BrightSphere Investment Group Inc. (NYSE:BSIG) Q4 2023 Earnings Call Transcript

BrightSphere Investment Group Inc. (NYSE:BSIG) Q4 2023 Earnings Call Transcript February 1, 2024

BrightSphere Investment Group Inc. beats earnings expectations. Reported EPS is $0.77, expectations were $0.58. BSIG isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the Fourth Quarter 2023. [Operator Instructions] Please note that this call is being recorded today, Thursday, February 1, 2024, at 11 a.m. Eastern Time. I would now like to turn the meeting over to Melody Huang, SVP, 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 fourth quarter ended December 31, 2023. Before we get started, please note that we 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 8-K filed today containing the earnings release, our 2022 Form 10-K and our Form 10-Q for each of the first, second and third quarters 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 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 : Thank you, Melody. Good morning, everyone, and thanks for joining us today. Well, I’ll start off with some of the main highlights on Slide 5 of the deck, and then I can answer questions. So for the fourth quarter of ’23, we reported record ENI per share of $0.77 compared to $0.67 in the fourth quarter of 2022 and $0.45 in the third quarter of 2023. The 15% increase in ENI per share compared to the year ago quarter was primarily driven by management fee revenue being 10% higher than the year ago quarter due to higher AUM from market appreciation that we saw in 2023. Acadian’s investment performance remained great and strengthened further in the fourth quarter. As of December 31, 2023, more than 90% of strategies by revenue outperformed their respective benchmarks across 3-, 5- and 10-year periods.

And net client cash flows for the quarter were negative $2 billion, as we saw some additional outflows in the quarter related to our managed volatility strategies and select large reallocation. Our growth initiatives continue to be on track. Acadian’s Equity Alternatives platform, seeded about a year ago in Q4 of ’22, continues to show good investment outperformance. And Acadian’s Systematic Credit initiatives was just seeded in November ’23, with $15 million of seed capital in the High Yield strategy, and that has now started to build its track record. Turning to capital management. In 4Q ’23, the company’s Board provided a new authorization for share buybacks of up to $100 million. Starting in December of ’23, and to date so far in ’24, we repurchased approximately $43 million of shares, or 2.1 million shares, which was about 5.2% of our outstanding shares.

Regarding our balance sheet, we had a cash balance of $147 million as of December 31, ’23. Acadian fully paid down its revolver at the end of Q4 compared to the $13 million that was outstanding at the end of Q3. I’d like to end with reiterating that from a longer-term perspective, we remain focused on maximizing shareholder value, and we’ll 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 any questions at this point.

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Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Kenneth Lee from RBC Capital Markets.

Kenneth Lee : Just 1 on potential for — what’s the outlook for cash usage this year? How much are you expecting to allocate in terms of seed capital? And ultimately, what’s the best way to think about potential for excess cash on balance sheet?

Suren Rana: So yes, the way we size it is we have $147 million of cash balance, as I said, at the end of the year. And of that, we’ll probably do $20 million of seed in the fourth — in the first quarter of ’24, call it, $20 million to $25 million we generally keep for operating cash, so that’s $45-ish million out of that $147 million, so that leaves $100 million for buybacks. So that’s how we sized it. Of that $100 million, as I said, we’ve used $43 million so far till yesterday, and we hope to use the rest in the coming weeks and months, hopefully. So that’s the plan. Now as we continue to execute this year and the cash from operations builds up, that will build additional capacity for buybacks or to seed more organic growth. As we’ve said, those are the 2 uses.

Kenneth Lee : Got you. Very helpful there. And just 1 follow-up. In terms of the share repurchase, would it be fair to say it would be mainly opportunistic? Or is there any other piece there that we should think about?

Suren Rana: Yes. We’ll generally keep all of the factors in mind. And yes, so I think opportunistic is a fair way to say it.

Operator: Your next question comes from the line of Michael Cyprys from Morgan Stanley.

Michael Cyprys : I was just hoping you could maybe elaborate a bit on flows in the quarter, the $2 billion or so of outflows, and also on the gross sales that we saw in the quarter. It look like there’re some areas of strength on the gross sales there. Maybe you can unpack where you’re seeing some of the areas of strength? And maybe you could comment a bit on the institutional pipeline, how that’s shaping up here so far in ’24?

Suren Rana: Mike, yes, we’re seeing — as we’ve said, we — on the managed volatility strategies, we’ve seen pressure for almost 2 years now in this good beta-rewarding market. Those are low beta strategies and they have underperformed the average beta market. Those strategies have actually outperformed their betas, but they’ve underperformed the core indices. So we’re seeing clients — a number of clients from time to time either trim their positions or move to something else. So we saw some of that in this quarter as well. And then as we said from time to time, in some quarters, we see clients doing some reallocations particularly at year-end that, that has happened. So we saw that from a larger 1 from a client. So that was sort of responsible for the larger net outflows from — in the quarter.

So that was really driven by the outflows. The sales, it could be better. We still have, as I mentioned, I guess, a few times in the past that — in the past year, the pipeline is still healthy. It’s strong. That hasn’t worsened. Maybe it’s — probably it’s only gotten a little bit better, but things are taking a little bit longer than they used to. We’re seeing good pipeline across a variety of strategies — all country strategies outside the U.S., equity ex-U.S., as we call it, a lot of interest in small cap strategies, both international emerging markets as well as U.S. There’re some pipeline in emerging markets as well and there’s pipeline in different enhanced versions of these strategies. So really good pipeline there and hopefully more and more of it converts.

But we are — probably we do expect to see continued pressure on managed volatility strategy and there may be still the episodic things that happen with client reallocations.

Michael Cyprys : Great. And then just a follow-up question on the systematic credit as well as the Equity Alts platform. Just maybe you can give us a bit more of an update on the progress there? What would success look like for you in some of the metrics you’re tracking, and how are conversations progressing with clients?

A –Suren Rana: Yes. We’re pretty satisfied and reasonably happy with how things are progressing. They’re on track on both of those initiatives. Equity Alts is a little bit older, so that – we started it about a year ago in Q4 of ‘22. So that’s tracking up a nice track record of outperformance. We do have a reasonable size client in there. We’re hoping to get more in this year. I mean, generally, traditionally, in our business, people have looked for 3-year, 5-year and 10-year track records, but this 1 as well as Systematic Credit are different enough that we are having good conversations with clients, hoping to get them in early on. And we do have a client in Equity Alts and their track record is good. So client conversations are progressing, and we’re hopeful to add at least some more clients in that strategy before it gets to a 3-year track record.

Systematic Credit just seeded. That’s only been maybe a little bit more than a month. It was seeded in November, so I guess a little more than a month. So far so good. It’s progressing well on the performance side. Of course, it’s too early to say, but it’s moving along as we expected. But the client conversations are – were happening already even before we seeded it as we were preparing the infrastructure and the models. And clients are eager to see how this plays out, and there’s a good amount of interest. And we hope to get some clients again early in ‘24, even though, traditionally, people have looked for 3-year track records, generally.

Operator: Your next question comes from the line of John Dunn from Evercore ISI.