Victory Capital Holdings' Earnings Calls Clash on Fee Rate Drivers and Pipeline Scale

Date of Call: Aug 6, 2026

Financials Results

• Revenue: $435 million, up 12% from Q1 and 24% higher than Q2 of last year
• EPS: $2.21 per diluted share, up 21% from last quarter and 41% versus Q2 2025
• Operating Margin: Adjusted EBITDA margin of 55.8%

Guidance:

• Updated long-term adjusted EBITDA margin guidance from 49% to 50%.
• Average fee rate expected to remain in the 46 to 47 basis point range going forward.
• Cash compensation as a percentage of revenue expected to run in the low to mid-20s on a normalized basis.

Business Commentary:

Record Financial Performance:

• Victory Capital reported record adjusted EBITDA of $243 million for Q2 2026, with a margin expansion to 55.8%. Adjusted earnings per share was $2.21, up 21% from last quarter and 41% higher than Q2 of last year.
• This exceptional performance was driven by strategic investments, momentum across distribution channels, and strong investment performance by their franchises.

Growth in Client Assets and Flows:

• Total client assets reached $346 billion, up 11% from Q1 and 15% higher than the same period last year. Long-term gross flows were $22 billion, up 17% quarter-over-quarter and 43% versus the same quarter last year.
• The growth was attributed to record net long-term inflows of $4.2 billion, reflecting strategic investments, momentum in distribution channels, and strong investment performance.

ETF Platform Expansion:

• The company's ETF AUM ended the quarter at $23.2 billion, up 24% year-to-date and 54% year-over-year. Net flows for the quarter were $1.2 billion, contributing to a year-to-date total of $2.5 billion.
• This growth was driven by a commitment to product innovation, a disciplined evaluation of investment capabilities, and expanding distribution resources and geographic reach.

International Business Growth:

• International AUM reached $62.6 billion across 61 countries, with 35 countries having more than $100 million in Victory Capital AUM. The business was net flow positive in the quarter and year-to-date.
• Growth was supported by the Amundi partnership, which has been performing above initial financial expectations, with strong demand for Victory Capital products in Asia, Europe, and emerging markets in the Middle East.

Strategic Acquisitions and Future Outlook:

• The Pioneer integration is complete, realizing the full $110 million in net run rate expense synergies. The company continues to evaluate potential acquisition targets, with more than 110 investment firms in the target range.
• The growth strategy is focused on intentional, disciplined acquisitions to build a larger, more competitive platform, driven by industry consolidation trends and structural forces like regulatory complexity and technology requirements.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q2 2026 the 'strongest quarter in our history' and 'exceptional, setting new records.' They highlighted 'record long-term gross flows,' 'record net long-term inflows,' and 'adjusted EBITDA margin expanded to 55.8%.' The tone was confident regarding growth strategy and acquisition pipeline.

Q&A:

• Question from Craig Siegenthaler (Bank of America): How has your net flow outlook for the Amundi distribution agreement changed since inception? Are you seeing nice net flow breadth, or is it concentrated in one or two larger European markets?
  Response: Net flows are coming through three primary regions (Asia, Europe, Middle East), are deep and wide across product areas (fixed income, global, multi-asset), and are accelerating.

• Question from Craig Siegenthaler (Bank of America): How has Victory helped Amundi sell its product in the U.S. to date? Can you provide color on the 2Q flow trend from that? Also, can you just remind us the underlying economics to Victory on AUM that’s distributed in the United States?
  Response: U.S. distribution of Amundi products has been less significant than Victory's distribution outside the U.S.; the economics involve a revenue share split.

• Question from Ben Budish (Barclays): Can you talk about what may else be in the aggregate investment management fee line this quarter? How should we think about performance fees going forward?
  Response: The fee increase in Q2 was episodic and based on crystallized metrics, not pure performance fees; long-term guidance remains 46 to 47 basis points.

• Question from Ben Budish (Barclays): Anything in particular to call out on fixed income inflows and what you’ve been seeing in July and maybe into August?
  Response: Flows accelerated in Q3; fixed income inflows are broad-based and driven by client demand, with strength in shorter-term products and through multiple franchises.

• Question from Michael Schell (J.P. Morgan): How or where may Victory want to increase its competitiveness and in what kind of channels or client segments?
  Response: Acquisitions are evaluated based on whether they make the company better, more competitive, and more capable of servicing clients; the focus is on scale, product diversification, and distribution enhancement.

• Question from Michael Schell (J.P. Morgan): Can you flesh out trends in terms of G&A, and the leverage that you’re able to drive in that line?
  Response: G&A is around $21-$23 million quarterly and includes investments in technology, AI, and distribution; the variable expense structure provides flexibility, and long-term margin guidance was raised to 50%.

• Question from Michael Cyprys (Morgan Stanley): How are M&A conversations progressing, what does the pipeline look like, and what are you thinking about in terms of target types?
  Response: Conversations are progressing very well; the balance sheet is healthy, and the company is encouraged by industry pressures creating opportunities for consolidation.

• Question from Michael Cyprys (Morgan Stanley): How do you know you’re investing enough in the business to drive growth ahead? What are top areas of investment?
  Response: Results demonstrate sufficient investment; key areas include product development, AI/technology, and distribution, balancing industry-leading margins with organic growth.

• Question from Alex Blostein (Goldman Sachs Group): Can you help size the one-but-unfunded pipeline inflows?
  Response: The pipeline is one of the larger ones organizationally, with strength in fixed income, ETFs, global, and multi-asset across all distribution channels.

• Question from Alex Blostein (Goldman Sachs Group): In the absence of M&A, how should we think about the trajectory of share repurchases from these levels?
  Response: Share repurchases are opportunistic and secondary to strategic acquisitions; the company will balance share buybacks with dividends.

Contradiction Point 1

Fee Rate Movement and Normalization

Contradiction on the cause and normalization of elevated fee rates.

Ben Budish (Barclays) - Ben Budish (Barclays)

2026Q2: The increase in fees in Q2 is due to episodic, crystallized fees based on different metrics, not pure performance fees. - Michael Policarpo(CFO)

"Are there more opportunities and has performance improved in performance fees for the quarter?" - Michael Cho (J.P. Morgan)

2026Q1: The Q1 fee rate was elevated due to the recognition of annual fees that bring in-house rates to standard rack rates. - Michael Policarpo(CFO)

Contradiction Point 2

Size and Nature of the "One-But-Not-Yet-Funded" Pipeline

Contradiction in characterizing the scale of the pipeline.

What did Alex Blostein from Goldman Sachs Group discuss in the earnings call? - Alex Blostein (Goldman Sachs Group)

2026Q2: The 'one-but-not-yet-funded' pipeline is one of the largest the firm has seen organizationally. - David Brown(CEO)

Can you quantify the size of the unfunded pipeline inflows mentioned in your prepared remarks? - Nathan (Barclays, on for Benjamin Budish)

2026Q1: The firm does not size the pipeline but states it is widespread across multiple franchises and channels. - David Brown(CEO)

Contradiction Point 3

Timeline for Realizing Benefits from the Pioneer (Amundi) Acquisition

Contradiction on when the acquisition's benefits will materialize.

Ben Budish (Barclays) - Ben Budish (Barclays)

2026Q2: Flows accelerated into Q3 and are broad-based... It's a convergence of investments made over recent years (integration, distribution expansion). - David Brown(CEO)

What factors contributed to the significant fixed income inflow in Q3? - Benjamin Budish (Barclays)

2025Q4: The hiring and integration of sales teams are complete. The current phase involves training... Investments in training, marketing, and partnerships are expected to yield benefits in 2026. - David Brown(CEO)

Contradiction Point 4

Scale of U.S. Distribution Efforts for Amundi Products

Contradiction on the magnitude of U.S. distribution activities for Amundi.

Craig Siegenthaler (Bank of America) - Craig Siegenthaler (Bank of America)

2026Q2: Efforts to distribute Amundi products in the U.S. and Latin America are ongoing but smaller in scale compared to Amundi's distribution of Victory products. - Michael Policarpo(CFO)

How has Victory helped Amundi sell its product in the U.S. to date, what were the 2Q flow trends, and what are the underlying economics of Victory's AUM in the U.S.? - Benjamin Budish (Barclays)

2025Q4: The company is about 10 months post-acquisition. Investments in training, marketing, and partnerships are expected to yield benefits in 2026. - David Brown(CEO)

Contradiction Point 5

M&A Focus and Deal Size

Shift in primary focus from strategic deals to being open to any size.

What are J.P. Morgan's earnings results for the quarter? - Michael Schell (J.P. Morgan)

2026Q2: Acquisitions are evaluated based on whether they make the company better... Opportunities exist in size/scale, product diversification, and distribution enhancement. - David Brown(CEO)

What is the strategic direction of Victory over the past 12 years, and where could the company enhance its competitiveness? - Craig Siegenthaler (BofA Securities)

2025Q3: The company aspires to be a $1 trillion firm and will focus on strategic acquisitions... Deals in the $50–$200 billion AUM range are the primary focus... - David Brown(CEO)