LONDON--(BUSINESS WIRE)--Aug 2, 2018--BrightSphere Investment Group plc (NYSE: BSIG) reports its results for the second quarter ended June 30, 2018.

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“While this was a challenging quarter, BrightSphere’s diversified, global franchise produced solid earnings growth, with ENI per share up 12% year-over-year, to $0.47,” said Steve Belgrad, BrightSphere’s President and Chief Executive Officer. “Our near-term investment performance was impacted by macro and style challenges in emerging markets, although long-term performance remains strong. As of June 30, assets representing 43%, 71%, and 81% of revenue outperformed their benchmarks on a one-, three- and five-year basis, respectively. Net client cash flows were impacted by both reduced gross sales after an unusually strong period of funding in the first quarter and increased redemptions in U.S. subadvisory and select small-cap products.

“Looking ahead, we are confident in our ability to generate shareholder value across market cycles. Our Affiliates are highly regarded boutique asset managers with strong long-term track records, and our profit share model provides structural variability to our expenses in difficult market environments. We are committed to the ongoing diversification of our business, and continue to expand our investment capabilities and product reach. Strategies such as leveraged loans at Barrow Hanley and multi-asset class at Acadian are gaining traction, while the upcoming launch of our UCITS platform will broaden our offerings in Europe. Our global pipeline is robust and diverse, as our team pursues opportunities on behalf of our Affiliates.”

Mr. Belgrad concluded, “We have been very active in cultivating relationships with prospective new Affiliates, and remain focused on generating incremental earnings growth through additional, diversifying investments. We have ample capacity to execute new investments; at the same time, given the valuation of our shares, we have maintained the stock buy-back program initiated earlier this year, and have repurchased over 3.4 million shares through July 31.”

James J. Ritchie, BrightSphere’s Chairman, added, “Finally, we are grateful to Kyle Legg, who joined our Board of Directors at the time of our IPO and retired in June. Kyle was a member of the Audit Committee and the Chair of the Compensation Committee, and I personally will miss her invaluable contributions and guidance. At the same time, I am pleased to welcome Reginald Love to our Board. Reggie is a partner at RON Transatlantic EG, where he focuses on financial services and energy investments. We look forward to serving with him as BrightSphere continues to grow.”

Assets Under Management and Flows

At June 30, 2018, BrightSphere’s total assets under management (“AUM”) were $234.3 billion, down $(5.8) billion, or (2.4)%, compared to $240.1 billion at March 31, 2018. The decrease in AUM during the three months ended June 30, 2018 primarily reflects net market depreciation of $(1.7) billion and net outflows of $(4.1) billion. At June 30, 2018, BrightSphere’s AUM was down $(24.5) billion, or (9.5)%, compared to $258.8 billion at June 30, 2017. The decrease in AUM compared to the prior year reflects the removal of Heitman, which accounted for $32.4 billion of AUM at June 30, 2017, as well as net flows of $(5.4) billion offset by net market appreciation of $13.3 billion.

For the three months ended June 30, 2018, BrightSphere’s net client cash flows were $(4.1) billion compared to $1.9 billion for the three months ended March 31, 2018 and $(0.3) billion for the three months ended June 30, 2017. Gross inflows in the three months ended June 30, 2018 were $6.1 billion (compared to $10.3 billion in the first quarter of 2018 and $8.1 billion in the second quarter of 2017) and gross outflows and hard asset disposals were $(10.2) billion (compared to $(8.4) billion in the first quarter of 2018 and $(8.4) billion in the second quarter of 2017). The increase in outflows in the three months ended June 30, 2018 was due to secular U.S. equity subadvisory withdrawals and performance-related withdrawals in U.S. and non-U.S. small cap products. Hard asset disposals of $(0.1) billion, $(0.1) billion, and $(0.2) billion are reflected in the net client cash flows for the three months ended June 30, 2018, March 31, 2018 and June 30, 2017, respectively. For the three months ended June 30, 2018, the annualized revenue impact of the net client cash flows was $(15.2) million, which compares to $19.0 million for the three months ended March 31, 2018 and $13.1 million for the three months ended June 30, 2017 (see “Definitions and Additional Notes”). Gross inflows of $6.1 billion yielded approximately 42 bps, while gross outflows and hard asset disposals of $(10.2) billion in the same period yielded approximately 40 bps.

For the six months ended June 30, 2018, BrightSphere’s net client cash flows were $(2.2) billion compared to $(2.8) billion for the six months ended June 30, 2017. As previously disclosed, flow information in this release includes flows from Heitman for the first half of 2017, but excludes it thereafter. Excluding Heitman, net flows in the six months ended June 30, 2017 were $(3.4) billion. The net flows in the six months ended June 30, 2018 were impacted by strong sales in alternatives, offset by higher global / non-U.S. equity outflows. For the six months ended June 30, 2018, the annualized revenue impact of the net client cash flows was $3.8 million compared to $13.9 million for the six months ended June 30, 2017 which reflects a reduction in the spread between bps on inflows and outflows. Gross inflows of $16.4 billion in the six months ended June 30, 2018, compared to $16.3 billion in the prior year, yielded an average of 46 bps compared to 48 bps in the year-ago period while gross outflows and hard asset disposals of $(18.6) billion, compared to $(19.1) billion in the prior year, yielded 39 bps in the six months ended June 30, 2018 compared to 33 bps in the year-ago period.

Balance Sheet and Capital Management

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017 are provided in Table 3 below. At June 30, 2018, the Company had $393.0 million of long-term bonds ($400.0 million face value, net of discount and fees), $0.0 million outstanding on its $350 million credit facility and $15.0 million drawn on a non-recourse seed capital financing facility. Shareholders’ equity (attributable to controlling interests) amounted to $89.6 million. The Company’s ratio of third party borrowings (excluding non-recourse debt) to trailing twelve months Adjusted EBITDA was 1.3x, significantly below the Company’s revolving credit facility covenant of 3.0x. Of the Company’s cash and cash equivalents of $234.7 million at June 30, 2018, $75.8 million was held at Affiliates and $158.9 million was available at the Center.

As of June 30, 2018, the Company had total seed and co-investment holdings of $160.1 million. During the six months ended June 30, 2018, the Company has made investments of approximately $63 million to support Affiliate strategies and product capabilities. During the quarter, the Company drew down $15.0 million on the non-recourse seed capital financing facility, leaving $50.0 million available to be drawn down as of June 30, 2018.

On March 26, 2018, the Company announced that it was authorized by its board of directors to resume its share repurchase program. As of July 31, on a year-to-date basis, the Company has purchased a total of 3,423,952 shares at a weighted average price of $14.59 per share, or approximately $50 million in total.

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