BrightSphere Investment Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Bright Sphere Investment Group earnings conference call and webcast for the third quarter 2020. 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 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 29, 2020, at 11 a.m. Eastern Time. I would now like to turn the meeting over to Ellie Sugarman, Managing Director, Strategic Development. Please go ahead, Ellie.

Good morning, and welcome to BrightSphere's conference call to discuss our results for the third quarter ended September 30, 2020. 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. and in our 2019 Form 10-K and our Form 10-Qs for the first and second quarters of 2020. 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 gap 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 sir and rana our president and chief executive officer will lead the call and now i'm pleased to turn the call over to sir sir thanks ali good morning everyone

Thank you for joining us today. As usual, I'll focus my initial remarks on the key highlights in the quarter laid out on slide five of the presentation deck. We reported E&I per share of 47 cents for the third quarter, which is 12% higher than the 42 cents we reported for the third quarter last year. While our revenue declined compared to the third quarter of last year, due to the COVID-19-related market impact on our average AUM. Our E&I increased due to the cost savings from our corporate repositioning and the continuing discipline on the OPEX by our affiliates. And then our share repurchases in the first half of this year helped to further boost the E&I on a per-share basis. The E&I per share of $0.47 in the quarter is also 15% higher than the $0.41 we reported for the second quarter of this year, which reflects the increase in AOM and management fee revenue from the continuing market recovery, while our expenses remained largely flat compared to Q2. We previously announced divestitures of our Barrow-Hanley and Copper Rock affiliates. As a reminder, we completed the sale of Copper Rock early in the quarter in July, and we still expect the sale of Barrow-Handley to be completed in the fourth quarter. Our net client cash flows in the quarter on a pro forma basis, that is excluding Barrow-Handley and Copper Rock, were negative half a billion. But the annualized revenue impact of these flows was a positive 1.4 million. as the fee on our inflows was higher than the fee on outflows. In the alternative segment, we had net inflows of $0.7 billion in this quarter, which reflects a modest pickup in the pace of our fundraising, but we still continue to see a delay in the timing of our fundraise because of the restrictions imposed by the pandemic. As we have previously discussed, we still expect the bulk of our fundraising to come in 2021 and 2022. Our investment performance remains generally stable. In the quantum solution segment, our investment performance continued to be strong with 45%, 49%, and 88% of strategies by revenue beating their respective benchmarks over the prior 3, 5, and 10-year periods. Moving to capital management, we reduced the borrowings on our corporate revolver from $130 million at the end of Q2 to $80 million at the end of Q3, which reduced our net debt ratio to 1.5x compared to 1.7x earlier. Additionally, we fully paid off the remaining $22 million of outstanding amount on our non-recourse seed facility, since we have an adequate amount of capital to seed new strategies for our affiliates. Now, as we look toward closing the Barrow-Hemley sale in the fourth quarter, we intend to use the proceeds from that closing to fully pay down our revolver, and we plan to use part of the proceeds toward repurchases. We're still on track to deliver annual cost savings of over $20 million by Q1 of 2021 from the previously announced repositioning of our corporate center. Next few slides highlight the strength of our differentiated business mix, with 87% of the E&I posted divestitures coming from quantum solutions and alternative segments. We already walked through this a fair bit on our last earnings call, so I'd like to now move to slide 14 to provide some more color on our flows by segment. Looking at the chart on the left-hand side of the page in the second column, the pro forma column, you'll see in the alternative segment we posted net inflows of $0.7 billion. You may recall this number was a small positive in Q2. In the pro forma liquid alpha segment, that's excluding Barrow-Hanley, we posted net inflows of $1.1 billion for the quarter, and that number was positive $0.1 billion in Q2. In the quantum solutions segment, we had net outflows of $2.3 billion this quarter. In Q2, the segment had net inflows of $0.3 billion. The net outflow in Q3 was primarily a result of two large withdrawals driven by rebalancing considerations. Now I'd like to turn the call back to the operator, and I'm happy to answer questions at this point.