Item 1. Business
Item 1. Business.
Overview
We are a global, diversified asset management company with approximately $104 billion of assets under management as of December 31, 2023. We provide investment management services globally, predominantly to institutional investors. We operate our differentiated investment management business through our majority owned subsidiary, Acadian Asset Management LLC (“Acadian”), a leading systematic manager of active global, international equity and alternative strategies. The ownership structure of Acadian provides incentives for growth and prudent business management across multiple generations of Acadian partners, who retain meaningful levels of equity in their own business to preserve strong alignment of interests between us, Acadian, their clients and our shareholders. Acadian comprises our Quant & Solutions reportable segment.
We have generated strong, recurring free cash flow to our business that we can use for growth initiatives, return to shareholders through dividends and stock repurchases and to repay outstanding debt obligations. Our revenue consists largely of recurring management fees on assets under management and is not heavily dependent upon performance fees. Our profit-sharing model enables us to participate directly in margin expansion as Acadian grows.
Acadian
Acadian, founded in 1986, is a leading systematic investment manager of active global, international equity, and alternative strategies with approximately $104 billion in AUM as of December 31, 2023. Acadian pursues a fundamentally grounded, data-rich and highly structured approach to investing that seeks to identify and exploit systematic and structural inefficiencies in the markets. Acadian applies a range of investment and risk considerations to a universe of 40,000-plus securities taken from over 150 global markets. Acadian manages strategies in developed and emerging markets, including global, non-U.S. and small-cap equities, as well as managed volatility, systematic macro, equity alternatives, and credit strategies.
Acadian invests on behalf of a wide range of institutional clients across the globe, including public and private funds, endowments and foundations, and retail clients through sub-advisory channels. The firm’s clients were domiciled in approximately 20 countries across Asia, Australia, Europe and North America as of December 31, 2023. The firm has over 100 investment and research professionals and manages approximately 70 distinct investment products and strategies.
Competitive Strengths
Experience. As a pioneer in systematic investing, Acadian has been managing systematic equity portfolios since the 1980s. This experience affords us a broad perspective and data history. Guided by the economic intuition and insights of a talented, experienced, and diverse investment team, Acadian has been at the forefront of systematic research, signal development, and portfolio construction for 37 years.
Objectivity. Acadian uses a disciplined and objective process, underpinned by rich data and powerful technological tools. An extensive data repository, continually supplemented by an active alternative scouting effort, provides an extensive source for exploring new investment ideas. Given the size, breadth, and complexity of global equity markets, we believe that such an empirical approach is essential to exploiting behaviorally based mispricings and deliver superior risk-adjusted returns for our clients.
Research. Acadian is a research-focused firm. Its scientific approach to innovation is driven by research across signal generation, portfolio construction, implementation, and risk management. Research is data-dependent, and Acadian’s process benefits from its objectivity, breadth, and computational power. We recognize that markets are dynamic and that a robust culture of investment research is essential to maintaining a competitive edge.
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Capital Management
Our asset management business generates significant, recurring free cash flow that can be accessed to create value for our shareholders. In particular, we believe we can generate strong returns on allocated capital by, among other things, (i) providing seed capital to fund new products and strategies; (ii) providing investment capital to support strategic growth; and (iii) implementing opportunistic share repurchases. Management undertakes detailed business case analyses with respect to all growth opportunities, and only considers those that yield an acceptable return while operating within the parameters of our risk appetite. For the period January 1, 2019 to December 31, 2023, we repurchased approximately 63% of our shares.
Distribution Model and Client Base
Our distribution is focused on the institutional and sub-advisory channels. The institutional channel accounts for approximately 79% of our AUM. Within this channel, we have strong relationships in the public/government pension market (42% of our AUM as of December 31, 2023) and the corporate plan market (12% of our AUM as of December 31, 2023), which comprise a substantial portion of the institutional investment market overall, particularly in the U.S. Our institutional marketplace clients are highly diverse across industry segments and geographies and have various growth characteristics. Our institutional distribution channel includes clients from across the globe, including, but not limited to, pension funds, state and local governments; employee benefit plans and foundations and endowments. We offer our investment products to institutional clients directly and by marketing our services to the investment consultants and advisors that advise them. We maintain relationships with a number of insurance companies, private banks, Outsourced Chief Investment Officers (“OCIOs”) and Fund of Funds (“FoFs”). While we market primarily to institutional investors, we participate in the individual investor market through the sub-advisory channel, which represented 12% of our AUM as of December 31, 2023. We also manage assets for mutual funds, and other commingled products including UCITs and Collective Investment Trusts, which gives us exposure to a retail investor base and the defined contribution market.
Our clients can access our investment strategies through a range of investment vehicles:
• Separate Account : We manage separate account assets within most of our investment strategies. Our separate account clients span the broad spectrum of institutional investors. The fees we charge on separate accounts vary by client, investment strategy and the size of the account.
• Commingled Vehicle : We also offer access to a number of our strategies through Acadian-branded commingled vehicles both within and outside the U.S. Investors that do not meet our minimum account size for a separate account, or who otherwise prefer to invest through a fund, can invest in our pooled funds.
The goal of our marketing, distribution and client service efforts is to grow and maintain a client base that is diversified by investment strategy, investment vehicle, distribution channel, and geographic region. We focus our distribution and marketing efforts on sophisticated investors and asset allocators. Our client service and distribution teams comprise knowledgeable, seasoned professionals, experienced in working across the investment spectrum of investors.
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Our client base is diverse without significant concentration. As of December 31, 2023, our top five client relationships represented approximately 14% of total run rate gross management fee revenue, and our top 25 clients represented approximately 38% of run rate gross management fee revenue. The below graphic shows the breakdown of our assets under management as of December 31, 2023 by client type and location.
Total AUM: $103.7 bn
Data as of December 31, 2023
Products and Investment Performance
Product Mix
We offer leading strategies in global, international, U.S. and emerging markets equities, in addition to credit, and alternative investments.
The chart below presents our wide range of offerings. These areas have the potential to provide a balanced earnings stream to our business. We believe our offerings are well-positioned in areas of investor demand and the diversity of investment style and asset class can enable us to participate in growing segments of the industry, through a range of investing environments.
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Investment Performance
Our mission is to produce risk-adjusted performance, or alpha, for our clients. We have competitive near- and long-term alpha performance records and are well-positioned for continued growth.
In addition to analyzing our performance on a revenue-weighted basis, which gives us a perspective on product performance with respect to our existing client base, we also consider the number of our at-scale product strategies (defined as strategies with greater than $100 million of AUM) beating benchmarks. This latter measure, labeled as “equal-weighted,” indicates the opportunity we have to generate sales in a variety of market environments. For instance, strong performance in a newer, smaller product such as small-cap emerging markets may not affect revenue-weighted performance, but it can have a meaningful effect on revenue growth given client demand for this higher fee product. The charts below indicate that performance on a revenue-weighted basis relative to benchmark over the last five years have performed ahead of their respective benchmarks on a three-, five- and ten-year basis.
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Data as of December 31 for the years 2019 to 2023
* Acadian assets representing 11%, 47%, 89%, 88% and 80% of revenue were outperforming benchmarks on a 1- year basis as of December 31, 2019, 2020, 2021, 2022 and 2023, respectively.
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The chart below indicates performance on a revenue-weighted and equal-weighted basis relative to benchmark, as at December 31, 2023. In addition, we have indicated the percentage of our assets beating their benchmarks over the same time periods. While we believe the first two methodologies provide better insight into our performance trends, we have also included AUM-weighted performance, as this is a more standard industry performance metric.
Quant & Solutions Investment Performance*
Data as of December 31, 2023 *
* As of December 31, 2023, Acadian assets representing 80% of revenue were outperforming benchmarks on a 1- year basis.
Competition
We face competition from many segments in the asset management industry. We compete with other investment management firms, including investment management holding companies, insurance companies, and banks. We compete globally with international and domestic investment management firms, hedge funds, and other subsidiaries of financial institutions for institutional assets.
Many of the organizations we compete with offer investment strategies similar to those offered by Acadian, and these organizations may have greater financial resources and distribution capabilities than we offer. Some of these firms offer other products and services—in particular investment strategies such as passively managed products, including exchange traded funds, that typically carry lower fee rates. Additionally, there are limited barriers to entry for new investment managers. We compete with these organizations to attract and retain institutional clients and their assets based on the following primary factors:
• the investment performance records of Acadian’s strategies;
• the breadth of active investment strategies and vehicle options offered by Acadian;
• the alignment of Acadian’s investment strategies to the current market conditions and investment preferences and needs of potential clients;
• the quality, depth, and reputation of the investment teams that executes Acadian’s strategies;
• the continuity of our investment and distribution teams;
• the caliber of service we provide our clients; and
• Acadian brand recognition and reputation within the investment community
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Our History and Organizational Structure
The predecessor of BSIG was formed in 1980. We were incorporated on May 29, 2014 as a private limited company under the laws of England and Wales. At the time of our initial public offering of our ordinary shares in 2014, we changed our name to OM Asset Management plc. On March 2, 2018, we announced the change of our name to BrightSphere Investment Group plc and on March 26, 2018, our ticker symbol changed to “BSIG.” On July 12, 2019, we completed a redomestication process to change from a company incorporated under the laws of England and Wales to a Delaware corporation. The common stock of BrightSphere Investment Group Inc. began trading on July 15, 2019, and our trading symbol on the NYSE remained unchanged as “BSIG.”
Regulation
We are subject to U.S. federal securities laws, state securities and corporate laws, and the rules and regulations of U.S. regulatory and self-regulatory organizations.
Acadian is also subject to regulation in the U.S. through its primary regulator, the SEC, under the Investment Advisers Act of 1940, as amended. To the extent Acadian acts as investment adviser or sub-adviser to registered investment companies, it must also comply with the terms of the Investment Company Act of 1940, as amended and the rules thereunder. The Advisers Act of 1940 imposes numerous obligations on registered investment advisers, including fiduciary, record keeping, advertising and operational requirements, disclosure obligations, and prohibitions on fraudulent activities. The Investment Company Act of 1940 regulates the structure and operations of registered investment companies and imposes additional obligations on advisers to registered investment companies, including detailed disclosure and regulatory requirements applicable to the registered investment companies and additional compliance responsibilities which must strictly be adhered to by the funds and their advisers. Acadian is also subject to the rules and regulations adopted by the Commodity Futures Trading Commission, under the Commodity Exchange Act; and may also be subject to the rules and regulations adopted by the Department of Labor, under ERISA; the Financial Industry Regulatory Authority, Inc., or FINRA; and state regulators. Acadian may also be registered from time to time in jurisdictions outside of the U.S. and will be subject to applicable regulation in those jurisdictions. Acadian is also subject to regulation relating to the offer and sale of financial products in each of the European Union countries in which Acadian operates. As Acadian expands distribution efforts into non-U.S. jurisdictions, including other member countries of the European Union, Latin America, the Middle East and Asian countries, Acadian may be required to register with additional foreign regulatory authorities or otherwise comply with non-U.S. rules and regulations that currently are not applicable to our business.
Through wholly owned affiliates, Acadian is also subject to the regulatory environments of the non-U.S. jurisdictions in which Acadian operates. Acadian’s U.K. affiliate is subject to regulation by the Financial Conduct Authority, or FCA. Acadian’s Singapore affiliate is subject to regulation by the Monetary Authority of Singapore, or MAS. Acadian Australia is subject to regulation by the Australian Securities and Investment Commission, or ASIC. Each regulatory body imposes a comprehensive system of regulation on investment advisers and the manner in which we conduct our business in that country.
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Employees and Human Capital
We believe our ability to attract and retain employees is a key to our success. Accordingly, we strive to offer competitive compensation and employee benefits and monitor compensation and benefits to the competitive market. Our total rewards philosophy includes competitive compensation, talent development and a comprehensive benefits package that includes extensive health and welfare benefits. In addition, we provide a Profit Sharing and 401(k) Plan for all employees and contribute a percentage of compensation to this plan on a discretionary basis, subject to regulatory limits.
We recognize the value of a diverse and skilled workforce and are committed to creating and maintaining an inclusive and collaborative workplace culture that leverages the unique contributions of people with diverse backgrounds, experiences, and perspectives. We are committed to pay equity for employees doing similar work, regardless of gender, race or ethnicity and comply with applicable local regulations.
As of December 31, 2023, we had 387 full-time equivalent employees, of which 21 were employees of BrightSphere Investment Group Inc. and 366 were employees of Acadian. None of these employees are represented by any collective bargaining agreements.
Operations, Systems and Technology
Our advanced technological capabilities are one of our core strengths. Our investment process is systematically driven and is supported by a sophisticated systems environment. A key tenet of our investment philosophy is that it is crucial to examine as much relevant information about as many companies as possible. Our systems allow us to evaluate a broad array of investment opportunities on a daily basis. Important aspects of our systems environment include powerful servers that receive fundamental data on a continuous basis; proprietary software that transforms the data into stock-specific, macro, and peer forecasts; portfolio optimization software that assists in the creation of customized client portfolios; and a fully automated trading and compliance system. Beyond the investment process infrastructure, we use a number of sophisticated systems to help maximize back-office efficiencies across functions such as operations, accounting, and client reporting.
Available Information
Our web site is www.bsig.com. Our web site provides information about us, and from time to time we may use it as a distribution channel of material company information. We routinely post financial and other important information in the “Investor Relations” section of our web site and we encourage investors to consult that section regularly. That section of our web site includes “Public Filings” where one can download copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, and any other report filed or furnished with the U.S. Securities and Exchange Commission, or the SEC, pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. We make these reports available through our web site as soon as reasonably practicable after our electronic filing of such materials with, or the furnishing of them to, the SEC. The information contained or incorporated on our web site is not a part of this Annual Report on Form 10-K.
In addition, the SEC maintains a website that contains reports, proxy statement and other information about issuers, such as BSIG, who file electronically with the SEC. The address of the website is www.sec.gov.
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