Q4 2024 Acadian Asset Management Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Acadia and asset management incorporated earnings conference call and webcast for the fourth quarter 2024.
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 star followed by the number one at any time during the call.
And if you need to reach an operator simply press star zero. Please.
Please note that this call is being recorded today Thursday February six 2025 at 11, a M eastern time.
Speaker Change: I would now like to turn the call over to melody Wong Senior Vice President and director of Finance and Investor Relations. Please go ahead.
Speaker Change: Good morning, and welcome to Acadia in asset Management, Inc Conference call to discuss our results for the fourth quarter ended December 31 2024.
Speaker Change: Before we get started please note that we may make forward looking statements about our business and financial performance.
Speaker Change: Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Speaker Change: Additional information regarding the risks and uncertainties appear seen our S E C filings, including the form 8-K filed today containing our earnings release.
Speaker Change: 2023 Form 10-K, and our Form 10-Q for each of the first.
Speaker Change: And third quarters of 2024.
Speaker Change: Any forward looking statements that we make on this call are based on assumptions as of today and we.
Speaker Change: We undertake no obligation to update them as a result of new information or future events.
Speaker Change: We may also reference certain non-GAAP financial measures.
Speaker Change: Information about any non-GAAP measures referenced.
Speaker Change: A reconciliation of those measures to GAAP measures can be found on our website along with the slides that we'll use as part of today's discussion.
Speaker Change: Finally, nothing herein shall be deemed to be an offer or solicitation to buy any investment products.
Speaker Change: Kelly Young our President and Chief Executive Officer will lead the call.
Speaker Change: And now I'm pleased to turn the call over to Kelly.
Kelly Young: Thanks Melody good morning, everyone and thanks for joining us today.
Speaker Change: I take on the role of CEO of Acadia and asset Management, Inc. I'm mindful of the incredible journey that brought us here.
Speaker Change: Acadia has been around for nearly 40 years and for most of that time, we've been under the umbrella brand name if another holding company. So today marks the first time that occasion released its earnings as a Standalone company.
Speaker Change: I thought I was being built on an impressive performance track record through various market cycles, we have a stellar reputation among institutional investors and we're the only standalone publicly traded system I think manager.
Speaker Change: The bright spot of chapter closed at the end of last year and today I'm delighted to share occasions results for the fourth quarter.
Speaker Change: Update you on our long term growth strategy.
Speaker Change: Since this is the first Acadians, adding cool I'll also introduce you to Acadia in CRE.
Speaker Change: Brendan Bradley and Brendan will walk you through our investment performance.
Speaker Change: Finally, <unk> will close with an update on our capital allocation and after my closing remarks, we'll move to Q&A.
Speaker Change: I'm happy to report that we ended 2024 on a high note during Q4 <unk> achieved the highest level of quarterly Eni EPS in the firm's history.
Speaker Change: Eni per share was $1 30, compared to 77 cents in the fourth quarter of 2023.
Speaker Change: 69% increase in Eni per share compared to the year ago quarter was primarily driven by 50% growth in Eni.
Speaker Change: And Eni for the fourth quarter of 2024 was $49 million $16 million increase from prior year, primarily driven by higher Eni in management fee revenue and higher incentive fees.
Speaker Change: That EBITDA of $73 million was up 41% from Q4 of 2023.
Speaker Change: Hi, Ray AUM from both market appreciation and investment returns over the last 12 months also drove the full year 2020 for Eni and adjusted EBITDA increase.
Speaker Change: <unk> 2020, full Eni was $106 million and adjusted EBITDA was 177 million for the 12 months ended December 31st 2024 or.
Speaker Change: 40% and 32% increase respectively from the prior year.
Speaker Change: Record Eni EPS of $2 76 for the full year represented 55% increase compared to 2023 and was additionally, driven by the company's accretive share repurchases.
Speaker Change: Net client cash flows for the fourth quarter of 2024 were positive by $900 million.
Speaker Change: S. Acadian continued to produce consecutive quarters of net inflows.
Speaker Change: Total positive N Ccs well $1 8 billion in 2020 for the first positive annual net flows since 2019, which was driven by canyons highest ever gross sales you have 21 billion in 2024.
Speaker Change: This success is a testament of our proven investment process as well as the Acadians low cost investment and distribution teams.
Speaker Change: And the systematic investing pioneer Acadia was among the first ones in the world to apply data and technology to the systematic evaluation of global assets.
Speaker Change: They say edge enables occasion to deliver strong risk adjusted returns that help our clients meet their long term investment goals.
Speaker Change: Now let me introduce you to our Chief investment Officer, Brendan Bradley is going to walk you through Acadians investment performance this quarter.
Speaker Change: Thanks, Kelly while markets were mixed in Q4 with much of the equity world, losing value of the U S market continued its strong year.
Speaker Change: Around the globe equities did well with most major markets realizing double digit returns in local currency.
U S high yield and investment grade bonds had a positive year as credit spreads tightened and yields rose overall MSCI world was up 19%, while <unk> was up 4% and MSCI emerging markets was up 8% in dollar terms.
Speaker Change: U S equities led the way and within the U S. It was the continued strength of the small number of large technology oriented companies driving the market.
Speaker Change: In a year in which over half the world's population went to the polls equity markets remained resilient and Acadians investment process delivered strong performance across nearly all of our strategies.
Speaker Change: While Q4 saw most equity markets, giving back our relative performance was particularly strong adding over 300 basis points of inactive performance in our core benchmark oriented strategies.
Speaker Change: It was a great finish to a great year.
Speaker Change: In 2020 for nearly every strategy and every geography added significant value for our clients. Our performance was highly diversified across our universe of signals.
Speaker Change: Most major strategies between 80, and 100% of our major signal categories contributed positively to value add.
Speaker Change: Over the long term our systematic investment process has created significant value for our clients and five major implementations comprising the majority of our assets, 100% of our strategies are outperforming their respective benchmarks over the three five and 10 year windows ending in 2024.
Speaker Change: On a consolidated basis as of December 31, 2024.
Speaker Change: More than 90% of our strategies by revenue outperformed their respective benchmarks over these three five and 10 year periods and more than 89% of our strategies by assets outperformed their respective benchmarks, we generated annualized excess returns of approximately 4% in the most recent five years for our clients.
Speaker Change: In short Acadian had another outstanding active quarter and year.
Speaker Change: Thank you Kelly.
Speaker Change: Thanks Brendan.
Speaker Change: Next I'd like to focus on the Acadians robust distribution platform and team, which helped Acadian generate record gross sales in 2024, it will be a major driver of growth in the years ahead.
Speaker Change: For many years Acadian has had a strong global presence with offices in Boston, London, Sydney, and Singapore, We have continued to expand our client and distribution team with over 90 experienced professionals serving more than a thousand accounts in 40 countries.
Speaker Change: The team has established strong long term relationships with many institutional clients and consultants across both market segments and geographies, leading to a diverse client base with deep relationships dating back many years and in many cases across multiple strategies.
Speaker Change: In tandem with expanding our distribution capabilities Acadians business and product development teams have been focused on increasing our strategy and vehicle offerings in high demand and growing areas, where Acadia and systematic approach is particularly well suited and our current pipeline is very robust.
Speaker Change: Looking ahead, there are four key product initiatives. In addition to our core strategies that we expect will drive Acadian feature growth.
Speaker Change: In no particular order these are our enhanced equity or extensions that quickly.
Speaker Change: Domestic credit and equity alternative platforms, and we've made excellent progress in each of these endeavors.
Speaker Change: Our enhance strategies drove a lot of our asset raising in 2024 and.
Speaker Change: And how is the equity strategies of our risk adjusted returns with comparatively lower active risk relative to standard active offerings.
Speaker Change: These strategies can satisfy broader investment demand for lets say more consistent return allocations as well as providing alternative for investors in the 16 trillion dollars of passive market and we expect to see strong momentum in this space going forward.
Speaker Change: Our extension portfolios. They were full of high conviction investing which leveraged both long and short positions to increase and managers active fees.
Speaker Change: An example would be a 130 30 products.
Speaker Change: Acadian has years of extensive experience and our alpha is effective for both long and short positions. These strategies have excellent returns it seems a major new accounts funded recently.
Oh systematic credit we have three live track record U S high yield global high yield and U S investment grade with the first offering seeded in Q4 of 2023.
Speaker Change: We believe our data infrastructure systematic platform and culture of transparency will produce excellent results, Rick Hadrian's credit products and enable us to access the three trillion dollar active corporate credit space. We recently on boarded our first external client assets in credit and we will continue to incubate I track Records.
Speaker Change: Finally, Acadians equity alternative strategies of targeting the multi strategy hedge fund market one of the fastest growing segments of the global hedge fund industry, where could you see high returns with low market correlations and have already gathered external assets in this strategy.
Speaker Change: To sum up.
Speaker Change: Over time, we expect these four initiatives enhanced extensions credit and equity alternative to help generate sustained growth for Acadian, while we continued to deliver struggled tons on that core offerings, which include global non U S emerging markets and small cap equities.
Speaker Change: I'm now delighted to turn the call over to validate to provide you with an update on capital allocation.
Validat: Thanks Kelly.
Validat: Our balance sheet provides the liquidity and financial flexibility to execute our growth strategy and to enhance shareholder value.
Validat: At the end of fourth quarter 2024, we have $95 million in cash and $19 million in C investments.
Validat: With approximately $274 million of long term debt and nothing drawn on our $140 million revolving credit facility our debt to adjusted EBITDA ratio was one five times.
Validat: 12, 31, 24, and our net leverage ratio was just one times as of 12 31 24.
Validat: Over the past five years, we've demonstrated a track record of creating significant value to our shareholders through returning $1 4 billion of excess capital.
Validat: Outstanding diluted shares went down 56% from 86 million in Q4, 2019 to 38 million shares in Q4 2024.
Validat: Share buybacks will not only highly accretive to EPS growth.
Validat: But also very tax efficient.
Validat: If our business continues to generate strong free cash flow, we expect to continue deploying excess capital to support our organic growth and to buyback our shares whenever opportunities come up.
Kelly Young: Now Kelly will deliver her.
Kelly Young: <unk> remarks.
Kelly Young: Thanks melody.
Speaker Change: Before going into Q&A I'd like to recap the key points we've covered in this presentation.
Speaker Change: We are the only stand alone publicly traded systematic manager.
Speaker Change: Our results were outstanding in the fourth quarter and full year of 2020 full with Eni EPS growth of 69% and 55% respectively.
Speaker Change: One 8 billion of net cash flows we generated in 2020 for the first positive year since 2019.
Speaker Change: Our track record is robust more than <unk>.
Speaker Change: 90% of Acadian strategies by revenue outperformed their respective benchmarks across the three five and 10 year period.
Speaker Change: Acadian is currently trading at around nine times 2024 earnings while our peers average p/e multiple is at approximately 14 times.
Speaker Change: With exceptional investment performance and several organic growth initiatives well in place.
<unk> is positioned for meaningful growth and I'm truly excited about the opportunities that lie ahead.
Speaker Change: This concludes my prepared remarks, and I'll turn the call back to the operator, and we'll be happy to answer any questions you may have.
Speaker Change: Thanks Kelly.
Speaker Change: And at this time those with questions should lift their phone receiver and press star followed by the number one on the telephone keypad once again star one to cancel the question.
Speaker Change: Simply press Star one again, please hold for a brief moment, while we compile the Q&A roster.
Yeah.
Speaker Change: And it looks like our first question today comes from the line of Kenneth Lee with RBC capital.
Speaker Change: Kenneth. Please go ahead your line is open.
Kenneth Lee: Hey, good morning, and thanks for taking my question I.
Speaker Change: Just wanted to get a better sense of of.
Speaker Change: Whether there were any specific strategies that drove the positive net flows that you saw in the quarter. There. Thanks again.
Speaker Change: Hi, Ken it's nice to speak to you again.
Speaker Change: Yeah, you know I think what was really exciting about Q4 thousand in sales for the 2024 was actually the breakfast strategy that we saw client funding you know we've seen clear growth and basically help the equity now extension strategies recently, but also it's still substantial assets moving into a number of absolute more true.
Speaker Change: Additional core strategies as well, where we where we are gaining market share in a number of areas. So.
Speaker Change: It was pretty broad in Q4, but I'd say with with those with those things that I've been here.
Speaker Change: All the extensions.
Speaker Change: Two of the more prevalent.
Speaker Change: Yeah.
Speaker Change: Got you very helpful. There and just on <unk>.
Speaker Change: And thanks again for the additional details around some of the newer systematic strategies to enhance equity this system at credit the equity alternatives.
Speaker Change: Wondering if you could just help us frame out the longer term AUM opportunity, specifically for Acadia and port for these kinds of strategies.
Speaker Change: How much growth could you see a won't grow overtime, there and then somewhat relatedly.
Speaker Change: What sort of like the fee rate opportunity here is it typical fee rate, a little bit higher or lower than the average fee rate that youre seeing currently for for Acadia. Thanks.
Speaker Change: Sure, Yeah, I would say either way.
Speaker Change: We're very pleased I think with the progress that we've made and in both of those are both of those initiatives.
Speaker Change: And you know we're in a strong position and don't anticipate any sort of additional investments really needed for those.
Speaker Change: We're obviously still in the periods of incubating them. Both of those track Records, who are building you know longer term trucks, there, but you know I think as I as I said in my prepared remarks, it's a very very large credit to credit market systematic credit. It's a it's certainly something more newer and more nascent, but we think the opportunity that really cause.
Speaker Change: Be substantial over time large mandates that we would expect to see there is as we continue to incubate those track records.
Speaker Change: On the equity alternatives platform again, multi strategy had been very popular area I think over the last few years in the market and as we continue to build a strong and compelling offering that again. We think this was a substantial upside in terms of AUM growth. So you know hard to put those numbers.
Speaker Change: Numbers on those but again I think we feel very positive about the opportunities in both of those with respect to phase you certainly on the on the credit side. You know you would expect to see those fees I think you know.
Speaker Change: In terms of the the blended fee that we see for average speeds are across the business, perhaps a little over that but again I think that's certainly going to depend on the dynamics of where we see flows coming into across the credit business.
Speaker Change: Whats the alternative and the hedge fund platform again, you would see expect to see much higher average seat that that's what we see and I'm also traditional core strategies. So I'm.
Speaker Change: I think you know we feel very positive about both our U M potential growth there as well as I'm excited about about the impact on revenue and suddenly for the equity alternatives platform.
Speaker Change: Got you very helpful. There and just one last one if I could squeeze one in.
Speaker Change: Given the cash on balance sheet.
Speaker Change: Wonder if you can just talk a little bit more about potential candidates for this coming year and I figure you have in upcoming note maturity as well.
Speaker Change: Plans are around that thanks.
Speaker Change: Sure Yeah, as you know what I mean.
Speaker Change: The bounce rates.
Speaker Change: She is very strong I'm in the business generates very good free cash flow.
Speaker Change: It gives us financial flexibility to weather some days organic growth strategies, and returning capital to shareholders and paying down down debt. So we haven't got the pre allocations in mind as you as you noted the senior notes mature next year, we will start looking into refinancing options too so that wont be prude.
In terms of maintaining good leverage ratios will financial flexibility the Arab see focusing on what makes most sense for shareholder value.
Speaker Change: Got you very helpful. Thanks again.
Speaker Change: Pleasure.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: One last call. If you would like to ask a question again it is star one on your Touchtone phone.
Speaker Change: Alright, it looks like we do have another question and it is from Michael Cyprus with Morgan Stanley. Michael. Please go ahead. Your line is live.
Speaker Change: Hi, This is Emily on for Mike. Thanks for taking my question. Just wondering if you could maybe provide some color on them.
Speaker Change: Competition in the magnitude of the pipeline, maybe frame that how frame that versus how it was like three to six months ago. Thanks.
Speaker Change: Sure thing suddenly yeah, we have a very strong robust pipeline I'd say across a number of different strategies and a very struggle won not funded pipeline that we expect to see those.
Speaker Change: Once funds over the next I'd say one to two quarters.
Speaker Change: We've seen the pipelines pick up quite significantly I'd say through the second half of 'twenty 'twenty four getting into 'twenty fives and <unk>.
Speaker Change: I think the things youre going to see you're going to be consistent with with my prepared remarks earlier that enhance and an extension to two areas, where we continue to see areas of focus for clients, but again, our traditional core equity strategy and certainly in some of our more niche areas like school cap approving a very popular and gaining a lot of attempts.
Speaker Change: So I'd say the pipeline looks incredibly robust, perhaps more robust even in six months ago. When we felt very positive going into the second half of last year and is that.
Speaker Change: Of course, the Brexit strategy, which died from that point of view from a diversification point of view, it's really nice to see.
Speaker Change: Awesome. Thanks.
Speaker Change: Alright, thank you so much Italy.
Yeah.
Kelly Young: And this does conclude our question and answer session I'd like to turn the conference call back to Kelly Young Kelly.
Kelly Young: Okay. Thank you everyone for taking the time today have a good day.
Kelly Young: [music].
Kelly Young: Hum.
Kelly Young: [music].