Affiliated Managers (MGR) 30 Apr 182018 Q1 Earnings call transcript

Greetings and welcome to the AMG First Quarter 2018 Earnings Conference Call. At this, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Investor AMG. President, Vice Oh, Relations for Selene Thank you.

may begin. You

Executive Jay With our Nate Chief With the line our to of Chief the quarter turn share of to President discuss Dalton, to call. financial that, Horgen, discussed joining and any to the the periods as you are forward-looking XX-K section this any results reconciliation and www.amg.com, projected statements. are due quarter a matters made factors, the from for financial as Chief in Sean that obligation for most other number but differ Thank results of conference of the measures, constitute will directly well the us Financial SEC on could with Actual certain from call the Operating for Form make no on Healey. to Chairman I and measures earnings company’s any time-to-time. replay In the a company’s a AMG referenced Officer; results call. those the and to Healey, over Sean announced of XXXX. not to the per copy comparable discuss we update statements limited on for during company’s GAAP for economic provide at materially non-GAAP those a AMG forward-looking of Officer; assume We the filings of first and call, of its reconciliation of Officer. will this future results a including the website announcement Relations will including, estimates quarter call Investor to,

share. year-over-year start had and morning economic growth per good earnings XXXX with Thanks, AMG a XX% in the of Selene strong everyone. to

of alpha strategic reflect position record results strength the Affiliates our generation. track Our and our of

investments, we growth significant growth a avenues prospects our pipeline are multiple affiliate with with of business, including confident scale additional created strong of of breadth the our in new ahead by earnings Looking and ahead.

products strong client clients expand were volatility, two allocation reflecting equity continued rebalancing. flows inflows the stream. net our large risk During amidst equity to alternative by These net client market cash aversion offset uncorrelated outflows including positive Affiliates generate highest return to emerging quality the market quarter, as

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scale, shareholder ahead, value. generate it the diversity ability to I to With and more in we confident of continue detail. are discuss our business our to power will to Affiliates that, Nate in earnings enhance our and results Looking very long-term outstanding turn

and good everyone. morning Thanks

As quarter Sean a our Affiliates excellent across returns strategies. said produced the investment first of range broad in

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ahead, against. standpoint, short-term we and very potential institutional are we performance optimistic and pieces about very pipeline. is longer in the good organic a some the are opportunity growth From large for term there in business of are strong Looking XXXX the executing

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dynamics, about working. good Now, getting feel how strategy is quite the we short-term down our differentiated

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time other category, a and Weighted good and Composite positive all and In its quarter. when of primary Against in strong our performance the the multi-strategy quarter. very both peer ValueAct, benchmark were as the Affiliates, group products our Within negative. that in our index, Capula, was terms gains in a in returns Fund category for PFM mixed. at X.X% HFRI quarter the generating was benchmark the BlueMountain had flagship our outperformed posted particular, performance category backdrop, at and returned

quarter to continue saw but strong asset strong upward were flowing products. premier other systematic significant industry underperformed trend on the our category, as outperformed AQR diversified all our fast many negated by the return those of risk in fund start absolute category in declined, Index term In betas with longer the Trend the products the returns record. of quarter, strategies a in February’s many capitalizing X.X%. SocGen and While January, track from After challenged increased fund in maintain volatility signals market

the been not quarter. our the products end the of all the index outperformed has headwind market this affiliates of of negative, in environment as in our While significant are first returns the and the in

and solid net additional to our billion flows institutional in inflows both activity turning a across recorded and had quarter retail We We funding in growth our $X.X Now, the liquids space. organic good across very category. behind strategies of alternatives clients. illiquid of

continue see quarter and that but at to flows recent sales not net good in well. in as the value. a a on the multi-strategy fixed to flows a as sub-category positive as in be consistent with activity pickup in relative trends income redemption, to Looking equity only from return flow Systematic basis, but we standpoint, continued redemption reduced to diversified profile continued has through improve well

also illiquid closings separate as array fund account equity interim broad another in of quarter across strategies. and and had we strong we more our product a private had wins Finally, set

pipelines very ahead, in both illiquid across see Looking our good momentum liquid and our and outstanding expect continued set. growth product we

which January and Loevner, strategies in our quarter. and said investor our our geopolitical concerns outperforming generated assets, to Harding as Affiliates returns February increased X.X% Turning global backdrop, business heightened environment relative led Square I to in started down Artemis this Tweedy, very markets for off flagship Times Against strong while with next Browne, category quarter the volatility the approximately and March accounts for benchmark. XX% positively, Index the for of macro the in equities about global resulting earlier, AQR, MSCI World ending at the

record. Among underperformed inline and it over firms Harding continues of roughly Veritas While while indices Index ending quarter, was and period. strong quarter. for nearly market broad time Emerging long-term up Markets with performance outperformed the very affiliates, all AQR in Emerging track Loevner strong returns these the the X.X% chose Genesis MSCI Each to the underperformed our maintain longer markets index, the outperformed index. maintain a

had and retail equity from sales to shifting trend, Moving retail very billion. global flows, participate and investors we flows within activity we a country it. which in away On we overall net net of channels $X.X levels worth high our good by one as are home net saw broad-based hand, outflows

other conversion. disappointing quarter risk below hand, sales the heightened the in slowdown aversion are and giving as institutional pipeline On activity a flows trend in

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about coming and Looking quarters supplemented Harding ahead, improving and AQR, remain a strategies with success to Veritas opportunity the momentum coming or Tweedy, flagship to be and the well-positioned continuing institutional by excited the the products we Artemis, Loevner, rates retail from we number online. and in significantly newer Browne conversion of gaining continue pipeline products set

negative Turning by of the for with assets, our which January outperforming start U.S. by cap ended next slightly equities strong after the markets accounts a and small significant outperforming caps growth to business XX% quarter value large margin.

while quarter, the the X.X%. XXXX the X.X%, Russell Index fell lost S&P For XXX

Frontier their affiliates quarter. our relatively search Performance relative was in area demand the in across a flagship number of as performance the Times mixed, industry. and we in saw remains $X actively institutional the good Square, River cap product. outflows very in U.S. our billion Frontier, Road Square more outperformed outperformed the and larger where have many We for equities, managed small including across Yacktman while Times across retail of capitalization AQR in product U.S. strategies activity muted and net as strategies Within

activity placement in for improved. dynamic in do a positive our expect We this mandate a continue. in conversations to number as We affiliates see are sales trends demand and redemption of opportunities

to had multi-asset the net our and and million as well specialty we balance continue accounts mandate activity from our of moving as encompasses our wealth coming to product management number of we number products, quarter income the Finally, of good to business multi-asset their fixed broadly remains affiliates assets in-demand of and speaking base. another other client XX% worth for affiliates this from at the see as wealth net of strong by a income $XXX which category, across multi-asset most systematic inflows continue the fixed producing and products high and sales ultra management in perform portfolios online. of tax-oriented category customized well Performance good that

most asset the and able global and to environment. the And offer unique approach for growth grow the one culture across ahead, well-positioned manager. enabled to alpha model, managers, scope Together Through intermediaries of alongside long-term as into Looking continue well has and AMG in mix our market strategies entrepreneurial is of the excellence partnership meaningful the scale our we very deliver alpha expand these focused of the their products our are in on largest our to business oriented us for of of Affiliates, basis. providers with distribution product order a strategically to as portions needs to of alpha-oriented evolve diverse clients our meet and capabilities global portfolios world. the we

our with products ability combined the that invest together years within affiliates a opportunities mentioned, Japan position ability attractive proving products is we product markets, The X our markets and distribution and with. As new significant our ago is in in are work making resources progress are to Sean to to new market to packaging, invest evolutions. of in in or these most beginning we expansion We with capital our affiliates and and clients affiliates specifically development good there offering of are alongside existing continuing cases, Japan while bring in believe in many not example are is and critical. our to just pools increase products

of to As about our financials. partner we we turn Jay that, best a this, let further choice enhance virtuous execute world have we it to the circle the our to talked in the continued. over me on as With and position boutiques discuss

Thank you, Nate.

earnings As first our share. Sean performance results including per across metrics, growth discussed, in our year-over-year strong quarter key reflect growth economic XX%

to our of business environments. our the cash market with growing strength Given produce earnings together by and stable the diversity across substantial and Affiliates generated we continued

included a As the $X.XX you on earnings $X.XX. the performance reported saw we per we reported fees basis, economic per On earnings release, share of share for first $X.XX. net GAAP quarter of which of

reflecting XX points in average to performance billion first for grew of fees year referred ratio a aggregate and the reflecting to while grew mix to to increase ago due our EBITDA grew Affiliates. ownership earnings XX% income a equity in grew points net an Economic count XX% between from year million the to fees to year-over-year positive revenue quarter the organic higher by aggregate ago aggregate XX% to XX $XXX.X $X.XX to Turning driven our share was share Adjusted management The economic consolidated which year-over-year as the from markets, year fees. increased per XX% to lower basis and activity. reflecting assets repurchase million $X.X metrics, basis growth alternatives $XXX.X previously performance performance under from method ago from fees. of level

ratio adjusted management more items, specific to of quarter points performance XX.X modeling basis points average for basis assets excluding XX.X first the the to was under or Turning EBITDA fees.

contribution and XX.X under share. management to EBITDA expect we between be in quarter $X.XX adjusted second performance approximately per basis $X.XX reflecting points average fee to the ahead, Looking the assets

million $XX.X of our quarter, first expect Our share interest share second expense million. the for the we In quarter. approximately was $XX be interest to of expense

Our million share including Affiliates the the amortization under of quarter equity for for from $XX.X reported method. million first in was accounted impairments $XX

of expect reported the $XX Going to the million rest year. quarter of average share forward, we our amortization for approximately per

rates quarter on GAAP tax those tax our XX%. that to XXXX to was from fees as rate rate regard taxes our of report the with the and tax quarter, we compared a lag and rate was our U.S. first cash fees higher at Affiliates were XX.X% realized taxes, performance to performance Turning tax in effective XX% XX.X%

of million. and the tax now expect quarter, the we quarter. $X to we other economic first taxes XX% Other GAAP intangible Intangible full related $XX items Given purposes to be the expect per first rate in items the million higher quarter tax be we million cash the the impact $X.X the year approximately XX%. were economic be rate were in approximately for and effective the deferred million to taxes deferred rate to quarter tax in expect $XX.X be second quarter, for modeling approximately related

the XX.X weighted quarter count Our continued be was it reflecting second we share quarter average adjusted approximately XX.X and to for the expect million first for million repurchases.

the impact of average for year full count now we million. to repurchases, the expect In addition, be given our the XX.X share quarter weighted first

balance $X.XX given we of quarter shares we Turning dividend execute quarter, anticipate share XXX million. the a million per increase new approximately In repurchases in year-over-year ahead, continued scale sheet, looking second we paid to as was investments. And first share quarter. the an the in even we we and of our repurchases expect repurchased XXX our which XX%

lower million refinanced we Finally, its have term loan of extend to our our capital the and $XXX in cost quarter maturity.

billion rate growth to our run confident the or scale returning and approximately shareholders. consistently the earnings with meaningful to ability capital given are new generate our also we to of ahead, in investments while continue $X.X accretive significant EBITDA Looking business, to

will Now your questions. answer be happy to we

Our William question. Instructions] first with Thank question-and-answer Blair. time your proceed conducting the be with Shutler of comes this line you. question Chris Please [Operator At we from a session. will

morning. Hey guys, good

morning. Good

saw a asset am that that scale is the bit Sean how real more read be geographies several and we but last Maybe just positive, fair over you investment? of and potential the about on should saying out a deal pipeline, classes, thinking I quarters

the Sure. while definite the would really some to situations in have opportunities The seeing increase it’s firm short answer well and negotiated firms is are are geography circumstances. in tailored the have type come activity. by settings, firm broadly over a these built time occur yes, know I and say a the form in and custom relationships we in new we investment from auction we most and transactions

good feel always entering are about So gauge, feel very hard we we a committed especially we say remain repurchase say we we pipeline. transactions, highly of definitely transactions to continuing but our definitely course, period that is to negotiated but pacing I current as valuation of would would the activity the to I and stock are especially at elevated also level. selective finally, of –

Thank you.

of comes Citi. question. with next Katz Our the question from Please with line proceed Will your

Okay. Thank the question this you very for much morning. taking

called I question, language pipelines out second for EM that to poor the maybe into some this So, very was used and sort a of you half couple could about strong one then descriptive a wondering, talk year. it’s you Nate you looking so Nate, size rebalances, of

us give pipeline X sense X a months be or you of were where could So, today how we versus big that might ago?

Sure.

take in order. me those Let

had things EM we prepared on done rebalances that here. remarks, just of we in just the the So, two a couple so

and appreciated, long kind affiliates different good in and of roughly these significantly each them I tenured range. it’s in was two the that kind channel happened redemption/rebalances sort were So, is performance of billion was of what very the of both partial institutional size said as $X.X kind of investments and

as they bit is improve And of on to pipeline, of of size is some and coming global complex sort but it the of remarks I as the that’s is them – some just as said illiquids very to even a terms as emerging. global global honestly continuing say these to were? this equities, clear, that that really pipeline of as well some that’s would So, little from it meaning little and in pipeline the sort in is touched just developed a prepared close, beyond are and quite then in the are large significantly I as well to be alternatives improved, of where mandates taking longer roughly building we – liquids and really well

building really is pipeline the well. yes, So

you. Thank

of question line Please comes Our proceed question. from your Brian with next the Bank. with Deutsche Bedell

for Thanks disclosure. morning. Good helpful. also the thanks. Great, realization That’s

a of describe, global your I if pipeline to for back equities, actual timing you was a said going think actually global the that looks that like for ones the of sales can down this the may slower maybe number the Just you couple complexity comments but different thought it equity, if written and that on like maybe of have gross it little was Nate, and in the environment pretty I bit good. I around, looks

So the forward that get whether and of just pipeline? the better of of also is trying going Japan equity over a Japan that part to nature flavor global category

Yes.

So, them. me bunch of all of let to get make try questions, I sure

global on pipeline, to growth I was relative equity the that, in what So speaking growth was sales quarter our was number in expectation what’s – given it to right. there the the was

sure of put some I some that of is multi-strategy regulatory them sort the So, have them so and some that couple put quite conversations I sits and all it’s sure would stuff are under a are different of the as said, of certainly complexity are there slow of multi-geography, aversion all this all down so what did itself been point the those this we the manifesting large, again quarter and it’s of structure but some category ways, making some and described legal making is might together in of had but pieces them things are it – as and risk of together. in

large in. with with the sort sort of little that and in of of sort large seeing forward of to things all of taking about moving in And is question have the to traction. sort building we have boutiques in last are set products the way I is match addressed of having sort evolutions pipeline and quite of lots number about are we and our for bit, talked pipeline product in the are I mean the looking bottom then come talked the about a them we top-down And terms bit that of think focus phase. a in question, against so We understand traction opportunities also them things are building at. there we we marketplaces the longer just execution of a us the To and that think Japan

are We also into talked the about pulled pull being markets.

their more product working of liquid the is liquid have significantly kind coming very couple really in some And so been well us of are we which as have is that set product through as reflective trying but of alternatives we really as that’s alternative the it’s which also Japan, some product of through, to of in equities of and and some starting in it broadly a certainly months. is increasing of having a success the – global to come in some set and with through bit set lot so well, come little building is that

you. Thank

from Our next proceed Craig question with line of comes Please your Credit question. Suisse. the Siegenthaler with

and Hey, that, equity positive, year know I improvement My flows on the if say could the we equity of starting but XX good really quarter, maybe over but I in but want better is this to internal active a – see it’s the your Affiliates question, in that and Nate equities of last peers question your better performance view see but see versus days, less and benchmark? just what your an morning. quarters will so many given more are really active active to be your across is you the flows, XX would

our the will against product first the think the placement really at the this and key we performance performance. across as peers. which Affiliate investment it’s was one the So, performance really in prepared benchmarks of on and I but And point name the at you remarks good every what there is that, strategies we quarter. just hit described and performance, single look again The not end

may it’s I it about that be we from to through going dimension it want where as while, policy also say talked it monetary little a just which one have quarter. mention perspective, managers so an a of you regime you the outperform. active to is to environment here to we sort making we better really change And this can is for maybe going maybe

global are was global one net I making the flows the I earlier think think part but profile, we of number at then impacted we the so impacted which that is equity at on – profile by was quarter be it where see mentioned we in institutional this really retail that actually the when we to that look When without from by things the flow you question And I dynamics two mean end look it’s really just that think that. I number are quarter standpoint just large response a two So sales things we those up and good pretty good. highlighted. a that things the as I do bad. the look building we a certainly the fact Notwithstanding the on was retail, which it’s progress we I our look think was to at side flow really really think the at

large we look the seen in alternatives. breath that benefit depth these way our I would XX%. collectively are we have earnings our we affiliates if from a Yes. from Craig different strategic – peers are are our to the of of and individual And alternatives just and we very notably alternative Deliberately, XX% add of bigger a seeing we – of product set some years and that assets would increased us the referenced. alternatives. say at position that to you retail contribution some much leaders past distinguishing over AQR the real is we top X in certainly distribution at have the from conversations in and industry have I and

important be So increasingly in prospectively alternatives and on strong have position we to I the major especially active as category will just global. focus think not a where obviously equities

you. Thank

with Robert line question Please KBW. Lee proceed the next comes from Our your of with question.

my taking for question. Great. guys. Thanks Thanks Thanks.

guess guys guess the one I the this, starting Just about talk distribution, or do of this Nate your what maybe to they maybe some see been about one with big are of now, extent business of global we – a are just span distribution been clients multiple goes as the of we added global may and have are that the no me global And I to decade continued mandate? up kind are someone actually almost with two Affiliates they more number let do actually to maybe are to your that Affiliates with little to start able you you it’s three. parts and number plan things, track together a you a that multi-asset at have of number one seeing distribution, bit through strategies, one complex of then you mandates expand expanding seeing to keep

Yes.

actually a So, It’s over much. been decade. thanks very

multiple then because sort the and growth with getting then product And always exponential the have that then part is call and the to to that we thought single back a just has our and as own have building. alongside. global mandates across it that’s distribution building of both things answer mandates been go our They the again part think and which geography talked about value that capability diversity Affiliates. was as Affiliates. the excellent begin distribution And I working into a So building and we and of absolutely have I getting within that about talked first well right about affiliate question their on first this the themselves on of we of we

over. hey of geography a and in doing have function build more first than But decade, what step happening in kind been happening say, for what’s really generally. a absolutely geography, each modest So by while we did it we geography flows but terms really all in of of we sort years couple of quite

with is given some are Japan working, absolutely literally we got has think an happening everywhere happening exception the seeing it I is But of we and are intermediaries. traction there. that

intermediaries with within geographies of just not are intermediaries. geographies, so getting you are build relationships across leverage you Some those and multi-geography the global that as but themselves

absolutely. question, the the on So, part first of

we very into a that although something of future an into topic, capability, coordination we done that could rather multi-Affiliate we we really second, – and more with really this – something we it’s single that can grow than definitely scale, multi-Affiliate today a ways it’s is really is small doing source of combining done. single deliver. us have capabilities product as our not think significant growth learn have but I It role it product a in something are potential is be the much interesting On yes, the a

I to mentioned of peers plays add would think very is that I where much aspect industry well, as and the our and our we increasingly it’s And breadth scale this strength. and have discussed important product another it just as becoming in

you. Thank

from with proceed Our next Jefferies. comes Dan your with question the Please questions. of line Fannon

and looking predict, you caveat it institutional, minutes it’s guess think with how just I morning, quarter been redemptions elevated row couple something I get maybe talking but looking clients Good pipeline out and of trends about? ahead, we called about so at things redemption mentioned to third is another the should are all Thanks. redemptions the just talking are that redemption just guess about, aversion one looking we difficult I good so a and you this the gentle, have the risk you at in obviously quarter

Yes.

I are rebalances minutes the a trend normalize kind including actually think redemptions you think even quarterly I did that them do of improve right, actually I think I institutional So or – if And you was for I quarter-over-quarter described. think the it balances. –

of So rebalances redemptions we we have a yes, think side, right, much or on that about little the more. caveat think one on we do is sales I more visibility that it, the things side. growth with let I And

back again caveats – performance is think we really to would I I performance come those with So good. again, which is

And and trends even so or time redemption maybe to the run that is to that’s short stands that in extend that so there would improve something reason over close. the

for would really rebounds not I those we reason would I would think say improve. I So is I good so go two trends that and with think except always I look to redemptions And that them performance think been bad. are that’s actually back that the the

you. Thank

Please line question. with Our with of question Bank your Lynch. comes America/Merrill Michael proceed the from of Carrier next

guys. Thanks Alright.

quarter, in kind the expectations or the going is an not nothing typically to are year? the really down the fees, year, really average the up really look the performance thinking for given meaning environment of it’s but performance that we when you average taken early kind I where in Just kind of saw know what got of the are the to cover some drives kind we Affiliates of of of off all kind in still volatility across we

other quarter Yes. let period. performance the give I just it’s of which and will get to sort AUM Thanks kind you that and since last are year-to-date is and Well, Michael. fees, been element tracking call first you just of our right, volatile me

gave about $XXX we we call an So this XX, last on billion, are when is of $XXX January the update kind at year started we the billion.

and have are million in decline which the $XXX the of that you finished since the about see call, quarter year. table X% a beginning balances So from AUM we as was X% at the can of decrease

beginning but of was it we wasn’t our the much the from time last call. the So year, from gave it

question this into were bit – into are hit In a good, up your the the as performance that it go some so was it mix. say performance quite And per at modestly places, our and earnings themselves the already me right. capital up down positive. performance well, fee are then And share. that Looking I was least CPAs if about you main X.X% And performance all about to other about you we somewhere but are quarter Those of marking Affiliates alternative economic affect of mixed was our strategies as that first will was Friday, X%. assumptions we and indices is were well. heard two models X.X%

in the of we percentage XX% capital below mid-teens is little both an early quarter. the and earnings, of throughout new investments of say bit both the because expected but to then be originally low kind with might do now in an lower still on of it’s on anticipate And on kind XXX So fees. heard year. CPA call We we lastly to basis average on performance a for that in slightly XX% We would be had thought the not much, but say repurchasing million environment the as is the and even year second us I Sean mainly the of in – segment. the you

you. Thank

line Blostein Our with your Sachs. comes question. Alex next question the with of Please proceed Goldman from

a just Hi, guys little you buyback, the versus of buyback, part of kind not of the your a the get looks good quarter like follow-up valuation on guys the back heavier cash not point given bit morning beginning second but of why stock clearly generally the free guess specific, have and the last bought was? the [ph] in of too around the so guys. to guess I I Jay lot do it flow, a where support year you

so We this Well, than the year. expect just quarter. purchase higher of together, of They middle throughout elevated in all just XXX we in still kind quarter. elevated the first to last That the play bit quarter little this a comments quarter. averaging were was share level the million did

pipeline, heard have you pipeline As say, Sean and the a strong a one. building good we

year. investments, this to to we new mindful we expect the as but half both of do year the do So we second look of are

are finally interested are back this in that we at mindful is our we level. are also So shares buying we but strong, valuation

we go for So us million XXX is higher, yes considered a where of kind reasonable yes. level

Thank you.

line the of Blair. Please your from question. proceed Chris comes with William question next Shutler Our with

Thanks taking the Hi. for follow-up.

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Healey, this no time. Mr. at further are Thank you. there question

the for turn any you back will We floor to final comments.

again for Well, joining this us you morning. thank

to results look shareholder our long-term quarter, continue We in the We ability you speaking to in create are confident forward pleased with with July. our to for value.

you. Thank today’s This teleconference. concludes

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