AAMI - NYSE

Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the First Quarter 2023. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions] Please note, this call is being recorded today, Thursday, May 4, 2023, at 11 a.m. Eastern Time. I would now like to turn the meeting over to Melody Huang, Senior Vice President, Director of Finance and Investor Relations. Please go ahead, Melody.

Good morning and welcome to BrightSphere's conference call to discuss our results for the first quarter ended March 31, 2023. Before we get 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 these risks and uncertainties appears in our SEC filings, including the Form 8-K filed today containing the earnings release in our 2022 Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update them as a result of new information or future events. We may also reference certain non-GAAP financial measures. Information about any non-GAAP measures reflected, including a reconciliation of those measures to GAAP measures can be found on our website along with the slides that 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 products. Suren Rana, our President and Chief Executive Officer will lead the call. And now, I'm pleased to turn the call over to Suren.

Thanks, Melody. Good morning, everyone, and thanks for joining us today. As usual, I'll start off with the highlights on Slide 5 of the deck. For Q1 2023, the company reported ENI per share of $0.28 compared to $0.52 in Q1 of 2022. The drop in earnings was driven by lower AUM due to equity market declines throughout 2022 and also lower performance fee in the quarter compared to 1Q 2022. We're pleased, however, that Acadian's investment performance has continued to be strong throughout this volatile period. As of March 31, 2023, 87%, 86% and 90% of strategies by revenue beat their benchmarks over the prior three, five and 10-year periods respectively. We also reported third straight quarter of positive net flows with $0.1 billion of net inflows, and our sales pipeline remains strong historically. We remain on track on executing on our organic growth initiatives. On systematic credit, we have the core team mostly in place and they continue to work on progressively more advanced versions of the investment model and data and infrastructure. We expect it all to be ready in the second half of 2023. And at that point we expect to start investing in the strategy with seed capital. On Acadian's Equity Alternatives platform, you may recall, we seeded it in Q4 of 2022 with $15 million of seed capital and are now building an investment track record. We're off to a good start on that front. Over time, we expect these initiatives to help generate sustained organic growth for Acadian. Turning to capital management. We had a cash balance of $154 million as of March 31 2023. During the quarter, Acadian drew down on their operating revolver and ended the quarter with an outstanding balance of $87 million. As we have discussed in prior years, this revolving credit facility is at Acadian operating level and is not linked to our corporate cash balance. Acadian draws on this facility at the beginning of the year for first quarter seasonal needs, mainly to pay prior year's annual bonuses. And the facility is then paid down fully by year-end from cash generated by the business. We expect this year to be no different. As our business continues to generate strong free cash flow, we expect to continue deploying capital to support our organic growth and to buy back our shares whenever opportunities come up. Let me conclude with our long-term strategy on slide 15. We will continue to invest in our core capabilities and leverage our unique quant platform to expand into new areas, like we're doing with systematic credit and equity alternatives initiatives. We will continue using our free cash flow to support organic growth and for share repurchases whenever opportunities are available. And we remain focused on maximizing shareholder value. Now, let me turn the call back to the operator. Happy to answer questions at this point.

[Operator Instructions] Our first question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

Hey, Suren, good morning. Thanks for the question. I didn't see any buybacks in the quarter. Is that just because you didn't find it compelling here in this backdrop, or was it more about the lack of having any available window? And if maybe you could just update us on your thinking there around buybacks and also M&A adding teams and bolt-ons, just how your appetite for that is evolving?

Yeah. Hi, Mike. I guess, our thinking hasn't changed with respect to capital management and buybacks. As we've said, yeah, we have a strong cash balance and that's basically the only two uses are seeding organic growth opportunities and buybacks. With regards to seeding, we've already seeded the equity alternatives platform. We expect another $15 million or so towards the second half maybe end of Q3 or early Q4 to see the systematic credit platform for this year. And rest of the cash is primarily for buybacks. And yeah the timing will depend on market opportunities and open windows and such. So it's really -- that's basically capital management really unchanged. And with regards to M&A and bolt-on opportunities, we're not looking for any acquisitions outside our space. We remain open to bringing on teams who bring specific capabilities that are synergistic with our overall quant platform, but we're not looking to bring anything unrelated. So it's unlikely that we will use much of the capital for any acquisitions. If anything it would be more towards bringing on a team or something like that ultimately is more of an organic opportunity. And broadly we remain open to partnerships for any value-enhancing opportunity -- we're always open for that.

And were there any available windows in the quarter for buybacks, or should one presume that because there were no buybacks that there weren't any windows just given what you articulated?

Yeah, that's a fair assumption.

Okay. And then just a follow-up question on the institutional pipeline. Maybe you could just a little elaborate a little bit on how that looks today versus a year ago versus last quarter? What strategies are you guys seeing interest in? And any color on maybe the softness on gross sales in the quarter versus a year ago and the prior quarter?

Yeah, the pipeline is very healthy and strong. Compared with the history, it's towards the higher end. So we're pleased with that. There are a number of mandates that are in the advanced or one category that those are also higher by historical standards. So that's pretty good. We don't have anything specific -- any specific areas that we view to be at risk. Things -- choppy things do happen from time to time -- in one quarter. So first quarter we did have a rather large outflow of about $700 million due to a client deciding to rebalance to a fixed income for their specific portfolio. So things like that happen, but we don't have anything specific that we see as a persistent source of outflow. So that's on balance, we think it's well-positioned just given the strength of the pipeline and as we look at our at-risk bucket. In first quarter, yeah, it's just a question of timing when specific things in the pipeline come towards closure. So things move from one quarter to the other quarter all the time.

And any color on the strategies where you guys are seeing interest from customers the strength on the gross sales?

It's fairly broad-based. We have interest in our flagship strategies like global equity emerging markets [indiscernible] outside the US internationally given regional areas like all the equities. We continue to see interest in sustainable versions of strategies, so it is fairly broad-based.

Great. Thank you.

[Operator Instructions] All right. And this concludes our question-and-answer session. I'd like to turn the conference call back over to Suren Rana.