Strategic Performance Drivers
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Net outflows were primarily driven by a persistent style headwind for quality-oriented equity strategies, which remain out of favor in the current market cycle.
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Management attributed the 8% increase in total sales to successful diversification into style-agnostic, high-conviction growth, and multi-sector fixed income strategies.
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The acquisition of Keystone National Group adds a differentiated, asset-centric private credit capability designed to provide stability and defensive characteristics for income-seeking investors.
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A significant portion of retail separate account outflows was tied to a previously disclosed rebalancing of a lower-fee model-only mandate to a passive strategy.
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Operational results were impacted by seasonal employment expenses, including incremental payroll taxes and benefits related to the timing of annual incentives.
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Management noted that over 80% of quarterly net outflows occurred in January and February, with a significant improvement in trend observed during March.
Outlook and Strategic Initiatives
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Management expects the average fee rate to increase to a range of 43 to 45 basis points in the second quarter, reflecting a full quarter of Keystone's contribution.
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The SMidCap Core strategy, which had been soft closed since 2024, was reopened on April 1 to capture renewed demand and bolster retail separate account flows.
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Employment expenses as adjusted are projected to be in the 51% to 53% range of revenues for the second quarter, trending toward the high end due to lower equity AUM.
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The company plans to continue expanding its actively managed ETF lineup, following recent launches in emerging markets, real estate, and growth equity.
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Institutional flow outlook remains cautiously optimistic as known wins modestly exceeded known redemptions heading into the second quarter, despite inherent lumpiness.
Structural and Financial Adjustments
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The Keystone investment involved a $200 million initial payment with up to $170 million in additional contingent consideration based on revenue targets over two years.
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A new non-GAAP tax presentation was introduced to reflect the economic benefit of a significant intangible tax asset, which contributed $2.64 per share in 2025.
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The company utilized $23 million to settle the majority of its remaining revenue participation obligation during the quarter.
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A $50 million draw on the revolving credit facility was used to manage seasonal cash obligations and the Keystone closing, with repayment prioritized in the short term.
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Q&A Session Highlights
Drivers behind the 26% increase in equity strategy sales
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Growth was driven by smaller, style-agnostic, and high-conviction strategies that do not share the firm's primary quality-oriented bias.
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Management has intentionally increased focus on these strategies through new wrappers, including SMAs and ETFs, to capture demand while quality remains out of favor.
Long-term trajectory for improving net outflow trends
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Improvement is expected through a combination of the eventual market cycle turn favoring quality equity and the immediate scaling of the Keystone private credit offering.
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Management highlighted that April flows have remained consistent with the improved levels seen in March, suggesting a stabilization from the heavy outflows earlier in the year.
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