BrightSphere Investment Group Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group earnings conference call and webcast for the third quarter 2022. 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, November 3rd, 2022 at 11 a.m. Eastern Time. I would now like to turn the meeting over to Ellie Sugarman, Head of Strategy and Corporate Development. Please go ahead, Ellie.

Good morning, and welcome to Bryce's conference calls to discuss our results for the third quarter ended September 30th, 2022. 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 2021 form 10K, and our form 10Qs for the first and second quarters of 2022. 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. Sharan Rana, our President and Chief Executive Officer, will lead the call. And now, I'm pleased to turn the call over to Sharan. Sharan?

Thanks, Ali. Good morning, everyone, and thank you for joining us today. As usual, let me start off with a financial highlight on slide five of the deck. We reported E&I per share of 30 cents for the third quarter of this year, 7% higher compared to 28 cents that we reported for the third quarter of 2021 as our sizable share buybacks in Q4 of 21 and Q1 of this year more than offset the decline in our earnings caused by the impact on our AUM from the significant equity market declines this year and a stronger US dollar. We're pleased, however, that through this volatile market environment, our investment performance continues to be strong. As of September 30, 96%, 87%, 86%, and 90% of strategies by revenue beat their benchmarks over the prior 1, 3, 5, and 10-year periods respectively. Next, our net client cash flows turned positive in the quarter with 0.6 billion of net inflows as we saw flat and modestly positive flows pretty much across all of our major strategies. And we are encouraged that our sales pipeline remains healthy. From a longer-term perspective, we continue to build out our effort in systematic credit and equity alternatives that we announced on our last earnings call. During the quarter, we added more people to these teams and are adding to the data and technology infrastructure. We will be kickstarting the equity alternative platform with 15 million of seed capital this month. We also continue to make progress on our ongoing growth efforts like systematic macro. Together, these initiatives will tap into the secular growing demand for uncorrelated returns, and we expect them to help generate long-term organic growth for our business. Turning to capital management. We had a cash balance of 101 million as of September 30, 22. As our business continues to generate strong free cash flow, we expect to continue deploying capital to support our organic growth and to buy back shares whenever opportunities come up. Turning to some operating highlights for Acadian on slide seven. Acadian generated 30.5 million of adjusted EBITDA in the third quarter of this year compared to 49.1 million in the third quarter of 2021. The drop in EBITDA compared to 3Q of 21 was mainly driven by the approximately 27% decline in AUM over the last 12 months due to equity market decline globally and a stronger U.S. dollar. given a substantial portion of our AUM is invested outside the U.S. The EBITDA in the prior sequential quarter, second quarter of this year, was 38.8 million. The drop in EBITDA for the third quarter compared to the second quarter of 22 was also mainly driven by continued market decline, and also performance fee in the third quarter was even lower at 1 million versus 2 million in the second quarter. As a reminder, majority of our performance fee generally comes through in the fourth quarter. Now, let me turn to slide 11 for a minute, as it provides a good snapshot of the expansive capabilities of Acadian franchise and the future potential of the platform. Most of our AUM today resides in the top two rows. Equity, where we seek to consistently produce alpha for our clients, across various equity strategies, and managed volatility, where we seek to produce alpha in equity strategies with reduced volatility. However, we are positive that our platform will prove to be equally good in generating alpha outside equity. We discussed on the last call how credit is a very large market. We have started our systematic quant effort in credit with building the team. and we will start with high-yield and investment-grade areas. We previously launched our systematic macro strategy, like multi-asset class absolute return, which continue to move along and now have $2 billion of AUM. I touched on seeding our equity alternative platform with $15 billion of seed capital this month to provide investors uncorrelated returns, and our ESG capabilities date back to more than 20 plus years and are integrated in our investment process throughout our strategies. We continue to see demand from investors for alpha from ESG factors to mitigate ESG risk and to customize portfolios for their ESG values. So, in summary, each of these pockets of demand are very large and continue to grow, and our unique quant capabilities will allow us to effectively serve this demand. To conclude on slide 15, our long-term strategy remains the same. We will continue to invest in our core capabilities and leverage our unique quant platform to expand into new areas. We'll continue using our free cash flow to support organic growth and for share repurchases whenever opportunities are available. and we remain focused on maximizing shareholder value. Now, let me turn the call back to the operator, and we're happy to answer questions at this point.