BrightSphere Investment Group Inc. (NYSE:BSIG) Q3 2023 Earnings Call Transcript

BrightSphere Investment Group Inc. (NYSE:BSIG) Q3 2023 Earnings Call Transcript November 4, 2023

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the Third Quarter 2023. [Operator Instructions] Please note that this call is being recorded today, Thursday, November 2, 2023 at 11:00 a.m. Eastern Time. I would now like to turn the meeting over to Melody Huang, Senior Vice President, Director of Finance and Investor Relations. Please go ahead, Melody.

Melody Huang: Good morning, and welcome to BrightSphere’s conference call to discuss our results for the third quarter ended September 30, 2023. Before we get started, please note that we may take 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 8-K filed today containing the earnings release, our 2022 Form 10-K and our Form 10-Q for the first quarter and second quarter of 2023. 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. Suren Rana, our President and Chief Executive Officer, will lead the call. And now I’m pleased to turn the call over to Suren.

Suren Rana: Thanks, Melody. Good morning, everyone, and thank you for joining us today. As usual, I’ll start off with some main highlights on Slide 5 of the deck, and then I can answer questions. So for the third quarter of 2023, we reported ENI per share of $0.45 compared to $0.30 in the third quarter of 2022 and $0.28 in the second quarter of 2023. This 50% increase in ENI per share compared to the year ago quarter was primarily driven by a 24% increase in revenue due to higher AUM from market appreciation and higher performance fees. Acadian’s investment performance remained strong and got even stronger in the third quarter. As of September 30, 2023, 83%, 88% and 91% of strategies by revenue beat their benchmarks over the prior three-, five- and 10-year periods, respectively.

We reported $0.5 billion of net outflows this quarter as we had some lumpy reallocations from select clients out of our managed volatility strategy. However, we continue to have a robust sales pipeline. The implementation of our growth initiatives continues to be on track. Acadian’s Equity Alternatives platform is off to a good start and is showing nice investment outperformance so far. Acadian’s systematic credit initiative will be seeded this month starting with a high-yield strategy, and then that effort will also start to build its investment track record. Turning to capital management. We had a cash balance of $143 million as of September 30, 2023. Acadian has continued to play down its revolving credit facility and ended the quarter with an outstanding balance of $13 million compared to $38 million at the end of Q2 and $87 million at the end of the first quarter of the year.

As in prior years, we expect the facility to be fully paid down by year-end. Our long-term strategy remains the same. We’ll continue to invest in and leverage our unique Quant capabilities to grow and expand into new areas. We’ll continue using our free cash flow to support organic growth and to buy back stock whenever opportunities are available and will remain focused on maximizing shareholder value. Now let me turn the call back to the operator. and I’m happy to answer any questions at this point.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Kenneth Lee with RBC Capital Markets. Please go ahead, Kenneth. Your line is open.

Kenneth Lee: Hi, good morning and thanks for taking my question. Just one on the performance fees. Wonder if you could just provide a little bit more details behind that. Were there any specific strategies that drove the performance fees. I was a bit surprised in terms of the timing. Any other factors that we should be aware of either in terms of performance or high watermarks. Thanks.

Suren Rana: Good morning. Yes, you’re right. Typically, most of our performance fee comes in Q4, a little bit in Q1 and Q2 and Q3 are generally light. Now having said that, we do have some performance eligible strategies that have measuring periods at the end of Q2 and at the end of Q3. And sometimes when those are the strategies that outperformed there would be a performance fee. But you’re right, that is not typical, certainly the magnitude. And that just goes to the performance. The investment performance has been great and we had a great quarter. So for our strategies with the measuring period ending this quarter that worked out really well. But for the rest of the fee in Q4, two more months to go, so we’ll see how it ends. But we are encouraged with the performance so far.

Kenneth Lee: Got you. Very helpful there. And then in terms of the net flows in the quarter, you mentioned some reallocation within the managed vol strategies. Just as you look ahead, would you expect any continued weakness in the net flows in the near term, just given the market environment or is the reallocation at this point, predominantly done. Thanks.

Suren Rana: Yes, the flows, it’s – the managed volatility strategies generally have low betas, low risk. And oftentimes, it’s been a beta rewarding market. And so it’s been challenging to beat the markets to have a higher beta. They have let their own, but in some cases, clients want to take on either more risk or they want to move on to fixed income. So we’ll see how that goes. We hope for our clients to be long-term focused but sometimes clients make reallocation decisions. And so we’ll see. But other than that, in other strategies, we don’t see that kind of pressure. And as sales pipeline, as I said earlier, is robust. So we’ll see this net flow is ultimately the combination of the sales and what we may see on the outlook. There are always – there can be surprises sometimes. So we’re cautiously optimistic that – we can stay flat to above.

Kenneth Lee: Got you. And just one more follow-up question, if I could just squeeze it in. Just wanted to clarify and it sounds like – I just want to clarify that the share repurchase window is still closed.

Suren Rana: Yes, the status remains the same on that now. We still haven’t had an open window. So we’ll see.

Kenneth Lee: Got it. Very helpful. Thanks again. Thank you.

Suren Rana: Thanks, John.

Operator: Our next question comes from the line of Michael Cyprys with Morgan Stanley. Michael, please go ahead. Your line is open.

Michael Cyprys: Great, thank you, good morning. Maybe just continuing on the buyback question. So it sounds like you did not have an open window in the quarter. Just want to confirm and I guess when do you expect you might have an open window as you look out? Is that something that might happen next year? Any help on sort of framing the timing around that? And if and when you do have an open window, how should we think about the pace and magnitude of potential buybacks at that point just in terms of tender offer, which would enable you to put more cash to work in terms of buybacks more quickly.