Acadian Asset Management (NYSE:AAMI) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by. Welcome to the Acadian Asset Management Inc. Earnings Conference Call and Webcast for the Second Quarter twenty twenty During the call, all participants will be in a listen only mode. After the presentation, we will conduct a question and answer session. To be added to the queue, please press the star followed by one at any time during the call. If you need to reach an operator, please press the star followed by 0. Please note that this call is being recorded today, Thursday, 07/30/2026 at 11AM eastern time. I would now like to turn the meeting over to Melody Huang, Senior Vice President, Director of Finance and Investor Relations.

0:50 Please go ahead, Melody.

0:52 Good morning, and welcome to Acadian Asset Management Inc. Conference call to discuss our results for the second quarter ended 06/30/2026. Before we begin the presentation, please note that we may make forward looking statements about our business and financial performance. Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding these risks and uncertainties appears in our SEC filings, including the Form eight ks filed today containing the earnings release, our 2025 Form 10 ks, and our Form 10 Q for the first quarter of twenty twenty six.

1:44 Any forward looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update them as a result of new information or future events. We may also reference certain non GAAP financial measures. Information about any non GAAP measures referenced, including a reconciliation of those measures to GAAP measures, can be found on our website, along with the slides that we will use as part of today's discussion.

2:20 Finally, nothing herein shall be deemed to be an offer or solicitation to buy any investment products. Kelly Young, our President and Chief Executive Officer, will lead the call. And now, I am pleased to turn the call over to Kelly. Thanks, Melody. Good morning everyone and thanks for joining us today. I am delighted to share our exceptional Q2 twenty twenty six results with you. As Acadian celebrates its fortieth anniversary, our assets under management and profitability continued to reach new heights, with recent strong growth underscoring sustained momentum in our business and disciplined execution of our strategic plan. Before turning to the quarter in more detail, I want to highlight an investment team update that reflects both continuity and ongoing investment in our capabilities.

3:14 We are pleased to announce that Alex Wojtnoch, our Deputy Chief Investment Officer, will become co CIO alongside Brendan Bradley, effective 01/01/2027. Alex has been with Acadian since 2012 and has played an increasingly important leadership role across our investment organisation, specifically in the areas of portfolio construction, implementation, data infrastructure and investment engineering. This move further strengthens dedicated oversight across data, process, risk and trading as we continue to scale, and allows Brendan to focus on investment policy, research innovation and strategic investment priorities. We're also pleased to have welcomed Jonathan Briggs, formerly of TC43 and CPP Investments, as well as certain other members of the former TC43 team to Acadian's investment organisation.

4:07 Their research, data engineering and modelling capabilities are highly complementary to our systematic investment platform and will help accelerate work already undertaken across our research and innovation agenda. Taken together, these developments reflect the same strategic planning and organisational continuity that have defined Acadian for decades: disciplined systematic investing, continued investment in talent and technology, and a steady focus on delivering long term outcomes for our clients. We were also pleased to see Acadian move up meaningfully in the latest annual Pensions and Investments Largest Money Managers ranking, rising to number 62 from number 76 last year. While rankings are only one measure, we view this as further external recognition of the scale we have built and the momentum we are seeing across the business.

5:00 We continued to deliver outstanding results across all key metrics in the second quarter. Our US GAAP net income attributable to controlling interests was up 170% and EPS was up 171% compared to the prior year, driven by increased management fees, partially offset by non cash expenses representing changes in the value of Acadian LLC equity and profit interests. ENI was up 107% to 47,500,000 and our ENI diluted EPS of $1.33 was up 108% driven by revenue growth. Our adjusted EBITDA was up 79%. We realised £4,300,000,000 of positive net client cash flows in Q2 twenty twenty six, representing a 9% annualised organic growth rate, driven by enhanced and extension strategies.

5:53 And finally, AUM grew 54% from Q2 twenty twenty five to two hundred and thirty two point seven billion pounds as of 06/30/2026, marking another record high for Acadian. Turning to slide three, Acadian's investment performance track record remains strong. Five major implementations comprise the majority of our assets. As of 06/30/2026, Global Equity, Emerging Markets Equity, Non US Equity, Small Cap Equity and Enhanced Equity have 100% of assets outperforming benchmarks across three, five and ten year periods, with only one exception. Global Equity Markets delivered strong double digit performance in Q2 twenty twenty six, while navigating significant volatility with a challenging geopolitical and macroeconomic backdrop.

6:48 Emerging Markets were standout performers, posting their strongest quarterly gains since 2009, which presented a tailwind for Acadian's portfolio returns. Acadian generated strong investment performance, with broad based outperformance across most major strategies. Our short term performance continued to improve in the quarter, 77% of assets outperformed over the trailing one year period. We believe these results reinforce the consistency and resilience of our disciplined, systematic investment process, which has been built and refined over Acadian's forty year history. Slide four details how our investment process has generated meaningful long term alpha for our clients. Our revenue weighted five year annualized return in excess of benchmark was 4.3% as of the end of Q2 twenty twenty six on a consolidated firm wide basis.

7:43 Our asset weighted five year annualized return in excess of benchmark was 3.6% as of the end of the quarter. By revenue weight, 96% of Acadian strategies outperformed their respective benchmarks across three, five and ten year periods as of 06/30/2026. And by asset weight, 94% of Acadian strategies outperformed their respective benchmarks across three, five and ten year periods. The next slide highlights our sustained momentum in net flows. We realised positive net flows of GBP4.3 billion in Q2 twenty twenty six, representing a 9% annualised organic growth rate.

8:29 Gross inflows were diverse across products and client types, and driven by enhanced and extension strategies. We have now generated ten consecutive quarters of positive net flows, and we continue to focus on renewing our pipeline, which remains very healthy and active after the funding of a number of significant client wins in Q2 twenty twenty six. I am now going to turn the call over to our CFO, Scott Hynes, to provide you with more detail on our financial performance this quarter and an update on capital allocation. Thanks Kelly. Turning to slide seven, our key GAAP and E and I performance metrics are summarized here on a quarterly basis. As previously noted, we manage the business using E and I metrics, which better reflect our underlying operating performance.

9:16 You can find complete GAAP to E and I reconciliations in the appendix. Let me now turn to our core business results. Starting on slide eight, total ENI revenue of $183,000,000 increased 47% from Q2 twenty twenty five, primarily due to recurring management fee growth and an increase in performance fees. Q2 twenty twenty six management fees of $177,000,000 increased 44% from Q2 twenty twenty five, reflecting a 66% increase in average AUM, driven by market appreciation and continued positive net client cash flows. With average AUM of $220,000,000,000 in the second quarter of twenty twenty six, we continue to expand our recurring management fee base and strengthen Acadian's earnings power.

10:06 Moving to Slide nine, in Q2 twenty twenty six, ENI operating expenses increased 19% primarily driven by higher G and A expenses including continued investment in technology and infrastructure as well as AUM driven servicing costs, increased sales based compensation and higher fixed compensation and benefits.

10:27 Our ENI operating margin expanded nearly 10 percentage points to 40.3% from 30.7% in Q2 twenty twenty five mainly driven by increased E and I management fees, while our Q2 twenty twenty six operating expense ratio fell eight percentage points year over year to 36.8% reflecting improved operating leverage. Q2 twenty twenty six variable compensation increased 39% year on year primarily driven by higher profit before variable compensation. Our Q2 twenty twenty six variable compensation ratio decreased to 37.5% in Q2 twenty twenty six from 45.4% in Q2 twenty twenty five.

11:14 Assuming revenue mix and levels similar to Q2 twenty twenty six, contractual allocations would apply a full year 2026 variable compensation ratio of approximately 38% to 42%. Turning to slide 10 on capital resources and our strong balance sheet. As of 06/30/2026, we had 65,000,000 of cash and 110,000,000 of seed investments on the balance sheet with a $200,000,000 balance on our term loan credit facility and no outstanding balance on our revolving credit facility. Note that the company's strong cash flow generation supported repayment of seasonal revolver borrowings during the second quarter.

11:55 As of Q2 twenty twenty six period end, our gross debt to adjusted EBITDA ratio was 0.8 times, while our net debt to adjusted EBITDA ratio was 0.5 times. Note that our gross leverage ratio of 0.8 times is improved from year end 2025 supported by greater last twelve months adjusted EBITDA and is well below the 1.5 times through the cycle gross leverage ratio target identified at our May investor forum.

12:28 Moving to slide 11, we have a track record of creating significant value through share buybacks in recent years. Outstanding diluted shares have decreased 58% from $86,000,000 in Q4 twenty nineteen to 35,700,000 shares in Q2 twenty twenty six. Over the same period 1,500,000,000 in excess capital has been returned to stockholders through share buybacks and dividends. During Q2 twenty twenty six we repurchased 200,000 shares or 10,600,000 of stock at a volume weighted average price of 69.92. AAMI's board has declared an interim dividend of 10¢ per share to be paid on 09/25/2026 to shareholders of record as of the close of business on 09/11/2026.

13:17 Going forward, we expect to continue generating strong free cash flow, prioritizing organic growth and balance sheet flexibility, and then returning excess capital through dividends and share repurchases. I will now turn the call back over to Kelly. Before moving to Q and A, let me recap some key points on Slide 12. Acadian is competitively positioned as the only pure play, publicly traded, systematic manager with a forty year track record and competitive edge in systematic investing. Our investment performance track record remained strong this quarter, with more than 96% of strategies by revenue outperforming over three, five and ten year periods. Business momentum continued apace in Q2 twenty twenty six, with net inflows of 4,300,000,000 for Q2, a 9% annualized organic growth rate, reflecting ten consecutive quarters of positive net flows, and achieving AUM of CHF232.7 billion, up 54% from Q2 of twenty twenty five and the highest in the firm's history.

14:25 Q2 twenty twenty six financial results included: record management fees of GBP177 million, up 44% from Q2 twenty twenty five ENI EPS of GBP1.33, up 108% from Q2 twenty twenty five and operating margin expansion to 40.3%, up 10 percentage points from 30.7 in Q2 twenty twenty five.

14:51 Finally, capital management remained a focus in the quarter as we strengthened our balance sheet with conservative leverage ratios and earlier than typical repayment of seasonal revolver borrowings, and continued to invest in organic growth and return excess capital to shareholders. Pleased with our second quarter results, we remain focused on disciplined execution going forward. And this concludes my prepared remarks.

15:21 At this time, those with questions should lift their phone receiver and press star followed by the number 1 on their telephone keypad. To cancel a question, please press 1 again. Please hold for a brief moment while we compile the Q and A roster.

15:39 Your first question comes from Kenneth Lee with RBC Capital Markets. Please go ahead. Hey, good morning, and thanks for taking my question. I'm wondering if you could talk about your institutional pipeline, maybe some additional color, any of the details of composition as well, if you think you could share that. Thanks. Yes, of course. Hi Ken, nice to speak to you again.

16:06 You know, the pipeline continues to look very healthy across different strategies and client domiciles despite, you know, the record breaking first half of twenty twenty six that we've seen. We continue to refund it again, fund, replenish the, you know, as we've had these sizeable wins. I'd say the themes are kind of fairly consistent with those that we've talked about over the last couple of quarters. Demand for our enhanced equity strategies remains very strong. That was characterised, I'd say, by mostly by non US clients a year or so ago, but we're seeing that really pick up as a global trend now. And the other area of real interest that we're seeing is within our extension strategies. I think, as you remember, when we laid out our strategic plan about eighteen months ago, we talked about enhanced as a nearer term opportunity and we thought extensions more medium term.

16:56 We are seeing that momentum continue to pick up. And of course, you know Acadian's long term track record in our long only strategies, you know, continues to be of, you know, there's evergreen interest in those. I'd say particularly our broader and more diversified strategies, so global non US EM allocations, those are areas where we continue to see interest. As I noted, we're, you know, there's broad interest from clients globally, so this isn't really a case of like, you know, pockets of of interest from different geographies. This is very much, you know, globe this it's very much global in nature when we look at when we look at the pipeline.

17:35 Gotcha. Very helpful there. And one follow-up, if I may, just in terms of the variable comp expense, I came in a little bit lower than what we expected. Any particular drivers there that would explain the movement there in the quarter? Thanks. Yeah Ken hey it's Scott. Thanks again for joining. So on variable comp the quarter on quarter move the big driver there is a good news story for us and that's the growth in the management fees right and

18:06 the management fee profit. So when you think about that variable comp and both how it's moving quarter to quarter and that full year if you will statement we make about where we expect to land in the full year for all intents and purposes I'd encourage you to think of three things moving around in relation to another, in relation to one another. The first is the size and how we think or know obviously management fees have come in and the management fee profits have come in year to date and where of course we expect them to go for the rest of the year then performance fees and then there's a piece that for all intents and purposes doesn't move around that's the deferred compensation piece that has been there from years prior. So long story short if management fees are growing proportionally more quickly larger than the performance fees that would typically put that variable compensation ratio down. So that's what's going on here this quarter and why you saw the change quarter on quarter and why you saw that full year outlook tick down a little bit.

19:04 It's because of the flows we saw

19:07 and the relative growth in the management fees year to date continue to feel really good about performance fees and how the year is shaping up but it is proportional. So that recurring management fee profit pool has grown to an extent and the second quarter was so positive relatively that moved around the variable compensation ratio in the way that I described. Got you, very helpful there. Thanks again. Thank you. Your next question comes from Joe Tumillo with Morgan Stanley. Please go ahead. Good morning. Joe Tumillo from Mike Cypress. Thanks for taking my questions. I guess my first question is on private wealth. Can you update us on your strategy and how you're thinking about the product wrapper and the approach distribution, particularly around the tax aware dynamic extension strategy?

19:58 Yeah. Thank you. Of course. Hi, Joe. Nice to nice to speak to you. You know, about 25% of our assets today are intermediated in with the wealth channel. So we do have a sizable business, it's an area that Acadian has always had clients, but as you know, we were very excited in the second quarter to launch our tax aware capabilities, and we actually launched two funds during the quarter, Global Tax Aware and a US Tax Aware, and we now manage total assets in those two strategies of of a 100,000,000, and the vast majority of that is is external capital. So we think there's real opportunities for this as clients are thinking about after tax outcomes. We think our process is particularly well designed, you know, to help clients with this. Again, obviously, long term consistent alpha and our extension strategies, again, form the basis of this. So we're very excited.

20:54 On the distribution side, we have a very large distribution team, very experienced, well tenured. Again, we have had wealth clients for a number of years, so the team have built very deep and meaningful relationships there. And again, we feel very excited about about the prospects. I think many people will have noted we we recently were in the press with another large wealth win with one of our existing partners in The UK, a large UK wealth manager, one of the premier managers in The UK. So again, continue to see real

21:25 demand there, and we think that the tax aware capabilities just opens up an avenue to us in The US, and again, excited to see the progress we've made there in the, you know, in the the couple of months since we launched those those two those two strategies. Great. Thank you. And and I guess as my follow-up, you know, as a as a recall at your recent Investor Day, I think you guys noted 27 of your top 50 clients are invested across multiple Acadian strategies. So I guess I'm just curious, how much of your current sales pipeline is cross selling versus new customers? And I guess if you could speak to some of your actions you're taking to expand penetration within the existing client set, what hurdles exist or challenges, and really, how do you plan to overcome overcome those to really accelerate the traction on cross selling? Thank Of course. No. It's a great question.

22:14 We have incredibly deep relationships with with our clients, and again, as as we noted at the Investor Day, many clients have multiple mandates with us, and I think that speaks to the level of trust and commitment that our clients have in Acadian, and, you know, our our average tenure client tenure is longer than industry average. So I think we have built a world leading team on the client service side. I'm delighted with the work that they've been doing, and I think we're in very good shape when I look at our overall client retention and opportunities. But as I say, huge number of our clients do have multiple mandates with us. Cross sell is always a meaningful part of our pipeline. I think that will continue to be the case going forward as we continue to develop strategies that we think are solving problems for our clients across the globe.

23:04 You know, I think a good example of that more recent trend we've seen with some of our clients is moving towards extensions from long only mandates, and, you know, we've obviously been working very hard to support them around that. But you know, a trend like that, Joe, I think is, you know, we're attracting both new clients and seeing existing clients convert. So I think because of the nature of our client base, it is very broad, sophisticated, very large institutions. You know, the issues that they're facing, the things that they're sort of wrestling with, that they're thinking about, I think often are just reflecting broader market demand. So, I guess, answer to your question again, we feel very well positioned with our clients. We're delighted with, you know, the relationships, the trust that we've built over the years. And, again, you know, Crossrail will be a very meaningful part of our sales going forward. But I don't think there's anything we need to do to change what we're doing. We've been very successful there. And, again, I think that's credit to to what the relationship management team have been able to do at Acadian over over the four decades that that we've been around.

24:08 Great. Thank you. Pleasure. Your next question comes from John Dunn with Evercore ISI. Please go ahead. Thank you. I think on systematic fixed income, I think The U. S. High yield product hits a benchmark later towards the end of the year. Maybe has there been any movement or traction leading up to that? And then just more broadly, an update on where you think that segment can go in the next few years? Yeah. That's a great question, John. Nice to speak to you again. As you say, US high yield will be hitting its three year track record towards the end of this year, and, you know, I'm very pleased with the performance and the resilience of not just that track record, I should say, sorry, and and as well as The US investment grade and our global high yield. I think the credit team here have done a great job building a very resilient, consistent, positive track record. And that's starting to see traction with clients and new potential investors.

25:12 I'd say when I look at the pipeline, we're continuing to see that deepen, and we're seeing it start to mature from early stage opportunities. I think as I've said on previous calls, we always expected asset raising to ramp up more in 2027 when those three year track records are in place, and we don't set hard AUM targets around that. But certainly, the conversations we've been having over the last quarter or two have led me to feel, you know, very good about some nearer term opportunities. So I think we're completely on track with where we'd like to be with credit. So the nature of those conversations are changing and moving to more later stage versus kind of early stage discovery type meetings. And just in terms of the number of meetings and number of investors we're meeting, that's wrapped up quite significantly in this this year, and I think we'll continue to do so through the second half. So, again, feeling very good about where we are with credit, and and, again, feeling positive about a couple of near term opportunities as well.

26:13 Got it. And maybe could you talk about the exit rate of the fee rate? You know, it seems like the big St. James Place win is in the numbers. So going forward, maybe there should be you know, it should moderate down, at a more modest pace, is that the right way to think about it? Yeah, John it's Scott, thanks again for joining and yes I think the intuition is spot on and for all intents and purposes to be clear you know there's no real change here from certainly from our investor form in May or really in last quarter and more specifically we did have as you know a large installation again on the enhanced side late the prior quarter meaning late in 1Q twenty six so full run rate impact of that wasn't really realized until this quarter. That was the predominant driver of that rate move.

27:03 But for all intents and purposes there's no real change here from the investor form dialogue or the prior quarter and that you know year on year we did see a meaningful change in the fee rate you know call it again upper 30s down to lower 30s today. But we think it's more stable than not going forward and that while there are still opportunities that Kelly's already noted on the enhanced side which do typically come in at a lower fee rate. It's just not the same step change year on year now that Enhanced is you know call it you know 30 some percent of our AUM mix. So again I think the direction of travel is more stable than not where we're at this quarter. As you know there's a lot of external factors at play with that blended fee rate, client demand, things that are going on the market. So it can move around a bit but again I think the direction of travel as we look at our forecast in the pipeline and how it's most likely than not to play out would be relative stability here in around this quarter.

28:08 Thanks very much. This concludes our question and answer session. I would like to turn the call back over to Kelly Young. I would like to thank everyone for joining us today and hope you all have a great day. Thank you.