Business context and reporting period
This is BrightSphere Investment Group Inc. (NYSE: BSIG), not a filing by Acadian Asset Management Inc. Acadian is identified as BrightSphere’s Quant & Solutions business. The unaudited 10-Q covers the quarter and six months ended June 30, 2021; comparisons are with the same 2020 periods.
BrightSphere was reshaping its portfolio through affiliate sales. Landmark was sold in June; TSW and ICM sales closed in July; the Campbell Global sale was pending and expected to close in the third quarter. Following the Campbell sale, Acadian was expected to be the company’s sole affiliate.
Financial performance and key metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $133.3m | $122.6m | $243.0m | $251.2m |
| Management fees | $111.6m | $118.6m | $215.4m | $243.1m |
| Performance fees | $20.4m | $0.3m | $25.0m | $1.3m |
| Operating income | $36.1m | $29.9m | $68.6m | $70.6m |
| Continuing-operations income attributable to controlling interests | $24.7m | $21.1m | $43.2m | $30.5m |
| Net income attributable to controlling interests | $532.7m | $18.9m | $559.7m | $51.5m |
| U.S. GAAP operating margin | 27.1% | 24.4% | 28.2% | 28.1% |
| Economic net income (non-GAAP) | $32.9m | $19.6m | $55.4m | $41.3m |
Earnings quality: Reported controlling-interest net income includes a $509.2m after-tax gain on the Landmark sale. It should not be confused with ongoing earnings: continuing-operations income attributable to controlling interests was $24.7m for Q2 and $43.2m for the first half. ENI is management’s non-GAAP measure and excludes, among other items, discontinued operations and certain non-cash and restructuring costs.
- Margins and costs: Q2 operating income rose $6.2m year over year as performance fees increased and general and administrative expense fell, partly offset by higher compensation. For the first half, operating income declined $2.0m; the prior-year period included a $16.4m goodwill impairment. ENI operating margin increased to 39.9% in Q2 from 29.9%, and to 37.3% for the half from 29.3%.
- AUM and flows: Continuing-operations AUM was $126.9bn at June 30, up from $120.2bn at March 31 but down from $145.1bn a year earlier. Q2 net flows were negative $0.9bn, partly offset by $7.7bn of market appreciation; first-half net flows were negative $4.4bn. Management attributed the year-over-year AUM decline largely to prior dispositions of Barrow Hanley and Copper Rock.
- Cash flow: First-half continuing-operations cash from operations was $47.0m, down from $71.9m. Investing cash inflow was $712.2m, principally reflecting the Landmark sale. Continuing-operations financing cash flow was a $50.5m inflow. Cash and cash equivalents on the June 30 balance sheet were $1,175.4m, plus $1.6m restricted cash.
- Debt and liquidity: Debt comprised $53.9m drawn on Acadian’s revolving facility and $394.6m of senior notes. The facility commitment was $125m and matures August 2022; senior notes mature in 2026 and 2031. Acadian’s reported leverage ratio was 0.4x against a 2.5x maximum, and interest coverage was 235.6x against a 4.0x minimum. Management said available cash, operating cash generation and financing were expected to fund operations and capital needs for at least 12 months.
- Capital position: Total equity was $863.9m, compared with $384.4m at year-end 2020. The change included retained earnings and the removal of non-controlling interests following Landmark-related fund deconsolidation. The company paid $1.6m of dividends in the first half and made no share repurchases in the period.
Material changes, outlook and risks
- Landmark’s sale generated the $509.2m after-tax disposal gain. The filing reports $690m cash consideration, subject to customary adjustments. TSW’s sale for approximately $240m and ICM’s sale for $18.5m closed after quarter-end; proceeds from those sales were received after June 30. Campbell Global’s sale remained pending at the filing date.
- Performance fees increased sharply, driven by outperformance in certain timber and non-U.S. strategies; management cautioned that performance fees are variable. Management did not expect near-term alternative-product liquidations to produce material net performance fees, based on conditions and performance as of June 30.
- Management cited continuing uncertainty from COVID-19, including possible effects from variants, and noted that actual impacts on operations and financial results could not be predicted. Revenue is sensitive to market-driven AUM changes, client flows, investment performance and fee mix. The company does not hedge overall AUM market risk; it also does not hedge variable-rate borrowings.
- A hypothetical 10% AUM change was estimated to alter annualized gross management-fee revenue by about $48.1m and post-tax ENI by about $18.9m, assuming the filing’s stated portfolio and cost assumptions. These are sensitivity estimates, not guidance.
- The company disclosed ordinary-course legal matters but no material litigation accruals at June 30. It reported no material changes to annual-report risk factors, no known regulatory-capital violations, and effective disclosure controls. It also had approximately $4m of unfunded Campbell co-investment commitments through the anticipated disposition date.
Most important facts for investors to verify
- Confirm the intended issuer: this source is BrightSphere Investment Group Inc. (BSIG), with Acadian as a business, rather than an Acadian Asset Management Inc. 10-Q.
- Separate recurring continuing-operations earnings from the Landmark disposal gain; review the company’s ENI reconciliation and its limitations as a non-GAAP measure.
- Track AUM and net flows at the remaining Acadian business, including whether the market-driven AUM recovery offsets ongoing outflows.
- Confirm the final Campbell Global transaction close, sale proceeds, related tax payments and the company’s post-sale cash and debt position.
- Assess the persistence of performance fees and the sensitivity of fee revenue and earnings to markets, client flows and fee-rate mix.