Manning & Napier, Inc. Class A

Good evening. My name is Kavita, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Manning and Appear Third Quarter 2020 Earnings Teleconference. Our hosts for today are Nicole Kinkley-Bronner, Chief Marketing Officer, Mark Mayer, Chief Executive Officer, and Paul Battaglia, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 8 p.m. Eastern Time tonight. The dial-in number is 404-537-3406 and answer pin number 574-2878. At this time, all participants have been placed in a listen-only mode. If you should require operator assistance, please press star zero. We ask that you please pick up your handset to allow optimal sound quality. It is now my pleasure to turn the floor over to Mrs. Nicole Kingsley-Brunner.

Thank you, Kavita, and thank you everyone for joining us today to discuss Manning and Appear's third quarter 2020 results. Before we begin, I would like to remind everyone that certain statements made during this call, not based on historical facts, including any statements relating to financial guidance, may be deemed forward-looking statements within the meaning of the private or Securities Litigation Reform Act of 1995. Because these statements, because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to vary. Actual results differ materially from those expressed or implied by these forward-looking statements. Manning and Appear assumes no obligation or responsibility to update any forward-looking statements. During this call, some comments may include reference to non-GAAP financial measures. Full GAAP reconciliations can be found in our earnings release and related SEC filings. With that, I will turn the call over to our Chairman and Chief Executive Officer, Mr. Mark May. Mark?

Thank you, Nicole. As always, I'll begin with a review of our results for clients, starting with our multi-asset class solutions. These globally diversified, dynamic asset allocation strategies represent approximately 70% of total AUM, have track records dating back to the early 1970s, and are core to who we are as an active, solutions-oriented investment manager. All performance figures are available on page six of the earnings supplement. Our multi-asset class results were strong on an absolute basis for the quarter, with relative results falling slightly behind blended benchmarks. Strong security selection and asset allocation decisions were offset by more defensive positioning from a sector and investment style standpoint, positioning that we believe is appropriate given the current market and economic environment. Year-to-date client performance remains far ahead of blended benchmarks in all of our multi-asset class solutions. Our flagship long-term growth strategy, whose audited track record dates to 1973, is ahead of its blended benchmark by 483 basis points year-to-date. The mutual fund versions of our multi-asset class solutions all rank in the top 11% of their competitive groups year-to-date, and all are well into the first quartile over the trailing one in three years. Our ability to deliver strong absolute and relative results while simultaneously providing a meaningful degree of downside protection during market drawdowns this year, clearly demonstrates the strength of our time-tested investment disciplines. While there is often a material lag between excellent performance and AUM inflows, we believe these results position the firm well for future growth. Similarly, we have a broad suite of target-day collective investment trusts, or CITs, which are used in qualified retirement plans. These leverage the same multi-asset class strategies referenced previously. As pioneers in the target date space, these CITs are a compelling offering, and we have approximately $630 million across the target date collective and investment trust suite. As of the end of September, all 11 target date vintages rank in either the first or second percentile of their competitive sets year-to-date. In core U.S. equity for the third quarter, we delivered strong absolute performance but underperformed by 92 basis points as we began to trim winners and move to balance the growth tilt the portfolio had going into the quarter. The strategy is ahead of its benchmark by over 500 basis points year to date and over one year and on a rolling three and five year basis by over 300 and just under 200 basis points annualized respectively. For our global equity strategy, performance was even stronger, having delivered strong absolute returns and good relative results. The strategy is ahead of its benchmark by over 800 basis points year-to-date. On a rolling three- and five-year basis, global equity is surpassing its benchmark by over 550 and 400 basis points annualized, respectively. And in core non-U.S. equity, results have been stronger still. The strategy delivered terrific absolute results and on a relative basis finished the third quarter over 500 basis points ahead of its benchmark. For the year, core non-U.S. equity is ahead of its benchmark by over 1,300 basis points and on a rolling three- and five-year basis by over 450 and 250 basis points annualized. The outstanding success of our fundamental equity strategies in 2020 and in recent years has been driven by excellent individual security selection, as well as superior country, sector, and investment style decision making. Within our quantitative strategies, our discipline value suite performed well on an absolute basis in the third quarter, but underperformed by 103 basis points on a relative basis. For the year, those outcomes are reversed. Absolute results remain negative in a very challenging environment for the value style, but on a relative basis, discipline value has outperformed by over 220 basis points year to date. On a historical basis, discipline value remains far ahead of its benchmark and peer groups over the trailing one, three, and five years. Our Rainier International small cap team produced another quarter of excellent returns with our Rainier International Discovery Fund delivering 600 basis points of relative outperformance in the quarter. The fund is now ahead of its international small cap benchmark by almost 24 percentage points year-to-date, and by over 25 percentage points on a rolling one year basis. On a rolling three and five year basis, the Rainier International Discovery Series is ahead of its benchmark by 825 and 405 basis points annualized respectively. As it pertains to our remaining investment strategies, we continue to experience strong relative performance. Our real estate series is now ahead of its benchmark by over 500 basis points year to date, although the asset class is down almost 18% and has consistently excellent results over one, three, five, and 10 years. In fixed income, our core bond series, diversified tax exempt series, and New York tax exempt series are all well ahead of their benchmarks year to date. Let me put our recent results in perspective and offer a caveat. Value investing has gone through a particularly difficult multiple year stretch. Our fundamental core equity and multi-asset class offerings have the specific disciplines and dynamic flexibility to find compelling opportunities among both growth and value stocks. Our bottom-up research can lead our core portfolios to be tilted towards either growth or value. For the past four years, they have been skewed towards growth, which has been the right style tilt. but they are dynamic and we have been adding to value holdings over the past few months and have neutralized the style bias. Discipline value, on the other hand, is quantitatively driven and will always be a true value portfolio subject to value beta trends, which have been severely adverse compared to growth. Conversely, our Rainier International team will always be looking for great small international growth companies, There is also a great deal of beta in the international small growth style, and we will also be subject to style reversals there. Style cycles are hard to predict, but it's quite likely that better than expected developments with respect to vaccines, treatments, and outcomes for COVID-19, leading to positive economic and earnings surprises in 2021, and a steepening of the yield curve, would correlate with a style reversal that could favor value, perhaps explosively, at least for a while. And we have seen such a value recovery over the past two months. Now, we are in no way attempting to communicate that investors should expect the performance in our strategies to be subpar going forward. We do, however, believe in realistic expectations. And performance this year in many of our strategies is one or in some cases a few standard deviations above our normal excess return expectations. We firmly believe in the investment philosophies and processes that underpin these strategies. And by focusing not on short-term results, but on process execution, we believe we will deliver strong long-term results through a cycle across our investment strategies. Finally, in addition to the nearly universally strong year-to-date performance across our investment strategies, we've made substantial progress in our environmental, social, and governance integrations. We view ESG integration as a requirement for our long-term success, and during the quarter, we began formally implementing ESG throughout our traditional core investment processes. These strategies have always formally integrated ESG considerations in our investment processes, and they have always been a key consideration in assessing the risks of an investment. By formalizing the integration of ESG, we are positioning ourselves and our strategies well for success with future generations. ESG integration is also part of our quantitative efforts, and we have launched two dynamic quantitative ESG multi-asset class ETF strategies. As we move through the rest of 2020 and look towards 2021, We believe the current market environment can reward active investment managers with disciplines as well honed as ours. There's a wide array of economic, political, and regulatory uncertainties that investors must grapple with today. Avoiding mistakes and areas of excess is as important as ever. Market sentiment rises and falls, risks come and go, but our time-tested investment philosophies and processes stay the same. We have a tireless focus on driving superior risk-adjusted results for clients across full market cycles. Having addressed our strategic priority of investment excellence in some detail, I'll now address developments within some of our other strategic initiatives, starting with sales productivity. During the quarter, we witnessed continued early signs of momentum in our sales channels. While not yet substantial enough to turn flows positive, we are encouraged by the early results and fully believe we are on the right strategic path. In wealth management, we added another financial consultant during the quarter, our fourth hire this year, bringing our total to 18. We have further solidified our team-based approach across key regions. By leveraging teams, we are expanding sales capacity and improving the client experience in the process. In addition, as we'll discuss further, we also began a pilot implementation of InvestCloud's client portal, including modern planning tools. Early client feedback has been very positive. There are early signs of improving productivity, including a strong increase in the number of new relationships being formed within wealth management. Early signs of progress are encouraging, and our wealth management strategic plan remains resolutely focused on building for the long term. In our asset management businesses of intermediary, institutional, and Taft Hartley distribution, we are also seeing improving momentum as our excellent investment performance drives growing interest. In the intermediary channel, we are seeing good inflows into the Rainier International small cap strategy, as well as other ones. It is worth reiterating, as we have on prior calls, that our outstanding investment results may well lead to a near-term acceleration in growth sales in our intermediary business, which is the most performance-sensitive of our channels. For the first time in years, we are seeing consultant-driven placements, and we are looking to strengthen our consultant relations efforts. Within the institutional and Taft-Hartley business, we were recently awarded a number of core U.S. equity wins, demonstrating that there is still demand for truly differentiated, active U.S. equity strategies. Turning now to operational efficiency, we continue to make substantial progress in the major technological transformation that we began late last year. We have begun a pilot launch of our new client portal. The new tools will dramatically improve the digital experience of working with us. As the balance of the InvestCloud implementation progresses through 2021, we will streamline operations and improve back office efficiencies. Our Charles River deployment for trading and account management has moved forward throughout the third quarter as well. When fully implemented and integrated with the data warehouse and performance reporting capabilities in InvestCloud, which will occur in 2021, we will have meaningfully improved our processes for implementing and reporting on client portfolios. Our implementation of Workday made key strides during the quarter as well. Workday's industry-leading tools now are underpinning most of the key portions of our finance platform. We'll begin implementing Workday for Human Resources at the beginning of 2021. As the Workday deployment progresses, we look forward to the insights, efficiencies, and overall improved internal experience it will provide. Outside of our technology overhaul, we completed an important realignment of our investment offerings that will have substantial economic benefits. During the quarter, we merged our 11 target date mutual funds into our four pro-blend mutual funds. By rolling our subscale money losing target date mutual fund suite into our existing fully scaled risk-based mutual fund suite, we will realize meaningful cost savings. A number of target date mutual fund clients also migrated to our target date collective investment trusts whose excellent performance we outlined previously. In summary, we fully believe our strategic initiatives are progressing well. And our overall firm strategy is on the right track. We are seeing a number of positive green shoots of growth in several areas. And we remain resolutely focused on building the foundation of our business for the long term. And with that, I'll turn the call over to Paul for more detail on our financials.