BrightSphere Investment Group Inc (BSIG) (Q1 2024) Earnings Call Transcript Highlights: Strong ...

• ENI per Share: Q1 2024 reported at $0.44, up from $0.28 in Q1 2023.

• EPS Growth: 57% increase year-over-year.

• AUM: $110 billion, a 6.5% increase from end of 2023.

• Share Buybacks: Approximately 10% of outstanding shares repurchased.

• Net Client Cash Flows: $0.4 billion for the quarter.

• Share Repurchase: 3.5 million shares in Q1 2024, costing about $74 million.

• Cash Balance: $102 million as of March 31, 2024.

• Revolving Credit Facility: $73 million drawn down, expected to be repaid by year-end from operations.

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• BrightSphere Investment Group Inc reported a significant increase in ENI per share, rising 57% compared to the year-ago quarter, primarily driven by increased management fee revenue due to higher AUM from market appreciation.

• AUM increased to $110 billion, up 6.5% from the end of 2023, demonstrating strong asset growth.

• The company successfully repurchased approximately 10% of its outstanding shares, enhancing shareholder value through share buybacks.

• Acadian's investment performance remains robust with 83%, 91%, and 93% of strategies outperforming their benchmarks across three, five, and ten-year periods respectively.

• BrightSphere Investment Group Inc launched new investment strategies, including a global high-yield strategy, showing proactive expansion in their offerings.

Negative Points

• Despite overall positive performance, the company experienced net client cash outflows in some strategies, offsetting inflows in other areas.

• ENI and EPS for Q1 2024 were lower compared to Q4 2023, attributed to seasonality and timing of performance fees which are typically earned in the fourth quarter.

• The managed volatility strategy continues to face challenges, contributing to outflows due to a prolonged risk-on market environment that does not favor low beta strategies.

• Emerging market strategies are witnessing reduced client interest and slower sales, reflecting underperformance relative to developed markets.

• BrightSphere faces ongoing pressure from institutional de-risking trends, particularly from pension plans reallocating from equities to fixed income, which could impact future asset inflows.

Q & A Highlights

Q: Can you provide additional details on cash usage and the minimum level of cash BrightSphere plans to maintain? A: (Suren Rana - President, CEO) We aim to keep a minimum of $25 million in operating cash. Currently, we have about $100 million, with $15 million allocated for share buybacks and another $15 million for seeding new strategies. The remaining funds will be used for further buybacks and seeding new products.

Q: What is BrightSphere's approach to share buybacks? A: (Suren Rana - President, CEO) We prefer an opportunistic approach to share buybacks as it provides flexibility with the timing of seeding and capitalizes on market movements. This approach is currently favored over a programmatic one due to the smaller amount involved.

Q: Could you discuss the strategies that are offsetting outflows in managed volatility? A: (Suren Rana - President, CEO) Sales are strong across most strategies except managed volatility and emerging markets. We're seeing interest in global equity, non-US strategies, small-cap strategies, and ESG-focused strategies. These are helping to balance outflows in other areas.

Q: What market conditions favor managed volatility strategies? A: (Suren Rana - President, CEO) Managed volatility strategies perform well in environments where there isn't a strong risk-on sentiment. They tend to do better over longer periods when there's a fair risk-return environment, as low beta securities can perform as well as, or better than, high beta securities.

Q: Can you provide insights into the institutional pipeline and potential upcoming redemptions? A: (Suren Rana - President, CEO) The pipeline is diverse across various strategy stages. However, there's less interest in emerging markets due to their underperformance relative to developed markets. We anticipate some outflows due to pension plans de-risking by shifting from equities to fixed income.

Q: What are your expectations for EBITDA generation and the impact of operating leverage on expenses? A: (Suren Rana - President, CEO) We expect to benefit from operating leverage if markets continue to appreciate. Our past investments in scalable infrastructure should help keep operating expenses stable, allowing us to leverage increased revenues without proportionate increases in costs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.