Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the Fourth Quarter 2021. Please note that this call is being recorded today, Thursday, February 3, 2022 at 11:00 AM Eastern Time.

I would now like to turn the meeting over to Elie Sugarman, Head of Corporate Development and Investor Relations. Please go ahead, Elie..

Good morning and welcome to BrightSphere's conference call to discuss our results for the fourth quarter ended December 31, 2021. 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 our 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, our 2020 Form 10-K and our Form 10-Q for each of the first and second and third quarters of 2021.

Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update them as a result of new information or future events. We may also reference certain non-GAAP financial measures.

Information about any non-GAAP measures referenced, including a reconciliation of those measures to 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.

Suren?.

Thanks Eli. Good morning, everyone. And thank you for joining us today. Well, I'll start off with slide 5 of the presentation deck as usual. Over the last few orders we completed the divestiture six of our seven affiliates.

For the fourth quarter of '21 was the first quarter of the company operating as a pure play quant business rather than a multi boutique business. And we're pleased that we had a solid start in this new phase, with strong financial results for the quarter.

We reported ENI per share of $0.53 for 4Q '21 compared to $0.28 for 4Q '20 and also $0.28 and potentially for 3Q '21. The increase was primarily driven by strong performance.

In the fourth quarter of '21, we also deployed a large chunk of our excess capital, we repurchase 1.1 billion of our shares, reducing our share count by 45% and also paid down $125 million of retail notes, which will collectively generate significant earnings accretion and reduce leverage.

Pro forma for the redemption of the retail notes, which happened in January after the quarter end, our cash balance is $125 million and we will continue deploying capital towards share repurchases and to support organic growth. Now turning to the operating highlights for Acadian on slide 7.

Acadian generated $87.6 million of adjusted EBITDA in 4Q '21 compared to $40.4 million in 4Q '20 and $49.1 million in 3Q '21. The increase in EBITDA was mainly driven by strong performance fee. Acadian recorded net outflows of $0.8 billion in 4Q, '21, compared to net outflows of $1.3 billion in 4Q, '20.

On a revenue basis, the flows were breakeven in 4Q, '21 compared to an annualized revenue impact of minus $6.1 million for 4Q of 2020.

Acadian investment performance continued to be excellent, and got even stronger in 4Q, '21 with 82%, 86% and 90% of strategies by revenue, now beating their respective benchmarks over the prior three, five and 10 year periods.

Now, last quarter, we spent some time diving into Acadian platform a bit more, as laid out on slide 8 through 12 in this deck. This time, let me take the opportunity to touch on the long-term outlook for Acadian's business and the drivers of growth. On slide 13, we look at the key secular trends impacting our business.

Firstly, there continues to be an explosive growth in alternative data available to investors, it includes companies related information, sector trends, macro data, ESG data, you name it, processing it all efficiently and extracting useful takeaways from it is getting harder and harder for human analysts.

At the same time, the techniques and technology for making meaning of the data keep getting better and better, including machine learning and artificial intelligence approaches. And also the scale of investment in technology, data and talent is becoming more and more important to truly make the most use of the signals available in the data.

Acadian is a pioneer in quant investing, and has been investing heavily in its capabilities for 35 years, building a unique combination of data, technology and talent. We're seeing a growing demand for uncorrelated strategies and for customized solutions to client objectives, such as ESG, or diversification.

And these types of strategies are particularly suited for big data driven approaches. We believe that these long-term trends position us really well to produce superior output for our clients and meet this growing demand for data driven strategies.

We are on the cutting edge of quant and we can apply our edge in adjacent asset classes such as alternative and new markets, such as China. On slide 14, to review some specific initiatives that we have underway on these themes.

First, investors around the globe are looking for yield but the downside protection and robust diversification across market environments. And of course this trend continues to power the growth of private alternatives. We have developed two very good solutions to satisfy this demand which we are very excited about.

One systematic macro, which is applying our multi factor model across asset classes, including equity, fixed income, currency, and commodities to generate absolute returns with very high diversification.

We've been getting very good traction from clients for this strategy until equity alternative strategies, which is using alternative signals, alternative data and differentiated portfolio construction techniques to produce uncorrelated returns. We are very happy with the investment results we're getting here.

And then we are seeing continually increasing demand for ESG focused strategies, which have already exceeded a $1 trillion in AUM. With Acadian focus on quant and technology, our advantage in ESG space is that we can quantify the ESG signals, and more precisely customized client portfolios for their ESG value.

We can implement dynamic programs related to client ESG goals, such as quantifying their carbon exposures, and decarbonizing their portfolio and measuring the impact on risk and return of their portfolio.

So these sophisticated techniques are way superior to crude methods, such as excluding or divesting some names or just incorporating ESG considerations, qualitatively without explicit measurement of ESG exposures. Doing the latter doesn't really achieve the ESG goals. And clients may be unwittingly sacrificing return or taking on additional risk.

We're seeing increasing demand and engagement from clients on ESG theme and expect this to continue for a long time. And then as an example of applying our quant edge in new markets, we see it a strategy for China market, which is performing pretty well.

China market is large and liquid, but rich and opportunity and inefficiencies since its retail driven. So to summarize our growth strategy, we will continue investing in our quant capability to remain on the cutting edge.

And we will leverage our quant edge to tap into several secular growth areas such as ESG, absolute return alternatives, and new markets such as China. Now let me turn the call back to the operator. And we're happy to answer a question at this point. Thank you..

Our first question is from Kenneth Lee - RBC Capital Markets..

Hi, thanks for taking my question. I'm wondering if you could just talk a little bit more about how you think about capital allocation as it pertains to what's needed for organic growth and keep capital. Thanks..

Hi, Ken. Thanks. Yes, in of - is just that we - our business throws out a lot of cash. And that's of course, a good problem to have. At the same time we think our stock is undervalued and our long-term prospects are really great. So we will probably be using a lot of our cash generation toward repurchases.

In terms of organic growth, as I said in our business, we've been investing in our capabilities for decades. And a lot of that investment is already baked into the P&L in terms of the talent that we have, the data that we pay for and the technology that we build and continue to invest in, all of that is, lot of that is expensed into the P&L.

So the incremental need is really mostly seeding new strategies for which we have an active program. So, as data opportunities come, we will see - continue to see new strategies, such as the types I described, which we seeded from time to time, but a bulk of the cash generation really is available for repurchases.

So currently, our cash balance is about $125 million after having paid the retail notes. So we have about that much capacity now for repurchases, and then we'll see how the year progresses in terms of additional cash flow generation..

Great, that's very helpful. And just one follow up question, if I may, wonder if you could comment, whether you've had any had any discussions around potential value enhancing transactions in the quarter, and perhaps one of the exhaust of frame the likelihood of seeing any kind of potential transaction over the near term. Thanks..

Oh, yes, sure. As we've always said, our objectives, and our duty remains to maximize shareholder value. Now, having completed our divestitures, we are very well positioned with our unique business. And we really believe in our long-term growth prospects. And we are very optimistic about the future growth.

And we generate a lot of cash flow, and we can add value through buybacks. So we're very happy continuing on. At the same time, if we have a serious proposal that is attractive for our shareholders and recognizes the value, we're very open to it. It's hard to really peg the timing of anything.

But if something happens that's great for shareholders, we of course, have a fiduciary duty to make that happen..

Our next question is from Robert Lee with KBW..

Great. Thanks. Good morning, Suren. Hope all's well.

Just real quickly, could you maybe update us on where you are with kind of corporate overhead holding company expenses, and then you can to talk about kind of driving, room to drive those down some more? And maybe as part of that, is there an avenue here where kind of the public company kind of gets collapsed into Acadian? I'm not sure.

I mean, who knows if Acadian imagine wants to run a public company. But you've seen some of those in the distant past in the industry. But is that something we should be thinking that ultimately, if there is no transaction, the public holding company essentially gets absorbed into the operating business..

Yes, hi, Rob. Yes, that is anyway, our plan that we're not necessarily counting on a transaction. But we're always open to it. And given our capabilities are so unique, and our businesses so well positioned, that could very well happen, we are a scarce business.

At the same time, of course, no, we're continuing on the path of continuing to simplify our business make things easier. So we are in the different PR and a process to more closely integrate our public company functions with the operating business. So in fact, it is what you're describing sort of collapsing is already underway.

And of course, we're doing a thoughtfully in terms of making sure that all the work streams are streamlined. And it'll take a few quarters. And of course, as that continues on, there are efficiencies that we mentioned that they will be realized from the simplification..

And I assume that's embedded in whatever savings will be there embedded in your guidance on expenses. With the performance fees, I guess just the magnitude, it's really took me by surprise, I would expect based on the estimates out there people weren't expecting anything of that magnitude.

Can you give us a little color is there like one or two products that drove that or was just really big plan, this is just a one off that was this big? Because I didn't, I know, there was some performance fees from Acadian, but I just didn't think there's potential for that kind of magnitude..

Right, yes, we've got a strong performance fee this year. And we're very happy with that.

And came on the backup, impressive investment performance, right, as we've been reporting our investment performance has been great and in 4Q it improved even more with at least more than 80% of strategies beating across all time horizons and some are 90% of strategies and some time horizon.

The performance fee will largely depend on how the investment performance stacks up at the end of '22, as we've said performance fees generally a 4Q event for us. We have smaller amounts in earlier quarters, but it rarely hits, fully determined in 4Q.

So for '22 probably be lower than ' 21 but we're hoping for another good performance year now the environment is good so we'll see where it comes out. It's hard to hard to peg but it came from a wide variety of clients and strategies, again, but it just really depends on performance..

Is there any way of kind of sizing of the $117 billion, there's $20 billion of assets that are performance fee eligible or 10, or 50.

Just trying to get some sense of the potential asset base supporting?.

I see. Yes, that's about right now, we try to keep it less than a quarter or so about 20%, 25% one could say..

Okay, great. And one last, really just kind of a modeling question, what post the tender and everything what is the year end kind of actual share count at that point? Just want to make sure I'm level setting it correctly for going forward..

Yes, I guess it will be in the 10-K. But it's around - you'll get - so you'll get the exact number in the 10-K. But it's around 46 million basic share counts at the end of the year. Just another starting point. As we do repurchases, if you put the 120 million to work, maybe we can reduce that by 4 million or 5 million..

Our next question is from Michael Cyprys with Morgan Stanley..

Hey, thanks for taking the question. I was just hoping you could maybe share a little color on how the quant strategies are holding up from a performance standpoint so far in 2022.

Just given the volatility in the marketplace, what are you seeing there? And then related to that, what are you seeing from clients just in terms of demand for these sorts of strategies? And what is likely here a choppier take?.

Yes, hi, Mike. I guess it's only a month into it. So of course, it's too soon to tell but thematically we like this environment. Now, of course, it is a better environment for performance.

Because it's a more normal environment, in the sense that the markets more discerning about rewarding different investment factors, rather than what we had for a few years right, buying growth factor at any price. So in that sense, we would help that it's a constructive market known to reward known good investment process.

And in terms of client demand, we know we will see how the market develops and what kind of strategies come in, well, we do have a variety of strategies. And as we've said our lowball strategies for example, this is kind of the environment where they are performing again, we are always, our lowball strategy, we're always outperforming its beta.

And they were always ahead of the lowball indices. But in this environment, we are also outperforming the core indices, like S&P and MSCI. So that's good to see. But again, it's just a little too soon to call. We'll see how the market plays out..

Great, and maybe just circling back to the performance fees, hearing your earlier commentary, suggesting 2022 likely to be lower on performance fees than 2021.

But would you have any historical periods you might be able to share with us and just what the performance fees were in 2020, 2019, either for the fourth quarter or full year, understandably, with all the other affiliates, you had some moving pieces and some clawback I think with borrowers, so just any help there.

And what change, would you say, in '21, relative to the performance fees that you guys have put up in prior years, just in terms of the business? Was there just outside performance over a 12-month period? Or was it looking back over a multiyear timeframe with these new strategies is anything that's different? Because the magnitude of performance fees here that we've seen, it's not something we've seen at all in BrightSphere or AUM's history that we can tell?.

Yes, it certainly bounces around depending on performance, and I'm sure enough some of that is linked to one year performance and some of that is linked to other periods two or three or five year period. And so under longer data periods, I guess when you get that kind of a period then it's high, but certainly has bounced around in the history.

There have been times when the number was, the dollar number was similar on a smaller AUM base, when sort of just a combination of things come together, and a lot of strategies outperforming. And there are times when only a few strategies outperforming. So it's really good to know.

But the simple thing is that we have really, across the board, great investment performance. So when that comes when that happens, then you've got a strong performance fees..

And I guess, just given that strong performance backdrop that you're articulating, do you think this is enough at this point to reverse the flow, outflow trajectory that we're seeing and to drive in flows? Or what do you think needs to happen to really drive and inflect towards a more sustainable flow trajectory?.

Yes, no, we don't have like, no, I guess no. When we talked about '21, I mean we were talking 1Q and 2Q that clients were moving out of lowball because just the high beta just seem to pay off really well for clients. Right, and now the situation has changed. And anyway, we've had outflows from lowball then.

So we don't have any pressures like secular pressures like that on the flows, per se. But then in 4Q, we had a client who decided to insource their business. So without that, the flow would have been positive for the fourth quarter. So there are idiosyncratic lumpy things like that, that can happen in institutional business.

But away from that there isn't any pressure as such. We get - we are getting good sales.

But to a question of in terms of getting consistently positive flows, and growing flows, that would probably happen more from our, the new strategies that were seeded and that we're excited about, because they're not mature strategies, we get good sales, we can also get some clients to rebalance.

And maybe it's like breakeven or modestly positive on average. But the real growth will probably come from, as I outlined earlier, in terms of our, the new strategies that are tapping into secular trends. So our multi asset class strategy that's really getting good traction, we're really well positioned to provide any ESG solutions to clients.

So that we're very excited about, our equity alternatives products, where we have built up really good performance, new markets like China. So those are things that can generate close on a consistent basis.

Because there are - those are secular growth themes are, most of our business, it's very strong, but probably modestly positive, as opposed to consistent growth quarter after quarter. And for that, we got - we better tap into these new themes..

Our next question is from John Dunn with Evercore..

Hey, just looking at the newer strategies, is there any difference to the way those get distributed? And maybe, can you talk about demand for them? The institutional channel versus maybe the wealth management channel..

Yes, currently, hi, John. Yes, currently, all our distribution is institutional. And we certainly do see distribution as an avenue for growth. And whenever you find good resources, we want to have them in terms of opening new channels or opening new markets, but it's all institutional currently.

We haven't started a retail distribution, whether route or warehouses. So, but the new products are essentially the same distribution.

Essentially, it's more clients, it's clients where we deeply understand what they need and often in consultation with them, we can provide a customized approach and then becomes a larger strategy and then make it sort of distributed more broadly.

But in terms of retail we don't have currently have plans to invest into retail, if it happens, it would probably be in the context of our partnership with the retail organization that could bring a lot of synergies. So we don't plan to build retail, but now we plan to continue growing more and more into institutional..

Got it. And then maybe just you mentioned the client redemption this quarter.

Could you maybe size that for us? And then also, do you guys see anything kind of chunky coming down the pipe in the next couple of quarters?.

No, we don't see anything chunky, because by definition, these things are idiosyncratic. And yes, that was I guess $1.5 million roughly. And so as I said, without that now, the flows would have been positive. But that could happen any quarter..

The next question is from Michael Cyprys with Morgan Stanley..

Thanks for taking the follow up.

Just as we think about share buyback potential, can you just remind us how much cash do you like to run with just to run the business and how much you think about investing back into the business to drive growth organically and maybe just kind of update us on some of those seeding initiatives? You certainly had mentioned some of the new products that you've invested in prior years, but as you kind of look out over the next couple years, how are you thinking about that on a go forward?.

Yes, I guess we now, we typically because the cash is always coming in. So we typically have more than $20 million on hand even times when we are using up a lot of cash.

And in terms of seeding, as I said, a lot of our investment in the data and technology and talent that's already in the P&L, so just seeding and we have many seeds already in the works. So it's probably $10 million, $20 million a year that we could use incrementally on seeding and rest we will probably think about buybacks.

So as I said, maybe $120 million, $ 125 million would be, we want to you set aside for buybacks in the near term. And then we see our cash balance progresses..

Great. And just lastly, if I could just coming back to the expense commentary, and if you recall, there were some plans to drive the corporate overhead costs from like $20 million run rate to $10 million.

Can you just remind us the timing of that, some of the actions you guys are taking, is $10 million still the right end status or potential for that to go even lower?.

Yes, I guess that's, I guess sort of known, good high level, a number as I mentioned earlier, that process is underway, in terms of just integrating our processes closely. So it's really just essentially one integrated business, as opposed to a whole go and out go.

And we were being thoughtful about it in terms of making sure there's nothing slips through the cracks, so that we'll know, they'll progress over the next few quarters..

This concludes our question-and-answer session. I'd like to turn the conference call back over to Suren Rana for any closing remarks..

Okay. Thank you. Thank you, everyone for joining us today. Appreciate that. And we're looking forward to engaging with you in the coming quarters..