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spk05: Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group Earnings Conference Call and webcast for the first quarter 2024. 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 the star followed by 1 at any time during the call. If you need to reach an operator, please press the star followed by zero. Please note that this call is being recorded today, Thursday, May 2nd, 2024 at 11 o'clock a.m. Eastern Time. I would now like to turn the meeting over to Melody Wong, SVP, Director of Finance and Investor Relations. Please go ahead, Melody.
spk04: Good morning and welcome to Bryce Baer'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 8-K file today containing the earnings release and our 2023 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 of future events. We may also reference certain non-GAAP financial measures. Information about any non-GAAP measures referenced, including the 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 Renna, our President and Chief Executive Officer, will leave the call. And now, I'm pleased to turn the call over to Surin.
spk03: 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, we 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, 6.5% higher than what we had at the end of 2023. Our EPS also benefited from the share buyback 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 the majority of our performance fee is typically earned in the fourth quarter. Acadian's investment performance remains strong. As of March 31, 2024, 83%, 91%, and 93% of Acadian strategies by revenue outperformed the respective benchmarks across three, five, and 10-year periods. Next line cash flows for the quarter was $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. Acadian's Equity Alternatives Platform, seated in Q4 of 22, continues to build a strong track record of outperformance. Acadian Systematic Credit Platform's first strategy, U.S. 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 3.5 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, 24. 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 at the 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 will 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.
spk05: These questions should lift their phone receiver and press star followed by the number 1 on their telephone keypad. To cancel a question, please press star 1 again. Please hold for a brief moment while we compile the Q&A roster. Your first question comes from the line of Glenn Score from Evercore. Please go ahead. The question from Glenn's core. Your line is now open.
spk03: Operator, perhaps we could move to the next question and circle back with Glenn later.
spk05: Your next question comes from the line of Michael Cypress. Please go ahead.
spk00: 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.
spk03: 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 the 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, 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, yeah, 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 U.S. and global strategies. but it will also generate more cash in the interim, and we'll try to recycle some existing CDAP 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.
spk00: 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.
spk03: 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 then 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.
spk00: Great. Thanks so much.
spk05: Your next question comes from the line of John Dunn from Evercore. Please go ahead.
spk02: 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 manageable?
spk03: Thanks, John. We are seeing good sales across most of our strategies outside of manageable. 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 U.S. markets. But we saw good sales in global equity strategy, in equity non-U.S. strategies, and different types of niche strategies, such as small cap strategies. We're also seeing demand from a 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 a 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 managed vols. and a little slowdown in emerging markets. I guess an environment to the last part of your question. On the environment, managed vol 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-year, 15-year periods, 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 better rewarding market. So that's not been an ideal environment for managed wealth.
spk02: Got it. And then could you give us kind of a characterization of the institutional pipeline, you know, 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?
spk03: Yeah, the pipeline is good. It's in line of what I described. It's a good cross-section that we'd like to see across different types of strategies. You know, managed vol 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, U.S. 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 managed volatility, 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 incomes. 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 the 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.
spk05: As a reminder, please press star 1 on your telephone keypad to ask a question. And the next question comes from the line of Kenneth Lee of RBC Capital Market. Please go ahead.
spk01: Hey, good morning. Thanks for taking my question. I 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.
spk03: Hi, Ken. 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 appreciated compared to the year-ago quarter, the AUM is up by about 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 a 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, you know, 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 the discipline 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 as the markets go up, we should see the benefit of operating leverage. Does that answer your question, Ken? Great.
spk01: Yep, it sure does. Very helpful there, and that's all I had. Thanks again.
spk03: Thank you.
spk05: This concludes our question and answer session. I'd like to turn the conference call back over to Sirin Rana.
spk03: 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.
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