Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the First Quarter 2018. During the call, all participant lines will be in a listen-only mode. After the presentation,, we will conduct a question-and-answer session. [Operator Instructions] Please note that this call is being recorded, today, May 3 at 10’o clock a.m. Eastern Time. I would now like to turn the meeting over to Brett Perryman, Head of Investor Relations. Please go ahead, Brett.

Thank you, good morning and welcome to BrightSphere conference call to discuss our results for the first quarter of 2018. Before we get started, I would like to note that certain comments made on this call may constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by words such as expect, anticipate, may, intend, believes, estimate, project and other similar expressions. Such statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from these forward-looking statements. These factors include, but are not limited to, the factors described in BrightSphere’s filings made with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K filed with the SEC on February 28, 2018, under the heading Risk Factors. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. We urge you not to place undue reliance on any forward-looking statements. During this call, we will discuss non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release, which is available in the Investor Relations section of our website, where you will also find the slides that we will use as part of our discussion this morning. Today’s call will be led by Steve Belgrad, President and Chief Executive Officer; Aidan Riordan, Head of Affiliate Management; and Dan Mahoney, our Head of Finance. I will now turn the call over to Steve.

Thanks, Brett, and good morning everyone. As you know, this is my first quarter as CEO and I’m very pleased with the strategic and financial progress that we’ve been able to make. We’re all very excited about BrightSphere’s prospects and it’s really gratifying to see the strength of the business come through in the financial results that we’ve reported today. Before I begin, I wanted to first thank Jim Ritchie for his leadership and support during the interim period when he was Interim CEO and I’d also like to thank Aidan and Dan, who are with me today for their help in making this a smooth transition for all of us. I’d also like to congratulate Landmark on a terrific closing of their Landmark Real Estate Fund VIII, which closed on March 30, with $3.3 billion of assets, which makes us the largest secondary real estate fund that has been raised to-date and I think this is just indicative of quality of the Landmark team and the success that we are seeing in this investment. Turning to the financial results, our ENI per share of $0.50 for the quarter was up 47.1% from Q1 2017 earnings per share of $0.34 and that was primarily driven by average assets under management increasing as well as the weighted average fee rate. You look at our consolidated average asset, we were up about 14% period-over-period and with the fee rate of 41 basis points including catch-up fees, that was over four basis points or that was about a four basis point increase from our 37.4 basis points that we reported in the first quarter of 2017. Also very gratifying, we had positive net client cash flows of $1.9 billion in the first quarter, which produced an annualized revenue impact of $19 million, which…

Thanks, Steve. Good morning, everyone. As you can see on Slide 6, our investment performance was largely consistent quarter-over-quarter, particularly on a revenue-weighted basis. One in three-year numbers declined slightly compared to the end of 2017. But with 62%, 72% and 79% of products are performing benchmark, our affiliates continue to produce strong results for their clients. Our increasing market volatility can be challenging for investors, particularly for equity managers. A number of our firms and strategies are designed to perform well in changing market environment and did so during the first quarter. One of our more consistent affiliates was Acadian, which probably had a good quarter on benchmark in peer relative basis as a quantitative equity models continue to generate solid returns, especially outside the U.S. Slide 7 breaks out our net client cash flows on an AUM and revenue basis. Results were strong in both categories this quarter with $1.9 billion of net AUM flows, generating $19 million of annualized revenue, our sixth consecutive quarter of positive revenue growth from flows. We continue to see a meaningful difference in fee rate on inflows versus outflows this quarter in addition to strong inflows into higher fee alternative and equity oriented investment products. We also saw reduced levels of gross outflows, particularly in lower fee domestic value equity products. On Slide 8, we showed further detail on our flows by asset class. AUM and revenue flows were concentrated in alternative strategies, the additional contribution from fixed income and global non-U.S. equities. Within alternatives we continue to benefit from significantly higher fee rates and products such as Landmark Real Estate Fund, which closed this quarter at its hard cap of $3.3 billion. Landmark is now also the largest manager of real estate secondaries in the industry. The firm has committed approximately…

Thanks, Aidan, and good morning. The first quarter of 2018 was a positive one for BrightSphere, as the strength of our business model continued to show despite a weak market environment. This quarter benefited from an increase in average AUM at consolidated affiliates, a further expansion of fee rate and continued accretion from Landmark. Performance fees were also higher in the current quarter, driven by strong performance of Acadian. As Steve and Aidan mentioned, despite of all the market the first quarter saw continued alpha generation in a number of our larger strategies. Positive flows in our higher fee global non-U.S. and alternative asset classes as well as moderated outflows in lower fee U.S. equities. Finally, Landmark continues to generate meaningful cash flow, fee rates and earnings accretion. Comparing Q1 2018 to Q1 2017, economic net income was 41.1% quarter-over-quarter to $54.9 million or $0.50 per share, driven by a $49 million or 25% increase in ENI revenue. On a per share basis, ENI, EPS increased by 47%, while market driven increases resulted in a 14% increase in consolidated affiliate average assets from the year ago quarter. Our continued shift in asset mix towards higher fee products, including the impact of net catch-up fees from alternative products, enabled us to increase management fees by 25% during this period. Our weighted average fee rate increased by 3.6 basis points over the period, 41 basis points, primarily driven by flows into alternative assets including net catch-up fees. Given the timing of net catch-up fees, we would expect our weighted average fee rate to normalize over the remainder of the year and thus be in the range of 38 basis points to 39 basis points. Operating expenses were up 12%, but the ratio of operating expenses and management fees declined over this period,…

[Operator Instructions] Our first question comes from Bill Katz from Citigroup. Your line is now open.

Taking the question on Steve again, congratulations on your new position officially. So a couple of questions if I may, I think in your prepared remarks or maybe in the press release you talked about within the institutional bucket that you start to see a pick-up of appetite for value and so sort of want you to talk more broadly about allocation trends and to the extent that you are picking up share or [indiscernible] Is it share gains from other value managers or is it more of a migration out of other buckets and if so from where?

Yes, I think it’s more that we are – if you look at domestic equity, one of the benefits that we saw at least in this quarter was that the amount of outflow from domestic equity was down compared to where it has been in a number of other quarters and I think our view is not – said that we sort of definitively turned the quarter. But I think, you’ve obviously had growth continue to outperform value significantly and I think there is just – our view is, we’re seeing sort of increased interest in value based, I guess on [indiscernible] at some point the growth is not going to outperform value for ever. And so I think that was just some of the speculation of why there may be more interest in domestic value, equity than there might have been previously, but I think it’s still really too soon to tell, whether that is a trend or whether it is sort of perspective that don’t get worn out over the long-term.

Okay. Just a follow up question, in two parts, unrelated. Sorry for the complexity of the question. I want you to sort of talk more broadly about capital management, it is encouraging to see you buying your stock back, so how you think about stock buyback versus deals and in-stock buyback between sort of public and other ways to sort of reduce the share count and then could you also clarify on the OpEx guidance, where do you think most of those going to be?

Sure. So basically in terms of capital management, we are our view is a look, ultimately, we are looking for ways to manage the shareholders’ money in a way that’s going to get the best return for shareholders, measured in stock price. This is the way that we fundamentally think about it. Certainly, if you look at the dividend, which is where we sort of start, we’ve made a policy to – if we can afford it to basically increase the dividend every year and that’s what we did, raising the dividend by $0.01 this year. I think our general view, if you think between dividend increases and stock buybacks, each $0.01 that you increase your dividend for us is about $5 million. And I think our view is to look, we get more bang for the buck allocating additional proceeds on an opportunistic basis in the stock buybacks than simply raising the dividend $0.02 or $0.03 per share, per quarter rather than just the $0.01. In terms of stock buybacks versus acquisitions, what it really comes down to – look our buyback program is what I would consider to be an opportunistic programs so that we’re not saying that, look, we need to allocate x number of dollars to stock buybacks or that we need to target turning back to certain payout ratio in the form of stock buybacks. It’s much more about looking at the valuation of our shares, relative to other investment opportunities and breathing out how much we buy based on what the actual trading in the stock is, what the price of the stock is as well as our confidence in other ways to put that money to work. And so certainly during the last couple of – last six weeks, it’s been very clear to us that our stock is undervalued. And then we really across the board, the best way to increase surely our EPS is to buy back shares, and look that’s true. If the only thing we were trying to aim for increasing our EPS, you probably would allocate almost all your excess capital to stock buybacks. As I said, I think our view is that we want to increase our stock price and that we are seeing some really interesting acquisition opportunities out there with good growth opportunities and that we believe can be structured in the way that will be financially accretive and beneficial to shareholders and that we have the best potential to increase our PE multiples by allocating capital, not just the buybacks, but too attractive acquisition opportunities. And so I think as I look forward to the extent things continue to progress and we may progress on some of these opportunities, I think that we would want to allocate capital, to executing on those transactions as a way to ultimately bring up the stock price, and that’s we were this thinking about capital management.

And then, those have been, I think you made a question about the operating expense ratio.

Right.

So the point we’re trying to make there was that when you look at it in Q1, so it’s lower than normal in Q1 because of our stronger management fees. So we wanted to make sure that we provide some color around that to just highlight that as we move through 2018, we will just expect that to normalize to what we would typically expect.

So if you take away your management fees excluding the net catch up fees and you look at that ratios Dan mentioned 37%, certainly as you move forward into the year, you probably would not have those catch-up fees and so that’s why the ratio comes out a little bit.

I’m sorry, I missed that because there were a lot of multiple calls going on today. Thank you very much guys for taking all the questions today.

Our next question comes from the line of Craig Siegenthaler with Credit Suisse. Your line is open.

Good morning, Steve.

Hey, Craig.

So your stock is trading around 7 times, 2019 EPS right now and the peer group is north of 10 times. So when you look at your acquisitions, what type of PE multiples that are you looking at in your new investment pipeline, both before and after adjusting for the M&A tax shield benefits?

Yes, I mean, look, it is – I think we’re all pretty conscious of where training multiples are in the industry, but really I think when you think about training multiples, you can’t just sort of think about it in isolation and has to be taken in the context of what kind of growth do you expect out of the company that you are buying. Because clearly to the extent that you are going to be buying a company that has a higher growth prospects than where our current business is or that we think justifies the multiple, that’s what we would think about doing. I mean I think – the way I almost think about it is, as you said we’re at 7 times and the industry is at 10 times, if you think about what the potential is, if we have an ability to increase to the industry, that’s a 43% increase in the stock price, if the EPS is the same. The differences in EPS between putting say $300 million to work buying back shares versus $300 million to work in the type of acquisition we’re talking about with the shield is a few percent. So basically it gets overwhelmed, if you think you can even begin the make a bit of progress moving our PE multiple up closer to the peers. So that’s sort of the way – the way that we’re thinking about. We’re doing all sorts of intellectually honest analysis to make sure that we’re hitting and exceeding our cost to capital that we have the right hurdle rates for any acquisition that we’re doing and as you know, this is the thing that I’ve done and the team has done for all of their careers. Basically, that’s the one thing we definitely know how to do is M&A transactions, and we know the pitfalls and we know how to analyze them in a way that is honest to ourselves and to our shareholders. If we can do a good transaction, which can generate strong positive NCCF and can generate strong growth that is going to provide a better outcome for shareholders than just taking that money and buying back shares even though you’re going to get a higher EPS accretion from the share buyback short-term.

Thanks. Steve, it’s just not fundraising. Can you remind us what portion of the Landmark business is still open and potentially raising, now that Real Estate Fund VIII is closed?

Craig, it’s Aidan. I think of their business has being both secondary private equity, which is buying stakes and broad private equity funds and then the real estate secondaries fund business. So it’s the real estate secondaries business that at this stage has finished it’s fundraising.

Got it, thanks Aidan.

And our next question comes from the line of Andrew Disdier with Sandler O’Neill. Your line is open.

Nice, good morning, guys. Just to circle back on the buyback, outlined at 1.7 million share repurchases these past few months, going through the proxy, it looks like there is a vote coming up on about a $600 million repurchase authorization cap. So I guess understanding perhaps the dynamic of maybe what was a 10b5-1 plan coming into play in the past, the potential capacity going forward and then keeping in mind the financial commitments and new partnerships, I know it would be tough to frame, but it seems like there is some incremental opportunity to repurchases, is that fair to say?

Yes, I mean look, I think just sort of put the proxy vote in the context for U.S. investors, because it’s a little bit different in the UK, than the way you typically see in the U.S. So within the UK, in order for the Company to actually buyback shares, there has to be an actual shareholder vote authorizing that and then once we have that shareholder vote, the company, whether it’s the board or management can decide the timing and the pace of that execution. I sort of view this $600 million buyback authorization, almost the way I view a S3 shelf registration, you want to make sure that you have flexibility to the responses all sorts of market environment. If there was the market environment or an opportunity that came up to buy a substantial amount on shares, we may want to do that. So it’s first and foremost , I would say not a statement of intention as much as an opportunity to try to put flexibility into our capital management. The amount – the $600 million basically is inclusive of the $150 authorization we have now, i.e., we bought about $38 million of shares back, if you include the $26 million in this repurchase and $12 million previously a couple years ago. So, effectively we would have $562 million of dry power to make an acquisition. I would think that for the most part, given that the shares are generally out in the market, most of this would be done in the form of market purchases, but if there were ever were an opportunity, which I’m not expecting, but if there ever were an opportunity to buy larger blocks, we certainly would want to have the flexibility to do that and that’s the purpose of this buyback.

Understood. That helps a lot. And then you talked about your relationship with the strategic partnership in the strategic minority investors. So, it sounds like it’s very early days, but would you be able to talk about maybe potential asset buckets, whether be global non-U.S. alternative even U.S. value as potential opportunities for incremental AUM down the road?

You mean with HNA?

As part of HNA, yes.

I think, it’s kind of too early to tell specifically at this stage in terms of where those specific pockets are I think the way to think about that is, it’s just frankly to some degree a demographic issue, just where pockets of capital are and then naturally the kind of products that are going to be interesting to a non-U.S. marketplace, which are going to be more generally global products and alternatives.

I mean, look, I think you start – there is a whole range of strategic benefits that could come, maybe you start at sort of the simplest, and clearest and easiest. It’s okay, we’re pitching for business in that market and there are opportunities to phone calls or introductions, or that sort of things that could help us market and win business. I think you then can obviously have a lot more expansive opportunities when you think more creatively about where there could be fundraising opportunities and how the Chinese market might evolve over time. And what type of affiliates that we also have that could have the second order play back – investment playback in China. And so I think the way that we would approaches this and we intend to approach is very much from a consulting point to view that really look first at the market, understand the trends in the market, math our current products to those trends, as well as out of that prioritize where new investments there might be interesting opportunities that would have unique applications to the Chinese market and go from there. But that probably is work that with tend to get going, I would expect more in the fall than what we’ve really done in the last six weeks.

Our next question comes from the line of Robert Lee with KBW. Your line is now open.

Great, thank you. Good morning everyone. My first question and I apologize if you mentioned it earlier, I kind of got on the call a little late, but with the repurchase, is there anything as we buy in the open market and I assume HNA’s proportional ownership kind of therefore would creep over 25%, does that create any kind of reporting or control issues or change of control or anything like that, that we should be thoughtful of?

No, it is not. We actually have legal advice and opinion that effectively inadvertently increase of their stake above 25% threshold would not be cause for any kind of client consent. Issue. We obviously focused on that to make sure that was not issue and that we received formal legal advice that it is not.

Okay, great. And then maybe, if I think about capital management, I mean Landmark clearly has been raising capital as you would have hoped to and you made the acquisition and performing well. I know there’s a bunch of contingent payments, could you maybe update us on how that may flow through impact kind of capital usage and also ENI?

Yes, sure. From a capital management point of view, we obviously are – we’re thinking about our financial capacity to make acquisitions. First and foremost, we want to be conservative and make sure that while we increased leverage, we do it in the way that is prudent. And so that’s why you recall the top of our target leverage range is about 2.25 debt to EBITDA and that’s really based on being able to weather a hypothetical 20% equity market decline and still be able to meet our credit facility covenant, which is a three times debt to EBITDA. So that’s sort of the way that we – why we’ve come up with that 2.25 ratio that’s the top end of our target. When we look at all of our financials – our cash generation as well as our cash uses, whether those cash uses are for increasing capital, dividends, stock buybacks those sorts of things, we have leaving aside buybacks. So basically for dividends, fee capital and the Landmark earn out, we basically have come to the clue that we have roughly a call between $350 million and $400 million of capital that we could use for acquisitions or buybacks. And I would say that with the buyback, it’s a little bit less because when you make an acquisition you’re buying EBITDA that can then be levered. So that’s sort of the difference in the range. So, that’s the way we thought about it and our sources of capital for that will be a combination of the debt that we have at the holdings – regarding the cash that we have at the holding company, which is you see it continue to go up in part because of the Heitman transaction and in parts is generating cash and it will partly be levering the balance sheet a bit more either through the revolver or bond issuance. So that’s the way we talk about things, now clearly at current multiples you would not want to and we would not be issuing equity to make an acquisition. So the view is, look how much can you afford within the traits of cash and leverage, and that’s where we come to that sort of $350 million to $400 million number, taking into account all of the other sort of requirements that we have, whether it’s the DTA payment or mutual, which still has to get paid or the earn out to Landmark.

Great. That’s very helpful. That’s all I had today. Thanks so much.

And our next question comes from the line of Michael Carrier with Bank of America. Your line is now open.

Hey good morning. Thanks for taking my questions. This is [indiscernible] on for Michael Carrier. Thanks for the color on Landmark, but can you just give us, maybe in overall update of the alternative pipeline outside of that landmark?

Campbell, which is our timber manager. Yes, from a scoping standpoint, you get a sense of the size of that business. I think the timber market is one that is growing, but in the past 10 more years, it’s been kind of more and a little bit of a downdraft, but our expectation is that we’re going to see some growth from that segment, both in terms of customized separate accounts and fund that they are working with. And we also have a number of transactions that we see possibly occurring later in the year. We feel good about it.

Okay. Thanks. And just as a follow-up, just in the performance fees, I know you highlighted the strong performance of Acadian. Is this sustainable or is there anything lumpy that we should be thoughtful of?

It’s not generally lumpy. I mean the big lumpy piece, I think if people are aware is with respect to some of those sub-advisory accounts of Vanguard, we carry roughly $2 million to $3 million negative performance fee every quarter, right now. And so in a way – if you think about that piece, the positive number you’re seeing has to overcome that before it turns positive, but it’s not – I think you’ve seen in the past some lumpy performance fees, but in this quarter there was nothing really out of the ordinary. By their very nature, they’re hard to predict, so they’re actually earn, but this would not a lumpy fee.

Thank you.

Our next question comes from the line of Kenneth Lee with RBC Capital Markets. Your line is now open.

Thanks for taking my question. So follow-up on the discussion on the potential for M&A. Are there any – generally comment on specific IRRs or return hurdles you’re looking for future potential opportunities and how much flexibility do you have in terms of return hurdles, when you also think about potential advantages of getting into more attractive asset classes or potential higher growth areas? Thanks.

Yes, I mean, we have probably three or four key hurdles we look at, and then we also are looking at probably another seven or eight. Because as you know, there is a lot of – any one hurdle, there is probably an opportunity to get the result that you want. I think what it really comes down to and we had a discussion about this in our Board meeting yesterday. You want to look at the returns in a way that are not just boiled down to one number, but stick to the quality of those returns, i.e., if you’re looking at an IRR, are you getting a lot of that return in the early years? Are you getting it from growth of the business? What assumptions have to go into it? Are you getting it all in the back-end in terminal multiple – multiple, higher, lower are the same compared to what you bought the company for or where our own stock is trading. There is a lot of different factors that go into assessing the key metrics, what I think is absolutely clear to us and again this depends on the size is we are going to do transactions that are certainly EPS accretive and that meets the as you know – I mean the hurdle rate when you look at for any acquisition is the specific hurdle rate for that business. And so therefore we will make sure that we understand the risks involved and the growth opportunities involved in whatever company we are making an investment in and put together an appropriate hurdle rate to meet that, and certainly when we report back to the market, when we make an acquisition I think we will certainly provide some color on some of the key metrics that we thought about and that we would expect to achieve as part of that investment, but it is just hard to do in advance, because ultimately it’s going to be very – fact specific to the investment you’re making.

Got it. And just a one follow-up on that, how would you characterize what you’re seeing in terms of like bid-ask spreads, when you look at the various M&A opportunities right now in light of the current market conditions? Thanks.

Yeah. I mean look, I would say that given that most of the most of the interesting opportunities that we’re seeing are more in the alternative space and there in asset classes that are probably less at risk to some of the market trends that we’re all aware in the long only side of the business or that may be out there from a fee pressure commoditization point of view. You are seeing multiples that are higher than what you might have seen historically for long-only equity managers. I think again the key thing is about not be tied down by a specific multiple – look I’m never going to pay more than 10 times, because what really matters is what are you buying for that 10 times? What’s the growth rate? What kind of confidence do you have that they can achieve that growth rate? What’s the downside risk? And what’s the risk free rate? When you go through all of your capital asset pricing models and look at, what is the appropriate hurdle to get through that investment and return, that’s the way we’re approaching it. It’s not to say that we are not looking at multiples and that multiples are not important, but I think there are – there is a trade-off between – if you could buy something that you felt confident was going to be growing at 15% a year, you would certainly pay a higher multiple for it than something that you felt would probably grow more at 8% a year. And look, clearly you need to be able to convince yourself, the market, everybody else if you’re underwriting to 15%, that may be an unrealistic growth rate, but the point would be that multiples are really based on growth rate and they are traditionally based on long-only equity managers. We all talk about 8 times to 10 times multiple, it’s on a long-only equity manager, I think and to the extent again you have an alternative manager, that depends on whether they have performance fees or whether it’s all management fees, also impacts the multiple, but there is no question where you have asset classes like alternatives that are growing faster or viewed as having more attractive growth opportunities with more downside protection. There is a higher multiple and probably justifiably so than what you would have traditionally thought was the right multiple for long-only equity manager.

Great, very helpful. Thanks.

Okay, great. Thank you.

This concludes our question-and-answer session. I’d like to turn the conference call back over to Steve Belgrad.

Great. Thanks everybody for joining the call and we are glad that we have performed this quarter and hope that we can continue to meet your expectations and confidence. Thank you.