Acadian Asset Management Inc. 2026 Q3 Earnings Call

Please go ahead, Melody. Good morning and welcome to Acadian Asset Management, Inc.'s conference call to discuss our results for the third quarter ended September 30th, 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 this risk and uncertainties appears in our SEC filings, including the Form 8-K filed today containing the earnings release, our 2025 Form 10-K, and our Form 10-Q for the first and second quarter of 2026. 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. Finally, nothing herein shall be deemed as an offer or solicitation to buy any investment products. Kelly Young, our President and Chief Executive Officer, will lead the call. Now I'm pleased to turn the call over to Kelly.

Thanks, Melody. Good morning, everyone, and thanks for joining us today. I'm pleased to report another strong quarter for Acadian with outstanding investment performance, continued positive client flows, record assets under management, and record profitability. As we mark Acadian's 40th anniversary, our business continues to build significant momentum. Assets under management have more than doubled since the end of 2024, and we're seeing the benefits of that growth translate into our financial results. Before turning to the quarter, I'd like to offer some broader perspective on the progress we're making across the business. First, on client flows. We've now delivered 11 consecutive quarters of positive net client flows. Following organic growth of more than 20% in 2025, we've generated $28.3 billion of net inflows in the first nine months of 2026, representing 21% annualized organic growth. These are exceptional levels of growth and reflect sustained demand for our investment capabilities.

Institutional funding will naturally vary from quarter to quarter, but our pipeline continues to replenish, and we're encouraged by the level of client activity and the opportunities ahead of us. Enhanced Equity remains an important growth engine, now representing more than 30% of our assets under management. Our Extension strategies also continue to attract strong institutional interest and now represent approximately 5% of AUM. Second, our investment performance remains exceptional. Across the firm, 96% of our revenue-weighted strategies are outperforming their benchmarks over three, five, and 10-year periods. Our shorter-term performance has strengthened considerably with the proportion of revenue represented by outperforming strategies over the trailing one-year period increasing to 95% from 73% a year ago. We believe this combination of strong long-term track records and improving recent performance reinforces our competitive position and provides a solid foundation for continued client demand.

Third, we're making progress in expanding our growth opportunities. In Systematic Credit, we expect to receive our first external institutional funding later this year from a prominent U.S. asset owner, an important milestone. We're also seeing encouraging early traction in our Tax-Aware strategy, which launched in May and has received initial client funding. We're continuing to expand our reach in the wealth channel. During the quarter, Acadian was selected as an inaugural investment manager for UBS Global Wealth Management's new exclusive manager access fund program in Asia, creating another opportunity to bring our institutional investment capabilities to wealth clients. These initiatives are still at different stages of development, but they represent additional avenues for growth alongside our established strategies. Finally, the growth in our business is translating into strong financial performance.

Recurring management fees increased 38% year-over-year, while our ENI operating margin expanded to 42.6%, reflecting the operating leverage in our business model. Taken together, I believe these results demonstrate the strength of our investment franchise, the consistency of client demand, and the opportunities we have to continue growing the business. With that context, let me turn to our third quarter results. As seen on slide 2, we continue to deliver outstanding results across key metrics in the third quarter. Our U.S. GAAP net income attributable to controlling interests was up 135%, and EPS was up 138% compared to the prior year, driven by increased management fees and partially offset by non-cash expenses representing changes in the value of Acadian LLC equity and profit interests.

ENI up 78% to $48.3 million, and our ENI diluted EPS of $1.36 was up 79%, driven by revenue growth, the highest-ever EPS in the firm's history. Our Adjusted EBITDA was up 67%. We realized $2.6 billion of positive net client cash flows in Q3 2026, representing a 4% annualized organic growth rate driven by Enhanced and Extension strategies. Finally, AUM grew 44% from Q3 2025 to $239.6 billion as of September 30, 2026, marking another record high for Acadian. Turning to slide 3, Acadian's investment performance track record remains strong. Five major implementations comprise the majority of our assets. As of September 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 10-year periods. Global equity markets advanced modestly in Q3 2026.

Impacts from resilient economic growth and continued AI-driven investment more than offset elevated geopolitical tensions as well as higher energy prices. Developed markets outperformed emerging markets, while value and quality significantly outperformed growth and momentum factors in general. AAMI generated strong alpha in the third quarter across most major strategies, driven primarily by the strength of Acadian's factor model, with particularly strong contributions from EM, Small-Cap Equity, and Extension strategies. Our short-term performance continued to post meaningful improvement in the quarter. 95% of assets outperformed over the trailing one-year period. We believe these exceptional performance results reinforce the consistency and resilience of our disciplined, systematic investment process, which has been built and refined over Acadian's 40-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 4.8% as of the end of Q3 2026 on a consolidated firm-wide basis. Our asset-weighted five-year annualized return in excess of benchmark was 3.9% as of the end of Q3 2026. By revenue weight, 96% of Acadian strategies outperformed their respective benchmarks across three, five, and 10-year periods as of September 30, 2026. By asset weight, at least 94% of Acadian strategies outperformed their respective benchmarks across three, five, and 10-year periods. Turning to net flows, we continue to see positive momentum across the business. We generated $2.6 billion of net inflows in Q3 2026, representing a 4% annualized organic growth rate and bringing year-to-date net inflows to $28.3 billion or 21% annualized organic growth. This marks our 11th consecutive quarter of positive net flows.

Gross inflows remained healthy and diversified across products and client types, led by our Enhanced Equity and Extension strategies. Our Extension strategies, which provide clients with a higher conviction approach to systematic investing, now represent approximately $13 billion of AUM, reflecting continued strong demand. While net flows moderated this quarter, this largely reflected certain clients rebalancing portfolios following strong equity market appreciation. With that, I'll turn it over to Scott to review our financial results and capital allocation priorities.

Thanks, Kelly. Turning to slide seven, our key GAAP and ENI performance metrics are summarized here on a quarterly basis. As previously noted, we manage the business using ENI metrics, which better reflect our underlying operating performance. You can find complete GAAP to ENI reconciliations in the appendix. Let me now turn to our core business results. Starting on slide eight, total ENI revenue of $189 million increased 39% year-over-year, primarily driven by growth in recurring management fees. Management fees of $188 million increased 38% year-over-year, reflecting higher average AUM driven by market appreciation and continued positive net client cash flows. Moving to slide nine, ENI operating expenses increased 18%, primarily driven by higher G&A expenses, including continued investment in technology and infrastructure, AUM-driven servicing costs, and higher compensation expenses. Variable compensation increased 21% year-over-year, primarily driven by higher profit before variable compensation.

Our ENI operating margin expanded nearly nine percentage points to 42.6%, primarily driven by higher recurring management fees. Our operating expense ratio fell six percentage points year-over-year to 37.1%, reflecting improved operating leverage. The variable compensation ratio decreased approximately nine percentage points year-over-year to 32.6%. The full year 2026 variable compensation ratio is now expected to be approximately 34%-38%, with the realized ratio informed by the level and timing of performance fees and deferred compensation. Turning to slide 10 on capital resources and our strong balance sheet. As of September 30th, 2026, we had $150 million of cash and $113 million of seed investments on the balance sheet, with a $200 million balance on our term loan credit facility and no outstanding balance on our revolving credit facility.