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 fourth quarter 2021. 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 star followed by the number 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, February 3rd, 2022, at 11 a.m. Eastern Time. I would now like to turn the meeting over to Ellie Sugarman, Head of Corporate Development and Investor Relations. Please go ahead, Ellie.

Good morning, and welcome to BrightStress Conference Call to discuss our results for the fourth quarter ended December 31st, 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 actual results to differ materially from those projected. Additional information regarding these risks and uncertainties appears in our SEC filings, including the Form 8K filed today containing the earnings release, our 2020 Form 10K, and our Form 10Q for each of the first, 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. 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?

Thanks, Ali. Good morning, everyone, and thank you for joining us today. Well, I'll start off with slide five of the presentation deck as usual. Over the last few quarters, we completed the divestitures of six of our seven affiliates. So 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 53 cents for 4Q21 compared to 28 cents for 4Q20 and also 28 cents incidentally for 3Q21. The increase was primarily driven by strong performance fees. In the fourth quarter of 21, we also deployed a large chunk of our excess capital. We repurchased $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 ends, 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 seven. Acadian generated 87.6 million of adjusted EBITDA in 4Q21 compared to 40.4 million in 4Q20 and 49.1 million in 3Q21. The increase in EBITDA was mainly driven by strong performance peaks. Acadian reported net outflows of 0.8 billion in 4Q21 compared to net outflows of 1.3 billion in 4Q20. On a revenue basis, the flows were breakeven in 4Q21. compared to an annualized revenue impact of minus 6.1 million for 4Q of 2020. Acadian's investment performance continued to be excellent and got even stronger in 4Q21, with 82%, 86%, and 90% of strategies by revenue now beating their respective benchmarks over the prior three, five, and 10-year period. Now, last quarter, we spent some time diving into Acadian's platform a bit more, as laid out on slides 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. So, 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 company-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 type of strategies are particularly suited for big data-driven approaches. We believe that these long-term trends position us really well to produce superior alpha 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, we'll review some specific initiatives that we have underway on these themes. First, investors around the globe are looking for yield, but with 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. And two, equity alternative strategy, which is using alternative signals, alternative data, and differentiated portfolio construction techniques to produce uncoverted 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 trillion dollars in AUM. With Acadian's focus on quantum technology, our advantage in ESG space is that we can quantify the ESG signals and more precisely customize client portfolios for their ESG values. We can implement dynamic programs related to client ESG goals, such as quantifying their carbon exposures and decarbonizing their portfolios and measuring the impact and risk and return of their portfolios. These sophisticated techniques are way superior than 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 compliance on ESG themes and expect this to continue for a long time. And then as an example of applying our quant edge in new markets, we seeded a strategy for China market, which is performing pretty well. China market is large and liquid, but rich in opportunity and inefficiencies since it's 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 questions at this point. Thank you.