BrightSphere Investment Group Inc. (NYSE: BSIG) — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is for BrightSphere Investment Group, not Acadian Asset Management as a standalone registrant. BrightSphere’s continuing asset-management business is principally its majority-owned subsidiary Acadian Asset Management LLC.
Business context
BrightSphere completed the sale of Landmark, TSW, Campbell Global and ICM during 2021, leaving Acadian as its sole Affiliate and principal operating business. Acadian manages systematic global, international and emerging-markets equities, as well as alternative, multi-asset and other strategies. Year-end AUM was $117.2 billion.
Financial and operating performance
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Total revenue | $523.8 million | $499.5 million | Up $24.3 million; performance-fee growth more than offset lower management fees. |
| Management fees | $433.3 million | $478.9 million | Down 9.5%, primarily reflecting divestitures and lower average AUM. |
| Performance fees | $84.8 million | $7.8 million | Increase reflected Acadian outperformance across strategies; included $16 million from a former timber investment. |
| Operating income / GAAP operating margin | $145.8 million / 27.8% | $131.7 million / 26.4% | Operating income rose despite higher compensation expense. |
| Net income attributable to controlling interests | $828.4 million | $286.7 million | 2021 includes $691.0 million after-tax gain on disposal of discontinued operations and $48.6 million gain on sale of subsidiaries. |
| Continuing-operations net income attributable to controlling interests | $128.1 million | $247.3 million | Down $119.2 million; do not interpret reported total net income as recurring earnings. |
| Economic net income (ENI, non-GAAP) | $118.3 million | $88.3 million | ENI diluted EPS was $1.47 versus $1.08; management’s measure excludes specified items and is not a GAAP substitute. |
| ENI operating margin | 38.4% | 30.7% | Improved 776 basis points. |
| Net client cash flows | $(5.9) billion | $(4.9) billion | 2021 outflows included rebalancing and reallocations in certain Acadian strategies; market appreciation added $16.1 billion to AUM. |
| Cash flows from continuing operating activities, excluding consolidated Funds | $(4.4) million | $170.6 million | 2021 was reduced in part by $163 million of taxes paid on affiliate sale gains. |
Year-end cash and cash equivalents were $252.1 million, down from $371.3 million; working capital was $144.7 million. Third-party borrowings were $394.9 million at year-end. BrightSphere redeemed $125 million of 5.125% notes in January 2022; it subsequently drew $125 million on Acadian’s revolving facility in February 2022. The remaining senior notes were $273.1 million at year-end carrying value, due 2026.
Material changes versus 2020
- The business was substantially reshaped by the 2021 divestitures. AUM from continuing operations increased 1.0% to $117.2 billion, with market appreciation offsetting sales and net client outflows.
- Acadian Quant & Solutions ENI revenue increased 37.6% to $488.1 million, supported by higher average AUM and performance fees. Its ENI operating expenses also increased, including costs associated with higher headcount and systems and portfolio-administration spending.
- GAAP compensation and benefits rose 17.1% to $284.6 million, driven in part by higher performance-linked variable compensation and a non-cash increase in the value of employee equity interests. General and administrative expense declined 19.1% to $71.2 million.
- Investing cash inflow of $1.036 billion largely reflected proceeds from divestitures. Financing cash outflow was $1.152 billion, chiefly reflecting $1.122 billion of share repurchases.
Outlook, risks and unusual items
- Outlook: The filing provides no specific revenue or earnings guidance. Management stated that available cash and expected operating cash generation, supplemented by financing as needed, should fund operations and capital requirements for at least the next 12 months.
- Capital returns: The December 2021 tender offer and related repurchase retired approximately 35.6 million shares for about $1.12 billion at $31.50 per share. The filing also reports approximately $40 million of additional repurchases through February 24, 2022.
- Market and flow exposure: Fees depend substantially on AUM and investment performance. A 10% change in AUM, assuming a uniform move, was estimated to affect annualized management-fee revenue by about $43.4 million and post-tax ENI by about $18.7 million, based on the filing’s assumptions.
- Business concentration: Acadian generates substantially all ongoing revenue and cash flows. Three strategies represented 39% of AUM; emerging-markets equity alone represented 18%. More than 95% of AUM was invested in global, international and emerging-markets equities.
- Other principal risks: Investment underperformance and client withdrawals, fee pressure, dependence on key personnel, cybersecurity and operational disruptions, regulatory and litigation exposure, foreign-market and currency risks, tax uncertainty, and the ability of Acadian to distribute cash to the holding company. COVID-19 remained a source of market and operational uncertainty.
- Contingencies and audit: The company reported no material litigation accruals and considered its ordinary-course claims not material in aggregate. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The critical audit matter concerned fair-value assumptions for cash-settled Affiliate awards used in determining Landmark’s disposal gain.
Important facts for investors to verify
- Reconcile the $828.4 million of GAAP net income to continuing-operations earnings and ENI; the reported total includes large divestiture gains and discontinued operations.
- Assess whether Acadian’s elevated performance fees in 2021 are repeatable, and track subsequent investment performance, client flows and fee rates.
- Review the timing and composition of net outflows, especially in larger strategies, and distinguish market appreciation from organic AUM growth.
- Confirm post-redemption debt, the February 2022 revolving-credit draw, covenant headroom and the effect of debt service on distributions and capital returns.
- Evaluate the sustainability of large share repurchases alongside liquidity, working-capital needs and the dependence on distributions from Acadian.
- Review the valuation assumptions underlying the Landmark sale gain and cash-settled Affiliate award liabilities, as well as any subsequent tax or indemnification developments.