Victory Capital Holdings Inc

NASDAQ:VCTR

Earnings Call Analysis

Victory Capital Posts Record Capital Return

Victory Capital ended Q4 2023 on a strong note, with the highest gross sales and net long-term flows in over a year, resulting in $166.6 billion AUM, a 9% increase year-over-year. The quarter closed with a higher fee rate of 52.1 basis points, boosting revenue and margins; adjusted EBITDA margin was 52.3% for Q4 and 50.9% for the year, up from 49.6% in 2022. The firm returned a record $243 million to shareholders, a 21% increase from the previous year, through $158 million in share repurchases and $85 million in dividends, while also approving a new $100 million share repurchase program and a 5% dividend hike. Investment performance remains robust, with strong AUM ratings and planned new product launches for 2024. Employee ownership culture is notable, with significant personal investments in company products, reinforcing commitment and alignment of interests with clients.

Company Achieves Strong Sales and Flows Driving Asset Growth

The company closed 2023 on a positive note, marking the year's best levels of gross sales and net long-term flows in over twelve months. Evident caution among clients due to interest rate uncertainties didn't eclipse the optimism for the company's prospects. Their notable fee rate increase to 52.1 basis points contributed to solid revenues. Assets under management (AUM) soared to $166.6 billion, setting a sturdy stage for 2024 with a 9% rise from the prior year's end.

Resilient Margins and Capital Return Testify to Operational Strength

The company reported expanding margins, with adjusted EBITDA margin climbing to 52.3% for Q4 and 50.9% for the full year, outperforming the previous year's 49.6%. Capital distribution peaked at $243 million returned to shareholders, marking a 21% increment over the previous year. The commitment to further growth was clear as they increased their quarterly cash dividend by 5% and finished off the $36.4 million payment for USAA Asset Management's acquisition, relieving their balance sheet of the associated liability.

Solid Investment Performance and Strategic Capital Allocation

With 70% of AUM in mutual funds or ETFs rated 4 or 5 stars, the company remains confident in its investment prowess, particularly with top quartile ranked assets over the trailing three-year period. The company exercised strategic capital allocation, repurchasing a record amount of shares in addition to a new $100 million share repurchase program and cash dividends. This aggressive capital distribution goes hand in hand with the significant reduction of net leverage ratio from 2.4x to 2.0x year over year.

Commitment to Organic Growth and Investment Platform

Despite heightened reinvestment in product development, technology, data platforms, and digital marketing, the company has not deviated from its investment approach or reduced its expenditures. Organic growth initiatives are set to continue into 2024, focusing on expanding distribution networks, enhancing analytic capabilities, and investing in their direct business, with special mention of the recently launched brokerage platform. These initiatives operated without compromising high operating margins, reflecting the robustness of their current investment platform.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, and welcome to the Victory Capital Fourth Quarter 2023 Earnings Conference Call. 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, executive]

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. Please note that 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 that was issued after the market closed yesterday, disclose both GAAP and non-GAAP financial results. We believe the non-GAAP measures enhance the understanding of our business and our performance. 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 slide presentation accompanying this call, both of which are available on the Investor Relations portion 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, executive]

Thanks, Matt. Good morning, and welcome to Victory Capital's Fourth Quarter 2023 Earnings Conference 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 will start today by providing an overview of the fourth quarter and full year. After that, I will turn the call over to Mike to review the financial results in detail. Following our prepared remarks, Mike, Matt and I will be available to take your questions. The quarterly business overview begins on Slide 5. I'm pleased to report that we ended 2023 on a high note. During the year's final quarter, we achieved the best level of gross sales as well as net long-term flows in more than a year. This helped us end 2023 with $166.6 billion in assets under management, providing a strong jump-off point for 2024. With interest rates appearing to have plateaued, the general sales environment is starting to feel a bit more constructive from an activity standpoint. However, the general sentiment of most clients is still cautious. This caused us approach and the ability to earn a substantial yield in cash and cash equivalent type investments has continued to produce record levels of investor assets in the cash asset class. That said, longer term, we are very optimistic about the prospect for assets coming out of cash and entering into more risk-based asset classes, but the specific timing of those assets moving is uncertain. Our fee rate rose to 52.1 basis points in the quarter. This was slightly higher than the average rate realized in the prior quarter, which helped produce a very solid revenue number for the quarter. GAAP operating income and adjusted EBITDA both grew in the fourth quarter from third quarter levels. Our margins were strong for the quarter and for the full year. For the quarter, adjusted EBITDA margin expanded to 52.3% and for the full year, it grew to 50.9% compared with 49.6% in 2022. The consistency of our margins quarter-to-quarter, year-to-year and during one of the tougher cycles for our industry validates the strength and resiliency of our business platform and our team's ability to execute. Shifting to capital. We returned more capital to shareholders during 2023 than in any other year in our history. And at the same time, we accumulated additional excess cash on our balance sheet to enhance our future financial flexibility. We also continue to invest in our organic growth. Specifically, we invested in product development through the launch of new products in 2023 and preparations to launch additional new products in 2024. Additionally, we invested in our technology and data platforms as well as expanding our digital marketing capabilities for key distribution channels, and we continue to hire in numerous areas of our business. Turning to Slide 7. Our investment performance remains strong with 70% of our AUM in mutual funds or ETFs, earning overall 4- or 5-star ratings. This is broadly diversified spanning across 42 different products. Compared against benchmarks, our 1-year performance at the end of December dipped slightly from above 70% at the end of November. Importantly, over the 3- and 5-year periods, 62% and 84% of our total AUM has outperformed their respective benchmarks. And perhaps more importantly, over the trailing 3-year period, 44% of our AUM in mutual funds and ETFs was ranked in the top quartile of the industry by Morningstar. Drilling down further into performance, 95% of fund AUM managed by our Victory Income Investors franchise held 4 or 5-star Morningstar rankings as of December 31. This is encouraging as we anticipate investors will be pivoting their portfolios into longer-duration fixed income products as the outlook for interest rate changes. Moreover, products such as our Victory RS Global Fund, RSGGX, remains 5-star overall rated and through year-end, this fund ranked in the top decile over the 1, 3 and 5-year periods. And even more impressively, for the 10-year period, it was ranked in the first percentile. On Slide 8, you can see our capital allocation strategy. We continue to favor strategically investing for the growth, given we believe this is how we will create the greatest amount of shareholder value over the long term. We remain flexible and opportunistic in our approach. During the fourth quarter, we repurchased more shares in the open market than in any other quarter following the third quarter when we focused on accumulating cash. We further increased cash on hand during the fourth quarter as well to ensure that we have financial flexibility in the future to execute on our strategy. For 2023, we returned a record amount of capital to shareholders and at the same time, we're able to strengthen the balance sheet. Our return of capital was made up of $158 million in share repurchases and $85 million in the form of cash dividends. Taken together, this $243 million of capital returned in 2023 exceeded the prior year by 21%. In December, the Board approved a new $100 million share repurchase program, allowing us to remain flexible. And yesterday, we announced a 5% increase in our quarterly cash dividend. Meaningful progress continues to be made with our M&A diligence initiatives and 2024 looks like it is setting up to be a year where we potentially could execute a strategic transaction. Although I have nothing specific to report today, I can say that I am extremely optimistic about our ability to execute. We look forward to updating you on our progress here as we move through our process. Turning to Slide 9. Here is an update on the ownership of our private equity shareholders. Since commencing share sales in late 2021, 33.4 million shares have been sold or distributed through today.This is noteworthy in that it represents more than 50% of our current outstanding shares and 77% of our current public flow. As a result, the liquidity and trading volume have improved in our shares, and there has been sufficient market demand for our shares to absorb this significant shift to a much higher proportion of public ownership. At year-end, our employees and directors held almost 20% of the diluted equity in our firm, reinforcing our unique ownership culture. This ownership is extremely broad throughout the firm with approximately 86% of our employees owning the VCTR stock. Just as important as the VCTR stock ownership is for our culture is the personal investments of our employees in our own Victory products.At 12/31/2023, our employees have invested over $200 million in Victory products, all by choice, side-by-side with our clients. Taken together, at year-end, our 481 employees had approximately $600 million of skin in the game between ownership of the VCTR stock and our Victory products. This is particularly noteworthy, considering there was no employee equity ownership in our company prior to the management buyout in 2013. Crestview Partners is now the sole remaining private equity shareholder with a current position of 11.6 million shares, representing approximately 18% of the outstanding shares. With that, I will turn the call over to Mike to go through the quarter's financial results in greater detail. Mike?

[Michael Policarpo, executive]

Thanks, Dave, and good morning, everyone. The financial results review begins on Slide 11. AUM grew to $166.6 billion at the end of the year. This was up 9% from the beginning of the year and it was also a 9% increase from $153.5 billion at the end of the third quarter. The point-to-point increase in AUM was driven by market strength primarily in November and December. Average AUM, which is how our fees are primarily determined, declined quarter-over-quarter. This was partially offset by the better average fee rate and resulted in revenue for the quarter of $205.8 million compared with $209.7 million in the third quarter. For the full year, revenue was $821 million. Adjusted EBITDA was $107.6 million in the fourth quarter, marking the highest quarterly level of the year. Margins expanded by 120 basis points in the quarter, reaching 52.3% and for the full year, adjusted EBITDA margin was 50.9%, up 130 basis points from 49.6% for 2022. Fourth quarter GAAP net income rose to $55 million or $0.82 per diluted share, up from $52 million or $0.77 per diluted share in the third quarter and ANI tax benefit was $1.15 per diluted share. We ended the quarter with $124 million in cash, which was up from $108 million in cash at the end of September and $85 million higher than at the start of the year. In the fourth quarter, we made the final earn-out payment of $36.4 million for the USAA Asset Management acquisition, fulfilling our full obligation and removing that liability from our balance sheet. As previously discussed on our last call, we monetized our interest rate swap locking in our game on that instrument, which will be realized in the form of lower interest expense through the end of the original term in July of 2026. We returned $80 million in capital to shareholders in the quarter. For the full year, we returned $243 million of capital to shareholders, while at the same time, improving our net leverage ratio to 2.0x at year-end. The 5% increase in our quarterly dividend to $0.335 announced yesterday will be payable on March 25 to shareholders of record on March 11. Turning to Slide 12. Our AUM remains very balanced from a distribution channel perspective, with the percentage mix being very consistent over short and longer periods of time. Slide 13 illustrates how net long-term flows steadily improved in the second half of the year. Investor activity was well diversified with our institutional channel generating positive net flows in the fourth quarter. You can see from the chart that we also gained some traction in gross sales in the fourth quarter and achieved our highest level of gross sales in more than a year. Additionally, with redemptions holding steady, this resulted in our best quarter of long-term net flows in more than a year. Looking to 2024, we are confident that our investments made to enhance organic growth have us well positioned to benefit when the macro environment gets more constructive for risk assets. As Dave highlighted, we have very competitive investment performance and a number of our investment franchises were flow positive for the quarter and for the year. That list includes WestEnd Advisors, RS Global, Trivalent Investments and New Energy Capital. To drill down on WestEnd a bit more, in 2023, we increased the number of financial advisers allocating assets to their strategies by 35%. This fortifies an already strong foundation of advisers who tend to increase their clients' allocations to WestEnd products over time. We are also casting a wider net with the addition of WestEnd's products to seven new platforms since the acquisition. Revenues are highlighted on Slide 14. Firm-wide average fee rate remained steady throughout 2023, covering around 52 basis points, which is within our expected range. Most of the movement associated with our firm-wide fee rate is attributable to ships in asset class, vehicle and distribution channel mix. Slide 15 illustrates how our operating expenses calibrate with revenue and earnings variability. This is a key feature of our platform that results in our consistently strong margins. Cash compensation expenses were down slightly, in line with lower revenue quarter-over-quarter and represented 22.8% of revenue. Additionally, we experienced lower nonpersonnel operating expenses compared with the third quarter. Distribution and other asset-based expenses declined $1.7 million, in line with lower average AUM for the quarter. Certain noncash expenses such as depreciation and amortization declined from Q3 and the change in value of contingent consideration realized in the quarter declined compared with the prior quarter. Our depreciation and amortization declined $4.3 million from the third quarter. This was due to higher than normal amortization in the prior period related to the previously disclosed divestment and consolidation of our Encore franchise in the third quarter. These declines were partially offset by higher general and administrative expenses in the quarter, which was driven by $2.4 million of onetime costs associated with the monetization of the interest rate swap and slightly higher marketing and promotional expenses. On Slide 16, we cover our non-GAAP metrics. Adjusted net income was $67.4 million. Adjusted EBITDA was $107.6 million and was the highest level of the year. For the full year period, adjusted EBITDA was $418 million and adjusted EBITDA margin for the year was 50.9%. Although the margins are in excess of our long-term guidance, we are not changing our current guidance of 49%. We think it is prudent to stay at this level to maintain the flexibility to invest in our platform. Moreover, as we have stated in the past, the margins will fluctuate quarter-to-quarter based on the timing and nature of investments. Finally, turning to Slide 17. While we did not pay down any debt in 2023, our net leverage ratio improved by nearly 0.5 turn during the year. Reflecting cash accumulation and higher run rate EBITDA, our net debt to leverage ratio at year-end was 2.0x compared with the 2.4x at the beginning of the year. Our $100 million revolver remains undrawn and GAAP operating cash flow was $97 million in the fourth quarter and $330 million for the year.That concludes our prepared remarks. I will now turn it back over to the operator for questions.

[Operator]

[Operator Instructions]. Your first question comes from the line of Ken Worthington from JPMorgan.

[Y. Cho, analyst]

Dave, this is Michael Cho. I'm in for Ken today. here. My first one is just on the sales and flows environment that you called out. You sounded fairly upbeat in terms of improving gross sales and flows in 4Q. And you also called out the institutional channel as well. I guess my question is, one, has that momentum and client discussions continue year-to-date 2024? And two, like we can see it in the aggregate numbers. But from your perspective, where are you seeing the most improvement relative to, let's say, prior quarters?

[David Brown, executive]

As you stated, our fourth quarter definitely we saw a pickup. If you look at our gross sales, if you look at our net sales definitely have improved and has consistently improved. In my prepared remarks, I made mention of the environment is getting a little bit better. I think until rates, there's a clear vision of when rates are going to come down or when they're going to stabilize. I don't think we're going to see material movements. As far as the first quarter of ‘24 we have seen some reallocations to the positive, and we've seen some clients pull back as well. So nothing materially has changed in the first quarter from the fourth quarter. But when we look out in '24 and going into '25, we're quite optimistic about assets coming into asset classes where we have exposure. And we think there's a lot of money sitting in cash as everybody knows. And at some point, when rates come down, some of those assets are going to move and they're going to move into asset classes where we have really competitive investment performance and really good distribution. So quarter-to-quarter, it's going to be hard to predict. But when we look in years when we think about '24 and we think about 25%, we're quite optimistic.

[Y. Cho, analyst]

Okay. Great. And just a follow-up, I just wanted to touch on organic investments that you discussed as well. I mean, clearly, ‘23 was a year of organic investment as usual, and he called out to more add in '24. So I'm just curious, just given the dynamic environment that we just talked to, like where are you focused on in terms of organic investment initiatives for the year ahead?

[David Brown, executive]

So a number of areas we're reinvesting. I'd start off in distribution and partnering with our distribution partners in different channels. So a big push to build the distribution pipes, if you will, to be available when significant assets are moving. So we spend a lot of time and invested dollars into those areas. Data, analytics and technology is another area that we focused on. And then the third area is our direct business, and we've launched the brokerage platform, and we continue to invest there. We're consistently investing. We've consistently invested through this cycle. We haven't invested any more, and we haven't invested really any less. One of the benefits of our platform and the way we're set up is that we have not had to pull back. We have not had to make cuts.In fact, we've probably reinvested in our platform in 2023, more than we have in the history of our organization. And so I think that's one of the real benefits that we have on the platform that we have and still maintaining the margins that we have. In fact, this quarter, as we all know, we posted in excess of 50% operating margins.

[Operator]

Your next question comes from the line of Craig Siegenthaler from Bank of America.

[Craig Siegenthaler, analyst]

We wanted to continue with the organic investment question. I believe you launched some CIT in the quarter. So we were curious, which strategies did you put in these wrappers, which client verticals are you targeting with the CIT and are you expecting some rotation out of the mutual fund wrapper in the identical strategy?

[David Brown, executive]

We've made investments in products and product launches. We have launched a few ETF. And then we have a few on the docket for 2024. A good example of what we've done is we've launched VFLO, which is an ETF that focuses on free cash flow. We've also launched MODL, which is a version of our WestEnd Advisors Franchise. And so when we think about going forward, we are thinking about launching, as you said, CIT and also ETF. We're well experienced in the ETF side, and we think that's an area where we can launch product and be pretty effective. And then specifically on the CIT, we're targeting really retirement and institutional clients there. So a collective fund that our institutional clients can go into. And then also some of our retirement clients can go into some of the CIT as well.

[Craig Siegenthaler, analyst]

Thanks, Dave. For my follow-up, we wanted to dig a little deeper into your M&A commentary. I think you said you're evaluating numerous acquisition opportunities, some of that effect. So it did sound a little more bullish than prior calls. So maybe you could update us on size ranges and capability objectives. And I'm guessing that you're going to try to avoid product redundancies. So you're generally focused on strategic versus consolidations.

[David Brown, executive]

Yes. We're quite optimistic that 2024 is going to be a year where we can execute a transaction. I used the term in my prepared remarks strategic, and that would refer to something of size. And as far as product capabilities, redundancy, consolidation, I won't comment on any of that, but I will say that we're quite optimistic that ‘24 is going to be a year where we can execute. We think the environment is a lot more friendly to doing acquisitions. We've got a really, really strong track record of the acquisitions we've done and how successful they've been. And we think ‘24 is going to be a year where we can continue that. Nothing to report today, but we're making significant progress, and we're bullish about it.

[Operator]

Your next question comes from the line of Etienne Ricard from BMO Capital Markets.

[Etienne Ricard, analyst]

To follow up on the topic of acquisitions, for what asset class do you see the best opportunities? In other words, there's lots of discussion about an eventual improvement in fixed income net flows. Is this being reflected in potential transaction activity that you come across? And as a follow-up, do you see potential for a broader range of fixed income strategies at Victory?

[David Brown, executive]

So the way we look at acquisitions, we start off with a concept of that doesn't make our company better. We don't specifically target asset classes. I think acquisitions are much wider and more in depth and more complicated than just trying to fill an asset class or a product capability. And so we've never really approached that we need a certain asset class. We do follow where our clients are going and that's how we've built our product lineup. So as far as acquisitions as far as the acquisitions that we're looking at, I think it's a wide range of asset classes and types. And then in specific response to your question on fixed income, we have a really, really strong fixed income franchise. We've referenced the performance in our prepared remarks. And we feel really good about the lineup we have. There is a lot of assets moving into the private side of fixed income, private credit. That is an area that we're interested in. We don't have that capability today. The opportunity for us to go and get other fixed income capabilities. We're evaluating whether we do that internally, whether we partner with somebody, whether we acquire it. But if you look at the lineup we have today, I think it's quite compelling. And I also think it's very well positioned to capture assets when assets come out of the cash asset class. And we're starting to see that today. We have a number of vehicles. We have ETFs that are driven by fixed income. We have mutual funds, institutional separate accounts and all kinds of share classes. So we feel really good about what we have today.

[Etienne Ricard, analyst]

And as a follow-up on the organic side, could you please share an update on your brokerage platform, almost that you're following the launch and the related improvements in client engagement that you've seen since?

[David Brown, executive]

So as you said, we created a brokerage platform off of our direct business, our direct channel. And today, clients can sign up for a brokerage account and perform basic brokerage activities, trade stocks, by mutual funds and ETF that aren't managed by Victory Capital. And we've seen great engagement with our clients. Our client service scores are excellent. We're starting to see clients sign up for brokerage accounts, move brokerage assets in there. And so we're in the beginning phases of that. We look at that as a long-term build. We look at that as offering more products to our direct clients and then also potentially marketing to new clients. We look at the success of that over multiple years. And the phase we're in today is really around capabilities around service, and we're doing an excellent job of both of those. And we're starting to see some assets being raised on the brokerage side.

[Operator]

Your next question comes from the line of Alex Blostein from Goldman Sachs.

[Alexander Blostein, analyst]

I wanted to follow up on the comments made around WestEnd Advisors. It sounds like you made meaningful traction on getting the product that's round up financial advisers. I think the stat you cited something like up 35% in terms of the headcount. Can you help us frame the opportunity set within the addressable market that you see there? So meaning advisers that utilize WestEnd, what's the average AUM maybe that they have under the umbrella and if others can get to a similar level? What a flow in AUM uplift could that create for Victory? Just trying to get a little bit of a better framework to think about that.

[David Brown, executive]

So when we acquired WestEnd, we had gone out and said that this was going to be an opportunity for us to grow their business and really for them to plug into our distribution capabilities. And so since we've acquired them, which was really the beginning of 2022, they have been organic growth positive in every time period since inception, there were organic growth positive in '23 and '22. And part of that really is, as we've stated, is expanding the number of platforms that their product is on, and it's also increasing the number of advisers that are doing business with them. We've also increased their product set by launching their first ETF, MODL, which has been successful, and it allows advisers to access the WestEnd platform, not just through the model delivery accounts. And so that area of the market has a lot of momentum. There are definitely opportunities that we will grow into, and we'll grow into them in a couple of different ways. Typically, what happens with a WestEnd client adviser is they will start off small and then they will eventually grow larger into the relationship. So the WestEnd product will capture a percentage of the adviser's book. And then over time, the adviser will allocate more. So there's really an opportunity to grow the existing relationship with advisers, get new advisers and then increase the platforms. I don't have a dollar amount I can share with you on the average AUM for an adviser or what the size of the market is. But if WestEnd is successful the way we think they will be it will be a material part of our organic growth story.And if you look at their growth historically and if you look at some of the projections for that part of the market and we capture what we think would be our share, it will have an impact on our organic growth story.

[Alexander Blostein, analyst]

Yes. Okay. Makes sense. And then just for a quick follow-up on the transaction and deal side of things. So based on your strategic comments, it sounds like it will be on the larger side. Can you just help us and remind what the leverage capacities on the balance sheet, how high you guys feel comfortable going in terms of debt to EBITDA?

[Michael Policarpo, executive]

Yes, I think we've never really set an exact level that we would commit to. I think we're very prudent in how we think about leverage and have been pretty fortunate in thinking about the ability to generate cash. We've also used a bunch of different tools as we've thought about M&A. The revenue sharing component for investment professional earn-out components, clearly, we've used debt in the past as a marker for supporting the growth from an inorganic perspective. But at 2.0x and the significant amount of cash that we do generate, we're comfortable with where we are, and we're comfortable to expand that for the right deal. And so I think if you look backwards when we did the USAA transaction, we were 2.6x, 2.7x. That's just the historical data point that I'd throw out there. I'm not suggesting that, that's a cap, I'm not suggesting that, that's a comfort level. But we have brought the leverage down in 2023 with the expansion of really both the earnings power as well as the cash accumulation to provide us flexibility. So I think we'll be prudent. But I think each deal is pretty specific in the facts and circumstances will kind of drive us from a structuring perspective as well as thoughts on leverage.

[Operator]

Your next question comes from the line of Adam Beatty from UBS.

[Adam Beatty, analyst]

Just wanted to follow up on some of the discussion around the CIT vehicle and maybe get some more details on your efforts in the retirement channel, how dialogues are going with either plan sponsors or other intermediaries and how much growth you see there?

[Michael Policarpo, executive]

Yes. As Dave mentioned earlier, we have a pretty full suite of CIT offerings and have actually really going back to the MBO since 2013. As we've always said, we're pretty vehicle agnostic with respect to offering out our investment product through our different franchises. And we think CITs are a great opportunity to penetrate the retirement platform network and have had success there really over the last several years as that more and more of an increasing opportunity from a vehicle perspective. Additionally, we also see it useful in institutional mandates, some lower end institutional clients can use CITs, and we found that to be extremely beneficial to have that out there. We have a number of CITs out there across really more than a handful of our franchises and getting placed on platforms with our CITs, getting placed on platforms with the various mutual fund share classes that we have as well as our ETF offerings really provides us a tremendous opportunity across different investor bases to capture assets, to capture the opportunity set from different financial advisers, and retirement platforms. So it's been a staple for us and something that we think as macro environments have changed over time, will continue to be a growth engine for us moving forward, both in retirement as well as institutional.

[David Brown, executive]

And Mike, I would add two things on that. I think one is we do have a dedicated retirement sales group, and we've had that in place for years. And their sole focus is getting access on platforms and then servicing the platforms. And that sales cycle is quite long, but those are very sticky assets as those clients typically stay in your product over long periods of time. We also view that part of the market as an area that continues to grow, and it's very predictable, and we like that part of the market. So I think as Mike said, as we think about what product or what franchises we will launch in the retirement side, I think it's really what the client demand will be.

[Adam Beatty, analyst]

Got it. And as we head into the first quarter, which can sometimes be seasonally positive for retirement, would you expect an uplift in flows there?

[David Brown, executive]

It's only through a month and a few days. So I'm not going to comment on what we're seeing and what we're not seeing. I would just say the retirement market is very predictable even in times like this where most investors are sitting on the sideline in cash.

[Operator]

Your next question comes from the line of Kenneth Lee from RBC Capital Markets.

[Kenneth Lee, analyst]

Just broadly speaking, as you look further out this year, I wonder if you could just highlight any particular areas or strategies where you could see some potential organic growth opportunities or like the best areas of potential organic growth opportunities out there.

[David Brown, executive]

Sure. And in no specific or priority order, we think the WestEnd advisers franchise and their model delivery business has a lot of momentum. And so we expect that part of our business to grow. RS Global has excellent investment performance and has made some headway in the institutional channel. That's another area.At some point in 2024, we think that our fixed income franchise Victory income investors, we'll see growth given some of the macro trends with assets moving parts of our ETF business as well, and that includes some of our fixed income ETF. We anticipate to grow. And then we have, I would say, a few capacity constrained asset classes where we have great investment performance with integrity in U.S. small cap RS value in U.S. small cap, and we think that those will be areas that we'll see some growth as well. Then generally speaking, from a channel perspective, our institutional distribution channel was net flow positive in the fourth quarter. And we think that that's an area where we'll have momentum as well from a distribution perspective.

[Kenneth Lee, analyst]

Great. Very helpful there. And just one follow-up, if I may. In terms of the potential M&A discussions you're having, any color around either bid-ask spread expectations or whether you've been seeing a change in seller expectations more recently?

[David Brown, executive]

I think each discussion is very unique to the opportunity. That being said, I think 2024 is going to be a year where we can execute. And to execute, you have to have buyer and seller expectations to be close. And I'd say that what we're seeing from an environment perspective is they've gotten a lot closer over the last quarter or so.

[Operator]

Your next question comes from the line of Michael Cyprys from Morgan Stanley.

[Michael Cyprys, analyst]

Just wanted to start off on the ETF franchise, nearly $5 billion of assets today. Maybe you could talk about some of the steps you're taking to accelerate growth and how built out is the distribution and product set at this point compared to where you'd like to see that?

[David Brown, executive]

So we have our ETF sales force is really part of our existing retail and intermediary sales force. So our sales folks sell both mutual funds and ETF. We've just started to build out to enhance that and ETF-only sales force. So that's something we started in 2023, and we'll continue to build out in 2024. So we have all of our salespeople out in the field really have the ability to talk about ETFs and to sell ETFs.We've launched a few new ETF in 2023. We have plans to launch more in 2024. I would like to have more ETF than not. I think that a portion of the buyers that maybe bought mutual funds before, we'll look at ETF. That doesn't mean that there aren't a lot of buyers for mutual funds. But clearly, ETF work well with certain types of clients in certain types of situations. We've been in the ETF business since 2015. So we're pretty well experienced. We understand it. And under the Victory Shares brand, we think we can grow that business. And so I would expect us to launch more ETF in '24 in a number of different asset classes and a number of different solution type so really with different types of solutions for clients.

[Michael Cyprys, analyst]

Great. And just a follow-up question on the direct channel. I was hoping you could update us on how much in assets and accounts you have, what you saw in '23, just in terms of flows and new account registrations. And just maybe you could talk about some of the steps you're taking in '24 to accelerate growth. And maybe just elaborate on the long-term vision you have for the direct channel.

[David Brown, executive]

So we don't disclose specific metrics for the direct channel as far as accounts or flows. So I won't report any of those, but I'll give you some color. What we saw in '23 and then going into '24 really is building out capabilities. So building out our product set through the launch of the brokerage platform, ensuring that our service is of the highest standard and also making sure that we work through all of the technology to make it a really good experience for clients when they sign up and our ability to service them. And longer term, what our vision is, is to have our existing client base have a really, really good experience, have a wide set of products that go in addition to just Victory products, which was the thinking behind the brokerage launch. And I think as we think about longer term as well, we think we can grow that business and really look at getting new clients and new assets. We do sign up a good number of new clients on the platform every day. And we have a lot of history talking to our clients, and we're understanding what's important to them and addressing those issues. So as we continue to work through that. I think longer term, you'll see us have that channel, and it will be an area where we're doing an excellent job, and it should turn into significant or measurable growth.

[Operator]

Our final question today comes from Matthew Howlett from B. Riley.

[Matthew Howlett, analyst]

Just on the subject of capital returns for 2024, I think investors get excited when they see the $243 million, a 21% increase last year. And with the dividend increase, you're off to a head start in '24. My question is on buybacks. How much will that depend on what you do on M&A? The stocks could easily hit a 52-week high today. I'd just love to hear what your thought is around buybacks and then with the M&A potentially occurring in 2014.

[Michael Policarpo, executive]

Yes. Thanks, Matt. Yes, I think we've been very clear as we think about our capital policy and really has been unchanged. We want the flexibility to continue to execute our differentiated strategy, which really for us does include organic growth. And so as you mentioned, we did increase our dividend this quarter about 5%, which we think is a strong reward for our shareholders and something that we still feel is ancillary to the overall picture from a business perspective. Really, with respect to the balance between buybacks and M&A really is facts and circumstances. So we do look at it ongoing. I think as we've said, we're active from an M&A perspective, and we do think that's a differentiator for long-term value creation for our shareholders. In the absence of a pending M&A or something that sits right in front of us, we have done and executed on buybacks. So it really is a balance of looking at and across all those components. You did mention we looked at in 2023. We did increase our buybacks. We were very opportunistic with respect to that. In our prepared remarks, we did mention that our Board approved a $100 million buyback program in December. So we are ready and do have all the tools to think about both buybacks, M&A as well as dividends. So we're really trying to be balanced in looking at all of that, but it does really come with a perspective of facts and circumstances with what sits in front of us. And we feel like we've done a pretty good job of balancing all that to really drive that shareholder return, and we'll continue to do that going forward.

[David Brown, executive]

Yes. And Mike, just to add to that. First and foremost always is making sure that our balance sheet is set up to support our strategic initiatives around acquisitions. And so ensuring that we have that is first and foremost. And I think that's the best vehicle for shareholder return over the long term. But that being said, we are absolutely committed to returning capital to shareholders through dividends and also through buybacks. Our history shows that we've done a really good job balancing that out. And so the acquisition environment impacts it. But we have the benefit of having a great business that throws off a lot of free cash flow and we have the benefit of having a lot of choices and being able to really to balance all of that and to do all of it. And so that's the reward for having built a sizable business that has a lot of free cash flow is that we can buy back a lot of shares. We can pay dividends, and we can also do strategic acquisitions.

[Matthew Howlett, analyst]

Yes. You have a great track were buybacks. I'm sure you look at your multiple versus the peer group and see the value in buying back shares. But certainly, the track record speaks to itself and congrats on both the dividend and the upsizing of the share repurchase program. The second question, the follow-up is just on you always have the 4 platforms, RS, West, and they always seem to be sort of the outperformance in the last 2 quarters. Is there any secret sauce in the net outflow, positive outcomes with those platforms versus the other subsidiaries? Or it's just going to ebb and flow? Or just are they just always going to be sort of the outperformers to lead the lead?

[David Brown, executive]

I think there's a number of factors that goes into it quarter-to-quarter. It's very hard to look at the flow situation quarter-to-quarter. As I said earlier, WestEnd has a really good product set, very competitive investment performance and some industry tailwinds and good distribution. So we anticipate WestEnd will continue. RS Global is an area where we have a long-term track record. It is starting to gain momentum on the institutional side, and it's a very competitive product. And there's a number of other franchises that will also ebb and flow, but I think you'll see more organic growth as the environment changes. The biggest headwind for us is the macro environment where investors are sitting in cash and not allocating to risk type investments. That will change. We don't know when it will change. I think we're getting a lot closer to that change. And when that change happens, I think we will be in a position to capture those assets as we built the distribution channels over a number of years, and we have really good investment performance and very competitive products.

[Operator]

That concludes our question-and-answer session. I will now turn the call back over to David Brown for closing remarks.

[David Brown, executive]

Thank you. Later this month, on February 21, we will be attending the Bank of America Securities 2024 Financial Services Conference in Miami. And on March 6, we'll be attending the RBC Capital Markets Global Financial Institutions Conference in New York. We look forward to seeing some of you at those events. Have a wonderful day, and thanks for your interest in Victory Capital.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.