The operator introduces the conference call and the participants. Linsley Carruth, the Director of Investor Relations, gives instructions for the call and introduces the speakers, CEO and President Rob Sharps and CFO Jen Dardis. They will be joined by Head of Global Investments Eric Veiel for the Q&A portion. The call will last 45 minutes and will discuss the company's second quarter earnings. Forward-looking statements and non-GAAP financial measures will be referenced. The company ended the quarter with $1.57 trillion in assets under management and $3.7 billion in net outflows. Market gains and steady progress in flows and investment performance are noted.

The company's sales pipeline is strong and redemption pressure is stabilizing, allowing them to reduce net outflows. Their investment performance has remained solid, with many of their funds outperforming their peers. Their equity and fixed income franchises have top-quartile performers, and their ETF business has seen significant growth and inflows in the first half of the year.

The company expects continued growth in their ETFs, with five reaching over $300 million in assets and a one-year track record. They are expanding their product lineup and planning to offer more investment strategies as ETFs. Other recent milestones include launching a new interval fund, becoming a strategic partner to a large broker-dealer, and unveiling a new retirement income solutions framework. The company's associates are dedicated to delivering results for clients and advancing strategic initiatives across all regions.

The speaker, Jen Dardis, is discussing the financial results of the company for the second quarter. They had an adjusted earnings per share of $2.26, which is a 12% increase from the same quarter in 2023. They had net outflows of $3.7 billion, but this included a large fixed income win from an insurance client. They had net inflows in fixed income, multi-asset, and alternatives, with strong inflows in their target date franchise. They also saw positive net flows from clients outside the US. Their adjusted net revenues were $1.8 billion, an 8.5% increase from the same quarter in 2023, driven by higher average AUM. However, compared to the previous quarter, their net revenues were essentially flat due to higher investment advisory fees being offset by a decline in accrued carried interest.

The company's annualized effective fee rate for Q2 2024 decreased due to a shift in assets under management to lower fee products. Investment advisory revenue included performance-based fees from certain alternative products. Operating expenses increased primarily due to market-driven expenses and investments in brand promotion. Adjusted operating income increased and the company expects adjusted operating expenses to increase in 2024. The company's tax rate guidance has been revised and they remain focused on returning capital to stockholders through dividends and buybacks. They have already returned a significant amount to stockholders in the first half of the year.

The company is focused on managing expenses while investing in their employees and expanding their capabilities to better serve clients and grow in the market. They have seen improvements in overall flow trends due to a more positive market environment, improved investment performance, and strategic initiatives. The company offers multiple options for clients to manage their cash in retirement accounts and target date funds, and they are not as affected by the recent focus on cash options in the wealth management community.

Rob Sharps discusses the sales pipeline and overall flows for the company. He is pleased with the improvement in net outflows in the first half of the year and notes strong target date flows and momentum in alternative investments. He also mentions new capital commitments and opportunities with OHA and strong interest in dedicated senior private lending facilities.

In the second quarter, our ETFs saw significant inflows, with strong sales across channels and geographies. Our net sales pipeline continues to improve, with a decrease in at-risk assets due to improved investment performance. We have strong positioning with scale buyers and have already won six new mandates of over $1 billion. However, we expect outflows to be higher in the third and fourth quarters due to seasonality and one particularly large mandate in May. Our goal is to return to positive flows by 2025.

The speaker, Rob Sharps, discusses the company's partnership with a new distribution broker and their expectations for the relationship. They also mention their existing partnerships with large wealth platforms and their goal to further penetrate those accounts. Sharps believes the new partnership will allow them to gain more share and mentions that this is one of many similar relationships. A question is asked about the size of a bond mandate, and Sharps mentions six new wins of $1 billion or more.

The speaker discusses the distribution channels that are most sensitive to improved performance, mentioning that all investors are sensitive to performance but the reaction time may vary in different channels. They also mention the pipeline of adding new products and how different channels may react differently to improved performance.

The company has observed improvement in performance challenges in areas that leverage funds or commingled vehicles first, followed by improvement in institutional or large mandate size. They have seen improvement in the funds portion that is leveraged in the wealth channel, and are now starting to see improvement in the institutional channel. They have also seen a decrease in redemptions and an increase in sales, but are still early in seeing improvement in sales. The company plans to continue launching ETFs in areas where they can deliver a differentiated and compelling offering.

The speaker, Eric Veiel, responds to a question about the company's ETF sales and distribution approach. He explains that they have 16 different strategies across asset classes and a specialist ETF capability to support their field team in reaching out to different parts of the market, including wealth advisors and those who solely use ETFs. He also mentions the increased interest in active ETFs and the company's brand as an active manager, and notes that there is still more to do in this market.

The company wants to offer a diverse range of investment strategies to clients, including clones of existing strategies and new capabilities. They started with semitransparent active equity ETFs and have expanded into categories like international markets. The company values both semitransparent and fully transparent approaches and uses relationships with larger platforms and clients to inform where there are gaps in the market. It is important for strategies to gain traction quickly in order to be successful.

The company's focus has been on launching products and increasing their assets to $100 million to $200 million. The ETFs have attracted a range of investors, including RIAs, wealth platforms, broker-dealers, and institutional investors. The company sees this as a compelling opportunity and is leaning into it. A question was asked about OCREDIT, which is seen as a "me too" product in a competitive market. The company believes it is differentiated from other offerings, such as BCRED, and is explaining this to their distribution partners.

The speaker believes their approach to private credit strategies is compelling because they bring a strong track record from OHA and relationships with wealth platforms from T. Rowe Price. They also have regional investment consultants who work with brokers and advisors who may not have used alternatives before. The speaker believes their approach can help penetrate the wealth channel with a product managed by a team with a strong track record. They acknowledge the difficulty of standing out in the current low-default environment and believe their combination of relationships and presence in the wealth channel can differentiate them. They are also working on an interval fund and taking feedback from wealth platforms to establish more momentum.

Alexander Blostein asks about the fee rates for the company, and Jen Dardis and Rob Sharps explain that there is typically a 1% to 1.5% fee compression over time. They mention that there can be noise in any given quarter due to clients choosing lower fee products or realigning into different vehicles. They also mention that factors like asset class mix and performance fees can impact the fee rate, but they are focused on growing their business and investing in their value proposition. Overall, they believe that success in certain areas may pressure the fee rate, but it is still a strong business.

The speaker expects to see a pick up in redemptions in the second half of the year due to seasonal factors, but this is not a significant concern. They also discuss the competitive landscape and how it may affect their approach to de novo opportunities.

The speaker discusses the company's sales in the second quarter, which were boosted by a large mandate and may not be indicative of future performance. They express optimism about the outlook for both gross sales and redemptions, particularly in areas where there were previous struggles. The company sees opportunities for growth in various areas such as multi-asset, retirement date funds, international markets, fixed income, ETFs, and alternatives. They may consider partnering or making acquisitions in certain cases, but prefer to focus on selling their own strategies. The conference call concludes with a thank you to participants.

The speaker is giving permission for the audience to end the conversation or disconnect from the call.

This summary was generated with AI and may contain some inaccuracies.