Hello? Hello, and welcome to today's Pzena Investment Management reports results for the fourth quarter of 2021 conference call. My name is Bailey, and I will be the operator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press Star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Jessica Doran, Chief Financial Officer. Jessica, please go ahead. Thank you, operator. Good morning, and thank you for joining us on the Pzena Investment Management's fourth quarter and full year 2021 earnings call. I'm Jessica Doran, Chief Financial Officer. With me today is our Chief Executive Officer and Co-Chief Investment Officer, Richard 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. Replays of this call will be available for the next 2 weeks on our website. Before we start, we need to remind you that today's call may contain forward-looking statements and projections. We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from today's comments. Please note that we do not undertake to update such information to reflect the impact of circumstances or events going forward. In addition, please be advised that due to prohibitions on selective disclosures, we do not, as a matter of policy, disclose material that is not public information on our conference calls. Now let me turn the call over to Rich, who will discuss our current view of the investing environment. Thanks, Jessica. If a client asked me as 2009 began, just after the peak of the global financial crisis, what I thought our strategy would earn over the next 13 years, I would have, and often did, express that I expected long-term returns to be in the low double digits. As we sit here today, 13 years later, our large-cap U.S. large-cap-focused value strategy earned approximately 13.5% per year gross. It seems we could fairly state we achieved our expectations. Yet the post-GFC era is known now as the anti-value period, the period where growth strategies outstripped value strategies by record levels and for a record period of time. Many have questioned whether value investing even works anymore or whether this time is actually different. I've long been a fan of behavioral economists Daniel Kahneman and Amos Tversky. In a 1974 paper, they described the human tendency to bias their decisions due to a force they called anchoring. Kahneman and Tversky found that even arbitrary numbers could lead participants to make incorrect estimates. In one example, participants spun a wheel to select a number between 0 and 100. The volunteers were then asked to adjust that number up or down to indicate how many African countries were in the UN. Those who spun a high number gave higher estimates, while those who spun a low number gave lower estimates. In each case, the participants were using that initial number from the wheel as their anchor point to base their decision. How does this tendency impact investors? Investors are confronted with a myriad of investment choices to allocate their assets, always aim to achieve what they believe is their optimal outcome for the future. Yet investors, just like the participants in the wheel -spinning exercise, are prone to biased decision-making due to anchoring. While our strategies generated 13.5% returns, which is nearly 100 basis points ahead of the Russell 1000 Value Index, the Russell 1000 Growth Index earned just under 19.5% per year for the same post -GFC period. Put in terms of absolute dollars, an extra 600 basis points per year for 13 years resulted in a growth index portfolio nearly double the size of a portfolio invested in our strategies. This is history, and as the saying goes, past performance does not guarantee future results. Of course, I don't know what the future will bring. I do, however, recognize the danger of becoming anchored in the last 13 years to estimate the most likely outcome for the next period. I also know that the cheapest segment of stocks continues to sell on average for the same multiples of earnings that they have for the last 70 years, while the most expensive segment of stocks sells for the highest multiples ever recorded. I know that the earnings yield on the cheapest stocks averages in the low teens, while expensive stocks offer earnings yields of 2%. I know that even in a world of supply chain disruptions, disruptive technologies, love affair with cryptocurrency, that buying a portfolio of good businesses selling for low prices give investors an outstanding opportunity to earn attractive long-term returns today, as it has consistently in the past. Before I turn the call back to Jessica, let me offer a few thoughts about our business. As 2021 came to a close, we marked our fifth consecutive year of positive net flows, and it was the eighth out of the last 10 years. In a world dominated by record outflows and active management and a challenged investing environment for a deep value strategy, we're completely proud of this outcome. We attribute this record to the reason most of our clients express when they asked why they hired our firm. We do not deviate from our deep value strategy that we have successfully executed for over 26 years. As of January 1, we opened an office in Dublin to accommodate the market reality in a post-Brexit world. Our presence in Dublin will serve as our regulatory gateway to Europe and will enable us to operate without barrier throughout the EU. Last but not least, we added 8 new partners, bringing our partnership to 63 members. Our new partners come from our HR, research, and marketing groups, continuing our tradition of adding partners from every functional area within our firm. Partnership is a foundational element of our culture, and we believe that connecting our team to our clients' outcomes is a crucial element of our commitment to excellence on behalf of our clients. I look forward to answering your questions. Now I'll turn the call back to Jessica. Thank you, Rich. We reported diluted earnings of $0.24 per share for the fourth quarter, compared to $0.27 last quarter and $0.22 per share for the fourth quarter of last year. Revenues were $51 million for the quarter, and operating income was $26.5 million. Our operating margin was 52% this quarter, decreasing from 55% last quarter and increasing from 45.7% in the fourth quarter of last year. We reported diluted earnings of $1 per share for the full year of 2021, compared to diluted earnings of $0.52 per share for the full year of 2020. Revenues were $199.3 million for the year, and operating income was $105.9 million. This compares to revenue of $138.6 million and operating income of $55.3 million for the full year of 2020. Our operating margin was 53.1% for the full year of 2021, increasing from the operating margin of 39.9% for the full year of 2020. Taking a closer look at these results, assets under management ended the quarter at $52.5 billion, up 3.3% from last quarter, which ended at $50.8 billion, and up 21.2% from the fourth quarter of last year, which ended at $43.3 billion. The increase in assets under management from last quarter was driven by market appreciation, including the impact of foreign exchange of $1.4 billion, and net inflows of $0.3 billion. The increase in the fourth quarter of last year reflects $8.4 billion in market appreciation, including the impact of foreign exchange, and net inflows of $0.8 billion. At December thirty-first, two thousand twenty-one, our assets under management consisted of $19.4 billion in separately managed accounts, $30.5 billion in sub-advised accounts, and $2.6 billion in our Pzena Funds. Compared to last quarter, separately managed account assets increased, reflecting $0.3 billion in net inflows and $0.3 billion in market appreciation and foreign exchange impact. Sub-advised account assets increased, reflecting $1.1 billion in market appreciation and foreign exchange impact and $0.1 billion in net inflows. Assets in Pzena Funds decreased slightly due to $0.1 billion in net outflows. Average assets under management for the fourth quarter of 2021 were $51.5 billion, a decrease of 1.7% from last quarter, and an increase of 36.6% for the fourth quarter of last year. Revenues decreased 1.3% from last quarter and increased 27.9% from the fourth quarter of last year. These variances primarily reflect the changes in average assets under management over the respective periods. Our weighted average fee rate was 39.6 basis points for the quarter, compared to 39.4 basis points last quarter and 42.3 basis points for the fourth quarter of last year. Asset mix across our strategies and distribution channels, as well as performance-based fees, are generally the primary contributors to changes in our overall weighted average fee rate. However, changes in asset levels may also impact our fee rates, as the majority of our separately managed accounts pay us management fees pursuant to a schedule in which the rate we earn on the AUM declines as the amount of AUM increases. Our weighted average fee rate for separately managed accounts was 53.9 basis points for the quarter, compared to 53.4 basis points last quarter and 55.7 basis points for the fourth quarter of last year. The increase from last quarter primarily reflects a shift in assets to certain strategies that typically carry higher fee rates, while the decrease from the fourth quarter of 2020 primarily reflects an increase in assets due to market depreciation as the rates we earn in the majority of our fee schedules decline as the assets increase. Our weighted average fee rate per sub-advised account was 27.4 basis points for the fourth quarter of 2021, compared to 27.6 basis points last quarter and 27.2 basis points for the fourth quarter of 2020. Certain accounts related to one client relationship have fulcrum fee arrangements. These fee arrangements require a reduction in the base fee if the investment strategy underperforms its relevant benchmark or allows for a performance fee if the strategy outperforms its benchmark. During the fourth quarter of 2021, we recognized a $0.9 million reduction in base fees related to these accounts. During both the third quarter of 2021 and fourth quarter of 2020, we recognized $1 million reductions in base fees related to these accounts. These fees are calculated quarterly and compare relative performance over a three-year measurement period. To the extent the three-year performance record of these accounts fluctuate relative to their relevant benchmark, the amount of base fees recognized may vary. Our weighted average fee rate for Pzena Funds was 71.7 basis points for the quarter, increasing from 69 basis points last quarter and decreasing from 89.3 basis points for the fourth quarter of last year. The increase from the third quarter of 2021 primarily reflects performance fees recognized in the fourth quarter of 2021, while the decrease in the fourth quarter of 2020 primarily reflects an increase in performance fees recognized in the fourth quarter of 2020. Looking at operating expenses, our compensation and benefits expense was $20 million for the quarter, increasing from $18.9 million last quarter and from $18 million for the fourth quarter of last year. The increase in compensation and benefits expense from the third quarter of 2021 is driven by an increase in compensation and in the market performance of strategies tied to the company's deferred compensation obligations. The increase in compensation and benefits expense from the fourth quarter of 2020 reflects an increase in employee headcount and compensation. G&A expenses were $4.5 million for the fourth quarter of 2021, compared to $4.3 million last quarter and $3.7 million for the fourth quarter of last year. The increase from last quarter and the fourth quarter of last year primarily reflects an increase in professional fees and travel and entertainment expense. Other income was $2 million for the quarter, reflecting the performance of our investments and approximately $0.6 million in income related to our Tax Receivable Agreement and an adjustment to our liability to selling and converting shareholders. Turning to taxes, the effective rate for our unincorporated and other business taxes was 4.3% this quarter, compared to -5.4% last quarter and 2.9% in the fourth quarter of last year. The negative effective tax rate last quarter reflects the benefit associated with the reversal of uncertain tax position liabilities and interest due to the expiration of the statute of limitations. We expect the effective rate associated with the unincorporated and other business taxes of our operating company to be between 3% and 5% on an ongoing basis. Our effective tax rate for our corporate income taxes, ex-UBT and other business taxes, was 24.6% this quarter, compared to 24.2% last quarter and 24.5% for the fourth quarter of last year. We expect this rate to be between 24% and 26% on an ongoing basis. The allocation to the non-public members of our operating company was 78% of the operating company's net income for the fourth quarter of 2021, compared to 77.8% last quarter and 77.3% for the fourth quarter of last year. The variance in these percentages is the result of changes in our ownership interest in the operating company. During the quarter, through our stock buyback program, we repurchased and retired approximately 301.6 thousand shares of Class A common stock and Class B units for $3.1 million. At December 31, there was approximately $41.3 million remaining in the repurchase program. At quarter end, our financial position remained strong, with $81.1 million in cash and cash equivalents, as well as $7.3 million in short-term investments. We declared a $0.53 per share year-end dividend last night. Thank you for joining us. We'd now be happy to take any questions. Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. We will just hold here one second while questions get asked. Okay, we do have our first question. Our first question comes from Wayne Archambo from Monarch Partners. Wayne, please go ahead. Yes, that's Archambo, but that's okay. Good morning. Just on the buyback, would you ever consider a special dividend? I mean, your stock is not the most liquid stock in the market, and I just think the buyback just makes it. It just exacerbates the illiquidity. Has a special dividend ever been considered? With you sitting on the cash that you have. Hi, this is Jessica. Oh Oh, Rich, are you there? Sorry, I was on mute. I didn't realize it. Oh, okay. Um. Great. Go ahead. I can go; I can answer the question. You know, the way that we think about our dividend is that we pay out the earnings at the end of the year, so it's almost always a special dividend. The fact is, because we're not declaring a regular dividend, the cash balance that you see isn't really indicative of the excess cash that we have. If you look at our cash balances by quarter, the March quarter is the lowest cash balance. Effectively because our regular dividend is $0.03 a quarter and the final dividend is $0.53, we're gonna deplete most of that $81 million that's on the balance sheet between the special dividend or the year -end. We don't call it that. We call it a year-end dividend. Paying bonuses, which get paid after the end of the year. If you actually looked, there's almost no excess cash. The question is, could we divert the money we spend every year on stock repurchase, which I think is around $1 million a year, to a dividend? I suppose we could do it, but I don't think it moves the needle to the extent that you're thinking. Right. Right. Yeah. Okay. Secondly, Rich, while I got you on the phone here, you know, ESG, sustainability funds, you know, there's a new one coming out every day. It seems like it's the flavor of the month, and it's the new shiny object in the marketplace. Clearly, it's a bit of a tidal wave in terms of the asset gathering over the last couple years. I know you've done extensive work on this, knowing you from years ago at the days of Bernstein. Is there a style bias and a sector bias in this idea where, you know, my observation is, you know, as you think about if rates are rising and growth continues to be out of favor, I mean, I operate in a small value world, and the small growth disparity is pretty significant relative to small value that as... If growth continues to underperform value over the next number of years because of a rising rate environment, what does that imply for these sustainability funds that tend to have a growth bias? Yeah, no, Wayne, you're absolutely right. ESG is critical from the standpoint of being able to invest money in a way that matches your clients' demands. But it is more difficult to match an ESG strategy with a value strategy because there's a high correlation with what people want out of ESG and growth, right? They want investment in new technologies to address some of the world's issues, particularly when you're talking about the environmental side and a zero -carbon world. I think you're totally right? When there When new technology and growth-related strategies are winning, it's easy to marry that with ESG and make it and win on both fronts. It's much more difficult when those technologies are actually overvalued and having their values corrected, right? We can't, as a true deep value investor that's committed to this, to our philosophy, we can't invest in those companies, nor would we want to, because the valuations just don't make sense. As they correct, I think, as you point out, clear style bias. Having said that, you can really marry ESG with value and we've written extensively about it and put it and listed some of those. We published some of those papers on our websites that talk about how do you invest, for example, in energy while still being conscious of the sustainability of these businesses. I don't know that this is the appropriate forum to get into that, but I think I take your observation as being accurate. Okay. Very good. Nice to hear from you, Rich. Thank you. Yeah. Nice to talk to you, Wayne. Thank you, Wayne. Our next question comes from Sam Sheldon of Punch & Associates. Sam, please go ahead. Good morning, Rich and Jessica. Thanks for taking my questions. Maybe you could talk about any sentiment changes you and the team are noticing from prospects towards deep value recently. Has there been any noticeable changes in RFP activity from, say, a year ago? You know, I think the way that I would answer that question is to say that the sentiment changes have been happening over the course of the last 9 months, 10, maybe even a little more than that, in the things that you would have called, you know, pre-RFP activity. Meaning attendance at meetings, interest, filling up rooms when you wanna talk about the value cycle. It's now starting to pick up. We've had kind of a consistent pipeline throughout the last 4 or 5 years. I would say the trend is positive and it's still early. Believe it or not, it's still early. The returns profile for value in 2021 had a pause in the middle of it, which put. which I think put a pause in that trend, which is now picking up and re-accelerating. I would say it's starting, but not a tidal wave. Okay. Does the recent market volatility that we've seen recently, does that help or hurt the speed of these searches? Maybe you could just touch on how your existing clients are reacting to the current environment and volatility as well. You know, we tend to be a, I guess, what I would call more of a satellite manager than a core manager. Meaning that the people who are investing with us have made a decision to put a portion of their portfolio in value, and they've generally done it on a fairly sophisticated basis. I don't really see anything. In fact, I think what we see is that they are behaving the way we would expect them to behave, and they're not really focused on us. We're outperforming now the growth investments, and that outperformance leads to the most sophisticated of these rebalancing away from us when we outperform, just like they rebalance towards us when we underperform. But that process today is. It's going on like it always goes on, and it's modest. I think the best way to answer your question is, it's pretty steady with our clients. There's certainly no alarm about what they have with us, that's for sure. Whether they're alarmed about the market and worrying about whether they should do something different, I'm sure that's the case, and I'm sure that's why some of the discussions with us have picked up to just talk about value. Generally, they're not sharing their fears of market overvaluation or market volatility with us. They're treating us as we should be, which is kind of the role that we are properly filling, the role that they've had us in their portfolio. The whole question is whether they should up that from historically low levels, which, obviously, we think they should and encourage at every moment that we possibly can. I still would go back to the. I know what you're getting at. I mean, we're waiting for this value cycle to unleash more asset flow to us, and all I can say is we're seeing early stages of that. Okay. That all sounds good. We saw news a few weeks back about potential interest by Pzena in building out a new credit business and making a hire for a distressed debt manager. Maybe you could talk about that initiative and how it fits into the strategy at Pzena. Sure. We've always had in the back of our minds this idea that the extensive research that we do on companies and industries would be valuable in a high-yield world. We always noticed, you know, from our own observations of the companies that we own, that when things get stressed in value, opportunities often pick up on the high-yield side to buy depressed bonds. It's a very similar investment philosophy to be like a research-oriented high-yield investor compared to investing in value equities. I'm not even gonna go all the way to distressed. This has always been in our mind. About a year, maybe 18 months ago, we started thinking more seriously and strongly about how we would go about this. We looked around to see what firms there were in the market and what people there were that were available. We decided that really that making an acquisition here was not the sensible way to do this given the valuations that exist in that segment of the asset management business and the concentration in bigger firms. We just decided to keep our ears open for high-quality talent that we thought could help us build this from inside. Mark Heron, who we hired on January 1, fit that bill. Our plan, I'm gonna say we don't have a highly detailed business plan. We're using this year to get ourselves established and to set up incubation of our own funds and get operationally set up, but with kind of a minimal investment at this point in time. Over the course of the year, we'll develop a plan. I do think that following our decision and the feedback that we've received, that we reinforced the decision that having an extensive research team helping on the credit side is a pretty powerful combination that could have legs for us. You know, it's so premature, and I think to expect that we would get any asset flows from this in the near term is unlikely. We have a long period of incubation and getting set up and staffing up, even deciding to staff up before that happens. Okay. Yeah, that sounds interesting. Have you put a headcount number on how many people would be required? It sounds like you can sort of leverage existing research, but just curious to hear how big an innovation team you're coming. Yeah. I mean, for this year, it's one. Okay. We're not planning on adding anybody. Will that change over the course of this year and into next? Maybe as we figure out what we wanna do. I don't think we're gonna make a big headcount commitment. We're gonna make a gradual headcount commitment as we get more information. I can't even give you a number, but it's not gonna be more than a handful of people in the long run, or in the medium run, I should say. Okay. Understood. My last question here, Rich. Picking back up on the liquidity of the shares that the previous caller brought up, can you just talk about any consideration to convert B shares to A shares? You know, there's not a lot of consideration to convert B shares to A shares because unfortunately for the B shareholders, it's a taxable event to convert B shares to A shares. You can't just convert them. You have to pay taxes when you convert them. That would mandate us selling shares. For us, it would be, do we wanna do a secondary to extend the liquidity of the company? It's always in our mind. The problem is we don't have very many B shareholders who have any interest in selling at the current valuation. It's a bit of a catch-22. Okay. Thank you for taking my questions. Sure. Thank you, Sam. As a reminder, if you would like to ask a question, that is star followed by one on your telephone keypad. Our next question comes from Tom Brownell from Rock Point Advisors. Tom, please go ahead. Great. Thank you, operator, and good morning, Rich. Good morning, Jessica. Thanks for taking the question. I guess, actually, maybe I'll start on the distressed debt side just really quickly. I don't think I heard you say that. Have you committed a dollar amount, and did you do that as of 1/1/2022, or is that still down the road? If so, can you give us an idea how much money you're gonna seed that strategy with? We haven't seeded any money yet in the strategy. We're still trying to figure out seeding and sources of seeding. Some of it will come from the firm, and some of it may come from the partners in the firm. It's not massive. I don't have a number for you now, and it likely won't all be from the firm capital. Got it. Helpful. I guess I ask in part because I was wondering whether you were seeing opportunities currently in the distressed debt space. It sounds to me like this is more of a long-term business plan. Correct As you say, a lot of synergies between that work and your current work. You're taking a longer-term view of building out potentially a tangential business with a lot of synergies. Correct. for what you currently do. Correct. Got it. We didn't have any. Great Any thoughts of opportunistic investing as the reason to just do it now. This is exactly as you described. Yep, got it. Well, to pick up on Sam's point about the value searches, it occurred to me. We talk about this, it seems, every quarter, but how long do you think value, and in your experience, you know, through the decades, how long does value have to outperform before interest really starts picking up in, especially on the separate account side, in value searches? Yeah, I mean, look, if you look at the average length of the value cycles over the past, you know, you can go back 100 years; it's around 6 years, something like that, the average length of time that value outperforms when you look at these cycles, where I'm guessing that the answer is something like 18 months to 2 years before the floodgates hit, and they actually tend to really build slowly and unfortunately, you get the biggest flows towards the end of the value cycle. If you look at our last real cycle, which was post-internet bubble, we got the first kind of movers about 1 year into the value recovery, and we peaked in flows around 4 years in. I don't know if that will be the same this time, but it gives you a little bit of feel. Yep. It takes a while, doesn't it? Yeah. No question. Thanks for the color on that. The last question I would have would be on the fees. I wonder if you could talk a little, just peel the onion a little bit. It looks from our vantage point like we're seeing a pretty fair amount of fee compression, right? In 4Q 2021, 4Q 2020, in total, fees collapsed by 270 basis points, if my number's right. In the fourth quarter to the fourth quarter of the prior year on the separate account side, it looked like they dropped it 180 basis points. Jessica's comment is some of it, that was mostly, if not entirely, due to clients' accounts hitting break points and not as opposed to a drop in your base fee rate due to competitive pressures. Could you comment on that? Yeah. Do I have that right? Sure. I would say the biggest impact is mix. If you actually look at what's going on, we've had gigantic flows in our sub-advisory channel, which is the lowest -fee strategies because we have to share the fees with the advisor. And of course, we get access to much, much bigger pools of money. That's the primary reason why our fees, if you look at our overall fees, they've been inching down. I don't have the numbers right in front of me, but we're just under 40 basis points now. We've been going down something like a basis point a year, on average. You have to be careful with a couple of things. There's performance fees in there that distort the numbers, especially in this anti-value period, because with our Vanguard relationship, we have fulcrum fees, which is effectively, you can call it a negative performance fee. We earn below our base fee. We've been earning those negative fees for the last 2.5 years, and those should go away, especially if value continues to outperform. The negative should switch to a positive if value should continue to outperform. I think mostly what you're seeing is mix shift. There is some breakpoints. There, there's definitely fee pressure, but mostly we've seen fee pressure not causing us to have to lower our fee schedules but causing our clients and prospects to themselves shift into lower fee versions of our strategies. Those are the... It's break points shifting to lower fee versions, meaning more diversified versions, basically, and mix shift that's accounted for. I don't want to say there's no fee pressure. There's definitely fee pressure. But we've done a pretty good job of keeping our fee schedules intact. Got it. Thanks. Final follow-up would be, you know, ballpark one basis point per year glide path. Would you expect that to continue? Is that a way to think about? I don't. I mean, I don't think. It can't go on forever. I think, yeah, I mean, look, it really depends on the mix. Unfortunately, it's hard to give you an answer. If we had the kind of flows in sub-advisory that we have had the last few years, which we would be thrilled with, by the way, you know, if you look at some of the flows we've had in sub-advisory, it's been the biggest source of our positive net flows. It's been more than 100% of our positive net flows have been from sub-advisory channels. Those partnerships that we've set up are working well because you set them up, and then you have continuous positive flows. If that was caused by that, we would be fine with it. But I would say I don't know how to answer your question. I do think we'll have a bit of a reversal from the performance fee question, and we'll have, and hopefully access to more separate account business. I would also tell you that we as we've gotten bigger, we've qualified to be in bigger searches. Our work: when you get a $100 million account in, the fee structure is so different than when you get a $500 million account in, and we're getting more of the latter. They'll be at the lower end of our fee schedule and break points. You can call that a bad thing. We actually are very happy with it. It's, we think it's margin accretive. The average size of your account is probably the biggest determinant of your operating margin. There's a lot of cost in getting a lot of small accounts. You could have higher fees if you did, higher basis point fees, but I think getting higher revenues is a lot more challenging. That's the dynamic you're watching. Do I think? I think yes, there's gonna be gradual erosion. We don't model one basis point a year, but we don't really know. Got it. Thank you very much. Appreciate the call. Sure. Sure. Thank you, Wayne. There are currently no more questions registered at the moment, so I will pass back to the management team for their closing remarks. Thank you, operator, and thank you, everyone, for joining us on today's call. We look forward to speaking with you again. That concludes today's conference call. You may now hang up the line.