Ladies and gentlemen, thank you for standing by. Welcome to the BrightSphere Investment Group earnings conference call and webcast for the third quarter 2022. [Operator Instructions] Please note, this call is being recorded today, November 3, 2022, at 11 Eastern Time. I would now like to turn the meeting over to Elie Sugarman, Head of Strategy and Corporate Development. Please go ahead, Elie.

Good morning, and welcome to BrightSphere's conference call to discuss our results for the third quarter ended September 30, 2022. 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, our 2021 Form 10-K and our Form 10-Qs for the first and second quarters of 2022. 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. We may also reference certain non-GAAP financial measures. Information about any non-GAAP measures referenced, including a reconciliation of those measures to GAAP measures, can be found on our website along with the slides that we will use as part of today's discussion. Finally, nothing herein shall be deemed to be an offer or solicitation to buy any investment products. Suren Rana, our President and Chief Executive Officer, will lead the call. And now I'm pleased to turn the call over to Suren. Suren?

Thanks, Elie. Good morning, everyone, and thank you for joining us today. As usual, let me start off with the financial highlights on Slide 5 of the deck. We reported ENI per share of $0.30 for the third quarter of this year, 7% higher compared to $0.28 in that we reported for the third quarter of 2021 as our sizable share buyback in Q4 of '21 and Q1 of this year more than offset the decline in our earnings caused by the impact on our AUM from the significant equity market decline this year and a stronger U.S. dollar. We're pleased, however, that through this volatile market environment, our investment performance continues to be strong. As of September 30, 96%, 87%, 86% and 90% of strategies by revenue beat their benchmarks over the prior 1-, 3-, 5- and 10-year periods, respectively. Next, our net client cash flows turned positive in the quarter, with $0.6 billion of net inflows, as we saw flat to modestly positive growth pretty much across all of our major strategies. And we are encouraged that our sales pipeline remains healthy. From a longer-term perspective, we continue to build out our efforts in systematic credit and equity alternative that we announced on our last earnings call. During the quarter, we added more people to these teams and are adding to the data and technology infrastructure. We will be kick-starting the equity alternatives platform with $15 million of seed capital this month. We also continue to make progress on our ongoing growth efforts, like systematic macro. Together, these initiatives will tap into the secular growing demand for uncorrelated returns, and we expect them to help generate long-term organic growth for our business. Turning to capital management. We had a cash balance of $101 million as of September 30,…

[Operator Instructions] Our first question is from Kenneth Lee with RBC Capital Markets.

Wondering if you could comment on any recent discussions you may have had around potential value-enhancing transactions.

Ken, as we've said, we remain focused on maximizing shareholder value, and as such, are always open to any shareholder value-enhancing partnerships or transactions. I can't specifically comment on anything in particular, but suffice to say, we remain open. And whenever any such opportunities come up, we do engage to see whether something is shareholder value maximizing, where possible.

Got you. And one follow-up, if I may, just in terms of excess capital allocation. You mentioned that you could support organic growth or repurchase stock as opportunities allow. Just wanted to clarify, further expand what that means in terms of opportunities allowing that.

Yes. Thanks, Ken. Yes, as we've said, for our excess cash flow, the business of course produces good cash flow, even for example, in these markets, when the AUM is cyclically low. And the use of that cash flow is essentially twofold, as we've been clear: Seeding new strategies and repurchases. And with regards to seeding, the opportunities that did come up, it was with systematic credit and equity alternatives, which we think are very compelling opportunities. So -- and as we outlined, we'd probably use about $75 million to $80 million over the next 3 years in those 2 opportunities, let's call it $20 million to $25 million a year, in that. And with repurchases. Again, whenever opportunities come up, we do that. But from time to time, we are in some kind of restriction, whether it's an earnings-related blackout window or if we're having a legitimately strategic kind of conversation.

Got you. And to clarify, was there any repurchases in the most recent quarter? And do you expect to resume share repurchases, given where share prices are currently?

There were not any repurchases in the most recent quarter, but we always remain open. Whenever we have the right opportunity and an open window, that's clearly one of the key uses.

The next question is from Michael Cyprys with Morgan Stanley.

Maybe just continuing with the buybacks theme. So I hear you that there weren't any repurchases in the quarter, but I was hoping you might be able to elaborate on why that was. And does it have anything to do with any sort of restrictions that I think you were alluding to potentially in the prior answer? That could happen from time to time, and we've seen that in the past?

Mike. Yes, that's right. For repurchases, of course, we monitor the market and when it's the most attractive to buy back. But also, the other factor is whether we have an open window. So it's a combination of those things. But I'll reiterate that whenever the markets are attractive and we have an open window, repurchase is clearly the desired use. I already touched on, in terms of seeding, we have our 2 key opportunities identified is about $20 million to $25 million a year. So rest of the capital is for repurchases whenever we can.

Did you have an open window in the third quarter?

I can't comment specifically on that. But we did not do any repurchases in the third quarter.

Okay. Fair enough. And then maybe just changing topics over to organic growth and flows. I was hoping you might be able to elaborate a bit on which strategies contributed to the flow strength in the quarter. And then which of any strategies had outflows or maybe a bit softer.

Yes, generally, we got flat to modestly positive flows across all the strategies, which of course is very encouraging considering the market backdrop we were in. So there aren't any particular areas of pressure in terms of at-risk assets, and we do see good, healthy sales pipeline across strategies. And including the newer strategies like the multi-asset class, we are seeing good traction there from consultants and buy ratings coming in. So that's all encouraging. So it's not -- I wouldn't say any particular strategy that were -- contributed to most of it, no. We of course did get some impact from the U.K. pension funds, LDI. So it's encouraging that, in spite of that, we ended up at a good place. Without that, the numbers would have been even better. So I would say good, expansive support level across strategies.

Great. And just final question for me, just on the expense guidance. It looks like you largely kept your prior guidance for this year, except I think the variable expense, variable comp guidance moved a little bit. So I was hoping you might be able to elaborate on what's driving that. And then maybe it's a little early for '23. But just as we think about your guidance for '22, is that a good sort of starting point for thinking about '23? Or why might that look any sort of different into '23?

Yes. On the expense guidance, on the OpEx, it's basically -- sort of relatively, I think, the dollar amount is fixed. So as the management fee level goes down, the ratio goes up. So there isn't much change there, except that we have started to invest in the new initiatives and started building the teams for structured credit and equity alternatives. We're growing those teams in both those initiatives and adding new sources of data and technology modules that we need. So that's one area where expense is starting to build up and will build up more next year. But also at the same time, we're bringing expenses down on the center and corporate overhead side. So that will offset some of that.

Sorry, just on the variable expenses and the affiliate distribution guidance as well, the moving pieces there. And then views on '23.

Yes. No, the variable expenses, of course, no, they are variable. There's a large part of it is just a fixed ratio of the pre-variable comp earnings, so it moves up and down with that. But there is a portion of variable comp that's sort of amortization from prior periods. But that's what skews that ratio a little bit. And as we're building the new efforts, we're bringing on people with comp guidance and expectations that don't move. Of course, we don't have new revenues with these new initiatives yet. So that's also -- it's something that would skew the variable comp ratio a little bit. Otherwise, other than that, it generally should be moving up and down in line with the pre-variable comp earnings.

The next question is from John Dunn with Evercore ISI.

You talked about the sales pipeline. Could you maybe try and size it a little bit for us? And then as far as the mix, you talked about multi-asset. Maybe just some more color on the mix. And then has the composition changed over the past several months? Several -- year-to-date, let's say.

John, yes, we generally haven't provided sizing on our pipeline. But in terms of relative levels, it's a very good sales pipeline, as robust as we've had. So that's encouraging. In this environment, we have a good pipeline in various stages of searches in the late stage, early, medium. That's good. And it's spread across the various strategies, strategies like global equity, emerging markets, international or specific regions like Australia, that's pretty good. A lot of it is also some -- with some ESG angles where clients have specific sustainable goals. So that's -- it's a pretty sort of diverse, healthy sales pipeline. And with the newer initiatives with multi-asset, we are seeing good interest from the earlier -- early adopter clients. And from -- and good feedback from the consultant community, which are also always good leading indicators. So that's -- we're encouraged to see all that. Does that answer your question, John?

Yes, it does. Yes. And then a follow-up on the direction of the fee rate over time. Just thinking about what's inflowing now and the newer stuff you guys are rolling out, just how those different fee rates compare to one another, and the direction over time.

Yes. Now the fee rates do vary a fair bit. For some of the absolute return strategies, the fee rates are higher. In quoting, for example, on the structured credit side, we'll initially focus on high-yield. There, the fee rates are higher. So it depends on which items pick up first and how fast. But there are also some simpler strategies that we offer where the fee rates are lower than our current average fee, which would be simpler solutions where clients are looking for -- to increase their exposure to a value factor, for example, or with a growth factor. And those are easier to do and hence low fee. So it's hard to peg. We of course have -- it's good to have multiples -- multiple irons in the fire, and we're encouraged about all of them. So I would say it looks like there is a bias to the upside that our fee rate would increase over time, but we do have a number of offerings that are absolute return uncorrelated which are higher fee. But we also are getting good traction on some simpler, lower-fee mandate.

[Operator Instructions] It appears that we have no further questions. And this will conclude our question-and-answer session. I'd like to turn the conference call back over to Suren Rana.

Great. Thank you, operator. Thanks, everyone, for joining us today. Appreciate it.