VRTS Q2 2024: $12.5M Buybacks, M&A Amid Mid/Small-Cap Flow Headwinds
- Potential for improved flows from strategic asset diversification: Management highlighted that VRTS is well-positioned in mid-cap and small-cap markets, which could benefit from a reversion toward quality flows, potentially turning current headwinds into tailwinds as market dynamics shift.
- Active M&A pipeline and product expansion opportunities: The team discussed ongoing strategic M&A discussions and the opportunity to expand in areas like fixed income ETFs and liquid alternatives, which could further diversify revenue streams and drive future growth.
- Disciplined capital allocation reinforcing financial strength: The focus on balanced capital use—including consistent share buybacks, mindful debt reduction, and efficient recycling of seed capital—supports both operational flexibility and long-term shareholder value.
- Market headwinds: The reliance on mid- and small-cap strategies, which recently underperformed against large-cap indices, could delay or reduce net flow gains, presenting ongoing challenges in driving asset growth.
- Lumpy institutional flows: The inherent variability and unpredictability of Institutional flows—with known wins offset by significant rebalancing downswings—create uncertainty in future revenue and asset under management trends.
- Capital allocation pressures: The need to balance multiple capital uses—including seed capital investments, potential new CLO issuances, and significant stage minority purchases and contingent payments—might strain liquidity and dilute overall capital flexibility.
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Fee Strategy
Q: How do you balance pricing with new flows?
A: Management stated that they maintain a tight fee rate range while being competitive, with margins for different products hovering around 50–55%, underscoring a disciplined approach to both pricing and profitability. -
Capital Allocation
Q: How are you using capital for growth?
A: They allocate capital across organic growth and strategic seed investments for new products like fixed income ETFs and retail separate accounts, continuously recycling seed capital as opportunities arise. -
Capital Returns
Q: What’s the pace for buybacks and debt pay down?
A: Management noted that the cadence of share repurchases and debt repayments varies quarterly, balancing available cash and other capital needs, as seen with recent buybacks of $12.5 million and debt repayments around $5 million. -
Minority Purchase
Q: What are your plans for minority purchases?
A: They expect an additional stage purchase in mid-2025 along with contingent payments scheduled for Q1 2025 and Q1 2026, reflecting a structured approach to minority interests. -
Institutional Flows
Q: How do you forecast institutional flows this quarter?
A: Management acknowledged the inherently lumpy nature of institutional flows, noting that while volatility persists, known wins are expected to exceed redemptions, though timing remains variable. -
Flow Trends
Q: Do market dynamics affect your flow trends?
A: They indicated that recent market dynamics—particularly the underperformance of mid and small caps relative to large caps—have created headwinds, but anticipate opportunities when the trend reverts. -
M&A & Alts
Q: What is the outlook for M&A and liquid alts?
A: Conversations remain active with a focus on strategic relationships; recent acquisitions in the liquid alternative space underscore their interest in opportunities across private credit and real assets.
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