Silvercrest Asset Management Group Inc. Q3 FY2025 earnings call

• Discretionary AUM increased $687 million in the third quarter, with $46.4 million in organic new client accounts in Q3 and $564 million YTD. Discretionary AUM is $24.3 billion, up 3% Q/Q and 8% Y/Y. Total AUM reached $37.6 billion, a new high. • Nondiscretionary AUM is $13.3 billion, 4% of revenue, and will have reporting adjusted in 2026 to show clearer basis points. • Strategic investments in talent, intellectual capital, and headcount are ongoing, with new business pipeline robust, especially the global value equity strategy. • Repurchased approximately $16 million of shares in Q3, announced $25M buyback program, dividend of $0.21 per share declared, and plan to reward shares via equity incentive.

Discretionary AUM stands at $24.3 billion, a 3% sequential quarterly increase and 8% year-over-year increase. Total AUM at the end of the third quarter hit a new high of $37.6 billion. Of this, nondiscretionary AUM at quarter end was $13.3 billion, comprising 4% of total revenue. These nondiscretionary AUM have more than doubled in the past few years. Discretionary AUM contribution to total revenue is significant due to market appreciation and new client accounts, while nondiscretionary AUM contributes a smaller portion but has grown substantially over time.

• Expect discretionary AUM to exceed all-time highs with supportive markets. • Adjusting nondiscretionary AUM reporting in 2026 to provide a clearer picture of the business without revenue effect. • Investments in talent and headcount take time to bear fruit, so current lower earnings/EBITDA reflect strategic investments for long-term growth. • New business pipeline, especially global value equity strategy, is robust and expected to contribute positively in future quarters.

• Short-term market volatility could impact AUM and subsequent revenue. • Investments in talent and headcount take time to generate returns, affecting current earnings and EBITDA. • Difficulty in measuring new business pipeline accurately due to changes in marketing dynamics since COVID.

Q: Just want to talk a little bit about calibrating the timing of when the AUM and revenue kind of hit various points to get back to leveraging the expenses that you're having now. I understand the comment on the compensation that you mentioned in the remarks. And I just want to understand, do we think about this as maybe an 18-, 24-month time frame? Or is it any way to kind of give visibility on that?

A: Yes. So that's a great question. And obviously, we have multiple investments going on. So it depends on the time horizon for each one. Just very briefly, we have domestic expansion efforts. We are active in Asia/Australia. We are opening an Australian investment trust there. In order to get flows, we are working on our MiFID II with the Central Bank of Ireland in order to face Europe and actively market there, both to existing clients as well as to new institutional and family clients. And all of that also includes new marketing professionals, investment team here, et cetera. That is all on a short-term basis, kind of occurred, let's just call it over the past 1.5 years in its bulk. Our headcount has gone up by about 15 to 20 people, I think it's exactly 15 people, say, over the past year-over-year. So that's a lot of hires and quite recent, even though we've started hitting EBITDA and earnings for these investments prior to that. The bulk of it has been quite recent. So when you put it all together, yes, you're looking at a longer time horizon of 18 to 24 months. However, we are done primarily with the investments we made in institutional marketing as well as in our global value equity team. And I expect flows for that in a much shorter term than that. The pipeline is very large. And so I would look to that more like 6 months to 12 months, and we could see even some reasonable allocations in the fourth quarter or first quarter coming up here, which is -- which would obviously cover about 6 months. So all things being equal, that would start to creep into the profit side and start increasing the EBITDA and earnings on that basis alone. But there's still other investments to go. So the longer time horizon is probably more realistic. What I look forward to is really being able to report substantial progress that those investments will be making. The potential is very large. And I'm quite confident that it is going to pay off and that we will be able to report meaningful progress soon.

Q: The global strategy has a very strong performance over the last 5 years -- in 1, 3, 5 years. And you mentioned that you have a very large pipeline. There's interesting dynamics there. So the U.S. weighting is 73% of MSCI World. So that doesn't bode well for global strategies. But on the other hand, EAFE in emerging markets, international markets have outperformed the U.S. this year by 2x. So I think that bodes very well for Global. So can you just give us a little bit more color on what you're seeing from a marketing perspective, the pipeline and what clients are saying or consultants are saying, what do you see out there on Global?

A: Yes. Right. So 2 points. Number one is, while I have focused on the significant opportunities for the global value portfolio because of the size of the allocations it can receive and because it's new at the firm, that has colored my remarks. And that is also the strategy that received the large Australian superannuation fund seeding, not quite a year ago, about 9 months ago or so. And that is the performance you are referring to. And in fact, on a shorter time horizon since that investment, it has performed very, very well, which is really nice to be able to demonstrate to an investor and to other potential investors that this is a good strategy that they should be looking at given the trends that you noted. That strategy has freedom to change those balances and to move around against the benchmark as they seek relative value and outperformance in the portfolio. That said, we have other international equity strategies at the firm that focus entirely on investing outside the United States, whether that's in developed international markets or in emerging markets. Those markets have been hot. And I'm very pleased to report that those capabilities led by a different investment team here at the firm have done extremely well and also have interest from investors in a growing pipeline. The mandates don't tend to be quite as large there, and they're a little different, but that has potential as well. So you add that -- those 2 together in covering both the global international and emerging market space, and it looks quite favorable for the firm. In terms of what we are hearing or seeing our new centralized institutional marketing team and process has been highly engaged both with very significant sovereign pools of capital, and it includes other Australian superannuation trust. It includes pool capital for retail and other retirement assets. It includes interest in Europe, and it includes the globe's largest consulting firms. We rate extremely well, both on a performance basis for those strategies that I just went through as well as with regards to the compliance and high quality of the firm here and the institution that we've built. Silvercrest, despite being a fairly small asset management firm, also gets a lot of attention for its intellectual capital among those consultants I just shared with the firm yesterday that one of our update pieces from our investment policy team was one of the most read articles within the internal distribution of one of those large consultant firms, one of the globe's largest. The pipeline itself is not measurable the way we used to measure it. I think we've talked about this in prior earnings calls. We used to have very rigorous standards around what we would announce on a call for the pipeline. And that was we were in finals or semifinals presentations. It was -- we were invited to put in an RFP or -- and we expected some form of decision within a 6-month period. The consultant industry and the way that marketing works now has changed very substantially since 2020, which is to say COVID. It gradually changed during that period of time. It became harder and harder for us to measure. And so we just are not confident with giving very strong numbers the way we used to be. Instead, I have chosen to provide color. I will say that from my thinking, it is a very large pipeline. It is quite significant, especially in those international and global areas. for the firm, and I'm quite optimistic, as you heard in my answer to Christopher. If I can give harder numbers as we go along here and learn more about how it's working, I will do so. But unfortunately, I just don't have the same apples-to-apples or confidence in giving you the kind of numbers that I did before. As part of that effort, I should mention that we hired a professional who was one of the top institutional client representatives at a competitor firm, one of the larger asset managers in the United States. And globally, he has spent his career in Australia and in London, and his contacts have been extremely helpful to us as well. I hope that helps. I'm happy to follow up with anything else, Sandy.