Q3 2026 Earnings Conference Call - SILVERCREST ASSET MANAGEMENT GROUP INC

Explicit Guidance:

• Revenue & Efficiency: Management expects administrative and legal costs associated with the global expansion and infrastructure build-out to decline and begin contributing revenue; expects the compensation ratio (currently 66.3% of revenue for nine months ended Sept 30, 2026) to decrease in the future as investments mature.
• Year 2027 Outlook: Management identifies 2027 as a critical inflection year where revenue growth from previous personnel investments is expected to take effect, lowering the compensation percentage of revenue.
• AUM Reporting Adjustment: Non-discretionary AUM reporting will be adjusted at the end of Q1 2027, with the likelihood of eliminating the non-discretionary AUM category entirely; this is a one-time reduction in reported total AUM with no impact on revenue.
• Dividends: Board declared a quarterly dividend of $0.21 per Class A share, payable on or about December 18, 2026, to shareholders of record as of December 11, 2026 (noted as 2027 in transcript text, likely a clerical error given the Q3 2026 context).

Business-Segment Outlook:

• European Expansion: The Dublin office is fully staffed and operational for high-net-worth and institutional clients, driven by the attainment of a full MiFID license; the office is described as "just fully starting" in the Q3 2026 period.
• Asia-Pacific Strategy: An announcement regarding the appointment of the head of the high-net-worth office in Asia is expected in Q1 2027. Existing licensing is secured, and initial hiring is in early stages; expansion in Australia and South Asia/Japan is proceeding on a "slower basis" compared to other regions.
• Pipeline & Institutional Focus: The institutional pipeline remains "robust" with substantial growth, particularly in global and international equity strategies, which are currently delivering exceptional performance; pipeline quality is improving with increased AUM opportunities.
• Compensation Strategy: The firm intends to "imminently" make equity grants to key professionals to align interests with shareholders, following shareholder approval for an increase in issuable shares under the equity incentive plan.

Market and Competitive Outlook:

• Performance Environment: Acknowledges an "unusual period" of value strategy underperformance due to persistent market divergence between growth and value; notes that value strategies face headwinds when indices are heavily weighted toward lower-quality companies, whereas the firm maintains a tilt toward high-quality, concentrated portfolios.
• Distribution Channels: Progress continues on securing third-party ratings from major global consultants to open additional institutional distribution channels.
• Client Activity: Net flows were flat for the quarter ($58.3 million) due to seasonal tax-driven withdrawals from high-net-worth clients and institutional outflows, offset by $373 million in follow-on investments and $182.2 million in organic new accounts.

Macro / Industry Outlook:

• Market Conditions: Management attributes the $939.2 million decrease in discretionary AUM in Q3 2026 to "weaker markets," contrasting this with unusually strong markets in Q2 which contributed $1.7 billion in capital growth year-to-date.
• Regulatory: Successfully secured the full MiFID license through the Central Bank of Ireland to facilitate European operations.

Strategic Initiatives:

• Global Infrastructure: Completion of Atlanta and Dublin offices, the Australian Trust fund, and regulatory licensing is intended to drive future revenue and cost efficiencies.
• Talent Investment: The firm is in the "tail end" of a multi-year heavy investment period in personnel; the strategy involves adjusting the compensation ratio to match growth opportunities, with the expectation that these costs will yield revenue returns starting in 2027.

Risks and Headwinds to Outlook:

• Performance Persistence: Risks include the continued persistence of the performance disparity between growth and value strategies, which has lasted longer and is wider than in previous post-global financial crisis cycles.
• Execution Risk: The successful transition to profitability and lower compensation ratios depends on the anticipated "fruits" of the heavy investment period materializing in 2027 as planned.
• Flow Volatility: Future flows remain susceptible to seasonal tax-driven withdrawals from high-net-worth clients and potential institutional outflows.

Management Tone on the Future:

• Confidence: Tone is cautious but optimistic regarding the transition from an investment phase to a profitability phase; management expresses being "quite excited" about the pipeline and the expectation that 2027 will bring financial benefits to the firm and shareholders.
• Commitment to Strategy: Reiterates a commitment to "stick to our knitting" regarding fundamental research and high-quality company selection despite current value strategy underperformance.
• Transition Narrative: Frames the current elevated compensation and expenses as "deliberate costs" of a historic investment program, signaling a shift toward a mature, revenue-generating operational model in the coming year.

Miscellaneous:

• Financial Reporting Change: The firm will adjust how non-discretionary AUM is reported starting Q1 2027, likely eliminating the category to provide a clearer picture of the revenue-driving discretionary business.
• Equity Incentives: Shareholders have approved an increase in shares issuable under the equity incentive plan to accommodate imminent grants to key professionals.