Good morning. My name is Andrew, 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’ remarks, there will be a question-and-answer session. 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 Second 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 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 to 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 little more detail. As a traditional asset manager, we were not immune to the historically challenging markets and tumultuous macroeconomic environment that shaped the first half of the year. The steep market declines across asset classes set the context for our results, which were largely driven by sequentially lower average assets under management. Though, we reported lower AUM and earnings per share as adjusted, I would note several important highlights including a highest level of institutional sales and seventh consecutive quarter of positive institutional net flows, positive flows in ETFs and our private client business, solid operating margin, increased capital return to shareholders and a modest level of leverage positioning us for continued balance sheet flexibility. We believe the challenging environment is one in which active managers have the ability to differentiate themselves in the investments we have made in our range of strategy and product offerings to appeal to clients across changing market environments and preferences, position us to capture assets as the market environment evolves. Turning now to review the results. Total assets under management decreased 15% to $155.4 billion largely due to the significant market declines across asset classes in addition to retail net outflows. Sales of $7.9 billion compared with $9.4 billion in the first quarter as retail investor demand declined meaningfully amidst challenging financial markets in an uncertain economic environment. Sales were lower across nearly all equity fixed income and multi-asset investment strategies though alternatives increased sequentially. On the institutional side however, we reached a record level of sales of $3.5 billion, again benefitting from a diverse set of mandates across affiliates and asset classes. For net flows by product, we had…

Thank you, George. Good morning, everyone. Starting our results on Slide 7 assets under management, at June 30, assets under management were $155.4 billion, down 15% from $183.3 billion at March 31. The sequential change reflected $22.8 billion of market depreciation and $4.8 billion of net outflows. Average assets under management in the quarter were $171.4 billion, down 10% largely due to market performance. Our assets under management remain well diversified by product type and asset class. And we continue to see client diversification by geography with growth in non-U.S. Over the past year, non-US client AUM is increased by 5 percentage points to 15% at June 30. Largely reflecting the addition of Stone Harbor as well as increased non-U.S. institutional sales across multiple affiliates and geographies. We continue to generate strong relative investment performance across strategies. At June 30, approximately 57% of rated fund assets had four or five stars and 91% were in three, four or five star funds. We had 10 funds with AUM of $1 billion or more that were rated four or five stars representing a diverse set of strategies from six different managers. In addition to strong fund performance as of June 30, 88% of retail separate account assets and 64% of institutional assets were outperforming their benchmarks over five years. Also 75% of institutional assets were exceeding the median performance of their peer groups over five years. During the challenging second quarter, 66% of equity assets beat their benchmarks, reflecting the quality of our managers and the benefit of active management. Turning to Slide 8, asset flows. Total sales of $7.9 billion compared with $9.4 billion in the prior quarter, as lower retail demand was partially offset by our highest level of institutional sales. By product, fund sales of $3.1 billion declined from…

Thank you, Mike. We will now take your questions. Andrew, would you open up the lines please?

Certainly. And our first question comes from the line of Sumeet Mody with Piper Sandler.

Hey, thanks. Good morning, guys. Just wanted to start on the Allianz mutual funds show some press reports regarding some of the sub-advisory relationship changes with that. I was wondering if you could talk about it and maybe how this new agreement will impact AUM.

Sure. Yes. So for the series of mutual funds that were previously managed by Allianz, as you’re well aware, as a result of events, the teams and the businesses that manage those affiliates, those funds moved over – many of them moved over to Voya not all of them. So as a result of all those changes, we had to assign new sub-advisors to the various funds. So the majority of the close-end funds and the large open-end funds were assigned to Voya as the managers, so that’ll just be subject to a normal sub-advisory agreement. And we look forward to that relationship. We know those teams managing those funds. So they’re now just part of Voya. And then for other funds where either the teams weren’t transitioning over there, there were other alternatives, that met the fund objectives we made reassignments. So there was just a set of reassignments of sub-advisors across those funds.

Okay, great. Thanks. And then shifting over to capital return here on the buyback, can you just remind us about the window around when you guys can buyback each quarter. And then maybe just talk about especially what the market environment being as volatile as it is and your current valuation. How are you guys approaching this? It’s nice to see the bump up this quarter, but going forward, what’s the strategy around that?

And again, as we commented, given our balance sheet and the cash flow generation that we continue to have, we do have the flexibility to sort of be thoughtful every quarter as we sort of approach the optimal use of our capital. And as you note, we did clearly view the second quarter as an opportunity to further increase the return of capital through the stock repurchases, given our view of the relative value of the shares and how they were training. So we continue to do that and we continue to have the flexibility to do that, while also, as you know – as you may have noticed, we resumed started thoughtfully paying down some of our outstanding debt in this rising interest rate environment. Again, we have the flexibility to do those. Mike, if you want to speak on the window of the timing of that.

Yes. I think just from an execution standpoint, there are various ways that you can execute the buybacks. And we’ve consistently done that, generally, on a balanced approach throughout the quarter. And we’ll continue to evaluate the trading level evaluation and other factors as we make capital decisions going forward.

Okay, great. And then just one more here on sort of the non-comp expenses and margins, just wondering where you guys are at with your – with normalization on T&E expenses. I know you guys maintained the range of other this quarter, but over time, do you still expect that to kind of March upwards. And then how does that impact your margin expectations through, maybe let’s call it the next 12 months?

Yes. And we certainly did see it a tick back up of travel during the quarter. It was good to see for the distribution team visiting clients and getting back to travel activities, although not all the way back to free pandemic levels and we’ll continue to monitor that. We – certainly, our business has changed significantly since the pandemic. So we’re monitoring that we’ve added non-U.S. distribution resources. So I think we’ve tried to capture that with the range of other operating expenses, which we believe is still the $27 million to $31 million. And we’ll monitor that and expect to stay within that range as we look forward. And from a margin perspective, I think incremental margins, as we look at them would still be in the ranges that we’ve talked about around 50% to 55% going forward, structurally the infrastructure’s in place to continue to deliver those incremental margins going forward.

Okay, great. I’ll hop back in the queue. Thanks guys.

Thanks, Sumeet.

Thank you. And our next question comes from the line of Michael Cyprys with Morgan Stanley.

Hey, good morning. Thanks for taking the questions. Maybe just coming back to Voya, maybe you could just talk a little bit about the new relationship that you’re going to have here with Voya. How those economics maybe compare versus what we saw with AGI. And is there any potential here to bring any assets in house? I heard you mentioned some potential resignment. Is any sort of potential impact that we could see to the P&L just coming from the movement of these assets here?

Yes, sure. And I’ll start off with you. You should not really look at this as having an impact one way or the other on our P&L. So for the strategies managed by the teams that are now part of Voya, again, we are – our sub advisory arrangements are on the same basis. So there’s really no change as it relates to how we sort of approach that. And even with some of the other assignments, when you put it all together collectively, I would not look at it as something that would have a noticeable impact on our P&L.

And you had mentioned reassignments any potential to bring any in-house. How are you thinking about that?

Yes. All of these assignments have been made. So there were a few select strategies where we’re leveraging some of our strong performing managers with track records in those specific areas. And in other instances, again the overwhelming majority of the assets and the funds, all the closed end funds are with the Voya as well as another sub advisor.

Okay. It sounds like even in those cases where you’re bringing them in-house not much of any impact to speak up to the P&L.

Right. Because collectively where we’ve added into some new teams to manage some of those funds and then we’ve made reassignments and then the rest of it is business going forward. So again, I would not look at any change on the P&L as a result of it.

Got it. And is there any broader opportunity to broaden that relationship with Voya more strategically as you kind of think about the capability sets that, that you have and what Voya’s looking for more broadly in their distribution?

Well, we’re very good, the teams that are currently managing those assets, we’re familiar with because they’ve been managing it. So we are very confident in those teams and very excited about any other opportunities we continue – we could have as it relates going forward. Again, we’ll see what happens there, but again we do selectively partner with individual firms, and once we have a relationship to the extent that there are ways that we can be mutually beneficial. We would absolutely look into those types of opportunities, but nothing specific to speak about it.

Got it. Okay. And then just wanted to follow-up on the Systematic and Multi-Asset portfolio teams. I was just hoping you could elaborate a little bit on why those strategies, why those teams, how you kind of came across those teams, what was so compelling there? And are there any other opportunities sets to add other teams and how you might approach that? Thank you.

Yes. Well, I mean some of this did arise as a result of some of the fund transitions that we had to make. So these are two teams that we’re familiar with because they were managing our funds and had supporting on the 529 side, and very impressive teams that we’ve always thought highly of and because there was an opportunity to have them join us. We availed ourselves of that opportunity. Those are two capabilities that we have had as things we’re very interested in that being the Systematic as well as the Multi-Asset asset allocation capability. So we’re very excited about having those. And as indicated in the release and I think in the comments, we’d look forward to taking those teams and not only having them manage what they manage, but more importantly, making those strategies available to other institutional clients as well as in other types of investment vehicles.

Got it. Okay. Maybe just one last quick on M&A, just curious thinking about the opportunity set here, given the evolving macro backdrop, how that’s impact – any potential timing, and they wrote our opportunity set for M&A.

Yes. I mean the markets always have some kind of an impact, but again I still think there’s lots of activity ongoing in the M&A world. It will continue to go. I think the nature of the conversations or length of the conversations could alter a little bit, but again we’re strategically it makes sense for firms to do a transactions. Those will still be there though, the volatility in the market obviously does have an impact, but in some ways it could create opportunities where there otherwise wouldn’t be opportunities. And again, we position ourselves to be able to take advantage of opportunities should they arise and have a good long-term strategic fit for us.

Great. Thanks so much.

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

Great. And I want to thank everyone today for joining us and certainly encourage you to give us a call if you have any other further questions. Thank you.

This concludes today’s call. Thank you for participating. You may now disconnect.