Virtus Investment Partners - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered higher margins and EPS on seasonal expense normalization, with GAAP revenue $210.5M and adjusted EPS $6.25; adjusted operating margin rose to 31.3% from 27.6% QoQ.
• Results vs consensus: adjusted EPS modest beat (+$0.04*) and GAAP revenue strong beat (+$17.3M*), while EBITDA missed (-$9.3M*) as per S&P Global; net flows remained negative at ($3.9)B, though AUM rose to $170.7B on market performance.
• Management signaled modeling guardrails: average fee rate normalized (~41.3 bps), employment expenses trending to the mid-point of 49–51% of revenues, other opex in the $30–32M range, and interest & dividend income guided to ~$4.3M next quarter.
• Capital return and pipeline: $30M buybacks (175,872 shares) in Q2, net debt 0.2x EBITDA; pipeline for inorganic expansion (private markets, differentiated strategies) and a new ~$400M CLO expected in Q3.

What Went Well and What Went Wrong

What Went Well

• Adjusted operating margin expanded to 31.3% (from 27.6% QoQ), driven by lower seasonal employment expenses; adjusted EPS rose to $6.25 (+9% QoQ).
• ETFs continued positive net flows and organic growth; ETF AUM reached ~$3.7B with a 74% TTM organic growth rate (and ~3.9B as of the day before the call), with strong sales and broadening access initiatives underway.
• Strong capital return and balance sheet flexibility: $30M repurchases at $171 average price, working capital $144.0M, net debt $62.5M (0.2x EBITDA) and undrawn $175M revolver provide optionality.

What Went Wrong

• Net outflows worsened to ($3.9)B from ($3.0)B QoQ, led by institutional large-cap growth redemptions and retail separate accounts, while open-end equity continued outflows.
• Fee rate compression: average fee rate declined to 41.3 bps (41.1 bps ex performance fees) vs 41.7 bps in Q1, reflecting mix shift toward fixed income within retail funds.
• Year-over-year declines: GAAP revenues fell 6% and adjusted revenues fell 6% YoY, reflecting lower average AUM and product mix headwinds.

Transcript

Speaker 2

Good morning. My name is Deedee, and I will be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners quarterly conference call. The slide presentation for this call is available in the Investor Relations section of the Virtus website, www.virtus.com. This call is being recorded and will be available for replay on the Virtus website. At this time, all participants are in the listen-only mode. After the speaker's remarks, there will be a question and answer period, and instructions will follow at that time. I will now turn the conference to your host, Sean Rourke.

Speaker 4

Thanks, Deedee, and good morning, everyone. On behalf of Virtus Investment Partners, I'd like to welcome you to the discussion of our operating and financial results for the second quarter of 2025. Our speakers today are George Aylward, President and CEO, and Mike Angerthal, Chief Financial Officer. Following the prepared remarks, we'll have a Q&A period. Before we begin, please note the disclosures on page two of the slide presentation. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and as such, are subject to known and unknown risks and uncertainties, including but not limited to those factors set forth in today's news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in the statements.

In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with the GAAP results. Reconciliations of these non-GAAP financial measures with the applicable GAAP measures are included in today's news release and financial supplement, which are available on our website. Now I'd like to turn the call over to George. George?

Speaker 0

Thank you, Sean, and good morning, everyone. Today, I'll start with an overview of the results we reported this morning, and then I'll turn it over to Mike for more detail. The second quarter began with challenging market conditions and volatility, but then had steady improvement, culminating in momentum by June, which is reflected in our financial and operating results. Assets under management grew 2% in the quarter, benefiting from the market rebound off the April lows. Net outflows across products were primarily in our quality-oriented equity strategies, which faced headwinds in a market environment that largely favored momentum-driven strategies.

Key highlights of the quarter included higher earnings per share and operating margin, continued positive net flows in exchange-traded funds, strong long-term relative investment performance, our highest level of share repurchases in three years, and low net leverage and meaningful liquidity, providing ongoing flexibility to invest in the business and return capital to shareholders. We continue to focus on the execution of various initiatives related to expanding our offerings and channel availability, both organically as well as through inorganic opportunities. As we commented on last quarter, we've been focused on expanding our offerings of retail separate accounts, exchange-traded funds, and global funds. For exchange-traded funds and global funds, we anticipate launching multiple products over the coming quarters, including from Sylvan Sykes, Stone Harbor, and AlphaSimplex.

For retail separate accounts, we are expanding our offerings of fixed income and high conviction growth equity strategies, as well as products that leverage multiple managers and strategies. In addition, we are leveraging our fixed income capabilities with our first interval fund. We also have efforts underway to increase the availability of our growing exchange-traded fund offerings and to expand the asset raising capabilities of our well-regarded wealth management business within Kayne Anderson, which has grown to nearly $9 billion in assets. As we focus on growth opportunities, we would note that the environment continues to be highly attractive for product expansion, distribution enhancing, or scale-oriented inorganic transactions. We remain optimistic about such opportunities, particularly in the areas of current and growing investor interest, such as private markets and differentiated and compelling traditional strategies, which we're actively pursuing.

The number of opportunities at various stages in the pipeline is at its highest level and spreads a broad range of structures, capabilities, and sizes. Our strong liquidity and flexible balance sheet position us well to act on any strategically and financially compelling opportunities. Turning to investment performance, we're pleased with the performance we've generated over market cycles. Over the 10-year period, 74% of our equity assets and 69% of our fixed income assets beat their benchmark. For just mutual funds, 73% of equity funds and 85% of fixed funds outperformed the peer median. I would also note that 27 of our retail funds are rated four or five stars, and 86% of our rated retail fund assets were in three, four, or five stars. We've included a new slide that provides additional investment performance information.

Turning now to review of the results, total assets under management were $171 billion at June 30, up $4 billion sequentially due to market performance. Total sales of $5.6 billion compared with $6.2 billion in the first quarter, with modest decline across products, which was in part a reflection of market disruption, particularly early in the quarter. Trends improved over the course of the quarter, with June being our best month of net flows, including essentially break-even net flows in open-end funds. Total net outflows for the quarter of $3.9 billion were largely in equity strategies, as fixed income, alternatives, and multi-assets each had modest net outflows. We did continue to have positive net flows in ETFs, which reached $3.7 billion in AUM, with an organic growth rate of 74% over the trailing 12 months, and which hit $3.9 billion as of yesterday.

Looking at flows across assets, the equity net outflows were driven by strategies with a quality orientation in a market that favored momentum, as well as reduced sales from the soft closing of the SMIDCap core equity model offering late last year. Fixed income net flows were modestly negative for the quarter, with net outflows in April and May and a return to positive flows in June. Relative investment performance of our fixed income strategies has been strong for the recent one-year period, as well as the longer term, creating demand for funds across the spectrum of credit quality and duration, several of which were among our top selling funds and ETFs in the quarter. Net flows of alternative strategies were also modestly negative, with favorable trends throughout the quarter, including positive net flows in June.

In terms of what we're seeing in July, market sentiment has continued to trend more favorably, and we are seeing a stronger flow profile for our fixed income funds, though not yet for the equity funds. ETFs, as I noted, continue the positive trend with an increase in sales. In institutional, trends are similar to the second quarter, with known redemptions exceeding known wins, with redemptions primarily in quality large cap, while known wins span a range of strategies, including emerging market debt and global and domestic REITs. We also anticipate launching a new collateralized loan obligation (CLO) later in the third quarter, targeting approximately $400 million in AUM. Turning now to our financial results, the sequential improvement in our financial results reflected the impact of the prior quarter seasonal expenses, partially offset by lower average AUM levels.

The operating margin was 31.3%, up sequentially from 27.6%, which included the impact of the seasonal expenses. Earnings per share as adjusted of $6.25, increased from $5.73 in the first quarter. Relative to the more comparable prior year period, earnings per share as adjusted decreased 4% on lower average assets. In terms of our balance sheet and capital during the quarter, we increased our share buyback to $30 million to repurchase over 175,000 shares, which represented 3% of beginning outstanding shares. We ended the quarter with significant liquidity and modest net debt position, providing ongoing opportunities to invest in the growth of the business and return capital to shareholders. With that, I'll turn the call over to Mike. Mike? Thank you, George. Good to be with you all this morning. Starting with our results on slide seven, assets under management.

Our total assets under management at June 30th were $170.7 billion and represented a broad range of products and asset classes. By product, institutional is our largest category at 33% of AUM. Retail separate accounts, including wealth management, at 28% and U.S. retail mutual funds at 27%. The remaining 12% comprises closed-end funds, global funds, and ETFs. We are also diversified within asset classes. In equities between international and domestic, and within domestic, well-represented among mid, small, and large cap strategies. Fixed income is well-diversified across duration, credit quality, and geography. Turning to slide eight, asset flows. Sales of $5.6 billion compared with $6.2 billion in the first quarter. Reviewing by product, institutional sales of $1.3 billion compared with $1.5 billion last quarter, as higher sales of alternative strategies were offset by lower sales of fixed income and global equity.

Retail separate account sales of $1.5 billion declined from $1.7 billion in the prior quarter, primarily due to lower SMIDCap equity. Open-end fund sales of $2.8 billion compared with $3 billion, as higher sales of large cap and international were offset by other strategies. Within open-end funds, ETF sales were again strong at $0.4 billion, essentially unchanged from the first quarter. Total net outflows of $3.9 billion compared with $3 billion last quarter. Reviewing by product, institutional net outflows of $2.2 billion increased from $1.2 billion, with the net outflows driven by quality-oriented large cap growth. Institutional flows will fluctuate depending on the timing of client actions. Retail separate accounts had net outflows of $0.8 billion, largely reflecting the continued impact of the soft closing of a SMIDCap core equity model offering late last year.

We do offer other SMIDCap strategies, as well as MIDCap, where we have significant capacity and flows have been positive. In addition, we recently introduced an SMA, leveraging the strong performance of our high conviction large cap growth capability. For open-end funds, net outflows of $1 billion were at generally the same level as the prior quarter and were driven by equity strategies, as fixed income net flows were flat. Net flows trended favorably during the quarter, with June essentially break-even. Within open-end funds, ETFs continued to generate a strong double-digit organic growth rate with $0.2 billion of positive net flows. Turning to slide nine, investment management fees, as adjusted, of $171.9 million decreased 4%, reflecting the 4% sequential decline in average assets under management and a lower average fee rate.

The average fee rate was 41.3 basis points, or 41.1 basis points excluding performance fees, and compared with 41.7 basis points in the first quarter. The change in the fee rate from the first quarter largely reflected the mix of asset classes within retail funds, given relatively stronger flows of fixed income strategies. Looking ahead, we believe the second quarter normalized average fee rate is reasonable for modeling purposes. As always, the fee rate will be impacted by markets and the mix of assets. Slide 10 shows the five-quarter trend in employment expenses. Total employment expenses, as adjusted, of $97.2 million decreased $12 million, or 11% sequentially, reflecting the impact of seasonal expenses in the prior quarter, as well as lower variable incentive compensation. Employment expenses were 50.9% of revenues as adjusted, up from the seasonally adjusted prior quarter level of 50.3% due to lower revenues.

Looking ahead, it is reasonable to anticipate employment expenses as a percentage of revenues would trend toward the middle of our 49% to 51% range. As always, it will be variable based on market performance in particular, as well as profits and sales. Turning to slide 11, other operating expenses as adjusted were $32 million, with the 2% sequential increase due to $0.9 million of annual equity grants to the Board of Directors. Excluding the grants, other operating expenses declined modestly from the prior quarter. As a percentage of second quarter revenues, other operating expenses were 16.7%, up from 15.8%, primarily due to the annual grants. Other operating expenses have remained within a narrow range of $30 million to $32 million per quarter, and we continue to believe that this level is appropriate for modeling purposes. Slide 12 illustrates the trend in earnings.

Operating income as adjusted of $59.8 million increased 10% sequentially due to the impact of the prior quarter seasonal expenses. Excluding those items, operating income decreased 7%, primarily due to lower average assets under management. The operating margin as adjusted of 31.3% compared with 27.6% in the first quarter. With respect to non-operating items, interest and dividend income of $5.3 million included an elevated level of collateralized loan obligation (CLO) interest income. Looking ahead to the third quarter, it would be reasonable to anticipate interest and dividend income of approximately $4.3 million. Other income, which largely reflects the earnings from our equity stake in Zevenbergen Capital, increased modestly to $1.2 million. Non-controlling interests, which reflect minority interest in SGA, were higher sequentially by $0.7 million. For both other income and non-controlling interests, the second quarter is a reasonable run rate for modeling.

Net income as adjusted of $6.25 per diluted share increased 9% from $5.73 in the first quarter. In terms of GAAP results, net income per share of $6.12 increased from $4.05 per share in the first quarter due to the impact of first quarter seasonal items, as well as $0.50 of fair value adjustments to minority interests and $0.32 of fair value adjustments to contingent considerations. Slide 13 shows the trend of our capital liquidity and select balance sheet items. Cash and equivalents at June 30 were $172.2 million. In addition, we had $148.2 million of seed capital investments to support growth initiatives and $126.7 million of other investments, primarily in our CLOs. Working capital was $144 million, up 5% from $137.2 million, as cash generated more than offset return of capital.

During the second quarter, we repurchased 175,872 shares of common stock at an average price of $171 per share for a total of $30 million. That is up from $20 million in the first quarter. For the year-to-date period, our repurchases have contributed to a 3% reduction in our share count. At June 30, gross debt to EBITDA was 0.7 times, unchanged from March 31, and we ended the quarter with $62.5 million of net debt, or 0.2 times EBITDA. Our adequate levels of liquidity, including an undrawn $175 million revolver and modest leverage, provide financial flexibility to continue to invest in the business and return capital. Looking ahead, we would note that anticipated capital uses in the third quarter include the potential new CLO, where our commitment would be about $30 million.

Also, as a reminder, we will have the last of our scheduled minority interest purchases with SGA, which should also approximate $30 million. With that, let me turn the call back over to George. George? Thank you, Mike. We are now going to take your questions. Deedee, would you please open up the line?

Speaker 2

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Ben Budish of Barclays. Your line is open.

Speaker 3

Hi. Good morning, and thank you for taking the questions. Maybe first, Mike, you just talked about $30 million in share repurchases in Q2. It's the highest number, I think, in quite some time. Just curious, how should we be thinking about, I imagine there's some, you know, being opportunistic in that. You also talked about some, you know, upcoming uses of capital, you know, collateralized loan obligation seed capital and the SGA minority interest pay down. How should we think about what else is maybe available for repurchases and your kind of current appetite between repurchases and dividends?

Speaker 0

Yeah, I appreciate you highlighting the capital uses. As you know, we take a balanced approach to capital management, and we have leaned in both in this quarter, as we particularly saw a compelling valuation in our stock. Year to date, we've now done $50 million of buybacks, which eclipsed the total level of 2024. I think that brings a payout ratio over 100%. We'll look at all factors around highest and best use of capital. George alluded to inorganic opportunities potentially coming down, continuing to invest in the business, as well as the two specific uses of capital here in the third quarter. We will balance all of that as we continue to make capital decisions that we think will deliver long-term shareholder value.

Speaker 3

I appreciate that. Maybe along the same lines, George, you mentioned the environment is attractive for a number of things, and your pipeline is at its highest level. Curious if you could share any additional color on the types of assets you're looking at. Has there been any change to the way you're thinking about the strategy? You mentioned private markets specifically. Kind of curious, how do you think about the ability to compete given so many scaled competitors? There may be more types of opportunities that make sense, but any additional commentary there would be helpful. Thank you.

Speaker 0

Sure. What I kind of indicated is just the level of activity is at its highest level. We're spending a lot of time evaluating different opportunities, and as we look at those, it could come along the lines of either attractive product extensions, distribution expansion, or those that will just fundamentally enhance scale and therefore accretion. It's been a very interesting environment out there, as I think the opportunities between, I specifically referenced private markets, but in addition to private markets, there are very attractive traditional strategies that are still things that are in demand to investors.

As we look at it, our view is that there is an opportunity on the private market side in particular, that there has been a lot of growth in that area, and a lot of that growth in that area has been very narrow in terms of the number of players that have been providing those. We do think, like there is in our general business, there is an opportunity set for more differentiated individual boutiquey types of capabilities to sort of diversify some of the exposures that investors are currently having, which has generally been in a small number of scale players. Our goal is really always to offer something that's a little more differentiated and separate rather than just going directly against a scale player with a general type of strategy.

Generally, we always look at strategies that are a little different, a little differentiated, and have a different set of attractions and can really balance out the exposures that people have. We find it interesting. We do think that the industry continues to contemplate how to converge some of the privates and the publics, and I think on the public side, there's opportunities to enhance and further consolidate on distribution opportunities.

Speaker 3

All right. Thank you very much. Appreciate your response.

Speaker 0

Thank you.

Speaker 2

Thank you. Our next question comes from Bill Katz of TD Cowen. Your line is open.

Great. Thank you very much for taking the questions this morning. Happy Friday, everybody. Just in terms of just thinking through the guidance on the comp side, you guys have been terrific on managing expenses. How much of the sort of comp is just related to the variable revenue, the revenue backdrop? How much is more structural? I guess the question is, as we look ahead to the extent that markets continue to normalize, is there any catch-up spending that needs to potentially come back, and if so, where might that be?

Speaker 0

Yeah, I think we did guide specifically on the employment row, damp back to the middle of our range. As you know, we've been in that 49% to 51% range in this quarter, where the beginning period assets were impacted by the drawdown in March and April. We ticked up toward the high end of the range. I think where ending assets are about 2% above average, we would, you know, all else being equal, just use an appropriate midpoint of that employment range for modeling purposes going forward. As you know, that range is always impacted by market conditions as well as profits and sales. I think, you know, there is a positive impact on the leverageability of the market. I think other operating, we've been managing that also in a tight range, $30 million to $32 million, which remains appropriate for modeling purposes.

I don't foresee any catch-up spending. I think, you know, we're in a position to continue to deliver incremental margins in that 50% to 55% level as we look forward.

Yeah. I mean, the one thing I would just add too, because I think embedded in your question was specifics around the extent of which our comp is variable. As a reminder, our compensation is highly variable, right? Our investment managers' incentives are really profit-based. Our sales-based are generally based on sales or performance, and even our overarching corporate plans are all highly variable. We do have base salaries, et cetera. In terms of a catch-up, it would really just be through the variable as a percentage of revenue, if that's helpful. Yep, makes sense. Maybe turn to flows for a moment. Just wondering if you could maybe step back and sort of give us what the nets look like in July. It seems like some ins and outs across the different segments.

The broader question is, just on the institutional side, how are the conversations going from the client side? Where are you seeing the allocations migrate toward, just as we think through equity, fixed income or U.S., non-U.S., et cetera? Thank you.

Yeah. On the flows in terms of July, we gave a little bit of an impression, and again, July is only one month. Going back to the second quarter, obviously June was a much more pleasurable month than was that of April. There was really a pausing in terms of certain investor appetite at the end of the first quarter into the beginning. Liberation Day obviously did create a little bit of uncertainty around where people can invest. We saw that in our sales. We also saw that in terms of the whole quality versus momentum environment, which for us is more acute because we are slightly over-concentrated on the quality side for some of our equity strategies. I think as we signaled in the scripts, we were basically seeing an improving experience throughout that quarter.

Particularly as you got to the end of the quarter, fixed income alternatives, et cetera, were actually doing much better and were modestly break-even to positive. Most of that has continued in July. We continue to see strength around the fixed income, which is very helpful. In particular, the ETFs, again, our business has been a smaller business, but it's been growing at a very good rate. As we've indicated, we don't have full availability for all our ETFs everywhere we want it. That's a big focus, and we're pleased to see some of that growing. In terms on the institutional side, with the longer time horizons that they have, there's a little less cyclicality in terms of what they're looking for. We did highlight where we have had the outflows has been in more of the quality large cap side.

We indicated on the inflow side, we do actually see opportunities, and it's been a long time for emerging market debt. I hope that's a trend, as well as in some of our global and domestic REITs. Mike, is there other things you'd highlight there? Yeah. I would just remind you that we do have a CLO that we anticipate offering and issuing in the back half of the year. There is breadth in the institutional pipeline across managers, including our focused growth sort of momentum managers, where we've seen some success there as well.

All right. Thank you. I'll get back in the queue. Thank you.

Thank you. Thanks, Bill.

Speaker 2

Thank you. Our next question comes from Chris Van Love of Piper Sandler. Your line is open.

Thank you. Good morning. Appreciate you taking my questions. First, following up on the M&A outlook, you mentioned there are conversations, plenty of activity. You're looking at private markets, traditionals. Can you dig into some of the valuations that you're seeing in a big picture way? Does it still remain tough from a valuation standpoint in private markets? Within private markets, where are some of the areas that you might be most interested in?

Speaker 0

I'm not going to get into specifics, but starting in terms of valuations, the valuations of the private markets are higher than the valuations of the public markets. I think there's some divergence within those depending upon the subcategory, whether it's PE, private credit, real assets, and also whether it's really more focused on direct origination versus really more of an allocator. Within that, in terms of how differentiated a strategy is, it's still a very hard area in terms of isolating the specific valuation multiple, as it is as well on the traditional side, which continues obviously to be lower than the private side. Again, there's a premium for those things that are more attractive and more stable and less for others. It's part of the conversation as you sort of think through those types of things.

Fundamentally, as we, and I assume others, look at it, it's really about what is the long-term strategic additive capability that's really going to be important going forward. I think we, like everyone else, do fundamentally believe that there needs to be both the public and the private elements within the well-diversified portfolio.

Great. Thank you. That makes sense. Just following up on flows as well, you did mention early in the second quarter was tougher, but June was a brighter picture. On July, can you just frame a little bit how July compares to June versus a little bit earlier in the quarter? Did that momentum continue, pull back a little bit, just a little bit more color there would be great.

Yeah. I mean, the momentum continues. From June, so again, you know, June was, again, a much better month than obviously April. That continued in, I think, even highlighted in some areas, even like our ETFs, there's actually, or fixed income in general, there was not only continued, but maybe a slight increase in that. We're really optimistic as we kind of see that. Really, even on the equity side, you know, while for the quality-oriented equities, that was a driver of outflows, and we do see those, you know, Mike made some references. Not all of our equity is quality-oriented. We do have capabilities that we would characterize as more style agnostic. We have another capability that I would characterize as aggressive. We've actually seen, you know, opportunities there. Actually, that's some of the newer stuff that we've recently expanded into the retail separate accounts.

That's an area that we're hopeful, if someone is more of a risk-on appetite, that those become more attractive. Also made reference to on the fixed income side, where again, we've seen the flows on the open-end funds and the ETFs becoming more attractive, particularly in that June and July timeframe. That is an area where we've also very recently expanded our SMA offerings to, again, some investors prefer to use the registered fund vehicles, but there are those that obviously prefer that more in an SMA wrapper. That is something that's currently actively being offered. That's where it's very recent, actually.

Great. Thank you. I appreciate you taking my questions.

Speaker 2

Thank you. Our next question comes from Michael J. Cyprys of Morgan Stanley. Your line is open.

Hey, good morning. Thanks for taking the question. I just wanted to ask about ETFs. I was hoping you might be able to elaborate a bit on the success that you're seeing across your ETF platform. The gross sales flows up year-to-date nicely. Maybe also talk about some of the initiatives that you're thinking about over the next 12 months to drive even accelerated growth across the ETF platform as you look out from here. Maybe you can just remind us how you're in setting the sales force to drive growth on the sale of ETFs and how sort of those sales incentive compensation payments and such compare to mutual funds. Thanks.

Speaker 0

Sure. On the ETFs, we've been very pleased with what we've seen. As a reminder, our complex is a slightly newer complex. Over the last five or six years, we have been introducing product and building track records because the nature of the products that we offer, the majority of which are more actively managed as opposed to passive, do need to generate a little bit of a track record. We're pleased to see that those have now started raising assets. I think we referred to the growth of about 74% rate, and then the consistent gross sales and positive net flows. That has been growing because as the funds get larger and bigger, that really allows us to deal with the other part of the equation, which is access.

We've really been focused on two things, one of which is to make sure that we are continuing to expand our offerings. We've been very active in the product introduction side. In the comments, I referenced some other new things that we think are very exciting, mostly on the actively managed side of that range. We're also on the access, which part of that is getting it to the right level of scale, getting it accepted in certain of the channels or the sub-channels. All of those foundational steps continue. We're happy to see that the net result so far, early innings, has actually been quite positive. In terms of the wholesaler and the sales force, the sales force, their obligation is really to work with the financial advisor with their vehicle of choice.

The market has really moved to the point where financial advisors, some will have a preference for different structures, whether it be the retail separate account, the ETF, or the fund. In the conversations and the activities, the wholesalers are really determining which of those are the right fit. There are many financial advisors who are entirely focused on ETFs as opposed to funds. As we structure our compensation, as we always do, we want to structure it to incent the right behavior, have that be aligned with the contribution that it makes to the company. Just as importantly, trying to have it focus on the best efforts to maintain and defend assets as well as just grow them.

Great. Just a follow-up question on the appetite for inorganic activity. I'm curious how you're thinking about prioritizing private market opportunities, properties there versus more scale-driven on the traditional side and otherwise. Broadly, if you could talk about some of the steps you would look to take to navigate complexity of potentially bringing in liquids to a platform that historically has operated in liquid public markets.

Yeah. In terms of the different types of opportunities, all of them have different attractive characteristics. I also referenced that in terms of structures, our model is a little more flexible in terms of how we partner in terms of minority, majority, JV, wholly owned, et cetera, right? Each of them, as we evaluate things like that, we look at them individually and the nature of their contribution and then relative to the nature of the other. We will only do an inorganic transaction if we do believe fundamentally it is a way to create a good use of capital to create long-term shareholder value. In terms of the second part of your question about integrating into a platform that's more traditionally public, I think that goes back to the way that you're partnering because we basically partner with firms and work with firms or have that expertise.

In many ways, some of the private markets are being sold by wholesalers that are selling the public markets. In many ways, we've always said that our sales force is really dealing with 80% of the book of the financial advisor, and we just need the other product to address the other 20% of the need. We do have a view that on the private market side, investors need to have more choices than what is currently available. That's really our goal, to sort of find that and then to leverage the infrastructure we have on the distribution side, as well as in many ways on the operational side, to bring that to market.

Is there a view that private market opportunities might fit better with a JV or partnership as opposed to more wholly owned, the path you've taken oftentimes in the past? Just curious how you think about that. Many others have tried in the private markets and the traditional space and maybe haven't lived up to expectations. Just curious any lessons you take away, how that informs your approach as you look forward, as you look to optimize and maximize the opportunity side.

Other people's experiences absolutely do influence how we would look at things as they influence others. There are differences between the publics and the private markets. I think in how you approach them, you really do have to sort of think through the nuances of that difference. We have not done a transaction in a period of time. That's in part, I would say, because as we kind of think through, particularly on the private market piece, doing it in the way that makes sense, that is correct. We do absolutely think that in some of the private market capabilities, some of the structures might be different than they might be, say, on a traditional. Just because you want to have the right alignment of interests and then the right fit between the two. At least, that's our perspective on those.

Great. Thank you.

Speaker 2

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Mr. Aylward.

Speaker 0

I just want to thank everyone today for joining us. As we always do, please, if you have any other questions, reach out. Thank you.

Speaker 2

That concludes today's call. Thank you for participating, and you may now disconnect.