Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong results for the first half of 2024, driven by organic growth in private markets and excellent performance of liquid alternatives managers.
- Disciplined capital allocation strategy, including significant share repurchases and investments in high-growth areas.
- Diversified portfolio of high-quality Affiliates, enhancing earnings stability and supporting growth investments.
- Continued momentum in private markets fundraising and improving trends in quantitative strategies.
- Significant strategic push into alternatives in the US wealth market, creating a multi-decade growth opportunity.
Negative Points
- Lower performance fees in Q2 2024 compared to Q2 2023.
- Net outflows of approximately $6 billion in equities within differentiated long-only strategies.
- Seasonal low performance fee quarters expected in Q2 and Q3, impacting earnings.
- Higher cash taxes due to the absence of a discrete foreign tax benefit that was present last year.
- Potential external factors, such as election outcomes, could impact decision-making and capital deployment.
Q & A Highlights
Q: Can you discuss the momentum in the alternatives business and the outlook for organic growth in this segment for the rest of the year?
A: (Thomas Wojcik, COO) Our growth strategy is driving an evolution of our business mix toward secular growth areas, notably in private markets and liquid alternatives. Over the last five quarters, our flow profile has improved, driven by ongoing momentum in private markets fundraising, improving trends in quantitative strategies, and further stabilization in differentiated long-only products. We expect this trend to continue, enhancing our long-term organic growth and earnings growth profile.
Q: The buyback number is quite strong. What has driven the increase in buybacks, and how do you see new investment opportunities in the context of the upcoming election?
A: (Jay Horgen, CEO) We've increased our buybacks due to significant excess liquidity on our balance sheet, accelerating business momentum, and a low valuation of our shares. We see increased opportunities to invest in new Affiliates and existing ones. Our pipeline is expanding, and we don't expect the election to significantly impact decision-making. We have ample capital flexibility to make growth investments and continue share repurchases.
Q: Can you frame out the pipeline in terms of size and shape of potential deals, and provide an update on the wealth management side?
A: (Jay Horgen, CEO) We focus on areas of secular growth, primarily within private markets and liquid alternatives. Our pipeline includes a variety of sizes, with some larger transactions in the $250-$500 million range. On the wealth management side, we have a vertically integrated U.S. wealth platform that enables our Affiliates to access the large and growing wealth market. We continue to invest in product development and distribution capabilities to enhance our presence in this channel.
Q: Could you give more color on the intangible noise highlighted and if it was related to any specific Affiliate? Were there any catch-up fees in the 2Q result?
A: (Dava Ritchea, CFO) We had a modest re-evaluation event at one of our small equity method Affiliates in the second quarter. There were no catch-up fees in the second quarter.
Q: What's your confidence level in generating sustainable positive flows from private markets and alts business, and how do you share distribution costs with Affiliates?
A: (Jay Horgen, CEO) We see organic growth from private markets and expect liquid alts to be a positive growth story due to strong performance. The complementary nature of these strategies supports our long-term growth. (Thomas Wojcik, COO) We have a joint venture model with our Affiliates for wealth distribution, sharing costs and revenues to create alignment and incentives for long-term growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
