Q1 2024 Brightsphere Investment Group Inc Earnings Call

Participants

Melody Haung; Senior Vice President, Director of Finance & Investor Relations; Brightsphere Investment Group Inc

Suren Rana; President, Chief Executive Officer, Director; Brightsphere Investment Group Inc

Michael Cyprys; Analyst; Morgan Stanley & Co LLC

John Dunn; Analyst; Evercore ISI

Kenneth Lee; Analyst; RBC Capital Markets, LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the BrightSphere Investment Group earnings conference call and webcast for the first-quarter 2024. (Operator Instructions) Please note that this call is being recorded today, Thursday, May 2, 2024 at 11:00 AM 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 Haung

Good morning, and welcome to BrightSphere conference call to discuss our results for the first quarter ended March 31, 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 filed 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 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

Thank you, Melody. Good morning, everyone, and thanks for joining us today. As usual, I'll cover some of the main highlights on Slide 5 of the deck and my initial remarks, and then we can jump to Q&A for the first quarter of 2024 for reported ENI per share of $0.44 compared to $0.28 in the first quarter of 2023 and $0.77 in the fourth quarter of 2023.
The 57% increase in ENI 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, but 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 buybacks that we started in December 2023, and we have now bought back approximately 10% of our outstanding shares.
Our ENI increase versus the year-ago quarter was 48% compared to the 57% increase in EPS that I mentioned earlier compared to the fourth quarter of 2023, the ENI, EPS are lower and that decline was driven by seasonality and timing of performance fee as 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's strategies by revenue outperformed their respective benchmarks across three, five and 10-year periods. Net client cash flows for the quarter were $0.4 billion as outflows from managed volatility and some other strategy for offset by inflows in other areas, our growth initiatives are continuing to progress on plan.
Acadian's equity alternatives platforms data in Q4 of 22 continue to build a strong track record of outperformance, Acadian systematic credit platforms first strategy US high-yield strategy that was created in November 2023 as also started building a good track record. And in April of 2024, we also created the credit platforms 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, 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 under our revolving credit facility and ended the quarter with an outstanding amount of $73 million on that facility.
As we have discussed in prior years for this revolving facility as of the Acadian operating levels and is repaid from cash from operations at Acadian not from our corporate cash balance. Acadian draws on this facility as of beginning of the year or first quarter seasonal needs mainly to pay prior year's annual bonuses and the facility has been 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 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 questions at this point.

Question and Answer Session

Operator

(Operator Instructions)
Glenn Schorr from Evercore. The question from Glenn Schorr. Your line is now open.

Suren Rana

Operator, perhaps we could move to the next question, and we'll circle back with line later.

Operator

Michael Cyprys.

Michael Cyprys

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.

Suren Rana

Yeah, thank you. Again. As we said today, we have about $100 -- $100 million currently at the end of March. And we are mostly almost pretty close done with a $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 yet, we think about $25 million of operating cash that we'd like to keep as a minimum, the $15 million left on the buybacks for that $40 million. I mentioned earlier that we see it at $15 million for our second strategy on the on our credit platforms for the global high yield strategy.
So that's another $15 million, that's $55 million. So I think we were left with about $40 million or so from a use perspective, and we'll look, we'll look to buybacks. We also would love to seed some more products on the systematic credit platform. We will target fourth quarter to seed our investment grade, our strategies, both U.S. and global strategies, but we'll also generate more cash in the interim, and we're trying to recycle some existing seed up as well.
So in general, I guess does that those are the round numbers and we add more cash in, but they will be used for buybacks and seeding purposes.

Michael Cyprys

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.

Suren Rana

Yeah, thank you. Currently are we are leaning in favor of opportunistic the reason being that gives us more flexibility in the timing of feeding as well and then also to benefit from the movements in the market. But it's not a lot. It's not a large amount now and that would necessitate anything programmatic. So we feel comfortable with the opportunistic approach for now.

Michael Cyprys

Great.
Thanks so much.

Operator

John Dunn, Evercore.

John Dunn

Thank you. And could you maybe talk about some of the other strategic areas that are inflowing that are blunting the outflow outflows for manage well. And then separately, what type of environment do we need to get to where we could see less of a drag from manageable?

Suren Rana

Yeah. Thanks, John. We are seeing good sales across most of our strategies outside of managed. Well, I would say there's a little bit of slowdown slow down on the emerging market strategy as well given that now those markets, the index itself hasn't done very well in recent years compared to the US market. But we saw good sales in our global equity strategy.
Now actually non-US strategies and different types of niche strategies such as small-cap strategies. We're also seeing demand from us our other variants of strategy such as extension strategies where we not go a little bit long and short one 30 30 strategies.
And we have enhanced versions well, where could they go close to the on the benchmark for the smaller tracking or and then there's some ESG as well. So it's pretty a pretty pretty good cross-section of strategies where we see sales. And while we see pipeline building up and then we are seeing the outflows from managed vol and a little slowdown in emerging markets.
I guess an environment to the last part of your question on the environment of managed vol does well, when one beta is not running up too much. I guess when there's more of a fair risk return our environment, and it does well over a longer period in the sense that the academic studies and statistics would tell you is that over a longer period, 10 year, 15 year period. So 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, but of course, gets rewarded. So I guess and on 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. And so that's not been an ideal environment for manage well.

John Dunn

Got it. And then could you give us kind of a characterization of the institutional pipeline 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 of quarters?

Suren Rana

Yeah, the pipeline has got it in line of what I described as a good cross-section that we'd like to see across different types of strategies. You don't know, manage evolving notably absent our emerging markets, is less than what we would like. And the investment performance is stellar in emerging markets. But the the client interest is little bit less right now because for several years, emerging market indexes lagged the US in particular, but also on developed markets in the West.
But otherwise, other than that, it's a pretty good cross-section and across stages as well as early-stage, mid-stage and and and one stages that are yet to be funded by Gary, you considered right that there are on the on the outflow side, we have pressure from managed volatility. And there are always episodic thing that happened with clients reallocating to other things.
One thing that we've seen with the high 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 equity then and allocate more to fixed income. And so that those those allocation decisions happen from time to time. So where we are seeing that and people move from fund strategies with the other from time to time. So it was a hard to tell.
But I guess from a trend perspective, the de-risking and allocation of fixed income, and we see that more often. So when you sort of look at all of that, we expect to be probably flattish, of course, next few quarters. But any given quarter, we may see of the more of the things happening, coincidentally in one quarter, right we probably may not come out flat, but these are the trends that and that's specifically why we're excited about our fixed income systematic credit initiative, because then we can also be a beneficiary the de-risking trend that we see.

John Dunn

Thank you.

Operator

(Operator Instructions)
Kenneth Lee, RBC Capital Markets.

Kenneth Lee

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.

Suren Rana

Hi Kenneth, that's a good question. And if you look at it essentially the quarter versus the year ago quarter, we saw 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 12% and as a result, the management fee was up by about that much by 12%, 13% but on the high level, the ENI is up 48% versus year ago. And then we use that 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 laid out now, go forward against the markets continue to appreciate, we should see that benefit now with the revenue going up and up, and we're generally trying to hold our 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 that should be abating now.
And we've built up on these new initiatives that are more or less at full run rate now. So we be much less increase on the operating 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 (multiple speakers)

Kenneth Lee

Yes, it sure does. Very helpful. And that's all I had. Thanks again.

Suren Rana

Thank you.

Operator

This concludes our question-and-answer session. I'd like to turn the conference call back over to Suren Rana.

Suren Rana

Thank you, operator. Thank you, everyone, for joining us this morning, we'll look forward to engaging with you and others in the coming months and quarters.