Morgan Stanley Financials Conference

Transcription

1 Morgan Stanley Financials Conference June 11, 2014 George R. Aylward President and Chief Executive Officer

2 Important Disclosures This presentation contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements within the meaning of The Private Securities Litigation Reform Act of These statements may be identified by such forward-looking terminology as expect, estimate, plan, intend, believe, anticipate, may, will, should, could, continue, project, or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions and projections about our company, are not guarantees of future results or performance, and involve substantial risks and uncertainty, including assumptions and projections concerning our assets under management, cash inflows and outflows, operating cash flows, and future credit facilities, for all forward periods. All of our forward-looking statements are as of the date of this presentation only. The company can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including those discussed under Risk Factors, and Management s Discussion and Analysis of Financial Condition and Results of Operations in our 2013 Annual Report on Form 10-K, as well as the following risks and uncertainties: (a) any reduction in our assets under management due to market conditions, investment performance, redemptions or terminations of investment contracts, or regulatory factors; (b) damage to our reputation; (c) our money market funds do not maintain stable net asset values; (d) our inability to attract and retain key personnel; (e) the competition we face in our business, including competition related to investment products and fees; (f) adverse regulatory and legal developments; (g) limitations on our deferred tax assets; (h) changes in key distribution or unaffiliated subadvisory relationships; (i) interruptions in service or failure to provide service by third-party service providers for technology services critical to our business; (j) impairment of our goodwill or intangible assets; (k) lack of availability of required and necessary capital on satisfactory terms; (l) liabilities and losses not covered by our insurance policies; and (m) certain other risks and uncertainties described in our 2013 Annual Report on Form 10-K or in any of our filings with the Securities and Exchange Commission ( SEC ). Certain other factors which may impact our continuing operations, prospects, financial results and liquidity or which may cause actual results to differ from such forward-looking statements are discussed or included in the company s periodic reports filed with the SEC and are available on our website at under Investor Relations. You are urged to carefully consider all such factors. The company does not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this presentation, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If there are any future public statements or disclosures by us which modify or impact any of the forward-looking statements contained in or accompanying this presentation, such statements or disclosures will be deemed to modify or supersede such statements in this presentation. Page 2

3 Agenda Overview Value Proposition Financial Results Capital Position and Strategy Growth Opportunities Page 3

4 Firm Overview Assets Under Management Independent publicly traded asset manager Manages $58.0¹ billion in a multi-boutique structure: Offerings from specialized boutique managers Distinct investment styles, approaches and brands Wide range of investment disciplines Investment strategies distributed to investors in multiple product forms: $25.4 $29.5 $34.6 $45.5 $57.7 Virtus Mutual Funds Closed-end funds Separately managed accounts UCITS Variable insurance funds Institutional accounts Industry-leading growth rates 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 $ Billions CAGR Compound annual growth rate from 12/31/09 12/31/13 1 As of March 31, 2014 Page 4

5 Value Proposition Flexible Multi- Boutique Model Diverse, High Quality Product Offerings Differentiated Distribution Capabilities Attractive Financial Attributes Multiple Opportunities For Growth Multi-strategy asset manager Flexible model attractive to managers Shared distribution and support services Well-diversified portfolio of differentiated strategies Disciplined product oversight and development Attractive investment offerings with strong performance Multi-channel approach Effective sales force and strategy Consistent industry-leading asset flows Strong top- and bottom-line growth Leveragable and variable operating structure Strong and flexible capital position Introduction of new products Expansion of distribution Addition of investment capabilities Page 5

6 Differentiated Strategies from Boutique Managers Equity Fixed Income Alternatives Affiliated Managers Domestic Int l Emerging Domestic Global Single-Strat Multi-Strat Select Subadvisers Page 6

7 Diverse Product Offerings Assets under management are diversified across product type and asset class AUM by Product Type AUM by Asset Class Variable Insurance Funds $1.3 Managed Accounts $6.8 Closed-End Mutual Funds $6.7 Institutional $4.5 2% 12% 12% 8% 2% 64% Money Market $1.4 Long-Term Mutual Funds $37.3 Fixed Income $16.3 Alternative $5.7 28% 10% Other 1 $2.2 4% 18% 40% International Equity $10.4 Domestic Equity $23.4 Total AUM: $58.0 billion $ Billions As of March 31, Other includes cash management and options Page 7

8 Multi-Channel Distribution Distribution approach tailored to individual channels Channels Wirehouse Independent/RIA Retirement Insurance Institutional Approach Broad penetration and relationships with all national and regional firms Support national and regional firms with dedicated sales team Area of emerging growth in fastest growing advisor channel Support RIAs and independent firms with dedicated sales team Sales effort concentrated on smaller- to mid-size plans Opportunity to offer distinctive strategies Focus on insurance providers with open-architecture platforms Provide investment options in variable life and annuity products Strategies marketed under individual brands Affiliate-centric sales approach Page 8

9 Differentiated Retail Distribution Strategy, team and approach distinguishes us in the competitive retail market Strategy Broad, one-point access to boutique managers Team Experienced and high-quality sales force Significant industry experience and tenure Effective communication of sophisticated strategies Industry- Leading Asset Flows Approach Consultative approach supports financial advisors Assist FAs in managing their books of business Help FAs address client s current and future needs Page 9

10 Highly Effective Sales Efforts Diverse offerings, differentiated approach have led to consistent industry-leading flows Gross Sales 1 Net Flows 1 $19.1 $12.3 $2.8 $0.5 $4.5 $1.7 $9.5 $5.1 $6.4 $ GROWTH METRICS Sales Rate % 50.9% 80.3% 73.0% 73.9% Net Flow Rate 3 7.8% 18.7% 42.8% 38.0% 31.4% $ Billions 1 Long-term open end mutual funds 2 Compound annual growth rate from Sales rate is inflows divided by beginning-of-period assets; net flow rate is net flows divided by beginning of period assets Page 10

11 Balanced Retail Sales Diverse sales across multiple strategies and asset classes Mutual Fund Gross Sales Fixed Income Domestic Equity International Equity Alternative % 17% 49% 22% 8% 49% 36% 4% 34% 20% 7% 32% 24% 12% 28% 23% 21% 26% 41% 36% $2.8 $4.5 $9.5 $12.3 $19.1 KEY METRICS TOP SELLING FUND Fund MSB MSB PAS EMO EMO % of Mutual Fund Sales 41.3% 39.1% 29.0% 36.0% 28.3% $ Billions Note: Total gross sales for long-term, open-end mutual funds MSB Virtus Multi-Sector Short Term Bond Fund PAS Virtus Premium AlphaSector Fund EMO Virtus Emerging Markets Opportunities Fund Page 11

12 Strong Top-Line Growth Growth in fee revenue reflects strong net inflows and higher-fee products Avg. AUM Inv. Mgmt. Fees/Avg. AUM 0.60% 0.50% 0.47% 0.49% $60.0 $ % 0.40% 0.34% 0.37% $ % $53.0 $ % 0.10% $23.2 $26.5 $33.0 $39.6 $20.0 $ % $0.0 ASSET COMPOSITION AT 12/31 Equity 43.9% 47.6% 52.4% 54.2% 58.3% Fixed Income 32.5% 35.3% 35.6% 32.6% 27.4% Alternative 6.3% 5.9% 5.0% 8.7% 11.6% $ Billions Cash 17.3% 11.2% 7.0% 4.5% 2.7% Page 12

13 Leveragable and Variable Structure Inherently leveragable business with efficient cost structure Revenues, as adjusted Expenses, as adjusted $291.4 $211.6 $87.2 $80.2 $111.4 $89.6 $155.1 $111.5 $130.2 $ KEY METRICS Average AUM ($ BN) $23.2 $26.5 $33.0 $39.6 $53.0 Employment Ratio 62% 55% 53% 46% 42% Other Op Expense Ratio 30% 25% 19% 16% 13% Variable Cost % 2 44% 48% 59% 61% 66% $ Millions 1 CAGR Compound annual growth rate from Variable costs are GAAP operating expenses based on profits, sales or usage Page 13

14 Strong Earnings Growth Asset growth within leveragable and variable structure has driven consistently strong earnings Operating Income, as adjusted $131.0 $81.5 $43.7 $7.0 $ KEY METRICS Margin 8.0% 19.5% 28.2% 38.5% 44.9% Capture Ratio 2 N/A 61% 50% 67% 62% $ Millions 1 CAGR Compound annual growth rate from Incremental operating income, as adjusted, divided by incremental revenues, as adjusted Page 14

15 Capital Position Strong capital position provides flexibility to protect and invest in business and return capital Cash Investments 1 $398.4 $118.9 $38.1 $54.2 $ /31/09 12/31/10 12/31/11 12/31/12 12/31/13 KEY METRICS Cash and Inv. per share 2 $5.05 $7.13 $8.00 $15.19 $43.75 Working Capital $22.3 $34.3 $32.0 $44.5 $241.9 Borrowing Capacity $15.0 $15.0 $15.0 $60.0 $75.0 Shares Outstanding $ Millions 1 Represents seed capital and other liquid investments 2 Cash and investments divided by basic shares outstanding 3 Basic shares outstanding at the end of the period Page 15

16 Capital Strategy Capital allocation balanced between investing in business and return to shareholders Working Capital Represents operating liquidity of the business Maintain appropriate levels to support and protect business Seed Capital Facilitates product introduction and distribution access Currently seeding 26 strategies across 12 managers Return of Capital Return capital through share repurchases and dividends Payout ratio reflects focus on investing in business Growth Financial position allows for pursuit of accretive opportunities Includes closed-end fund offerings, lift-outs and acquisitions Page 16

17 Multiple Opportunities for Sustained Growth Our model and strategy offer significant growth opportunities Areas Product Distribution Growth Opportunities Leverage capabilities of affiliated managers Introduce new strategies from existing teams Offer existing strategies in new product structures Develop products for different markets/channels Broaden capabilities with new teams/managers Partner with new subadvisers or new affiliates Increase penetration in the wirehouse channel Further leverage existing strong relationships Broaden coverage of the independent/ria and retirement channels Increase market share in fast-growing distribution channel Expand presence in institutional and global markets Evaluate partnership opportunities for global presence Page 17

18 Demonstrated Success with Product Introductions Attractive strategies and effective retail distribution have driven strong new product sales Gross Sales AUM $11.8 $5.1 $6.0 $3.2 $3.4 $2.5 $0.1 $0.3 $0.8 $ KEY METRICS NEW FUNDS 1 % of All Funds Gross Sales 4.7% 18.1% 33.3% 19.9% 31.4% % of All Funds AUM 3.0% 8.7% 20.1% 19.9% 32.6% $ Billions 1 New long-term open end mutual fund products or strategies launched since 2009 Page 18

19 Opportunity with Alternatives Strategies Well-positioned to deliver attractive solutions in growing area of liquid alternatives Client Need Retail clients should incorporate non-correlated assets to evolve their asset allocation beyond the traditional stock/bond/cash mix Traditional alternatives lack liquidity, transparency and affordable access Market Opportunity Liquid alternative funds are one of the fastest growing categories Financial Advisors are recommending alternatives as a core component of a client s asset allocation Cliffwater s Approach Virtus Positioning Identifies and researches managers of alternative strategies including hedge funds, private equity and real assets Utilizes a customized, multi-strategy, multi-manager approach for portfolio construction; conducts ongoing portfolio monitoring Leverages extensive retail distribution and consultative approach to support financial advisors High-caliber sales force experienced in explaining sophisticated investment strategies Page 19

20 Virtus Value Proposition Flexible Multi-Boutique Model Diverse, High Quality Product Offerings Differentiated Distribution Capabilities Attractive Financial Model and Earnings Profile Multiple Opportunities for Growth Page 20

21 Appendix Page 21

22 Adjusted Operating Metrics Total Year Trend Revenues, GAAP Basis $117,152 $144,556 $204,652 $280,086 $389,215 Less: Distribution and administration expenses 29,939 33,205 50,563 68,274 97,786 Newfleet transition related subadvisory fees - - (1,057) - - Consolidated sponsored investment product fees Revenues, as adjusted 1 87, , , ,645 $291,416 Operating Expenses, GAAP Basis 123, , , , ,711 Less: Distribution and administrative expenses 29,939 33,205 50,563 68,274 97,786 Depreciation and amortization 8,991 6,929 5,865 5,931 6,835 Stock-based compensation 3,520 3,894 4,926 6,063 7,490 Restructuring and severance charges 1,102 1,635 2,008 1, Newfleet transition related operating expenses - - 5,152 2,806 2,172 Consolidated sponsored investment products expenses Closed-end fund launch costs ,767 4,465 - Operating Expenses, as adjusted 2 80,223 89, , , ,427 Operating Income, as adjusted 3 $6,990 $21,729 $43,678 $81,455 $130,989 Operating margin, GAAP basis (6)% 6% 7% 22% 29% Operating margin, as adjusted 3 8% 20% 28% 38% 45% $ thousands 1 Revenues, as adjusted, is a non-gaap financial measure calculated by netting distribution and administration expenses from GAAP revenues 2 Operating expenses, as adjusted, is a non-gaap financial measure calculated by adding back amortization attributable to acquisition-related intangible assets and restructuring and severance charges, and excluding stock-based compensation expenses and distribution and administrative expenses 3 Operating income, as adjusted, and operating margin, as adjusted, are non-gaap measures calculated using the basis of Revenues, as adjusted, and Operating expenses, as adjusted, as described in footnotes (1) and (2) Page 22

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