Acadian Asset Management Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group earnings conference call and webcast for the second quarter 2019. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. To be added to the queue, please press the star followed by 1 at any time during the call. If you need to reach an operator, please press the star followed by 0. Please note that this call is being recorded today, August 1st, at 11 a.m. Eastern Time. I would now like to turn the meeting over to Brett Perryman, Head of Investor Relations. Please go ahead, Brett.

Thank you. Good morning, and welcome to BrightSphere's conference call to discuss our results for the second quarter ended June 30, 2019. Before we get started, I would like to note that certain comments made on this call may constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by words such as expect, anticipate, may, intends, believes, estimate, project, and other similar expressions. Such statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from these forward-looking statements. These factors include, but are not limited to, the factors described in BrightSphere's filings made with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019, under the heading Risk Factors. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. We urge you not to place under-reliance on any forward-looking statements. During this call, we will discuss non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which is available in the Investor Relations section of our website. where you will also find the slides that we will use as part of our discussion this morning. Today's call will be led by Guang Yang, our President and Chief Executive Officer, and Cern Rana, our Chief Financial Officer. I will now turn the call over to Guang.

Thanks, Brett. Good morning, everyone, and thanks for joining us today. We are pleased to share our results for the quarter and to update you on our progress in executing our long-term growth strategy. My initial focus as CEO was to quickly resize and refocus the business. That critical work was largely completed in spring. Since then, our team has spent significant time realigning our business strategy with the opportunities we see in both expanding distribution in key global markets as well as increasing our product offerings in high demand through safe investments and acquisitions. Our board is supportive of and excited about our growth plan, and we're making good progress in executing it, as I will share with you today. Turning to slide two of our presentation, Our assets under management grew to $225 billion this quarter as equity markets produced solid returns despite some volatility during the quarter. The breadth of our product offerings, which includes over 100 investment strategies, is receiving increasing interest in the global markets we're targeting, including China, Latin America, and the Middle East. The chart on the furthest right of the page provides a breakdown of our management fee revenue by asset class. We are diversified in terms of sources of our revenue. At a higher level, given the types of investment strategies our affiliates employ, Global investors we're speaking with appreciate our affiliates' long-term track records of alpha generation in quantitative solutions, alternatives, and liquid alpha investments. About two-thirds of our revenue currently comes from quant slash solutions and alternatives, an area we think will continue to be in strong demand globally. We see significant opportunities to increase those segments through adding sales as well as product development and acquisition. According to slide three, as I mentioned, BridesFair has made significant progress in simplifying and streamlining our business, including our governance and operations. which was a key goal for us this year. We are also pleased to return significant capital to shareholders during this time as well. Today, Brightsphere is more nimble and entrepreneurial as a business and in the execution of our growth strategy. Our global distribution team has been very active in cultivating relationships with investors in a number of international markets. While the US-China trade negotiations have slowed execution in China, it is widely reported that China has a strong interest in opening its asset management sector over the near term. Our team has met with senior executives at many major Chinese financial institutions. We're optimistic that once greater political uncertainty is achieved, we will be able to execute on a range of new business opportunities, including investments, partnerships, and potential joint ventures. Similarly, we have added senior distribution team members in Latin America and the Middle East. They have relationships with the sovereign wealth pension and corporate investors in those regions. Our meetings have been productive and we're seeing interest in a range of affiliate products, particularly in the solutions and alternative areas. We're also looking at a number of ways to expand our U.S. distribution capabilities, particularly in the insurance segment where we believe there is a demand for our offerings. From a capital management standpoint, we're committed to allocating our capital to maximize long-term growth for our shareholders. We're focused on enhancing our investment capabilities in demand, particularly solutions and alternatives-based strategies by developing them internally through seed and co-investment, and acquiring new capacity as well. Brightsphere has a strong track record of using our seed capital to leverage our affiliates' investment expertise into new asset classes, geographies, and clientele. We have helped affiliates build strategies to address clients' needs in a range of market environments. including quantitative and solution-oriented products such as multi-asset costs, China A-shares, and low volatility strategies, as well as other illiquid alternative strategies. Currently, about $30 billion of our assets under management are in seeded and co-invested products. which have also contributed approximately 2.8 billion to gross sales for the year to date. We are currently engaged across the Freelance Group on continued innovation in a range of areas. We also have an active pipeline of acquisition opportunities. Our flexible and opportunistic approach has enabled us to engage with a range of high-quality asset managers, from potential standalone affiliates to smaller organizations or teams that could be housed at the center or one of our affiliates. We have met with a number of managers with strong track records in high-demand alternative and solution strategies, including liquid alternatives, credit, and infrastructure. These opportunities range in size and clientele, including institutional and retail in the US and internationally. Turning now to slide four, our financial results for the quarter benefited from a strong market environment, positive impact from share repurchases, and continued realization of central cost savings. Our ENI per share increased almost 13% from Q1 2019. Market appreciation drove the 1.2% increase in AUM to $225 billion. Our net client cash flows were negative $2.9 billion, producing an annualized revenue impact of negative $14.4 million for the quarter. While we're encouraged to say our growth outflow declined from Q1-19, we also saw slower sales and affiliates continue to rebuild their pipeline after a strong first quarter. Moving to performance for our liquid investment strategies, our long-term performance remains strong and consistent with strategies representing 65% 69% and 77% of revenue outperforming benchmarks on a 3-, 5-, and 10-year basis, respectively. In addition, our illiquid strategies maintained strong and consistent performance. Our balance sheet is strong and we're actively returning capital to shareholders. We repurchased approximately 300,000 shares for about $3 million during the second quarter, bringing our total for the year to 13 million shares, or about 13% of our shares outstanding. We will continue to opportunistically repurchase our stock as appropriate as part of our overall capital management strategy. we will continue to return value to the shareholders through consistent quarterly dividends of 10 cents per share. And now Soren will provide additional commentary on our results. Soren. Thank you, Guang.

Turning to slide five, we compare our key metrics for second quarter 2019 to prior quarters. Over the last five quarters, our total assets and our average assets have remained steady with the exception of a market-driven decrease in Q4-18, which was partly offset by subsequent market recovery. In Q2-19, our total assets increased modestly by 1.2% compared to prior quarter, and our average assets increased by 1.9% from prior quarter. Looking at our fee rates, our weighted average fee rate decreased from 39 bps in Q1-19 to 37.5 bps in Q2-19. This decrease was mainly driven by market appreciation in lower fee asset classes such as U.S. equities that outpaced the higher fee asset classes such as emerging markets equities in second quarter of 2019. So total revenue was essentially flat compared to the prior quarter, as that slight increase in AUM was offset by the slightly lower BIPs that I mentioned. Looking at our operating margin, it increased from 33.3% to 35.8%, driven by continued realization of the efficiency initiatives at the center that Guam touched on, as well as one-off and seasonal expenses we had mentioned on the last call for first quarter that did not repeat in the second quarter. So in summary, our revenue remained stable, while lower operating expenses improved our profitability, which increased our pre-tax ENI by 3.1%. Our EPS saw a larger 12.5% quarter-over-quarter increase driven by sizable share repurchases done in first quarter and fourth quarter of 2018. Also, our EPS was up 14.3% when excluding the impact of performance fee. Turning to the next slide, slide six, we show the investment performance of our liquid strategies. As Guang previously noted, we continue to see strong and consistent long-term performance in our liquid strategies with strategies representing 65%, 69%, and 77% of revenue outperforming their respective benchmarks on a three, five, and 10 year basis respectively. Slide seven shows our net client cash flows and revenue impact of those flows. As previously noted, Our net client cash flow was 2.9 billion negative in Q2 2019. Our gross outflows continue to improve, and it's the lowest in the last several quarters. It's 7.8 billion compared to 8.6 billion in the prior quarter. But the gross sales declined quarter over quarter from 6.9 billion to 5.1 billion after we had some strong sales in Q1 19 and now continue to build those pipelines. The pricing on the inflows was 36 bps while on outflows it was 41 bps. This quarter was a bit of an aberration from our general trend in the sense that the inflows in this particular quarter were concentrated in lower fee assets such as fixed income and the outflows included some higher fee strategies, such as long-short equity, which was partly driven by client de-risking. On slide eight, we show further details on our flows by asset class. We continue to see outflows in U.S. equity, specifically from some sub-advisory clients in large-cap strategies, which are lower fee and lower margin, as we have mentioned. Together, these strategies account for a small single-digit percentage of our ENI, just for some perspective. Moving to slide 9, we provide more detail on the drivers that impacted management fees from Q1-19 to Q2-19. Q2-19 saw higher market appreciation in lower-fee assets, and the mix of flows drove a decrease in consolidated fee rate from 39 bps to 37.5 bps. E&I management fee revenue decreased slightly by 0.8% from 207.5 million to 205.9 million, primarily as a result of the fee rate decline. On slide 10, we provide some perspective on our ENI operating expenses. Total ENI operating expenses declined 6% between Q1-19 and Q2-19, from $88.5 million to $83 million, as we benefited from cost-saving initiatives at the center, as well as the removal of the seasonal and one-off items that we had mentioned. On an aggregate basis, the ratio of operating expenses to management fees declined to 40.3%. We expect the operating expense ratio for the full year 2019 to be approximately 42%. On slide 11, we move to the next key driver of profitability, which is variable compensation. Our cash variable compensation increased 1% to 44.1 million in Q219 compared to Q119. This increase in cash variable compensation correlated with higher affiliate earnings before variable comp, which was offset partly by lower center cost in Q219. On a total basis, variable compensation decreased 1% to 48.4 million for Q219 with a 12% decline in non-cash equity-based award amortization. We also show the ratio of total variable compensation to earnings before variable compensation, or the variable compensation ratio. This ratio decreased from 41.6% in first quarter of 2019 to 39.8% in Q2 2019. primarily driven by the lower center variable cost. This ratio is expected to be approximately 40% for full year 2019. On slide 12, we show affiliate key employee distributions. These distributions represent the share of affiliate profits owned by the affiliate key employees. Between Q1-19 and Q2-19, distributions increased 3% from 13.4 million to 13.8 million, while operating earnings increased 7% quarter over quarter. The mix of increase in affiliates operating earnings and lower center costs resulted in a decrease in the distribution ratio from 19.6% to 18.9%. For full year 2019, this ratio is expected to be approximately 19%. On slide 13, we present a summary of our balance sheet and capital position as of June 30, 2019. As of this date, our net leverage ratio was 1.9x, and our gross leverage ratio, which is gross debt to adjusted EBITDA, was 2.3x. We believe that our cash flow generation and strong balance sheet provides ample capacity and flexibility to support our growth initiatives, including the seed capital, new product development, and acquisitions that Guang touched on. So in summary, we continue to execute on our strategy, making good progress. We are starting to see the benefits of the expense management and capital management initiatives that we deployed at the beginning of the year We have achieved good progress on the simplification initiative, having completed our re-domicile and some simplification on our shareholding base. And now we are turning our attention increasingly to the growth initiatives that we can expand on if there are specific questions. But there are initiatives on distribution, on new product development, on better sales of our existing promising strategies, and we're looking at a broad range of acquisition candidates across private market alternatives and solutions areas. Now I'd like to turn the call back to the operator, and we're happy to answer any questions you may have.

Thank you. At this time, those with questions should lift their phone receiver and press star, followed by the number 1 on their telephone keypad. To cancel a question, please press the number sign. Please hold for a brief moment while we compile the Q&A roster. Your first question comes from the line of Greg Siegenthaler with Credit Suisse. Please go ahead.

Thank you. Good morning, Guang.

Good morning.

I wanted to come back to your comments on forming business partnerships in Asia. From the prepared commentary, it sounded like we should not expect an announcement over the near term, given the trade issues between U.S.-China. I just wanted to see if I understood your comments correctly.

Yeah, we have been very active there. We have a team based in Asia right now, had many rounds of conversation with some of those institutions there. And of course, our focus, our discussion with those institutions, really, how can we do the business together over the long run, over the next five to ten years, when the market will be really, really important for global asset managers. But short term, unfortunately, that some of the large institutions there will be very sensitive to when and what form of the trade negotiation outcome would be. So in other words, short-term, we cannot really anticipate or pin down the timing and the initial form of the partnerships, but we're really focused on building something there over long-term.

Thank you, Guang. And just as my follow-up, maybe this one for Soren, on the capital management front, I just wanted to get a read on your appetite for buybacks in 3Q, 4Q, just given the cheaper share price here, versus maybe paying down debt, getting ready for M&A or even M&A.

Thanks, Greg. Yeah, this is Surin. Yeah, buyback continues to be an important lever in our toolkit, and we will definitely be opportunistically in the market soon. as opportunities arise. We did a small, modest amount in the last quarter, as you noted. So it's definitely a lever compared to paying down debt in particular. We continue to be comfortable in our net leverage ratio to be in that range of 1.75 to 2.25. But we are in a good place in terms of capital management and capital deployment opportunities. As we've mentioned, we obviously have the buybacks at our disposal, but we also are looking at a range of growth opportunities. Some are on the seed capital front, developing products that are in demand for the clients broadly on the private alternatives. solutions side and we are looking at a range of M&A opportunities in those areas in private credit private equity infrastructure to give you some examples and on the solution side platforms that are focused on outcome outcome driven solutions for our clients and and we've spoken with teams that need help with growth, and we've looked at more developed, more established managers. So our pipeline is very strong, and we continue to advance those conversations forward. So as we look at the capital, we will always continue to balance essentially the deployment of capital in the most attractive opportunities with a focus on EPS accretion as well as driving organic growth.

Thank you, Søren.

Your next question comes from the line of Kenneth Lee with RBC. Please go ahead.

Hi. Good morning, and thanks for taking my question. As you converse with investors in China, Latin America, the Middle East, which strategies and investment capabilities of BrightSphere are you finding that has been resonating really well with potential clients?

Thanks, Cain. When we talk to them, they really appreciate a few things we bring to the table. One is that We do have, you know, collectively over 100 strategies. And we, as a platform, we have over 200 billion AUM. So for them, they like, increasingly we found that those institutions like to deal with large institutions, the global players, so to speak. And then when they look through our offerings, they're interested in solutions. Some of those institutions are not necessarily super focused on the benchmark, but what you can provide, potentially even have a few products from our affiliates to provide the total solution. That's one area, seems a fair amount of interest. Another interest, of course, it's alternatives. Looks like... you know, there is a strong interest to, you know, get into alternative sides that potentially for a higher return give up some of the liquidity demands. A third area, actually, that conversation comes back or come up is the ESG, especially the large institutions in Europe and in Japan. They're very focused on ESG, and we as a firm, actually, we have ES practice, and we also have very focused ESG in terms of our timber investments, which is in the business of carbon reduction. That seems to get a lot of people's interest as well.

Great. Very helpful. And just one follow-up, if I may. You mentioned looking at potential acquisition targets within private equity, private credit, and other alternative areas. How are you finding current potential valuations within that space, given that this is, that was somewhat of a hurdle in the past? Thanks.

Yeah, thank you, Ken. This is Surin. Yeah, we're looking at a broad range of platforms. We think some of the pricing expectations have become more reasonable, but it is a little bit of a scatter plot. It depends on who you talk to in terms of pricing. But we are focused on platforms where we can add value, where our ecosystem can add value and help them expand the pie. Platforms where our scale, brand, our distribution can can really make a difference. And there it becomes more of a conversation of building something together, developing the next phase together. Oftentimes it's overlaid into creating some permanency on the ownership structure, succession planning. So the conversation is more than just about price. It's more of a strategic conversation, and those are the types of conversations we are more interested in than purely financial, which is not our focus. So we're finding a good number of candidates where our message is resonating and conversations are progressing.

Great. Very helpful. Thank you very much.

Thank you. Your next question comes from the line of Chris Harris with Wells Fargo Securities. Please go ahead.

Yeah, I want to pick up on that last point. What is your actual capacity to do a deal? It doesn't seem like you'd have a tremendous amount of capacity given where your leverage ratio is. Are you contemplating maybe taking a leverage ratio outside of your target for the right deal?

Yeah, so Chris, this is Surin. We have good cash flow generation. Our ENI is a good proxy for how much cash we generate every quarter. And our leverage right now is 1.9 net debt to EBITDA. So we have good cushion there, essentially. And also we'd be acquiring EBITDA So that expands the capacity. So we would basically ballpark at several hundred million, depending on the opportunity, obviously, and how much EBITDA we are buying. We are comfortable to temporarily go above the range we mentioned of the 2.25x, knowing that we have this cash generation potential and knowing that any acquisitions we make would have good organic growth potential. So we would deliver back quickly to the 1.75 to 2.25 range.

Okay, and then with respect to the flows and the pipeline, is there any way for you to size for us how this pipeline is starting to look? And based on that, do you think we could see flows improve from the 2Q level? Or is it maybe just a little bit early to make that determination?

Yeah, certainly. I mean, there are parts of our flows which we have some visibility on the trend. As we mentioned, from a headline perspective, we do have outflows in large-cap value from some advisory clients. And those are low-fee, low-margin flows. you know, AUM, you know, think almost single-digit BIPs. And that's, we will see that persist for next several quarters. The good news there is that that entire bucket is a very small percentage of our ENI, so it's a non-material exposure. But from a headline flows perspective, that definitely changes the optics for sure. But we are seeing very good demand, as we touched on earlier, in several of our other strategies which are picking up. So at Acadian, our multi-asset class strategy is getting good client traction and variants of that strategy where some factors and not others So we would expect that to be a driver as it continues to pick up speed and attention from clients. Our low volatility strategies are of interest to clients, particularly as market conditions continue to be unpredictable, and we're getting good traction on our income generating strategies that are a few different affiliates, whereas leveraged loans and multi-asset income, we're seeing good traction there. And importantly, on the private alternative side, as Juan touched on, we would expect good traction, maybe not immediate traction on the ESG strategy, but the secondary strategies at Landmark are are performing very well. The performance for clients has been consistent and strong. Deployment has been good. So we would expect secondary strategies across asset classes, private equity, real estate, real assets, to continue to drive revenue and flow growth going forward.

Okay, thank you.

Your next question comes from the line of Robert Lee with KBW. Please go ahead.

Great. Good morning. Thanks for taking my questions. The first one may be a little bit of a question on some of the guidance or on the guidance item. So if I think of a variable, excuse me, the operating expense, you know, going 42% for the full year, I mean, obviously that would imply some pickup from Q2 levels. Can you maybe talk about kind of some of the things that may be driving that, where we should see that, and then maybe beyond that, you know, given the initiatives at the center to kind of reset the expense base, you know, as we come out of this year, how should we be thinking about, given all the continued development opportunities, how should we be thinking about investing core expense growth from here? Do you kind of think of it in just kind of inflation, inflation plus or minus? I mean, how should we be kind of level setting it as we look out?

Thanks, Rob. It's Surin. On the expenses, the ratio itself, as you know, it's very sensitive to the denominator in terms of where the denominator comes out. So it almost makes a bigger difference to the ratio. So we feel comfortable with 42%. Though on the absolute level of expenses, we have realized the savings that you see in this quarter. We don't expect a pickup back. So the $8 million to $10 million that we mentioned for this year, we are on track to generate from center restructuring. And as we go forward, we will continue to look for opportunities to optimize expenses more across the enterprise, but we would also expect that to be offset by investment on the growth side in terms of adding resources on the distribution, on product development. So I would say on the absolute dollar levels, we're probably at a good run rate. We wouldn't expect to give back the savings that we've had.

Maybe as a follow-up, given what goes into the ratio, then maybe give us a sense of what your own thoughts are on the asset side. What do you bake into your numbers to derive the $42,000?

Yeah, I mean, it is something that we are comfortable with, essentially. It's, you know, we don't expect a lot of market appreciation from here on. We don't count on it. So that answers your question.

It does, thanks. And if I could maybe on a follow-up question, On the kind of M&A and deal front, I mean, if you look across the industry, there's any number of examples of companies that have made acquisitions, bought someone who's flowing, performance is good, and shortly thereafter, you know, things turn south. And while certainly you can't necessarily control that, as you go about and look at deals, could you talk a little bit, given all the changes you've made internally and whatnot, about how you – on your due diligence process, kind of what resources do you bring to bear to make sure that, hey, we find a team or a manager and we really kind of believe that what they're doing is kind of sustainable and we're not just, you know, they weren't, lack of a better way of putting it, kind of a flash in the pan.

Yeah, thank you, Rob, for asking that question. And that we believe is a core capability that we have to really diligence the DNA of the teams and platforms that we're looking at. So we have very strong resources here with decades of experience who do exactly that. We would basically spend days with any platform we're looking at, looking at what exactly they do, what the process is, is it repeatable, and are they actually then doing day by day, what the supposed process is. We look at the underlying investments they have made. Do they stick to that mandate? Do they align with the capabilities of the platform and also of the individuals? So it's really a triangulation around all of that. Because if the track record was generated by a few good lucky bets, we would be able to uncover that from our very organized diligence process. And also, that's another reason, you know, you touched on it, that, you know, track record's good today and what happens if it's not good tomorrow. That's another reason we are focusing more on the two buckets that we mentioned, alternatives and solutions, where we already have but more than almost two-thirds of our business in terms of revenue is from those buckets. And those buckets generally are easier to diligence, we have found, in terms of the longevity of the capabilities and the track record because the markets are, on the alternative side, less efficient. So if you have a capability that has done well, you find that to be sustainable over longer periods. And on the solution side, as you know, it's benchmark unconstrained or benchmark agnostic because you're really providing a bespoke solution to a specific outcome that the client has sought. And they put that solution in place generally for longer periods of time. So it's also less susceptible to to issues of track record, what depends there is more of what capabilities you have to put the solution together. So that's another reason we have focused on growing that two-thirds of our business to a much higher percentage.

Also, Robert, let me just add to that. You're kind of asking whether we have enough resources here at the center to look at those deals. The answer is yes. I mean, we have a much smaller team today, but very focused team. We're really, really focused on our capabilities through state program, co-investment program, or through acquiring new capabilities. So we will have the teams, either the merger and acquisition team or business development team, the global distribution team and the finance team, of course, compliance, legal, everybody involved, because we have a smaller team today, but very, very focused team. So the short answer to your question is, yeah, we do have enough resources to do thorough work on those potential targets.

Great. Thanks for taking my questions. Appreciate it.

Your next question comes from the line of Michael Cypress with Morgan Stanley. Please go ahead.

Hey, good morning. Thanks for taking the question. I thought some of the stats you guys provided on the $30 billion AUM from seeded strategies, I thought that was interesting. So maybe just on that, I think the quarter ended with a seed portfolio $166 million. Can you just help us understand the gross ins and outs there in terms of how much you've been putting to work on a gross basis for seeding new strategies, how you expect that to kind of look on a go-forward basis, and how much of these new seeding that you're putting to work, how much of that's going to be funded through recycling versus capital generation, and maybe just talk a little bit about your requirements and approach to seeding new strategies. Thank you.

Thanks, Michael. Yeah, so we have about $165 million in that portfolio of lead and co-investments. A lot of that historically had been liquid strategies that had high velocity. So we were able to test a lot of different strategies relatively quickly. So that will always be an objective that we test the best ideas that are coming from our investment teams and test them with the clients. And if it's not the right one, then we quickly recycle it to the next best idea. So there are a variety of strategies across our affiliates that we are always testing. We expect the illiquid portion of our portfolio to grow as we continue to move our business more towards private market alternatives and solutions. And we expect the seed pool to grow. So we've said that we would take it to about 200 million in the near term. And we would be moving it more toward trying out liquid strategies.

Great, thanks. And just maybe a follow-up question. I think you had mentioned that you were looking at potentially adding teams to the platform. I was just hoping you could elaborate on that just in terms of would these be at the center? Would you be creating new affiliates around them? What sort of strategies make sense in terms of bringing new teams in? Would you be seeding them as well? And how do you evaluate them? What criteria and hurdles do you have?

Yeah, it's all of the above in the sense that there are there are strategies and capabilities that fit well with one of our existing affiliates, and then that would be most value added in those cases. And there are some teams that bring capabilities that do not fit well in one of our existing affiliates. In that case, we would look to onboard that team at the center. And there are some platforms that have good scale and are large enough to be a standalone affiliate, and we'd be comfortable adding them as an eighth affiliate. But to answer your question in more detail around the teams at the center, there are teams that have all the right capabilities, that have the right track record, deep experience, and the diligence, all of that, but because of lack of exposure to global clients and pools of capital, they've been not as successful in growing. And those are the opportunities we look for where we can add, we can bridge that gap and we can add value by helping them access larger pools of capital, by providing them the resources that at their scale in terms of distribution, compliance, legal, et cetera, that they can't afford. And so it would be those kind of teams that would get onboarded at the center because we do have all of that support infrastructure and, very importantly, the distribution infrastructure and relationships. Great. Thank you.

And your next question comes from the line of Mike Carrier with Bank of America Merrill Lynch. Please go ahead.

All right, thanks for taking the questions. First, there's different affiliate models out there. How do you guys differ, particularly in a backdrop of some flow and revenue headwinds? What can you work on with the affiliates to improve the financial outlook?

Mike, are you referring to how we're different from other asset managers or multi-boutiques?

Yeah, it was more referring to the other multi-boutique models.

Right. Yeah, we're definitely decidedly different from most of our peers, and everybody is different. So I would say we have a few key differences, one being in just how we are positioned. About two-thirds of our business, as we've mentioned, comes from solutions and private market alternatives, in which regard we're different just in terms of how big of a mix that is for our business compared to the others in terms of revenue and EBITDA. So we are seeing very secular tailwinds in both of these areas, whether it's at Acadian, for example, it's It's the technology that they've been honing for decades to fine-tune sources of alpha that generate strong long-term performance for clients and can solve for specific client outcomes. Or in case of our private strategies at Campbell Global that solve for carbon reduction or ESG or uncorrelated assets, in case of landmark, you know, secondary strategies that the clients like because, you know, because of the elimination of the J curve and capital sitting idle and having the diversification of managers. So in that regard, we are very different. The two-thirds of the business is quite different from others. And the other... we're different is that we have a profit-sharing model, so we have the same security as our affiliate management teams and investment teams. We have the same upside and downside, and that's different than others, and there are pros and cons. One would say that some multiboutiques have revenue share approaches, which which is then not the same security. So we like to be really aligned with the teams because they have complete investment autonomy and strong operational autonomy. So we would like to be aligned with them. And some others have varying mixes of that where it's not the same security. We like the full alignment. So I would say on those couple of I mean, there are other differences, too, but I would probably those two are big ones.

Okay. And then just a quick follow-up on capital management. Where does maybe the dividend sit in the priorities more on, you know, like thinking about a dividend payout or like annual dividend hikes, you know, going forward versus, you know, whether it's debt paydown, the buybacks, you know, acquisitions?

We're comfortable with the dollar level of dividends, for sure, that we have currently. As I mentioned earlier, we're fortunate to have a great number of capital deployment opportunities on the growth side, acquisitions, seed, and developing new products. And our stock is also at attractive levels. So just given all of these attractive opportunities, we wouldn't be planning on dividend hikes at this point. Okay. Thanks a lot.

And we have a follow-up from the line of Robert Lee with KBW. Please go ahead.

Great. Thanks for taking my thoughts. Just a couple of quick really kind of modeling questions. So if we think of performance fees, I mean, obviously, or I'm guessing the fulcrum fee from the, you know, the sub-advised Vanguard relationship is driving the negative flows. But any kind of line of sight over the next couple of quarters between that and any potential performance fees, how we should be thinking about that line item next couple of quarters?

Yes, thank you, Rob. Well, as you touched on, we would continue to expect some drag. That drag will stay because the benchmark there is just a different benchmark for performance fee. And so we'll have that. And in terms of performance fee on other strategies, that is quite episodic and a little harder to predict. So I would say that it's hard to provide guidance on that. But towards fourth quarter, we would expect to see a little bit more of the offset to the negative drag.

Great. That was it. Thanks for taking the question.

Thank you, Rob.

And this concludes our question and answer session. I'd like to turn the conference back over to Guangyang.

Great. Thank you all. Thanks for joining us today.