Virtus Investment Partners (VRTS) 3 Feb 232022 Q4 Earnings call transcript

Good morning. My name is Michelle, and I will be your conference operator today. I would like to welcome everyone to Virtus Investment Partners Quarterly Conference Call. The slide presentation for this call is available in the Investor Relations section of the Virtus website at www.virtus.com. This call is being recorded and will be available for replay on Virtus website.

participants listen-only all time this are mode. in At will question-and-answer that period, the speakers' instructions a there remarks, at After and be will time. follow host, now over will the Sean your Rourke. I turn to conference

morning, everyone. to and XXXX. like to financial Thanks, Michelle. for you And On of fourth Partners, welcome our Virtus of discussion the behalf the results I'd Investment operating of good quarter

Chief George Our and Angerthal, President are Mike Aylward, Financial speakers today, and CEO Officer.

a their prepared remarks, period. Following have Q&A will we

the disclosures presentation. Act note the Page X on Before call are slide please we to discussed set release those Litigation forward-looking statements. may of of materially known today's news on of discussed the as such the subject our in in Certain cause this Reform begin, those And Private differ Securities the meaning discussed factors to matters risks XXXX. and and statements actual may not unknown contain risks, and and forth from in filings. uncertainties SEC These including to uncertainties results limited but within

to evaluate In to we certain basis, have on GAAP a measures presented financial non-GAAP results. our results addition

the the our website. Our results. non-GAAP not on measures in for with GAAP non-GAAP release which Reconciliations results should applicable to be and in conjunction financial included financial of and measures GAAP measures these news substitutes today's supplement, available are read financial are GAAP are financial

like I'd the to George. turn to Now, call George? over

to start to I an today results everyone. Thank of will turning reported with before detail. provide you, Mike morning, Good over Sean. earlier we overview more it the

the challenging, year. fourth trends the remain throughout quarter The consistent with

already wide driven most in difficult uncertainty, in year. elevated In among activity and the net what December, open as addition were to flows heightened market was sentiment than industry notably outflows volatile resulted fund most historically and investor end negative, particularly a fund

investment a have higher and positive position We we increase higher flows, outflows rate which has sheet asset institutional a average products at despite and classes, quarter industry and net did a in due XX. across Well, redemptions. continued significant net been had cash December resilient performance, sales balance solid meaningful net the to fee in trends, flexibility

We challenging increasingly products and that across stabilization diversified navigate and market to these can changing our have environments for market position with well attract our investor capabilities recovery and built cycles preferences. organization assets like

out We focused for continue growth execution to environment be position the the our capabilities us building and of strategy as to on improves. future

clients higher inflow with alternative to strategies, funds and also non-U.S. an assets to outflows. to all a Turning now appreciation retail due to to fixed end existing separate benefiting classes. the $X.X Retail to sales issuance XX% large equity, mandate, by doubled and results. income billion, open into offset X% and CLO. increased most $X with billion, new Sales rose $XXX Total increased increases of billion to grade sales sales net Institutional investment income. from from asset under review primarily X% the increased due the types due X% across market up fixed of management partially contributions accounts product and

flows. private were intermediary elevated also but essentially industry $X.X due in billion, positive outflows accounts, primarily and from redemptions. outflows included again, and generated the to net outflows client with retail trends, in Net primarily unchanged in quarter consistent funds, institutional were while separate the mutual Net net prior distributed

challenging of Institutional have consistent environment with net pleased positive the $X.X increase cap meaningful flows By are large a considering institutional the activity. million eight quarters of CLO. issuance we from net domestic and equity mandate, flows billion, the were been the level this of reflecting to product, and in positive last growth $XXX nine the

net the month flows elevated, and were redemptions, were separate But negative account to sentiment. particularly again were market with December. line net billion in in due investor outflows of negative reflecting trends Retail higher $X.X retail of

meaningfully saw products, we flows small net net was XXXX, income flows what in January, quarters. of of improved best over including In fixed and with particular, still products. rates. institutional negative our positive as next both we fourth as well fund exceeding saw September flows terms global sales known remains redemption improvements quarter strong mutual redemptions the The month the in and from of of international pipeline and cap wins, two certain our In since known in represented the

the XX% the Our and over market income of year. of $XX $XX declines margin down per million of Earnings the reflecting impact decline relatively of adjusted fourth under assets from revenues due reflected quarter financial from XX.X%, average lower Operating and impact million, share decreased as results XX% adjusted the the as related the again in sequentially, expenses. to declined $X.XX, course management. stable was operating to

capital. Turning now to

to Given continue we our generation solid capital cash capital working levels of balance flow return leverage. while sheet, maintaining and and shareholders, appropriate to

of million full shares, totaling the shares XX repurchase XX and reduced million for we've in we've by year, X.X% outstanding quarter, common the our XXXX. During

have cash return in continue the year flexibility managing quarter hand ended significant to business ongoing million on of position cash continue We and our at in in million investments, providing end $XXX capital revolver, of capital shareholders. $XXX million in to to a flexibility needs, invest $XX $XXX and million, the to net and undrawn with total

a call add investment manager. alternative over affiliated to like update as solutions the leading brief of to agreement a Mike, AlphaSimplex, Before provide liquid I an our would on provider turn to I

The we balance the sheet of and offerings, near that resources first the funded product As will quarter undrawn close transaction diversify end alternatives facility. expand enhance credit existing our with distribution and to we've include and additional previously, the AlphaSimplex provide presence be growth opportunities expect discussed our will which category. investment our in

accretive with provided. We expect to be XX% it immediately to we level previously the consistent earnings

various of timing not will close, include for the the impact transaction. provide Mike outlook quarter the will Given of the the first metrics

our on and impact outlook We modeling its on will next for the the call. on update you AlphaSimplex

the I'll Mike, call that turn With over Mike? to

Slide appreciation $X.X XX. The and Starting reflected Average to Management. outflows. on $X.X management were December change results everyone. $XXX in and market under $XXX.X the assets Under At billion September of Good net at billion, market from quarter with X, management X% our George. under up due billion X% XX, Assets were you, Thank assets performance sequential down outflows. net $XXX.X billion, billion of morning,

at Our funds, assets and retail management by asset diversified product retail total Institutional XX%, XX% of well XX% with separate type and under XX, remained AUM respectively. December represented U.S. at and accounts class.

X% By asset Income strategies asset AUM. equity and alternatives fixed XX%, were class, and XX% multi were of was combined

that approximately of or five stars, investment strategies. assets XX% fund four funds. fund four XX% to or to generate continue of across was a or more AUM or basis, were nine our performance star of strategies $X had rated strong AUM had peer different We relative managers. funds of five year rated five of representing three, outperforming and median billion We diverse with rated four December five in At stars, from XX, XX% On groups. were their set performance a five

of Also assets addition five the performance, same their assets were to of fund were exceeding median of and performance of retail institutional of basis. on year five strong over assets In as outperforming the separate years. XX% XX% December benchmarks XX% account the institutional groups peer XX,

issuance. were each large Turning from in growth product, quarter, into sales institutional. to institutional significant to product, X, $XXX million growth equity billion the CLO sales billion, a Flows. due in Asset the $X.X By $X mandate, a Total to increased XX% particularly by to additional $X.X Slide domestic up in funding third billion, addition reflecting cap

Retail $X billion of grade fixed increased global $X.X equity. Fund sales particularly billion small X% domestic growth of strong and account income. largely increased by X% separate alternatives, sales cap driven and with investment

both institutional Reviewing positive billion, end net non-U.S. due with flows Total came of accounts. contributions from to clients. product, multiple to Strengthened and Net existing billion, outflows generated affiliates, by mandates new $X.X were fundings meaningful primarily and non-U.S. from open funds. included $X.X

open outflows trends. consistent third with elevated retail funds, were For $X.X due in to redemptions quarter up negative $X.X million, and from the end billion net

grade in In for positive outflows business private quarter, billion, remained with In generating retail net flows. billion net consecutive separate accounts, net $X.X third have our they as $X.X with quarters. of the positive investment XX compared flows client

million, X, average category. fee in reflecting rate assets XX.X the as rate basis a of in sequential $XXX.X quarter. average The compared each investment on basis modestly product basis XX.X points million management. the to fee decline $X.X under or The sequential management X% fees X%, Turning adjusted with for of Slide prior declined points increased

by XX points the the quarter the range the And prior basis, fee were Performance fees million in the basis points course X.X $X.X quarter, from of in $X.X periods. over has fee to in both million, rate rate an up XX in impacting basis on XXXX. remained favorably overall the

we points range quarter, reasonable. XX first remains believe the forward Looking XX to into of basis the

employment a $XX.X other million. and related of the and as valuation compensation shows hedged from adjustments Slide amount in Total offset valuation employment Lower and compensation market sales by $XX.X XX are corresponding and plans. based partially trend offset in profit adjustments utilized expenses expenses. five These investment sequentially deferred million, income. was quarter decreased adjusted included fully by

the lower As a primarily percentage due were revenue. third XX.X%, employment from quarter, XX.X% up expenses to in of revenues,

sales. For to profits would market level the expect. reasonable first variability it subject to on a the be based will and I would fourth be quarter, ratio Though note, quarter performance

which to For seasonal this modeling are expenses purposes, the first include quarter outlook. will also employment incremental

expenses as operating were with million million with of in adjusted $X quarter, associated transaction. costs and to $XX.X million which XX, $XX.X Turning other AlphaSimplex approximately the included Slide compared prior the

prior higher continues sales increased as as expenses these due distribution costs, largely the Excluding million well $X.X from adjusted efficiency activity, as period, X.X%, and or initiatives. operating to to transaction normalize marketing other and by which

at For a anticipate adjusted of operating three quarters. the expenses as we as other level quarter will XXXX, first similar the past be

closely manage expenditures discretionary to continue all and initiatives. We

have suppliers, past focus activity well quarters. service inflationary ongoing operating vendors, generally of key the at expenses several providers expenses resumption sales by those of increasing more other increases, us been over normalized maintain our on by our and discretionary levels, contracts to offset level a stable While as pressure, toward costs with has impacted allowing spending relatively as the

capabilities. In have will to ability addition, efforts invest we our expect management benefit growth continue in operating our to initiatives supported strategic that our and leverage select expand future expense

margin Operating per revenues. adjusted with Slide prior XX.X% share the from million, quarter. XX due operating diluted $X.X as XX% quarter. Net earnings. $XX.X of as $X.XX adjusted compared income as in million third lower adjusted income in The XX% XX% to declined or sequentially trend of declined the illustrates the of

gains fair consideration expense, $X.XX to issuance and and and CLO GAAP $X.XX unrealized $X.XX, affiliate $X.XX $X.XX benefit interests of negative and non-controlling investments of adjustments. to quarter, Regarding share per net net from adjustments contingent per discrete the on third $X.XX $X.XX value of of included the of results, fair adjustments offset by income realized in tax share partially increased value from

Slide items. payments trend XX capital million from $XXX and at includes shows streams. out new our earnings. December as sheet the XX, our at capital cash This estimated investment exceeded of participation million XX, $XXX return was Working Contingent Capital changes will shareholders of down sequentially the earn CLO time, at $XXX September an revenue at from $XXX balance on million. and million revenue based select amount related and vary liquidity to XX, consideration was which down in over underlying December

During for $XX past by outstanding the of reduced XX,XXX over stock we the year, repurchased fourth And have we common quarter, X.X%. shares shares million.

XX. from EBITDA gross $XX net increased At to was and times December X.X September million debt of cash million at XX $XX

quarter First of expect a as to cash incentives, mentioned, obligations near an close revenue of we quarter. AlphaSimplex expenses, seasonal include payment, end XXXX participation the and payment annual the employment

the to back With turn over that, call George? George, me let

Thank you, Mike.

Michelle, you questions. please? line the up We your will would now open take

the Thank Piper Sumeet question Instructions] comes with Sandler. our first you. [Operator And Mody from line of

is Your go line ahead. Please open.

Good guys. Thanks. morning,

if Can to flow you're the channels this. well starting well guys what about you institutional sorry in off the nice talk So year, as SMA and retail seeing January for so on hear missed I far?

Sure.

was that on funds, or month XXXX, of December when terms January XXXX. in month we rate very after out really is So of for redemption best challenging September as -- of the and sales in rate, particular even in so was we terms well the as dollars, on level overall noted of of January the close commented as I mutual nice

areas the within fund So global on of of some in optimism as I the of international caps to well as and small but particularly them fixed see. income. the as select categories later income of as some well of not category for fixed year, that hopefully. as And actually We like in some be was really seeing a kind positive the have all and set though good strength the more

us attention Institutional, lot where and pipeline focus resources we area several related our initiatives and to of for our remains our are been of put maximizing of a strong. that. That's

to consistency is business. So continues levels a good. the see we're strong positive, pipeline what's better. of nine happy the get over noted still it's little we've really quarters, bit The been to lumpy in generating concentration non-U.S. a eight Though have

So but now across were they've And that become contributors. several was across we and that's years affiliates something ago, underweight strategies. significant

that's So see. great to

to retail On mid sort cap, business have going account kind some nature business, concentrated to intermediary the information. of model with in access through separate only, retail the is strategy, market. really as broader the our strategies, time given where real much strategies of that growth We as because done it's don't some go of generally, either smaller that particularly equity particularly other a side, of cap channel, or the and that But provisions. are, of are

So fourth of where you saw I just an kind equity income, smaller in And little of the January a sentiment comment. in for while have that, saw that's was what a quarter you uptick piece that's think on of bit strategies. fixed the in really reflective we the it those

the Great, side, talk the year that's you the then really you're start AlphaSimplex for year them, and what for well? maybe going thanks, about on institutional demand of and on seeing the how helpful. the been some the And as that? was AUM can to specifically two And transaction,

company. going on business comments their to AlphaSimplex, for another they're results. business we make not until Obviously, or of their close, we're so part Yeah,

spent Very So we're great the The an them over continuing do about to to to that. we're excited internally ways going about the as boutiques. to not and comment expertise. leverage thinking time on of of integration. having work We lot team to addition of of lot But related there. capabilities a the their preparation their here, a family

in space. Again, alternative the they're

the beginning year, last in where year, outperforming. periods So were traditional underperforming, in the were strategies of the they

a can to opportunity -- they host of So correlated do. to apply do [Indiscernible] our have of sort view some be there'll we're again, meant about best-in-class in excited what But really will whole still, strategies. things. across the of more in for what they of be, to of us And our they're gold terms a

one last business. Got side on it, great. me the the then ETF And for of

pretty last kind just growing Are maybe know present I two, -- you next few that kind on the or stable us more years. the the Just growth the or organically themselves? Can AUM more they been update over M&A opportunities has strategy, as long-term? over of on you of year focusing

organic product fixed Yeah, the focus terms in ETF some I we including mean, growth sure space, more strategy seen making always you've have our ETFs. an and of products that on introductions, we active the with for of in income

Harbor right, we've where some where an the in So to quarter, one Stone the strategies, be that launched actually ETF. area we continues had existing

area So product of that's continues introduction. to be an

latter kind they've optimizing of end of actually we last more the of sort to on into we a ETFs been them it. of distribution, on data had overall But were data incorporate the things the retail is year, the really fully than throughout little part funds. one challenging open part more on working And our of ways

will made I refinements resources feel a and retail to ETFs. us, terms effective in strategies, I as more active actually even we're, So be of think continue again, that's may leveraging be which will out in it we And our of existing we strategies to And looking an increasingly bringing few market. for the do. building the we've our to some investors those products, in again more passive think opposed addition to that area at further do to where be

Great, thanks, George.

Okay, thank you.

from and next Michael moment question. comes line Morgan Cyprys for our you, one our Stanley. And Thank question of next the with

Your go line open, please is ahead.

Maybe your positioned would in curious perspectives capture fixed fixed view could good Thanks a side the now think well income, rate interest Hey, flows Virtus, talk the good to have benefit? backdrop. pretty strong income, potentially performance that? just on morning. for year hear your to that you question. of which fixed income the to, on right strategies that could the Maybe stand Which strategies the given be do for just higher taking of prospects to into views you on just

Yeah, or I'm strategies. to I because fixed make conflicting those time mean particularly a credit the for general that any -- to my strategies for is this there strategies. going going where -- on go. not I see view every year, do going this thoughts be and opportunity is I opportunity that the good into I markets turn income predictions, think around TV, slightly could

because do investors there's think I again, approaching same are not some the going broad to all in way. opportunities, be

will think there Short be duration related and Term opportunities products, do of duration one flagship shorter particularly I on product. a products, So our Multisector low our of kind is Bond Fund, the

there. I are opportunities think those

an debt money, I has views, could your have area. area on there also depending gathering a there well. people And where market not cyclical that, think been as been emerging good global be which obviously very opportunities that's

the think products. I do really fixed of So across continuum income

is XX-XX, be Is people there's right look going [ph] are And the valuation that loan that of I works like which what products. of targeted a set sectors, types things it the If again the income relative going those products, particularly the what really think XX-XX for think approaches, of suite very of be is the space, opportunities, whole like should the something EMD, should our forward? reevaluating have of just in sense? the be? makes like of portfolio? diversified it fixed new suite or increasingly it's to not I as what sort do

build and update the standpoint? the there, on in about if teams' sales you initiatives from on of the how also that's AUM And could international of much some the how Great. flows? And maybe that contributed talk us progressing, and out distribution, terms distribution and just

Yeah.

continue we us, around roughly now, continue But we to XX% give XX%-ish, give quarter We color be to that contribution. be from contribution. stand to that Mike the And happy had clients to relative for did X%, zero gone the business, a little noted, very that. as non-U.S. have here as we attribution I for some increasing about that which

going are on of So things a that there. lot

opportunity a in previously, The non-U.S. great managers, has been big hadn't right. it, many because been participants our they for of

a open managers. for of lot there's various So opportunity

So a several times over years, the we multiple U.S., the mandates affiliates, large last year two affiliates have quarter. for outside and in same the commented mandates half, from large multiple mandates on

in an been been have distribution the on. where of additional marketing, done a very that's been area prepared managers Stone along we ready high so that we resources to transaction of focused tremendous And was and brought our that getting one some have the active non-U.S. not might Harbor job of have had the to And readily. themselves caliber, institutional otherwise and have attributes that ability markets market

the sort really areas. So are of There's that. support a regulatory that maximize that some some initiatives in environment of those behind had we've obviously of different,

we supporting streamlining that then been them, been we've we've there. And we with of on happy footprint the that that can sort ways resources some can are the focused that. maximize but So the have of

on Mike, the contribution? the attribution

contributing or just or two new additional affiliates, affiliates geography. where pipeline, seeing fundings the we five trend we've in continues maybe across existing we've on mandates through had in and Internationally, Yeah, four had, we're one And it the that to pipeline, put both it, affiliate the selectively. alluded highlighted point George finer to mandates. I affiliates across and where past, it. But you a think had deliver

consistency, market level that bring it is So to this a to see investment gratifying us environment. especially really in of

Right, that George just growth. me. one firm coming to out your you're back and the Maybe looking to build to maybe last position for point earlier, capabilities for

inorganic? the positioned Where might into firm you us some is conversations, from today are how How opportunity? set? on organic, at that? opportunities as And set thinking a either how product So to a a those that update you maybe it I to as And see or ago? relative can well either guess further there about opportunity you to progressing year look the where like well you'd those of are be as today, footprint versus extend

organic the side. so Sure, on

or terms area So about we always Again, we led side types focus think has alternative then in active, have set. to offering feel on strategies. our of traditional right. of -- really the correlated non-correlated product less well the very And of been in inorganic represented the

So there. we there's that still think opportunities

where where products. well and as amongst our the individual other portfolio. we is we But provide that have while types focus affiliates of, provide us recent more blocks assets, The allow sort and I building advantage do multi in to of the solutions, we've the we see strengths model-based a collective have want great of opportunity areas of we taking well-diversified to we more of of more as there's an in have think with added do them some that a the resources we some some opportunities comprehensive work area. Again, will accelerate

So we to to utilize believe set. good opportunity. of I alluded across is their some provides the that we there capability. also that separately team very are we active product application brought most capabilities they is capabilities. managers. think broader our that I a that again, And our can already fundamental much And also AlphaSimplex. quantitative systematic that bring that a of team, do us do Because managers in

great there. see I So opportunity

is because for again, priority fertile the us. high a non-U.S. market side, a playground On the it's for us,

or resources haven't XX lot of years. We a XX had there over

think that would And usage good that the us. priority that the include we also is So global funds. for a

we've building products. So the in of been out those process

open both recently actually our on had institutional actually focused on in and But of -- most products. we've well been into been use our introductions, the of And it use actually some as resources those will of dovetail not ETFs as inside. product

as we I that of So the the becomes less the market uncomfortable. little I a think or all terms of that of set have made of part comment more offerings increasingly environment in diversified that is

So good that. about feel we

strategy terms is while growth In doing predicated our again, inorganic, upon not the M&A. of

We dialogue, that in continue. continue to make sure active dialogues those we're

of as enhancing other So selective of otherwise or value We're kinds a of what strategic as we've either an a market from make enhancing do. transaction? it terms very broadening we Does active been capability, in sense we've strategically been. or of always scale addition some

be continue busy our Again, are on the always seen, side those. well. you we inorganic active but focus is to So as on on the quite organic, as have

thank Great, you.

Thank you.

Thank concludes conference And our I'd like you. This to question-and-answer to over the Aylward. Mr. turn back session.

Great. Well, I just very want further questions. a day. other to thank everyone today you the for of joining there's us. give you to Thank any Enjoy And if rest certainly, we us encourage your much. call

This call. concludes you today's Thank for participating.

disconnect. may You now