Executive Summary / Key Takeaways

• Victory Capital has fundamentally transformed into a significantly scaled and diversified asset manager, propelled by the successful acquisition and integration of Amundi U.S. (AMUN), now rebranded Pioneer Investments.
• The company delivered robust Q2 2025 financial results, with total client assets surging to a record $298.6 billion and adjusted EBITDA reaching $178.5 million, underscoring its strong operational leverage.
• Strategic initiatives, including rapid synergy realization ($70 million achieved), expanded global distribution through the Amundi partnership, and a thriving active ETF platform, are poised to drive consistent organic growth.
• A fortified balance sheet, marked by a post-IPO low net leverage ratio of 1.2x and an increased $500 million share repurchase program, strategically positions Victory Capital for further accretive M&A in a consolidating industry.
• Investors should monitor the pace of international product launches, sustained organic flow momentum, and the execution of future strategic acquisitions as critical drivers of long-term value.

Setting the Stage: A New Era for Asset Management

Victory Capital Holdings, Inc. (VCTR) operates as a diversified global asset management firm, specializing in investment strategies for institutions, intermediaries, retirement platforms, and individual investors. Its core business model, established with a management-led buyout in 2013, uniquely combines boutique investment qualities with a centralized operating and distribution platform. This approach positions Victory Capital to thrive in an asset management industry increasingly defined by consolidation, a growing demand for active and solutions-oriented products, and the imperative for global reach.

The competitive landscape for asset managers like Victory Capital is intense, featuring larger, more established players such as BlackRock (BLK), Invesco (IVZ), and Franklin Templeton (BEN). BlackRock, with its vast scale and technological prowess (e.g., Aladdin platform), often exhibits notably superior profitability margins and cash flow generation. Invesco and Franklin Templeton, while also large, offer broader product ranges and extensive distribution networks. Victory Capital differentiates itself through agility, a client-focused approach, and a proven ability to integrate acquisitions efficiently onto its scalable platform. This operational technology, rather than a single software, serves as a foundational strength, enabling consistent margins and rapid product deployment.

The industry is currently experiencing an acceleration in consolidation, a trend Victory Capital has actively embraced and is strategically positioned to capitalize on. Management believes the current market environment, characterized by a strong market, greater clarity on future government administration, and a more transparent interest rate outlook, is highly conducive for transactions. This backdrop creates a compelling opportunity for firms like Victory Capital, which possess a robust M&A playbook and a platform designed for seamless integration.

Operational Excellence and Technological Edge

Victory Capital's operational technology is a cornerstone of its competitive advantage. The company's integrated model creates an environment where investment professionals can focus on generating alpha, unburdened by administrative and operational complexities. A key quantifiable benefit of this model is that approximately two-thirds of its expenses are variable, providing inherent resilience and allowing the company to maintain strong profitability margins even amidst market fluctuations. This efficiency extends across all product vehicles, ensuring that even products with slightly lower revenue realization, such as its active ETFs, remain highly profitable.

The VictoryShares ETF platform exemplifies this technological edge and commitment to innovation. Starting with less than $200 million in AUM in 2015, the platform has grown to $15 billion by June 2025, representing a nearly 90% increase year-over-year in the first half of 2025. This growth is fueled by the launch of innovative rules-based and active ETFs. In Q2 2025, Victory Capital launched the VictoryShares Pioneer Asset-Based Income ETF (ABI), an actively managed ETF designed to provide private credit-like characteristics in a liquid, listed wrapper. Additionally, the free cash flow series of ETFs was expanded with the VictoryShares International Free Cash Flow ETF (IFLO) and the VictoryShares International Free Cash Flow Growth ETF (GRIN), enhancing diversification. These products are competitively priced and meet the company's stringent margin requirements, contributing significantly to its overall profitability.

Beyond ETFs, Victory Capital is actively expanding its product offerings for global distribution. The company is in the process of creating numerous vintage Victory strategies in UCITS vehicles, specifically designed for non-U.S. investors through Amundi's extensive distribution network. Initial product registrations are expected to be completed within the next few quarters, with significant progress anticipated by 2026. This strategic move leverages Amundi's existing infrastructure and global reach, opening up new channels for Victory Capital's investment capabilities. Furthermore, the company is evaluating opportunities to develop new ETF offerings for the Pioneer Investments franchise, which currently lacks such products, presenting an additive growth opportunity.

This blend of operational efficiency, product innovation, and strategic distribution expansion through its integrated platform significantly contributes to Victory Capital's competitive moat. It enables the company to integrate acquisitions swiftly, maintain consistent margins across diverse product lines, and rapidly bring new, in-demand products to market, thereby enhancing its market positioning and driving long-term growth.

The Amundi Catalyst: A Leap in Scale and Diversification

Victory Capital's history is marked by a series of strategic acquisitions, each designed to enhance its scale, diversify its offerings, and strengthen its market position. This M&A playbook culminated in the transformative acquisition of Amundi U.S. , which closed on April 1, 2025, and was subsequently reintroduced as Pioneer Investments, becoming Victory Capital's largest investment franchise. This transaction was settled entirely in company shares, comprising 3.29 million common shares and 19.74 million preferred shares.

The impact of the Amundi acquisition was immediate and profound. Total client assets surged to a record $298.6 billion by June 30, 2025, representing a 78.3% increase from March 31, 2025. This growth was primarily driven by the $114.0 billion in AUM acquired from Pioneer Investments, complemented by $20.2 billion in market appreciation. The acquisition also dramatically diversified Victory Capital's business: fixed income AUM doubled as a percentage of total assets, rising from 14% to 28%, and non-U.S. client assets expanded to $44 billion, now representing over 16% of total AUM across 60 countries. This global footprint, particularly through the 15-year exclusive distribution agreement with Amundi, provides unparalleled access to European and Asian markets, a significant differentiator for a U.S.-based manager.

Operational integration following the Amundi acquisition has progressed rapidly, demonstrating the efficacy of Victory Capital's M&A capabilities. By the end of Q2 2025, the company had already achieved $70 million in net expense synergies on a run-rate basis, representing nearly two-thirds of its total $110 million target within just 90 days of ownership. This swift realization of synergies, even after accounting for planned investments in distribution and technology, underscores the power of its scalable operating model. Furthermore, the company strategically optimized its franchise portfolio by closing the NewBridge, Sophus, and THB investment franchises, which collectively managed less than $1 billion in AUM, to reallocate resources towards higher-growth opportunities.

Financial Strength and Performance Trajectory

Victory Capital's financial performance in Q2 2025 reflects the immediate benefits of the Amundi acquisition and the underlying strength of its operating model. Total revenue for the quarter increased by 60% year-over-year to $351.2 million, primarily driven by the substantial increase in average AUM from Pioneer Investments. Investment management fees rose by 63% to $282.3 million, while fund administration and distribution fees increased by 48.3% to $68.9 million, largely due to higher mutual fund average net assets.

Despite a slight decrease in net income to $58.7 million (from $74.3 million in Q2 2024) due to significant, non-recurring acquisition-related costs and a higher effective tax rate, the company's adjusted profitability remained robust. Adjusted EBITDA for Q2 2025 reached $178.5 million, a 53% increase quarter-over-quarter, with an adjusted EBITDA margin of 50.8%. This margin, while slightly above the long-term guidance of 49%, demonstrates the company's ability to generate strong profits even during periods of significant integration. The effective tax rate for the quarter was 32.5%, higher than the normal 25% due to $27.3 million in non-deductible transaction costs related to the Amundi acquisition.

The company's liquidity and balance sheet have significantly strengthened post-acquisition. The net leverage ratio improved to a post-IPO low of 1.2x at June 30, 2025, down from 1.7x at the end of Q1 2025. This improvement is a direct result of the Amundi acquisition bringing substantial earnings without incurring additional debt. Cash and cash equivalents stood at $107.87 million. Recognizing this enhanced financial position, Moody's upgraded the outlook on Victory Capital's credit rating from stable to positive in Q2 2025.

From a cash flow perspective, the first half of 2025 saw $74.5 million provided by operating activities. Investing activities provided $78.1 million, largely due to $53.6 million in cash acquired from Amundi U.S. . Financing activities utilized $172.0 million, primarily for $63.7 million in acquisition consideration, $73.6 million in dividends, and $26.4 million in common stock repurchases. This capital allocation strategy prioritizes accretive acquisitions, balanced with returning capital to shareholders. The Board authorized a substantial increase in the share repurchase program from $200 million to $500 million through December 31, 2027, reflecting management's conviction that the company's intrinsic value is not fully reflected in its share price.

Strategic Outlook: Fueling Future Growth

Victory Capital's outlook is characterized by a strong commitment to organic growth, further strategic acquisitions, and disciplined capital management. Management anticipates a fee rate in the range of 46 to 47 basis points for Q3 2025 and beyond, while maintaining its long-term adjusted EBITDA margin guidance at 49%. The remaining $40 million of net expense synergies from the Amundi acquisition are expected to be front-end loaded, with approximately $30 million realized within the next three quarters and the final $10 million over the subsequent 12 months.

The company's goal is to achieve consistent quarter-over-quarter organic growth, a target it believes it is in the best position ever to achieve. This confidence is underpinned by several key initiatives: the expanded U.S. intermediary and institutional sales teams, increased investments in data, technology, marketing, and platform partnerships, and the significant opportunity presented by the Amundi global distribution agreement. The Amundi U.S. business itself demonstrated strong organic growth prior to the acquisition, with $1.7 billion in positive net long-term flows in Q1 2025, a momentum Victory Capital aims to accelerate.

In the consolidating asset management industry, Victory Capital remains "extremely active" in evaluating potential M&A opportunities. Management anticipates an acceleration of industry consolidation in 2025 and beyond, stating they "would not be surprised for a 2025 event" regarding another acquisition. The company is leaning towards larger-scale transactions that enhance its size, scale, and diversification, while ensuring cultural fit and investment excellence. This strategy is supported by its strengthened balance sheet and proven integration capabilities.

While the outlook is positive, investors should consider potential risks. Market volatility remains a primary concern, as AUM and fee revenues are directly tied to market performance. Changes in AUM composition towards lower-fee strategies could also impact the overall weighted-average fee rate. Furthermore, the company is exposed to exchange rate risk on its non-U.S. AUM and interest rate risk on its variable-rate debt. Although management has expressed confidence in improving organic flows, external analyses have noted this as a historical concern. However, Victory Capital's robust operational model and diversified product set are designed to mitigate these challenges.

Conclusion

Victory Capital has successfully executed a transformative strategic acquisition, fundamentally reshaping its scale, diversification, and growth potential. The integration of Pioneer Investments, coupled with its unique, highly scalable operating platform and a burgeoning active ETF business, positions the company as a formidable player in the evolving asset management landscape. Its disciplined approach to M&A, demonstrated by rapid synergy realization and a strengthened balance sheet, provides a clear pathway for continued inorganic growth in a consolidating industry.

The company's commitment to expanding its global distribution footprint through the Amundi partnership and its ongoing product innovation, particularly in active ETFs and UCITS vehicles, are critical drivers for future organic growth. While market volatility and the inherent challenges of asset flows remain factors to monitor, Victory Capital's operational efficiency, technological capabilities, and strategic vision underscore a compelling investment thesis. The company's proactive capital allocation, balancing accretive acquisitions with shareholder returns, suggests a management team focused on unlocking long-term value, which it believes is currently not fully reflected in its share price.