Good morning. My name is Cherry, and I’ll be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners’ Quarterly Conference Call. The slide presentation for this call is available in the Investor Relations section of the Virtus website, www.virtus.com. This call is being recorded and will be available for replay on the Virtus website. At this time, all participants are in a listen-only mode. After the speakers’ presentation – remarks, there will be a question-and-answer period and instructions will follow at that time. I will now turn the conference to your host, Sean Rourke.

Thank you, and good morning, everyone. On behalf of Virtus Investment Partners, I’d like to welcome you to the discussion of our operating and financial results for the First Quarter of 2022. Our speakers today are George Aylward, President and CEO; and Mike Angerthal, Chief Financial Officer. Following the prepared remarks, we will have a Q&A period. Before we begin, please note the disclosures on Page 2 of the slide presentation. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and as such are subject to known and unknown risks and uncertainties, including, but not limited to, those factors set forth in today’s news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in the statements. In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with the GAAP results. Reconciliations of these non-GAAP financial measures, the applicable GAAP measures are included in today’s news release and financial supplement, which are available on our website. Now, I’d like to turn the call over to George. George?

Thank you, Sean. Good morning, everyone. I’ll start with an overview of the results we reported earlier today and then Mike will provide more detail. Our first quarter financial and operating performance in the context of the challenging market environment were strong as while we did have net outflows and open-end funds – the quarter also included strong sales in all product categories, including meaningful growth in funds and institutional, continued positive net flows in retail separate accounts and institutional, higher operating income and earnings per share as adjusted compared with the prior year period and increased capital return to shareholders. This is also the first full quarter to include contributions from each of our three recent strategic transactions, AllianzGI, Westchester Capital and Stone Harbor that collectively added complimentary and differentiated investment strategies significantly increased scale and enhanced our distribution capabilities while being financially accretive. I would also note that of our top 20 funds with positive net flows in the quarter nine were managed by either AGI, Westchester or Stone Harbor. For our most recent transaction Stone Harbor, the integration is proceeding as expected and going well. We are making particularly good progress integrating Stone Harbor’s global distribution, which will augment our existing resources and enhance non-U.S. distribution opportunities for all our affiliates, including in areas where we previously had limited presence. We are also making progress integrating Stone Harbor’s end-to-end operating platform, which will also be available to our other affiliates. Turning now to review the results. Total assets under management after reaching their highest level last quarter declining 2% to $183.3 billion due to market performance and net outflows mostly offset by the addition of $14.7 billion of AUM from Stone Harbor on January 1. Sales momentum continued despite the significant market volatility with $9.4 billion of…

Thank you, George. Good morning, everyone. Starting with our results on Slide 7 assets under management. At March 31, assets under management were $183.3 billion, down 2% from $187.2 billion at December 31. The sequential change reflected $6.5 billion of market decline and $2 billion of net outflows, which were largely offset by the addition of the assets from Stone Harbor. Assets continue to be diversified by product type. With U.S. retail funds representing 36% of assets, institutional 31% and retail separate accounts 22%. The recent strategic transactions have furthered our diversification by asset class. Equity assets represented 56% of AUM down from 63% in the prior year period. Fixed income and alternative assets grew to 25% and 6% respectively up from 21% and 3% a year ago. We continued to generate strong relative investment performance across strategies. At March 31, approximately 62% of rated fund assets had four or five stars and 90% were in three, four or five star funds. We had 12 funds with AUM of $1 billion or more that were rated four or five stars. The same level as a year ago, representing a diverse set of strategies from five different managers. In addition to strong fund performance as of March 31, 81% of retail separate account assets, and 58% of institutional assets were beating their benchmarks on a three-year basis. And 82% of retail separate account assets and 64% of institutional assets were outperforming their benchmarks over five years. Also 80% of institutional assets were exceeding the median performance of their peer groups on the same five-year basis. Turning to Slide 8, asset flows. Total sales were $9.4 billion, up 8% sequentially from $8.7 billion. By product fund sales of $5 billion increased 14% due to higher sales across most strategies. Bank loan fund…

Thank you, Mike. So we’ll now take everyone’s questions. Cherry, would you open up the lines please?

Your first question comes in the line of Sumeet Mody from Piper Sandler. Your line is now open.

Hey, thanks. Good morning guys. Just wanted to start on the SMA and institutional businesses, it’s good to see another quarter of inflows for both. Just wondering if you could help us frame how to think client demand for those products today, maybe contrast that what you’re – with what you’re seeing against the kind of retail. And then what dynamics we should be thinking about from the outside that allow for such kind of consistent inflows. Is it mostly performance based as a major driver there or any kind of particular market environment you think that demand could maybe reverse out?

Sure. It’s a great question, because there is different behavior within those three categories of open-end funds, retail separates and institutional, even for the very same strategies, right? So it’s not unusual for us to actually have a strategy that could be net negative on an open-end side, but actually be positive on either institutional retail separates. So they can have different behavioral patterns, the more extreme being the institutional versus the open-end fund, whereas the drivers of a lot of the institutional activity, because they’re usually based upon asset allocation and longer term component building of a portfolio in some times behave differently and including what’s in favor and what’s out of favor. On the institutional side, a lot of times we’ll see much more of a appetite to use markets, where a strategy is out of favor as an entry point, whereas on the retail side, you sometimes see people behave as an exit point for the very same strategy. So going through the three pieces. The institutional, we highlighted a bit, because I think as you know over the years, we’ve talked about a lot that it was an area of focus for us. We’ve invested resources, we’ve hired people, we’ve tried to introduce as many of our affiliates and the institutional side, particularly the non-U.S. over the last few years. And then one of the benefits we highlighted from the Stone Harbor transaction was to have even more expanded resources. We truly looked at the institutional channel and particularly the non-U.S. as a great opportunity for us, because many of our affiliates haven’t previously had opportunities there. So over the last year or two, you’ve heard us speak to several mandates at multiple affiliates commented about a non-U.S. portion of our business, which, and again, I…

Great, thanks. That was really helpful, George. Just turning to the capital allocation strategy. I mean, I know you guys are always talk about that kind of primary balanced strategy going forward. But given the draw down, we’ve seen over the course of the first quarter end in April, all the cash flow generation capabilities that have improved despite the market environment and kind of the balance sheet capital today. Is this elevated level of buybacks, a decent assumption for the appetite going forward, as you trade at such a deep discount to the peer group? How should we think about the quarterly capacity, you guys are comfortable buying back in environments like this?

Yes. I mean, as I commented, again, we do have a balanced approach. The good news is we have a strong balance sheet right now, and we still have good cash flow and a high margin. So we have the flexibility to do multiple things. As we sort of indicated and highlighted the fact that our approach is flexible and given what we saw in the first quarter, even though it was our highest quarter of cash utilization, we increased our stock buybacks. And particularly within that settlement, had a quite a robust amount. So I kind of highlighted as flexible as well. And I think as Mike also indicated that as we sort of look at what the highest and best use of our capital is, again, feel very comfortable. We have a very strong balance sheet, good cash flow, and our views around what to do with that cash, particularly given where our stock is trading absolutely will factor in.

Thanks so much. One more from me here on, just the structure of the distribution effort, can you just remind us, how much is centralized? How much do you have kind of on the specialist sales side? And as you kind of continue to scale the franchise does full centralization of that sales make any sense for you guys. Or is that kind of not how you guys think about the long-term strategy around the structure of the distribution effort?

Well, I break it into two pieces, right? So on the retail side, particularly the intermediary distributor retail, that is effectively a shared or centralized service, right? So Virtus does space off in the retail space as one point access to a collection of very different managers who specialize in different asset classes. So whether you talk about our sales force, our national accounts on the ETF side, as well as on the retirement side, that is generally done through one coordinated team that works hand in hand with each one of our individual affiliates. So that really is the model that we use there. And we’ve been very successful with that. And I think our value proposition as one point access to very different managers is an effective one. On the institutional side, that business is different, where it really is affiliate driven in the sense that a lot of those clients want to have that direct contact with the individual affiliates. Because we’ve commented before, we do make available to our affiliates, an array of resources to support them in their efforts. And in areas where we do – can do the most, our areas where an individual affiliate may not personally invest in something. So non-U.S. distribution is a perfect example of that, where we can make talented sales professionals in the non-U.S. market available to sell multiple of our strategies. So the institutional is much more of a hybrid and much more of an affiliate driven kind of a sales, whereas the retail is highly coordinated and entirely done through that shared service leveraging specialists from each of our affiliates.

Got it. Thanks so much, George. Thanks for taking my questions.

No, thank you.

Your next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is now open.

Great. Thank you. Good morning.

Good morning.

Just on the SMA part of the business, can you just remind us, which some of the largest strategies and affiliates that you currently have available on the SMA platform? And then could you also maybe talk about some of the initiatives that you have in place around getting more strategies or affiliates onto the SMA platform and some of the initiatives for getting those onto broader distribution and intermediary platforms?

Sure. So on retail separate accounts Kayne Anderson Rudnick is the largest. We also have strategies available in the fixed income space as well as on the value space. We do spend a lot of time trying to introduce one of the uses of our seed capital, which you see in our balance sheet is to incubate track records ultimately to make available. And a lot of times what we’ll be doing is seeding track records to ultimately make available in the retail space. So actually a lot of the strategies that we’re gathering assets for today and last year are strategies we probably seeded three or four years ago. I – a couple of the Kayne ones in particular, where by seeing the strategies, building the track record, we’ve then been able to bring them to market. So we continue to see the retail separate account opportunity as a good one. We continue to look to expand to as many strategies as sort of fit into that space is indicated before there are some differences and what works really well in a retail separate account versus a fund because of the way that they’re tailored and managed for individual clients. But continue to see that as an attractive area for us.

Great. And then can you just remind us, I believe you guys mostly have a revenue share model? Can you just remind us how that sort of flexes and operates in a down market like what we’re seeing year-to-date and month-to-date?

Sure. We actually have a profit based model, right? So our alignment of interest is designed to really incent everyone to generate operating income. That so our affiliates share in the profit that they bring to the bottom line, which is what is the profit to the Virtus shareholders. So we think that’s a good model in terms of how we run it. And it does facilitate everyone managing to a good margin and managing through difficult time. So that our affiliated incentives are all profit based.

Great. And maybe just last one around capital management, I heard you mention the buyback in terms of that being a priority. I didn’t hear anything on debt pay down. Is that off the table for now? How are you thinking about that? Maybe bringing that back from the forefront at some point. And then also on M&A something you guys have spoken about in the past and clearly have executed well against over the years. Just curious where that is on your priority stack today. Maybe you could kind of give us a little bit of a flavor of color for what you’re seeing in the marketplace today and how the current market volatility is maybe accelerating or delaying any sort of potential things you may be thinking about.

Sure. So I’ll – on the capital side, so again, we feel very comfortable because our balance sheet is strong and because our cash flow is strong, that we have the flexibility do multiple things. We do prioritize different things at different points in the cycle. So again in evaluating alternatives between buying back stock or paying down debt that will be influenced by how we believe our stock is trading relative to its actual evaluation. So again, given the current environment, I don’t know, Mike, we’re in a rush to pay down debt per se. I think our stock prices right now probably slightly more prominent. When I would go to the M&A, the M&A environment continues to be incredibly active. Again, as you noted, we have been very active over the years, even though we fundamentally want our growth strategy, not to need M&A, we’re continuing to look at multiple opportunities. I think the general level of those opportunities has increased. In terms of the impact of market volatility, it’s interesting, because I think market volatility will do two things. It might put something on hold or it might make something want to move forward faster in advance of more prolonged down markets. So I think net net, there’s still very active, we’ve been very in terms of the amount of things that we’ve looked at and considered. And I continue to think that that will continue on.

And if I could just speak of one additional one in there just around the types of things that you’re interested in potentially on the M&A front, I think in the past you had suggested on product areas with uncorrelated returns and international distribution. Are those still the top of the list? Any others that you would flag in terms of what you’re prioritizing and looking at?

Sure. No, I think you hit it, right. So again, generally across the traditional types of long only strategies, we have very good coverage with great affiliates. The areas that we have been focusing in on have included other specialized asset classes like emerging market debt, which is one we didn’t necessarily have, but in particular alternatives and less correlated strategies, right. So Westchester was a perfect example of the type of thing. We wanted something that had less correlation to the market in the events that the markets became more volatile. Now, as you see in the first quarter, we’re very pleased that we did it at that time period because those are the kinds of strategies that would be attractive. So we continue to be interested in things that are less correlated to traditional long equity for fixed income products. Things that will expand our distribution footprints particularly on the institutional in the non-U.S. side. And again, we’re always looking for things that will have a strategic rationale. I feel, we’ve been very disciplined and what we do, sometimes we’ll look at things and we’ll ultimately conclude it is not a good fit for us, which may mean we may spend some money and then not do anything. So I think we have the ability to be very strategic about what we do, but it will be some things that will sort of build out the foundations for continued future growth.

Great. Thanks for taking my questions.

There are no questions at this time. This concludes our Q&A session. I would like to turn the conference back over to Mr. Aylward.

Great. Right. As always, I want to thank everyone for joining us today and we certainly encourage you to reach out if you have any other further questions. Enjoy the rest of your day.

That concludes today’s call. Thank you all for your participation. You may now disconnect.