Victory Capital Q3 2025 Earnings Call Transcript

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Provided by Quartr
November 6, 2025

Key Takeaways

  • Positive Sentiment: Record flows and scale: Q3 long‑term gross flows rose to $17 billion and total AUM ended at $313 billion, with management highlighting an annualized organic growth run‑rate of $68 billion (23% of long‑term AUM) and net flows finishing just under flat.
  • Positive Sentiment: Strong profitability and capital returns: Adjusted EBITDA reached a quarterly record of $190.5–$191 million (52.7% margin) and adjusted EPS hit $1.63, while the company repurchased 1.8 million shares and retains $355 million of buyback capacity.
  • Positive Sentiment: Pioneer/Amundi integration ahead of plan: About $86 million of run‑rate net expense synergies have been realized with clear line of sight to the $110 million target, and investment teams remained uninterrupted during the integration.
  • Positive Sentiment: Rapid ETF growth: Victory Shares posted YTD positive net flows of $5.4 billion (53% organic growth YTD), with ETF AUM approaching $18 billion and an average fee of ~35 bps, tracking >70% annualized growth.
  • Neutral Sentiment: Pipeline and international opportunity but not yet quantified: Management is pursuing strategic M&A (focus area $50–$200 billion AUM and a long‑term $1 trillion goal) and expects non‑U.S. expansion via Amundi (currently $52 billion non‑U.S. AUM and new UCITS/ETF launches), though concrete revenue/flow impact for 2026 is not yet specified.
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Earnings Conference Call
Victory Capital Q3 2025
00:00 / 00:00

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Operator

Good morning and welcome to the Victory Capital Third Quarter 2025 Earnings Conference Call. All callers are in a listen-only mode. Following the company's prepared remarks, there will be a question-and-answer session. I will now turn the call over to Mr. Matthew Dennis, Chief of Staff and Director of Investor Relations. Please go ahead, Mr. Dennis.

Matthew Dennis
Matthew Dennis
Chief of Staff and Director of Investor Relations at Victory Capital

Thank you. Before I turn the call over to David Brown, I would like to remind you that during today's conference call, we may make a number of forward-looking statements. Victory Capital's actual results may differ materially from these statements. Please refer to our SEC filings for a list of some of the risk factors that may cause actual results to differ materially from those expressed on today's call. Victory Capital assumes no duty and does not undertake any obligation to update any forward-looking statements. Our press release, which was issued after the market closed yesterday, disclosed both GAAP and non-GAAP financial results. We believe the non-GAAP measures enhance the understanding of our business and our performance.

Matthew Dennis
Matthew Dennis
Chief of Staff and Director of Investor Relations at Victory Capital

Reconciliations between these non-GAAP measures and the most comparable GAAP measures are included in tables that can be found in our earnings press release and in the slides accompanying this call, both of which are available on the Investor Relations section of our website at ir.vcm.com. It is now my pleasure to turn the call over to David Brown, Chairman and CEO. David?

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Thanks, Matt. Good morning and welcome to Victory Capital's third quarter 2025 earnings call. I'm joined today by Michael Policarpo, our President, Chief Financial and Administrative Officer, as well as Matt Dennis, our Chief of Staff and Director of Investor Relations. I'll start today with an overview of the quarter, after which I will expand on our distribution opportunity outside of the U.S., update you on VictoryShares, our fast-growing ETF business, then I will provide some perspective on the depth of the M&A opportunities that we have before us. After that, I will turn the call over to Mike to review the financial results in greater detail. Following our prepared remarks, Mike, Matt, and I will be available to answer your questions.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

The quarterly business overview begins on slide 5. We had an excellent third quarter. We achieved record-high gross flows, and our net flows continued to improve and finished just under flat for the quarter. We ended the quarter with total assets of $313 billion. Long-term gross flows rose 10% quarter over quarter to $17 billion, reflecting our expanded U.S. distribution team that is continuing to coalesce and gain traction, and we also had strong sales outside of the U.S.. At an annualized rate of $68 billion, or 23% of long-term AUM, we are in the best position we have ever been to execute on consistent long-term organic growth. Adjusted EBITDA set a new all-time quarterly high at $191 million, resulting in an adjusted EBITDA margin of 52.7%. Adjusted earnings per diluted share rose to a record $1.63, up 4% from the second quarter and 20% higher than the quarter immediately preceding the Amundi transaction.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

We've already exceeded our low double-digit accretion guidance for this transaction, achieving these results even before capturing the complete benefit of our targeted net expense synergies. During the third quarter, we repurchased 1.8 million shares. At quarter end, we still have $355 million of capacity on our existing repurchase authorization. We will remain opportunistic and flexible with future repurchases, factoring in the current facts and circumstances. Turning to our integration process at Pioneer Investments, we are slightly ahead of plan on the timing of achieving our net expense synergy goals. At the end of the third quarter, we achieved approximately $86 million of net expense synergies on a run-rate basis. There is clear line of sight for the remaining $24 million of net expense synergies to reach the previously disclosed total of $110 million. Our U.S. distribution teams have been integrated and cross-trained, with the territories being reconfigured to optimize coverage.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

As with all our previous acquisitions, the investment team remained uninterrupted, and there has been little to no impact on the client experience during the integration process. Turning to slide 6, as we look at the distribution opportunity outside of the U.S., we are very encouraged by our position as essentially Amundi's U.S. manufacturing arm for traditional active asset management products. We currently have $52 billion of AUM from clients outside the U.S. from 60 countries, where our net flows remain positive. The Pioneer Investments' U.S. sales infrastructure that was present before we closed the transaction remains intact and is operating well and coordinating with Amundi's distribution teams in their local geographies throughout the world. We are investing in this area to increase capacity for more sales outside of the U.S., which will include legacy Victory products going forward.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

We currently manage 19 UCITS and are working on several new ones that we will be launching in the next quarter or so. These new UCITS will be a mix of Pioneer Investments and legacy Victory franchise strategies. Priorities for the launch of new products outside of the U.S. were established through a bottom-up approach with Amundi's distribution teams advising on which products have the greatest demand. Another immediate opportunity identified relates to the current demand from their clients in Asia for U.S. exchange-listed ETF products. The investment performance of our existing UCITS is excellent. The average performance ranking is in the top quartile for all periods, and year-to-date average ranking is in the 11th percentile per Morningstar rankings. What makes this partnership unique is its structural design compared to historical and typical industry cross-border distribution agreements. When Amundi contributed its U.S. business to Victory, it was their in-house U.S. investment manufacturing arm, which they sought to expand to better satisfy demand from their clients across the globe.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Victory Capital now serves as Amundi's U.S. manufacturing platform, which includes the legacy Pioneer Investments product set, but also includes the legacy Victory product set. Most of the other cross-border distribution deals are not set up this way. Essentially, we took over an efficient and highly productive U.S. investment manufacturing arm that was deeply ingrained in the Amundi distribution system, and we are now adding legacy Victory products to it. Think of a freight train moving forward on the tracks, and we are just adding the Victory freight cars to an already fast-moving and fully operational train. This is why we are so excited about the opportunity over the long term. The economic alignment is there for the organizations as well, in addition to Amundi's 26.1% economic ownership.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

There is a sharing of the fees by both organizations at the point of sale. Amundi earns fees if they sell Victory products, and Victory earns fees for being the investment manager. In a lot of cases, the Amundi point of sale fee exceeds the standalone fee if they were selling an Amundi manufactured product, given the active nature of our product set, and that is all before factoring in the 26.1% economic ownership. As far as the opportunities that goes, we are very excited about the entire Asia region, where there is a high demand for U.S. dollar-denominated products. The Middle East is another market that has caught our attention. Amundi has a great distribution network in both regions. In Europe, Amundi enjoys a dominant position in many distribution channels and geographies that are very difficult to penetrate.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

I also want to make a point here with some of the recent news reported from Amundi around their UniCredit distribution relationship that this is not a material part of our business, and we do not expect this to impact the momentum outside of the U.S. Through Amundi's international networks, joint ventures, and third-party distributors, they have one of the industry's most effective and deep global distribution engines. The combination of our expanded U.S. product set, Amundi's existing infrastructure, aligned incentives at the point of sale, and Amundi's global competitive positioning creates a transformational opportunity for Victory. We look forward to reporting on our progress in these markets as sales begin to ramp up in 2026. Slide 7 showcases VictoryShares, our rapidly expanding ETF platform. In the beginning of 2023, we saw a market opportunity and evaluated our ETF product mix and positioning.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

We began investing more in marketing and distribution resources specifically dedicated to growing sales of our ETFs. Since then, we have launched several new active and rules-based ETFs and rationalized others to optimize our offerings. We also began hiring dedicated ETF sales professionals and entered into several strategic distribution partnerships. The result has been an acceleration of growth with year-to-date positive net flows of $5.4 billion, which represents a 53% organic growth rate through the first nine months of this year. On an annualized basis, this is tracking at a greater than 70% organic rate of growth. We currently have a suite of 26 ETFs spanning from active to rules-based, with an average fee rate of 35 basis points. We entered this business 10 years ago when we acquired CEMP Kemp, which had less than $200 million of ETF AUM.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Since that time, we have grown this part of our business at a 29% compound annual growth rate, with AUM currently approaching $18 billion. Moreover, our operating platform enhances the benefits of scale and reduces the cost of manufacturing ETFs, which results in margins that meet our firm requirements. Our expectation is that this strong sales momentum will continue to accelerate in the U.S. and that it will be compounded by the non-U.S. sales of our ETF products that I just covered. Turning to slide 9, our investment performance remains excellent. Nearly half of our mutual fund and ETF AUM ranks in the top quartile based on Morningstar's three-year rankings. Nearly 2/3 of our mutual fund and ETF AUM, as rated by Morningstar, earned a four or five-star overall rating. This encompasses a diversified set of 56 different products.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

The majority of our AUM continues to outpace respective benchmarks over all measurement periods. On slide 10, we highlight our capital allocation strategy. Our deployment of capital is primarily targeted at both organic and inorganic growth opportunities. As a growth company, reinvesting in the business and pursuing strategic acquisitions represents our most compelling use of shareholder capital. Given our growing earnings and cash flow, we can also return capital to shareholders. This flywheel effect has resulted in returns to shareholders of more than $1 billion since we went public, which is particularly noteworthy when you consider that the company received just $156 million in net proceeds from the initial public offering. This demonstrates our ability to create substantial shareholder value through disciplined capital allocation coupled with consistently excellent execution.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Our presentation deck includes a chart showing our industry-leading earnings growth on slide 21, which highlights our quarterly fully diluted EPS growing from $0.40 to $1.63 for a compound annual growth rate of 21% since our initial public offering in 2018. When we discussed our acquisition strategy, we are often asked about industry fragmentation and our ability to continue executing on our strategy, given we have grown so quickly as we are a much larger company now. On slide 11, we highlight the opportunity set that we see before us. It is important to note that our core strategy has not changed since the management buyout in 2013. We built a unique platform that is ideally suited to thrive given the secular trends challenging the industry. It is also especially conducive to creating value and growing earnings from acquisitions.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Considering that every deal starts with a strategic foundation to it, our company has become much better positioned over the years from a competitive perspective. Each of the acquisitions listed on the left-hand side of the slide was highly strategic. We diversified our investment and product capabilities, enhanced, expanded, and globalized our distribution capabilities, gained firm-wide size and scale, and added leadership talent with each of these transactions. The financial benefits were a positive outcome, allowing us to generate growing cash flow, increase earnings, and perpetuate our strategy for creating shareholder value. Our runway is very long. We intend to increase further in size and scale, not for growth's sake alone, but to enhance our competitive position in our distribution channels by investment and adding complementary investment capabilities to optimally position us at the point of sale with our diverse set of clients.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

As the industry remains very fragmented, the reason for joining forces with a larger partner has only intensified over the years. Increasing complexity, regulatory burdens, technology requirements, and access to distribution are all becoming more difficult for asset managers that are not mega-sized. Even with the large acquisition universe, we will always remain selective, disciplined, and strategic. As you can see from the graphic on this slide, the opportunity set is vast. According to Simfund data, there are currently more than 450 asset managers in the U.S. with more than $10 billion of assets under management. Our focus area has increased in size as we have grown over the years, and we are focused on evaluating firms with between $50 billion and $200 billion of assets under management, where there are more than 110 prospective targets managing $11.1 trillion.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

In the event we execute on a transaction on the smaller side, it would necessitate being something highly strategic in the areas of investment capabilities or distribution access. We are also routinely asked about our views on adding alternative investments to our product range. While we do not aspire to become a full-on alternatives manager, we do want to have a curated alternatives product set, as we are projecting that some of our clients will increase allocations to alternative investments. Over the years, we have actively evaluated opportunities to acquire, partner, or organically add alternatives. We have been disciplined and avoided rushing into this space. However, we do remain attracted to the principles associated with alternative investments around diversification for clients' portfolios. We have never tried to offer every product in every asset class and instead centered around where we have expertise. For alternatives, we will center around specific investment themes, such as income, for example. Our strategy here is consistent with our broader approach of selective expansion, and we will continue to maintain focus on our core strengths as a firm.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

With that, I will turn the call over to Mike, who will go through the financial results in more detail. Mike.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

Thanks, Dave. Good morning, everyone. The financial results review begins on slide 13. Revenue increased 3% from the second quarter to $361.2 million. Average assets for the quarter rose 7% quarter over quarter, and our fee rate was 47.2 basis points. GAAP results include approximately $21 million of transaction-related compensation, restructuring, and integration costs, which was down from $54 million in the prior quarter. As a result, GAAP operating income was $138 million, a 47% increase from the second quarter.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

On an adjusted basis, we delivered adjusted EBITDA of $190.5 million, which yields an adjusted EBITDA margin of 52.7%. Adjusted net income with tax benefit grew to $141.3 million, or $1.63 per diluted share, up 6% and 4%, respectively, from the prior quarter. Our weighted average shares rose in the period due to having a full quarter of the shares issued to Amundi from the acquisition outstanding. If you recall, we delivered the share consideration to Amundi in multiple tranches during the second quarter. Our capital allocation strategy remains active and disciplined. We opportunistically repurchased 1.8 million shares during the quarter as we took advantage of market conditions to return capital to shareholders. The board also declared the regular quarterly cash dividend of $0.49 that will be payable on December 23rd to shareholders of record on December 10th.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

Combined with our regular quarterly dividend, we returned a total of $163 million to shareholders in the quarter, which was an all-time high. Our balance sheet remains strong with $116 million of cash and a net leverage ratio of 1.1x, providing us with financial flexibility to continue pursuing our inorganic growth objectives. On slide 14, you can see the diversification in our $313.4 billion in total client assets. In addition to diversification in the U.S. across channels, client types, and asset classes, our mix of business continues to benefit from meaningful diversification into non-U.S. geographies. As of quarter end, 17% of our AUM was from investors outside the United States. Our long-term asset flows continue to improve on all metrics, as you can see on slide 15. We've now achieved our fourth consecutive quarter of improving net long-term flows with net outflows of $244 million. Annualized, this is just 33 basis points of our AUM.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

Gross sales of $17 billion represent a 10% increase from Q2, displaying the growing traction of our expanded distribution platform. Particularly encouraging is the breadth of positive contributors during the quarter. Multiple investment franchises generated positive net long-term flows, including Victory Income Investors, Pioneer Investments, RS Global, Trivalent, and our VictoryShares ETF platform. This diversification across franchises demonstrates the strength of our platform and successful distribution across all channels. Our revenue performance on slide 16 reflects the enhanced scale of our platform and higher average AUM in the quarter. We expect the fee rate to remain in the 46-47 basis point range moving forward, reflecting the current mix of our business.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

On slide 17, you can see our expense details for the quarter. Overall, expenses declined from the second quarter. Recall that we incurred several one-time expenses associated with the Amundi transaction in the previous quarter. Compensation expense on a cash basis was 22.8% of revenue. To date, we have achieved $86 million of net expense synergies on a run rate basis and should have $100 million of net expenses removed by the end of the first quarter of 2026, the first full year of ownership, after which the final $10 million in net expense reduction will be realized over the course of the next 12 months. Turning to slide 18, we cover our non-GAAP metrics. Our adjusted metrics highlight the underlying strength of our business platform. Adjusted net income with tax benefit increased 6% quarter over quarter to a record $141.3 million. Earnings per share grew 4% to $1.63, also a new record high.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

It is worth highlighting the power of our unique and successful inorganic growth strategy to deliver significant earnings growth. Adjusted EBITDA has grown 57% when comparing Q3 2025 to Q3 2024. Similarly, adjusted net income with tax benefit grew 59% over the same period. These metrics demonstrate our ability to generate strong cash flow and maintain strong, consistent margins even while we are integrating a new business. Wrapping up on slide 19, the balance sheet continues to strengthen and provides us with enhanced financial flexibility. We successfully refinanced our term loans during the quarter. We combined them into a single loan, lowered our interest rate by 35 basis points, and extended the maturity out seven years to 2032. Our net leverage ratio is at our lowest level since our initial public offering.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

This deleveraging, combined with our strong cash generation, positions us with significant financial flexibility to execute on inorganic growth opportunities. Our capital allocation strategy remained active during the quarter. We opportunistically repurchased 1.8 million shares as we see tremendous value in our stock at current prices. Combined with our regular quarterly dividend, we have now returned over $272 million to shareholders year to date. During the quarter, we surpassed a total of $1 billion returned to shareholders since becoming a public company in 2018, which is a gratifying milestone. We ended September with $160 million in cash on the balance sheet, and our $100 million revolver remains undrawn. When we refinanced our term loan, we also extended the maturity on our revolver by five years to 2030.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

Looking ahead, we expect to continue to return capital via buybacks and dividends while simultaneously pursuing growth initiatives and investing in the business. Our ability to generate robust cash flow puts us in the enviable position to effectively balance investments, pursue strategic and transformational inorganic opportunities, and deliver ever-increasing shareholder returns without compromising our financial strength. With that, I will turn the call back to the operator for questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. At this time, I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. We'll pause for a moment to compile the Q&A roster. Thank you. Your first question comes from the line of Craig Siegenthaler with Bank of America. Please go ahead.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Hey, good morning, Dave, Mike. I hope everyone's doing well, and congrats on the 21% annual EPS growth since the IPO.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Thank you. Good morning.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

We wanted to start with an open-ended question on M&A, and I heard some of your commentary on the different size ranges of targets and how the larger focus today is in the $50 billion-$200 billion AUM range. Can you refresh us on your views on pursuing more cheap consolidation transactions that are highly earnings accretive versus strategic and organic growth synergistic deals? It sounds like maybe you might be leaning towards larger deals today.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Let me start off and say that as an organization, we aspire to be $1 trillion firm. That is our internal goal from a size perspective, and we think eventually that you will need to be that size to effectively be able to compete over the long term. Our goal is to be $1 trillion under management. We're $313 billion today at the end of the quarter. To get there, we'll do a number of different things. The first will be everything we'll do will be strategic. We are not interested in just doing financial transactions where you're buying businesses, consolidating, and there's no strategic element to it. Everything starts for us. Does it make our company better? Does it satisfy one of the strategic elements that we're trying to satisfy? A lot of that will come with the size and scale transactions.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

We will move up. You think about that triangle. We'll be at the top of that triangle, and we could do something larger than the $200 billion focus area. Anything on the smaller side would be highly strategic. It could be a product perspective. It could be a distribution or something else. For us, it starts off with strategy, and then what comes from it, because of our platform, are really the ability to create shareholder value through earnings growth, through margin expansion, and through organic growth. I think we can satisfy all of those things with our acquisition strategy. Lastly, I'd say is we really believe that the industry is going to go through an even more intense consolidation phase as we look forward. All of the reasons firms want to partner to get larger, to deal with issues such as technology, regulatory, access for distribution, those things are intensifying.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

We're going to go through a phase where there's going to be lots of consolidation, and we think we have an unbelievable platform to be a really good partner to those firms. I think we have a great track record and history of executing on them.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Thanks, Dave. Our follow-up question is on the Pioneer acquisition. You're running ahead of even the more recently revised synergy target. We're curious, what is driving that? Is it conservatism? Is it use of AI and other technologies that have improved operating efficiencies? Did you find more redundancies in certain functions? I heard your commentary that it's not from the investment team. Just curious on that.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

Hey, Craig, it's Mike. Yeah, I think as we approach every acquisition and evaluate the opportunity to consolidate operations and administrative functions onto our platform, as you said, it does not impact the investment teams. That is our number one goal. It does not impact the investment teams, their process, leave them alone, let them have all the tools that they need to manage money and continue down the path that they are on from a strong investment performance perspective. We have accomplished that with the Pioneer Investment integration. Of course, as we look at planning, we go through the exercise and spend time figuring out where the opportunities lie. We probably tend to be conservative as we go through that because there are always unknowns as you are going through an integration.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

As we have gone through the Pioneer integration, I think we found opportunities around technology. We found opportunities in kind of investment operational areas to provide technology to alleviate some additional costs that we anticipated. I think it is really just the opportunity set to go through an integration. We have highly skilled people that have done this for a number of years, and we are able to find opportunities as we go through the process. I think, again, conservatism and then execution has allowed us to kind of achieve quicker and then higher than we had originally anticipated from a net expense synergy. We are making investments. I just want to reiterate that these expense synergies are net of investments that we are making in areas of the business. Dave's comments on the non-U.S. distribution and the prepared remarks, I think, is an area we are making investments because we see a tremendous opportunity there. Product development, data, technology, distribution partnership.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

As we think about all of that bundled together, I think we've just been in a position where we've been able to accelerate some of the recognition and be a little bit higher than we anticipated as well.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Yeah. I'd like to add to that. I think the other perspective is we're in the investment management business, but we're also in the acquisition business. I think, unlike many other investment managers who are in the investment management business that have decided to do acquisitions because they need to grow, we are in the investment management business, but we've also developed a skill over a long period of time on doing acquisitions. Part of the success we've had in synergies, the ability to invest while we do acquisitions on our platform, and the ability to exceed some of the goals we've put out there, maybe from a numbers perspective and from a timing perspective, really comes down to is we have a second part of our business, which is doing acquisitions.

Craig Siegenthaler
Craig Siegenthaler
Managing Director at Bank of America

Thank you, Dave.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Your next question comes from the line of Michael Cho with JP Morgan. Please go ahead.

Michael Cho
Michael Cho
VP and Equity Research Analyst at JP Morgan

Hi, good morning. Thanks for taking my question. I just want to start on the non-U.S. business. You walked through some commentary there. You said positive net sales in third quarter and since it closed. I wonder if you could get some color on the magnitude of those flows and maybe the strategies that help drive those inflows. And Dave, you talked about sales RAM in this segment in 2026. Maybe some more color on your expectations on the magnitude of uplift for Victory in this segment.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Sure. Thank you for the question. A lot of the sales, because of the infrastructure that has been set up, has come through really the Pioneer franchise. The Pioneer franchise is well distributed within the Amundi distribution network. Since acquisition, since we have closed the acquisition, most of the sales have come through the Pioneer side. That will change going into 2026. We will still have strong sales within the Pioneer side. We did note on our prepared remarks how good the investment performance is within the UCITS platform. What will happen in 2026 is, as we launch kind of the legacy Victory products into the platform through UCITS, through the U.S.-listed ETFs, you will start to see flows into the legacy Victory products.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

We've also invested in the infrastructure around selling RFPs and marketing and servicing for the non-U.S. side. As far as sizing, we do not really disclose what the size of the flows are, but I think we did put in our prepared remarks that we do think it is a transformational opportunity, which would lead you to believe that over 2026 and forward, we think it is going to be an important sizable part of our growth. It is white space for legacy Victory. We have some distribution outside the U.S. pre the close, but nothing to the scale and nothing to the depth that we have with Amundi.

Michael Cho
Michael Cho
VP and Equity Research Analyst at JP Morgan

Great. Thanks for all that color. If I could just ask a follow-up on the acquisition opportunity discussion. I mean, on the slide and your comments, I mean, it's a pretty wide set of opportunity out there, and I guess that hasn't changed in years, and it's an attractive segment and strategy. You have a $100 billion integration going on with Pioneer at the moment. I don't want to rule out mega deals. Are there segments that maybe you're more focused on near-term when you look at that triangle chart? As it relates to all, you called out income, and I don't know if you meant it called out in a specific way, but are there classes or themes that you think would maybe fit better with Victory's current platform?

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

On the first part, as far as in the middle of the integration, we're well through the integration, and you can kind of see that the way the numbers, the net expense synergies have progressed and what our projection is. We are really doing well with the integration, and we're getting close to being at a point where we'll be wrapped up. We are fully kind of open for business from an acquisition side. I would not rule out a mega-sized deal. We have the $50 billion-$200 billion as the focused area, but that does not preclude us from going above $200 billion, and it does not preclude us from going below $50 billion either. I'd say, as far as areas of focus, as I said, we really do start off with the strategic side. We're interested in high-performing products.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

We're interested in products that have demand today and that we think will have demand in the future. We know we have to offer a larger set of products for our distribution partners. We will be focused on all of those things. From an alternatives perspective or private markets perspective, the themes that we're interested in, income is an example, but not the only one. There are other areas that we think fit nicely with us, and they really do span across different asset classes. I would say I do not want to focus on one of them. Income is an important one. I think income is something that has lasted over time. We have income products today. They're selling well. We know how to sell them. There is lots of demand for them. Income is one of the themes.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

For us, around the private markets and alternatives, we do not want to be all things to all people. We want to do certain things really well, and we want to matter for those certain things. That is how we will approach the private market/alternative side.

Michael Cho
Michael Cho
VP and Equity Research Analyst at JP Morgan

Great. Thanks, Dave.

Operator

Next question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.

Alex Blostein
Alex Blostein
Managing Director and Senior Equity Analyst at Goldman Sachs

Thanks. Hey, guys. Dave, just building on that last thread, thinking about the private markets and the alt opportunity, in what form do you guys see yourself partnering with somebody in the alt space? We have seen various structures out there. Just curious to think about how, whether it is explicit M&A or potentially equity staking you guys by some of the alt managers or some form of investment outsourcing agreements that could be coming up in the next several quarters. Kind of how do you see that evolving? Because clearly, it's a big part of the market, and it's an important part of the sort of toolkit for the wealth advisors that you guys don't penetrate fully.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Good morning, Alex. Thanks for the question. I would start off saying that we probably are not interested in investment outsourcing. I think that's challenging. I think all of the other scenarios you laid out around ownership, investment, acquisition are within our universe. I think we're exploring all of them. In our prepared remarks, we have talked about how we have not done a transaction, but over the years, we have been very involved in discussions, analyzing. We feel really good about our understanding of the space.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

We feel really good about what we think our clients are desiring and what they will desire down the road when alts and private markets open up, especially on the RAA side, on the intermediary side, on the retirement side. I think we have a really good understanding. I would say from different versions of M&A is how we will approach it.

Alex Blostein
Alex Blostein
Managing Director and Senior Equity Analyst at Goldman Sachs

All right. Thank you. Just to clean up modeling, fee rate, I remember there was a bit of an outsized, I think, performance fee benefit last quarter. You kind of saw that step down a bit this quarter. How are you thinking about sort of the go-forward on the fee rate relative to the kind of mid to high 40s where you guys have been and ultimately given the mix shift in the business? Anything notable you would think about over the next sort of 12 months as the fee rate evolves?

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

Yeah. Thanks, Alex. It's Mike. Yeah. I think we have kind of said our fee rate should be in the 46-47 basis point range long-term. We do not anticipate any significant fee pressures. Clearly, the mix of business will impact that. As we look out for the next 12 months, we feel pretty confident of the 46-47 basis points from an ongoing perspective from a fee rate.

Alex Blostein
Alex Blostein
Managing Director and Senior Equity Analyst at Goldman Sachs

Got it. Great. Thank you.

Operator

Your next question comes from the line of Ben Buddish with Barclays. Please go ahead.

Ben Budish
Ben Budish
Director at Barclays

Good morning, and thanks for taking the question. Maybe just following up on that last question from Alex. I think he mentioned the performance fees, which we saw in your Q, were quite outsized in Q2. I'm just curious, when we look at the maybe quarterly run rate over the last few years, it's kind of been like the low single digits amount. Is there anything different about the Pioneer assets you acquired where performance fees might be higher on a run rate basis or should be structurally higher? Anything like that to call out and guess what a lot of investors are trying to figure out?

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

Yeah. I think the fee rates, again, the 46-47 kind of includes how we think about any kind of annualized or annual performance-related fees. The Pioneer funds do have a couple of mutual funds that have fulcrum fees, much like the legacy U.S.A. mutual fund business that we acquired. There's a couple of fulcrum fees there that are classified as performance fees. So nothing that I would say is unique or specific. I think, as you mentioned, they have been in the 1-2 basis point range on an annualized basis for us, and that is probably the same level going forward. It will vary based on business mix. Again, if we see opportunities to risk share pricing with institutional clients, there could be a component of those fees that are more based on performance. I think as we look at the business, it is a pretty small amount overall. Again, the way we have built the business, while we are very, when we look at fee rate, we are very focused on the margin.

Michael Policarpo
Michael Policarpo
President, CFO, and Chief Administrative Officer at Victory Capital

As you think about the way we have structured the expense-based business with being greater than 2/3 variable, we expect to kind of continue to hold our margins with respect to all the fee rates that we have. Dave mentioned in the prepared remarks our ETF business, those are on average 35 basis points, so a little bit below our fee rate. The margins on that business are strong and contribute to our overall margin base. That is how we think about it. The performance fees are pretty immaterial from a business perspective, but we focus really on the bottom line, the margin components.

Ben Budish
Ben Budish
Director at Barclays

Okay. Understood. Maybe just another follow-up too on the M&A and alts discussion. When we listen to a lot of the large-cap alts managers, we kind of hear this theme of GP consolidation, of more LPs wanting to do more with less. In the credit space, we kind of hear that you need to have really massive sourcing capabilities in order to be effective. Just curious your response to that, or at least how do you think about what makes sense given the magnitude of what you might be able to acquire in that space? Thank you.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Yeah. I think for us, we always have been focused on areas where we can win and compete. I think a lot of the large-cap alt managers are focused on very large areas, and we're not looking to really compete exactly with them in a lot of those different areas. I also think there is a new kind of area in the market that they're trying to penetrate, and I think traditional managers are there today, which is a lot of the intermediary market, the retirement market, a lot of parts of the RAA market.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

I think to win there, there will be different selling strategies that we have used on the traditional side that we'll use on the private side. From an acquisition standpoint, we will approach if we do an acquisition on the alternative side, we'll approach it as we've always approached traditional acquisitions. I think we've been very value-conscious. We focus on shareholder value. We focus on acquiring excellent products, and we focus on products that we think we can help grow. We'll do the same thing there. I think we have a really good track record, and I think we are an excellent partner for private market investors and also traditional market investors.

Ben Budish
Ben Budish
Director at Barclays

Okay. Great. Thank you for that.

Ben Budish
Ben Budish
Director at Barclays

Next question comes from the line of Michael Cyprys with Morgan Stanley. Please go ahead.

Michael Cyprys
Michael Cyprys
Analyst at Morgan Stanley

Hey. Good morning. Thanks for taking the question. Maybe just continuing along the themes on the inorganic topic. I was hoping maybe you could elaborate a bit on the inorganic pipeline, how that composition looks today, how would you sort of characterize that size, quantity, types of properties, how that's evolving now versus three or even six months ago, and anything you would mention in terms of how close you might be on any of those things.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Our pipeline is full. We're very active in discussions. I don't think that there's anything that we want to talk about today on timing or different types of acquisitions that we would do, but we're having lots of discussions. I think the environment has gotten progressively better over the last couple of quarters from an acquisition standpoint. I think there's a lot of things happening in the industry. The industry is going through a lot of change very quickly because of technology, because of regulatory changes, because the ability to access distribution is getting harder by the day. We have had a lot of discussions, and we are really active. As I said earlier, we are well through the Pioneer, Amundi integration. That sets us up to, when the opportunity presents itself, be able to execute on it.

Michael Cyprys
Michael Cyprys
Analyst at Morgan Stanley

Great. Just to follow up on that, as you think about executing on this M&A pipeline over the next 12-18 months, maybe you could elaborate on what sort of risks you see that might result in not much getting done there over the next 12-18 months. When you are speaking with prospective targets, what is it that may hold them back from looking to transact?

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

I think the risks become very unique to the acquisition. I do not think there is a general thing that I am concerned about. I think the risks are very focused on the exact target, the type of transaction, the structure of the transaction. Most of the risks can be mitigated with structuring, and especially with the way we approach acquisitions where it is really around partnering and growing forward as opposed to succession-type planning acquisitions. As we look at it today, we think the environment is really conducive. Like I said, we are coming to the end of our integration with the Pioneer, Amundi, so we are ready to go.

Michael Cyprys
Michael Cyprys
Analyst at Morgan Stanley

Great. Thank you.

Operator

Your next question comes from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Kenneth Lee
Kenneth Lee
VP, Senior Equity Analyst, and Equity Research at RBC Capital Markets

Hey. Good morning. Thanks for taking my question. Just following up on the theme of inorganic opportunities, specifically on alternatives. How do you think about the challenge of integrating potentially very different cultures or mindsets between traditionals and alternatives as you look at some of these opportunities? That's usually one of the potential frictions there. Thanks.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Yeah. Good morning, and thanks for the question. We think about it a lot, and we think about it very carefully. It's probably one of the driving factors why we have decided over the years to just sit back and watch and observe and learn. I think there are different strategies that you can employ to mitigate some of those challenges. You can do that through structuring. You can do that through the types of product sets you talk about. Private market and alternatives businesses are different than traditional. I think that's the challenge. I think it's why we've sat back and kind of studied and learned and been very patient. Anything that we do going forward in this space, we will address that issue. We recognize it, and we are glad that we have been able to observe what others have done in the space.

Kenneth Lee
Kenneth Lee
VP, Senior Equity Analyst, and Equity Research at RBC Capital Markets

Gotcha. Very helpful there. Just one follow-up, if I may, a little bit more housekeeping. Global, non-U.S. equity net inflows, pretty positive there. Anything to call out, either outsized mandates or things of that nature? Thanks.

David Brown
David Brown
Chairman, CEO, and Director at Victory Capital

Not specifically in the global asset class. We are seeing a lot of demand for that asset class inside the U.S. and outside the U.S. We have two excellent products with two different franchises there. We have good performance, and we also have really, really good distribution around this asset class inside and outside the U.S. It is just in demand by clients wanting to get access to a global portfolio.

Kenneth Lee
Kenneth Lee
VP, Senior Equity Analyst, and Equity Research at RBC Capital Markets

Got it. Very helpful there. Thanks again.

Operator

That is all for the Q&A session for today. This concludes today's conference call. You may now disconnect your lines. Have a pleasant day, everyone.

Executives
    • David Brown
      David Brown
      Chairman, CEO, and Director
    • Michael Policarpo
      Michael Policarpo
      President, CFO, and Chief Administrative Officer
    • Matthew Dennis
      Matthew Dennis
      Chief of Staff and Director of Investor Relations
Analysts
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