Westwood Holdings Group Inc

Good day and thank you for standing by. Welcome to the second quarter 2024 Westwood Holdings Group earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Ahinger, Chief Compliance Officer. Please go ahead.

Thank you, and welcome to our second quarter 2024 earnings conference call. The following discussion will include forward-looking statements that are subject to known and unknown risks, uncertainty, and other factors, which may cause actual results to be materially different from those contemplated by the forward-looking statements. Additional information concerning the factors that could cause such a difference is included in our press release issued earlier today, as well as in our Form 10-Q for the quarter ended June 30, 2024, that will be filed with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. You are cautioned not to place undue reliance on forward-looking statements. In addition, in accordance with SEC rules concerning non-GAAP financial measures, the reconciliation of our economic earnings and economic earnings per share to the most comparable GAAP measures is included at the end of our press release issued earlier today. On the call today, we have Brian Casey, our Chief Executive Officer, and Terry Forbes, our Chief Financial Officer. I will now turn the call over to Brian Casey.

Good afternoon, everyone, and thanks for joining us for Westwood's second quarter 2024 earnings call. I'm looking forward to discussing our results and key developments from the past quarter, as well as giving you a quick look into our outlook for the remainder of the year. Before diving into the details, I'd like to highlight a few key points that we will be discussing today. Within our distribution channels, we funded exciting new mandates in our institutional business and saw positive flows into our energy strategies. Significant developments included our investment in the Texas Stock Exchange, which is seeking regulatory approval to launch next year, and the successful launches of our ETFs and our managed investment solutions capabilities. We have lots of exciting news to share, so let's get started with our long-term performance, which continues to be a source of pride for us here at Westwood. The second quarter presented a challenging and complex market environment for investors. The S&P 500 rose, but returns were highly concentrated among a handful of mega-cap growth stocks, particularly if linked to artificial intelligence. This narrow market leadership led to significant performance disparities. with the Russell 1000 growth index gaining 8.3%, while the Russell 2000 value index declined 3.6%. Outside of large-cap growth, most market segments struggled, with six out of seven S&P 500 sectors declining. Economic data was mixed, with growth slowing amid persistent inflation, and this pushed expectations for interest rate cuts further out into the future. In the bond market, returns were muted as interest rates held relatively steady. High-yield bonds led the way as investors take comfort from the concept that a growing economy, together with stable interest rates, will avert potential defaults. Longer-dated Treasury bond prices declined as the long end of the yield curve rose, given the general expectation that higher rates will stick around longer. The yield curve remained inverted, however, much to the consternation of many economists who insist that a yield curve inversion implies a future recession. This environment underscores the benefits to investors of Westwood's focus on identifying and investing in high-quality companies across market capitalizations and asset classes. Our U.S. value strategies have demonstrated long-term consistency as they all outperformed over trailing three-, five-, and ten-year periods. Also, our SMIDCAP strategy's outperformance over three and five years places it among the top performers in its Morningstar peer category. Our multi-asset strategies are also delivering strong results, with most of them outperforming over the trailing three years. Our alternative income strategy ranked in the top 35 of its Morningstar peer category for trailing three years, and our credit opportunity strategy finished in the top 23% of its investment category for the trailing three years. As for income alternatives, our global real estate and real estate income strategies both posted strong three-year track records, landing in the top 12% and 3% of their respective investment categories. Lastly, our MLP and energy infrastructure strategy has also begun to improve in performance and peer rankings. Our MLP and energy infrastructure mutual fund and SMA strategies are important elements in our suite of energy product offerings, and we're very pleased with their recent improvements. While the market's narrow leadership presents short-term challenges, We believe our focus on high-quality companies positions us well in environments when growth becomes scarcer. Turning to our wealth management business, we experienced net outflows of $89 million, a third of which were for expected tax payments, required minimum distributions from IRAs, and small pension outflows. On a positive note, our new business pipeline has grown with our engagement with centers of influence, which should foster future opportunities for Westwood Wealth. Our ongoing work to enhance our client experience includes the implementation of new alternative asset tracking software, which provides the most accurate and timely reporting for our clients holding alternative assets, and we held very successful client events in Houston and Dallas this past quarter. Most importantly, we've made a number of experienced key hires in Houston and Dallas to help us lead and grow the trust and wealth management business. Moving to our institutional and intermediary distribution channels, we had net outflows of 193 million. 100 million of this came from a 25-year institutional client who rebalanced from equities to fixed income. We're excited about several new mandates, including a new $43 million SMID CIT client that funded during this past quarter. Our pipeline remains robust, and we recently secured a new $125 million SMID mandate that should fund later this year. To recap, our institutional team won several mandates in the first half, and most should fund in the second half. Our won but not funded levels are approaching $400 million, and our pipeline is north of $1.5 billion in future business. We're particularly excited for the coming launch of our managed investment solutions capability, which we expect to take place during the third quarter. We have already conducted numerous meetings with prospects, including in-depth discussions with premier national consultants. I would have to say that the reception has been overwhelmingly positive, and we hope to have secured new clients for managed investment solutions by this year-end. Our intermediary channel had net outflows of $103 million, but there were bright spots too, particularly in our MLP strategies, where our mutual fund reported positive net inflows. Our small-cap strategies also experience positive net flows in both mutual fund and UMA vehicles. Small-cap has witnessed an increase in search activity recently, and many broker-dealers are highlighting small-cap valuations as highly attractive relative to other equities, and they're recommending increased exposure. We anticipate this trend to continue to play out in the second half, which should lead to increased flows and search activity for our small-cap and mid-cap strategies. In addition, concerns over high equity market valuation are driving potential allocations to other strategies, including income opportunity, which is a tactical asset allocation strategy focused on long-term capital appreciation potential, downside protection, and distributed income. After facing years of headwinds in traditional energy, Westwood is excited and well-positioned to benefit from positive tailwinds forming in the energy space. Our mutual fund has improved in relative performance and peer rankings, and our recently launched ETFs, MDST and WEEI, are gaining traction. Our first ETF, Westwood Salient Enhanced Midstream Income, ticker symbol MDST, launched in early April, and our second ETF, Westwood Salient Enhanced Energy Income, ticker symbol WEEI, launched in May. Both are actively managed funds designed to provide advisors and investors with robust solutions for generating high distributable monthly income, combining dividend yield and options premiums from covered call, plus potential equity appreciation with the midstream and broad energy sectors. Our ETFs have provided monthly distributions since their inception. Based on June's distributions paid on July 2nd and at that day's closing prices, Our funds had annualized yields of 11.3% for WEEI and 10.7% for MDST. The MDST ETF is approaching $50 million in assets under management and is experiencing good volumes, an important threshold for broader platform inclusion. We continue to execute our ETF distribution strategy, focusing on registered investment advisors and intermediary platforms with trading access to both ETFs. We recently made a strategic hire to lead our ETF sales and distribution strategy. Chris Doran came on board on July 15th, bringing with him over 25 years of ETF sales experience. Chris has directed ETF external sales teams, developed sales strategies to increase market share, fostered relationships with centers of influence at home offices, and coached internal sales and hybrid personnel. ETFs represent the fastest growing segment of the asset management industry, and there are few professionals with more experience than Chris in raising assets in the ETF industry. We're excited about our entry into the ETF market, and having Chris join us will accelerate our plans to participate in this growing segment of the industry. I'm very pleased to report that our private fund, Westwood Energy Secondaries I, was fully invested, and due to the demand and the attractiveness of investments available to the fund, we created a continuation vehicle of $14 million for Aspen Leaf, a private Canadian oil and gas company, which was fully invested. With Westwood's full suite of energy product offerings and vehicles, including mutual funds, ETFs, private funds, and separate account strategies, we really feel we're at the right place at just the right time with the right solutions to cater to the needs of our clients. Now, let me highlight some new developments for Westwood. Westwood has just made a $1.5 million investment in the brand new Texas Stock Exchange, which is seeking regulatory approval to launch next year, and we are honored to be among the list of founding investors. Westwood is the only Texas-based publicly traded asset management and wealth firm listed as a founder of the TXSE. We are proud to have our business headquarters in Texas, always working together with a can-do attitude to find a way forward. CEOs from around the world are taking notice and moving their headquarters to Texas. We have positive demographics, a pro-business environment, great cost of living, and no state income tax. Looking ahead, we're excited about several more initiatives. We're planning to expand our Collected Investment Trust, CIT offering, and our small-cap and large-cap strategies to better serve larger defined contribution plans. We're considering launching Westwood Energy Secondaries II later this year, as we believe the energy market may be entering a secular bull market. We have demonstrated our confidence in Westwood's future and have also accelerated our BIDOC program. This quarter, we returned approximately $1.1 million to shareholders via our share repurchase program, buying back 86,000 shares. As we move into the second half, we see significant opportunities, particularly in our multi-asset and real asset funds that span real estate and energy. Our multi and real asset strategies are really attractive options for yield-conscious investors in a market where valuations are compelling, and we're seeing more interest in our small-cap and mid-cap strategies as brokered dealers highlight their attractive valuations to their clients. In closing, while the current market presents challenges, it also offers opportunities that play to Westwood's strength. Our diverse range of strategies, expanding product and business capabilities, and our bedrock commitment to delivering value to clients' position as well. We are particularly excited about the potential multi-year tailwind for energy, where our full suite of product offerings across various vehicles is ready to go. Thank you for your continued support and confidence in Westwood, where we remain committed to delivering long-term value to our clients and shareholders. I will now turn the call over to Terry Forbes, our CFO.