Virtus Investment Partners(VRTS) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Long-term assets under management (AUM) reached $115 billion, increasing by nearly $8 billion or 7% sequentially due to market appreciation and positive net flows [9][16] - Operating income, as adjusted, was $54.1 million with a margin of 39.3%, up from $40.5 million and 34.3% in the previous quarter [14][31] - Earnings per share, as adjusted, increased 39% sequentially to $4.49, driven by higher revenues and lower operating expenses [14][33] - Net income per share under GAAP was $3.71, compared to $1.43 in the second quarter [34] Business Line Data and Key Metrics Changes - Positive net flows of $1.2 billion were recorded, with retail separate accounts contributing $1.1 billion and open-end funds contributing $0.4 billion [11][12] - Institutional net outflows were $0.3 billion, a decrease from $1.5 billion of inflows in the previous quarter [12] - Sales for the quarter totaled $7.6 billion, marking the second-best quarter of sales despite a sequential decline [10][24] Market Data and Key Metrics Changes - Domestic equity open-end fund net flows were positive $0.6 billion, with a year-to-date total of $1.8 billion, reflecting a 14% annualized organic growth rate [22] - Fixed-income assets declined as a percentage of total AUM to 26%, primarily due to rising equity markets [18] - Institutional net flows were positive over the trailing 12 months, despite a single client redemption in the current quarter [21] Company Strategy and Development Direction - The company is focused on a strategic partnership with Allianz Global Investors, expected to close in early 2021, which will enhance scale and diversify investment strategies [37][38] - The company maintains a balanced approach to capital management, with a 22% increase in quarterly dividends and a 26% reduction in debt over the past year [15][35] - The management emphasizes the importance of differentiated investment strategies and effective distribution to drive organic growth [50][52] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued positive trends in flows and sales, reflecting strong investment performance and effective distribution [8][13] - The company is well-positioned for future growth opportunities, with a low-leverage balance sheet providing flexibility for potential M&A activities [46][49] - Management highlighted the importance of retaining assets over merely raising them, focusing on long-term client relationships [56] Other Important Information - The company repurchased approximately 54,000 shares, resulting in a 0.7% reduction in shares outstanding [15][36] - The effective tax rate for the quarter was 27%, consistent with the previous quarter [32] Q&A Session Summary Question: Clarification on fee rates - Management confirmed that the fee rates presented are net to Virtus [44] Question: Views on recent M&A activity in the sector - Management stated that while M&A is a tool for growth, their long-term strategy is not solely dependent on it, and they remain selective in pursuing opportunities [46][49] Question: Strength of organic inflows despite sector headwinds - Management attributed the strength to differentiated boutique managers and effective distribution strategies [50][52] Question: Flow profile of Allianz partnership - Management noted that Allianz funds have generally performed well, but specific flow details were not disclosed as they are not Virtus funds [61][64] Question: Institutional sales traction and redemption details - Management clarified that the redemption was due to a client internalizing portfolio management, not performance-related, and highlighted balanced contributions from new mandates [72][73] Question: Opportunities in closed-end fund market - Management expressed optimism about closed-end funds as a compelling product structure and indicated ongoing exploration of opportunities in that space [75] Question: International distribution strategy - Management emphasized the importance of growing the non-U.S. client base and the flexibility in their distribution approach [80][82] Question: Performance of SGA business post-transaction - Management reported that SGA has exceeded expectations in terms of performance and client asset management [84] Question: Growth opportunities from Allianz transaction - Management highlighted the addition of compelling products and the establishment of a new boutique affiliate as key growth areas [86]