If you need to reach an operator, please press the star followed by zero. Please note that this call is being recorded today, Thursday, April 30th, 2026 at 11:00 A.M. Eastern time. I would now like to turn the meeting over to Melody Huang, SVP, Director of Finance and Investor Relations. Please go ahead, Melody.
Good morning, welcome to Acadian Asset Management Inc's conference call to discuss our results for the first quarter ended March 31st, 2026. Before we begin the presentation, please note that we may make forward-looking statements about our business and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information regarding this risk and uncertainties appears in our SEC filings, including the Form 8-K filed today containing the earnings release and our 2025 Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update them as a result of new information or future events. We may also reference certain non-GAAP financial measures.
Information about any non-GAAP measures referenced, including a reconciliation of those measures to GAAP measures, can be found on our website, along with the slides that we will use as part of today's discussion. Finally, nothing here shall be deemed to be an offer or solicitation to buy any investment products. Kelly Young, our President and Chief Executive Officer, will lead the call. Now, I'm pleased to turn the call over to Kelly.
Thanks, Melody. Good morning, everyone, and thanks for joining us today. I'm thrilled to share our exceptional Q1 2026 results with you. Our assets under management and profitability continue to reach new heights, with strong recent growth underscoring sustained momentum in our business and disciplined execution of our strategic plan. We started 2026 by delivering outstanding results across all metrics. Our U.S. GAAP net income attributable to controlling interests was up 21%, and EPS was up 26% compared to the prior year, driven by increased management fees and partially offset by non-cash expenses representing changes in the value of Acadian Asset Management LLC equity and profit interest. ENI was up 85% to $37.6 million, driven by revenue growth, and our ENI diluted EPS of $1.05 was up 94%.
Our adjusted EBITDA was up 76%, driven by increase in management fees. We realized $21.4 billion of positive net flows in Q1 2026, 12% of beginning AUM, our new quarterly record, driven by enhanced extensions in global equity strategies. Finally, AUM grew 61% from Q1 of 2025 to $195.7 billion as of March 31st, 2026, marking another record high for Acadian. Turning to slide three, Acadian's investment performance track record remains strong. Five major implementations comprise the majority of our assets. As of March 31st, 2026, global equity, emerging markets equity, non-U.S. equity, small cap equity, and enhanced equity have 100% of assets outperforming benchmarks across three, five, and 10-year periods, with only one exception. global equity markets experienced volatility amid a complex macroeconomic backdrop in Q1 of 2026.
U.S. equities declined more than non-U.S. equities, while the dollar strengthened. Despite the market uncertainty, our disciplined, systematic approach stayed the course and generated consistent alpha for our clients. Acadian's short-term performance track record continued to improve in Q1 2026 after a challenged 2025. We remain confident that we are well-positioned given our 40 years of experience through various market cycles and macro forces. Slide four details how our investment process has generated meaningful long-term alpha for our clients. Our revenue-weighted five-year annualized return in excess of benchmark was +4.1% as of the end of Q1 2026 on a consolidated firm-wide basis. Our asset-weighted five-year annualized return in excess of benchmark was 3.4% as of the end of Q1.
By revenue weight, 96% of Acadian strategies outperformed their respective benchmarks across three, five, and 10-year periods as of March 31st, 2026. By asset weight, 92% of Acadian strategies outperformed their respective benchmarks across three, five, and 10-year periods. The next slide highlights our sustained momentum in net flows. We realized positive net flows of $21.4 billion in Q1 of 2026, representing 12% of beginning AUM, achieving a new quarterly record high. Gross inflows included a significant enhanced mandate from a premier U.K. wealth manager. This mandate expanded our non-U.S. domiciled client base as well as our presence in the wealth channel. Excluding this large enhanced mandate, the remainder of the net inflows were again diverse across products and client types, with extensions in global equity also generating strong NCCF.
We've now generated nine consecutive quarters of positive net flows. We continue to focus on renewing our pipeline, which remains very healthy and active after the funding of a number of significant client wins in Q1 2026. I'm now going to turn it over to our CFO, Scott Hynes, to provide you with more detail on our financial performance this quarter and an update on capital allocation.
Thanks, Kelly. Turning to slide seven, our key GAAP and ENI performance metrics are summarized here on a quarterly basis. As previously noted, we manage the business using ENI metrics, which better reflect our underlying operating performance. You can find complete GAAP to ENI reconciliations in the appendix. Let me now turn to our core business results. Starting on slide eight, total ENI revenue of $165 million increased 40% from Q1 2025, primarily due to recurring management fee growth and an increase in performance fees. Q1 2026 management fees of $159 million increased 41% from Q1 2025, reflecting a 57% increase in average AUM, driven by strong positive NCCFs and market appreciation over the last 12 months.
Stepping back, with average AUM of $190 billion in the first quarter, we have materially expanded our recurring management fee base and significantly strengthened Acadian's earnings power. Moving to slide nine. In Q1 2026, ENI operating expenses increased 13%, primarily driven by higher sales-based compensation and portfolio-related costs due to AUM growth, as well as general and administrative costs, including continued investment in IT and infrastructure. Our ENI operating margin expanded 978 basis points to 38.1% from 28.3% in Q1 2025, driven by increased ENI management fees, while our operating expense ratio fell 10 percentage points year-over-year to 38.4%, reflecting the impact of improved operating leverage. Q1 2026 variable compensation increased 35% year-on-year, primarily driven by higher profit before variable compensation.
Our Q1 2026 variable compensation ratio decreased to 39.4% from 47.6% in Q1 2025. Assuming revenue mix and levels similar to Q1 2026, contractual allocations would imply a full year 2026 variable compensation ratio of approximately 40%-43%. Turning to slide 10 on capital resources and our strong balance sheet. As of March 31st, 2026, we had $129 million of cash and $97 million of seed investments on the balance sheet, with a $200 million balance on our term loan credit facility and an $85 million balance on our revolving credit facility. Note, the revolver balance reflects first quarter seasonal needs and is expected to be fully paid down by year end.
Our Q1 2026 gross debt to adjusted EBITDA ratio was 1.3x , and our net debt to adjusted EBITDA ratio was 0.7x . Note that while both these measures are slightly higher quarter-over-quarter, reflecting our typical first quarter revolver draw, they are down over half a turn year-over-year, driven by lower gross debt and higher adjusted EBITDA. Moving to slide 11. We have a track record of creating significant value through share buybacks in recent years. Outstanding diluted shares have decreased 58% from 86 million in 4Q 2019 to 35.8 million shares in Q1 2026. Over the same period, $1.4 billion in excess capital was returned to stockholders through share buybacks and dividends.
During Q1 2026, we repurchased just under 100,000 shares or $4.7 million of stock at a volume weighted average price of $49.77. Acadian's board has declared an interim dividend of $0.10 per share to be paid on June 26, 2026 to shareholders of record as of the close of business on June 12, 2026. Going forward, we expect to continue generating strong free cash flow and returning excess capital to shareholders through dividends and share repurchases over time. We look forward to discussing our broader capital allocation framework in more detail at our upcoming Acadian Investor Forum. I'll now turn the call back over to Kelly.
Before moving to Q&A, let me recap some key points on slide 12. Acadian is competitively positioned as the only pure play, publicly traded, systematic manager with a 40-year track record and competitive edge in systematic investing. Our investment performance track record remains strong this quarter, with more than 96% of strategies by revenue outperforming over three, five and 10-year periods. Business momentum continued apace in Q1 2026, with record net inflows of $21.4 billion for Q1 2026. 12% of beginning AUM, reflecting nine consecutive quarters of positive net flows and reaching AUM of $195.7 billion, up 61% from Q1 2025, the highest in the firm's history. Q1 2026 financial results included record management fees of $159 million, up 41% from Q1 2025.
ENI EPS of $1.05, up 94% from Q1 2025. An operating margin expansion to 38.1%, up nearly 10 percentage points from 28.3% in Q1 2025. Finally, capital management remained a focus in the quarter as we strengthened our balance sheet with conservative leverage ratios, continued to invest in organic growth and return excess capital to shareholders. Pleased with our first quarter results, we remain focused on disciplined execution and look forward to discussing our strategic priorities more at our first Acadian Investor Forum on May 19th. This concludes my prepared remarks.
At this time, those with questions should lift their phone receiver and press star followed by the number one on their telephone keypad. To cancel a question, please press star one again. Please hold for a brief moment while we compile the Q&A roster. Your first question comes from the line of Kenneth Lee with RBC Capital Markets. Your line is open. Please go ahead.
Hey, good morning, and thanks for taking my question. Just one on the institutional pipeline. Wondering if you could just provide a little bit more color in terms of, you know, what you're seeing within there. What's the composition of strategies, you know, between enhanced and it looks as if you gained some traction on the extension side there as well. Thanks.
To look very healthy. Yeah. Hi, Ken. Nice to speak to you again. The pipeline looks very healthy across a number of different strategies and client domiciles. As you'll see, you know, the enhanced equity continued to dominate Q1 of this year. Once we X out that very large win from St. James's Place, which was about $16 billion, it was an incredibly positive quarter with north of $4 billion in net flows over and above that. That was very granular this quarter. You know, about 1/2 of that remaining $4 billion were coming from our extension strategies. We've certainly seen a pickup in momentum and interest in extensions. That forms a very solid part of the pipeline.
As I say, enhanced, this quarter's dominant theme, and that continues to, you know, to show up very healthily in our pipeline. It is, but it is granular. You know, global emerging markets, international equities, all of those sort of very broad core strategies that Acadian, you know, is well known for and our flagship strategies are continuing to see a lot of interest and a lot of momentum. The pipeline continues to be diversified. The team continues to do a great job in replenishing it despite those, you know, that very large NCCF number for Q1. Again, looks very robust as we go into, you know, the second part of 2026.
Great. Just one follow-up, if I may. Average fee rates didn't change much quarter to quarter despite the sizable mandate inclusion there. Wondering whether there's a little bit of timing there in terms of impact. Wonder whether we should see some impact on average fee rates just going forward given the mix shift there. Thanks.
Yeah. Hey, Ken, it's Scott. Thanks for joining us. I think the short answer to your question is yes, a little bit. Again, as Kelly suggested, very proud of the large win from St. James this quarter. It did fund later in the quarter, so for all intents and purposes, we haven't yet realized the full run rate impact of that. As you know, the fee rate is subject to a whole bunch of things out of our control. It is an output of market conditions and where client demand comes in next quarter. As Kelly already said, we have things that particularly when we think about extensions or the likes that can go above the current 34 basis point fee rate generally.
All else equal, if nothing else should change, I do think, you know, we're staring at a little bit of headwind, you know, in the next quarter as we realize the full run rate impact of this continued mix shift to enhanced.
Gotcha. Gotcha. One just final one for me. Seed capital investments there, any particular outlook in terms of whether you could see that increasing over the near term? Just a little bit more color around that. Thanks.
Sure. Yeah, you know, again, I think we appreciate that we've, the board and others have been very supportive with, a very active seed program as you know, Ken . The majority of our seed has been deployed into our systematic credit strategies, and we remain, you know, very excited about the trajectory there and the performance track record that the team are building. I think, as you know, we have, three strategies launched today. Each of those are a little short of their three-year track record. We will hit three years in November for U.S. high yield, closely followed by the remaining two strategies early next year. I think we'll look to have that seed remain in place for some time, although we are building momentum in the pipeline there for systematic.
As I say, we're very excited to hit the three-year anniversaries considering where performance is trending. Beyond that, you know, we have, again, as you know, had an active seed program. We are looking, you know, at some other, you know, new strategies, ensuring that we've got vehicles in place that meet the needs of, you know, our more diversified client base today, whether that be in the institutional or wealth space. I don't think that the overall needs are gonna increase significantly from here, perhaps on the margins. You know, underneath that number, there has been, you know, I think quite an active recycling program as we've launched e- extensions, our dynamics extension strategies, and as we see those gain traction with clients and we're able to redeploy that capital to other new areas of growth.
I would just add, Ken, onto that, you know, Kelly hit the recycling. We just feel like we're very well-positioned in this regard. It's obviously very important to the business, as Kelly suggests. The team continues to innovate and we as a finance team think about supporting them with, you know, just under $130 million of balance sheet cash today. This dynamic where we've been able to often just recycle what we've already put in, again, we just feel like we're really well-positioned to support the business as it continues to innovate and meet client demand.
Great. Very helpful there. Thanks again.
Thank you.
Thank you.
Your next question comes from the line of John Dunn with Evercore. Your line is open. Please go ahead.
Thank you. wanted to ask about kind of just given where we are, renewed demand for particular non-U.S. exposure, but also the managed vol strategy, which I think could benefit from the current environment.
Hi, John. Nice to speak to you again. Yes, you know, non-U.S. has certainly been a feature that I know we've talked about on these calls over the last 12 or 15 months or so. We're continuing to see a lot of interest in international strategies broadly. As you know, Acadian has a very strong, compelling track record there dating back many decades, and certainly, we continue to see a lot of momentum there, particularly from U.S.-based clients. Managed vol, you know, was a slight headwind in Q1, but we certainly have seen outflows there taper off quite dramatically versus two to three years ago.
I think certainly, you know, these type of strategies, when we've seen what has been, you know, a challenging macro backdrop in Q1 with, you know, the tensions and conflict in the Middle East. That's where strategies like managed vol come into their own. I think, you know, we have a number of long-standing clients in those strategies who have seen the real value of them at inflection points like that. We didn't see that, you know, it wasn't Q1 wasn't an asset-gathering quarter for managed vol, but a very slight headwind. Again, I'd say that those outflows have certainly tapered off.
I think it's at the forefront of clients' minds, with the current environment that we're in that, you know, where managed vol may, you know, play a role in their strategic asset allocation.
Got it. Maybe just if you could opine on kind of the dynamics and potential for, you know, for systematic taking, you know, potentially from private strategies and then also from the passive side.
Sure, yeah. I mean, I think, you know, we see this in the, in the numbers of, you know, industry numbers. We see it anecdotally and as we talk to clients every day, that systematic is clearly a winner, you know, in the, in the active equity space. I think, you know, when we talk about sort of private investments, particularly perhaps private credit, I think, you know, we are, as I said, we're excited about what we've built on the, on the Systematic Credit side. We do think there's opportunities there as, you know, as investors continue to stare at their private investments, their private credit investments. Is there a place for something, you know, more like, you know, public Systematic Credit?
I think, again, we feel that as we build that track record and the story we think is compelling, I think the transparency, the liquidity, will be compelling to investors, certainly on that side.
John, I would add.
Thanks very much.
I think as you know. Oh, John, I was just going to go ahead and add, I think we may have lost you. You know, we're looking at an Acadian Investor Forum that we're excited about in May 19th. As Kelly suggests, this all adds up as we think about our addressable market. We've been spending a lot of time as a management team thinking about it. It's rather large, it's diversified, and I think we'll look forward to talking about it in a more granular way on May 19th.
Look forward to it. Thank you.
Thank you.
Your next call comes from the line of Michael Cyprys with Morgan Stanley. Your line is open. Please go ahead.
Hi, good morning. Thanks for taking the question. More of a big picture question with all the advances in data science and AI models entering the agentic era. Just curious how you see that impacting potentially the competitive landscape for systematic investing. What are the risks, if any, of these quickly advancing models that could democratize access to folks creating systematic strategies, emerging new competitors? Just curious how you see that all evolving.
Sure. Hi, Michael. Thanks for the question. You know, we don't view AI as a strategic threat to the business model today. You know, systematic investing has relied on data, technology, increasingly sophisticated research tools, you know, throughout our history and throughout the time of this industry. We view AI very much, I think, as an extension of that evolution rather than a disruption to it. You know, from our side, again, machine learning, AI, this has been within Acadian's DNA from very many years. We're using AI to, you know, enhance our research development, our operating workflows. You know, I think it's key that you keep human judgment and your investment discipline and risk controls at the center of that process.
From my point of view, you know, I think we all believe that firms that adopt these tools effectively are gonna strengthen their competitive position. I think we're at the forefront of that, and we intend to remain, you know, on the right side of that equation.
Could you just maybe elaborate on how you're using the newer generative AI tools as well as maybe even agentic AI tools across the firm today, and how you're thinking about the opportunity set there?
Sure. I mean, again, I think the, as you said, the landscape's changing very quickly. We think there's huge opportunities there. As I say, AI isn't obviously new to us, but the current generation of tools is really allowing us, I guess, to apply it more broadly across the firm. Our investments today are gonna be focused on, you know, a couple of key areas. One of those is, like, improving productivity, and that's really through kind of enterprise AI tools. Also, like, enhancing software development through AI-assisted coding. You know, building selected AI-enabled services. You know, that's gonna support our research.
Certainly, you know, Again, we have people that are very comfortable, have many years' experience, in computer science and machine learning and, you know, we're encouraging people within that kind of building, that strong foundation, ensuring guardrails and from a security standpoint, but encouraging people to experiment, you know, across different, across different, you know, software and platforms.
Michael, it's Scott. I'd just jump in again real quick on this. To be clear, you know, we're proud of how we're scaling. Obviously it's another great quarter. We generated, you know, really meaningful positive operating leverage. If you look at expenses and where we are growing and you strip out the sales-based commissions, we're about 8% up, OpEx, the ENI OpEx, year on year. A lot of that is the technology and the platform and the tools that Kelly's referencing, right? That is a driver, and as she suggests, you know, the technology, our technology platform has long been thought of as part of the mode around the business and we wanna, you know, expand it, I think this is the opportunity to do so.
That's a very long way of saying, this is an area where we're investing, and excited about it.
Great. Just a final question on capital allocation. I was hoping maybe you could unpack how you're thinking about the dividend here, a particular growth rate or payout ratio that you're targeting. More broadly on buybacks and other uses, how you're approaching that, just given the significant free cash flow generation of the business.
Yeah. I mean, as you suggest, the free cash flow, which, you know, for all intents and purposes, the ENI that we disclose is a good proxy for the free cash flow that we're seeing. Very strong. We think we're very well-positioned. You know, this quarter we remain dynamic. As I've suggested before, you know, we do have a capital management framework. It starts with the organic investments. We already talked about seed capital. That sort of thing would be top of the list. I would also include as we expand further down the list, these organic investments and things like AI. We get to a dividend, then a return of excess capital via buybacks. I've used the word athletic. That continues to be the case.
We look at it every quarter. As we look about organic needs and balancing those about returning excess capital, that's how we make the decision framework. Everything has an IRR frame. We do, you know, of course, pencil out returns on any of the investments we're making. That informs us. In this quarter, we landed the way we landed. I would not say, Michael, since you've mentioned it, a payout ratio, we do not manage to a payout ratio. I think it's much more dynamic than that. I know that's not an easy answer, particularly for modeling purposes, but I do think it's dynamic each quarter given all the dynamics I just discussed and the various priorities. On the dividend, I would add, as you know, we recently moved from $0.01 to $0.10. Very proud of that.
That is reflective of, you know, the new size, right, that we've really realized, the confidence we have in that larger recurring management fee base, and enhanced profitability. I would not, and I think we stepped into this, you know, on last quarter's call, I would not think about us continuing to try to revisit that dividend, you know, every quarter. We're sensitive to it, we monitor it, but it's not something that I would think of as us revisiting in a meaningful way the dividend every quarter. If we get to a different place, another step up in profitability, we would revisit that.
I think there's no philosophy change here in that when we think of a return of excess capital, I would continue to think, you know, the direction of travel would still be more geared towards share purchases versus a dividend. Again, these things evolve. Hopefully, that's of help.
Great. Thanks so much.
This concludes our question and answer session. I'd like to turn the conference call back over to Kelly Young. Please go ahead.
Thank you everyone for joining us today. We look forward to seeing many of you at our Acadian Investor Forum in Boston on May 19th. Have a great day.