Virtus Investment Partners, Inc. · NYSE:VRTS
Virtus Investment Partners — Morgan Stanley Financials Conference 2017
39 slides from Virtus Investment Partners's conference presentation, Jun 13, 2017
Slide 1: Morgan Stanley Financials Conference
Morgan Stanley Financials Conference June 13, 2017 George R. Aylward President and Chief Executive Officer
Slide 2: Important Disclosures
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 Secur
Slide 3: Agenda
AGENDA Overview of Virtus Acquisition of RidgeWorth Investments Financial Review Growth Opportunities Appendix 3
Slide 4: Overview of Virtus
_VIRTIUS | INVESTMENT PARTNERS OVERVIEW OF VIRTUS
Slide 5: Firm Overview
FIRM OVERVIEW We are a distinctive Independent publicly traded asset manager partnership of – Market capitalization of $0.81 billion (NASDAQ: VRTS) boutique investment Managing $90.32 billion in a multi-boutique structure managers, singularly committed to the – Flexible model with offerings from
Slide 6: Value Proposition
VALUE PROPOSITION Flexible Multi-Boutique Flexible partnership approach with alignment of interests Asset Manager Preserves affiliate culture, investment process, and brand Shared distribution and support services Diverse, High-Quality Well-diversified across asset classes and investment sty
Slide 7: Acquisition of RidgeWorth
_VIRTIUS | INVESTMENT PARTNERS ACQUISITION OF RIDGEWORTH
Slide 8: Transaction Highlights
TRANSACTION HIGHLIGHTS Diversification of Increases the breadth of product offerings from differentiated investment managers Investment Strategies and Clients Provides access to broader base of potential clients Diversifies product offerings for greater opportunities through changing market cy
Slide 9: Financial Impact
FINANCIAL IMPACT Financially Purchase price represents 6.5x EBITDA1, including synergies Compelling Accretion estimate of ~20% Attractive high-teens IRR targeted Material Synergies Anticipated cost synergies of $25 million per annum; ~85% expected to be realized within twelve months of closi
Slide 10: Multi-Boutique Asset Manager
MULTI-BOUTIQUE ASSET MANAGER Flexible model with diversified investment strategies across affiliates and subadvisers Investment Grade Growth Equity AFFILIATES Value Equity Leveraged Finance Multi-Sector Fixed Quality-Oriented Income-Focused Quantitative Income Equity Equity Strategies SUBADVISERS 1
Slide 11: Diversity of Strategies
DIVERSITY OF STRATEGIES AUM by Manager AUM by Product Type AUM by Asset Class Structured Products Alternative & Other4 Other1 3% 5% 5% Liquidity3 Vontobel Seix (IG) Institutional Open-End 7% 10% 17% 28% Domestic Mutual Funds Equity 46% 34% Ceredex 12% Seix (Lev. Fin.) Fixed 15% Income 43% Duff & Phe
Slide 12: Consistent Strong Performance
CONSISTENT STRONG PERFORMANCE Majority of mutual fund AUM has strong investment performance Pro Forma Combined Mutual Fund Assets Under Management % AUM in Top Half of Peer Group1 Morningstar Rating By Assets2 89% 85% Morningstar # of $mm % of Rating Funds AUM AUM 12 $25,951 63% 61% 85% 2
Slide 13: Diversity of Performance
DIVERSITY OF PERFORMANCE 34 mutual funds rated 4 or 5 Stars, including the five largest funds, on a pro forma basis 4 and 5 Star Mutual Funds by Asset Class Top 5 Largest Mutual Funds 1 AUM M’Star Asset Class # of Funds Fund ($B) Rating1 Virtus Emerging Market Fixed Income 15 Funds $7.3 5 Opportunit
Slide 14: Effective Distribution Capabilities
EFFECTIVE DISTRIBUTION CAPABILITIES The transaction substantially grows the institutional business and enhances retail distribution Virtus ($48.0B) RidgeWorth ($42.3B) Pro Forma ($90.3B) Institutional AUM by Client Type 13% Institutional 31% Institutional Retail 51% 49% Retail Retail 69% 87% Retail
Slide 15: Financial Review
_VIRTIUS | INVESTMENT PARTNERS FINANCIAL REVIEW
Slide 16: Key Operating Attributes
KEY OPERATING ATTRIBUTES Revenues Diverse in terms of product types, investment strategies and affiliates Competitive net management fee rate Majority of revenues from recurring asset-based fees; modest performance fees Management fees recorded net of fees paid to unaffiliated subadvisers Em
Slide 17: Key Capital Policies
KEY CAPITAL POLICIES Working Capital Manage working capital to ensure adequate resources available for near-term liquidity requirements Evaluate as a percentage of annual spend, defined as GAAP operating expenses Target working capital to spend ratio of 50-75% to ensure operating flexibility S
Slide 18: Pro Forma Balance Sheet
PRO FORMA BALANCE SHEET As of 3/31/2017 Pro Forma Combined Balance Sheet Highlights1 Preserves balance sheet flexibility Cash & Seed Capital2 $158 – Continued ability to invest in the Other Investments3 102 business Debt4 249 Adequate Liquidity Mandatory Convertible Preferred 111 – >$250mm of ca
Slide 19: Growth Opportunities
_VIRTIUS | INVESTMENT PARTNERS GROWTH OPPORTUNITIES
Slide 20: Multiple Opportunities for Growth
MULTIPLE OPPORTUNITIES FOR GROWTH RidgeWorth Area Growth Opportunities Acquisition Product Leverage capabilities of current managers Offer existing strategies in other product structures Broaden capabilities with new teams/managers Distribution Increase market share in retail channels De
Slide 21: Summary
SUMMARY Flexible Multi-Boutique Asset Manager Diverse, High-Quality Product Offerings Effective Distribution Capabilities Attractive Financial Profile Multiple Opportunities for Growth 21
Slide 22: Appendix
_VIRTIUS | INVESTMENT PARTNERS APPENDIX
Slide 23: Virtus History
VIRTUS HISTORY Established in the 1990s and Fully Independent Since January 2009 1993 Phoenix Securities Group (subsidiary of former parent, Phoenix Life) acquires National Funds 1995 Merges with Duff & Phelps to create Phoenix Duff & Phelps (later renamed Phoenix Investment Partners (“PXP”)); 40% o
Slide 24: Historical Financial Summary
HISTORICAL FINANCIAL SUMMARY Ending Long-Term AUM ($B) Net Flows ($B) 8.1 6.7 5.2 0.1 1.5 (1.2) 56 57 (4.7) 47 45 (6.3) 44 32 22 27 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016 Revenues, As Adjusted Operating Income, As Adjusted 337 150 291 295 121 254 108 212 155
Slide 25: First Quarter 2017 Highlights
FIRST QUARTER 2017 HIGHLIGHTS Assets and Flows Positive net flows of $0.5 billion reflect an organic growth rate of 4.6% annualized Continued positive flows in separately managed accounts, ETFs, and institutional Non-GAAP Financial Results Earnings per diluted share, as adjusted, of $1.16 incl
Slide 26: Assets Under Management
ASSETS UNDER MANAGEMENT AUM profile is diversified by product $45.7 $45.2 $46.5 $48.0 type as well $45.4 as asset class 3/31/16 6/30/16 9/30/16 12/31/16 3/31/17 Assets By Asset Class Equity 59.3% 58.0% 57.3% 56.9% 58.3% Fixed 32.8% 34.2% 33.9% 34.2% 33.1% Alternatives1 6.8% 6.8% 7.9% 7.8% 7.6% Other
Slide 27: Asset Flows
ASSET FLOWS First quarter Inflows/(Outflows) Inflows was the best Outflows Net flows for flows in $3.1 $3.3 10 quarters $2.8 $2.4 $2.6 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 ($2.6) ($3.0) ($2.8) ($4.6) ($5.4) Metrics Net Flows ($2.6) ($2.2) $0.5 ($0.4) $0.5 Net Flow Rate1 (22.2%) (19.0%) 4.3% (3.2%) 4.6% $ i
Slide 28: Non-GAAP Results
NON-GAAP RESULTS Excluding Operating Income, As Adjusted $4.9 million Diluted earnings per share, as adjusted of specific employment items, $20.3 $18.2 margin $15.2 $16.7 $1.75 $13.5 would have $1.64 been 28.4% $1.12 $1.24 $1.16 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Metrics Net Income, As Adjusted $9.5 $10.
Slide 29: Capital Position
CAPITAL POSITION Cash and Investments Cash and cash equivalents Seed investments Investments – other $441 $383 $383 $31 $368 $52 $38 $38 $175 $274 $179 $29 $174 $281 $180 $236 $156 $165 $50 $65 3/31/16 6/30/16 9/30/16 12/31/16 3/31/17 Metrics Cash and Investments Per Share $46 $48 $50 $46 $55 Return
Slide 30: Reconciliation – Q1 2017
U.S. GAAP TO NON-GAAP RECONCILIATION – Q1 2017 Reclassifications Adjustments Distribution and Consolidated Amortization Acquisition and U.S. GAAP other asset- investment of intangible Seed capital and integration Non-GAAP Basis based expenses products assets CLO investments expenses Other Basis Reve
Slide 31: Reconciliation – Q4 2016
U.S. GAAP TO NON-GAAP RECONCILIATION – Q4 2016 Reclassifications Adjustments Distribution and Consolidated Amortization Acquisition and U.S. GAAP other asset- investment of intangible Seed capital and integration Non-GAAP Basis based expenses products assets CLO investments expenses Other Basis Reve
Slide 32: Reconciliation – Q3 2016
U.S. GAAP TO NON-GAAP RECONCILIATION – Q3 2016 Reclassifications Adjustments Distribution and Consolidated Amortization U.S. GAAP other asset- investment of intangible Restructuring Seed capital and Non-GAAP Basis based expenses products assets and severance CLO investments Other Basis Revenues Inve
Slide 33: Reconciliation – Q2 2016
U.S. GAAP TO NON-GAAP RECONCILIATION – Q2 2016 Reclassifications Adjustments Distribution and Consolidated Amortization U.S. GAAP other asset- investment of intangible Restructuring Seed capital and Non-GAAP Basis based expenses products assets and severance CLO investments Other Basis Revenues Inve
Slide 34: Reconciliation – Q1 2016
U.S. GAAP TO NON-GAAP RECONCILIATION – Q1 2016 Reclassifications Adjustments Distribution and Consolidated Amortization U.S. GAAP other asset- investment of intangible Seed capital and Non-GAAP Basis based expenses products assets CLO investments Other Basis Revenues Investment management fees $ 57,
Slide 35: Footnotes
FOOTNOTES Non-GAAP financial measures differ from financial measures determined in accordance with U.S. GAAP as a result of the reclassification of certain income statement items, as well as the exclusion of certain expenses and other items that are not reflective of the earnings generated from prov
Slide 36: Footnotes
FOOTNOTES Components of Other for the respective periods are shown in the table below: Q1:16 Q2:16 Q3:16 Q4:16 Q1:17 YTD:16 YTD:17 Other ($ in thousands) System transition expenses $414 $358 $445 $611 $669 $414 $669 Tax impact of transition expenses (159) (138) (166) (230) (258) (159) (258) Discrete
Slide 37: RidgeWorth Update
RIDGEWORTH UPDATE Assets Under Management and Fee Rate by Product Structured Mutual Funds SMAs Institutional Products Total Assets under management at March 31, 2017 Total $17,462 $3,102 $19,257 $2,487 $42,308 Less: Liquidity (1,486) (118) (4,970) - (6,574) Long-Term $15,976 $2,984 $14,287 $2,487 $3
Slide 38: Mutual Funds
MUTUAL FUNDS Additional Information on Virtus and RidgeWorth Funds rated by Morningstar as of 3/31/17: Description Overall 3 yr. 5 yr. 10 yr. Number of 3/4/5 Star Funds 53 47 43 37 Percentage of Assets 97% 90% 91% 95% Number of 4/ 5 Star Funds 44 27 19 29 Percentage of Assets 86% 75% 66% 91% Total F
Slide 39: _VIRTIUS |
_VIRTIUS | INVESTMENT PARTNERS
Virtus Investment Partners — Morgan Stanley Financials Conference 2017 on 6ix