Westwood Holdings Group, Inc. (WHG) Earnings

Management highlights

- Investment Performance * Long-term performance is mixed across U.S. value strategies, but the SMID cap strategy ranks in the top third of institutional peers over 3- and 5-year periods. * Over half of multi-asset strategies rank in the top third or better of peers over 3+ year periods; multi-asset income ranks in the top 1% of peers over 7- and 10-year periods. * MLP-focused strategies hold top half or better peer rankings over long-term periods, with MLP SMA ranking in the top decile since inception. * Wealth Team strategies have strong long-term results, with Thematic Innovation and Growth ranking in the top 13% of peers since inception. - Strategic Growth Initiatives * The firm has prioritized investment in three growth areas to adapt to investor shifts toward low-cost passive options: ETFs, alternatives/private capital, and Managed Investment Solutions. * The ETF platform crossed $400 million in AUM in July 2026, has won multiple major national platform approvals, and added a strategic partnership with ETF Capital Markets Advisors to improve ETF liquidity, pricing, and execution quality. * The upcoming PWRX ETF will launch in mid-September 2026 as the first new ETF listed on the Texas Stock Exchange, providing exposure to power and infrastructure companies positioned to benefit from AI data center growth. * Private capital closed $147 million in new co-investment commitments this quarter, reaching over $500 million in total commitments; the firm expanded the energy secondaries investment and operations teams and is building out private capital infrastructure. * Managed Investment Solutions has reached $350 million in year-to-date inflows, with four new opportunities added in Q2 alone, and the institutional pipeline remains robust. - Wealth Management Operations * The multifamily office platform saw elevated client engagement in H1 2026, with growing client focus on holistic planning including tax positioning, liquidity management, and trust coordination, where the firm's integrated model is well-positioned. * The firm made progress on process standardization and cross-functional alignment to improve scalability and client experience, and is evaluating technology infrastructure to support future growth.

Guidance

- Management targets growing each of the three emerging businesses (Managed Investment Solutions, ETFs, private capital) to over $1 billion in assets by the end of the coming year, an ambitious but achievable goal. - Management expects average firm fee rates to rise as ETF assets scale, as early-stage ETFs currently carry fee waivers that will reduce as assets grow; private capital carries higher base management fees (1-1.5% annually) than legacy businesses, with potential for future performance carry that will add to revenue. - The firm anticipates continued new mandates for SMID cap strategies from defined contribution plans via large national consultants, and sees ongoing pipeline momentum for Managed Investment Solutions with consultants and prospective investors.

Segment performance

Total firm-wide assets under management and advisement (AUM/A) were $17.9 billion at quarter end: $17 billion in assets under management (AUM) and $1 billion in assets under advisement. AUM is split by segment as follows: - Institutional assets: $8.3 billion, 49% of total AUM. The institutional channel generated $382 million in gross sales this quarter, with $1.3 billion in net outflows concentrated in the legacy large cap value business (impacted by performance headwinds and industry shifts to passive options); small cap value saw outflows from a single client redemption, which reallocated to the firm's mid cap strategy in July. - Wealth management assets: $4.5 billion, 26% of total AUM. Client engagement remained elevated through H1 2026, driven by demand for proactive planning and portfolio oversight amid market uncertainty. - Mutual fund and ETF assets: $4.2 billion, 25% of total AUM. This segment recorded $168 million in gross sales and $165 million in net outflows for the quarter. The ETF platform surpassed $400 million in AUM in July 2026, with core ETFs MDST and WEEI holding over $370 million in combined assets. Total Q2 2026 revenue was $25.3 million, up from $25.0 million in Q1 2026 and $23.1 million in Q2 2025. GAAP net income was $1.5 million ($0.17 per share), up from $1.0 million ($0.12 per share) in Q2 2025. Non-GAAP economic earnings were $3.0 million ($0.33 per share), up from $2.8 million ($0.31 per share) in Q1 2026 and $2.8 million ($0.32 per share) in Q2 2025.

Risks & headwinds

- Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from expectations, including performance variability across investment strategies, ongoing industry shifts away from active legacy strategies toward low-cost passive options, inflation driven by Middle East conflict-related energy price increases that pushes bond yields higher and impacts investor risk sentiment, and market volatility driven by geopolitical and macroeconomic developments. - Legacy U.S. large cap value strategies face ongoing performance challenges and industry pressure from the shift to passive investments, leading to anticipated net outflows.

Analyst Q&A

• Q: With the firm growing higher-fee ETF and private capital segments, what is the outlook for average firm fee rates? Additionally, does the private secondaries business include performance carry, and are there any locked carry expected in Q4? /

  A: The firm has historically relied on asset-based fees, and new ETF and private capital segments carry higher average fees than legacy businesses. Early-stage ETFs use fee waivers to keep expense ratios low, so average firm fees will rise as ETF assets grow and scale. Private capital has over $500 million in commitments, with base annual management fees of 1% to 1.5%; performance carry is expected in the future, but no carry is currently reflected in financial results. Private capital buys energy secondaries at an average 70% of face value, and existing investments have performed very well to date.