Pzena Investment Management, Inc.
Q1 2021 Earnings Call Transcript

Published: 21 Apr 2021

[Operator:]

Good day, and welcome to the Pzena Investment Management Results for the First Quarter of 2021 Conference Call. Please note this event is being recorded. I'd now like to turn the conference over to Jessica Doran. Please go ahead.

[Jessica Doran:]

Thank you, operator. Good morning, and thank you for joining us on the Pzena Investment Management's first quarter 2021 earnings call. I am Jessica Doran, Chief Financial Officer. With me today is our Chief Executive Officer and Co-Chief Investment Officer, Rich Pzena. Our earnings press release contains the financial tables for the periods we will be discussing. If you do not have a copy, it can be obtained in the Investor Relations section on our website at www.pzena.com. A replay of this call will be available for the next two weeks on our website.

[Rich Pzena:]

Thanks Jessica. Last quarter in these remarks, I observed the clients were asking us what are the fourth quarter's big value run. Was the start of a cycle or just another hedge-stake in the decade long run for growth? Now after two consecutive quarters for value outperformance we're being asked, did I miss the value cycle? Is it over? Needless to say, short term thinking still dominates. So permit me to go out on a limb. I believe this is the beginning of the value cycle. I believe this cycle has a good chance of being long. And I believe we are still in the cycles very early days. Asset management has been defined as the practice of taking imperfect and incomplete information about the present and using it to make projections about the future. In other words, I know that I don't really know the future with certainty. However, for the past year, we have been saying that the signs of a broke pro value cycle would appear in one or more of the following four ways. First, a recession would be recognized. The COVID induced recession was clear to all and looking at the data from the past 14 recessions in the US over the last century. We see that in five years following the start of recessions, value strategies outperformed the broad market by an average of 530 basis points per year. Second, interest rates would stop falling. Most of the developed world they have already stopped falling. And the tightening of the labor markets that we see as we talk with companies reinforces our expectations, but they are unlikely to reverse and start falling again. Third, growth expectations for the high fliers would slow. And while this hasn't clearly happened, consider this. Wall Street analysts' consensus earnings growth estimates for a portfolio of deep value stocks over the next two years is around 23% a year versus 17% a year for the Russell 1000 growth Index. And you can buy the deep value stocks for 11x these forward earnings versus 27x for the growth stock portfolio.

[Jessica Doran:]

Thank you, Rick. To share our financial results; we reported diluted earnings of $0.24 per share for the first quarter compared to $0.22 last quarter, and $0.00 per share for the first quarter of last year. Revenues were $45.9 million for the quarter and operating income was $23 million. Our operating margin was 50.2% this quarter, increasing from 45.7% last quarter, and from 32.1% in the first quarter of last year. Taking a closer look at our assets under management, we ended the quarter at $49.2 billion, up 13.6% from last quarter, which ended at $43.3 billion and up 83.6% from the first quarter of last year, which ended at $26.8 billion. The increase in assets under management from the fourth quarter of last year was driven by market appreciation including the impact of foreign exchange of $6.1 billion, partially offset by net outflows of point $0.2 billion. The increase in the first quarter of last year reflects $22.4 billion in market appreciation and foreign exchange impact.

[End of Q&A:]

[Operator:]

This concludes our question-and-answer session. And it also concludes our conference for today. Thank you for attending today's presentation. You may now disconnect.

[Operator:]

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