Ladies and gentlemen, thank you for standing by, and welcome to the BrightSphere Investment Group Earnings Conference Call and Webcast for the First Quarter 2021. Please note that this call is being recorded today, Thursday, April 29, 2021, at 11:00 a.m. Eastern Time. I would now like to turn the meeting over to Elie Sugarman, Head of Corporate Development and Investor Relations. Please go ahead, Elie.

Good morning, and welcome to BrightSphere's conference call to discuss our results for the first quarter ended March 31, 2021. 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 and our 2020 Form 10-K. 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.

Thanks, Elie. Good morning, everyone, and thanks for joining us this morning. As usual, I'll focus my initial remarks on the key highlights in the quarter that we summarized here on Slide 5 of the deck. And then we can switch to Q&A. So, let me start with refreshing the context and remind everyone that we announced the sale of our Affiliate Landmark in March this year, and we're expecting the transaction to close near the end of the current quarter. The valuation we received for our stake was quite attractive at 16.4x EV to adjusted EBITDA multiple and with total proceeds from the sale to us of $724 million pretax and $630 million after tax. So this transaction unlocks and crystallizes significant value for our shareholders. Given the announced sale, effective 1Q '21, Landmark has been moved into discontinued operations. So now we essentially have 2 primary Affiliates: our largest business, Acadian, which comprises our Quant & Solutions segment; and TSW, which comprises our Liquid Alpha segment. Both Acadian and TSW are very well positioned, differentiated businesses, and we will continue to follow our approach of full affiliate autonomy in managing and growing our business while continuing to be lean and maintaining expense discipline at our corporate center. So with Landmark now included in discontinued operations, we don't have the Alternatives segment any longer. Campbell Global, our affiliate focused on forest resources, which used to be included in the Alternatives segment, along with Landmark, has now been moved to the Other segment. Now moving to our financial results for the quarter. We reported ENI per share of $0.34 for the first quarter of this year compared with $0.30 for the first quarter of last year. Again, to be clear, ENI for both periods is excluding Landmark. If Landmark was included, it would have contributed $0.11 to our EPS for 1Q '21 and $0.10 for 1Q '20. So if you're trying to compare to our prior reporting, the EPS for 1Q '21 would be $0.45 if you add Landmark.

Your first question comes from the line of Craig Siegenthaler with Credit Suisse.

So Suren, how should we think about your capital return priorities this year between share repurchases, dividends and maybe even a special dividend?

Yes. Craig, we're still thinking through it. As I said earlier, we're expecting another $630 million near the end of the quarter. So once that capital is fully in the bag, it will be easier to have a holistic view and execution at that point rather than tranching it and doing a little bit now without having the second part fully executed. But in terms of priorities, those are the uses essentially, deleveraging and returning capital to shareholders. And then the mechanisms by which we do it, we're still working through it. The main -- essentially the second shoot or drop is closing on the Landmark sale, which we have near certainty on, but it's always good to have it fully in the bag.

Your next question comes from the line of Glenn Schorr with Evercore ISI.

I appreciate the color on the quarter and not recurring flows on the Quant side. But I'm still curious to hear a little bit more about the asset reallocations that happened during the quarter. What kind of conversations do you have to know that it's just a reallocation? And is it out of equities because equity markets did well? You mentioned the rising market environment and that threw me a little bit. I'm just curious for a little more color.

Yes. Thank you, Glenn. Yes. Sometimes, what happens is when markets are doing well and our strategies are doing well, some clients would do some profit taking, if you will, and move it to other areas that maybe haven't done so well. So we saw that factor at play a little bit. There were also some idiosyncratic things that happened given the institutional business, and that's what I alluded to with the lumpiness. For example, a larger outflow was related to a client reallocating because of a regulatory concern around not having too much exposure to one manager. So these kind of idiosyncratic things do happen. Now of course, some regular way outflows and inflows are related to people just looking at what strategies we do invest. So for example, we have touched on that in a rising environment, managed low volatility type of strategy isn't necessarily on everyone's mind right now. So there are things that happen in select strategies like that. But it's a very diversified business, and so there are other strategies, regional strategies, strategies of different objectives that see inflows. So, it's a combination of all of those, but definitely some idiosyncrasy and lumpiness.

I appreciate that. Maybe just I could follow-up on that because my other question was on -- you commented about continuing on the product innovation side. I wonder if you could just expand that thought a little bit for both -- on the Quant and Liquid Alpha side, that would be great.

Yes. So we continue to support our Affiliates with capital, particularly in terms of seeding new strategies. And that's where we can help invest. But the efforts themselves are really driven by the Affiliate teams based on the feedback from clients in terms of what the clients are looking for them to do and to provide. But we continue to provide -- and we encourage our Affiliates to continue and develop products that we can seed. So it's essentially a recurring R&D effort, if you will.

Your next question comes from the line of Mike Carrier with Bank of America.

Suren, just on the M&A front, given active conversations that you've had with buyers, which led to successful sales of Barrow Hanley and Landmark, how have conversations been for the overall franchise during those conversations? And any restrictions or headwinds in the way for further demand?

Yes. The M&A environment is, over the last 1.5 years, has been very constructive. And definitely, industry participants are looking for capabilities or looking for scale. There are a variety of factors at play. And as we've said to the market and our shareholders that we -- our primary focus is fiduciary duty to maximize shareholder value. And we have a good plan, and our Affiliates are strong businesses and that generate really good cash flow. So we don't necessarily have to do anything, but we do -- as a result of our public stance that we are open-minded and have a fiduciary duty to maximize value, we do get inquiries from time to time, and we review them along with the teams. And if there's anything, anything of interest, we discuss further. So that's generally how we've been approaching things.

Great. Okay. And then just on capital return. It sounds like post Landmark, then you'll have an update on kind of the strategy. So before that, so in the second quarter, should we not assume much in terms of buybacks?

Yes. It's really hard to peg. Like I said, we prefer to not transit. So essentially, we would like to really have a holistic plan for the entire amount. So yes, so if there's anything, it would be pretty close to once we reach the closing. But we wouldn't do much in advance of getting to the closing.

Your next question comes from the line of Kenneth Lee with RBC Capital Markets.

Behind the motivations of signing the corporate revolving facility to Acadian, just wondering if there's anything else that you want to share with that.

Ken, I think we missed the first part of your question. Sorry if I don't answer it. You can ask again, but I think I got it in terms of what's the motivation to sign the revolver to Acadian. And that really has to do with deleveraging that we had a large facility, which was $450 million originally, which we reduced because we had cash building up. So we didn't really have a need for that much credit. So we reduced it first. And then as I mentioned, we do have a seasonal need every year at Acadian, which is not a long-term leverage need because there is a first quarter need to pay bonuses. And then the revenues and earnings in subsequent quarters more than pay off for that. So it's a classic credit line need. And it's more needed at Acadian. So we basically moved it there because at the parent level, we don't really have any need for credit given the excess capital we have. And it's also from a leverage perspective, it's very low leverage relative to Acadian's EBITDA in the sense that $80 million draw is a fraction of their EBITDA. So it's a pretty robust facility that meets their needs.

Great. That's helpful. And that answered my question. Just one follow-up, if I may. Wonder if you could just highlight any products or strategies that you've been seeing some good demand within the quarter.

Yes. Ken, that kind of varies quarter-to-quarter. It's pretty diversified overall. So most strategies at Acadian are seeing demand. At TSW, we saw some good wins, as you saw in Liquid Alpha flows on international equity side. And in Acadian, I guess, maybe one -- I touched on this earlier, one strategy we didn't see a lot of demand in this kind of environment was low volatility, managed volatility strategy. But generally, otherwise, we see pretty good demand across the board. And we've touched on this that some of these new strategies we're seeding, while not big numbers yet, they continue to get traction. For example, the multi-asset class strategy, which goes beyond high equities but leverages the same multifactor approach and data and philosophy, we're seeing -- we continue to see good traction there.

Our next question comes from the line of Michael Cyprys with Morgan Stanley.

Yes. So on the first part, Mike, yes, that's accurate that we would probably have an update on our next earnings call. If -- or right around then. It would definitely be around or after the closing of Landmark so that we know -- so they fully have the capital that we are looking to deploy. That's part one. And the second part, yes, on the last earnings call, we were probably expecting within a few months from then. But then we have, of course, had a sizable development in terms of sale of Landmark, which essentially obviously changes the magnitude of the capital we're looking to deploy. And hence, a reworking, if you will, of our approach.

Is it also fair that given you were in discussions to sell Landmark, you were prohibited from buying back stock earlier in the year because of those discussions? And if that's correct and if you were theoretically in discussions today around selling something else, would that also theoretically limit your ability to buy back stock over the next couple of months, if theoretically, if you were in such discussions?

Yes. We do have those type of constraints from time to time in terms of buybacks in particular or anything material if we are in a blackout window before earnings or if we are on conversations -- real conversations on a material part of the business. Yes. So that would restrict us from time to time.

Sorry. Just one last one. If you were to sort of sell off maybe Acadian here, but then there's a lot of cash left in the public entity and a small business with Campbell and TS&W, I guess how do you think about small public company, a large cash position but significantly smaller business? What sort of scenario could such a thing play out?

Yes. We would generally not consider that specific kind of scenario. As I said, our -- we very much are pleased with our businesses, right? As you saw with Liquid Alpha, we have flows. And with Acadian, it's a very strong business that's highly regarded and reputed around the world. But if some inquiries came in from the perspective of fiduciary duty, we do consider them. But of course, you see even with Landmark, which is a business we bought not so many years ago, there is some tax leakage. And the larger the value, the more the tax leakage. So we would -- that would also be a factor in considering something. So the scenario played out that we sell our largest business and pay a big tax build and have a smaller business is probably no likelihood. It would only be something that's so compelling that in spite of that, we go ahead.

Your next question comes from the line of Robert Lee with KBW.

Just real quickly, 2 questions. First, just actual modeling question. In the Liquid Alpha segment, is there anything -- I guess largely TS&W or only TSW right now, is there anything -- if we want to be $9 million of adjusted EBITDA that that's a good run rate, is there anything kind of seasonal maybe in that around comp or something as you're trying to think of beyond -- the first clean quarter without Barrow, I guess? I'm just trying to get a handle if that's a good run rate. That's the first question.

Yes. Rob, yes, it's mostly basically TSW. Now we announced the sale of ICM in our 10-K, and that's to be closed. So ICM results and flows are in there as well. So that will essentially -- so it's basically clean, but there is slight noise. Now, ICM is not -- it's another income, so it doesn't flow into the full P&L. But I would say next quarter would be a clean quarter, essentially, but you can consider it mostly TSW.

Okay. And I mean just another quick question on the revolver that you transferred to Acadian. Just to cross every T and dot every I, that's moved down there in stairs , but there's no -- it's complete nonrecourse in the whole company. Sounds correct?

Yes, that is right. And of course, as I touched on, it was essentially -- deleveraging was a driver. So by moving it to Acadian and having very low leverage ratios at Acadian, it's nonrecourse to BSIG. So that while it's consolidated in our debt, it is not apples-to-apples because it's nonrecourse to BSIG. That's right.

Okay. And I guess you kind of addressed this in your prior comments about tax leakage. But just curious, is there any noticeable or meaningful deferred tax asset post the Landmark deal that will remain at the holdco, or is it pretty much used up?

Yes. We pretty much used up our deferred tax assets last year from the earnings that we had as well as the sales that we had with Barrow and others. So with Landmark, actually, we didn't have much left to use.

Your next question comes from the line of Justin Ziegler with Eaton Vance.

A follow-up on the transfer of the revolver to Acadian. You just mentioned it's nonrecourse. But in doing that, are you guys still beholden to the covenants? Are there shifts in how those apply to debt and leverage at the holding company? And what does this do in terms of cash flow up to the center -- corporate center as well? And how does that kind of affect how bondholders might be -- at least on the unsecured basis that the holding company still have that kind of EBITDA available to them?

Yes. Thank you, Justin, for asking the question. It seems like it wasn't clear in the material, so I appreciate that. Yes. So essentially, that is the benefit that now at the parent level, we don't have any debt-to-EBITDA covenants because our bonds did not have such covenants. But we did have a debt-to-EBITDA covenant on our revolver. So by having -- by moving it out of the corporate structure, we don't have that covenant at the parent level. There is a debt-to-EBITDA covenant at Acadian level on the facility. But their EBITDA, if you look at the most recent quarter, it's close to 2x multiple of how much they drew. So there is ample cushion at Acadian level given this is such a small portion of their EBITDA. There are only restrictions in terms of the distributions that come to us, of course, except in scenarios where, if you had an extreme scenario where debt servicing was a problem and all our business went away, which, of course, is next to -- we wouldn't really think that's a scenario -- inconceivable scenario. So it's a prudent approach, essentially, that's a very low leverage at Acadian levels. No restrictions on our distributions and no covenants at the parent level.

Okay. Thanks for that clarification. And as you think about the year coming forward by the end of 2021, you stated the intention to delever. I mean you've got the call coming up in June. But given you have like kind of 2 Affiliates with maybe less overall EBITDA, how do you think about leverage at the holding company going forward? And what's your target area for that?

Yes. I mean generally, we would basically want to stay below 2x in terms of total leverage. And we do -- of course, we have compared, for example, the -- excluding the seasonal need, we have shy of $400 million on our bonds. And our cash already is $450 million, and then we would have another $630 million coming from sale of Landmark. So we have essentially pretty low leverage on a net basis, but even in terms of EBIT-to-EBITDA multiple, we would generally want to stay below 2x, if not lower.

There are no questions at this time.

Great. Thank you, everyone, for joining us this morning. And we look forward to talking to everyone next quarter.