Q2 2024 BrightSphere Investment Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Operator: Group earnings conference call and webcast for the second quarter, 2000 and 24. During the call, all participants will be in a listen-only mode.
Welcome to BrightSphere Investment Group Earnings Conference Call and Webcast for the second quarter 2024. During the call, all participants will be in a listen-only mode.
Operator: After the presentation, we will conduct a question-and-answer session. To be added to the queue, please press star followed by the number one at any time during the call. If you need to reach an operator, press star followed by zero.
After the presentation, we will conduct a question and answer session. To be added to the queue, please press star followed by the number one at any time during the call. If you need to reach an operator, press star followed by zero.
Operator: Please note that this call is being recorded today, Thursday, August 1, 2024, at 11 a.m. Eastern Time.
Please note that this call is being recorded today, Thursday, August 1st, 2024 at 11 a.m. Eastern Time.
Melody Huang: I would now like to turn the call over to Melody Huang, Senior Vice President, Director of Finance and Investor Relations.
I would now like to turn the call over to Melody Huang, Senior Vice President, Director of Finance and Investor Relations. Please go ahead, Melody.
Melody Huang: Please go ahead, Melody. Good morning and welcome to BrightSphere's conference call to discuss our results for the second quarter and the June 30, 2024. Before we just 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 challenge, including the Form A.K.
Good morning and welcome to Bryce Spears conference call to discuss our results for the second quarter ended June 30th, 2024.
Operator: Before we get started, please note that we may make forward-looking statements about our business and financial performance. However, 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. Please refer to the information about any non-GAAP measures referenced, along with the slide set 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 product.
Operator: Before we get started, please note that we may make forward-looking statements about our business and financial performance.
Operator: Each forward-looking statement is subject to risk and uncertainties that could cause actual results to differ materially from those projected.
Operator: Additional information regarding this risk and uncertainties appears in the SEC filings including the Form 8A filed today containing the earnings release.
Melody Huang: today, containing the earnings through these. Our 2023 form TANK and our form TANQ for the first quarter of 2024. Any forward-looking statements that we made on this call are based on the assumptions as of today, and we undertake no obligation to update them as a result of new information or future events.
Operator: Our 2023 Form 10-K and our Form 10-Q for the first quarter of 2024.
Operator: Any forward-looking statements that we make on this call are based on the assumptions as of today. And we undertake no obligation to update them as a result of new information or future events.
Melody Huang: 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 slide set we will use as part of today's discussion.
Operator: We may also reference certain non-GAAP financial measures.
Operator: Information about any non-GAP measures referenced, including the reconciliation of those measures to GAP measures, can be found on our website.
Operator: along with the slide set we will use as part of today's discussion.
Melody Huang: Finally, nothing here in Shelby Beam to be an offer of solicitation to buy any investment products.
Operator: Finally, nothing herein shall be deemed to be an offer of solicitation to buy any investment product.
Suren Rana: Seren Rella, our president and chief executive officer, will lead the call, and now I'm pleased to turn the call over to Seren.
Operator: Suren Rana, our President and Chief Executive Officer, will lead the call and now I'm pleased to turn the call over to Suren.
Suren Rana: Thank you, Melody.
Suren Rana: Good morning, everyone, and thanks for joining us today. I'll cover some of the main highlights on slide 5 of the deck in my initial remarks, and I'm not going to answer any questions. So for the second quarter of 2024, we reported ENI per share of 45 cents compared to 28 cents in the second quarter of 2023 and 44 cents in the first quarter of 2024. The 61 percent increase in ENI per share compared to the year ago quarter was primarily driven by increase in management through revenue due to higher AUM from the market appreciation that we saw over the last 12 months, and secondly, it was also driven by our share repurchases over the last few quarters.
Operator: Thank you, Melody. Good morning, everyone, and thanks for joining us today.
Speaker Change: I'll cover some of the main highlights on slide 5 of the deck. In my initial remarks,
Operator: I'm not going to answer any questions.
Operator: We reported E&I per share of 45 cents, compared to $0.28 in the second quarter of 2020 and 44 cents in the first quarter of 2024. The 61% increase in E&I per share compared to the year-ago quarter was primarily driven by an increase in management fee revenue compared to the second quarter of 2023, and management fee revenue increased 14% in line with the AUM. The 14% increase in revenue reflects our continued expense discipline and the embedded operating leverage in our business.
Operator: So, for the second quarter of 2024.
Operator: We reported E&I per share of 45 cents.
Operator: compared to $0.28 in the second quarter of 2023.
Operator: and 44 cents in the first quarter of 2024.
Operator: The 61% increase in E&I per share compared to the year-ago quarter was primarily driven by increase in management fee revenue.
Operator: Due to higher AUM from the market appreciation that we saw over the last 12 months.
Operator: And secondly, it was also driven by our share repurchases over the last few quarters.
Suren Rana: Our average AUM increase approximately 13 percent compared to the second quarter of 2023, and management through revenue increased 14 percent in line with the AUM increase. Increase. However, since we were able to keep our operating expenses generally flat year over year, our ENI increased 43% because of the 14% increase in revenue. This disproportionate increase in ENI versus revenue increase reflects our continued expense disciplines and the embedded operating leverage in our business. We would expect to continue to benefit from the operating leverage as our revenue grows. Additionally, the increase in ENI per share versus year ago was 61% compared to the 43% increase in ENI that I just went through.
Operator: Our average AUM increased approximately 13% compared to the second quarter of 2023, and management fee revenue increased 14%, in line with the AUM increase.
Operator: However, since we were able to keep our operating expenses generally flat year over year, our E&I increased 43% because of the 14% increase in revenue.
Operator: This disproportionate increase in E&I versus revenue increase
Operator: reflects our continued expense discipline and the embedded operating leverage in our business.
Operator: We would expect to continue to benefit from this operating leverage as our revenue grows.
Speaker Change: Additionally, the increase in E&I per share versus a year ago was 61% compared to the 43% increase in E&I that I just went through. And that difference was driven by our share repurchases over the last year.
Suren Rana: And that difference was driven by our share repurchases over the last year. Between December 2023 and June of 2024, we repurchased 4.7 million of our shares, or 11% of our total outstanding shares, for $100 million. Acadians' investment performance remained great as of June 30, 2024. 86%, 92%, and 93% of Acadians' strategies by revenue outperform their respective benchmarks across three, five, and 10 year periods. Turning to flows, netline cash loads were incidentally flat for the second quarter. In the second quarter, we had select large and lumpy inflows, but we also had select large and lumpy outflows, and these lumpy flows basically offset each other.
Operator: Between December 2023 and June of 2024, we repurchased 4.7 million of our shares, or 11% of our total outstanding shares, for $100 million.
Operator: Acadian's investment performance remained great, and these lumpy flows basically offset each other. Both companies continue to build good track records. At the end of the second quarter, we had a cash balance of $72 million, and Acadian had an outstanding balance of $36 million. We will 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 questions from the
Operator: Akadian's investment performance remained great.
Operator: As of June 30, 2024, 86%, 92%, and 93% of Acadian Strategies by Revenue outperformed their respective benchmarks across 3-, 5-, and 10-year periods.
Operator: Net client cash flows were incidentally flat for the second quarter.
Suren Rana: Our growth and interest rates continued to progress. On our systematic credit initiative, Acadians' US high yield strategy that was seeded in November 2023, and the global high yield strategy seeded more recently in April of 2024. Both continued to build good track records. Additionally, we just seeded a third credit strategy, US Investment Grade strategy in July 2024. And that strategy is also building a track record now. On our equity alternative initiative, our multi-strategy fund seeded in Q4 of 22 continues to build a strong track record of our performance. Turning to capital management, as I mentioned earlier, we repurchased 11% of our outstanding shares since December of 2023 for $100 million.
Suren Rana: Specifically, in Q2 of 24, we repurchased 0.9 million shares, or 2% of our total outstanding shares, for $21 million. As the end of second quarter, we had a cash balance of $72 million, and Acadians had an outstanding balance of $36 million on their devolving credit facility, which, similar to prior year, is expected to be repaid fully from cash from operations by year end.
Operator: Specifically in Q2 of 24, we repurchased 0.9 million shares or 2% of our total outstanding shares or 21 million dollars.
Suren Rana: I'd like to close my initial remark by reiterating, as I usually do, that I will 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.
Suren Rana: I'll now turn the call back to the operator, and I'm happy to answer questions at this point.
Operator: Thank you. Thank you, and at this time, those with questions should lift their phone receiver and press star, followed by the number one on their telephone keypad to enter into the Q&A queue. To cancel a question, again, remember, please press star followed by the number one again.
Operator: Thank you. And at this time, those with questions should lift their phone receiver and press star followed by the number one on their telephone keypad to enter the Q&A queue. To cancel a question, again, remember, please, please press star followed by the number one again. Please hold for a brief moment while we compile the Q&A roster. Our first question for today comes from the line of Michael Cyprys with Morgan Stanley.
Operator: Thank you. And at this time, those with questions should lift their phone receiver and press star followed by the number one on their telephone keypad to enter into the Q&A queue. To cancel a question, again, remember, please press star followed by the number one again. Please hold for a brief moment while we compile the Q&A roster.
Operator: Please hold for a brief moment while we compile the Q&A roster.
Michael Cyprys: Our first question for today comes from the line of Michael Cyprys with Morgan Stanley.
Michael Cyprys: Your line is live. Great. Thank you.
Michael Cyprys: Good morning. Maybe just starting out with the lumpy flows that you alluded to on both the gross sales and the redemption side. I hope you could unpack both of those. Maybe talk about some of the types of strategies, customer channels, etc. where you're seeing some of the strains come in and similarly on the redemption side what you're seeing there. If you could also just touch upon the pipeline as it looks today. How is that shaping up versus, say, last quarter?
Suren Rana: Thank you.
Suren Rana: Thanks, Michael. As we've touched on ours as an institutional business. So some of the numbers can be large, and they are episodics. So if there weren't necessarily any patterns to unpack. If you just sort of coincident, if you will, that we had these large numbers on both sides. On the inflows is really almost just really just three large clients that came in. There was a client. There was more than a couple of billion, another one for a billion, and another one close to a billion. So these really large numbers. And they were an assorted strategy.
Speaker Change: versus say last quarter. Thank you.
Speaker Change: Thanks, Michael. As we've touched on, ours is an institutional business, so some of the numbers can be large and they are episodic.
Speaker Change: Large numbers on both sides.
Speaker Change: On the inflows...
Suren Rana: I wouldn't say there were any patterns to unpack in terms of any particular strategy. It was just that the strategies that these clients came in, and they came in large numbers. And just, and it happened to be that these three large inflows happen to be in the same quarter. On the outflow side, similar story that we had really a large line, you know, a large line close to a couple billion, another client more than a billion, another client. So similar number, different strategies that just happened to be in the same quarter. So it was quite sort of quite a bit of a coincidence that it just all happened in one quarter.
Speaker Change: a billion, another client, so a similar number, different strategies that just happen to be in the same quarter. So it was...
Speaker Change: quite sort of a quite a bit of a coincidence that it just all happened in one quarter but yeah yeah I'll sort of cancel each other out so that's interesting and we don't going forward if you get that sort of you know another part of your question
Suren Rana: But yeah, it all sort of can't talk to each other out.
Suren Rana: So that's interesting. And we don't going forward to see it gets a bit sort of, you know, another part of your question. And as we've sort of guided in the past year quarters, we see more of a break even to flat cadence that we do have. The pipeline remains healthy across stages. We have a good pipeline across different strategies and across different stages. And we still see some pressures from managed volatility strategy, among others. We see rebalancing going on by clients in these rising equity markets, and they take some chips off the table. There are some clients that are moving to fixed income as a way to manage their, you know, for following the liability driven investing.
Speaker Change: break even to flat cadence but that we do have
Speaker Change: The pipeline remains healthy across stages. We have a good pipeline across different strategies.
Speaker Change: and across different stages.
Speaker Change: There are some clients that are moving to a fixed income as a way to
Suren Rana: So, you know, all of those person takes we think about a break even kind of cadence for a few quarters.
Michael Cyprys: Thanks. Just a follow-up question on capital allocation. Just curious how you're thinking about and planning to sort of approach that as we move it here in the second half and head into 25. Cash balance, 72 million I think you mentioned. How should we think about that potentially growing down, if at all? Just given I know in the past I think you've mentioned you think about minimum cash level that you need to run the business is meaningfully lower than that. So what can we expect in terms of buybacks here as we are real for? Thank you.
Michael Cyprys: Great, thanks. Just a follow-up question on capital allocation. Just curious how you're thinking about and planning to sort of approach that.
Michael Cyprys: As we move it here in the second half and into 2025, cash balance $72 million, I think you mentioned. You know, how should we think about that potentially drawing down, if at all, just given I know in the past, I think you've mentioned, you think about minimum cash level that you need to run the business is meaningfully lower than that. So, you know, what can we expect in terms of buybacks here as we roll forward? Thank you.
Suren Rana: Yeah, thanks, Mike.
Michael Cyprys: Yeah, thanks, Mike. Yeah, we think about minimum cash levels around $20 million or thereabouts, so you could say that maybe they're close to $50 million for other uses. And as we've said, really, the two main uses remain the buybacks and seeding opportunities to accelerate our organic growth, so we remain
Suren Rana: Yeah, we think about minimum cash levels around 20 million or thereabouts, so I could say that maybe they're close to 50 or are there uses? And as we've said, really the two main uses remain the buybacks and seeking opportunities to accelerate our organic growth. So we remain mindful and opportunistic on both of those fronts. We see that just in the quarter, as we mentioned in the release, we see that our third credit strategy, which was the US investment grade strategy. So we have a sizable seed pull now, so there might be some recycling that happens within the pool. But still, if you get opportunities to seed more and to see opportunities for organic growth, we might do that, and we'll also look at the buybacks as we go.
Michael Cyprys: Yeah, thanks Mike. Yeah, we think about minimum cash levels around 20 million or thereabouts, so you could say that maybe they're close to 50 is.
Michael Cyprys: For other uses.
Michael Cyprys: And, as we've said, really the two main uses remain the buybacks and seeding opportunities to accelerate our organic growth. So, we remain...
Michael Cyprys: mindful and opportunistic on both of those fronts.
Michael Cyprys: We seeded our third credit strategy, which was the U.S. investment grade strategy.
Michael Cyprys: So we have a
Suren Rana: So there isn't any particular formula we have. We'll remain opportunistic on both. We don't feel like we necessarily have to buy back our shares every quarter, particularly as I touched on with that 50 million kind of a number, and it's not that much to put to work. So we'll just, we'll remain opportunistic here. Great, thank you.
Michael Cyprys: [inaudible]
Michael Cyprys: It's not that much to put to work, so we'll just remain opportunistic here.
Kenneth Lee: Our next question is from the line of Kenneth Lee with RBC Capital Markets. Your line is live. Hey, good morning. Thanks for taking my question. Just one on the fee rate.
Operator: Our next question is from the line of Kenneth Lee with RBC Capital Markets. Your line is live.
Kenneth Lee: Great, thank you.
Speaker Change: Thank you for your question.
Speaker Change: Our next question is from the line of Kenneth Lee with RBC Capital Markets. Your line is live.
Kenneth Lee: There was a I think a slight pick up in the fee rate in the quarter wondering whether it was just due to mixed shift and if so, were there any particularly higher fee rate products that contributed to the fee rate there? Thanks.
Kenneth Lee: Hey, good morning. Thanks for taking my question. Just one on the fee rate, there was I think a slight pickup in the fee rate in the quarter. Wondering whether it was just due to mix shift and if so, were there any particularly higher fee rate products that contributed to that?
Suren Rana: Hi, Hen. Yeah, I think the answer was in the first part of your guess largely. The mix does impact the fee rate a little bit because some of our strategies are higher fee and some are lower fee. So clearly one of the factors was that the emerging markets indices in second quarter that did relatively well. They had been lagging for a while, but in Q2 that is better than some of the other indices, EFE and others. So, and they have higher fee. So that was that was part of those probably most of it and some other percent takes.
Kenneth Lee: Hi Ken. Yeah, I think the answer was in the first part of your guest. Largely, you know, the mix does impact the fee rate a little bit now because some of our strategies are higher fees and some are lower fees. So clearly, one of the factors was that the emerging market and others, and they have higher fees. So that was part of, that was probably most of it and some other percentage.
Speaker Change: with a few right there, thanks.
Kenneth Lee: I think the answer was in the first part of your guest. Largely, you know, the mix does impact the fee rate a little bit now because some of our strategies are higher fee and
Kenneth Lee: Some are lower fee. So clearly one of the factors was that the emerging markets
Kenneth Lee: EFE and others, and they have higher fee. So that was part of, that was probably most of it and some other percentage.
Kenneth Lee: Gotcha, thanks, and just one follow-up, if I may, just in terms of the Sherry Purchase's capital allocation there.
Kenneth Lee: [inaudible]
Ken: Thanks, and just one follow-up, if I may, just in terms of...
Suren Rana: Would you expect to see a renewal of your board to renew that the Sherry Purchase Authorization? You know, sometimes the return thanks? Yes, thanks, Ken. Yeah, as I said, the use is for the capital to remain or exceeding organic growth opportunities and buybacks. As I said, the excess capital right now is not that much that is burning a hole in our pocket, so there isn't necessarily super urgency on that. But yeah, in due course, we'd expect to get new authorization for buybacks. Gotcha. Very helpful there.
Operator: I expect to see a renewal of the board to renew the share purchase authorization.
Ken: Yeah, thanks Ken. Yeah, as I said, the uses for the capitals remain...
Speaker Change: are seeding organic growth opportunities and and buybacks. It's as I said the excess capital right now is not that much that that is burning a hole in our pocket so so there isn't necessarily
Speaker Change: No, super urgency on that. But yeah, in due course, we'd expect to get new authorization or for buybacks
Kenneth Lee: Thanks again.
Ken: Gotcha. Very helpful there. Thanks again.
John Dunn: Our next question is from the line of John Dunn with Evercore ISI; your line is live. Thank you. Question on the outlook for further expense control from here and your ability to keep expenses in check.
Operator: Our next question is from the line of John Dunn with Evercore ISI.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of John Dunn with Evercore ISI. Your line is live.
John Dunn: Thank you. Question on the outlook for further expense control from here and your ability to keep expenses in check.
John Dunn: Hi, John.
Suren Rana: Yeah, you know, we talked about over the last couple of years; we had a lot of expense increases in the last couple of years. As we were really investing in our infrastructure, we invested in our trading infrastructure; we added to our investor reporting capabilities. So we were really building out a lot in the sense of making our franchise more scalable. So we have done a fair bit of that over the last couple of years. And at the same time, you also faced pressures from inflation on the cost of data, and inflation was everywhere, so that's abated.
Speaker Change: Hi John, yeah you know as we talked about over the last couple of years we had a lot of
Speaker Change: expense increases in the last couple of years.
Speaker Change: As we were really investing in our infrastructure, we invested in our trading infrastructure, we added to our investor reporting capabilities, so we were really building out a lot in the sense of making our...
Speaker Change: franchise more scalable. So we have done a fair bit of that over the last couple of years and at the same time, we also faced pressures from inflation on the cost of data and
John Dunn: So, it appears that now, having built up a lot over the last couple of years and having
Suren Rana: So it appears that now, having built up a lot over the last couple of years and having faced inflation, we are now in a good position to keep the expenses more or less at these levels. Also, in boring, of course, the general increases that you would see, sort of cost of living type of increases, two, three percent kind of levels. So that's what I touched on: that we do have the operating leverage as revenue grows, either from market growth or organic growth. We should be able to keep the operating expenses relatively at these levels, so we should have disproportionate benefit as revenue increases.
John Dunn: [inaudible]
John Dunn: [inaudible]
Speaker Change: the general increases that you would see sort of cost of living type of increases two three percent kind of
Speaker Change: levels. So that's what I touched on that we do have the operating leverage as
Speaker Change: As our revenue grows, either from market growth or organic growth, we should be able to keep the operating expenses relatively at these levels, so we should have disproportionate benefit as revenue increases.
John Dunn: And maybe could you give us a little color on the conversations you're having with clients about made potentially a pickup in demand for emerging market strategies. Yeah, so yeah, there are sort of a variety of opinions and depends on also the type of client. As you can imagine, many clients view that as sort of, you know, because there's always rotation in terms of highest performance markets, and emerging markets have been lagging for such a long time. So many clients view that as an opportunity and whose time may be coming soon, if you will, just the levels of evaluations overall in emerging markets in China in particular.
John Dunn: Got it. And maybe could you give us a little color on the conversations you're having with clients about potentially a pickup in demand for emerging market strategies?
John Dunn: Yeah
Speaker Change: Yeah, there are sort of a variety of opinions and it depends on...
Speaker Change: Also, the type of client, as you can imagine,
Speaker Change: Many clients view that as sort of, you know, because there's always rotation in terms of
Speaker Change: Highest performance markets and emerging markets have been lagging for such a long time
Speaker Change: The many clients view that as an opportunity and whose time may be coming soon, if you will, just the levels of evaluation
Suren Rana: So we're seeing that, on the other hand, there may be some clients who are a little bit worried about the geopolitical.
Speaker Change: overall in emerging markets, in China in particular. So we're seeing that. On the other hand, there may be some clients.
Suren Rana: So we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that we're seeing that in a situation and worry about the risks, particularly, and then there are some political factors from state clients.
Speaker Change: who are a little bit worried about the geopolitical...
John Dunn: [inaudible]
Suren Rana: So, it's a mixed bag, but I think everything's set and done so far. We haven't seen much of a pattern either in terms of a lot of inflows or a lot of outflows. We've been; we are seeing inflows in that strategy. It's a strategy that we really have excellent, very, very strong top performance. So, if somebody does want to allocate, we would do and have really one of the best chances. And so, we're seeing inflows in that strategy; we're also seeing some outflows.
Speaker Change: much much of a pattern either in terms of a lot of inflows or a lot of outflows. We've been we are seeing
Speaker Change: In closing, that strategy, it's a strategy that we really have excellent, very strong top performance.
Speaker Change: So if somebody does want to allocate, we would have probably one of the best chances. And so we're seeing inflows in that strategy. We're also seeing some outflows.
Suren Rana: Thank you.
Operator: Thank you for your question.
Suren Rana: Ladies and gentlemen, that will conclude our question-and-answer session for today.
John Dunn: Thank you.
Speaker Change: Thank you for your question.
Suren Rana: I would like to turn the conference call back over to Sir and Rana. Thank you, operator, and thank you everyone for joining us today.
Speaker Change: Ladies and gentlemen that will conclude our question and answer session for today. I would like to turn the conference call back over to Suren Rana.
Have a good one.
Operator: Have a good one!
Speaker Change: Thank you, operator, and thank you everyone for joining us today.
Operator: Have a good one.
Operator: [inaudible]