allowed us to smoothly transition portfolio management of our SMIDCAP and all-CAP strategies. A long tenured portfolio manager recently left Westwood, but we seamlessly adjusted by bringing in two other long tenured team members, each of them with more than 25 years of investment experience. SMIDCAP and all-CAP have strong long-term track records ahead of their respective benchmarks over trailing one-five-seven and ten years and since inception.
Okay.
Again to ask a question. Please press star one on your phone.
One moment please for our first question.
Our first question will come from Mac Sykes of Gamco. Your line is open.
Oh, good afternoon, Brian and Terry.
Good afternoon, Matt.
I have two questions I'll, just ask them together because they are obviously linked.
Brian Casey: Within our multi-asset team, the group's skill and asset allocation was clearly on display in their overall performance results. Two of our three strategies outperform for the quarter and all three are outperforming for the trailing three-year period. As of September 30th, all three ranked in the top 40% of their Morningstar peer categories for trailing three years and the top 26% for trailing five years and top 21% for the trailing's seven years. Our absolute return strategies all performed well in an environment where the SMP 500 dropped more than 3%.
First is how should we think about the revenue cost dynamics with this new group. That's just been brought in and then on the revenue side, how should we think about.
The revenue generation from that is I assume that's kind of our consultant base.
Basis points fee on AUM.
Yes, so I would look at it like we're hiring three people that at market rates and we are opening a very small office in Chicago. So the cost of the office there'll be minimal.
And I would look at it as these are these are three investment professionals that have 25 years plus experience they've done a lot of things in there.
Brian Casey: They performed as expected, highlighting an ability to protect investor capital in times of uncertainty. Two strategies posted positive results while the third slipped just 38 basis points for the quarter, placing them in strong relative positions against their peer universes. The Fed's higher-for-longer stance could well prompt US corporations to continue moving towards the convertibles asset class when raising capital. A dynamic shift like this would benefit our alternative income strategy by increasing the supply from traditional convertible issues and also expanding issuance from new sectors and industries.
But what they did in their prior life as they built.
And index solutions business at their prior firm or employer, where they grew the business from zero to over 100 billion in AUM.
The average fee on.
The assets that they manage was very wide ranging anywhere from three basis points to 55 basis points.
And they do a lot of interesting things like tax managed and.
Sector focused thematic all kinds of different approaches.
So it's an exciting new business line for us.
Brian Casey: All of this could create opportunities for investment teams with the kind of long-standing relationships and deep expertise that we have at Westwood. Our tactical growth and tactical plus funds are designed to help investors find step-market downturns. As you know, equity valuations remain above historical averages, and we remain vigilant as the road ahead could be bumpy. If global economies enter a synchronized recession and markets correct, we expect these strategies to shine as investors look to protect capital.
It's certainly not a change to our business, it's a new business line and we've been known as active managers for 40 years, and we intend to continue delivering superior risk adjusted returns in the active space.
We also have a history of solving problems for clients. In this group has a great history of creative problem solving for their clients.
And so we're excited for them to join Westwood They start next Monday.
<unk>.
We will hit the ground running.
Brian Casey: I'd like to take a moment to talk about Chris Guptill, who passed away suddenly this summer. Chris was founder, co-chief investment officer, and co-chief executive officer of Broadmark asset management. The majority owned subsidiary we acquired in last year's Staliant Transaction. As planned, Chris's long-term colleagues and partners, Rick D'Amico and Rick Cortez have taken over the roles they shared with him as CIO and CEO respectively. The tactical growth and tactical plus strategies led by Chris for the last 18 years are now being managed by Rick D'Amico, Rick Cortez, and Dyer Kennedy.
Great and then.
Typically to Mandy.
Mandate like this alright.
Brian Casey: All three are committed to their time-tested discipline investment process based on the four pillars of valuation, monetary policy, investor sentiment, and volume, and breath-based momentum. Chris was well respected and will long be remembered for his friendship, leadership, investment acumen, and discipline work ethic. Our Westwood salient strategies outperform their benchmarks as quarter, global real estate and selecting come funds performed especially well, and have top 30% morning star peer rankings year to date, top 15% over the trailing one year, and top 10% over the trailing three years.
Mandates what is the sort of the lead time for securing them in terms of when they start to prospect and get that solution and then implemented.
I think probably the first 90 days, we will be getting.
Although the operational aspects of the business up and running and then.
There'll be reaching out and talking to the folks in the industry that they know well.
And if they have the same kind of success that they had at their prior shop, we should start to see.
Some some flows at the end of next year.
Great. Thank you very much happy Halloween.
<unk>. Thanks.
Thank you.
Again.
Ask a question. Please press star one on your phone and wait for your name to be announced to withdraw your question. Please press star one again.
<unk> Z compile the Q&A roster.
And again to ask a question. Please press star one on your phone.
And speakers no.
Further questions in the queue I would now like to turn the conference back to our CEO, Brian Casey for closing remarks.
Brian Casey: Our energy infrastructure strategies benefited as crude oil rebounded by over 30%, and they ranked among a small group of asset classes that posted positive absolute returns for the quarter. Asset outflows continue in the MLP space as investors take profits following a period of strong performance, but we believe MLP fundamentals to performance potential remain attractive. These Westwood strategies are specifically designed to provide investors with alternative sources of income along with inflation protection via exposure to real assets, low correlations to traditional asset classes, and market volatility mitigation, and that is exactly what they've been doing.
Great well, thanks, everybody for taking some time to listen to our call today. If you ever have any further questions. Please look at our website Westwood group dot com or call myself or Terry Forbes.
Have a great day thanks.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
Okay.
[music].
Brian Casey: Our wealth division performance was mixed with half of our strategies outperforming their benchmarks even as they provided exposure to large gap, blue chip equities consistent with the investment objectives of our high net worth client base. Our wealth division has made great strides in supporting clients while bringing on new clients and improving efficiency. We've made a lot of progress in building out an RIA platform to efficiently serve a wider range of client needs.
Okay.
[music].
Okay.
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Okay.
Okay.
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Brian Casey: We're especially pleased that our holistic wealth management services and our nimbleness in reacting to client needs is resonating with younger entrepreneurial clients. For example, the last five relationships we've onboarded with over $10 million have all been clients in their 30s and 40s. As a result of these efforts, Westwood trust economic earnings increased 8% year over year. As mentioned previously, Vista Bank has now completed its acquisition of CARES holdings, and our ownership staking CARES means that we are now a shareholder in Vista Bank.
Yeah.
[music].
Okay.
[music].
Brian Casey: Vista is known as an entrepreneur's bank, serving North Central and West Texas through 14 banking locations. Our partnership with Vista brings us a range of services to deepen our client relationships, including access to robust private banking practice, for Vista's ultra high net worth clients.
Yeah.
[music].
Brian Casey: Difting out a distribution, our institutional channel experience net outflows of $133 million primarily due to redemptions in our US value strategies, including a few partial redemptions and a loss of two clients, one to a passive ETF strategy, and one to a broader change in asset allocation strategy. Outflows were partially offset by U.S, value inflows primarily for small cap. Our overall client base remains stable. Following the recent transition, our distribution and portfolio management teams worked hard and successfully to retain key consultant approvals for SMIDCAP.
Yes.
Okay.
[music].
Okay.
Okay.
[music].
Okay.
[music].
Good.
Okay.
[music].
Brian Casey: And as a result, we had no SMIDCAP client losses. In fact, we remain under consideration for several DC plan allocations in both SMIDCAP and SMIDCAP. Overall, institutional outflows improved, but an industry wide lack of inflows to these categories have negatively affected net flows. The overall market environment continues to be challenging for gathering new flows given recession fears, along with an attractive 5% risk-free rate of return in cash products. As investors begin preparing to deploy capital differently, our pipeline has grown this quarter, reflecting increased search activity.
Brian Casey: To put some context around this growth in the pipeline, it literally grew ten times in three months. We have two large searches in the 200 to $400 million dollar size range now, and we're particularly excited about those.
Brian Casey: Capitalized on this trend, we've added a season sales professional Pete McCarty to the institutional team. We know that he sees him because he previously worked here at Westwood, and he's coming back to resume his coverage of the Northeast. Our institutional team is also working hard to expand our presence and brand awareness in the OCIO, outsourced chief investment officer, and multifamily office spaces.
Brian Casey: Her mediary flows continue to feel the impact of a risk-averse investors. Westwood has been outperforming peers as measured by redemption as a percentage of assets under management in the key categories where our strategies compete. Despite these headwinds, our team continues to work hard, and wholesaler activity remains robust. Financial advisors may not be allocating many client funds in the non-cash strategies, but their exploring investment opportunities for an environment in which cash is no longer the most attractive option. Overall, our intermediary channel experience net outflows of 159 million for the quarter, driven primarily by taxable growth and MLP redemptions. Outflows were partially offset by demand for our small cap, selected income, and alternative income strategies.
Brian Casey: Recap this market environment has caused many investors to take a pause, and industry activity has slowed overall. Market fluctuations may impact revenues or AUM temporarily. Our focus remains on executing our investment disciplines and delivering strong client service. We think this is a great time to deepen existing relationships and forge new relationships with added offerings. As part of our efforts to diversify our product range and revenue sources, we begin to build out our private market capabilities and are exploring the actively managed ETF space.
Brian Casey: We expect that our initial product focus in these areas will leverage the deep experience of our energy infrastructure team. In private markets, we've launched a new strategy called the Westwood Energy Secondaries Fund. This product blends our in-depth, bottom-up investment process with our ability to source investments. Our reputation as a leading institutional investor in public energy markets and our strong relationships with leading sponsors that allow us unique access to energy-related private investments.
Brian Casey: We believe it's an exciting time to invest in oil and gas because institutional investors are selling fossil fuel-related investments for ESG and other non-fundamental reasons which creates a supply-demand imbalance and provides opportunities for secondary investors. And two, the outlook for commodity prices is bullish due to a global under-investment in recent years, and finally, valuations are historically low while companies see elevated levels of profitability, which opens an opportunity to buy mature assets at large discounts in the secondary market.
Brian Casey: I'm also excited to share a significant development with the potential to transform our business. Earlier today, we unveiled our latest edition, the Cutting Edge Managed Investment Solutions team. Managed Investment Solutions Chicago-based team boasts an average of 25 years of institutional experience. They've proven track records and providing customized index solutions for institutional clients, including public plans, sovereign wealth funds, corporate pension plans, defined contribution plans, endowments, foundations, and consultant groups. Managed Investment Solutions consultative and customized approach has gained the trust of clients and the team has developed several asset management capabilities.
Brian Casey: Our managed investment solutions business is an important addition to our product suite, allowing clients to access different market and thematic exposures. Our new capability is adaptable, transparent, and tailored to address the shifting needs of a multifaceted client base. Managed Investment Solutions team's approach is a commitment to understand client needs in depth. They assess current exposures and overarching objectives to ensure that desired outcomes align with the prospect's portfolio as a whole, identifying trade-offs between various methodologies.
Brian Casey: Investment Solutions fine tunes answers to fit the customer's unique goals and objectives. We're energized by the opportunities this new development brings to westwood. We continue to diversify our product offerings, we're working hard to broaden our client base, and we continue to enhance our revenue streams. We believe that current market conditions are ripe for the successful introduction of managed investment solutions, and our new team members are ready to go, officially joining westwood next week.
Brian Casey: It represents another important entry for westwood into a substantial market segment that is signaling strong demand for a solutions business, and it fits nicely within our existing investment capabilities. As you know, our primary focus has long been to deliver superior risk adjusted returns, excellent client service, and an expanded array of investment opportunities and solutions. We continue to invest in strategic initiatives to improve our business and underpin westwood's return to a long-term growth trajectory, and we're looking forward to keeping you updated on our progress.
Brian Casey: Thanks again for your time today, and for your interest in westwood.
Terry Forbes: I'll now turn the call over to Terry Forbes, RCFF. Thanks, Brian.
Terry Forbes: Good afternoon, everyone. Today, we reported total revenues of 21.9 million from the third quarter of 2023 compared to 21.9 million in the second quarter and 15.4 million in the prior year's third quarter. Revenues were comparable to the second quarter. Revenues were higher than last year's third quarter, reflecting higher average AUM following the acquisition of civilian partners as it mentioned business during the fourth quarter of last year. Our third quarter comprehensive income of 3.4 million or 41 cents per share compared favorably with 2.9 million or 36 cents per share in the second quarter due to the receipt of life insurance proceeds offset by changes in the fair value of contingent consideration.
Terry Forbes: Nongath economic earnings for 6.3 million or 77 cents per share in the current quarter versus 5.7 million or 70 cents per share in the second quarter. Our third quarter comprehensive income with 3.4 million or 41 cents per share compared favorably with last year's third quarter loss of 1.2 million or 15 cents per share primarily due to higher revenues in insurance proceeds offset by changes in the fair value of contingent consideration and higher employee compensation and benefits expenses.
Terry Forbes: Revenues and expenses were higher following the acquisition of salient partners as it mentioned business in 2022. Economic earnings for the quarter were 6.3 million or 77 cents per share compared with 0.8 million or 10 cents per share in the third quarter of 2022. Firmwide assets under management and advisement total 15.5 billion a quarter and consisting of assets under management of 14.4 billion and assets under advisement of 1.1 billion. Assets under management consisted of institutional assets of 6.7 billion or 47% of the total wealth management assets of 3.8 billion or 26% of the total and mutual fund assets of 3.9 billion or 27% of the total. Over the quarter our assets under management experienced market depreciation of 0.3 billion and that outflows of 289 million and our assets under advisement experienced market appreciation of 2 million and that outflows of 63 million.
Terry Forbes: Our financial position continues to be very solid with cash and short-term investments at quarter end totaling 48.5 million and a debt free balance sheet.
Terry Forbes: I'm happy to announce that our Board of Directors approved a regular cash dividend of 15 cents per common share, payable on January 3rd, 2024 to stockholders of record on December 1st, 2023.
Terry Forbes: That brings our prepared comments to a close. We encourage you to review our investor presentation. We have posted on our website reflecting quarterly highlights as well as a discussion of our business, product development and longer term trends and revenues and earnings.
Operator: We thank you for your interest in our company and we'll open the line to questions. Thank you. As a reminder to ask a question please press star 11 on your phones and wait for your name to be announced. To withdraw your questions please press star 11 again. Stand by as you compile the Q&A roster. Again to ask a question please press star 11 on your phone. One moment please for our first question.
Operator: How far is the question?
Max Fight: We'll come from Max Fight of Gamco. Your line is open. Oh, good afternoon, Brian and Terry. Good afternoon, Mark. I have two questions. I'll just ask them together because they're obviously linked. My first is, how should we think about the revenue cost dynamics with this new group that's just been brought in? And then on the revenue side, how should we think about the revenue generation from that? I assume that's kind of a consultant basis points fee on AUM?
Max Fight: Yeah, so I would look at it like we're hiring three people at market rates and we're opening a very small office in Chicago, so the cost of the office will be minimal. And I would look at it as these are these are three investment professionals that have 25 years plus experience. They've done a lot of things in there. Here, but what they did in their prior life was they built an index solutions business at their private former employer where they grew the business from 0 to over 100 billion in AUM.
Max Fight: The average fee on the assets that they managed was very wide ranging. It was anywhere from three basis points to 55 basis points. And they do a lot of interesting things like tax managed and sector focused thematic, all kinds of different approaches. So it's an exciting new business line for us. It's certainly not a change to our business. It's a new business line. And we've been known as active managers for 40 years and we intend to continue delivering superior risk adjusted returns in the active space.
Max Fight: But we also have a history of solving problems for clients and this group has a great history of creative problem solving for their clients. And so we're excited for them to join Westwood. They start next Monday and we'll hit the ground running.
Max Fight: Great. And then typically to on a mandate like this, or I mean, as they gain mandates, what is the sort of lead time for securing them in terms of, you know, when they start to prospect and get that solution and then implement it? I think probably the first 90 days will be getting all of the operational aspects of the business up and running. And then, you know, they'll they'll be reaching out and talking to the folks in the industry that they know well. And, you know, if they have the same kind of success that they had at their prior shop, we should start to see some some flows at the end of next year.
Operator: Great. Thank you very much. Happy Halloween. Same to you back. Thanks. Thank you. Again, to ask a question, please press star 1-1 on your phone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Stand by as you compiled the Q&A roster. And again, to ask a question, please press star 1-1 on your phone, and speakers. I see no further questions in the queue.
Brian Casey: I would now like to turn the conference back to your CEO, Brian Casey, for closing remarks. Great. Well, thanks everybody for taking some time to listen to our call today. If you have any further questions, please look at our website westwoodgroup.com or call myself for Terry Forbes. Have a great day. Thanks. This concludes today's conference call. Thank you all for participating.
Operator: You may now disconnect and have a pleasant day.