Ladies and gentlemen, thank you for standing by, and welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the Second Quarter 2023. [Operator Instructions] Please note that this call is being recorded today, Thursday, August 3, 2023, at 11 a.m. Eastern Time.

I would now like to turn the meeting over to Melody Huang, SVP Director of Finance, Investor Relations. Please go ahead..

Good morning, and welcome to BrightSphere's conference call to discuss our results for the second quarter ended June 30, 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, our 2022 Form 10-K and our Form 10-Q for the first quarter of 2023.

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 here shall be deemed to be an offer of 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 thank you for joining us today. As usual, I'll start off with the main highlights on Slide five of the deck, and then we can jump into Q&A.

So for Q2 '23, we reported ENI per share of $0.28 compared to $0.41 in the second quarter of 2022, when compared to $0.28 in the first quarter of '23, the drop in earnings compared to a year ago was primarily driven by higher OpEx due to the impact of foreign currency changes, inflation and our ongoing investment in growth initiatives and operational infrastructure.

Acadian's investment performance continues to be strong as of June 30, '23, 81% -- 81% and 90% of strategies by revenue to beat their benchmarks over the prior three, five and 10 year periods, respectively. We reported modestly positive net flows with $0.1 billion of net inflows, and it was our fourth straight quarter of positive net flows.

At the same time, our sales pipeline remains strong. We continue to be on track to execute on our growth initiatives. Acadian's equity alternatives platform is off to a promising start. The investment track record is building well after we seeded the platform a couple of quarters ago.

On systematic credits, the team continues to build out the model and infrastructure. We expect to start investing in seed capital in the strategy in Q4 of this year. Turning to capital management, we had a cash balance of $141 million as of June 30, '23.

Acadian has continued to pay down its revolving facility and ended the quarter with an outstanding balance of $38 million compared to $87 million at the end of the last quarter. Like in prior years, we expect the facility to be paid down fully by year-end.

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 stock, whenever opportunities come up. Our long-term strategy remains the same. We will continue to invest in our core capabilities and leverage our unique Quant platform to grow and expand into new areas.

We will continue using our free cash flow to support organic growth and to buy back stock, and we remain focused on maximizing shareholder value. Now let me turn the call back to the operator. I'm happy to answer questions at this point..

[Operator Instructions] Your first question comes from Michael Cyprys from Morgan Stanley. Please go ahead. Your line is open..

Hey, sir, and good morning. Thanks for taking the question. Maybe just on -- kicking off on buybacks. I don't think I saw any in the quarter. So just hoping you could update us on just your latest thoughts there and how you're thinking about opportunities there to repurchase shares.

Is there just any sort of limitations in place right now around available windows that may have prohibited you in the quarter? And when do you think you might have a window begin to open up again as you look out?.

Hi, Mike, yes. I guess no buybacks in the last quarter either. We do have cash on our balance sheet as you've noticed. and the uses are still. So no change really in our approach but uses are to support our organic growth, which we've already laid out the near-term plans. And the rest of it is really toward buyback when we have windows available.

We don't know yet when we might have that. We're probably looking out at least a couple of quarters before we can look at any buybacks..

Great. And then just maybe a follow-up question on the institutional pipeline. Maybe you could just update us, elaborate a bit on how that looks today versus last quarter.

And maybe you can give us a little bit of flavor for the types of strategies that you're seeing in the pipeline as we'll?.

Yes. Thanks. Yes, the pipeline continues to be strong and healthy as we reported last quarter. There were some delays by a couple of weeks or three weeks as we approached summer. But generally, things are moving through the pipeline. July was good. I guess last quarter, as I said, it was just modestly positive, but we had a good July.

So hopefully, that momentum continues. And there's a variety of strategies. As you know, the firm overall has a large number of strategies. So we're pretty diversified, and that reflects in the pipeline, too.

So it's across a variety of strategies, including small cap international, there is interest in Long-Short as well, enhanced versions of various strategies. So it's pretty robust. We got sales from global equity from all country ex U.S. So hopefully, that gives you a flavor..

Our next question comes from John Dunn from Evercore ISI. Please go ahead. Your line is open. .

Hi, good morning and thank you. I had a question about the fee rate maybe in the back half of the year. Just with kind of like emerging markets down so far in the quarter and U.S.

up a little bit, what do you think like the trajectory of the fee rate might look like?.

Yes. Our fee rate is affected a lot by the mix. So it's hard to tell. But my best guess would be we continue to be at around the 38 bps in the near term where we are. Emerging markets has a higher fee rate. And as you know, U.S. markets, at least in the last couple of quarters, beat the emerging market indices, but there are other factors still.

We're getting some higher fee inflows and losing lower fee outflows. So the result, we have 38 bps now compared to 37 bps a year ago. So I would say we probably stay put here. Longer term, there are things, particularly our initiatives, for example, where we have higher fee strategies that would hopefully pull that fee rate higher.

But at least in the near term, I would -- my best guess would be we stay around here..

Got you. And then just on G&A in the second half. I think that generally, the expense ratios probably go down from here.

But in terms of dollars, where do you see fixed comp and G&A going over the next two quarters?.

Yes, staying more or less at this level. In the last few quarters, as I mentioned in my remarks, we have invested in our operational infrastructure. Over the last couple of quarters, we also have invested in the new initiatives. We've added to the headcount, we've added to the data, et cetera.

So that -- we've done a fair bit and we probably have also built up some scale as we have done that. And we've -- some of the OpEx has increased because of inflation, as I said earlier, in terms of just the higher cost of data and comp increase for -- to help folks with inflation. And there has been some temporary things as well like the ForEx impact.

Last year, we had a benefit of the ForEx impact. This year, it went the other way; so some of that should go away. But I would say, basically, we're probably -- in terms of dollars, we'll probably stay at this level more or less..

Your next question comes from Kenneth Lee from RBC. Please go ahead. Your line is open. .

Hi, good morning.

Just at a high level, more broadly, I wonder if you could just talk about what you're seeing in terms of client sentiment or positioning? And then perhaps maybe some kind of indication of what that potential implications for organic growth over the near term?.

Yes. Thanks, Ken. Yes, as you know, we're basically primarily institutional business. So our clients and the consultants tend to have longer-term views with the sales cycles often going in nine to 12 months. So it doesn't change that much quarter-to-quarter. As I said earlier, we've seen the pipeline is good.

We were seeing interest across a number of strategies. So that's really good. They also don't see much of any kind of exodus from any particular strategies or any groups of strategies. So that's good as well.

Maybe one exception I would say is that in terms of the outflows that we had a good part was still from the managed vol group of strategies, maybe that's probably one area where we saw some clients take a position that in the trending data rewarding market, maybe they were the cut down some exposure to the managed vol.

Longer term, of course, our clients believe that manage vault strategies really for the risk adjusted return is better than many others. But that's where I would say maybe we had some directional decisions. But other than that, really clients want to invest, and they're taking the meetings, and the pipeline is good. So we're cautiously optimistic..

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

Thank you. I'd like to thank everyone for taking the time. Look forward to chatting next quarter..