Q1 2025 Earnings Summary
- Robust ETF Growth: Management highlighted a differentiated suite of 19 ETFs with a promising pipeline and strong track records, positioning the firm well to capitalize on expanding market demand for ETFs.
- Global Retirement Expansion: The firm is leveraging strategic partnerships across regions—including Korea, Japan, Canada, the U.K., and the Middle East—to introduce tailored retirement solutions, potentially opening new revenue channels over the next few years.
- Disciplined Capital Allocation: With $3.3 billion in cash and discretionary investments and an opportunistic share buyback approach, the firm is well positioned to invest in growth opportunities and enhance shareholder returns.
- Market volatility and net outflows: The Q&A revealed that significant market volatility led to $8.6 billion in net outflows in Q1—underpinned by a spike in retail outflows—which may challenge future revenue growth and compound uncertainty moving forward.
- Declining effective fee rates: Discussions highlighted a continued decline in effective fee rates driven by structural shifts toward lower-cost vehicles and changes in the asset mix, which could pressure margins over time.
- Underperformance in private market lending: The Q&A noted that private lending initiatives like Oak Credit have been slower than expected, with only $54 million of flows reported despite competitive efforts, signaling potential hurdles in expanding fee-generating assets.
| Metric | YoY Change | Reason |
|---|---|---|
Total Net Revenues | +0.8% (Q1 2025: $1,763.9M vs Q1 2024: $1,750.2M) | Increase driven primarily by higher investment advisory fees (rising from $1,536.4M to $1,598.4M) which built on earlier gains in AUM, although partially offset by a dramatic reversal in capital allocation-based income (from +$47.1M to –$1.2M). This mix reflects persistent market strengths from previous periods counterbalanced by recent challenges in alternative income sources. |
Investment Advisory Fees | +4.0% (Q1 2025: $1,598.4M vs Q1 2024: $1,536.4M) | Growth largely attributed to a 9.2% increase in average AUM (from $1,484.4B to $1,620.3B) that built on previous period improvements from FY2024, even though the annualized effective fee rate edged lower (from 40.5 bps to 40.0 bps) due to a mix shift toward lower-fee products. |
Net Income | ~ –15% (Q1 2025: $505.1M vs Q1 2024: $593.4M) | Decline driven by a substantial reduction in non-operating income—with net gains on investments and related items falling sharply—and partly compounded by higher operating expenses amid softer market performance compared to prior strong years. |
Capital Allocation-Based Income | Reversal from +$47.1M (Q1 2024) to –$1.2M (Q1 2025) | Significant drop mainly due to lower accrued carried interest (declining from $59.5M to $9.2M) along with higher acquisition-related impairments and net distributions. This represents a notable change from prior periods where market conditions were more favorable, leading to higher CABI. |
Operating Cash Flow | Nearly flat (~$632.9M in Q1 2025 vs $637.3M in Q1 2024) | Stability in operating cash flow resulted from offsetting factors: improvements in non-cash adjustments and working capital changes balanced against lower net income and shifts in investing activities, maintaining similar levels to the previous period. |
Total Assets & Cash & Cash Equivalents | Total Assets +9% (from $12,854.0M to $13,993.7M); Cash +17% (from $2,649.8M to $2,836.7M) | Enhanced balance sheet strength reflects cumulative benefits from prior strong operating performance: higher retained earnings and effective liquidity management have driven a significant increase in total assets and cash, building on gains recorded in previous periods and supported by robust operating cash flows and strategic financing decisions. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted Operating Expenses | FY 2025 | 4% to 6% increase over FY 2024 expenses of $4.46B | 1% to 3% increase over FY 2024 expenses of $4.46B | lowered |
Share Buybacks | FY 2025 | no prior guidance | $217.5M repurchased in Q1 2025; additional $65.4M in April 2025; total $283M | no prior guidance |
Capital Allocation | FY 2025 | no prior guidance | $3.3B in cash and discretionary investments available | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
ETF Business Growth | Q4 2024 saw significant AUM expansion and new ETF launches ; Q3 2024 highlighted expanded customer reach and incremental opportunities ; Q2 2024 emphasized strong inflows and product broadening. | Q1 2025 reported robust momentum—with AUM reaching $12.5 billion, impressive net inflows, and two new ETF launches—demonstrating scale‐enhancing growth. | Consistent, accelerating growth with highly positive sentiment. |
Cannibalization Concerns | Q3 2024 mentioned some cannibalization risks (e.g., semi‐transparent ETFs cloning existing strategies) ; Q4 and Q2 2024 did not explicitly readdress this concern. | Q1 2025 reiterated a selective approach by offering ETFs as a share class for existing funds to minimize cannibalization risks. | Persistent concern with evolving mitigation strategies; sentiment remains neutral-to-positive. |
Retirement Solutions Innovation | Q4 2024 showcased new initiatives like Personalized Retirement Manager and managed lifetime income products ; Q3 2024 and Q2 2024 introduced additional product launches and frameworks (e.g., the Retirement Income Solutions 5D framework). | Q1 2025 expanded offerings with tools like the Social Security Analyzer and further refined target date strategies. | Steady and deepening innovation with enhanced customization—likely to have a large future impact. |
Global Expansion | Q4 and Q3 2024 highlighted international initiatives (launches in Canada and partnerships in EMEA & APAC) ; Q2 2024 emphasized positive international net flows and regional performance. | Q1 2025 detailed targeted initiatives in Japan, Korea, the U.K., and the Middle East to tailor products to local needs. | Consistent international push with deeper regional tailoring; sentiment is strategically positive. |
Net Flow Dynamics and Outflow Challenges | Q4 2024 noted reduced net outflows in specific segments (e.g., target date, ETFs) ; Q3 2024 reported mixed results with continued outflows yet significant inflows in targeted areas ; Q2 2024 described improved net flow trends versus the previous year. | Q1 2025 showed mixed results—overall net outflows of $8.6 billion coexisting with robust inflows in fixed income and target date funds. | Mixed dynamics persist; challenges in equity flows counterbalanced by pockets of strength, suggesting cautious optimism. |
Fee Compression and Revenue Margin Pressure | Q4 2024 detailed higher-than-average fee compression due to a shift to lower-fee vehicles (common trust, ETFs, SMAs) ; Q3 and Q2 2024 noted both structural and cyclical impacts on fee rates. | Q1 2025 pointed to structural shifts (about 60% impact) and changes in asset mix driving a 40-basis-point effective fee rate. | Structural fee compression continues amid low-cost trends; margins remain pressured, with a cautious outlook. |
Fixed Income and Alternative Investments Expansion | Q4 2024 underscored strong fixed income inflows and strategic moves in alternatives (including partnering with insurers and exploration of acquisitions) ; Q3 2024 highlighted fixed income inflows and pipeline momentum, especially via insurance channels ; Q2 2024 discussed new mandates and launches in fixed income and alternatives—particularly private credit solutions. | Q1 2025 reported solid fixed income inflows ($5.4B) alongside mixed alternative performance, while continuing to explore private market alternatives and potential strategic acquisitions. | Consistent expansion with fixed income showing strength; alternatives face competitive challenges, with a cautious but forward-looking sentiment. |
Strategic Partnerships and Distribution Network Expansion | Q4 2024 emphasized new agreements expanding adviser access and broadening insurance channels ; Q3 and Q2 2024 detailed enhanced ETF placements and a major broker-dealer partnership, reaching 10,000 advisers and 2 million end clients. | Q1 2025 provided further detail on multi-regional partnerships (Japan, Korea, U.K., Canada) and additional product tools (e.g., Social Security Analyzer) bolstering network expansion. | Ongoing and broadened strategic partnerships both domestically and globally; sentiment is strongly positive regarding distribution. |
Private Market Lending/Private Credit Performance Shift | Q4 2024 mentioned private credit outperforming other private market segments ; Q3 2024 celebrated record capital commitments and the first dedicated senior private lending fund ; Q2 2024 detailed the roll-out of OCREDIT and OLEND while noting modest deployment. | Q1 2025 noted softer-than-expected flows for O-Credit ($54M) amid a soft M&A environment, while remaining focused on future momentum. | Growth potential is evident, yet deployment challenges persist; sentiment is cautiously optimistic amid competitive pressures. |
Active Management and Investment Performance Challenges | Q4 2024 reported mixed performance with many flagship funds beating peers but noted broader market headwinds ; Q3 2024 acknowledged short-term challenges alongside long-term strengths ; Q2 2024 highlighted performance improvements and easing redemption pressures. | Q1 2025 reported strong performance in many areas (e.g., target date funds, value equities) despite continued challenges in some equity strategies. | Active management remains a key focus with improving performance overall; persistent challenges in select areas but long-term outlook is positive. |
Capital Allocation Strategy and Share Buybacks | Q2 2024 stressed a long-term capital management philosophy—emphasizing recurring dividends and opportunistic buybacks (with significant share repurchases) ; Q3 2024 noted $71M in repurchases with consistent capital return strategies; Q4 2024 reinforced an ongoing buyback program alongside a solid balance sheet. | Q1 2025 reported increased buyback activity (totaling $283M through April) while maintaining sufficient cash reserves for strategic M&A and other investments. | A steady emphasis on capital return persists, with an increased buyback pace and flexibility for future strategic investments; sentiment is confident. |
Rising Operating Expenses Impacting Profitability | Q2 2024 noted a 7.8% rise in expenses yet maintained strong EPS and operating income; Q3 2024 reported a moderate increase aligned with revenue growth and provided full-year guidance; Q4 2024 explained a 6.3% annual rise with real estate cost impacts. | Q1 2025 reported a 7.4% YoY increase and revised guidance (1%–3% growth), with management taking steps like slowing hiring and reducing variable costs. | Rising expenses continue due to market-driven cost pressures; however, strategic cost management initiatives and structural savings efforts are in place—sentiment is cautiously managed. |
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Capital Allocation
Q: How will capital be allocated this quarter?
A: Management highlighted a $3.3 billion cash and discretionary investments balance, with roughly half available for strategic opportunities such as opportunistic share buybacks and selective M&A to bolster organic growth. -
Net Flows
Q: What trends are seen in asset flows?
A: They observed mixed flows—equity outflows from retail were offset by solid fixed income inflows—with an overall outlook for 2025 showing improvement over 2024, despite near-term volatility. -
Fee Rate Dynamics
Q: What drove changes in the fee rate?
A: The effective fee rate declined due to a 60% structural shift toward lower cost vehicles and 40% cyclical adjustments in the asset mix, reflecting both long-term and market-driven elements. -
ETF Strategy
Q: What’s next for your ETF business?
A: Management is expanding their ETF suite—now at 19 products—with strong performance and a robust pipeline of new offerings, aiming to capitalize on both U.S. and international demand. -
Alternative Investments
Q: How will alternatives integrate into retirement?
A: They are exploring incorporating private market alternatives into retirement solutions by blending liquid and private assets, addressing liquidity and fee concerns while enhancing risk/reward profiles. -
Private Lending Status
Q: What is the update on private lending flows?
A: The Oak Credit segment recorded $54 million in flows, though deployment remains cautious in a highly competitive environment, with efforts underway to build market momentum. -
Expense Management
Q: How are operating expenses behaving?
A: Operating expenses have risen due to increased market-driven costs and compensation, but current guidance reflects a managed growth target between 1%–3%, accounting for recent market volatility. -
International Retirement Expansion
Q: What are your plans for international retirement markets?
A: The firm is partnering with local managers in diverse regions such as Korea, Japan, Canada, the U.K., and the Middle East to deliver bespoke retirement products, anticipating significant contributions over the next 3–5 years.