Q4 2024 Virtus Investment Partners Inc Earnings Call
Which resulted in a reduction in other operating expenses for the full year, the operating margin of $35 one.
Its highest level since the second quarter of 2022 and was up sequentially from $34 four.
Earnings per share as adjusted of $7 50, <unk> increased 8% from the third quarter to the highest level since the first quarter of 2022 and for the full year earnings per share grew 20%.
Turning to capital we ended the year with a solid balance sheet, including a net cash position of $30 million.
While having consistently return capital to shareholders and invested in the growth of the business during the year, we repurchased or net settled over 250000 shares of $57 million and raised the quarterly dividend by 18% representing the seventh consecutive annual dividend increase and with that I'll turn the call over to Mike Mike.
Mike: Thank you George.
Mike: To be with you all this morning.
Mike: Starting with our results on slide seven assets under management.
Mike: Our total assets under management declined 5% sequentially to 175 billion at December 31.
Mike: Due to net outflows and negative market performance.
Average assets under management increased 3% to $182 1 billion.
Mike: With ending assets, 4% below the quarter's average.
Mike: Compared with the prior year period.
Mike: AUM increased $2 7 billion or 2% due to market performance.
Mike: Our assets under management represent a broad range of products and asset classes.
Mike: Byproduct institutional is our largest category at 34% of AUM.
Mike: Retail separate accounts, including wealth management at 28% and U S retail funds at 27%.
Mike: The remaining 11% comprises closed end funds global funds and Etfs.
Mike: We are also diversified within asset classes.
Mike: In equities between international and domestic and within domestic well.
Mike: Dented amongst mid small and large cap strategies.
Mike: And fixed income is well diversified across duration.
Mike: Credit quality and geography.
Mike: We continued to have compelling long term relative investment performance across products and strategies.
Mike: As of December 31, 72% of rated retail fund assets.
Mike: And 32 funds had four or five stars and 90%.
Speaker Change: We are in three four or five star funds.
Speaker Change: In addition, 64% of fund AUM outperformed the median of their peer groups over the five year period.
Speaker Change: And 84% of retail separate account assets have beaten benchmarks over the same five year period.
Speaker Change: Etfs have also had strong performance with 91% of ETF assets exceeding median peer performance for the three year period.
Speaker Change: And 10 of our 14 rated Etfs.
Speaker Change: We're rated three four or five stars.
Speaker Change: Across all products, 58% of AUM at December 31 were beating their benchmarks over the five year period.
Speaker Change: Turning to slide eight asset flows.
Speaker Change: Total sales of $6 4 billion were down modestly from $6 6 billion in the prior quarter as higher institutional sales were offset by lower sales of retail separate accounts.
Speaker Change: Institutional sales of $1 6 billion increased from $1 2 billion driven by higher sales of global equity and alternative strategies.
Speaker Change: Retail separate account sales of $1 8 billion declined sequentially from $2 3 billion as.
Speaker Change: As higher sales in the wealth management business.
Speaker Change: And then offset by lower intermediary sold sales.
Speaker Change: Particularly in certain smid cap equity offerings, which were soft closed in the prior quarter.
Speaker Change: Open end fund sales of $3 billion or essentially unchanged with higher ETF sales offset by lower sales of U S retail funds.
Speaker Change: For Etfs sales of <unk> 5 billion increased 13% sequentially and were up significantly from <unk> 1 billion in the prior year period, with particularly strong sales of our preferred stock utilities.
Speaker Change: Utilities and senior loan Etfs.
Speaker Change: We continue to prioritize further availability of our Etfs through intermediaries.
Speaker Change: Global fund sales of $275 million were relatively unchanged sequentially.
Speaker Change: And up 40% from the prior year period led by domestic equity strategies.
Speaker Change: Total net outflows of $4 8 billion compared with $1 7 billion last quarter and were in large part due to the partial institutional redemption.
Speaker Change: Excluding which net outflows were $1 5 billion.
Speaker Change: Net flows continued to be positive in Etfs global funds and retail separate accounts reviewing byproduct institutional net outflows of $3 8 billion or largely due to $3 $3 billion lower fee partial redemption.
Speaker Change: Excluding that redemption institutional net outflows were <unk> 5 billion.
Speaker Change: Which compared with $1 1 billion in the prior quarter.
Speaker Change: Ice strategy within institutional we had positive net flows in international equity and alternatives.
Speaker Change: As always institutional flows will fluctuate depending on the timing of client actions.
Speaker Change: Retail separate accounts continued to generate positive net flows in both the intermediary sold channel and in our wealth management business totaling <unk> dollars 1 billion in the quarter.
Speaker Change: And with a full year organic growth rate of three 9%.
Speaker Change: For open end funds net outflows of $1 1 billion were at essentially the same level as the prior quarter.
With positive net flows in fixed income.
Speaker Change: Smid cap equity.
Speaker Change: We'll then open end funds Etfs and global funds continued to generate double digit organic growth rates.
Speaker Change: ETF positive net flows of <unk> 4 billion represented the highest quarterly level with an organic growth rate of 67%.
Speaker Change: Over the past year ETF AUM has doubled.
Speaker Change: $3 1 billion with an organic growth rate of 84%.
Speaker Change: Global Fund net flows of $1 1 billion represented organic growth of 10% for the quarter and for the full year generated an organic growth rate of 9%.
Speaker Change: I would also note that for fixed income offerings in total.
Speaker Change: Net flows continued to be positive in the quarter as well as for the full year.
Speaker Change: Turning to slide nine investment management fees as adjusted of $192 2 million increased $6 7 million or 4%.
Speaker Change: Reflecting the increase in average assets under management and a stable fee rate.
Speaker Change: The average fee rate of 42 basis points was unchanged from 41 nine basis points in the prior quarter.
Speaker Change: Excluding performance fees, which totaled $1 6 million. The average fee rate was 41 seven basis points also essentially unchanged sequentially.
Speaker Change: Looking ahead, we believe an average fee rate in the range of 41 to 42 basis points is reasonable for modeling purposes.
Speaker Change: With performance fees of 3 million to $5 million per year incremental to that range.
Speaker Change: As always the fee rate will be impacted by markets and.
Speaker Change: And the mix of assets.
Speaker Change: Slide 10 shows the five quarter trend in employment expenses.
Speaker Change: Total employment expenses as adjusted of $104 3 million.
Speaker Change: <unk> increased 2% sequentially.
Speaker Change: Due to higher profit based variable incentive compensation.
Speaker Change: And as a percentage of revenues they were 49, 2%.
Speaker Change: Down.
Speaker Change: 80 basis points.
Speaker Change: Looking ahead, it would be reasonable to anticipate employment expenses to continue to be in a range of 49% to 51% of revenues.
Speaker Change: As always it will be variable based on market performance in particular as well as profits and sales.
Speaker Change: For modeling purposes. The first quarter will also include seasonal employment expenses, which are incremental to this outlook.
Speaker Change: Turning to slide 11.
Speaker Change: Other operating expenses as adjusted continued to be in a relatively stable range as we have offset increasing costs with expense management.
Speaker Change: For the quarter other operating expenses were $31 million.
Speaker Change: Up from $29 8 million.
Speaker Change: Reflecting higher facility costs, and a seasonal increase in distribution related travel activities.
Speaker Change: For the full year other operating expenses declined modestly even with the first full year impact of an additional manager.
Speaker Change: As a percentage of fourth quarter revenues other operating expenses were 14, 6% essentially unchanged from the third quarter.
Speaker Change: And down from 16, 1% in the prior year period.
Speaker Change: Looking ahead, a quarterly range of $30 million to $32 million is reasonable for modeling purposes.
Speaker Change: All else being equal.
Speaker Change: Slide 12 illustrates the trend in earnings.
Speaker Change: Operating income as adjusted of $74 5 million increased $4 million or 6% sequentially.
Speaker Change: Due to higher average assets under management.
Speaker Change: The operating margin as adjusted of 35, 1% increased from 34, 4% in the third quarter with an incremental margin of 58%.
Speaker Change: Okay.
Speaker Change: On a full year basis, the operating margin increased 100 basis points over the prior year period.
Speaker Change: With respect to non operating items interest and dividend income increased by $1 million, primarily reflecting higher CLO interest income.
Speaker Change: For modeling purposes, the fourth quarter level of interest and dividend income is reasonable going forward.
Speaker Change: Interest expense declined by <unk> 8 million, reflecting a lower effective interest rate on our term loan.
Speaker Change: Yeah.
Speaker Change: Noncontrolling interests, which reflect minority interest in one of our managers.
Speaker Change: Were lower sequentially by <unk> 5 million.
Speaker Change: Primarily due to the increase in our ownership of the manager during the prior quarter.
Speaker Change: Net income as adjusted of $7 50 per diluted share increased 8% from.
Speaker Change: From $6 92 in the third quarter.
Speaker Change: For the full year diluted earnings per share increased 20%.
Speaker Change: In terms of GAAP results net income per share of $4 66.
Speaker Change: Decreased from $5 71 per share in the third quarter.
Speaker Change: And included 72 cents of expense related to the increase in.
Speaker Change: Fair value of minority interests.
Speaker Change: 41 of realized and unrealized losses on investments.
Speaker Change: 2007, a CLO expenses and 17 of expense related to fair value adjustments of contingent consideration.
Speaker Change: Okay.
Speaker Change: Slide 13 shows the trend of our capital liquidity and select balance sheet items.
Speaker Change: Cash and equivalents increased sequentially to $265 9 million.
Speaker Change: From $195 5 million at September 30.
Speaker Change: In addition, we had $140 million of seed capital investments to support growth initiatives.
Speaker Change: And $142 million of other investments primarily in our managed CLO.
Speaker Change: Working capital was $134 5 million up 24% from $108 5 million.
Speaker Change: As cash generated more than offset return of capital to shareholders.
Speaker Change: And debt repayment.
Speaker Change: During the fourth quarter, we repurchased 52176 shares of common stock for.
Speaker Change: Our $12 5 million.
Speaker Change: We also made a $5 $7 million payment on our term loan.
Speaker Change: At December 31, <unk> gross debt to EBITDA was <unk> seven times.
Speaker Change: We ended the year at a net cash position of $29 8 million.
Speaker Change: We generated $88 million of EBITDA in the fourth quarter up 5% sequentially due to higher average AUM.
Speaker Change: And up 14% from the prior year level.
Speaker Change: We have adequate levels of working capital and modest leverage providing financial flexibility to continue to invest in the business and return capital and repay debt.
Speaker Change: In terms of cash balances in the first quarter, we will make our annual incentive payments typically.
Speaker Change: Typically our highest cash usage of the year.
Speaker Change: And we will also make the annual revenue participation payment, which we expect will be similar to last year's level of $24 million.
Speaker Change: The bulk of the remaining revenue participation obligation will be paid in the first quarter of next year.
I would also note that our intangible assets continued to provide a cash tax benefit which is not included in our earnings per share as adjusted.
Speaker Change: The net present value of the tax asset is approximately $114 million.
Speaker Change: Or $16 on a per share basis.
Speaker Change: And with that let me turn the call back over to George George.
George George: Thank you Mike. So we will now take your questions D. V can you open up the lines. Please.
George George: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
George George: Yes.
Ben <unk>: And our first question comes from Ben <unk> of Barclays. Your line is now open.
George George: Hi, good morning, and thanks for taking the question.
Speaker Change: Maybe just to kick it off could you talk a little bit how you're thinking about how the year may unfold I know the last couple of years, it's been very strong S&P performance. I know you guys had to say you you tend to see things shake out a little bit better in your non correlated strategies with the Morgan solar frothy or you don't.
Speaker Change: I know you indicated January I think flows looking similar to Q4, where do you see yourself as sort of best positioned for.
Speaker Change: For the year, you kind of give us some color on Etfs retail SMA is but maybe from a sort of strategic or asset class perspective, how are you thinking about the best opportunities in 'twenty five.
Speaker Change: Yeah, no. It's a great question and predicting how 2025 is going to play out in the market. As you know is going to be quite a challenge.
Speaker Change: So I think as we've kind of looked through it as part of the purpose of our strategy is to have those diversified offerings of whether there is an opportunity to go to certain of the.
Risk assets in terms of equities again, we have good offerings or if there is.
Speaker Change: As for other income and fixed income strategies outside of cash we have the fixed income. So again fundamentally we want to be able to try to take advantage of whichever way that goes we're currently seeing and we sort of referenced the.
Speaker Change: The continued positive flows in fixed income and I think that's continuing.
Speaker Change: On and right now all else being equal we would continue to see those as the opportunities where we're having the most conversations and even seeing you know.
Speaker Change: Some mandates into some of the fixed and fixed income asset classes that were previously out of favor so that could certainly be a niche fishing area, where we'd love to see that emerge can be of some really interesting offerings. So it's good to see the positive flows we've had in fixed income it would be nice to see them broaden out and particularly in other areas.
Speaker Change: Such as the global funds as well as some of those institutional mandates.
Speaker Change: So again our goal is.
Wherever the preferences are to make sure that we're meeting the man and that's really where we see a lot of the new product introductions as we were really trying to introduce strategies into those.
Speaker Change: Structures that people are gravitating towards which again leads you to the Etfs and for US the global funds and more of the institutional offerings and obviously seeing less of the demand for the traditional open end fund structure.
Speaker Change: Understood and maybe just one follow up and you know how are you thinking about use of capital. This year clearly we've seen a pretty fairly steady pace of stock repurchase your dividend increase has been quite robust. The M&A question, just sort of always out there.
Speaker Change: So I guess the things that are sort of like the known knowns.
Speaker Change: Seed capital for new products things like that and then any color on what may be in the M&A pipeline.
Speaker Change: Yeah. So on the on the whole capital again, we'll continue to since we generate.
Speaker Change: A nice level of of cash earnings and we're currently have a lower lower levels of leverage we have the flexibility to continue to look at things like <unk>.
Speaker Change: Returning capital as well as to your point of investing in the growth of the business, which really does really get down to the seed and generally we have.
Speaker Change: I've been very good in terms of managing and recycling RC, but as those opportunities for <unk>.
Speaker Change: Future products arise that is one of the Utilizations, we would consider in terms of using some of the cash if we were.
Speaker Change: To offer a product that needs to see for a period of time, but again I do think we have the flexibility to manage all of those areas and again, we've been I think we've shown that we believe fundamentally that return of capital is an important part of our strategy going to be M&A and it has been a period of time since.
Speaker Change: Our last transaction.
Speaker Change: Think of US as we've said before we continue to be very active in terms of evaluating opportunities.
Speaker Change: We do think there are things that could be additive to our business. We will we generally look at M&A in terms of only those things, which we believe have.
Speaker Change: High value strategically to enhance.
Speaker Change: The value of the business. So we don't we will not do M&A for the sake of doing M&A. We do think there are interesting opportunities out there and we will continue to evaluate those.
Speaker Change: Understood. Thanks, so much for taking my questions.
Speaker Change: Yeah, you're welcome. Thank you thank.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Crispin Love with Piper Sandler Your line is open.
Crispin Love: Thank you good morning, I heard some of your comments on January flows to date on retail Etfs and institutional and I know it's early in the quarter, but can you just put a finer point on your comments, excluding the partial redemption in the fourth quarter, our flows better than January compared to the fourth quarter.
Crispin Love: Yeah and again as you stated January is only one month and who knows how the rest of the quarter will shape out, but yeah. I mean, the retail funds are kind of looking very similar to what we've seen.
Crispin Love: We're happy that the Etfs, which have really had a strong quarter actually running ahead.
Crispin Love: Our Etfs, which were $3 1 billion at the end of the year I believe as of yesterday, there were $3 4 billion.
Crispin Love: We're happy that that has continued we hope it continues through the through the rest of the quarter and then again the trajectory that we've seen we've continuously had generally positive flows in retail separate accounts global funds that has not changed and institutional I think the indication. We gave you was from what's known as.
Crispin Love: It's modestly more outflows and inflows so yes that would be better obviously than the fourth quarter, but a lot of the fourth quarter was that one large partial redemption and I think it's important.
Crispin Love: We'll look at that as an isolated incident, given the backdrop of that which was really a multi manager product where they edited.
Speaker Change: <unk> and then had to reallocate from the other remaining advisors, which was one of them was ours.
Speaker Change: Thanks, George I appreciate that on the $3 3 billion partial redemption of institutional it was partial so can you provide how much is the whole relationship and your confidence that this is just a onetime redemption here.
Speaker Change: Well I mean, it's a big and it's an important relationship and again.
Speaker Change: As we indicated in our remarks it was as a result of an additional manager into the existing multi manager. So we and all of the other managers, therefore had reduced amounts of assets.
Speaker Change: We continue to view it as a good relationship where it's been a significant.
Speaker Change: Grower of assets for us over the period of time so.
Speaker Change: No.
Speaker Change: Reading anything into the reallocation to an additional manager into the future of that relationship. It's a really good relationship.
Speaker Change: Thank you George I appreciate you taking my questions. This morning, yes. Thank you.
Speaker Change: Thank you.
Brad: Our next question comes from Brad <unk> of Keybanc Cowen Your line is open.
Speaker Change: Hi, Good morning, Robin here on for Bill Katz.
Speaker Change: Has there been any change around your thinking for tax reporting in particular is there a potential to adjusted non-GAAP EPS to incorporate the tax shield rather than displaying it separately.
Speaker Change: So what are some of the key consideration.
Speaker Change: No and that's a really good question and I think as you heard in our comments Mike.
Speaker Change: Again, reminding people about those the tax attributes and the and we firmly believe there is economic value in those and that's why we do try to make sure that we provide the transparency of what that value is in terms of the gross level and even if you wanted to think about it on a per share basis per se.
Speaker Change: And as we indicated it is not currently something we adjust for in our and our non-GAAP measures. We do we do periodically reevaluate our non-GAAP measures and I think we have one or two peers that may include that in their measure. So we continue to evaluate that again our goal is to make sure we provide our.
Speaker Change: Results in our operations and in the best way, we can to make it as transparent and clear and again that is something that has true economic value to shareholders. So we will continue to at a minimum to highlight that point that out Mike I think as George indicated we did and have in the past disclosed.
Speaker Change: Our value ascribed to the tax assets, which is important given its benefit on our cash flow generation.
Speaker Change: Perspective, I think anytime you evaluate the non-GAAP and as George alluded to there is some divergence in practice, but any adjustments that come across the GAAP versus non-GAAP you want to make sure that there is transparency in that and that adjustments are appropriate. So we will continue to evaluate it but at this point is just.
Speaker Change: Rating that the value is there and that were.
Speaker Change: That investors are well aware of that element of value in the stock but appreciate that.
Speaker Change: Okay, great. Thank you and then one follow up following on a prior question could you, perhaps dig in a bit more on the M&A side, particularly for illiquid. All generally speaking what are you seeing in the market in terms of deal opportunities and multiple expectations on where that may differ.
Speaker Change: Yes in terms in terms of the kinds of areas that are interesting and I think as we've previously kind of indicated we we have a really good collection of traditional public market.
Speaker Change: Managers in terms of equity and fixed income.
Speaker Change: And we continue to believe that clients will benefit from access to more of the private market capabilities. So that is an area that we believe is very good fit for us in terms of bringing those types of capabilities and strategies to market. Obviously that is very similar to others in the industry.
Speaker Change: Are all interested in looking for ways to optimize that so that continues to be a high area of interest and again some of those capabilities in terms of multiples.
Speaker Change: The valuations that people attribute to some of the traditional long only strategies are lower than the multiples that are currently being attributed to some of those private market strategies. So again as we evaluate our opportunities we think through that and ultimately with the goal of enhancing our own long term.
Speaker Change: Valuation on our own trading multiple.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you. Thank you.
Emily Davies: Our next question comes from Emily Davies of Morgan Stanley. Your line is now open.
Speaker Change: Okay.
Speaker Change: Hello <unk>.
Speaker Change: Okay.
Mike Cyprus: Hey, its Mike Cyprus Morris I think you guys hear me okay.
Speaker Change: Can hear you now we can yes.
Speaker Change: Thank you so much.
Speaker Change: Just a question on M&A just curious how much time you guys are spending on that now versus say three or six months ago, and maybe you can give a little perspective on the pipeline what that looks like how you're thinking about acquisitions versus partnership versus <unk>, where you think these strategic opportunities most people.
Speaker Change: Might be most additive to the platform and then as you think about the financial flexibility you guys are under one turn of gross leverage how comfortable would you be taking that.
Speaker Change: Above two turns or said another way how high would you be comfortable taking that in a hypothetical transaction.
Speaker Change: No and you had a bunch in there so I'm going to try to hit each of those and please circle back if I Miss a an element of that in terms of how active we've been what's kind of interesting and I think I do comment that's been wildly exactly close and announced the transaction.
Speaker Change: But I would say we are just as active in terms of conversations and evaluations as we have ever been and in fact, some ways, maybe even slightly more.
Speaker Change: Think like everyone, we're being very thoughtful in how we consider.
Speaker Change: What types of transactions, we wanted to do particularly for those that might be.
Speaker Change: Related to leveraging.
Speaker Change: Private market types of capabilities again, I think there's been a lot of that activity some of it has been.
Speaker Change: Successful some of it has been less successful.
Speaker Change: So we do want to make sure we approach it in a way that makes sense in terms of how we look at that as we've always said is we.
Speaker Change: We're flexible.
Speaker Change: Our approach to partnering our goal will be to find the right partner and if that right partner is the transaction structure is a.
Speaker Change: An acquisition of a majority or minority or whether it's a JV, we evaluate all of those different types of structures because in some cases, the Mike the best relationship structure for the best offering maybe more of a JV or the minority as opposed to.
Speaker Change:
Speaker Change: A majority interest, particularly with some of the types of capabilities that you see out.
Speaker Change: In the private markets. So I think we keep ourselves flexible to that and in terms of.
Speaker Change: Our current levels of leverage again, we.
Speaker Change: Manage our balance sheet, specifically to not only protect the business, but to give us that flexibility when those opportunities come and I think currently right now our churn.
Speaker Change: We're below one and we have net cash at this point for the right as we evaluate the transaction we would look at it in terms of what is the long term value that it creates and generally that would mean that there could be at the initiation of a transaction being at the higher end of our leverage multiple which again I don't.
Speaker Change: We've been at probably for five or six years or even more than that.
Did I get all your points.
Speaker Change: You did and I would just ask a follow up if I could on that just curious as you think about.
Speaker Change: Sense of likelihood for something to materialize over the next 12 months and if so if you think about that where do you feel more confident on that materializing.
Speaker Change: Yes, I can't give any indication of that again.
Speaker Change: Like a lot of people there is lots of conversations going on there's lots of opportunities a lot of people are having those conversations many of them will get generally won't go anywhere while they are materialized. So yeah, I'm not giving any specifics around my expectations of when we'll have something again, we will only consider doing a transaction include that one.
Speaker Change: Is the right thing in the right fit for us in the right way to create shareholder value.
Speaker Change: Understood. So I'll, maybe ask a different follow up consent since we didn't answer that one just given broader advances in data science and AI.
Speaker Change: Was hoping maybe you could talk a little bit about how you are investing in technology to enhance the investment engines across the organization and support Alpha generation, how do you see that evolving in the near term versus the long term and as a sort of multi affiliate boutique.
Speaker Change: Firm, how do you sort of best harness that is it some sort of shared services at the center or do you think about it at each and every individual franchise. So we're sort of going about it in their own unique manner.
Speaker Change: One on the first part I again, I think theres there are potentially incredible opportunities you know utilizing some of these technologies that have developed and I think like a lot of people were being very thoughtful in terms of how we evaluate and do researching that.
Speaker Change: Area.
Speaker Change: And in each of our managers is a little different so getting to the second part of your question.
Speaker Change: We generally we provide from an infrastructure standpoint.
Speaker Change: A lot of the.
Speaker Change: Information technology capabilities and tools and assets with each of the managers.
Speaker Change: Manage their strategies in different ways. So so we do currently have managers that are utilizing very sophisticated types of quantitative.
Speaker Change: And strategies that are in that that range. So each of the managers may employ them in a slightly different way and several of them.
Speaker Change: We are currently doing some evaluations of different things, but before we introduced anything into an investment process.
Speaker Change: Obviously as you would expect we're going to want to make sure that they have been a lot of thought and work put behind that but.
Speaker Change: Each of them could be applied slightly differently, depending upon the nature of our of our specific manager our strategy.
Okay. Thanks.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would now like to turn the conference back over to Mr. Aylward.
Mr. Aylward: Thank you Didi and I want to thank everyone for joining us today, and obviously certainly encourage you to reach out if you have any other further questions. Thank you.
Mr. Aylward: That concludes today's call. Thank you for participating and you may now disconnect.
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BD: Good morning, My name is BD and I will be your conference operator today I would like to welcome everyone.
Speaker Change: <unk> Partners quarterly conference call. This slide presentation for this call is available in the Investor Relations section of the Virtus website, Www Dot Fergus Dot com.
Speaker Change: This call is being recorded and will be available for replay on the Virtus website. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer period and instructions will follow at that time I will now turn the conference to your host Sean Rourke.
Speaker Change: Thank you and good morning, everyone on behalf of Virtus investment partners I would like to welcome to the discussion of our operating and financial results for the fourth quarter of 2024.
Speaker Change: Our speakers today are George Aylward.
Mike Ingersoll: President and CEO, and Mike Ingersoll, Chief Financial Officer.
Speaker Change: Following their prepared remarks, we will have a Q&A period.
Speaker Change: Before we begin please note the disclosures on page two of the slide presentation.
Speaker Change: Certain matters discussed on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and as such.
Are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our SEC filings.
Speaker Change: These risks and uncertainties may cause actual results to differ materially from those discussed in the statements.
In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our financial results are non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with the GAAP results.
Speaker Change: Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in today's news release and financial supplement which are available on the website.
Speaker Change: Now I'd like to turn the call over to George George Thank you, Sean and good morning, everyone I'll start with an overview of the results. We reported this morning, and then I'll turn it over to Mike for more detail.
Speaker Change: We continued to deliver strong financial and operating performance in the fourth quarter, though our results did include net outflows largely due to a partial institutional redemption.
Speaker Change: Key highlights of the quarter included positive net flows in focus areas, including Etfs global funds and retail separate accounts.
Speaker Change: Attractive investment performance core strategies.
Speaker Change: And operating margin at the highest level in two and a half years.
Speaker Change: Ongoing introduction of new products and we ended the year in a net cash position with significant financial flexibility, while continuing to return capital through share repurchases and our dividend.
Speaker Change: As it relates to new product introductions, we remained active during the quarter and our focus areas.
Speaker Change: In Etfs following the launches earlier in the year of newly actively managed Etfs from Kayne Anderson Rudnick and Alpha simplex in December we introduced a new ETF from safe and have several others in development.
Speaker Change: The newest ETF invest in private credit collateralized loan obligations, which takes us well positioned for as a currently manages <unk> with over $3 billion in assets and has over two decades of CLO experience.
Speaker Change: Now offer 20, Etfs core strategies managers and have seen significant growth while etfs. So currently a smaller part of our business at $3 1 billion. They have doubled in size over the past year with consistent organic growth and have generated over a half a billion dollars of sales in the fourth quarter alone.
Speaker Change: In addition to ETF introductions during the year, we launched four global funds, adding to our lineup that continues to generate positive flows.
Speaker Change: And for SMA is we've developed a number of offerings across a variety of asset classes, including more solution oriented multi strategy products. We continue to prioritize increasingly availability of our Etfs global funds and SMA through intermediaries.
Speaker Change: Turning now to the results.
Speaker Change: Total assets under management of 175 billion at December 31 decreased sequentially from 183, 7% due to net outflows in institutional accounts and U S. Retail funds, partially offset by the positive net flows in Etfs global funds and retail separate accounts.
Speaker Change: Sales of $6 4 billion compared with $6 6 billion in the third quarter as higher institutional sales led by global equity and alternative strategies were offset by lower sales of U S. Retail funds for the full year total sales increased 3% to $26 8 billion.
Speaker Change: Total net outflows of $4 8 billion included the partial redemption institutional redemption, excluding which net outflows were $1 5 billion and compared with $1 7 billion in the prior quarter.
Speaker Change: Reviewing by product in institutional net outflows of $3 8 billion were largely due to a $3 $3 billion lower fee partial redemption of our multi manager mandate, which the client added an additional sub adviser, resulting in reallocation from current sub advisors.
Speaker Change: Excluding the partial redemption, which was implemented and completed in the fourth quarter institutional net outflows were <unk> 5 billion.
Speaker Change: Retail separate accounts generated positive net flows of $1 1 billion and delivered 4% organic growth over the past year with consistent positive net flows in each media resold channel and in our $9 billion wealth management business.
Speaker Change: Open end fund net outflows of $1 1 billion were essentially unchanged sequentially consistent with market trends U S. Retail fund net outflows were driven by equity strategies, partially offset by positive net flows in fixed income.
Speaker Change: While Etfs and global funds generated <unk> 4 billion and <unk> 1 billion in positive net flows respectively.
Speaker Change: In terms of what we're seeing in January U S. Retail fund flows are tracking similarly to the fourth quarter, including continued positive net flows in fixed income and Etfs are actually running ahead of the average monthly flows of fourth quarter.
Speaker Change: For institutional known redemptions for the first quarter modestly exceed known wins with the wins, representing several different managers and strategies.
Speaker Change: In terms of our financial results, we delivered strong earnings and margin growth for the quarter and for the full year on higher average AUM levels and ongoing expense management.
Speaker Change: With higher revenues and discipline around discretionary spending which resulted in a reduction in other operating expenses for the full year. The operating margin of $35. One reached its highest level since the second quarter of 2022 and was up sequentially from $34 four.
Speaker Change: Earnings per share as adjusted of $7 50, <unk> increased 8% in the third quarter to the highest level since the first quarter of 2022.
Speaker Change: For the full year earnings per share grew 20%.
Speaker Change: Turning to capital we ended the year with a solid balance sheet, including a net cash position of $30 million.
Speaker Change: Well, having consistently return capital to shareholders and invested in the growth of the business during the year, we repurchased or net settled over 250000 shares of $57 million and raised the quarterly dividend by 18% representing the seventh consecutive annual dividend increase and with that I'll turn the call over to Mike Mike.
Speaker Change: Thank you George.
Speaker Change: To be with you all this morning.
Speaker Change: Starting with our results on slide seven assets under management.
Speaker Change: Our total assets under management declined 5% sequentially to 175 billion at December 31.
Speaker Change: Due to net outflows and negative market performance.
Speaker Change: Average assets under management increased 3% to $182 1 billion.
Speaker Change: With ending assets, 4% below the quarter's average.
Speaker Change: Compared with the prior year period.
Speaker Change: AUM increased $2 7 billion or 2% due to market performance.
Speaker Change: Our assets under management represent a broad range of products and asset classes.
Speaker Change: By product institutional is our largest category at 34% of AUM.
Speaker Change: Retail separate accounts, including wealth management at 28% in U S retail funds at 27%.
Speaker Change: The remaining 11% comprises closed end funds global funds and Etfs.
Speaker Change: We are also diversified within asset classes.
Speaker Change: In equities between international and domestic and within domestic well represented amongst mid small and large cap strategies.
Speaker Change: And fixed income is well diversified across duration.
Speaker Change: Credit quality and geography.
Speaker Change: We continue to have compelling long term relative investment performance across products and strategies.
Speaker Change: As of December 31, 72% of rated retail fund assets.
Speaker Change: And 32 funds had four or five stars and 90%.
Speaker Change: We're in three four or five star funds.
Speaker Change: In addition, 64% of fund AUM outperformed the median of their peer groups over the five year period.
Speaker Change: And 84% of retail separate account assets have beaten benchmarks over the same five year period.
Speaker Change: Etfs have also had strong performance with 91% of ETF assets exceeding median peer performance for the three year period.
Speaker Change: And 10 of our 14 rated Etfs.
Speaker Change: We're rated three four or five stars.
Speaker Change: Across all products, 58% of AUM at December 31 were beating their benchmarks over the five year period.
Speaker Change: Hi.
Speaker Change: Turning to slide eight asset flows.
Speaker Change: Total sales of $6 4 billion were down modestly from $6 6 billion in the prior quarter as higher institutional sales were offset by lower sales of retail separate accounts.
Speaker Change: Institutional sales of $1 6 billion increased from $1 2 billion driven by higher sales of global equity and alternative strategies.
Speaker Change: Retail separate account sales of $1 8 billion declined sequentially from $2 3 billion as.
Speaker Change: As higher sales in the wealth management business.
Speaker Change: And then offset by lower intermediary sold sales.
Speaker Change: Particularly in certain smid cap equity offerings, which were soft closed in the prior quarter.
Speaker Change: Open end fund sales of $3 billion or essentially unchanged with higher ETF sales offset by lower sales of U S retail funds.
Speaker Change: For Etfs sales of <unk> 5 billion increased 13% sequentially and were up significantly from <unk> 1 billion in the prior year period, with particularly strong sales of our preferred stock utilities.
Speaker Change: Utilities and senior loan Etfs.
Speaker Change: We continue to prioritize further availability of our Etfs through intermediaries.
Speaker Change: Global fund sales of $275 million were relatively unchanged sequentially.
Speaker Change: And up 40% from the prior year period led by domestic equity strategies.
Speaker Change: Total net outflows of $4 8 billion compared with $1 7 billion last quarter and were in large part due to the partial institutional redemption.
Speaker Change: Excluding which net outflows were $1 5 billion.
Speaker Change: Net flows continued to be positive in Etfs global funds and retail separate accounts reviewing byproduct institutional net outflows of $3 8 billion or largely due to $3 $3 billion lower fee partial redemption.
Speaker Change: Excluding that redemption institutional net outflows were <unk> 5 billion, which compared with $1 1 billion in the prior quarter.
Speaker Change: By strategy within institutional we had positive net flows in international equity and alternatives.
Speaker Change: As always institutional flows will fluctuate depending on the timing of client actions.
Speaker Change: Retail separate accounts continued to generate positive net flows in both the intermediary sold channel and in our wealth management business totaling <unk> dollars 1 billion in the quarter.
Speaker Change: And with our full year organic growth rate of three 9%.
Speaker Change: For open end funds net outflows of $1 1 billion were at essentially the same level as the prior quarter.
Speaker Change: With positive net flows in fixed income.
Speaker Change: And smid cap equity.
Speaker Change: We'll then open end funds Etfs and global funds continued to generate double digit organic growth rates.
Speaker Change: Positive net flows of <unk> 4 billion represented the highest quarterly level with an organic growth rate of 67%.
Speaker Change: Over the past year ETF AUM has doubled.
Speaker Change: $3 1 billion with an organic growth rate of 84%.
Speaker Change: Fund net flows of $1 1 billion represented organic growth of 10% for the quarter.
Speaker Change: And for the full year generated an organic growth rate of 9%.
Speaker Change: I would also note that for fixed income offerings in total.
Speaker Change: Net flows continued to be positive in the quarter as well as for the full year.
Speaker Change: Yes.
Speaker Change: Turning to slide nine investment management fees as adjusted of $192 2 million increased $6 7 million or 4%.
Speaker Change: Reflecting the increase in average assets under management and a stable fee rate.
Speaker Change: The average fee rate of 42 basis points was unchanged from 41 nine basis points in the prior quarter.
Speaker Change: Excluding performance fees, which totaled $1 6 million. The average fee rate was 41 seven basis points also essentially unchanged sequentially.
Speaker Change: Looking ahead, we believe an average fee rate in the range of 41 to 42 basis points is reasonable for modeling purposes.
Speaker Change: With performance fees of 3 million to $5 million per year incremental to that range.
Speaker Change: As always the fee rate will be impacted by markets and.
Speaker Change: And the mix of assets.
Speaker Change: Slide 10 shows the five quarter trend in employment expenses.
Speaker Change: Total employment expenses as adjusted of $104 3 million.
Speaker Change: Increased 2% sequentially.
Speaker Change: Due to higher profit based variable incentive compensation.
Speaker Change: And as a percentage of revenues they were 49, 2%.
Speaker Change: Down 80 basis.
Speaker Change: This points.
Speaker Change: Looking ahead, it would be reasonable to anticipate employment expenses to continue to be in a range of 49% to 51% of revenues.
Speaker Change: As always it will be variable based on market performance in particular as well as profits and sales.
Speaker Change: For modeling purposes. The first quarter will also include seasonal employment expenses, which are incremental to this outlook.
Speaker Change: Turning to slide 11.
Speaker Change: Other operating expenses as adjusted continued to be in a relatively stable range as we have offset increasing costs with expense management.
Speaker Change: For the quarter other operating expenses were $31 million.
Speaker Change: Up from $29 8 million.
Speaker Change: <unk> higher facility costs, and a seasonal increase in distribution related travel activities.
Speaker Change: For the full year other operating expenses declined modestly even with the first full year impact of an additional manager.
Speaker Change: As a percentage of fourth quarter revenues other operating expenses were 14, 6% essentially unchanged from the third quarter.
Speaker Change: And down from 16, 1% in the prior year period.
Speaker Change: Looking ahead, a quarterly range of $30 million to $32 million is reasonable for modeling purposes.
Speaker Change: All else being equal.
Speaker Change: Slide 12 illustrates the trend in earnings.
Speaker Change: Operating income as adjusted of $74 5 million increased $4 million or 6% sequentially.
Speaker Change: Due to higher average assets under management.
Speaker Change: The operating margin as adjusted of 35, 1% increased from 34, 4% in the third quarter with an incremental margin of 58%.
Speaker Change: Okay.
Speaker Change: On a full year basis, the operating margin increased 100 basis points over the prior year period.
Speaker Change: With respect to non operating items interest and dividend income increased by $1 million, primarily reflecting higher CLO interest income.
Speaker Change: For modeling purposes, the fourth quarter level of interest and dividend income is reasonable going forward.
Speaker Change: Interest expense declined by <unk> 8 million, reflecting a lower effective interest rate on our term loan.
Speaker Change: Noncontrolling interests, which reflect minority interest in one of our managers.
Speaker Change: Were lower sequentially by <unk> 5 million primary.
Speaker Change: Primarily due to the increase in our ownership of the manager during the prior quarter.
Speaker Change: Net income as adjusted of $7 50 per diluted share increased 8% from.
From $6 92 in the third quarter.
Speaker Change: For the full year diluted earnings per share increased 20%.
Speaker Change: In terms of GAAP results net income per share of $4 66.
Speaker Change: Decreased from $5 71 per share in the third quarter.
Speaker Change: And included 72 cents of expense related to the increase in fair value of minority interests.
Speaker Change: 41 of realized and unrealized losses on investments.
2007, a CLO expenses and 17 of expense related to fair value adjustments of contingent consideration.
Speaker Change: Okay.
Speaker Change: Slide 13 shows the trend of our capital liquidity and select balance sheet items.
Speaker Change: Cash and equivalents increased sequentially to $265 9 million.
Speaker Change: From $195 5 million at September 30.
Speaker Change: In addition, we had $140 million of seed capital investments to support growth initiatives.
Speaker Change: And $142 million of other investments primarily in our managed CLO.
Speaker Change: Working capital was $134 5 million up 24% from $108 5 million.
Speaker Change: As cash generated more than offset return of capital to shareholders.
Speaker Change: And debt repayment.
Speaker Change: During the fourth quarter, we repurchased 52176 shares of common stock for.
Speaker Change: Our $12 5 million.
Speaker Change: We also made a $5 $7 million payment on our term loan.
Speaker Change: At December 31, gross debt to EBITDA was <unk> seven times.
Speaker Change: We ended the year at a net cash position of $29 8 million.
Speaker Change: We generated $88 million of EBITDA in the fourth quarter up 5% sequentially due to higher average AUM.
Speaker Change: And up 14% from the prior year level.
Speaker Change: We have adequate levels of working capital and modest leverage providing financial flexibility to continue to invest in the business and return capital and repay debt.
Speaker Change: In terms of cash balances in the first quarter, we will make our annual incentive payments typically.
Speaker Change: Typically our highest cash usage of the year.
Speaker Change: And we will also make the annual revenue participation payments, which we expect will be similar to last year's level of $24 million.
Speaker Change: The bulk of the remaining revenue participation obligation will be paid in the first quarter of next year.
Speaker Change: I would also note that our intangible assets continued to provide a cash tax benefit which is not included in our earnings per share as adjusted.
Speaker Change: The net present value of the tax asset is approximately $114 million.
Speaker Change: Or $16 on a per share basis.
George George: And with that let me turn the call back over to George George.
George George: Thank you Mike. So we will now take your questions D. V can you open up the lines. Please.
George George: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
George George: Yes.
Ben <unk>: And our first question comes from Ben <unk> of Barclays. Your line is now open.
Speaker Change: Hi, good morning, and thanks for taking the question.
Speaker Change: Maybe just to kick it off can you talk a little bit how you're thinking about how the year may unfold I know the last couple of years has been very strong S&P performance. I know you guys had to say you tend to see things shake out a little bit better in your non correlated strategies with the Morgan solar frothy or you're not.
Speaker Change: I know you indicated January I think flows looking similar to Q4, where do you see yourself as sort of best positioned for.
Speaker Change: For the year.
Speaker Change: Give us some color on Etfs retail SMA is but maybe from a sort of strategic or asset class perspective.
Speaker Change: Are you thinking about the best opportunities in 'twenty five.
Speaker Change: Yes, no. It's a great question and predicting how 2025 is going to play out in the market. As you know is going to be quite a challenge.
Speaker Change: So I think as we've kind of looked through it.
Speaker Change: Part of the purpose of our strategy is to have those diversified offerings of whether there is an opportunity to go to certain of the.
Speaker Change: Risk assets in terms of equities again, we have good offerings or if there is.
Speaker Change: As for other income and fixed income strategies outside of cash we have the fixed income. So again fundamentally we want to be able to try to take advantage of whichever way that goes what we're currently seeing and we sort of referenced the.
Speaker Change: The continued positive flows in fixed income and I think thats continuing.
On and right now all else being equal we would continue to see those as the opportunities where we're having the most conversations and even seeing.
Speaker Change: Some mandates into some of the fixed and fixed income asset classes that were previously out of favor. So that could certainly be an interesting area, where we'd love to see that emerge because we have some really interesting offerings. So it's good to see the positive flows we've had in fixed income it will be nice to see them broaden out and particularly in other air.
Speaker Change: As such as the global funds as well as some of those institutional mandates.
Speaker Change: So again our goal is.
Speaker Change: Wherever the preferences are to make sure that we're meeting advantage and Thats really where we see a lot of the new product introductions as we were really trying to introduce strategies into those.
Speaker Change: Structures that people are gravitating towards which again leads you to the Etfs and for US the global funds and more of the institutional offerings and obviously seeing less of the demand for the traditional open end fund structure.
Speaker Change: Understood and maybe just one follow up how are you thinking about use of capital. This year clearly, we've seen a pretty fairly steady pace of stock repurchase.
Speaker Change: Dividend increase has been quite robust. The M&A question is sort of always out there.
Speaker Change: I guess, the things that are sort of like the known knowns seed.
Speaker Change: Seed capital for new products things like that and then any color on what may be in the M&A pipeline.
Speaker Change: Yes, so on the whole capital again, we'll continue to since we generate.
A nice level of of cash earnings and we're currently have a lower lower levels of leverage we have the flexibility to continue to look at things like.
Speaker Change: Returning capital as well as to your point investing in the growth of the business, which really does really get down to the seed and generally we have.
Speaker Change: I've been very good in terms of managing and recycling RC, but as those opportunities for <unk>.
Speaker Change: Future products arise that is one of the Utilizations, we would consider in terms of using some of the cash if we were.
Speaker Change: To offer a product that needs to see for a period of time, but again I do think we have the flexibility to manage all of those areas and again, we've been I think we've shown that we believe fundamentally that return of capital is an important part of our strategy going to be M&A and it has been a period of time since.
Speaker Change: Our last transaction.
Speaker Change: Think of US as we've said before we continue to be very active in terms of evaluating opportunities.
Speaker Change: We do think there are things that could be additive to our business. We will we generally look at M&A in terms of only those things, which we believe have.
Speaker Change: High value strategically to enhance.
The value of the business. So we don't we will not do M&A for the sake of doing M&A. We do think there are interesting.
Speaker Change: Opportunities out there and we will continue to evaluate those.
Speaker Change: Understood. Thanks, so much for taking my questions.
Speaker Change: You're welcome. Thank you thank.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Crispin Love with Piper Sandler Your line is open.
Crispin Love: Thank you good morning, I heard some of your comments on January flows to date on retail Etfs and institutional and I know it's early in the quarter, but can you just put a finer point on your comments, excluding the partial redemption in the fourth quarter, our flows better than January compared to the fourth quarter.
Crispin Love: Yes, and again as you stated January is only one month and who knows how the rest of the quarter will shape out, but yes. The retail funds are kind of looking very similar to what we've seen.
Crispin Love: We're happy that the Etfs, which have really had a strong quarter actually running ahead.
Crispin Love: Our Etfs, which were $3 1 billion at the end of the year I believe as of yesterday, there were $3 4 billion.
Crispin Love: We're happy that that has continued we hope it continues through the through the rest of the quarter and then again the trajectory that we've seen we've continuously had generally positive flows in retail separate accounts global funds that has not changed and in institutional I think the indication. We gave you is from what's known as.
Crispin Love: It's modestly more outflows and inflows so yes that would be better obviously than the fourth quarter, but a lot of the fourth quarter was that one large partial redemption and I think it's important.
Crispin Love: We'll look at that as an isolated incident, given the backdrop of that which was really a multi manager product where they added a adviser and then had to reallocate from the other remaining advisors, which was one of them was ours.
Speaker Change: Thanks, George I appreciate that.
Speaker Change: On the $3 3 billion partial redemption of institutional it was partial so can you provide how much is the whole relationship and your confidence that this is just a onetime redemption here.
Speaker Change: Well I mean, it's a big and it's an important relationship and again.
Speaker Change: As we indicated in our remarks it was as a result of an additional manager into the existing multi manager. So we and all of the other managers, therefore had reduced amounts of assets.
Speaker Change: We continue to view it as a good relationship where it's been significant.
Speaker Change: Grower of assets for us over the period of time so.
Speaker Change: Reading anything into the reallocation to an additional manager into the future of that relationship. It's a really good relationship.
George: Thank you George I appreciate you taking my questions. This morning, yes. Thank you.
Speaker Change: Thank you.
Brad Haines: Our next question comes from Brad Haines of TV Cowen Your line is open.
Robert: Hi, Good morning, Robert <unk> on for Bill Katz.
Robert: Has there been any change around your thinking for tax reporting in particular is there a potential to adjusted non-GAAP EPS to incorporate the tax shield rather than displaying it separately.
Robert: So what are some of the key considerations.
Robert: No.
Speaker Change: It's a really good question and I think as you heard in our comments Mike.
Speaker Change: Again, reminding people about those the tax attributes and the and we firmly believe there is economic value in those and that's why we do try to make sure that we provide the transparency of what that value is in terms of the gross level and even if you wanted to think about it on a per share basis per se.
Speaker Change: And as we indicated it is not currently something we adjust for in our and our non-GAAP measures. We do we do periodically reevaluate our non-GAAP measures and I think we have one or two peers that may include that in their measure. So we continue to evaluate that again our goal is to make sure we provide our.
Speaker Change: Results in our operations and in the best way, we can to make it as transparent and clear and again that is something that has true economic value to shareholders. So we will continue to at a minimum to highlight that point that out Mike I think as George indicated we did and have in the past disclosed.
Speaker Change: Our value ascribed to the tax asset, which is important given its benefit on our cash flow generation.
Speaker Change: Perspective, I think anytime you evaluate the non-GAAP and as George alluded to there's some divergence in practice, but any adjustments that come across the GAAP versus non-GAAP you want to make sure that there's transparency of that and that adjustments are appropriate. So we will continue to evaluate it but at this point is just.
Speaker Change: Rating that the value is there and that were.
Speaker Change: That investors are well aware of that element of value in the stock but appreciate that.
Speaker Change: Okay, great. Thank you and then one follow up following on a prior question could you, perhaps dig in a bit more on the M&A side, particularly for illiquid. All generally speaking what are you seeing in the market in terms of deal opportunities and multiple expectations on where that may differ.
Speaker Change: Yes in terms in terms of the kinds of areas that are interesting and I think as we've previously kind of indicated we we have.
Speaker Change: Really good collection of traditional public market.
Speaker Change: Managers in terms of equity and fixed income and we continue to believe that clients will benefit from access to more of the private market capabilities. So that is an area that we believe is very good fit for us in terms of bringing those types of capabilities and strategies to market obviously.
Speaker Change: That is very similar to <unk>.
Speaker Change: Others in the industry, who are all interested in looking for ways to optimize that so that continues to be a high area of interest and again some of those capabilities in terms of.
Speaker Change: Multiples.
Speaker Change: <unk> that people attribute to some of the traditional long only strategies are lower than the multiples that are currently being attributed to some of those private market strategies. So again as we evaluate our opportunities.
Speaker Change: Through that and ultimately with the goal of enhancing our own long term valuation on our own trading multiple.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Emily Davies of Morgan Stanley. Your line is now open.
Speaker Change: Okay.
Speaker Change: Hello <unk>.
Speaker Change: Okay.
Speaker Change: Hey, its Mike Cyprus Morgan Stanley can you guys hear me okay.
Speaker Change: Now we can yes.
Speaker Change: Thank you so much.
Speaker Change: Just a question on M&A just curious how much time you guys are spending on that now versus say three or six months ago, and maybe you can give a little perspective on the pipeline what that looks like how you're thinking about acquisitions versus partnerships versus <unk>, where you think the strategic opportunities most people might.
Speaker Change: Be most additive to the platform and then as you think about the financial flexibility you guys are under one turn of gross leverage how comfortable would you be taking that.
Speaker Change: Above two turns or said another way how high would you be comfortable taking that in a hypothetical transaction.
Speaker Change: No and you had a bunch in there so I'm going to try to hit each of those and please circle back if I missed an element of that in terms of how active we've been what's kind of interesting and I think I do comment it's been a while since we've actually closed and announced the transaction.
Speaker Change: But I would say we are just as active in terms of conversations and evaluations as we have ever been and in fact, some ways, maybe even slightly more.
Speaker Change: Like everyone, we're being very thoughtful in how we consider.
What types of transactions, we wanted to do particularly for those that might be.
Speaker Change: Related to leveraging.
Speaker Change: Private market types of capabilities again, I think there's been a lot of that activity some of it has been.
Speaker Change: Successful some of it has been less successful.
Speaker Change: So we do want to make sure we approach it in a way that makes sense in terms of how we look at that as we've always said is we're flexible.
Speaker Change: Our approach to partnering our goal will be to find the right partner and if that right partner is the transaction structure is a.
Speaker Change: An acquisition of a majority or minority or whether it's a JV, we evaluate all of those different types of structures because in some cases, the Mike the best relationship structure for the best offering maybe more of a JV or in minority as opposed to.
Speaker Change: A majority interest, particularly with some of the types of capabilities that you see out.
Speaker Change: In the private markets. So I think we keep ourselves flexible to that and then in terms of.
Speaker Change: Our current levels of leverage again, we Matt.
Speaker Change: Manage our balance sheet, specifically to not only protect the business, but to give us that flexibility when those opportunities come and I think currently right now our churn.
Speaker Change: Below one and we have net cash at this point for the right as we evaluate the transaction.
Speaker Change: We would look at it in terms of what is the long term value that it creates.
Speaker Change: And generally that would mean that there could be at the initiation of a transaction being at the higher end of our leverage multiple which again I don't think we've been at probably for five or six years or even more than that.
Speaker Change: Get all your points.
Speaker Change: You did and I would just ask a follow up if I could on that just curious as you think about a sense of likelihood for something to materialize over the next 12 months and if so as you think.
Speaker Change: About that where do you feel more confident on that materializing.
Speaker Change: Yes, I can't give any indication of that again.
Speaker Change: Like a lot of people there is lots of conversations going on there's lots of opportunities a lot of people are having those conversations many of them will get generally won't go anywhere while they are materialized. So yeah, I'm not giving any specifics around my expectations of when we will have something again, we will only consider doing a transaction include that.
Speaker Change: One is the right thing in the right fit for us in the right way to create shareholder value.
Speaker Change: Understood. So I'll, maybe ask a different follow up instead since we didnt answer that one just given broader advances in data science and AI.
Speaker Change: Hoping maybe you could talk a little bit about how you are investing in technology to enhance the investment engines across the organization and support Alpha generation, how do you see that evolving in the near term versus the long term and as a sort of multi affiliate boutique.
Speaker Change: Firm, how do you sort of best harness that is it some sort of shared services at the center or do you think about it at each and every individual franchise, so sort of going about it in their own unique manner.
Speaker Change: One on the first part again I think there is there are potentially incredible opportunities utilizing some of these technologies that have developed and I think like a lot of people were being very thoughtful in terms of how we evaluate and do research in that area.
Speaker Change: Yes.
Speaker Change: And as in each of our managers is a little different so getting to the second part of your question.
Speaker Change: We generally we provide from an infrastructure standpoint.
Speaker Change: A lot of the.
Speaker Change: Information technology capabilities and tools and assets with each of the managers.
Speaker Change: Manage their strategies in different ways. So so we do currently have managers that are utilizing very sophisticated types of quantitative.
Speaker Change: And strategies that are in that range. So each of the managers may employ them in a slightly different way and several of them.
Speaker Change: We are currently doing some evaluations of different things, but before we introduced anything into an investment process.
Speaker Change: Obviously as you would expect we're going to want to make sure that they have been a lot of thought and work put behind that but.
Speaker Change: Each of them could be applied slightly differently, depending upon the nature of our of a specific manager our strategy.
Speaker Change: Okay. Thanks.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: This concludes our question and answer session I would now like to turn the conference back over to Mr. Aylward.
Mr. Aylward: Thank you Didi and I want to thank everyone for joining us today, and obviously certainly encourage you to reach out if you have any other further questions. Thank you.
Mr. Aylward: That concludes today's call. Thank you for participating and you may now disconnect.