Are there any future lumpy compensation expenses to be aware of, and how much of the Q3 comp guide is driven by future discrete items?

The discrete item was a one-time acceleration of multi-year stock-based awards due to retirement eligibility, not indicative of future lumpy items. The 54% comp guide for Q3 is reasonable, subject to revenue impact. “I think the discrete item was just that. It was stock-based and an acceleration of multiyears of performance-based investments, professional awards. So the good news is there was strong investment performance, as George alluded to, across strategies that given the retirement eligibility was all recognized in 1 quarter.”

Can you provide color on the size, timing, or capital investment for the anticipated CLO issuance?

Historically, CLOs have been sized in the $300 million to $400 million range, with capital investment in the mid-$20 million to low $30 million range. It's too early for specifics, but these ranges are reasonable. “Historically, the last few that we've done, we've sized in the $300 million to $400 million range. And generally, I think they've been in the mid-20s to low $30 million range in terms of capital.”

Update on Keystone's First Brands exposures, specifically why loans identified as in default or bankruptcy are marked at par.

Management stated that the Keystone fund's exposure to First Brands has not had implications and there should not be any further impacts. They noted the use of standard mark-to-market methodologies but did not specifically clarify the rationale for marking defaulted loans at par. “The Keystone fund had exposure to First Brands and there is exposure out there. And again, the way that it is structured has not had implications and is not at the level that you may be thinking about. So currently, there is no update in terms of any kind of impact but the expectation is that there should not be any further impacts.”

VRTS

Virtus Investment Partners (VRTS) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Jul 30, 2026

Source: earnings call transcript

Executive summary

Virtus Investment Partners Q2 FY26 — Improved Net Flows and Capital Returns

Virtus Investment Partners reported improved Q2 FY26 results, driven by strong institutional sales and positive net flows across fixed income, alternatives, and multi-asset strategies, despite continued headwinds from quality-oriented equities. The company expanded its ETF platform and continued its capital return program through share repurchases and debt reduction, maintaining financial flexibility. Management noted early signs of outperformance in quality equity strategies since late June, suggesting potential for a market cycle shift.

Highlights

Generated over $1 billion of positive net flows, excluding quality equity strategies.
Achieved strongest quarter of institutional sales ($2.2 billion) and net flows in nearly 3 years.
Total sales increased 5% to $6.1 billion.
Operating margin, excluding a discrete item, was 28.2%.
Repurchased approximately 70,000 shares for $10 million and repaid $20 million of revolving credit facility.

Concerns

Experienced total net outflows of $5.6 billion, primarily driven by quality-oriented equity strategies.
Open-end net outflows were $1.8 billion, compared to $1.3 billion last quarter.
Incurred a $3.8 million discrete noncash expense related to investment professional stock awards.

Guidance & targets

Category	Target	Timeline	Confidence
Average fee rate	43.1 basis points medium materiality	Q3 · FY26	Medium
Employment expenses as % of revenue	54% medium materiality	Q3 · FY26	Medium
Other operating expenses as adjusted	$30M-$32M medium materiality	Ongoing	Medium
Effective tax rate	13%-14% medium materiality	Ongoing	Medium
Interest expense	modest decline low materiality	Q3 · FY26	Medium
CLO issuance	new CLO medium materiality	H2 FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Total Company AUM increased primarily due to market performance. Assets under management (June 30): $152.2 billionAverage assets: $153.3 billion (down 3% sequentially)	—	—	2%	—
Institutional Accounts Highest level of institutional sales in 3 years and best quarter of institutional flows in nearly 3 years, driven by higher sales and lower redemptions. AUM share: 33%Sales: $2.2 billion (up from $1.2 billion in Q1 FY26)Net outflows: $0.7 billion (improved from $3.2 billion in Q1 FY26)	—	—	—	—
U.S. Retail Funds Sales declined, contributing to open-end fund sales decline. AUM share: 27%Sales: Declined	—	—	—	—
Retail Separate Accounts (incl. Wealth Management) Wealth management sales were at their highest level since Q4 2023, but lower intermediary-sold sales offset this. Outflows driven by intermediary-sold quality-oriented equities. AUM share: 24%Sales: $1.2 billion (down from $1.4 billion in Q1 FY26)Net outflows: $3.1 billion (improved from $3.9 billion in Q1 FY26)	—	—	—	—
Closed-end and Tender Offer Funds, ETFs, Global Funds Reported essentially breakeven net flows for closed-end and tender offer funds. AUM share: 16%	—	—	—	—
ETFs Continued positive net flows and strong double-digit organic growth rate. ETF business has grown significantly from $1 billion 5 years ago and generated $2 billion of net flows in the past year. AUM: $5.8 billion (up $0.4 billion sequentially)Net flows: $0.3 billion (positive)	—	58%	—	—
Fixed Income (Asset Class) Consistently strong performance across diversified offerings, with positive net flows. AUM share: Nearly 27%Performance (3-year): 80% beating benchmarksPerformance (10-year): 73% beating benchmarks	—	—	—	—
Alternatives and Multi-asset (Asset Class) Consistently strong performance, with positive net flows in alternatives and the addition of Keystone in Q1. AUM share: Over 28% (up from 21% a year ago)Performance (3-year): 67% beating benchmarksPerformance (10-year): 67% beating benchmarks	—	—	—	—

Product announcements

Product	Type	Timeline	Details
New actively managed ETFs from Duff & Phelps and Silvant	launch	During Q2 FY26

Risks & headwinds

Challenging environment for quality-oriented equity strategies Past 2 years

Continued net outflows, overshadowing positive flows in other areas.

Mitigation:Diversification into different types of strategies; expectation of market cycle change.

Concentration of redemptions in quality-oriented equity strategies Q2 FY26

Drove total net outflows of $5.6 billion.

Mitigation:Believed to be a cyclical market matter, not structural; recent short-term outperformance noted.

Known institutional redemptions exceeding known wins Near-term

Known redemptions exceed known wins

Mitigation:Sales pipeline is stronger than it has been in a year, diversified across 5 managers and 6 strategies.

What to watch in Q3 FY26

Quality equity strategy outperformance

Next quarter

Current Nearly every quality strategy has been outperforming its benchmarks quarter-to-date since late June

Target Continued outperformance, indicating a market cycle shift

Why it matters

A sustained shift in market favor towards quality equities would significantly improve overall net flows and AUM.

While it is still early in the quarter and a very short time frame, nearly every quality strategy has been outperforming its benchmarks quarter-to-date and some meaningfully so.

Find out whether VRTS delivers this. Inve re-checks your case every morning.

Q&A highlights

What is driving strength in fixed income and alternatives, and what is the potential for an upturn in equities?

Management highlighted diversified capabilities in fixed income and alternatives, noting strong performance and positive flows. For quality equities, they emphasized the cyclical nature of underperformance and recent short-term outperformance since late June as an indicator of potential reversal, advocating for diversified strategies.

“So I think all of those areas on their own are actually in a very competitive opportunity and we would ultimately expect them hopefully to continue to grow. But again, the overshadowing of the quality is obviously there.”

asked by Bradley Hays · answered by George Aylward

2 min read 5 chapters

Detailed narrative

Market Environment and Strategy Performance

The quarter reflected a challenging environment for quality-oriented equity strategies, which continued to experience outflows. However, management noted strong performance in fixed income and alternative strategies, with 80% and 67% beating benchmarks over 3 years, respectively. Since late June, nearly every quality strategy has been outperforming its benchmarks, suggesting a potential shift in market dynamics more favorable to fundamentally driven active security selection.

Product Expansion and ETF Growth

Virtus expanded its product offerings by introducing new actively managed ETFs from Duff & Phelps and Silvant. The ETF business has grown significantly, generating $2 billion of net flows in the past year and reaching $5.8 billion in AUM, up 58% year-over-year. This expansion aligns with growing client demand and opportunities for long-term growth.

Capital Allocation and Balance Sheet

The company ended the quarter with $176 million in cash and equivalents and $273 million in other investments. It repurchased approximately 70,000 shares for $10 million and repaid $20 million of its revolving credit facility, reducing gross debt to $427 million and net debt to $251 million (0.9x EBITDA). Management emphasized financial flexibility for investments, shareholder returns, and maintaining appropriate leverage.

Institutional and Wealth Management Momentum

Institutional sales reached $2.2 billion, the highest level in 3 years, driven by alternatives, equities, and fixed income, including a large global listed real estate inflow. Wealth management sales were also at their highest level since Q4 2023. These areas contributed to a meaningful improvement in total net flows, excluding quality equity strategies.

Keystone Fund Exposure Discussion

An analyst inquired about Keystone fund exposures to loans self-identified as being in default or tied to bankruptcy but marked at par. Management stated that the structure has not had implications and there should not be any further impacts, noting that standard methodologies for mark-to-market are used.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.