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

Thanks, Michelle. 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 fourth quarter of 2022. Our speakers today, are George Aylward, President and CEO and Mike Angerthal, Chief Financial Officer. Following their 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 have 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 will start with an overview of the results we reported earlier today before turning it over to Mike to provide more detail. The fourth quarter remain challenging, consistent with the trends throughout the year. In addition to a volatile market and heightened uncertainty, open end fund flows industry wide were particularly negative, most notably in December, as investor sentiment driven activity resulted in and among the most elevated fund net outflows than what was already historically difficult year. Well, we had net outflows in the quarter due to higher redemptions. We did have a meaningful increase in sales across products and asset classes, positive institutional net flows, a higher average fee rate which has been resilient despite industry trends, continued solid investment performance, and significant balance sheet flexibility and a net cash position at December 31. We have built our organization to navigate challenging environments like these and our position for market stabilization recovery with increasingly well diversified products and capabilities that can attract assets across market cycles and changing investor preferences. We continue to be focused on the execution of our strategy and building out capabilities to position us for future growth as the environment improves. Turning now to review the results. Total assets under management increased 3% to $149 billion, primarily due to market appreciation partially offset by net outflows. Sales increased 27% to $7.3 billion with increases across all product types and most asset classes. Institutional sales doubled to $3 billion, benefiting from a large inflow into an existing mandate, contributions from non-U.S. clients and the issuance of the new CLO. Retail sales also increased with open end funds up 5% due to higher sales of equity, fixed income and alternative strategies, and retail separate accounts rose 4% due to…

Thank you, George. Good morning, everyone. Starting with our results on Slide 7, Assets Under Management. At December 31, assets under management were $149.4 billion, up 3% from $145 billion at September 30. The sequential change reflected $8.8 billion of market appreciation and $3.4 billion of net outflows. Average assets under management in the quarter were $148.6 billion, down 5% due to market performance and net outflows. Our assets under management remained well diversified by product type and asset class. Institutional represented 34% of total AUM at December 31, with U.S. retail funds, and retail separate accounts at 32% and 24%, respectively. By asset class, equity was 55%, fixed Income and multi asset strategies were combined 38% and alternatives were 7% of AUM. We continue to generate strong relative investment performance across strategies. At December 31, approximately 57% of rated fund assets had four or five stars, and 90% were in three, four or five star funds. We had nine funds with AUM of $1 billion or more that were rated four or five stars, representing a diverse set of strategies from five different managers. On a five year basis, 75% of our rated fund AUM was outperforming to median performance of their peer groups. In addition to strong fund performance, as of December 31, 87% of retail separate account assets and 61% of institutional assets were outperforming their benchmarks over five years. Also 57% of institutional assets were exceeding the median performance of the peer groups on the same five year basis. Turning to Slide 8, Asset Flows. Total sales increased by 27% to $7.3 billion, reflecting growth in each product, particularly institutional. By product, institutional sales were $3 billion, up from $1.5 billion in the third quarter, due to a significant additional funding into a domestic large cap…

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

Thank you. [Operator Instructions] And our first question comes from the line of Sumeet Mody with Piper Sandler. Your line is open. Please go ahead.

Thanks. Good morning, guys. So nice to hear retail flow starting off well for the year, sorry if I missed this. Can you guys talk about what you're seeing on the institutional and SMA channels as well in January so far?

Sure. So for mutual funds, so we commented on the month of January and after really challenging 2022, in particular December was very nice when we close out January that on -- in terms of the level of even sales rate or redemption rate, as well as in terms of overall dollars, as I noted was the best month is September of 2021. So that was really good to see. We particularly seeing some categories like international and global actually as a category in the fund set kind of be positive as well as the select areas of strength within some of the small caps but not all of them and as well as some of the fixed income. And though I have more optimism for fixed income later on in the year, hopefully. Institutional, pipeline remains strong. That's been a lot of area of focus for us where we put our attention and our resources and several of our initiatives are related to maximizing that. So we're really happy to see the consistency of what's in a lumpy business. Though it's still generating strong levels over the nine quarters, we've noted eight have been positive, pipeline is good. The non-U.S. concentration continues to get a little bit better. So that was something we were underweight several years ago, but they've now become significant contributors. And that's across affiliates and across strategies. So that's great to see. On the retail separate account side, given the nature of that business, particularly the intermediary retail channel, where some of the strategies are, are really sort of either done model only, or through other provisions. We don't have as much real time access to some of that information. But generally, because as that business is concentrated in our equity strategy, particularly growth and smaller cap, mid cap kind of strategies, it's going to go with a broader market. So I think what you saw in the fourth quarter for that, it was really just reflective of the sentiment on those equity strategies. And while we have a smaller piece that's in fixed income, that's where you kind of saw a little bit of an uptick in the January comment.

Great, thanks, really helpful. And then on the AlphaSimplex transaction, what was the AUM two and the year for that? And can you maybe talk about some of the demand you're seeing on the institutional side, specifically for them, and how that's been going to start the year as well?

Yeah, so for AlphaSimplex, until we close, we're not going to make comments on their business or their business results. Obviously, they're part of another company. So we're not going to comment on that. But we're continuing to do a lot of work related to the preparation of the integration. Very excited about having them as an addition to the family of boutiques. The great team over there. We spent a lot of time internally here, thinking about ways to leverage their capabilities and their expertise. Again, they're in the alternative space. So in the periods in the beginning of the year, last year, where traditional strategies were underperforming, they were outperforming. So again, there'll be -- meant to be, will have a [Indiscernible] of gold to some of our more correlated strategies. But we're really excited about the opportunity for us to sort of apply what they can do across a whole host of things. And they're still, in our view best-in-class in terms of what they do.

Got it, great. And then last one for me on the ETF side of the business. Just -- I know the AUM has been pretty stable over the last few years. Can you just maybe update us on the growth strategy, more long-term? Are you focusing on growing that kind of organically or kind of more M&A opportunities over the next year or two, as they present themselves?

Yeah, I mean, we always focus on making sure that we have an organic growth strategy for products and in the ETF space, including with some of our product introductions, you've seen more in terms of the active fixed income ETFs. So that continues to be an area where we've had some existing strategies, where we actually launched one in the quarter, right, the Stone Harbor ETF. So that's continues to be an area of product introduction. And one of the things we actually were working on throughout the latter part of last year, we really kind of had sort of optimizing ways to more fully incorporate them into our overall retail distribution, they've been part of it. But the data on ETFs is a little more challenging than the data on open end funds. So we actually feel that we're, in addition to building out our products, I think we've made a few further refinements in terms of leveraging our existing retail resources to be even more effective and bringing those to market. And again, I do think that's an area where investors will increasingly be looking at ETFs. And again for us, it may be more in some of the active strategies as opposed to the passive strategies, which we will continue to do.

Great, thanks, George.

Okay, thank you.

Thank you, and one moment for our next question. And our next question comes from the line of Michael Cyprys with Morgan Stanley. Your line is open, please go ahead.

Hey, good morning. Thanks for taking the question. Maybe just on the fixed income, just curious to hear your perspectives of views on the prospects for potentially a strong year of flows into fixed income, just given the higher interest rate backdrop. Which strategies that Virtus, do you think would be well positioned to capture that? Maybe you could talk to, which strategies have pretty good performance right now in your view on the fixed income side that could stand to benefit?

Yeah, I mean -- my general view is that -- and particularly going into this year, this could be a good opportunity for credit strategies or fixed income strategies. I'm not going to make any predictions, because every time I turn on the TV, I see slightly conflicting thoughts around where the markets going to go. I do think there is that opportunity for those strategies. I do think there's some broad opportunities, because again, not all investors are going to be approaching in the same way. So I do think there will be opportunities on our shorter duration products, particularly one of our flagship products, the Multisector Short Term Bond Fund, and low duration is a related kind of product. I think those are opportunities there. I also think that, emerging market debt which has been an area where people have obviously not been gathering money, that's a very cyclical area. And depending on your global views, there could be good opportunities there as well. So I really do think across the continuum of fixed income products. I think as people are sort of reevaluating what is the right diversified set of a portfolio? And what should it look like going forward? Is 60-40 makes sense? If it's not 60-40, what should it be? I do think there's going to be increasingly be opportunities, particularly for those things in the fixed income space, that have very targeted approaches, like the loan types of products, like the EMD, or something that just really works the relative valuation of the sectors, which again is the whole suite of our new suite [ph] of products.

Great. And just on the international distribution, also if you could update us on the build out there, how that's progressing, and how much that contributed in terms of AUM and flows? And maybe talk about some of the initiatives from the sales and distribution teams' standpoint?

Yeah. We continue to be very happy about that. And Mike give a little color around the relative contribution. But as I noted, we continue to be increasing that business, which for us, non-U.S. clients have gone from roughly zero to 5%, 10% to 15%-ish, as we stand here now, did give some attribution for the quarter that we had that contribution. So a lot of things that are going on there. The non-U.S. has been a great opportunity for many of our managers, because previously, they hadn't been big participants in it, right. So there's a lot of open opportunity for various managers. So over the last year and a half, two years, we have commented several times on large mandates outside the U.S., mandates for multiple affiliates, large mandates from multiple affiliates in the same quarter. And so that's been an area that we have been focused on. And one of the attributes of the Stone Harbor transaction was that brought along some additional high caliber, non-U.S. institutional distribution resources that have done a tremendous job of getting themselves ready and prepared and have been very active in marketing, our managers to markets where we might otherwise not have had the ability to market readily. So some of the initiatives we've had behind that are really sort of support that maximize that. There's a different, obviously regulatory environment in some of those areas. So we've been focused on streamlining some of the ways that we can sort of maximize the footprint that we can have there. And then the resources that are supporting them, but we've been happy with that. Mike, the attribution on the contribution?

Yeah, I think you highlighted it. But just to put a finer point on it, we've had, where in the past, we've had maybe one affiliate or two affiliates contributing selectively. Internationally, we had four or five affiliates deliver both new mandates and additional fundings through existing mandates. And George alluded to the pipeline, that trend continues in the pipeline, where we're seeing it across affiliates, and across geography. So it really is gratifying to see that investment bring us to a level of consistency, especially in this market environment.

Right, and maybe just last one for me. Maybe coming back to your point earlier, George that you're looking to build out capabilities to position the firm for growth. So I guess as you look at the firm today, how well positioned is it relative to the opportunity set? And where you'd like to see that? Where might there be opportunities to further extend into either from a footprint or a product set opportunity? How are you thinking about that either organic, as well as inorganic? And maybe you can update us on some of those conversations, how those are progressing today versus a year ago?

Sure, so on the organic side. So we always think about the product offering set. Again, we feel very well represented in terms of traditional active, right. And then our area of focus on the inorganic side has led to -- have really been in the non-correlated or less correlated alternative types of strategies. So we still think that there's opportunities there. The other areas where we see an opportunity and where we have a focus is taking advantage of, the individual strengths we have amongst our affiliates with more multi assets, as well as more model-based and more collective types of products. Again, we have them provide the building blocks of a well-diversified portfolio. But while we do provide some comprehensive solutions, I think there's great opportunities in some of the recent resources that we've added will allow us to sort of accelerate some of the work we want to do in that area. So we do think that that is good opportunity. I already alluded to AlphaSimplex. I do believe that there is a much broader application of their capabilities that we can utilize across our product set. Because again, most of our managers are active fundamental managers. And they bring to that some quantitative capabilities. And we also separately brought in a team, the very systematic team that also provides us capability. So I see great opportunity there. On the market side, the non-U.S. again, is a high priority for us, because it's a fertile playground for us. We haven't had a lot of resources there over 10 or 15 years. So we think that that is a good priority for us. And that would also include the usage the global funds. So we've been in the process of building out those products. And some of those resources will actually dovetail into both institutional as well as our use of products. But we've actually been in -- most of our product introductions, recently had been focused on ETFs and use it actually not on the open inside. So I think all of that is part of the comment that I made in terms of the increasingly diversified set of offerings that we have as the market environment becomes a little more or less uncomfortable. So we feel good about that. In terms of the inorganic, again, while our growth strategy is not predicated upon doing M&A. We continue to make sure that we're in active dialogue, those dialogues continue. So we've been as active as we've always been. We're very selective in terms of what we do. Does it make sense strategically either from an addition of a capability, broadening of a market or some other kinds of scale enhancing or otherwise strategic value enhancing transaction? So continue to be active on those. Again, our focus is always on the organic, but as you have seen, we are quite busy on the inorganic side as well.

Great, thank you.

Thank you.

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

Great. Well, I just want to thank everyone today for joining us. And certainly, we encourage you to give us a call if there's any other further questions. Enjoy the rest of your day. Thank you very much.

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