Acadian Asset Management Inc.

Good morning

and welcome to Brice Behr's conference call to discuss our results for the first quarter ended March 31st, 2024. 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 this risk and uncertainties appears in our SEC filings, including the Form 8K file today containing the earnings release and our 2023 Form 10K. 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 of 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. Seren Rana, our President and Chief Executive Officer, will lead the call. And now I'm pleased to turn the call over to Seren.

Thank you, Melody. Good morning, everyone, and thanks for joining us today. As usual, I'll cover some of the main highlights on slide five of the deck in my initial remarks, and then we can jump to Q&A. For the first quarter of 2024, the reported E&I per share of 44 cents compared to 28 cents in the first quarter of 2023 and 77 cents in the fourth quarter of 2023. The 57% increase in E&I per share compared to the year-ago quarter was primarily driven by increase in management fee revenue due to higher AUM from the market appreciation that we saw over the last 12 months. Our AUM is now 110 billion, .5% higher than what we had at the end of 2023. Our EPS also benefited from the shared buybacks that we started in December 2023, and we have now bought back approximately 10% of our outstanding shares. Our E&I increase versus year-ago quarter was 48% compared to the 57% increase in EPS that I mentioned earlier. Compared to the fourth quarter of 2023, the E&I and EPS are lower, and that decline was driven by seasonality and timing of performance fee as majority of our performance fee is typically earned in the fourth quarter. Ocalaeans investment performance remains strong. As of March 31, 2024, 83%, 91%, and 93% of Ocalaean strategies by revenue outperformed the respective benchmarks across three, five, and 10-year periods. Neckline cash flows for the quarter were 0.4 billion, as outflows from managed volatility and some other strategies were offset by inflows in other areas. Our growth initiatives are continuing to progress on plan. Ocalaeans equity alternatives platform, seated in Q4 of 2022, continues to build a strong track record of our performance. Ocalaeans systematic credit platform's first strategy, US high yield strategy, that was seated in November 2023, has also started building a good track record. And in April of 2024, we also seated the credit platform's second strategy, global high yield strategy, with another $15 million of seed capital, and that strategy will now start to build a track record. Turning to capital management, we repurchased three and a half million shares, approximately 9% of our outstanding shares in the first quarter of 2024, for approximately $74 million. We had a cash balance of $102 million as of March 31, 2024. During the first quarter of 2024, Acadian drew down on the revolving credit facility and ended the quarter with an outstanding amount of $73 million on the facility. As we've discussed in prior years, this revolving facility is at the Acadian operating levels and is repaid from cash from operations at Acadian, not from our corporate cash balance. Acadian draws on the facility as a beginning of the year for first quarter seasonal needs, mainly to pay prior year's annual bonuses. And the facility is then paid down fully by year-end from the cash generated from the operations. We expect this year to be no different. I'd like to close my initial remarks with reiterating that we remain focused on maximizing shareholder value and we'll continue using our free cash flow to support organic growth and to buy back our shares. I'll now turn the call back to the operator and I'm happy to answer questions at this point.

This question should lift their phone receiver and press star followed by the number one on their telephone keypad. To cancel a question, please press star one again. Please hold for a brief moment while we compile the Q&A roster. Your first question comes from the line of Glenn Scor from Evercore. Please go ahead. The question from Glenn Scor, your line is now open.

The next question is from the line of Glenn Scor. Please hold for a brief moment while we compile the Q&A roster. Operator, perhaps we could move to the next question and we're gonna circle back with Glenn later.

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

Just curious, any additional color you can give on cash usage and how we should think about it in the year ahead. What's the minimum level of cash that you feel like you can run with and also how should we think about use of excess capital?

Thanks. Yeah, thank you. I guess as we said, we have about 100, a little more than 100 million currently at the end of March. And we are mostly almost pretty close to done with 100 million authorization we had previously. We have about 15 million left on the authorization. So I guess if you just go through the 100 million, yet we think about 25 million of operating cash that we'd like to keep as a minimum. There's the 15 million left on the buybacks, so that's 40. I mentioned earlier that we seeded 15 million for our second strategy on our credit platform for the global high yield strategy. So that's another 15 million, that's 55 million. So I think we're left with about 40 million or so from a use perspective and we'll look to buybacks. We also would look to seed some more products on the systematic credit platform. We would target fourth quarter to seed our investment grade strategies, both to US and global strategies, but we'll also generate more cash in the interim and we'll try to recycle some existing seed as well. So in general, I guess those are the round numbers and we add more cash, but it will be used for buybacks and seeding purposes.

Great, thanks so much. And maybe as a follow-up, just curious your thoughts on pursuing something more programmatic in terms of buybacks rather than opportunistic, thanks.

Thank you. Yeah, currently we are leaning in favor of opportunistic. The reason being that gives us more flexibility in the timing of seeding as well. And also to benefit from the movements in the market. And it's not a large amount now that would necessitate anything programmatic. So we'll feel comfortable with the opportunistic approach for now.

Great, thanks so much.

Your next question comes from the line of John Dunn from Evercore, please go ahead.

Thank you. Could you maybe talk about some of the other strategic areas that are inflowing, that are blunting the outflows from ManageVal and then separately, what type of environment do we need to get to where we could see less of a drag from ManageVal?

Yeah, thanks John. So we are seeing good sales across most of our strategies outside of ManageVal. And I would say there's a little bit of slowdown on the emerging market strategy as well. Given that those markets, the index itself hasn't done very well in recent years compared to the US market. But we saw good sales in global equity strategy in equity non-US strategies and different types of niche strategies such as small cap strategies. We're also seeing demand from our variance of strategies such as extension strategies where we go a little bit long and short, 130, 30 strategies. And we have enhanced versions where they go close to the benchmark with a smaller tracking error. And then there's some ESG as well. So it's pretty good cross section of strategies where we see sales and where we see pipeline building up. And then we are seeing the outflows from ManageVal and a little slowdown in emerging markets. I guess an environment to the last part of your question. On the environment, ManageVal does well when beta is not running up too much. I guess when there's more of a fair risk return environment and it does well over longer periods in the sense that the academic studies and statistics will tell you that over longer periods, 10 years, 15 years period, the low beta securities do just as well as high beta if not better. And that generally holds out to be true. But in the interim, whenever there's a risk on environment, beta of course gets rewarded. So I guess in a more of a risk off environment or more regular environment over longer periods, those strategies do well. But we haven't had that in a while over the last several years, maybe almost 10 years now. It's been a beta rewarding market. So that's not been an ideal environment for ManageVal.

Got

it. And

then could you give us kind of a characterization of the institutional pipeline, where things are in it as far as early or late. And then anything chunky on the institutional side, you have line of sight that might be redeeming in the next couple quarters?

Yeah, the pipeline is good. It's in line of what I described, that it's a good cross section that we'd like to see across different types of strategy. ManageVal being notably absent. Emerging markets is less than where we would like. The investment performance is stellar in emerging markets. But the client interest is a little bit less right now because for several years, the emerging market index has lagged. US in particular, but also developed markets in the West. But otherwise, other than that, it's a pretty good cross section and across stages as well, early stage, mid stage and one stages that are yet to be funded. But yeah, you said it right that there are, on the outflow side, we have pressure from ManageVolatility and there are always episodic things that happen with clients reallocating to other things. One thing that we've seen with the high rate environment is a continued trend of de-risking, particularly by pension plans, where the interest rates now are high enough that they can de-risk from equities and allocate more to fixed income. So that those allocation decisions happen from time to time. We're seeing that and people move from one strategy to the other from time to time. So it's a little bit hard to tell, but I guess from a trend perspective, the de-risking and allocation to fixed income, we see that more often. So when you sort of look at all of that, we expect to be probably flattish over next few quarters, but any given quarter, we may see more of these things happening coincidentally in one quarter where we may not come out flat. But these are the trends and that's specifically why we're excited about our fixed income, the systematic credit initiative, because then we can also be a beneficiary of the de-risking trend that we see.

Thank you. As a reminder, please press star one on your telephone T-pad to ask a question. And the next question comes from the line of Kenneth Lee of RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. Wonder if you could share some thoughts around potential EBITDA generation going forward and perhaps provide any color around your expense outlook and whether you could see some benefit from operating leverage as markets potentially continue to appreciate. Thanks.

I can, yeah, that's a good question. And if you look at essentially this quarter versus the year ago quarter, we saw the benefit of the operating leverage in the sense the market's appreciated compared to the year ago quarter, the AUM is up by about 12% and as a result, the management fee was up by about that much, about 12, 13%, but at the E&I level, the E&I is up 48% versus year ago. And then we juiced it a little bit more with our buybacks. So then the EPS is up 57%. So that's primarily because of the benefit of the operating leverage and continued expense discipline. So as we sort of go forward, I guess the markets continue to appreciate, we should see that benefit with the revenue going up and we're generally trying to hold, be disciplined on the expenses. Over the last few years, we invested a lot in making our infrastructure more scalable. We had some initiatives on outsourcing that provides us more scalability without having to add a lot more to the cost. We dealt with the pressures from inflation, particularly on the data costs and IT costs, that should be abating now. And we built up on these new initiatives that are more or less at full run right now. So we see much less increase on the operating expenses going forward, being that we invested in scalability in the past few years. So the markets go up, we should see the benefit of operating leverage. Does that answer your question, Ken?

Yep, it sure does. Very helpful there and that's all I had. Thanks again.

Thank you.

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

Thank you, operator. Thank you everyone for joining us this morning. We'll look forward to engaging with you in the coming months and quarters.