Filing summary
Entity and period: The supplied filing is BrightSphere Investment Group Inc.’s Form 10-K for the fiscal year ended December 31, 2020—not a filing by Acadian Asset Management Inc. Acadian is a major BrightSphere affiliate. The filing reports audited U.S. GAAP results for 2020, with comparisons to 2019 and 2018; it is not a standalone fourth-quarter report.
Business context
BrightSphere is a global asset manager operating through five affiliates across Quant & Solutions, Alternatives, and Liquid Alpha. Revenue is principally management fees linked to assets under management (AUM). The company reported $156.7 billion of year-end AUM. During 2020 it sold Copper Rock and Barrow Hanley; in February 2021 it agreed to sell ICM, with closing expected in the second quarter of 2021.
Key financial metrics
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Total revenue | $718.5 million | $819.5 million | Down $101.0 million, or 12.3%; management fees fell 13.5% to $697.9 million. |
| Operating income and margin | $179.4 million; 25% | $250.3 million; 31% | Lower operating income; 2020 margin includes a $16.4 million goodwill impairment. |
| Net income attributable to controlling interests | $286.7 million | $223.9 million | Up $62.8 million; materially affected by affiliate-sale gains and higher tax expense. |
| Diluted GAAP EPS | $3.49 | $2.45 | Increase reflects, in part, the affiliate-sale gains. |
| Economic net income (ENI), non-GAAP | $143.6 million | $160.8 million | Down $17.2 million; diluted ENI EPS was $1.75 versus $1.76. |
| ENI operating margin | 35% | 35% | Broadly unchanged; ENI is management’s unaudited non-GAAP measure. |
| Year-end AUM | $156.7 billion | $204.4 billion | Down $47.7 billion, mainly reflecting $50.3 billion of divestitures. |
| Net client cash flows | $(3.3) billion | $(32.7) billion | Outflows improved; excluding the sold affiliates, 2020 net flows were positive $1.1 billion. |
| Cash from operating activities | $90.5 million | $(138.5) million | Consolidated continuing-operations cash flow, including consolidated funds. Excluding those funds, operating cash flow was $165.8 million versus $(106.6) million. |
| Cash and working capital | $401.9 million cash; $410.4 million working capital | $111.3 million cash; $204.9 million working capital | Reported amounts exclude non-controlling interests in consolidated funds for working capital. |
| Debt | $394.3 million | $568.8 million | Year-end 2020 debt comprised senior notes; no revolving-facility or seed-facility borrowings remained. |
Consolidated pre-tax income was $427.6 million, including $241.3 million of gains related to affiliate sales and a previously disposed affiliate. Income-tax expense was $112.1 million, compared with $18.0 million in 2019; the reported effective tax rate rose to 26.2% from 7.1%, with the filing citing sale-related taxes and other tax adjustments.
Material changes and unusual items
- Barrow Hanley was sold for $292.3 million cash consideration, generating a $231.2 million pre-tax gain. Copper Rock’s sale generated a $7.2 million pre-tax gain; a $2.9 million gain related to a previously disposed affiliate was also recorded.
- AUM excluding Barrow Hanley and Copper Rock increased from $148.8 billion at year-end 2019 to $156.7 billion at year-end 2020, supported by $6.8 billion of market appreciation and $1.1 billion of net flows.
- 2020 fourth-quarter net income attributable to controlling interests was $198.0 million, including the impact of affiliate-sale gains. Fourth-quarter revenue was $178.8 million.
- Operating expenses declined to $539.1 million from $569.2 million. Compensation and benefits and general and administrative expense fell, partly reflecting divestitures and cost-saving measures; goodwill impairment of $16.4 million was recorded for Copper Rock.
- The company repurchased 6.4 million shares for approximately $46.0 million during 2020 and paid $10.9 million in dividends. It reported $232.7 million still available under its share-repurchase authorization at year-end.
Outlook, risks and contingencies
Management stated that available cash, operating cash generation, and financing, if needed, should be sufficient for operations and capital requirements for at least the next twelve months. The filing provides no specific earnings, revenue, or AUM guidance. Management noted continued uncertainty from COVID-19, market volatility, remote operations, and the potential effects on client redemptions, vendors, and operating costs.
- Results depend heavily on affiliate profitability, investment performance, AUM levels, client flows, fee rates, and the ability to retain key people and client relationships. Acadian and Landmark together accounted for 81% of AUM; five strategies represented 44%.
- A 10% uniform change in AUM was estimated to change annualized gross management-fee revenue by approximately $67.7 million and after-tax ENI by approximately $24.7 million, assuming the company’s stated cost structure and other assumptions.
- At year-end, $394.3 million of senior notes remained outstanding. The revolving credit facility had no borrowings at year-end; after year-end it was assigned to Acadian and its commitments reduced to $125 million, so it is no longer available to BrightSphere for its own future borrowing. The notes mature in 2026 and 2031.
- There were approximately $33 million of unfunded co-investment commitments, a $2.5 million office-security-deposit guaranty, and general indemnification obligations whose maximum exposure was not quantified. The filing reported no material accruals for litigation or other contingencies.
- The filing identifies market, foreign-exchange, fee-pressure, regulatory, cybersecurity, COVID-19, tax, and affiliate-dependence risks. A 2020 goodwill impairment was recorded; additional impairment could occur if market or AUM conditions worsen.
KPMG issued an unqualified opinion on the consolidated financial statements and on the effectiveness of internal control over financial reporting as of December 31, 2020. KPMG identified valuation of cash-settled affiliate awards as a critical audit matter, involving assumptions including forecast earnings, discount rates, market-risk adjustments, and post-vesting restrictions.
Important facts for investors to verify
- Confirm the issuer: this filing is BrightSphere Investment Group Inc.’s 10-K, not an Acadian Asset Management Inc. filing.
- Separate recurring operating performance from the $241.3 million of affiliate-sale gains; compare GAAP results with ENI and review ENI’s reconciliation and exclusions.
- Track AUM and net flows on a continuing-business basis, particularly Acadian’s performance, client flows, and exposure to the largest strategies.
- Review the tax effects of the divestitures, deferred tax assets, and uncertain tax positions, as well as the expected closing and proceeds from the ICM sale.
- Assess liquidity and debt after the post-year-end credit-facility assignment, including the facility’s availability to Acadian rather than BrightSphere and the 2026 and 2031 note maturities.
- Evaluate the fair-value assumptions underlying the $213.8 million share-based payments liability and the company’s reliance on affiliate distributions to fund holding-company obligations.