Q4 2023 Brightsphere Investment Group Inc Earnings Call
Participants
Melody Huang; SVP & Director of Finance & IR; BrightSphere Investment Group Inc.
Suren Rana; CEO; BrightSphere Investment Group Inc.
Kenneth Lee; Analyst; RBC Capital Markets, LLC
Michael Cyprys; Analyst; Morgan Stanley & Co LLC
John Dunn; Analyst; Evercore ISI
Presentation
Operator
Ladies and gentlemen, thank you for standing by and 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 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 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 this risk 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, which 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 your 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 reallocations.
Our growth initiatives continue to be on track. Acadian's equity alternatives platforms seeded about a year ago in Q4 of 22 continues to show good investment outperformance and Acadian systematic credit initiative was just seeded in November '23 was $15 million of feed capital in the high yield strategy, and that has now started to build a track record.
Turning to capital management in 4Q or '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 31st, 2013. 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.
Question and Answer Session
Operator
(Operator Instructions) Kenneth Lee, RBC Capital Markets.
Kenneth Lee
Hey, good morning and thanks for taking my question. Just one on potential for -- what's the outlook for cash usage this year? How much are you expect to allocate in terms of seed capital, and ultimately what's the best way to think about potential for excess cash on balance sheet? Thanks.
Suren Rana
Good morning, Ken. The way we have sized that is we have $147 million of cash balance, as I said at the at the end of the year. And of that, we will probably do $20 million of feed in the first quarter of '24, call it $20 million to $25 million, we generally keep for operating cash. So that's $45 million-ish out of that $147 million. So that leaves $100 million for buybacks. So that's how we size that.
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 different or to seed more organic growth as we've said those are the two uses.
Kenneth Lee
Got you. Very helpful there. And just one follow-up on 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 we should think about?
Suren Rana
Yeah, we will generally keep all of the factors in mind. And yes, I think it's opportunistic is a fair way to say.
Kenneth Lee
Got you. Thanks, very helpful.
Suren Rana
Thank you.
Operator
Michael Cyprys, Morgan Stanley.
Michael Cyprys
Okay, great, thanks. Good morning. I was just hoping you could maybe elaborate a bit on the flows in the quarter, the $2 billion or so of outflows and also on the gross sales that we saw in the quarter. It looked like there are 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
Yeah. Hi, Mike. We're seeing, as we said, on the managed volatility strategy, we've seen pressure for almost two years now in this good beta of rewarding market. Those are low beta strategies and they've underperformed the average beta market. Those strategies have actually outperformed their data, but they have underperformed the core entity.
So we're seeing a number of clients from time to time, either train their acquisitions or move to something else. So we've but we saw some of that in this quarter as well. And then as we've said from time to time in some quarters, we see clients doing some reallocations, particularly around that, that has happened. So we saw that from a larger one from a client. So that was sort of was responsible for the larger net outflows from in the quarter. So that was really driven by the the outflows. So sales are it could be better than that.
We still have, as I mentioned, a few times in the past that in the past year, the pipeline is still fairly healthy. It's strong and that hasn't worsened. Maybe it's probably it's only gotten a little bit better, but now that things are taking a little bit longer than they used to how we're seeing a good pipeline across a variety of strategies, frankly, in all country, our strategies outside the US equity XU as we call it, a lot of interest in small-cap strategies in both international, emerging markets as well as US.
There's some pipeline in emerging markets as well as their end there, the pipeline and not no different enhanced versions of these strategies. So some really good at good, good pipeline there, and hopefully more and more of it converts. But we are since we are valued, we do expect to see continued pressure on managed volatility strategy. And I maybe don't know the apoptotic things that happened with client reallocation.
Michael Cyprys
Great. Thanks. 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 some of the metrics you're tracking and how are conversations progressing with clients?
Suren Rana
Yes, there we are we're pretty satisfied and reasonably happy with how things are progressing there and they're on track on both of those initiatives. Our equity also has a little bit older, so that now we started about a year ago in Q4 of '22. So that's that's been a cracking up, a nice track record of outperformance. We do have a reasonable sized client and there were hoping to get get more investment in this year.
I mean, generally traditionally in our business, people have looked for three year 5-year and 10-year track records of this one as well as systematic systematic credit are different enough that we are having good conversations with clients are hoping to get them, get them in early on. And we do have a find in an equity offering and the track record is good.
So client conversations are progressing and we're hopeful that until the middle, at least out some more clients are in that strategy before it gets to a three-year track record, our systematic credit, not just ceded. That's only been maybe a little bit more than a month. It was stated in November. So I guess months now a little more than a month and so far. So that is progressing. It's progressing well.
On the performance side, of course, it's too early to say, but now it's moving along as we expected, but the client conversations are happening already even before we seeded it as we were preparing the infrastructure and the models and clients are eager to know how to see how those displays out. And there's a good amount of interest and we hope to we hope to get some clients again early in '24, even though traditionally people have looked for three-year track records generally.
Michael Cyprys
Great. Thank you.
Operator
Glenn Schorr, Evercore ISI.
John Dunn
Thanks, Suren and Melody. Just to extend the institutional pipeline question. Maybe you have it and anything you have line of sight to anything chunky in or out over the next quarter or so. And I understand things are taking longer, but what's a decent assumption for how like time to fund go into the pipeline?
Suren Rana
Yeah, thanks, John. I guess outside of managed volatility strategy that I know that I touched on. We do probably expect more outflows there and it has now, particularly in light of the environment as there is a soft landing and markets do well and then that's that maybe that's more of a defensive strategy that that's played out over long periods as it is as it was promised to do and deliver the same or better returns at market with lower risk, but none of that is not an ideal environment for us.
So we probably expect more outflows from that strategy. But outside of that, there's nothing specific that we know of that's larger and chunky. And in terms of what we see as risk, but not in terms of other strategies, though, we are we are it's up a good pipeline, pretty diversified across different strategies and up and how it converts. It's really just depends on it's very it's hard to have some rules, are our guidepost and then because it's pretty diversified by stage as well.
Some are in late stages or more in middle stages. Some are very early. And but now it's and it is also in terms of time to convert it, just yes, it ebbs and flows some some more quickly, some move slower. So it's not that anything structurally that things are taking longer structurally, just like those things also change them. So it's really hard to say, but what we are pretty satisfied and happy with the pipeline that we have.
And Doug, you have that the teams really are on it and connecting with clients and serving them and Darden and in oh nine and hoping to get some of these wins are we do have some mandates that have been won. That's what they were expecting to fund. So they're really across different stages.
John Dunn
Got it. And then you talked about some of the puts and takes of managed well institutional pipeline, but it being diversified, can you just go through the kind of the puts and takes for the fee rate as for the next stretch?
Suren Rana
Yeah, we would expect to be pretty stable around that level, [38 bps] for the next few quarters. What would really change it going forward, I guess from a longer-term perspective would be as we as we execute more on our equity all and down and our systematic credit strategies, those are higher fees. And so as we as we start to get data on larger flows, industrial strategy, particularly equity all because that has now much higher feeds and then systematic credit, we are starting with high yield, which is a higher fee as well. So that will start to change the mix toward down toward higher fee.
And as you may have noticed, generally also the outflows are coming out from managed volatility strategy, which is like which has been low fee traditionally. And the inflows have been coming from these other strategies without an equity ex-US than small-cap, and those are higher fees. So I would say for the next few quarters, probably [38 bps] is a good baseline. And longer than that, we would expect it to start to go off on a little bit gradually.
John Dunn
Thanks, very helpful. Appreciate it.
Operator
This concludes the question-and-answer session. I'd like to turn the conference call back over to Suren Rana.
Suren Rana
Thank you, operator. Thanks, everyone, for joining us today. We appreciate it.
