Okay. I think we can go ahead and get started. Thanks for staying with us here on day one of the Morgan Stanley Financials Conference. I'm Mike Cyprys, Equity Analyst covering brokers, asset managers, and exchanges for Morgan Stanley Research. For our next session, I am thrilled to welcome Mike Policarpo, President, Chief Financial Officer, and Chief Administrative Officer of Victory Capital. Victory Capital is a diversified asset management firm with over $300 billion of assets under management. The company operates nine autonomous investment franchises and is headquartered in San Antonio, Texas. Mike, thanks for joining us here. Yeah. Thanks for having me. Yeah, thanks for making the trip out here to New York. Why don't we start off with the market environment, which has been characterized by a lot of volatility, changing rate expectations, broadening beyond the sort of narrow leadership that drove markets over the last several years. What changes in client behavior have stood out most to you, and where are you seeing allocations shift today? Yeah. That's a good question. I think where we see opportunity from a client allocation perspective continues to be ETFs, definitely from an active ETF, rules-based ETF, passive ETF. From a structural perspective, there's definitely tailwinds from an ETF perspective that we see. Global, both on the equity and fixed income side, both from U.S. and non-U.S. clients. We think there's a tremendous shift in allocation from U.S. equity to global equity, as well as on the fixed income side. Then within solutions, which is a broad category, we see multi-asset offerings where clients are seeking a particular exposure, some sort of income-focused, some sort of a problem solve, if you will. I think those are the areas where we're seeing client demands in most recent form. As the market leadership broadens and clients look beyond passive beta exposure, where do you see the greatest opportunity for active management to potentially regain share? Yeah. Well, Victory is definitely a believer in active management. Most of our strategies, if not all of our strategies, really are active. From that perspective, I think where we're seeing demand is across global, like I mentioned before, global equity capacity-constrained equity as well. Fixed income, where it's not easy to disintermediate from a passive perspective. That multi-asset, which is a broad category, but where there's some sort of a specific response to a need from a client, I think is where we're seeing opportunity, where we think active will continue to penetrate and continue to win business. Why don't we shift gears to talk about flows. You had monthly AUM this morning. I think we were backing into roughly maybe about $1 billion of inflows, but you can correct me there. I think that would be the second consecutive month now. I think April, we were also backing into modest positive flows. Maybe you can correct me on those numbers, broadly speaking, and talk about gross sales and activities and pipelines. Yeah. What is it going to take for Victory to confidently inflect to sustainable positive net inflows? Sure. I think we've been, I think, saying since the Pioneer acquisition about one year ago, that we thought that was a big inflection point from an organic growth perspective for Victory. I won't comment specifically because we don't say the numbers on a monthly basis, but I think we continue to see progress towards that organic growth and feel confident where we sit today that we'll continue to drive to that organic growth perspective. I think what has set us up and what the inflection point has been over the last year is a few things. We've made, over the last several years, significant investments in product development, so we've launched a number of active and rules-based ETFs off of our solutions platform, VictoryShares. Those have garnered assets. I think that's kind of where the industry is looking for certain active components as well as rules-based. We've also made investments in our distribution. Again, pre the Pioneer acquisition, I'll talk about the Pioneer acquisition and what that brought as well. We invested in U.S. intermediary through ETF specialists, through building out an RIA team, again, really focused for our product set. The Pioneer acquisition that we closed Q2 of last year was that inflection point. We brought on the Pioneer investment franchise, which has a number of different products underneath it in equity, multi-asset, as well as in fixed income, differentiated product from what Victory had prior to the transaction, and complementary product from the standpoint of the same asset classes, but managed differently. I think that gave us more product that was in demand from a business perspective or a market perspective. Additionally, we've talked about this before, we also made substantive investments in distribution with that acquisition. We have more people in U.S. intermediary than we've ever had before. We have more boots on the ground. We're acquiring, if you will, more data, more sponsorships from an intermediary perspective than we ever have. Pioneer had certain firms that they had great success with. Victory, legacy Victory, had firms that we had success with. Putting 1+1 on the field was more than 2. From a U.S. intermediary perspective, U.S. institutional, again, we have more people selling. We have more product that are defined for sub-channels within institutional. Pioneer has certain fixed income and multi-asset products that are ripe for the insurance market. Legacy Victory's products set there was a little bit nascent, I would say. The last component, which I think we continue to be excited about, is the access to the non-U.S. distribution channel. With the acquisition of Pioneer, we have a 15-year exclusive distribution relationship with Amundi, where really we now have access to the world from a distribution and client perspective, access to Amundi's thousands of folks from a distribution perspective, geographies all throughout the world that prior to the deal we didn't have access to. That's been massive for Victory, both from the existing Pioneer business plus some of the product development that we've done in just 14 months to start to bring Victory product to that platform. Our last thing I would say with respect to the distribution is our U.S.-listed ETFs are now available outside the U.S. in a number of Asian geographies as well as Latin America, brought again by the global distribution partnership with Amundi. When we look at all that and add all that up, I think we feel really good about where we're positioned today and then l astly, it probably shouldn't have been the last thing I said, we have really good investment performance. It matters. Fair enough. Why don't we shift and talk about SMAs, models, which have been an area of growth for the industry. Hoping you could update us on the traction you're seeing across retail SMAs, models, your WestEnd business, the steps you're taking to broaden out the capabilities and distribution there, how do you see this part of the business evolving over the next several years? Yeah, no, I think it's a great question, definitely an area when we did the WestEnd acquisition, we were focused on from a growth perspective. WestEnd and our model delivery business is about 10% of our assets, pretty substantive and growing. We are doing more business with more advisors today than we were when we first acquired WestEnd. We've done product development off of the WestEnd platform. Pioneer had model delivery and SMA platform products as well, that we're able to bring onto the existing intermediary distribution platform that we have. The WestEnd model delivery platform also is a further product development engine for us, so we're thinking about tax efficiency, tax optimization off of that platform, as well as we think about future product development, there's an opportunity with respect to public-private hybrid products, to really deliver through that chassis as well. We're bullish on the space. We think there's opportunity beyond just what we're doing today, and we think that it's going to continue to grow and take market share as distributors and financial advisors think about how they interplay with their clients. How much of the SMA opportunity set would you say is really about customization and tax management versus, say, pure investment performance? I think it's probably a combination of both. It's hard to distinguish between one or the other, but I think that's driven ultimately by the end client and the financial advisor and what they're trying to deliver to their client. I think tax optimization is pretty important, depending upon the market environment, depending upon the client and the expectations but i nvestment performance still drives the day. I think you have to have the investment performance to play. Beyond SMAs and models, ETFs, a big part of industry growth. Area you touched on a number of times already. VictoryShares now exceeds $20 billion of assets, continues to grow rapidly. What differentiates the ETF launches at scale from the dozens, if not many more, hundreds, thousands across the industry that just maybe never gain traction? I think it comes down to making sure the products that are launched are needed and desired from a distribution perspective. We started in the business in 2015 with a small acquisition. We had less than a handful of ETFs. Today, we have 2023. The products that we have created have been both active off of our franchises, fixed income and equity, and then some rules-based products set as well. We have a free cash flow series that will come up on its three-year track record here at the end of the month. We've raised $8 billion in that suite of products, and I think it's because the demand has been there, the performance has been there. We've listened from a product perspective to make sure it's been competitively priced, competitively positioned. For us, as I mentioned, we made a lot of investments in ETF and RIA distribution over the last couple of years. That's allowed us to scale the product. You filed, I think, for three new ETFs, if I'm not mistaken, in the first quarter, with more launches to come in 2026. I guess, talk about how active this product development is today, the pipeline, the opportunities that you see, and what opportunities have you identified that can help expand the suite and align with client demand? Yeah, it's a good question. I think it's definitely an area we've spent a lot of time from a product development perspective. The few products that we have filed for are active products at this point in time, active fixed income, and active equity, off of a couple of our franchises, so expansions of what they've been doing outside of the ETF wrapper. Bringing those to the ETF wrapper, we think that's really important. Fixed income, we think, is a great opportunity for active fixed income ETFs. Hard to do it on the passive side, so there's definitely market share opportunity there. We'll continue to evaluate how to bring new products into the ETF space. It really comes down to the product team working with the investment team and the sales team to see what's marketable, what makes sense, what platforms we could place the product on, and how we can see it can grow. You mentioned a little bit more challenging in fixed income. Maybe you could elaborate on that. With the products you're launching in fixed income, but also equity, to what extent are they replicas of what's already done on the mutual fund side? Yeah. I think on the fixed income side, because it's hard to replicate a full index, it's much easier to do an active fixed income ETF than a passive fixed income ETF. At least that's been our experience, as opposed to having everything that sits within the Barclays Agg, for example. As we think about what we're bringing to market and the opportunity set, they're, I would say, close cousins to other products that are being managed already, whether it's a mutual fund or an SMA or an institutional account. We think there's opportunity to differentiate them, but still bring the same investment team, investment process, and capability to market. Sometimes we hear about when one brings something that's very similar, if not the same thing, can create some channel noise or conflict. Can you just talk about how you address that? With these close cousins, are they distinct enough that it sort of navigates around any of those perceived channel-related conflicts? We do. Yeah, we think they're distinct enough, and it will depend on the feedback. The different distributor partners will have different rules, different thoughts on how to bring it to market or not. Some of that, I think, continues to develop over time. From our perspective, we've been pretty thoughtful in the developments to make sure that we're creating products that can get access to shelf space. Great. We spent a bunch of time on the retail intermediary side. Let's shift and talk about the institutional channel. Talk about the pipeline, how that's holding up in the current backdrop, where that stands now versus, say, earlier this year, March or coming into the year. What strategies are you seeing the most demand, and how are you positioning for Victory to win in an environment as institutions are increasingly consolidating relationships with fewer managers? Yeah. It's a good question. Our institutional pipeline is strong, continues to be strong. I think we've said that publicly on our last call. It was strong, was very healthy. It's also not dependent on one sub-channel, one client base. It's also not dependent on one franchise. It's pretty broad. The products that we see cover fixed income are solutions. Global equity is another area we're seeing demand. All the areas that we talked about probably in the first question, where there's opportunity with client allocation changes, those are areas where we're seeing success. It's pretty robust, both in the U.S. and outside the U.S. as well. Great. Why don't we shift and talk about the Pioneer transaction, the acquisition of the Amundi U.S. business, proven to be quite a successful acquisition. On your most recent earnings call, you noted that the international channel that came through with that has been in net flow positive territory since you closed the acquisition. What other strengths have you seen as a result of the combined platform now that the integration is wrapping up? Beyond expense synergies, what aspects of the transaction have exceeded your expectations? It's a great question. The Pioneer acquisition, I think, has been massively successful for Victory and our shareholders. I think we have outpaced, if you will, kind of the expected accretion from a financial perspective. We mentioned $100 million of cost savings. We revised that to $110 within the first two years. I think we're well ahead from a timing perspective to realize that. A lot of financial benefits from a business perspective to drive how we think about our inorganic growth opportunities going forward. Besides the financial aspects, I think for us, M&A starts with making sure that you get strong investment talent. The Pioneer franchise, as we diligenced them, were very strong. They have a lot of products. They have $100+ billion in AUM across multiple disciplines and different kind of underlying product set. I would say that that franchise has performed better than we expected it to from a diligence perspective. High-quality investment franchise there that really has driven strong investment performance, which I think is important post the transaction to really have strong investment performance continue. I think we got a lot of investment talent beyond just the investment franchise, but just from a business perspective, as we thought about our ability to scale to $1 trillion, which is where we want to get to from an AUM perspective. We're able to get talent in different pieces of the business, distribution, operations, administration, to really allow us to afford that scale. We talked a little bit about the distribution partnership. Getting access to the world, if you will, from a distribution perspective, has really raised the profile of not just the Pioneer product, but the Victory product as well. It's gone as we expected, if not better. You highlighted we'll complete the integration well ahead of time. No significant surprises there. I think we're poised for continued growth and ready for the next opportunity. With the Amundi transaction, you struck a 15-year reciprocal distribution arrangement with Amundi. Can you talk about the tangible progress that you have made since getting Victory strategies onto Amundi's global platform? What should investors look for as evidence that the international distribution is scaling? Yeah. Great question. We mentioned last call that that channel has been net flow positive since the acquisition. I think that's some element of tangible progress, if you will. The non-U.S. client base represents roughly 17% of our total AUM. That was up from 5% pre the transaction. Diversification of the overall client base and business has been rewarded as a result of the transaction. We have seen continued growth in a number of the legacy Pioneer strategies that had been on that platform prior to the transaction. In 2025, partnering with Amundi, they launched several USIP offerings off of legacy Victory franchises. That's some evidence of the continued investments for opportunities as we move forward. Our U.S.-listed ETFs are now available through the Amundi distribution network in Asia and in Latin America. Again, we're building, if you will, the product set. 2026, we'll have additional product launches through the Amundi network as well that I think will be intriguing as we think about future growth. As we sit here today, yeah, we're excited about the opportunity that it brings us. We now have access to thousands of distribution and marketing professionals within their network. We're working with them so that they understand the product set, they understand the business. Portfolio managers are traveling to make sure that they understand the opportunities that exist in the different geographies and i t's very connected. With the launch of the UCITS products on legacy Victory strategies as well as the ETFs that are now made available, can you talk about how you went about which of the strategies that you were going to make available onto this distribution- Sure. ...channel? Yeah. A lot of that was working with Amundi, right? Getting with the heads of the different geographies to understand which of our products may have appeal in their markets, both institutionally and then from a retail perspective. It's definitely in conjunction with the experts, if you will, that sit in the geographies to understand the client demands. From there, we then took that back, worked with our franchises, and then came up with a list of products to launch and to register with them as the first phase, if you will. We'll continue to do that. There's constant feedback loop with the heads of the different sales groups within Amundi, heads of the different leadership within the product function, the marketing function, and then our product, the marketing function, working as well, to get continued feedback with the client service team that we have. What were the types of strategies that were prioritized to green-light to go first? Yeah. A couple of the rules-based ETFs, the VFLO series was one of them that had launched that has U.S. equity exposure. We also had a global equity product off of one of our franchises that was in demand. We also had a large cap value and a small cap value product off of a separate legacy Victory franchise, just based on needs, performance, and gaps in their product offering that they had. Okay. When you think about these distribution arrangements, I guess, how long do you think it typically takes for these new distribution partnerships when you're putting products into that to translate into meaningful flows? Yeah. It'll take some time, obviously, as the products get seeded and launched from a UCITS perspective, which is going to be more oriented for retail distribution through the retail networks, as well as institutional from a packaged product perspective. We expect to see that start to pay some dividends over the next year or so. It'll depend on the timing, the performance. Institutionally, where we have institutional separate account mandates available for the strategies, the traction there is a little bit more quicker, just because the products are out there, the performance is out there. We're in databases. We're working to respond to particular RFPs with the Amundi team. The institutional opportunity is probably a little bit more, sits more in front of us. I think the retail will develop over time. Got you. Institutional before- Yeah. ...retail. If we're sitting here in three years, I guess, what would success look like for the international distribution channel? Yeah. Hard to put an exact number on it, but I think if we have about 17% of our AUM outside the U.S. today, we want to see that grow. Obviously, we want to see the gross number itself just become larger. Maybe as a percentage of the overall business, it could gain share. I also think we would love to see not just the legacy Pioneer products, but some of the other Victory products that exist in the other franchises have assets. More assets, more clients, and more product offerings to be able to put through that distribution channel as well. Great. Why don't we shift gears? You've outlined a path to $1 trillion of AUM, upwards from over $300 billion today. I guess, what does Victory look like at that scale, and what do you think investors underestimate about the path from here to there? Yeah. I think we've gone from our MBO of $13 billion to $330 billion today. We've done that really with the same kind of core tenets, ownership mentality, ownership mindset, strong single platform foundation from an operational perspective, revenue share for our franchises. I think those core tenets to go from $15 billion to $330 billion, we'll be there from $330 billion to $1 trillion. We'll look different, obviously. We'll have more franchises. We'll have more teams. I think we'll stay pretty consistent with what we've done to date. I think we'll also look to capitalize on the different distribution channels that we have, doing more within those distribution channels. We hope it looks exactly like we are today, just more of it. Your Janus bid demonstrated a willingness to pursue transformational transactions of size and scope. How has your thinking around size and scale evolved? I think we continue to have that aspiration for $1 trillion. We're not going to get there purely with organic growth in the timeframe that we'd like to get there. I do think we'll be looking at scaled-size acquisitions. In our public calls, we put a pyramid where we talk about the focus from an M&A perspective of $50 billion-$200 billion in assets under management. That, to us, is transformative from a transaction perspective. It doesn't mean we won't go above that. There's opportunity, I think, depending upon the facts and circumstances of the transaction that we can go above that and have demonstrated that we will go above that. It doesn't mean we won't do deals smaller than that as well. They may be more strategic product placements, something that's giving us access to different client base. I do believe that the size and scale do matter from a business perspective, where we sit today to make the investments that we want to continue to make in distribution and across the platform. We're focused on the higher end from an M&A perspective going forward. How would you say those conversations are shaping up today versus a year ago? What characteristics define an ideal acquisition today? Yeah. For us, I think M&A has always started with a couple core components. One, whatever we do has to make the business better. Access to new clients, access to new products, something that will make the overall business better. We're not just doing acquisitions from a financial perspective, and just driving cost out and doing the deal and then living with what we have. Has to make the business better, has to have investment excellence. I think it starts with making sure that the investment teams that we acquire are good at what they do. There can be overlap in product set that we have, but we want to make sure that their processes are different. The environment today, I think is as good as it's been. In the news just about every day, there seems to be a transaction in the space. Some large, some small, some with different asset classes. I believe, for Victory, the environment is really healthy from an M&A perspective. We think what we bring to investment teams is pretty good. An opportunity to bring their team as it is, the autonomy from an investment perspective, access to four very deep and broad distribution channels. Revenue share allows them to participate in success from a client gathering perspective. They get to sit on a platform where they really focus all their time managing money. The environment's good. I think the cost of distribution is going up. I think the access to distribution's getting harder, and so that scale is needed. I think you'll see continued consolidation in the industry, which has been happening for the last couple decades. Is that consolidation happening faster than maybe you expected or slower or? Probably at the pace we expected. Okay. I think the who, the names, and the size, and the types of deals may be a little bit different but overall, I think it's happening as we expected it to. What lessons would you take away from recent acquisitions as well as from bids and how are you using that to shape your approach on the go forward? Yeah, I think the opportunity to evaluate businesses, whether you get a deal done or not, gives you a chance to look at how things are being done and then maybe assess how you're doing things within your own business. That gives us a chance to learn. I think we continue to evaluate firms the way we have. We've got our kind of business leadership does the M&A. We don't outsource that, if you will, to a particular group. The people that are running the business are, if you will, getting into the details of an opportunity, and then we're diligencing it, we're executing on it, we're integrating it, and then we're kind of operating the business. We learn a lot of different lessons, I think, as we go through them. We try to apply that to the business going forward. Why don't we shift gears, talk about margins. I believe you have a 49%+ EBITDA margin target, but one wouldn't know it, given you've exceeded that for many, many quarters now. You've maintained 50%+ EBITDA margins in 2019, I think, of the last 23 quarters, if I'm not mistaken. I guess what gives you confidence in the durability of profitability profile as you continue to invest in growth in the business, and why continue to have a 49% target? Yeah. I think we're confident in the 49% long term. We've not changed that. As you said, we have operated above that a number of quarters over the last several years. One of the reasons why we're confident in the durability of the margins is the way we set up the business and the platform. Greater than 2/3 of our costs are variable. We have a single platform from an operating perspective, we're one registered investment advisor. Everybody sits on the same platform, from a front office perspective, middle office technology, administration perspective. That's scalable. We also outsource some of our middle and back office, which really allows us to integrate and onboard new acquisitions, by leveraging the relationships that we have with some of the partners. We've also variabilized the cost with them as well, there's break points, it gives us the opportunity as we scale to get the benefit of that. I think if you go back and look at some of the recent market downturns, our margins have been very stable and very durable. The revenue share that's paid to the investment teams goes up and down, if you will. Obviously, with the revenue driven by the platforms. I think as we continue to do M&A, there's opportunity to look at the investments that we make through M&A. A lot of the investments that we wanted to make over the last couple of years we've made, especially in distribution through M&A. That gives us the opportunity to make investments when there's a transaction, evaluate talent, evaluate where we want to spend incremental capital, and make those investments through that cycle, which is why you see some step opportunity from a margin perspective. Great. Well, we have a few minutes left and I want to talk about AI. Major topic across markets, becoming a meaningful investment priority across asset management. I guess where are you already seeing tangible benefits today from AI, and how should investors think about the balance between productivity gains that can be harnessed operating leverage and then reinvestment over the next several years. That's a good question, and very pertinent, I think, from some of the meetings we've had today. Everyone's asking about AI. I think for Victory, we think about AI in a couple buckets. With 49+% margins, we're not looking at AI operationally to get efficiency and cut costs. I think for us, we look at the AI opportunities from an operational perspective to make our people more efficient. How do we do more with the same people that we have? How do we invest in AI to make us better at the things that we're doing from an administrative and operational perspective? Second, within operations, we also leverage an outsource model. A lot of the investments, I believe, that companies are making in operational efficiencies, we're getting through some of those partners. We're letting them, if you will, make some of those investments in AI for operational infrastructure, for settlements, for reconciliation. We're getting some benefit because of the model that we have, that they're making those investments, and we're seeing the benefits from it. Second, from a distribution perspective, we have and have been for the last two years buying a lot of industry data from some of our distribution partners. We're taking that data, we're synthesizing it, we're putting it through tools that we have developed internally to really make our distribution efforts more efficient. We want to put our distribution folks, whether it's a wholesaler in the field, someone talking to a gatekeeper, in the best position from a product perspective, from a financial advisor perspective, to be efficient with their time and the highest success for a sale and so t hat's the second way we're thinking about AI, is really investing through data and analytics to support our distribution efforts. Lastly, with respect to our investment franchises, since they all have investment autonomy, we're not going to dictate how they should be managing money. We're not going to dictate the tools that they use. What we do with AI tools as well as every other tool that we have from an organizational perspective is we make them available to the franchises. We work with them to see how they want to use the different tools. AI, in this example, how do they want to use it to make themselves more efficient from research? How to make more efficient from a portfolio construction perspective. We're having those dialogues now, ongoing. I don't think the franchises are going to look at it as an opportunity to displace themselves and just use AI to manage a portfolio. To make them more efficient, to get through data quicker, get summaries. I think we've seen tremendous adoption across the firm, really in each of those buckets, operationally, distribution, and then from an investment perspective as well. As you look out over the next couple of years, is it more of a productivity tool, or does it become a genuine source of competitive advantage, maybe in areas like investment research or client acquisition, portfolio construction? How do you think about that? I think it's a combination of both. I think operationally, I think there'll be some productivity. I do think it should be a competitive advantage to be able to put your investment professionals in the best position to manage their portfolios, to access new clients from a distribution perspective. I think it will be a balance of both. Does it just raise the bar for competition across the industry? What implications do you see that having for the competitive landscape? Yeah. I think everybody is going to engage in how to use AI. I think they'll do it differently. I think they'll have different intents. I do think it'll become table stakes, I think at some point, to make sure you're being as efficient as you can and have access to as much research as you can from an investment perspective. Every firm will do it a little bit differently. If we revisit this discussion in two, three years from now, where do you think AI's impact will be most visible? In investment performance, organic growth, retention, productivity, operating leverage. Where is the impact going to be greatest two, three years' time? Yeah. It's interesting. I think operating leverage and distribution. Okay. We'll have to leave it there. Yeah. Mike, thanks so much. Thank you. I appreciate it. Thanks.