Virtus Investment Partners, Inc. Q4 FY2025 earnings call

• Challenging environment for quality-oriented equity strategies (half of AUM) led to net outflows, but other areas had strength like positive flows in some strategies, ETF launches (3 new actively managed funds in Q4, with more to come), expansion into private markets via acquisition of Keystone National Group and investment in Crescent Cove.
• Repurchased ~60,000 shares for $10 million in Q4. Quality-focused equity managers continue to invest in high-conviction businesses with durable fundamentals. 84% of rated retail fund assets in 3-5 star funds, 23 retail funds rated 4-5 stars.
• Broadened product offerings with ETF launches, private market expansions, and other new offerings in process like interval funds and retail separate account strategies.

Assets under management were $159 billion at December 31, down from $169 billion due to net outflows and market performance. Total sales were $5.3 billion vs $6.3 billion in Q3. Total net outflows were $8.1 billion, almost entirely driven by equities. ETFs had $600 million positive net flows. By product: Institutional accounts were 33% of AUM, Retail separate accounts 27%, U.S. retail funds 26%, and 14% closed end funds, global funds, ETFs. Equity net outflows were due to style headwinds for quality-oriented strategies. Fixed income had modestly negative flows with some positive in certain strategies. Alternatives were breakeven for the quarter.

• First quarter fee rate expected to be in 41-42 basis points range. Beyond first quarter, fee rate anticipated in 43-45 basis points range.
• Employment expenses as percentage of revenues expected in 50%-52% range beyond first quarter.
• Effective tax rate in first quarter 25.3%, second quarter and beyond expected 23%-24% due to Keystone addition.
• First quarter cash usage includes annual incentive payments (~$22M), revenue participation payment, and $200M payment for Keystone National, anticipating net leverage at March 31 of 1.2 times EBITDA.

• The main risk is the underperformance of quality-oriented equity strategies, which has overshadowed other areas of strength and led to net outflows. The long-term performance of these strategies depends on market cycles and their return to favor.

Q: On fee rate compression in the quarter and guidance, what's the driver and underlying dynamics?

A: Fee rate compression due to lower average AUM and modestly lower average fee rate. First quarter fee rate range 41-42 basis points, beyond first quarter 43-45 basis points, with one month impact from Keystone closing in March.

Q: Strategic question on diversification and AUM composition of growth vs value-oriented?

A: Goal is to provide diversified portfolio offerings. Half of AUM is quality-oriented equity strategies. Other strategies like growth equity, emerging markets debt, etc., have had positive flows. Continue to evaluate M&A for strategic value, including broadening distribution and growing other strategies not tied to quality-oriented equity.

Q: Software exposure across AUM and Crescent Cove?

A: Virtus is generally underweight in technology. Crescent Cove focuses on early stage venture growth opportunities, not at risk of being disintermediated by AI.

Q: Flow acceleration in Q4 and outlook?

A: Q4 was challenging due to long period of underperformance of quality-oriented strategies. Future flows depend on market environment. If current strong performance continues, could benefit quality-oriented strategies, but also focus on growing other strategies.

Q: Refined go-to-market opportunity for Keystone transaction?

A: Excited to leverage Keystone's existing wealth management channel with Virtus' distribution resources. Opportunity to accelerate in wealth management and explore institutional side. Closing on target for March 1, sales team prepared.

Q: Capital deployment priorities and deal pipeline after Keystone and Crescent?

A: Balanced approach with emphasis on repurchases, dividend, and M&A only for strategic value. Pipeline still has opportunities, but only proceed with additive capabilities and distribution footprint expansion.

Q: First quarter comp ratio guidance?

A: Seasonal items in first quarter, employment expenses percentage range 49%-51% for first quarter, 50%-52% beyond first quarter.