Victory Capital Holdings achieves record adjusted EBITDA and EPS growth, driven by strong asset flows and successful integration of Pioneer Investments.

OPERATOR - (00:00:00)

Facebook. Good morning and welcome to the Victory Capital third quarter 2025 earnings conference call. All callers are in a listen only mode. Following the company's prepared remarks, there will be a question and answer session. I will now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Please go ahead Mr. Dennis.

Matthew Dennis - Chief of Staff and Director of Investor Relations - (00:00:57)

Thank you. Before I turn the call over to David Brown, I would like to remind you that during today's conference call we may make a number of forward looking statements. Victory Capital's actual results may differ materially from these statements. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call. Victory Capital assumes no duty and does not undertake any obligation to update any forward looking statements. Our press release which was issued after the market closed yesterday, disclosed both GAAP and non GAAP financial results. We believe the non GAAP measures enhance the understanding of our business and our performance. Reconciliations between these non GAAP measures and the most comparable GAAP measures are included in tables that can be found in our earnings press release and in the slides accompanying this call, both of which are available on the Investor Relations section of our website at ir.vcm.com it is now my pleasure to turn the call over to David Brown, Chairman and CEO.

David Brown - Chairman and CEO - (00:02:09)

David thanks Matt. Good morning and welcome to Victory Capital's third quarter 2025 earnings call. I'm joined today by Michael Pellicarpo, our President, Chief Financial and Administrative Officer, as well as Matt Dennis, our Chief of Staff and Director of Investor Relations. I'll start today with an overview of the quarter, after which I will expand on our distribution opportunity outside of the US Update you on VictoryShares, our fast-growing ETF business. Then I will provide some perspective on the depth of the M&A opportunities that we have before us. After that I will turn the call over to Mike to review the financial results in greater detail. Following our prepared remarks, Mike, Matt and I will be available to answer your questions. The quarterly business overview begins on slide 5. We had an excellent third quarter. We achieved record high gross flows and our net flows continued to improve and finished just under flat for the quarter. We ended the quarter with total assets of $313 billion. Long term gross flows rose 10% quarter over quarter to $17 billion reflecting our expanded U.S. distribution team that is continuing to coalesce gain traction and we also had strong sales outside of the US at an annualized rate of $68 billion or 23% of long term AUM, we are in the best position we have ever been in to execute on consistent long term organic growth. Adjusted EBITDA set a new all time quarterly high at $191 million, resulting in an adjusted EBITDA margin of 52.7%. Adjusted earnings per diluted share rose to a record $1.63, up 4% from the second quarter and 20% higher than the quarter immediately preceding the Amundi transaction. We've already exceeded our low double digit accretion guidance for this transaction, achieving these results even before capturing the complete benefit of our targeted net expense Synergies. During the third quarter we repurchased 1.8 million shares. At quarter end we still have $355 million of capacity on our existing repurchase authorization. We will remain opportunistic and flexible with future repurchases factoring in the current facts and circumstances Turning to our integration process of Pioneer Investments, we are slightly ahead of plan on the timing of achieving our net expense synergy goals. At the end of the third quarter we achieved approximately $86 million of net expense synergies on a run rate basis. There is clear line of sight for the remaining $24 million of net expense synergies to reach the previously disclosed total of $110 million. Our U.S. distribution teams have been integrated and cross trained with the territories being reconfigured to optimize coverage. As with all our previous acquisitions, the investment team remains uninterrupted and there has been little to no impact on the client experience during the integration process. Turning to slide 6 as we look at the distribution opportunity outside of the US we are very encouraged by our position as essentially a Amundi's US manufacturing arm for traditional active asset management products. We currently have $52 billion of AUM from clients outside the US from 60 countries where our net flows remain positive. The Pioneer Investment's US Sales infrastructure that was present before we closed the transaction remains intact and is operating well and coordinating with Amundi's distribution teams in their local geographies throughout the world. We are investing in this area to increase capacity for more sales outside of the US which will include Legacy Victory products going forward. We currently manage 19 UCITS and are working on several new ones that we will be launching in the next quarter or so. These new UCITS will be a mix of Pioneer Investments and Legacy Victory franchise strategies. Priorities for the launch of new products outside of the US Were established through a bottom up approach with the Amundi's distribution teams advising on which products have the greatest demand. Another immediate opportunity identified relates to the current demand from their clients in Asia for US Exchange listed ETF products. The investment performance of our existing usage is excellent. The average performance ranking is in the top quartile for all periods and year to date. Average ranking is in the 11th percentile per Morningstar rankings. What makes this partnership unique is its structural design compared to historical and typical industry cross border distribution agreements. When Amundi contributed its US Business to Victory, it was their in house US Investment manufacturing arm which they sought to expand to better satisfy demand from their clients across the globe. Victory Capital now serves as a Amundi's US Manufacturing platform which includes the Legacy Pioneer Investments product set but also includes the Legacy Victory product set. Most of the other cross border distribution deals are not set up this way. Essentially we took over an efficient and highly productive US Investment manufacturing arm that was deeply ingrained in the Amundi distribution system and we are now adding legacy Big three products to it. Think of a freight train moving forward on the tracks and we are just adding the Victory freight cars to an already fast moving and fully operational train. This is why we are so excited about the opportunity over the long term. The economic alignment is there for the organizations as well. In addition to a Amundi's 26.1% economic ownership, there is a sharing of the fees by both organizations at the point of sale. Amundi earns fees if they sell Victory products and Victory earns fees for being the investment manager. In a lot of cases the Amundi point of sale fee exceeds the standalone fee if they were selling an Amundi manufactured product given the active nature of our product set. And that is all before factoring in the 26.1% economic ownership. As far as the opportunity set goes, we are very excited about the entire Asia region where there is a high demand for US dollar denominated products. The Middle east is another market that has caught our attention. Amundi has a great distribution network in both regions. In Europe Amundi enjoys a dominant position in many distribution channels and geographies that are very difficult to penetrate. I also want to make a point here with some of the recent news reported from Amundi around their unicredit distribution relationship that this is not a material part of our business and we don't expect this to impact the momentum outside of the US Through Amundi's international networks, joint ventures and third party distributors they have one of the industry's most effective and deep global distribution engines. The combination of our expanded US Product set, Mundy's existing infrastructure, aligned incentives at the point of sale and Amundi's global competitive positioning creates a transformational opportunity for Victory. We look forward to reporting on our progress in these markets as sales begin to ramp up in 2026. Slide 7 showcases Victory shares our rapidly expanding ETF platform The beginning of 2023 we saw a market opportunity and evaluated our ETF product mix and positioning. We began investing more in marketing and distribution resources specifically dedicated to growing sales of our ETFs. Since then we have launched several new active and rules based ETFs and rationalize others to optimize our offerings. We also began hiring dedicated ETF sales professionals and entered into several strategic distribution partnerships. The result has been an acceleration of growth with year to date positive net flows of $5.4 billion which represents a 53% organic growth rate through the first nine months of this year. On an annualized basis, this is tracking at a greater than 70% organic rate of growth. We currently have a suite of 26 ETFs spanning from active to rules based with an average fee rate of 35 basis points. We entered this business 10 years ago when we acquired CEMP Kemp which had less than $200 million of ETF AUM. Since that time we have grown this part of our business at a 29% compound annual growth rate with AUM currently approaching $18 billion. Moreover, our operating platform enhances the benefits of scale and reduces the cost of manufacturing ETFs which results in margins that meet our firm requirements. Our expectation is that this strong sales momentum will continue to accelerate in the US and that it will be compounded by the non US sales of our ETF products that I just covered. Turning to Slide 9, our investment performance remains excellent. Nearly half of our mutual fund and ETF AUM ranks in the top quartile based on Morningstar's three year rankings. Nearly two thirds of our mutual fund and ETF AUM is rated by Morningstar earned a 4 or 5 star overall rating. This encompasses a diversified set of 56 different products. Majority of our AUM continues to outpace respective benchmarks over all measurement periods. On slide 10, we highlight our capital allocation strategy. Our deployment of capital is primarily targeted at both organic and inorganic growth opportunities. As a growth company, reinvesting in the business and pursuing strategic acquisitions represents our most compelling use of shareholder capital. Given our growing earnings and cash flow, we can also return capital to shareholders. This flywheel effect has resulted in returns to shareholders of more than $1 billion since we went public, which is particularly noteworthy when you consider that the company received just $156 million in net proceeds from the initial public offering. This demonstrates our ability to create substantial shareholder value through disciplined capital allocation coupled with consistently excellent execution. Our presentation deck includes a chart showing our industry leading earnings growth on Slide 21, which highlights our quarterly fully diluted EPS growing from $0.40 to $1.63 for a compound annual growth rate of 21% since our initial public offering in 2018. When we discussed our acquisition strategy, we are often asked about industry fragmentation and our ability to continue executing on our strategy given we have grown so quickly as we are a much larger company now. On slide 11, we highlight the opportunity set that we see before us. It is important to note that our core strategy has not changed since the management buyout in 2013. We built a unique platform that is ideally suited to thrive given the secular trends challenging the industry. It is also especially conducive to creating value and growing earnings from acquisitions. Considering that every deal starts with a strategic foundation to it, our company has become much better positioned over the years from a competitive perspective. Each of the acquisitions listed on the left hand side of the slide was highly strategic. We diversified our investment and product capabilities, enhanced, expanded and globalized our distribution capabilities, gained firm wide size and scale, and added leadership talent. With each of these transactions, the financial benefits were a positive outcome, allowing us to generate growing cash flow, increase earnings and perpetuate our strategy for creating shareholder value. Our Runway is very long. We intend to increase further in size and scale not for growth's sake alone, but to enhance our competitive position in our distribution channels via investment and adding complementary investment capabilities to optimally position us at the point of sale with our diverse set of clients. As the industry remains very fragmented, the reason for joining forces with a larger partner have only intensified over the years. Increasing complexity, regulatory burdens, technology requirements and access to distribution are all becoming more difficult for asset managers that are not mega sized. Even with the large acquisition universe, we will always remain selective, disciplined and strategic. As you can see from the graphic on this slide, the opportunity set is vast. According to SIM Fund data, there are currently more than 450 asset managers in the US with more than 10 billion of assets under management. Our focus area has increased in size that we've grown over the years and we are focused on evaluating firms with between $50 billion and $200 billion of assets under management where there are more than 110 prospective targets managing $11.1 trillion in the event we execute on a transaction on the smaller side, it would necessitate being something highly strategic in the areas of investment capabilities or distribution access. We are also routinely asked about our views on adding alternative investments to our product range. While we do not aspire to become a full on alternatives manager, we do want to have a curated alternatives product set as we are projecting that some of our clients will increase allocations to alternative investments. Over the years, we've actively evaluated opportunities to acquire, partner or organically add alternatives. We have been disciplined and avoided rushing into this space. However, we do remain attracted to the principles associated with alternative investments around diversification for clients portfolios. We have never tried to offer every product in every asset class and instead centered around where we have expertise for alternatives. We will center around specific investment themes such as income, for example. Our strategy here is consistent with our broader approach of selective expansion and we will continue to maintain focus on our core strengths as a firm. With that, I will turn the call over to Mike who will go through the financial results in more detail.

Mike Pellicarpo - (00:17:48)

Mike thanks Dave and good morning everyone. The financial results review begins on slide 13. Revenue increased 3% from the second quarter to $361.2 million. Average assets for the quarter rose 7% quarter over quarter and our fee rate was 47.2 basis points. GAAP results include approximately $21 million of transaction related compensation, restructuring and integration costs, which was down from $54 million in the prior quarter. As a result, GAAP operating income was $138 million, a 47% increase from the second quarter. On an adjusted basis, we delivered adjusted EBITDA of $190.5 million, which yields an adjusted EBITDA margin of 52.7%. Adjusted net income with tax benefit grew to $141.3 million, or $1.63 per diluted share, up 6% and 4% respectively from the prior quarter. Our weighted average shares rose in the period due to having a full quarter of the shares issued to Amundi from the acquisition outstanding. If you recall, we delivered the share consideration to Amundi in multiple tranches during the second quarter. Our capital allocation strategy remains active and disciplined. We opportunistically repurchased 1.8 million shares during the quarter as we took advantage of market conditions to return capital to shareholders. The Board also declared the regular quarterly cash dividend of 49 cents that will be payable on December 23rd to shareholders of record on December 10th. Combined with our regular quarterly dividend, we returned a total of $163 million to shareholders in the quarter which was an all time high. Our balance sheet remains strong with $116 million of cash and a net leverage ratio of 1.1 times, providing us with financial flexibility to continue pursuing our inorganic growth objectives. On slide 14 you can see the diversification in our $313.4 billion in total client assets. In addition to diversification in the US across channels, client types and asset classes, our mix of business continues to benefit from meaningful diversification into non U.S. geographies. As of quarter end, 17% of our AUM was from investors outside the United States. Our long term asset flows continued to improve on all metrics. As you can see on Slide 15, we've now achieved our fourth consecutive quarter of improving net long term flows with net outflows of $244 million annualized. This is just 33 basis points of our AUM. Gross sales of $17 billion represent a 10% increase from Q2, displaying the growing traction of our expanded distribution platform. Particularly encouraging is the breadth of positive contributors during the quarter. Multiple investment franchises generated positive net long term flows including Victory Income Investors, Pioneer Investments, RS Global Trivalent and our Victory Shares ETF platform. This diversification across franchises demonstrates the strength of our platform and successful distribution across all channels. Our revenue performance on Slide 16 reflects the enhanced scale of our platform and higher average AUM in the quarter. We expect the fee rate to remain in the 46 to 47 basis point range moving forward reflecting the current mix of our business. On slide 17 you can see our expense details for the quarter. Overall expenses declined from the second quarter. Recall that we incurred several one time expenses associated with the Amundi transaction in the previous quarter. Compensation expense on a cash basis was 22.8% of revenue. To date we have achieved 86 million of net expense synergies on a run rate basis and should have $100 million of net expenses removed by the end of the first quarter of 2026, the first full year of ownership, after which the final $10 million in net expense reduction will be realized over the course of the next 12 months. Turning to slide 18, we cover our non GAAP metrics. Our adjusted metrics highlight the underlying strength of our business platform. Adjusted net income with tax benefit increased 6% quarter over quarter to a record $141.3 million. Earnings per share grew 4% to $1.63, also a new record high. It is worth highlighting the power of our unique and successful inorganic growth strategy to deliver significant earnings Growth adjusted EBITDA has grown 57% when comparing Q3 2025 to Q3 2024. Similarly, adjusted net income with tax benefit grew 59% over the same period. These metrics demonstrate our ability to generate strong cash flow and maintain strong consistent margins. Even while we are integrating a new business. Wrapping up on slide 19, the balance sheet continues to strengthen and provides us with enhanced financial flexibility. We successfully refinanced our term loans during the quarter. We combined them into a single loan, lowered our interest rate by 35 basis points, and extended the maturity out 7 years to 2032. Our net leverage ratio is at our lowest level since our initial public offering. This deleveraging, combined with our strong cash generation positions us with significant financial flexibility to execute on inorganic growth opportunities. Our capital allocation strategy remained active during the quarter. We opportunistically repurchased 1.8 million shares as we see tremendous value in our stock at current prices. Combined with our regular quarterly dividend, we have now returned over $272 million to shareholders year to date. And during the quarter, we surpassed A total of $1 billion returned to shareholders since becoming a public company in 2018, which is a gratifying milestone. We ended September with $160 million in cash on the balance sheet, and our $100 million revolver remains undrawn. When we refinanced our term loan, we also extended the maturity on our revolver by five years to 2030. Looking ahead, we expect to continue to return capital via buybacks and dividends while simultaneously pursuing growth initiatives and investing in the business. Our ability to generate robust cash flow puts us in the enviable position to effectively balance investments, pursue strategic and transformational inorganic opportunities, and deliver ever increasing shareholder returns without compromising our financial strength. With that, I will turn the call back to the operator for questions.

OPERATOR - (00:25:41)

Thank you, ladies and gentlemen. We will now begin the question and answer session. At this time, I would like to remind everyone. In order to ask a question, please press Star followed by the number one on your telephone keypad. And if you would like to withdraw your question, simply press star one again. We'll pause for a moment to compile the Q and A roster.

UNKNOWN - (00:25:58)

Thank you.

OPERATOR - (00:26:03)

Your first question comes from the line of Craig Siginteller with Bank of America. Please go ahead.

Craig Siginteller - (00:26:10)

Hey, good morning, Dave, Mike. Hope everyone's doing well and congrats on the 21% annual EPS growth since the IPO.

David Brown - Chairman and CEO - (00:26:19)

Thank you.

Mike Pellicarpo - (00:26:20)

Good morning.

Craig Siginteller - (00:26:22)

So we wanted to start with an open end question on M&A and I heard some of your commentary on the different size ranges of targets and how the larger focus today is in the 50 to 200 billion AUM range. But can you refresh us on your views on pursuing more cheap consolidation transactions that are highly earnings accretive versus strategic and organic growth synergistic deals? It sounds like maybe you might be leaning towards larger deals today.

David Brown - Chairman and CEO - (00:26:55)

Well, let me start off and say that as an organization, we aspire to be a trillion dollar firm. That is our internal goal from a size perspective. And we think, eventually that we will need to reach that size to effectively compete over the long term. So our goal is to be a trillion dollars under management. You know, we're $313 billion today at the end of the quarter. And you know, and to get there, we'll do a number of different things. The first will be everything we'll do will be strategic. So we are not interested in just doing financial transactions where you're buying businesses, consolidating and there's no strategic element to it. So everything starts for us. Does it make our company better? Does it satisfy one of the strategic elements that we're trying to satisfy? And so a lot of that will come with the size and scale transactions. So we will move up. So you think about that triangle. We'll be at the top of that triangle and we could do something larger than the $200 billion focus area. Anything on the smaller side would be highly strategic. It could be a product perspective, it could be a distribution or something else. But for us, it starts off with strategy and then what comes from it because of our platform are really the ability to create shareholder value through earnings growth, through margin expansion and through organic growth. And I think we can satisfy all of those things with our acquisition strategy. And lastly I'd say is we really believe that the industry is going to go through an even more intense consolidation phase. As we look forward to all of the reasons firms want to partner to get larger to deal with issues such as technology, regulatory access for distribution, those things are intensifying. So we're going to go through a phase where there's going to be lots of consolidation. And we think we have an unbelievable platform to be a really good partner to those firms. And I think we have a great track record and history of execution. You do on them.

Craig Siginteller - (00:29:25)

Thanks, Dave. Our follow up question is on the Pioneer acquisition. You're running ahead of even the more recently revised Synergy target. So we're curious what is driving that? Is it conservatism? Is it use of AI and other technologies that have improved operating efficiencies? Did you find more redundancies in certain functions? And I heard your commentary that it's not from the investment team. So just curious on that.

Mike Pellicarpo - (00:29:54)

Hey, Craig, it's Mike. Yeah, I think as we approach, you know, every acquisition and evaluate the opportunity to consolidate operations and administrative functions onto our platform, as you said, it does not impact the investment teams. And so that's our number one goal. Don't impact the investment teams, their process. Leave them alone. Let them have all the tools that they need to manage money and continue down the path that they're on from a strong investment performance perspective. And we've accomplished that with the Pioneer investment integration. Of course, as we look at planning, we go through the exercise and spend time figuring out where the opportunities lie. We probably tend to be conservative as we go through that because there's always unknowns as you're going through an integration. But as we've gone through the Pioneer integration, I think we found opportunities around technology. We found opportunities in kind of investment operational areas to provide technology to alleviate some additional costs that we anticipated. So I think it's really just the opportunity set to go through an integration. We've got highly skilled people that have done this for a number of years and we're able to find opportunities as we go through the process. So I think again, conservatism and then execution has allowed us to kind of achieve quicker and then higher than we originally anticipated from a net expense synergy. But we are making investments. I just want to reiterate that, that these expense synergies are net of investments that we're making in areas of the business. Dave's comments on the non U S Distribution in the prepared remarks I think is an area we're making investments because we see a tremendous opportunity there. Product development is data technology, distribution, partnership. So as we think about all of that bundled together, I think we've just been in a position where we've been able to accelerate some of the recognition and be a little bit higher than we anticipated as well.

David Brown - Chairman and CEO - (00:31:56)

Yeah, and I'd like to add to that. I think the other perspective is we are in the investment management business, but we're also in the acquisition business. And I think unlike many other investment managers who are in the investment management business that have decided to do acquisitions because they need to grow, we are in the investment management business. But we've also developed a skill over a long period of time on doing acquisitions. And so part of the success we've had in synergies, the ability to invest while we do acquisitions on on our platform and the ability to exceed some of the goals we put out there. Maybe from a numbers perspective and from a timing perspective really comes down to is we have a second part of our business which is doing acquisitions.

Craig Siginteller - (00:32:51)

Thank you.

UNKNOWN - (00:32:52)

Dave.

OPERATOR - (00:32:54)

Your next question comes from the line of Michael Cho with JP Morgan. Please go ahead.

Michael Cho - (00:33:00)

Hi, good morning. Thanks for taking my question. I just want to start on the non US business. You walk through some commentary there. You cite positive net sales in third. quarter and since it closed, wondering if You could get some color on the magnitude of those flows and maybe the strategies that help drive those inflows. And Dave, you talked through a sale talked about sales ramp in this segment in 26 and so maybe some more color on your expectations on the magnitude of uplift for Victory in this segment.

David Brown - Chairman and CEO - (00:33:32)

Sure. Thank you for the question. So a lot of the sales because of the infrastructure that has been set up has come through really the Pioneer franchise. The Pioneer franchise is well distributed within the Amundi distribution network. So since acquisition, since we've closed the acquisition, most of the sales have come through the Pioneer side. That will change going into 26. We'll still have strong sales within the Pioneer side. And we did note on our prepared remarks how good the investment performance is within the UCITS platform. But what will happen in 26 is as we launch kind of the Legacy Victory products into the platform through USITS, through the US listed ETFs, you'll start to see flows into the Legacy Victory products. We've also invested in the infrastructure around selling RFPs and marketing and servicing for the non US side. As far as sizing, we don't really disclose what the size of the flows are, but I think we did put in our prepared remarks that we do think it's a transformational opportunity which would lead you to believe that over 26 and forward we think it's going to be an important, sizable part of our growth. It's white space for Legacy Victory. We have some distribution outside the US Pre the close, but nothing to the scale and nothing to the depth that we have with the Mundi.

Michael Cho - (00:35:17)

Great. Thanks for all that color. And if I could just ask a. Follow up on the acquisition opportunity set discussion, I mean on the slide and your comments. It's a pretty wide set of opportunity out there and I guess that hasn't changed in years and it's an attractive segment and strategy. But you have $100 billion integration going on with Pioneer at The moment. I don't want to rule out, you know, megadeals, but other segments that maybe you're more focused on near term. When you look at that triangle chart and as it relates to all, you know, you called out income and I don't know if you, if you meant it called out in a specific way, but other classes or themes that you think would maybe fit better with Victory's current platform.

David Brown - Chairman and CEO - (00:36:07)

On the first part, as far as in the middle of the integration, we're well through the integration and you can kind of see that the way the numbers, the net expense synergies have progressed and what our projection is. And so we're really doing well with the integration and we're getting close to being at a point where we'll be wrapped up. And so we are fully open for business. From an acquisition side, I would not rule out a mega size deal. You know, we have the 50 to 200 as the focused area, but that doesn't preclude us from going above 200 and it doesn't preclude us from going below 50 either. And I'd say as far as, you know, areas of focus, as I said, we really do start off with a strategic side. We're interested in high performing products. We're interested in products that have demand today and that we think will have demand in the future. We know we have to offer a larger set of products for our distribution partners. And so we'll be focused on all of those things from an alternatives perspective or private markets perspective. The themes that we're interested in. Income is an example, but not the only one. There are other areas that we think fit nicely with us and they really do span across different asset classes. And I'd say I don't want to focus on one of them. But income is an important one. I think income is something that has lasted over time. We have income products today. They're selling well, we know how to sell them, there's lots of demand for them. And so income is one of the themes. But for us around the private markets and alternatives, we don't want to be all things to all people. We want to do certain things really well and we want to matter for those certain things. And that's how we'll approach the private market. Alternative side.

Michael Cho - (00:38:20)

Great. Thanks, Dave.

OPERATOR - (00:38:23)

Next question comes from the line of Alex Wolfein with Goldman Sachs. Please go ahead.

Alex Wolfein - (00:38:29)

Thanks. Hey guys. Dave, just building on that last thread, thinking about the private markets and the alt opportunity, in what form do you guys see yourself partnering with somebody in the alt space, we've seen various structures out there. So just curious to think about how. Whether it's explicit M and A or potentially equity stake in you guys by some of the alt managers or some form of like investment outsourcing agreements that could be coming up in the next several quarters. How do you see that evolving? Because clearly it's a big part of the market and it's important part of the toolkit for the wealth advisors that you guys don't penetrate fully.

David Brown - Chairman and CEO - (00:39:10)

Good morning, Alex. Thanks for the question. I would start off saying that we probably are not interested in investment outsourcing. I think that's challenging. I think all of the other scenarios you laid out around ownership, investment acquisition are within our universe and I think we're exploring all of them. In our prepared remarks, we have talked about how we have not done a transaction, but over the years we have been very involved in discussions, analyzing. And so we feel really good about our understanding of the space. We feel really good about what we think our clients are desiring and what they will desire down the road when alts and private markets opens up, especially on the RAA side, on the intermediary side, on the retirement side, that we have a really good understanding and I'd say from different versions of M and A is how we will approach it.

Alex Wolfein - (00:40:16)

All right, thank you. And just to clean up, modeling fee rate. So I remember there was a bit of an outsized, I think, performance fee benefit last quarter. So you kind of saw that step down a bit this quarter. How are you thinking about the go-forward on the fee rate relative to the kind of, you know, mid to high 40s where you guys have been? And ultimately, given the mix shift in the business, anything notable you would think about over the next sort of 12 months as the fee rate evolves? Thanks, Alex.

Mike Pellicarpo - (00:40:44)

It's Mike. Yeah, I think we have kind of said our fee rate should be in the 46 to 47 basis point range. Long term, we don't anticipate any significant fee pressures. Clearly the mix of business will impact that. But as we look out for the next 12 months, we feel pretty confident of the 46 to 47 basis points from a ongoing perspective from a fee rate.

Alex Wolfein - (00:41:12)

Got it. Great, thank you.

OPERATOR - (00:41:16)

Your next question comes from the light of Benish with Barclays. Please go ahead.

Benish - (00:41:21)

Good morning and thanks for taking the question. Maybe just following up on that last question from Alex. I think he mentioned the performance fees which we saw in your Q were quite outsized in Q2. I'm just curious. When we look at the maybe quarterly run rate over the last few years, it's kind of been like the low single digits amount. Is there anything different about the Pioneer assets you acquire where performance fees might be higher on a run rate basis or should be structurally higher? Anything like that to call out? And that's what a lot of investors. Are trying to figure out.

Mike Pellicarpo - (00:41:49)

Yeah, I think the fee rates, again the 46 to 47 kind of includes how we think about any kind of annualized or annual performance related fees. The Pioneer funds do have a couple mutual funds that have fulcrum fees. Much like the Legacy USA mutual fund business that we acquired. There's a couple fulcrum fees there that are classified as performance fees. So nothing that I would say is unique or specific. I think as you mentioned, they've been in the 1 to 2 basis point range on an annualized basis for us and that's probably the same level. Going forward it will vary based on business mix. Again, if we see opportunities to risk share pricing with institutional clients, there could be a component of those fees that are more based on performance. But I think as we look at the business, it's a pretty small amount overall. And again the way we built the business, while we are very. When we look at fee rate, we're very focused on the margin. And so as you think about the way we've structured the expense based business with being greater than 2/3 variable, we expect to kind of continue to hold our margins with respect to all the fee rates that we have Dave mentioned in the prepared remarks, our ETF business, those are on average 35 basis points, so a little bit below our fee rate. But again the margins on that business are strong and contribute to our overall margin base. So that's how we think about it. The performance fees are pretty immaterial from a business perspective, but we focus really on the bottom line, the margin components.

Benish - (00:43:29)

Okay, understood. Maybe just another follow up too on the M and A and alt discussion. When we listen to a lot of the large cap alts managers, we kind of hear this theme of GP consolidation of more LPs wanting to do more with less in the credit space. We kind of hear that you need to have really massive sourcing capabilities in. Order to be effective. Just curious your response to that or at least how do you think about what makes sense given the magnitude of what you might be able to acquire in that space? Thank you.

David Brown - Chairman and CEO - (00:44:00)

I think for us we always have been focused on areas where we can win and compete. I think a lot of the Large cap alt managers are focused on very large areas and we're not looking to really compete exactly with them in a lot of those different areas. I also think there is a new kind of area in the market that they're trying to penetrate. And I think traditional managers are there today, which is a lot of the intermediary market, the retirement market, a lot of parts of the RAA market. And I think to win there, there will be different selling strategies that we have used on the traditional side that we'll use on the private side. You know, from an acquisition standpoint, we will approach, if we do an acquisition on the alternative side, we'll approach it as we've always approached traditional acquisitions. I think we've been very value conscious. We focus on shareholder value, we focus on acquiring excellent products and we focus on products that we think we can help grow and we'll do the same thing there. And I think we have a really good track record and I think we are an excellent partner, you know, for private market investors and also traditional market investors. Okay, great. Thank you for that.

OPERATOR - (00:45:38)

Question comes from the line of Michael Cypress with Morgan Stanley. Please go ahead.

Michael Cypress - (00:45:44)

Hey, good morning. Thanks for taking the question. Maybe just continuing along the themes on the inorganic topic, I was hoping maybe you could elaborate a bit on the inorganic pipeline and how that composition looks today. How would you sort of characterize that size, quantity, types of properties, how that's evolving now versus three or even six months ago and anything you would mention in terms of how close you might. Be on any of those things.

David Brown - Chairman and CEO - (00:46:10)

Our pipeline is full. We're very active in discussions. I don't think that there's anything that we want to talk about today on timing or, or different types of acquisitions that we would do, but we're having lots of discussions. I think the environment has gotten progressively better over the last couple quarters from an acquisition standpoint. You know, I think there's a lot of things happening in the industry. The industry is going through a lot of change very quickly because of technology, because of regulatory changes, because of the ability to access distribution is getting harder by the day. And so we've had a lot of discussions and we're really active and you know, and as I said earlier, we are well through the Pioneer Mundi integration. So, you know, so that sets us up to when the opportunity presents itself, we'll be able to execute on it.

Michael Cypress - (00:47:20)

Great. And then just to follow up on that, as you think about executing on this M and A pipeline over the next 12, 18 months, if you could elaborate on what sort of risks that you see that might result in not much getting done there over next 12, 18 months? And when you're speaking with perspective targets, what is it that may hold them back from looking to transaction?

David Brown - Chairman and CEO - (00:47:47)

You know, I think the risks become very unique to the acquisition. So I don't think there's a general thing that I'm concerned about. I think the risks are very focused on the exact target, the type of transaction, the structure of the transaction. Most of the risks can be mitigated with structuring and especially with the way we approach acquisitions where it's really around partnering and growing forward as opposed to, you know, succession type planning acquisitions. But you know, as we look at it today, we think the environment's really conducive and you know, and like I said, we're coming to the end of our integration with, you know, with the pioneer Mundi. So we're ready to go.

Michael Cypress - (00:48:37)

Great, thank you.

OPERATOR - (00:48:40)

Your next question comes from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Kenneth Lee - (00:48:47)

Hey, good morning. Thanks for taking my question. Just following up on the theme of inorganic opportunities, specifically on alternatives. How do you think about the challenge of integrating potentially very different cultures or mindsets between traditionals and, and alternative as you look at some of these opportunities? That's usually the point of potential friction there. Thanks.

David Brown - Chairman and CEO - (00:49:14)

Yeah, good morning and thanks for the question. We think about it a lot and we think about it very carefully. It's probably one of the driving factors why we have decided over the years to just sit back and watch and observe and learn. I think there are different strategies that you can employ to mitigate some of those challenges. You could do that through structuring, you could do that through the types of product sets you talk about. But private market and alternatives businesses are different than traditional. And I think that's the challenge and I think it's why we sat back and kind of studied and learned and been very patient. And so anything that we do going forward in this space, we will address that issue. We recognize it and we're glad that we have been able to observe what others have done in this space.

Kenneth Lee - (00:50:15)

Gotcha. Very helpful there. And just one follow up, if I may, a little bit more housekeeping, global non U. S Equity net inflows. Pretty positive there. Anything to call out either outside mandates or, or things of that nature.

David Brown - Chairman and CEO - (00:50:30)

Thanks. Not specifically in the global asset class. We are seeing a lot of demand for that asset class inside the US and outside the US we have two excellent products with two different franchises there. So we have good performance. And we also have really, really good distribution around this asset class inside and outside the US So it's just in demand by clients wanting to get access to a global portfolio.

Kenneth Lee - (00:51:09)

Very helpful there. Thanks again.

OPERATOR - (00:51:13)

And that is all for the Q and A session for today. This concludes today's conference call. You may now disconnect your lines. Have a pleasant day, everyone.