Q4 2023 BrightSphere Investment Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Bright Spirit investment Group earnings Conference call and webcast for the fourth quarter 2023 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 one at 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 February 1st 2024 at 11, a M eastern time.
I would now like to turn the meeting over to melody, Wang SVP director of Finance and Investor Relations. Please go ahead melody.
Good morning, and welcome to price <unk> conference call to discuss our results for the fourth quarter ended December 31st 2023.
Before we get started please note that we may 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.
The form 8-K filed today containing the earnings release.
Our 2022 Form 10-K, and our Form 10-Q for each of the first.
And third quarter 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.
With me also reference certain non-GAAP financial measures.
Information about any non-GAAP measures referenced <unk>.
Including a reconciliation of those measures to GAAP measures.
Can be found on our website.
Along with slides that we will use as part of today's discussion.
Finally, nothing herein shall be deemed to be an offer also.
The patients to buy any investment products.
Suren Rana, our president and Chief Executive Officer will lead the call.
And now I'm pleased to turn the call over to Sarah.
Thank you Marty.
Good morning, everyone and thanks for joining us today.
Well I'll start off with some of the main highlights on slide five of the deck and then I can answer your question.
So for the fourth quarter of 'twenty three.
We reported record Eni per share of <unk> 77.
Compared with <unk> 67 in the fourth quarter of 2022.
<unk> 45 in the third quarter of 2023.
The 15% increase in Eni per share compared to the year ago quarter was primarily driven by management fee revenue.
10% higher than the year ago quarter due to higher AUM from market appreciation that we saw in 2023.
Acadians investment performance remained great and strengthened further in the fourth quarter.
As of December 31, 2023, more than 90% of strategies by revenue outperformed their respective benchmarks.
Across three five and 10 year periods.
Our net client cash flows for the quarter were negative <unk> <unk>.
Any thoughts on additional outflows in the quarter related to our managed volatility strategies.
Select large reallocation.
Our growth initiatives continue to be on track.
Acadians equity alternative platform data about a year ago in Q4 of 'twenty two.
Continues to show good investment outperformance.
And Acadian that thematic credit initiative.
Was just feed it in November 23, with $15 million of seed capital in the high yield strategy.
And that has now started to build the track record.
Turning to capital management.
In <unk> 'twenty three the company's board provided a new authorization for share buybacks of up to $100 million.
Starting in December of 'twenty, three and to date, so far in 'twenty, four we repurchased approximately $43 million of shares or $2 1 million shares which was about five 2% of our outstanding shares.
Regarding our balance sheet.
We had a cash balance of 147 million as of December 31, 2003.
Acadian fully paid down the revolver at the end of Q4 compared to the $13 million that was outstanding at the end of Q3.
I'd like to end with reiterating that from a longer term perspective.
We remain focused on maximizing shareholder value.
And we will continue using our free cash flow to support organic growth and to buyback our shares.
I'll now turn the call back to the operator and I'm happy to answer any questions at this point.
At this time those was questions should lift their phone receiver and press star followed by the number one on your 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 the line of Kenneth Lee from RBC Capital markets. Please go ahead. Your line is open.
Hey, good morning, Thanks for taking my question.
Just one on the potential for.
Whats the outlook for cash usage. This year, how much are you expect to allocate in terms of seed capital and ultimately.
What's the best way to think about potential for excess cash on balance sheet. Thanks.
Good morning, Ken.
So yeah the way we size that we have.
<unk> hundred $47 million of cash balance.
At the at the end of the year.
And.
Of that we.
Probably do $20 million of feed in the fourth quarter.
This first quarter of 'twenty four.
Call it $20 million to $25 million, we generally keep our operating cash.
So that's $45 million out of that 147.
That leaves 100 million for buybacks.
How we size that of that hundred as I said, we've used 43 million so far till yesterday.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group earnings conference call and webcast for the fourth quarter of 2020. During the call, all participants will be in a listen-only mode.
And we hope to use the rest.
In the coming weeks and months hopefully.
So that's that's the plan now as we continue to execute.
This year in the us.
Operator: After the presentation, we will conduct a question-and-answer session. To be added to the queue, please press the star followed by 1 at any time during the call. If you need to reach an operator, please press the star followed by 0.
Cash from operations builds up that will build additional capacity for.
Buybacks are powered to see.
Need more organic growth as we've said those are the two of us.
Operator: Please note that this call is being recorded today, Thursday, February 1st, 2024, at 11 a.m. Eastern Time. I would now like to turn the meeting over to Melody Huang, SVP, Director of Finance and Investor Relations. Good morning, and welcome to Bright Spheres' conference call to discuss our results for the fourth quarter ended December 31st, 2023. Before we get started, please know that we make forward-looking statements about our business and financial performance. Each forward-looking statement is subject to risk and uncertainties that could cause actual results to differ materially from those projected.
Got you very helpful and just one follow up.
Terms of the share repurchase.
Would it be fair to say it would be mainly opportunistic.
Or is there any other peso that we should we should think about.
Yeah, we will generally.
Keep up all of the factors in mind.
Yes, I think it's opportunistic as a fair way to say it.
Got you thanks.
Helpful.
Thank you.
Your next question comes from the line of Michael Cyprus from Morgan Stanley.
Kelvin.
Great. Thanks. Good morning, I was just hoping you could maybe elaborate a bit on the flows in the quarter that the $2 billion or so of outflows and also on the gross sales that we saw in the quarter. It looked like are there some areas of strength on the gross sales. There maybe you can unpack where youre seeing some of the areas of strength and maybe you could comment a bit on the institutional.
Melody Huang: Additional information regarding these risks and uncertainties appears in our SEC filings, including the Form 8K filed today containing the earnings release, our 2022 Form 10-K, and our Form 10-Q for each of the first, second, and third quarters 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 gap measures, can be found on our website, along with slides that we will use as part of today's discussion. Finally, nothing here shall be deemed to be an offer of solicitation to buy any investment product. Suren Rana, our President and Chief Executive Officer, will lead the call, and now I'm pleased to turn the call over to SIRS. Thank you, Melody. Good morning, everyone, and thanks for joining us today.
Pipeline, how that shaping up here so far in 'twenty four.
Yes, Hi, Mike.
Yes.
As we said on the managed volatility strategies we've seen.
For for almost two years now.
In the <unk>.
No.
Good data rewarding market.
Those are low beta strategies and they've underperformed.
The average pay it up market.
Those strategies have actually outperformed their data, but they they've underperformed the.
The accord entities. So we are seeing.
Our clients number of clients from time to time, either trim their positions or our move to something else. So we thought some of that in this quarter as well.
And then as we've said from time to time in some quarters, we see clients doing some reallocations.
Our year end debt that has happened so we saw that from.
A larger one from a client.
That was sort of what was responsible for the larger.
Net outflows.
In the quarter, so that was really driven by the the outflows.
Suren S. Rana: Well, I'll start off with some of the main highlights on slide five of the deck, and then I can answer questions. So for the fourth quarter of 23, we reported a record E&I per share of 77 cents, compared to $0.67 in the fourth quarter of 2022 and $0.45 in the third quarter of 2023. The 15 percent increase in E&I per share compared to the year-ago quarter was primarily driven by management fee revenue being 10 percent higher than the year-ago quarter due to higher AUM from market appreciation that we saw in 2023. Acadian's investment performance remained great and strengthened further in the fourth quarter.
<unk>.
It could be better and that we see.
Still have as I mentioned.
A few times in the past.
Past year the pipeline is still.
Still healthy and strong.
That hasnt worsened, maybe it's probably it's only gotten a little bit better.
But.
But things are taking a little bit longer than they used to.
We're seeing a.
Good pipeline across a variety of strategies.
All country Strat.
Strategies outside the U S equity ex U S as we call it.
A lot of interest in small cap strategies.
Both international and emerging market as well as U S.
Some there are some pipeline in emerging markets as well.
And there are those pipeline.
Suren S. Rana: As of December 31, 2023, more than 90 percent of strategies by revenue outperformed their respective benchmarks across three, five, and 10-year periods. The net client cash flows for the quarter were negative $2 billion, as we saw some additional outflows in the quarter related to our managed volatility strategies and select large reallocations. Our growth initiatives continue to be on track. Akadian's equity alternatives platform, seeded about a year ago in Q4 of 22, continues to show good investment outperformance, and Acadian's Systematic Credit Initiative was just seeded on November 23 with $15 million of seed capital in the high-yield strategy. And that has now started to build a track record.
Now different enhanced versions of these strategies. So some really good good pipeline there and hopefully.
More and more of it converts but we are.
It probably we do expect to see continued pressure on managed volatility strategies and there may be felt.
Apathetic things that happened with client Reallocations.
Great. Thanks, and then just a follow up question on the systematic credit as well as the equity Alts platform. Just maybe you could give us a bit more of an update on the progress there what would success look like for you some of the metrics, you're tracking and how our conversations progressing with clients.
Yes, we are.
Pretty satisfied and and reasonably happy with how things are progressing there. They are on track on both of those initiatives.
Suren S. Rana: Turning to Capital Management, in 4Q23, the company's board provided a new authorization for share buybacks of up to $100 million. Starting in December of 23, and to date so far in 24, we repurchased approximately $43 million of shares, or 2.1 million shares, which was about 5.2% of our outstanding balance. We had a cash balance of $147 million as of December 31, 2023. Akkadian fully paid down its revolver at the end of Q4 compared to the $13 million that was outstanding at the end of Q3.
Equity also has a little bit older. So we started about a year ago.
Q4.
'twenty two.
So that's been racking up a nice track record of outperformance.
We do have.
A reasonable sized client in there.
We're hoping to get get more.
And this year.
I mean generally traditionally in our business people have looked for three year five year and 10 year track Records.
But this one as well as systematic systematic credit are different enough that we are having good conversations with clients.
The thing to get them.
That men early on.
And we do have a client in equity alts.
Suren S. Rana: I'd like to end by reiterating that, from a longer-term perspective, we remain focused on maximizing shareholder value, and we'll continue using our free cash flow to support organic growth and to buy back our shares. I'll now turn the call back to the operator, and I'm happy to answer any questions at this time. At this time, those with questions should lift their phone receiver and press the star, followed by the number one on their telephone keypad. To cancel a question, please press star one again.
And the track record has got so client conversations are progressing.
We're hopeful.
At least.
Some more clients.
And that strategy before it gets to a three year track record.
Systematic credit not just ceded.
It's only been maybe a little bit more than a month ago stated in November so I guess, yes.
Little more than a month.
So far so good as progressing it's progressing well on the on the performance side of course, it's too early to say.
But.
Operator: Please hold for a brief moment while we compile the Q&A roster. Your first question comes from the line of Kenneth Lee from RBC Capital Markets. Please go ahead. Your line is open. Hey, good morning.
It's moving along as we expected.
But the client conversations or.
Were happening already even before we see that as we were preparing.
The infrastructure and the models.
Clients are eager too.
Kenneth S. Lee: Thanks for taking my question. Just one on potential for what's the outlook for cash usage this year? How much are you expecting to allocate in terms of seed capital? And ultimately, what's the best way to think about the potential for excess cash on the balance sheet? Thanks. Good morning, Ken.
See how this plays out and there was a good amount of interest.
And we hope to.
Hope to get some clients again early.
In 24.
Even though traditionally people have looked for three year track records generally.
Great. Thank you.
Suren S. Rana: So, yeah, the way we size it is, you know, we have $147 million in cash balance, as I said, at the end of the year. And of that, we will probably do $20 million of feed in this first quarter of 2024. So call it $20 to $25 million we generally keep for operating cash. So, that's $45 million out of that $147.
Your next question comes from the line of John Dunn from Evercore ISI. Please go ahead. Your line is open.
Thanks, Aaron and annuity.
Just to extend the institutional pipeline question.
Anything you can say to anything chunky in or out over the next.
You know a quarter or so.
And I understand things are taking longer but what is it a decent assumption for how like time to fund.
Going through the pipeline.
Suren S. Rana: So, that leaves $100 million for buybacks. So, that's how we sized it. Of that $100, as I said, we've used $43 million so far till yesterday, and we hope to use the rest in the coming weeks and months. So that's the plan now, as we continue to execute this year, and the cash from operations builds up, that will build additional capacity for buybacks or to see more organic growth. As we've said, those are the two uses.
Yes, Thanks John.
I guess outside of managed volatility strategy that I touched.
Touched on we do probably expect more outflows there.
Particularly in light of the environment, there is a soft landing and markets do well.
And then.
That maybe this is more of a defensive strategy Thats played out.
Over long periods.
As it as it has promised to do.
Oliver the same or better returns as market with lower risk but.
This is not ideal environment for it so we would probably expect more outflows from that strategy, but outside of that there's nothing specific that we know of that's larger in chunky.
Suren S. Rana: Gotcha. Very helpful there. And just one follow-up.
Suren S. Rana: In terms of the share repurchase, would it be fair to say it would be mainly opportunistic, or is there any other pace there that we should think about? Yeah, we will generally keep all of the factors in mind. And yes, I think it's opportunistic in a fair way.
In terms of what we see.
AG risk.
But in.
In terms of.
Are there strategies, though we are now.
We are.
It's a good pipeline pretty diversified across different strategy.
Suren S. Rana: Gotcha. Thanks. Very helpful. Thank you.
And and how it converts that's really just depend on it.
Operator: Your next question comes from the line of Michael Cyprys from Morgan Stanley. Great, thanks. Good morning.
It's very it's hard to have some rules are our guide posts.
And then because.
It's pretty diversified by stage as well somewhere in late stages of modern metals stages on my very early.
Michael J. Cyprys: I was just hoping you could maybe elaborate a bit on the flows in the quarter, the $2 billion or so of outflows, and also on the growth sales that we saw in the quarter. It looked like there were some areas of strength on the growth sales there. Maybe you could unpack where you're seeing some of the areas of strength, and maybe you could comment a bit on the institutional pipeline, how that's shaping up here so far in 2014. Hi Mike.
But no.
It's and this is also in terms of the time to convert it just ebbs and flows.
Some some more quickly some move slower so it's not that anything structurally that things are just taking longer structurally just let those things also change.
Suren S. Rana: Yeah, we're seeing, as we've said, you know, we, on the managed volatility strategy, we've seen pressure for almost two years now in this, you know, good beta rewarding market. Those are low beta strategies, and they've underperformed. In the average beta market, those strategies have actually outperformed their beta, but they've underperformed the core indices. So we're seeing a number of clients from time to time either trim their positions or move to something else. And we saw some of that in this quarter as well.
So it's really hard to say, but what we are.
Pretty satisfied and happy with the pipeline now.
Now that we have.
And.
Yes, the teams running.
On it and connecting with clients.
Serving them in.
And now hoping to get some of these wins, we do have some.
Mandates that have been won that new that we're expecting to fund so they are really across different stages.
Got it and then you talked about some of the puts and takes are.
Managed vol institutional pipeline, but it being diversified can you just go through kind of the puts and takes for the fee rate for the next stretch.
Suren S. Rana: And then, as we've said, from time to time in some quarters, we see clients doing some reallocations, particularly in the year that has happened. So we saw that from a larger one from a client. That was responsible for the larger and that outflows from the quarter, so that was really driven by the outflows. The sales, you know, could be better.
Yes, we would expect it to be pretty stable.
Around this level 30 year debt.
For the next few quarters.
What would really change it.
Going forward I guess from a longer term perspective would be is as we as we execute more.
Our equity ores and an.
And our so somebody credit strategies those are higher fee.
Suren S. Rana: You know, we still have, as I mentioned a few times in the past, in the past year; the pipeline is still healthy. It's strong. That hasn't worsened. Maybe it's probably only gotten a little bit better, but things are taking a little bit longer than they used to. We're seeing good pipeline across a variety of strategies, country strategies outside the U.S., Acquiesce U.S., as we call it, a lot of interest in small cap strategies in both international emerging markets, as well as the U.S. There's some pipeline in emerging markets as well, and there's pipeline in different enhanced versions of these strategies. So really good pipeline there, and hopefully, you know, more and more of it But we are probably – we do expect to see continued pressure on the managed volatility strategy, and there may still be, you know, episodic things that happen with client reallocation. Great, thanks.
So as we as we start to get.
Larger flows in those two strategies, particularly equity all.
Does that has that.
Much higher fee.
Then systematic credit, we're starting with high yield which is higher fee.
As well so that will start to change the mix toward toward higher fee and as you may have noticed generally also the outflows are coming out from managed volatility strategy, which is let me just been low fee traditionally and the inflows have been coming from these.
These other strategy.
<unk> been small cap and those are higher fee, so I would say.
For the next few quarters, probably 38 bps is that good.
Baseline.
Longer longer than that we would expect it to start to.
Go up.
A little bit gradually.
Thanks very helpful. I appreciate it.
This concludes our question and answer session I would like to turn the conference call back over to Suren Rana.
Thank you operator, thanks, everyone for joining us today.
Appreciate it.
Suren S. Rana: And then just a follow-up question on the systematic credit as well as the equity alts platform. Just maybe you can give us a bit more of an update on the progress there. What would success look like for you, some of the metrics you're tracking, and how are conversations progressing with clients?
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Suren S. Rana: Yeah, we're pretty satisfied and reasonably happy with how things are progressing. They're on track on both of those initiatives. Equity Alls is a little bit older, so we started it about a year ago, in Q4 of 22. So that's racking up a nice track record of our performance. We do have a reasonable-sized client in there, and we're hoping to get more in this year.
Yes.
[music].
Suren S. Rana: I mean, generally, traditionally, in our business, people have looked for three-year, five-year, and 10-year track records, but this one, as well as systematic credit, is different enough that we're having good conversations with clients, hoping to get them in early on, and we do have a client in Equity Alls, and the track record is good. So client conversations are progressing, and we're hopeful to add at least some more clients to that strategy before it gets to a three-year track record. Systematic credit, just seeded. It's only been maybe a little bit more than a month. It was seeded in November, so I guess a little more than a month.
Suren S. Rana: So far, so good. It's progressing well. On the performance side, of course, it's too early to say, but it's moving along as we expected. But client conversations were happening already, even before we seeded it, as we were preparing the infrastructure and the models.
Operator: And clients are eager to see how this plays out, and there's a good amount of interest, and we hope to get some clients again early in 2024, even though, traditionally, people have looked for three-year track records generally. Great, thank you. Your next question comes from the line of John Dunn from Evercore ISI. Please go ahead, your line is open.
John Dunn: Thanks, Erin and Melody. Just to extend the institutional pipeline question maybe a little bit, anything you have line of sight to anything chunky in or out over the next, you know, quarter or so. And I understand things are taking longer, but what's a decent assumption for how much time to fund is going through the pipeline. Yeah, John.
Suren S. Rana: You know, I guess outside of the managed volatility strategy that I touched on, we do probably expect more outflows there. You know, particularly in light of the environment, as there is a soft landing and markets do well, then you know that that may be just more of a defensive strategy that plays out over long periods, as it is promised to do, and deliver the same or better returns at the market with lower risk. But this is not the ideal environment for it.
Suren S. Rana: So we'll probably expect more outflows from that strategy. But outside of that, there's nothing specific that we know of that's larger and chunky in terms of what we see at risk. But in terms of other strategies, we are, it's a good pipeline, pretty diversified across different strategies. And how it converts, it really just depends.
Suren S. Rana: It's hard to have some rules or guideposts because it's pretty diverse by stage as well. Some are in late stages, some are in middle stages, and some are very early. And this also, in terms of time to convert, it ebbs and flows; some move quickly, some move slower. So it's not that. Anything structurally, that things are just taking longer structurally, just let those things also change. So it's really hard to say, but we're pretty satisfied and happy with the pipeline that we have, and yeah, the team's really on it and connecting with clients and serving them, and hoping to get some of these wins. We do have some mandates that have been won that we're expecting to fund, so they're really across different stages.
Suren S. Rana: And then, you know, you talked about some of the puts and takes of the manage vol institutional pipeline, but it being diversified. Can you just go through the kind of the puts and takes for the fee rate for the next stretch? that we would expect to be pretty stable around this level, 38 dips, for the next few quarters. You know, what would really change it going forward, I guess, from a longer-term perspective, would be as we execute more on our equity allotments and our systematic credit strategies, those are higher fees. So, as we start to get larger flows in those two strategies, particularly equity alls, because that has a much higher fee. In systematic credit, we are starting with high yield, which is a higher fee as well.
Suren S. Rana: So, that will start to change the mix toward higher fees. And as you may have noticed, generally, also, the outflows are coming out of the managed volatility strategy, which has traditionally been low fee. And the inflows have been coming from these other strategies, you know, Acquiax U.S. and Small Cap, and those have higher fees. So I would say for the next few quarters, probably 38 bits is a good baseline. And longer than that, we would expect it to start to go up a little bit gradually.
Suren S. Rana: Thanks. Very helpful. I appreciate it. This concludes our question and answer session. I'd like to turn the conference call back over to Suren Rana. Thank you, operator. Thanks, everyone, for joining us today. We appreciate it. None of the secret leaving behind is because the memory fits deeply. Nothing in the world is unreal, And there is nothing good about proof of the truth.