BrightSphere Investment Group Inc.

Ladies and gentlemen, thank you for standing by and welcome to the BrightSphere Investment Group earnings conference call and webcast for the first quarter 2021. During the call, all participants will be in listen-only mode. After the presentation, we will conduct the 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, April 29th, 2021 at 11 o'clock 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 Bright's first conference call to discuss our results for the first quarter ended March 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 different 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 in our 2020 Form 10-K. 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. CERN Rana, our President and Chief Executive Officer, will lead the call. And now I'm pleased to turn it over to CERN. CERN?

CERN Rana Rana Thanks, Ali. Good morning, everyone, and thanks for joining us this morning. As usual, I'll focus my initial remarks on the key highlights in the quarter that we summarize here on slide five of the deck, and then we can switch to Q&A. So let me start with refreshing the context and remind everyone that we announced the sale of our affiliate landmark in March this year, and we're expecting that transaction to close near the end of the current quarter. The valuation we received for our stake was quite attractive at 16.4 EV to adjusted EBITDA multiple. and with total proceeds from the sale to us of $724 million pre-tax and $630 million after-tax. So this transaction unlocks and crystallizes significant value for our shareholders. Given the announced sales, effective 1-2-21, Landmark has been moved into discontinued operations. So now we essentially have two primary affiliates, our largest business, Akabian, which comprises our quantum solution segment, and TSW, which comprises our liquid alpha segment. Both Acadian and TSW are very well positioned, differentiated businesses, and we will continue to follow our approach of full affiliate autonomy in managing and growing our business, while continuing to be lean and maintaining expense discipline at our corporate centers. So with Landmark now included in this continued operation, we don't have the alternative segment any longer. Campbell Global, our affiliate focused on forest resources, which used to be included in the alternative segment along with Landmark, has now been moved to the other segment. Now, moving to our financial results for the quarter, we reported ENI per share of $0.34 for the first quarter of this year, compared to $0.30 for the first quarter of last year. Again, to be clear, ENI for both periods is excluding landmarks. If landmark was included, it would have contributed $0.11 to our EPS for 1Q21 and $0.10 for 1Q20. So if you're trying to compare to our prior reporting, the EPS for 1Q21 would be $0.45 if you add landmarks. The increase in reported EPS to $0.34 per share compared to the $0.30 a year ago primarily was driven by the market recovery since then, the cost savings that we achieved from restructuring our corporate center, and finally our share repurchase activity last year. These three factors helped us to more than offset the absence of earnings from barrel handling, which was reflected in our 1-20 results, but not in 1Q21, since we already closed that transaction in the fourth quarter of 2020. The EPS of $0.34 in the quarter is relatively flat compared to $0.35 for the fourth quarter of 2020. And this reflects the benefit of continued market appreciation, which was just about offset by the disposition of Darrell Hanley, because in 4Q20, we had earnings from Barrow Hanley for about half the quarter until the closing of that sale in the middle of that quarter. But in 1Q21, we obviously had no earnings from Barrow Hanley. Our net flying cash flows in the quarter were negative 2.4 billion compared to negative 1.5 billion in 4Q20. Again, to be clear, both numbers exclude landmarks. In 1Q21, In the liquid alpha segment, we had positive net client cash flows of 1.2 billion, but we had net outflows of 3.6 billion in quantum solutions. And the outflows in quantum solutions were primarily driven by some reallocations from one or two strategies by select clients. So there was a lot of lumpiness in the flows, which we don't see as recurring. For example, in the second quarter so far, we're seeing positive flows in the segment. The investment performance of both of our key affiliates, Acadian and TSW, continues to be strong. Acadian's long-term performance strengthened further in the quarter, with 57%, 84%, and 91% of strategies by revenue now beating their benchmarks over the prior three, five, and 10-year periods, compared to 43%, 50% and 90% in Q4 2020. Turning to capital management, in 1Q21, we fully terminated our cultured revolving facility at the parent company level and assigned it to Acadian with a reduced maximum size of 125 million. So this facility is now available only to Acadian for their general needs and not to basic parents. As we've discussed A few times previously, Acadian has seasonal needs in the first quarter, given the timing of the annual bonuses. So Acadian drew $81 million on this facility in 1-21 for the seasonal need, and they expect to fully pay it down within the year. Our total consolidated debt at the end of the quarter, including the seasonal Acadian draw on their revolver, stood at $475 million. Compared to this, the cash on our balance sheet at the end of the quarter was $450 million. Closing the landmark sale later in the second quarter would provide us another $630 million after tax. So that provides us ample capacity to be leveraged substantially, as well as return capital to our shareholders. Now, let me turn the call back to the operator, and I'm happy to answer questions at this point.