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 third quarter 2021. During the call, all participants will be in a listen-only mode. After the presentation, we'll conduct a question and answer session. To be added to the queue, please press the star followed by one at any time during the call. If you need to reach an operator, please press star followed by zero. Please note that this call is being recorded today, Thursday, October 28, 2021, at 11 a.m. Eastern Time. I'd now like to turn the meeting over to Ellie Sugarman, Head of Corporate Development and Investment Relations. Please go ahead, Ellie.

Good morning, and welcome to BrightSphere's conference call to discuss our results for the third quarter ended September 30, 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, in our Form 10-Q for each of the first and second 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. Surin Rana, our President and Chief Executive Officer, will lead the call. And now, I'm pleased to turn the call over to Surin. Surin?

Thank you, Ali. Good morning, everyone, and thanks for joining us today. I'll kick off with slide five of the presentation deck as usual. Well, in the third quarter of this year, we officially crossed the key milestone. We closed on the previously announced divestitures of three affiliates, PSW, ICM, and Campbell Global. And now, going forward, our sole operating business will be Acadian, which is a market-leading quant manager with an impressive track record of outperformance. But now, we have completed a full transition from a multi-boutique business to a single, focused, integrated business, which will now provide our investors pure play exposure to Acadian's highly differentiated business. We also expect to fully deploy our excess capital in this fourth quarter, which would likely involve paying down $125 million of our retail notes and repurchasing more than $1 billion of our shares, which will collectively generate significant earnings accretion while reducing leverage. The completion of divestitures of six of our seven affiliates at attractive valuations, and now the deployment of excess capital generated from these transactions, significantly simplifies our business and our balance sheet. But going forward, BrightSphere is essentially just the Acadian business publicly listed. Now, moving to our financial results for the quarter, we reported ENI per share of 28 cents for the third quarter of this year, compared to 30 cents in the third quarter of last year. There is some noise in these ENI comparisons coming from other affiliates which have now been sold. Also, the EPS base will change after the share buybacks I mentioned. So it would be topical to look at the financials for Acadian, our sole operating business going forward. Turning to slide seven to zero in on Acadian, the business generated 49.1 million of adjusted EBITDA in the third quarter of 21 compared to 37.4 million in the third quarter of 2020 and 53.1 million in the second quarter of 2021. The adjusted EBITDA in 3Q21 is lower compared to 2Q21, primarily due to performance fee seasonality, because we generally have fewer performance fee measurements in the third quarter. We have a lot of our measurements in the fourth quarter, so we would expect performance fee, and hence EBITDA, to be higher in Q421. Turning to flows, our net client cash flows are getting better as outflows from low evolved strategies continue to reduce. We reported net outflows of 0.7 billion in 3Q21 compared to net outflows of 2.4 billion in 3Q20 and net outflows of 1.3 billion in 2Q21. Looking at investment performance, you can see on the revenue-weighted chart on the lower left-hand side, that Acadian's investment performance continues to be very strong, with 81%, 85%, and 88% of strategies by revenue beating their respective benchmarks over the prior three, five, and 10-year periods. We're optimistic that this strong long-term track record will help generate robust net flows and organic growth over time. I would also like to take this opportunity to delve into Acadian a little bit more. On slide eight, we provide a high level overview on the Acadian platform. Acadian is a differentiated and scaled business with 114 billion of AUM and a long track record of performing for its clients for 35 years. At the heart of the business is an exceptional combination of one specific talent comprising people with PhDs and other advanced degrees in finance and technology. Two, our unique data, comprising 200 million observations daily across 43,000 traded assets around the globe. And three, our advanced technology platform that allows us to leverage our academic research and data across asset classes and geographies. We have deep capability across long-only, long-short, multi-asset class, managed volatility, ESG, and other areas with our AUM spread across more than 70 different strategies. And I would also note that approximately 80% of our AUM is invested outside the US. On slide nine, revisiting investment performance again in a bit more detail, you can see that Acadian platform has outperformed across long and short periods, with 81 to 89% of strategies by revenue outperforming their benchmarks. I would also like to spend a minute on slide 13, summarizing our growth strategy. Our growth strategy going forward is primarily organic. There's a growing demand for majority of our strategies and solutions. and our offerings have capacity and are scalable. We will continue to leverage our quant platform to provide solutions sought by our clients as their needs evolve. Our multi-asset class offering is an example of that. Our clients express the need for a factor-based solution covering multiple asset classes beyond just equity. The growing demand for ESG solutions is another example of a market opportunity that is particularly suited to our capability, since we can really methodically quantify the various ESG factors for any given security, as well as the impact on returns with a lot more precision than others could. So we will continue to see new products and invest in innovation. We will continue to invest in our technology to remain on the cutting edge, and we will continue to add to our distribution as our needs evolve. And we will always continue to look for all the various ways to realize additional value for our shareholders. On that note now, let me turn the call back to the operator, and we're happy to answer questions at this point.