Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Growth in strategic areas including retail separate accounts, ETFs, and global funds.
- Higher earnings and operating margin both sequentially and over the prior-year period.
- Attractive investment performance across various strategies.
- Continued return of capital through share repurchases and dividends.
- Modest level of leverage and meaningful capital flexibility.
Negative Points
- Net outflows in US retail funds and institutional segments.
- Total assets under management decreased by 3% to $174 billion.
- Sales of $6.1 billion declined from the strong first quarter.
- Institutional net outflows of $1.7 billion due to client rebalancing.
- Open-end fund net outflows of $1.3 billion compared with $0.6 billion in the first quarter.
Q & A Highlights
Q: How does the recent shift in market dynamics, particularly the equal weight S&P outperforming, impact Virtus Investment Partners' flows and sales?
A: George Aylward, President and CEO: The shift is interesting as our asset base is more correlated to mid-caps and small-caps, which have underperformed relative to large-caps. This has been a headwind, but as the market reverts, it creates opportunities for us, especially in mid-cap where we have a strong position. Quality versus momentum also impacts us, and a reversion here would benefit our managers with a quality orientation.
Q: Can you provide insights on institutional flows for the third quarter and any known wins or redemptions?
A: George Aylward, President and CEO: Institutional flows are lumpy, with significant variability. We had a meaningful inflow in the first quarter and a rebalancing in April. The pipeline remains strong across affiliates and geographies, with known wins exceeding redemptions, though timing is difficult to forecast.
A: Michael Angerthal, CFO: The breadth of the pipeline is well-positioned, with strong interest in AlphaSimplex and other strategies. The timing of flows is challenging to predict, but we are pleased with the activity and breadth across our managers.
Q: What is the current state of the M&A pipeline and the nature of conversations you're having?
A: George Aylward, President and CEO: M&A activity is ongoing, with a focus on strategic relationships rather than just valuations. We are selective, looking for opportunities that add strategic value to shareholders. Areas of interest include liquid alternatives and private markets, complementing our strong traditional capabilities.
Q: Are there specific verticals within liquid alternatives that Virtus is focusing on?
A: George Aylward, President and CEO: We see a need for investors to allocate to less liquid investments to achieve long-term objectives. Private credit remains in high demand for income and yield, but we also see value in balancing this with private equity and real assets for portfolio diversification.
Q: How does Virtus approach pricing versus attracting new flows, and how do you maintain your fee rate?
A: George Aylward, President and CEO: We aim to be competitive while offering distinctive, capacity-constrained strategies. Our fee rate is higher than generic beta-like capabilities, but we focus on profitability and market competitiveness.
A: Michael Angerthal, CFO: The fee rate is impacted by market and asset mix. We maintain a tight range and are pleased with incremental margins from different product areas, focusing on maintaining a competitive fee rate.
Q: Can you elaborate on capital uses, particularly for new product introductions and seed capital?
A: George Aylward, President and CEO: We take a balanced approach, including share repurchases, debt paydown, and investing in growth. Seed capital is crucial for new product introductions, particularly in fixed income ETFs and global funds. We recycle seed capital to support new strategies and maintain a disciplined approach.
A: Michael Angerthal, CFO: The seed portfolio fluctuates within a narrow range, with active recycling. We expand the portfolio as needed for product requirements, balancing it with other capital priorities.
Q: How should we think about the cadence and pace of buybacks and debt paydown over the next few quarters?
A: George Aylward, President and CEO: We evaluate share buybacks and debt paydown based on cash utilization and stock trading levels. We maintain a balanced approach, considering opportunities for seed capital and other investments.
A: Michael Angerthal, CFO: Upcoming capital uses include scheduled affiliate minority purchases and potential CLO issuances. We balance these with other capital priorities, maintaining flexibility.
Q: What are the anticipated capital uses for minority purchases and contingent considerations in the next few years?
A: Michael Angerthal, CFO: We have scheduled affiliate minority purchases in the third quarter and one more in mid-2025. Contingent consideration payments are significant in the first quarters of 2025 and 2026. These are key capital priorities alongside other investments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
