Welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the Second Quarter 2024. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Please note that this call is being recorded today, Thursday, August 1, 2024, at 11:00 a.m. Eastern Time. I would now like to turn the call over to Melody Huang, Senior Vice President & Director of Finance and Investor Relations. Please go ahead, Melody.

Good morning. And welcome to BrightSphere's conference call to discuss our results for the second quarter ended June 30, 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 these risks and uncertainties appears in our SEC filings, including the Form 8-K filed today containing the earnings release, our 2023 Form 10-K, and our Form 10-Q for the first quarter of 2024. 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 slide deck we will use as part of today's discussion. Finally, nothing herein shall be deemed to be an offer of 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.

Thank you, Melody. Good morning, everyone, and thanks for joining us today. I'll cover some of the main highlights on slide five of the deck in my initial remarks, and then I can answer any questions. So, for the second quarter of 2024, we reported ENI per share of $0.45, compared to $0.28 in the second quarter of 2023, and $0.44 in the first quarter of 2024. The 61% increase in ENI per share compared to the year-ago quarter was primarily driven by an increase in management fee revenue due to higher AUM from the market appreciation that we saw over the last 12 months. And secondly, it was also driven by our share repurchases over the last few quarters. Our average AUM increased approximately 13% compared to the second quarter of 2023. Management fee revenue increased 14%, in line with the AUM increase. However, since we were able to keep our operating expenses generally flat year-over-year, our ENI increased 43% because of the 14% increase in revenue. This proportionate increase in ENI versus revenue reflects our continued expense discipline and the embedded operating leverage in our business. We would expect to continue to benefit from this operating leverage as our revenue grows. Additionally, the increase in ENI per share versus year-ago was 61% compared to the 43% increase in ENI that I just went through. That difference was driven by our share repurchases over the last year. Between December 2023 and June of 2024, we repurchased 4.7 million of our shares, or 11% of our total outstanding shares, for $100 million. Acadian's investment performance remains strong. As of June 30, 2024, 86%, 92%, and 93% of Acadian's strategies by revenue outperformed their respective benchmarks across three-, five-, and 10-year periods. Turning to flows, net client cash flows were essentially flat for the second quarter. In the second quarter, we had select large and lumpy inflows, but we also had select large and lumpy outflows. These lumpy flows basically offset each other. Our growth initiatives continue to progress. On our systematic credit initiatives, Acadian's U.S. High Yield strategy, which was seeded in November 2023, and the Global High Yield strategy, seeded more recently in April of 2024, both continue to build good track records. Additionally, we seeded a third credit strategy, a U.S. Investment Grade strategy, in July 2024, and that strategy is also building a track record now. On our Equity Alternatives initiative, our multi-strategy fund seeded in Q4 of 2022 continues to build a strong track record of outperformance. Turning to capital management, as I mentioned earlier, we repurchased 11% of our outstanding shares since December of 2023 for $100 million. Specifically in Q2 of 2024, we repurchased 0.9 million shares or 2% of our total outstanding shares for $21 million. At the end of the second quarter, we had a cash balance of $72 million. Acadian had an outstanding balance of $36 million on their revolving credit facility which, similar to prior-year, is expected to be repaid fully from cash from operations by year end. I'd like to close my initial remarks by reiterating, as I usually do, that we remain focused on maximizing shareholder value and will 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. Thank you.

Thank you. Our first question for today comes from the line of Michael Cyprys with Morgan Stanley. Your line is live.

Great, thank you. Good morning. Maybe just starting out with the lumpy flows that you alluded to on both the gross sales and the redemption side, I was hoping you could unpack both of those, maybe talk about some of the types of strategies, customer channels, et cetera, where you're seeing some of the strategies come in, and similarly on the redemption side, what you're seeing there? And if you could also just touch upon the pipeline as it looks today, how is that shaping up versus, say, last quarter? Thank you.

Yes, thanks, Michael. As we've touched on, ours is an institutional business, and so some of the numbers can be large and episodic. There wasn't necessarily a pattern to unpack; it was just coincidence, if you will, that we had these large numbers on both sides. On the inflows, there were really just three large clients that came in. There was a client that was more than a couple of billion, another one for $1 billion, and another close to $1 billion, so these are really large numbers. They were in assorted strategies, and I wouldn't say there were any patterns to unpack in terms of any particular strategy; it was just the strategies that these clients selected and the fact that they came in large. It happened to be that these three large inflows occurred in the same quarter. On the outflow side, similar story: we had a really large client close to a couple billion, another client more than $1 billion, and another client with a similar number, across different strategies that just happened to be in the same quarter. So, it was quite a coincidence that it all happened in one quarter. But they essentially canceled each other out. Going forward, as we've guided in the past few quarters, we see more of a breakeven-to-flat cadence. The pipeline remains healthy across stages. We have a good pipeline across different strategies and stages. We still see some pressures from managed volatility strategies, among others. We see rebalancing going on by clients in these rising equity markets where they take some chips off the table. There are some clients that are moving to fixed income as a way to manage their profiling of liability-driven investing needs. So, with all of those puts and takes, we think about a breakeven kind of cadence for a few quarters here.

Great, thanks. And just a follow-up question on capital allocation, just curious how you're thinking about and planning to approach that as we move in here in the second half and into '25. Cash balance $72 million I think you mentioned. How should we think about that potentially going down, if at all, just given, I know, in the past I think you've mentioned you think about minimum cash levels that you need to run the business is meaningfully lower than that. So, what can we expect in terms of buybacks here as we go forward? Thank you.

Yes, thanks, Mike. We think about minimum cash levels around $20 million or thereabouts, so you could say that maybe there's close to $50 million available for other uses. As we've said earlier, the two main uses remain buybacks and seeding opportunities to accelerate our organic growth. We remain mindful and opportunistic on both fronts. We seeded in this quarter, as we mentioned in the release, our third credit strategy which was the U.S. Investment Grade strategy. So, we have a sizable seed pool now, and there might be some recycling that happens within that pool. But if we get opportunities to seed more to drive organic growth, we might do that. And we'll also look at buybacks as we go. There isn't any particular formula we have. We'll remain opportunistic on both. We don't feel like we necessarily have to buy back shares every quarter, particularly as I touched on, with that approximately $50 million number. It's not a large amount to put to work all at once. So, we'll remain opportunistic here.

Great, thank you.

Thank you for your question. Our next question is from the line of Kenneth Lee with RBC Capital Markets. Your line is live.

Hey, good morning, and thanks for taking my question. Just one on the fee rate: there was, I think, a slight pickup in the fee rate in the quarter. Wondering whether it was just due to mix shift and, if so, were there any particularly higher-fee products that contributed to the fee rate there? Thanks.

Hi, Ken. I think the answer is largely the first part of your guess: it was largely mix that impacted the fee rate a little bit because some of our strategies are higher fee and some are lower fee. One of the factors was that emerging markets indices in the second quarter did relatively well. They had been lagging for a while, but in Q2 they did better than some of the other indices, including EAFE and others, and they have higher fees. So that was probably most of it, along with some other puts and takes.

Got you, thanks. And just one follow-up, if I may, just in terms of the share repurchases and capital allocation there. Would you expect to see a renewal for the Board to renew the share repurchase authorization sometime in the near term? Thanks.

Yes, thanks, Ken. As I said, the uses for the capital remain seeding organic growth opportunities and buybacks. The excess capital right now isn't large enough to be urgent. But in due course, we would expect to get a new authorization for buybacks.

Got you, very helpful there. Thanks again.

Thank you. Our next question is from the line of John Dunn with Evercore ISI. Your line is live.

Thank you. A question on the outlook for further expense control from here and your ability to keep expenses in check?

Hi, John. Over the last couple of years, we had a lot of expense increases as we invested in our infrastructure. We invested in our trading infrastructure and added to our investor reporting capabilities, really building out a lot to make our franchise more scalable. We have done a fair bit of that. At the same time, we also faced pressures from inflation on the cost of data and other items, but that has abated. So it appears that now, having built up a lot over the last couple of years and having faced inflation, we are in a good position to keep expenses more or less at these levels, barring the usual general increases you would see—cost-of-living-type increases in the 2%–3% range. So, as I mentioned, we do have operating leverage: as revenue grows, whether from market appreciation or organic growth, we should be able to keep operating expenses relatively flat and thus receive a disproportionate benefit as revenue increases.

Got it. And maybe could you give us a little color on the conversations you're having with clients about potentially a pickup in demand for emerging market strategies?

Yes, there are a variety of opinions, and it also depends on the type of client. Many clients view emerging markets as an opportunity because there's always rotation in terms of higher-performing markets. Emerging markets have been lagging for a long time, so many clients feel their time may be coming soon given valuation levels overall in emerging markets, particularly in China. On the other hand, some clients are worried about the geopolitical situation and the risks, and there are some political factors for certain institutional clients. So it's a mixed bag. Everything said and done, so far we haven't seen a strong pattern either way in terms of large inflows or outflows. We are seeing inflows into that strategy—it's a strategy where we have excellent long-term performance—so if clients do allocate, we have a strong chance of capturing that. But we are also seeing some outflows in the space.

Thank you for your question. Ladies and gentlemen, that will conclude our question-and-answer session for today. I would like to turn the conference call back over to Suren Rana.

Thank you, Operator, and thank you everyone for joining us today. Have a good one.