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Virtus Investment Partners Inc (VRTS) Q3 2020 Earnings Call Transcript

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Virtus Investment Partners Inc (NASDAQ: VRTS)
Q3 2020 Earnings Call
Oct 23, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, my name is Kevin, and I'll be your conference operator today. I would like to welcome everyone to the Virtus Investment Partners Quarterly Conference Call. The slide presentation for this call is available in the Investor Relations section of the Virtus website, www.virtus.com. [Operator Instructions]

I would now like to turn the conference over to your host, Sean Rourke.

Sean Rourke -- Investor Relations

Thank you, Kevin, and good morning, everyone. On behalf of Virtus Investment Partners, I would like to welcome you to the discussion of our operating and financial results for the third quarter of 2020. Our speakers today are George Aylward, President and CEO of Virtus; and Mike Angerthal, Chief Financial Officer. Following their prepared remarks, we will have a Q&A period.

Before we begin, I direct your attention to the important disclosures on Page 2 of the slide presentation that accompanies this webcast. Certain matters discussed on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and as such are subject to known and unknown risks and uncertainties, including but not limited to, those factors set forth in today's news release and discussed in our SEC filings. These risks and uncertainties may cause actual results to differ materially from those discussed in these statements.

In addition to results presented on a GAAP basis, we use certain non-GAAP measures to evaluate our financial results. Our non-GAAP financial measures are not substitutes for GAAP financial results and should be read in conjunction with the GAAP results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in today's news release and financial supplement, which are available on our website.

Now, I would like to turn the call over to George. George?

George R. Aylward -- President and Chief Executive Officer

Thanks, Sean, and good morning, everyone and thank you for joining us on our third quarter earnings conference call. We are pleased with the consistently strong operating performance that continue to be demonstrated in the quarter, which included positive net flows and strong sales, our highest level of assets under management revenues and earnings per share, continued excellent investment performance, disciplined expense management and an increased dividend and continued debt reduction.

We are pleased with the positive net flows we generated in total and across product categories. Annualized organic growth exceeded 4% in the quarter and was nearly 3% over the trailing 12 months, which included a significant market disruption in the first quarter. Favorable trends in flows and sales reflect a differentiated nature of our investment strategies, consistent strong investment performance, and the breadth and effectiveness of our retail and institutional distribution.

Turning to a review of the results. Our long-term assets under management at September 30 reached their highest level, increasing sequentially by nearly $8 billion or 7% to $115 billion, as a result of both market appreciation and positive net flows. Total assets, which include liquidity strategies ended the period at $116.5 billion.

Sales momentum continued with $7.6 billion of inflows, representing our second best quarter of sales. While sales were down sequentially from the second quarter, that was largely due to meaningful flows last quarter into an existing institutional sub-advisory mandate. Year-to-date sales were up 54%, with significant increases in open-end funds, retail separate accounts and institutional.

For the quarter, we had $1.2 billion of positive net flows, with strong momentum in both retail separate accounts and open-end funds, continuing the trend we've seen over the past year. We feel separate accounts have delivered consistently positive net flows, reaching $1.1 billion in the third quarter led by the intermediary sold channel.

Open-end net flows were positive $0.4 billion, primarily due to strength in domestic equity and investment-grade fixed income. Institutional net outflows were $0.3 billion, down from $1.5 billion of net inflows last quarter. Over the past four quarters, institutional has generated over $1 billion of positive net flows representing organic growth rate exceeding 3% with contributions from existing mandates in new accounts, reflecting the effectiveness of our investment strategies and the continued traction in institutional distribution. In terms of what we're seeing in October flows, while it's still very early, the trends we have seen throughout the year for both products and asset classes have continued.

Our financial results for the quarter reflected the continued market rebound in addition to the impact of the current operating environment on travel expenses. Operating income, as adjusted, of $54.1 million and the related margin of 39.3%, increased from $40.5 million and 34.3%, respectively in the second quarter. Earnings per share, as adjusted, reached their highest level, increasing 39% sequentially to $4.49 due to higher revenues and lower other operating expenses.

Turning now to capital. We continued our balanced and prudent approach to capital management and we maintain a capital position that provides flexibility for future growth opportunities. During the quarter, we raised the quarterly common dividend by 22%, repurchased approximately 54,000 shares for 0.7% of shares outstanding and continued the consistent pay-down of debt ending the quarter with net debt-to-bank EBITDA of 0.1x. Over the past year, we have reduced our debt by 26%.

With that, let me turn the call over to Mike for more detail on results. Mike?

Michael A. Angerthal -- Executive Vice President and Chief Financial Officer

Thank you, George. Good morning, everyone.

Starting with our results on Slide 7, assets under management. At September 30, long-term assets were $115 billion, up 7% from $107.1 billion at June 30. The sequential increase reflected $7.1 billion of market appreciation and $1.2 billion of positive net flows. All asset classes contributed to AUM growth during the quarter led by domestic and international equity, which increased 9% and 12%, respectively.

Assets continued to be diversified by product type with open-end funds, institutional and retail separate accounts, representing approximately 38%, 32% and 21% of long-term AUM, respectively.

In terms of asset classes, equity assets represented 70% of long-term AUM with 77% of that in domestic equity and 23% in international. Fixed-income assets declined as a percentage of total to 26%, primarily due to the rise in equity markets during the period.

We continue to generate strong relative investment performance across our strategies. As of September 30, approximately 80% of rated fund assets had four or five stars, and 98% were in three, four or five star funds. We currently have eight funds with AUM of $1 billion or more that are rated four or five stars, representing a diverse set of strategies from four different managers.

In addition to this very strong fund performance, 96% of institutional assets and 100% of retail separate account assets were beating their benchmark on a three-year basis as of September 30, and 66% of institutional assets and 84% of retail separate account assets we're outperforming their benchmarks on a five-year basis. Also 86% of institutional assets were exceeding the median performance of their peer groups on the same five-year basis.

Turning to Slide 8, asset flows. Net inflows of $1.2 billion in the third quarter represented a 4.3% annualized organic growth rate. For the trailing four quarters, net flows were positive $2.8 billion, or 2.7% organic growth rate. In the third quarter, net flow contributions were diverse, by product with net inflows in retail separate accounts, open-end funds, and exchange-traded funds, as well as by asset class with positive net flows in equity, fixed income and alternatives. Notably, this marked the seventh consecutive quarter for net inflows and equity, while fixed income net flows also turned positive. And while institutional net flows were negative, this included $1.6 billion outflow from a single client. For the year-to-date and trailing 12-month periods, institutional net flows were positive.

Looking at open-end funds, net flows are positive $0.4 billion, consistent with the second quarter. By asset class, domestic equity open-end fund net flows were positive $0.6 billion in the quarter with positive flows of $1.8 billion on a year-to-date basis, for a 14% annualized organic growth rate. Flows are positive in large, mid and SMID cap, with SMID particularly strong this quarter with a 28% sequential increase in net flows. Fixed income open-end fund net outflows were $0.1 billion, a significant improvement from prior quarters, as outflows and more credit sensitive strategies continued to abate. International equity funds had net outflows of $0.1 billion, as positive net flows in developed market strategies were offset by net outflows in emerging markets.

Total sales for the quarter continued to be strong at $7.6 billion, though down from record second quarter levels that included $1.8 billion of flows into an existing institutional mandate. On a year-to-date basis, sales were up 54% led by growth in institutional, retail separate accounts and open-end funds.

For the quarter by product, retail separate account sales of $1.7 billion were up 16% sequentially, led by particularly strong growth of SMID and international strategies. Fund sales of $3.8 billion, decreased $0.6 billion or 14% sequentially, primarily due to lower sales of small cap and fixed income strategies. Notable areas of growth were SMID up 38% and international developed markets up 32%.

Institutional sales of $2.1 billion, represented the second highest quarterly level and included flows into both existing and new mandates across multiple affiliates. The sequential decline from $3.1 billion, reflected the large inflow into an existing account in the prior quarter.

Turning to Slide 9. Investment management fees, as adjusted, of $122.4 million, increased $17.8 million or 17% sequentially. The increase reflected 15% growth in average assets due to market appreciation and positive net flows, as well as $2 million in performance related fees, up from $0.6 million in the prior quarter. The average fee rate on long-term assets for the quarter was 47 basis, up 0.2 basis points sequentially.

With respect to open-end funds, the fee rate increased to 59.5 basis points from 58.4 basis points in the second quarter, reflecting the significant market driven increase in equity assets and the ongoing positive fee rate differential between sales and redemptions. This quarter, the blended fee rate on fund sales was 60 basis points, while the rate from redemptions was 57 basis points.

Slide 10 shows the five quarter trend in employment expenses. Total employment expenses, as adjusted, of $66.1 million, increased 12% sequentially, largely reflecting higher profit-based incentive compensation. As a percentage of revenues, employment expenses were 48%. We believe that this is a reasonable level for the fourth quarter, all else being equal.

Turning to Slide 11. Other operating expenses, as adjusted, were $16.3 million, down sequentially from $17.4 million, largely due to the impact of the $0.8 million annual equity grants to the Board of Directors in the prior quarter. The third quarter level of other operating expenses continued to reflect the operating environment, as travel and related expenses remained muted. Looking ahead to the fourth quarter, we anticipate that other operating expenses as adjusted will approximate recent levels.

Slide 12 illustrates the trend in earnings. Operating income, as adjusted, of $54.1 million, increased $13.6 million or 34% sequentially, due to the increase in revenues, partially offset by the higher employment expenses. The operating margin, as adjusted, of 39.3% increased by 500 basis points from 34.3% in the prior quarter. Non-controlling interests, as adjusted, increased by $0.4 million to $2.4 million, due to growth in earnings at a majority-owned affiliate.

The effective tax rate, as adjusted, for the quarter was 27%, unchanged from the prior quarter. We believe 27% is reasonable going forward, all else being equal.

Net income, as adjusted, $4.49 per diluted share increased by $1.25 or 39% sequentially, primarily due to higher revenues and lower other operating expenses. I would point out that our weighted average diluted share count increased by 102,000 shares or 1% from the prior quarter, reflecting the impact of a higher share price and performance adjustments in long-term equity awards, in the calculation of diluted shares.

Regarding GAAP results. Third quarter net income per share of $3.71 compared with $1.43 per share in the second quarter, and included the following items, a $1.09 reduction, reflecting the increase in the fair value of the minority interest liability and $0.75 of realized and unrealized gains on investments.

Slide 13 shows the trend of our capital position and related liquidity metrics. Working capital was $159 million at September 30, up 2% sequentially, as operating earnings more than offset debt repayments and return of capital. Gross debt outstanding at September 30 was $223 million, as we repaid $7.5 million during the quarter. Over the past year, we have reduced gross debt by $78 million or 26%.

The net debt-to-bank EBITDA ratio of 0.1 times at September 30, was down from 0.3 times at June 30 and 0.5 times a year ago, due to EBITDA growth, lower debt and a higher cash balance. Gross debt-to-EBITDA was 1.0 times at quarter end, down from 1.5 times in the prior-year.

Regarding return of capital to shareholders, we repurchased 53,867 shares of common stock for $7.5 million, resulting in a 0.7% reduction in common shares outstanding. And we announced a 22% increase in our quarterly common dividend to $0.82 per share.

With that, let me turn the call back over to George. George?

George R. Aylward -- President and Chief Executive Officer

Thank you, Mike. Before we take your questions, I'd like to provide an update on the strategic partnership with Allianz Global Investors. During the third quarter, we received the necessary fund Board approvals and the funds' shareholder approval and consent process has commenced. We currently expect to close early in the first quarter of 2021. We're very excited about this partnership, which will add significant scale, further diversify our investment strategies with complementary and attractive offerings and provide incremental growth opportunities.

At September 30, Allianz assets related to the partnership had increased to $25.7 billion and consisted of $16.8 billion of open-end funds, $5 billion of closed-end funds, $3.4 billion of separate accounts and $0.5 billion of institutional with a blended fee rate of approximately 37 basis points.

Investment performance on the assets continues to be very strong. On a combined basis, for Virtus and Allianz, 80% of Morningstar rated AUM would be in four or five star funds and 97% would be in three, four and five star. Overall, we would have 39% four or five star rated funds on a pro forma basis.

As we indicated in July, the partnership is also financially compelling and will be immediately accretive. We have increased our estimated accretion to be at least 30% to earnings per share, as adjusted, based on the annualized third quarter results. We will provide more detail prior to the close.

We will now take your questions. Kevin, can you open up the lines, please.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jeremy Campbell with Barclays.

Jeremy Campbell -- Barclays -- Analyst

Hey, thanks. For asset, my question here, I just want to clarify, George, on that Slide 15 you just ran through, the fee rates that you're showing there are net to Virtus, correct?

George R. Aylward -- President and Chief Executive Officer

Yes, they are on a comparable basis to what we show for our other piece, so they are net.

Jeremy Campbell -- Barclays -- Analyst

Perfect, perfect. And I know George we spoke in -- M&A at length in the past here and really happy to see that that Allianz accretion guide higher. With Allianz being capital light and Vertis is now basically de-levered, and it seems like the asset manager M&A hot stove is heating up here. So just wondering if we can get your view on kind of the recent deal flow in the sector and maybe what the pipeline would look like for asset managers that have characteristics, you'd find attractive with a good fit to Virtus?

George R. Aylward -- President and Chief Executive Officer

Sure. Yeah, so M&A or inorganic actions in, more broadly, as we've always said for us, we're very thoughtful that our long-term growth strategy to create shareholder value is not predicated on M&A. But that being said, given our business model and a significant experience and success with M&A, that is a tool in our toolbox. It gives us the flexibility to sort of look at it from the perspective of it being something to accelerate or expand or diversify future growth, and we can be thoughtful about that.

So as we sort of look at the environment, and again for some of the factors that you cite, we're currently -- we have organic growth, we have good investment performance, we have a low-end leveraged balance sheet. That gives us a lot of flexibility in terms of kind of things we think about. We're not being required to do any kind of an M&A. So as I sort of look at that environment, which we've always been very active in and we're very selective, we continue to think that given our business model, as we sort of look to build out our portfolio of differentiated strategies, there's going to continue to be opportunities. We think we have a very compelling value proposition as it relates to that. And we think this is a whole continuum. So those things which are very strategic in terms of adding product capabilities is sort of fundamental to our business model of being seen as a provider of very select, specialized, best-in-class boutique managers. But that being said, things that can unlock some of the scale and leveraging of our business model are also very attractive and things that would expand our client base, diversifying with where it is. So we actually feel very well positioned for the reasons that I sort of just discussed. That doesn't mean that we feel any necessity to do M&A for the sake of doing M&A, but we feel very optimistic about our relative attractiveness in the opportunity set that's out there.

Jeremy Campbell -- Barclays -- Analyst

Great. And then just maybe to follow-up on the organic side. Obviously, it's been pretty impressive year, especially, once we kind of lap some of that bank loan headwind there. And you're kind of looking at really good string of inflows, especially, in equities, active equities, and that's an area where the industry has just seeing a lot of structural outflows. I guess when we take a step back here, what do you attribute the strength to for Vertis from an inflow perspective has been facing all these sector headwinds?

George R. Aylward -- President and Chief Executive Officer

Yeah, no. It's a great question. And again, I all we start with -- it starts with our fundamental offering of a collection of very differentiated boutique managers that have distinctive strategies and approaches to investing, right. So we've never tried to generically offer all things to all people [Phonetic]. So when you talk about equity, our equity managers team in SGA, its just two examples, are very different and their compelling nature of how they invest has made them attractive, right. So, and then I add to that, so it starts where you really need to have good managers, good investment performance. I think in this competitive active versus passive and conscious world, having truly differentiated managers that can distinguish themself on a risk adjusted basis, in particular, is really important. But then you need to have effective distribution. So we've generally said, we have to have both of those things working in tandem. And because of the diversity of our products, our thought is that, that will generally always have something that should be attractive to investors at a given point in time. And I'm glad that you sort of pointed out the loans. When loans are at -- one of our [Indecipherable] a favor, we will participate. So even during that period, where we had those outflows in loans, I think as you sort of alluding to beneath that, there was incredible strength in the rest of the products. And there will be a time where loans, I don't know when it will be, will be our best-selling strategy. I just don't know whether it's four quarters or eight quarters from now. That's sort of the point of what we do with our portfolio of differentiated managers and offerings. It is really to have that holistic full set of building blocks that I think because they're differentiated from other strategies and I think our distribution and our marketing resources are very focused on being consultative and really thoughtful around how they position it.

And then lastly, the other thing I'll say is, we don't make money from raising assets, we make money from retaining assets. So, a lot of the work that we do is really about making sure that we sell something correctly that therefore has a longer life, which then ultimately creates more accretion and profitability to the bottom line.

Jeremy Campbell -- Barclays -- Analyst

Great. Thanks a lot, guys.

George R. Aylward -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Sumeet Mody with Piper Sandler.

Sumeet Mody -- Piper Sandler -- Analyst

Thanks. Good morning, guys. Just one, more on the Allianz partnership. It's nice to see the added detail around AUM levels and net performance. Just wondering how the flow profile has kind of looked over the last quarter and through October, particularly the SMAs and the sub-advised block being advised by Allianz. How that's been doing? And then, we noticed a couple of the retail funds of liquidated last month. So just any color there would be helpful too.

George R. Aylward -- President and Chief Executive Officer

Well, on the first part, in terms of the flows for their funds, so obviously they not our funds. So we're not going to give a lot of clarity in terms of the activities that are going on there, and nor do we think the activity in their fund flows, it will necessarily be indicative of what it should look like when it's in our portfolio model. But they generally done well, right, so in terms of their funds.

On the second piece, some of the other actions that they had previously taken in terms of their fund offering line up are really sort of not related to the funds that we will be taking on as part of our strategic partnership. Mike, do you want to add anything?

Michael A. Angerthal -- Executive Vice President and Chief Financial Officer

No, I think you covered it and we provided some detail by asset and product type in the slide. And I think we alluded to the fact that the AUM in total group about 7% from the June 30 level. So, and as George alluded to the investment performance up and down that product line-up is very strong and it complements our offerings very nicely.

George R. Aylward -- President and Chief Executive Officer

Yeah, and that's -- I want to highlight that point to pieces that, that's -- I think some people may not be focusing on as much. They are really good products. And if you went through the performance numbers that I provided, we've always been very proud of our investment performance profile, particular on the fund side and the Morningstar side. Theirs is just as good, and it's -- so, it's very compelling product. It is complementary to what we have. And again, if you look at the asset growth numbers, you can obviously from that derive that those funds, even in the midst of [Indecipherable] control kind of activity are doing quite well.

Sumeet Mody -- Piper Sandler -- Analyst

Great, thank you for that. And then, just wanted to shift over actually to the usage flows, saw some particular strength over the last couple of quarters, particularly SGA's global growth and then U.S. small cap focus funds. I'm wondering if you talk about that strength and kind of the outlook for that asset class?

George R. Aylward -- President and Chief Executive Officer

Yeah, we don't spend a lot of time talking about the offshore products and the offshore funds and our approach to that, just as a reminder was several years ago, we launched a incubated several products in anticipation of building very compelling track records, which not would our managers, SGA team nuclei site [Phonetic] have all done a really good job of building very compelling track records, and we then been supporting and adding to that some distribution. So we're actually very pleased that we've seen some of that growth in there. And again, it's because some of those strategies are just very strong performers and we do look to that as one of those areas of opportunity for us going forward. Now that those funds have gathered assets they build track records that are very compelling. So whether it be on the institutional -- smaller institutional side or even potentially in retail for different of those funds, I think there is a very interesting compelling opportunity set outside the US.

Sumeet Mody -- Piper Sandler -- Analyst

Great. Thanks for taking my question.

George R. Aylward -- President and Chief Executive Officer

Yeah, thank you.

Operator

Our next question comes from Mike Carrier with Bank of America.

Michael Carrier -- Bank of America Securities -- Analyst

Good morning, and thanks for taking the question. I think you guys mentioned on the institutional side, some wins with new clients, despite the one with redemptions. I just wanted to get some color on the traction that you have been seeing in that channel, including the number of your new clients or more mandates by current client. And then, just curious on the one redemption in the quarter, if that was performance related or something else?

Michael A. Angerthal -- Executive Vice President and Chief Financial Officer

Yeah. Hey, Michael, good morning. It's Mike Angerthal. So on the redemption, I'll hit that one first. It was a 0.6 redemption from a single client and it was a product that we have been managing at one of our affiliate since 2012, so over eight years. And the client internalized those portfolio management activities. So nothing to do with performance and a single internalization.

With respect to new mandates, it really balanced and we had flows both in new mandates as well as in existing accounts and the new mandates, was good to see that traction, because it was across, really four of our affiliates. We had contributions balanced from SGA, which we've been talking about and KMF, we've been talking about. But we also had new mandates from Duff and Seix. So real good balanced contribution and we think that really supports some of the traction that we've been talking about. And although, the sales levels were down period over period, it is important to note that institutional sales were our second highest level on record. So if you be kind of strip out that one significant mandate last quarter into an existing account, we have been really consistent seeing some traction on the institutional side. So we're generally pleased with that.

Michael Carrier -- Bank of America Securities -- Analyst

Okay, thanks for that. And then just on the product side, it seems like the closed-end fund market is picking up a bit, with more demand for these structures in certain strategies. Given that Virtus has been, I think fairly innovative and close to distribution partners over time, just curious if you see some more opportunities as you go ahead?

George R. Aylward -- President and Chief Executive Officer

Yeah, again, we think it's a great product structure, and we do think that closed-end funds really are a compelling element of the retail investors portfolio. So we continue to look at areas where we can use either existing or combinations of existing and newer strategies into that market. So we are pleased to see activity in that space. So, we do think it is something that investors should be thoughtful about and I think our strategies and managers sort of are well positioned for those types of things. So we continue to look at that as an area of opportunity as well.

Michael Carrier -- Bank of America Securities -- Analyst

Great. Thanks a lot.

George R. Aylward -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Michael Cyprys with Morgan Stanley.

Michael Cyprys -- Morgan Stanley -- Analyst

Hey, good morning. Thanks for taking the question. I just wanted to follow-up on the international distribution usage products. And so far, it looks like you have about $4 billion of international and solid AUM, if I have that right here. I guess just a question around, how are you approaching distribution internationally? Who you're partnering with? What sort of channels you're looking at? How are you approaching that differently versus distribution in the US? And at what point would it make sense to maybe further accelerate that through inorganic means on the international side?

George R. Aylward -- President and Chief Executive Officer

Well, yeah, on the left, so we do see us growing our non-U.S. client base as a very high long-term strategic priority. So, agree with that, and again I think that can be done through organically growing and investing in that business, that is also something else we would look at in terms of inorganic kinds of opportunities. In terms of our current base and what our distribution is in the non-U.S. market, so some of that is very affiliate-centric, in terms of individual affiliated managers who have very successfully obtained mandates from non-U.S. clients and some have bigger books than others. So, for us it is still a smaller part of our business. Some of our of our affiliates have made great success. We have some non-U.S. resources that are available to support those that need the support.

And then on the usage side, that's really sort of a combination of both non-U.S. clients as well as non-U.S. citizen residents here in the U.S. market. So we actually distribute some of the usage, both outside the U.S. as well as in other channels here in the U.S. to non-residents. So, we look at all of those elements to grow in our model, sort of very flexible in terms of how we can sort of support growth on the retail side, both U.S. and then ultimately, non-U.S. And on the institutional side, it's a mix of individual affiliate activities as well as Virtus supported activities for our collection of affiliates. And we think there is a great opportunity for all of our managers out there, because many of them just have a lot of opportunity outside the US, where they're not as well known as they would be here in the US, particularly in the U.S. retail market.

Michael Cyprys -- Morgan Stanley -- Analyst

Great, thanks. And then just maybe a follow-up on the SGA business and transaction you guys have done a couple years ago. Can you just talk about how that's performing relative to your expectations relative to maybe what you thought around the time you had announced the transaction? What metrics that you're looking at to assess that as well?

George R. Aylward -- President and Chief Executive Officer

Well, I mean I'll start with my original impression and my thoughts of them was, they were a phenomenal firm and a great team, and they have met and exceeded expectations, and that really everything in my mind sort of comes from that. They've done a phenomenal job in terms of their quality and the discipline of their managing of their client assets. Their thoughtfulness about how they approach their overall business. I think in partnering with us, I think we have more things to help make it more supportive for them in certain of the markets. So I think as we sort of look at what we expected there, they've done a great job. It has met or exceeded any expectations we've had.

Michael Cyprys -- Morgan Stanley -- Analyst

Great. And then maybe just a quick, if I could get another one in here quickly. Just on the AGI transaction, you mentioned that, you're looking for that to provide incremental growth opportunities. Can you just elaborate on that? And what would you say at the top couple of areas that you're most excited about in terms of additive to growth?

George R. Aylward -- President and Chief Executive Officer

Yeah, well, if you look at their product -- I sort of went back to a point on the product, so again, I'm pleased that people are focusing on the accretion that people are looking in at the financial benefits, but the actual products are very compelling and we do think actually adding them, because they sort of expand with some of the multi-asset class and including in some of the ESG side, some other very interesting product offerings that are not currently in our product portfolio. So, we see those as growth opportunities, to say it again, it a completes our set of building blocks of a well diversified portfolio. So we sort of look to that, and then in one of the elements of that transaction will actually establish new boutique affiliate. And I think, in our model, I think there'll be opportunities there, particularly, not only in the retail on the separate account side, but also outside and in more of an institutional orientation. So, again, more to come. We're very happy with the investment performance. We're very happy with the transaction and we look forward to closing.

Michael Cyprys -- Morgan Stanley -- Analyst

Great, thank you.

George R. Aylward -- President and Chief Executive Officer

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Aylward.

George R. Aylward -- President and Chief Executive Officer

Okay, I want to thank everyone for joining us today and we certainly encourage you to call us if you have any further questions. Stay safe.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Sean Rourke -- Investor Relations

George R. Aylward -- President and Chief Executive Officer

Michael A. Angerthal -- Executive Vice President and Chief Financial Officer

Jeremy Campbell -- Barclays -- Analyst

Sumeet Mody -- Piper Sandler -- Analyst

Michael Carrier -- Bank of America Securities -- Analyst

Michael Cyprys -- Morgan Stanley -- Analyst

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    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

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