Affiliated Managers (MGR) 29 Jul 192019 Q2 Earnings call transcript

Greetings and welcome to the AMG Second Quarter 2019 Earnings Call. At this time, 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.

to conference like host, to now Ms. would turn over the your I President, AMG. Relations Aggarwal, Investor Anjali Vice for Thank you.

You may begin.

Thank you the XXXX. for our discuss for joining second AMG quarter to results of

assume statements. matters projected XX-K those to and obligation company's make made to, a no including we will certain those materially factors, due call, with of other from not this conference could differ during filings any this constitute In time-to-time. update the Form forward-looking forward-looking but Actual number referenced results from the We discussed to SEC limited in statements call.

any the comparable Relations results financial a our copy GAAP not are on directly provide will this measures at call, the website of of for ir.amg.com, the AMG to that of a non-GAAP the the on Investor most of announced financial section quarter, of its call and announcement measures. replay reconciliation a

As investors Relations a this updated also our on have regularly website of website. information. an consult presentation investor for to included updated reminder, of its we AMG the encourages section section Investor

the the Wojcik, With for company's Chief results and President are Officer. Executive Jay discuss Horgen, Financial the on line and Tom to Chief us quarter Officer;

turn With the to I over will that, Jay. call

everyone. Thanks, good Anjali, and morning

the strategy and XX-year the competitive to history of long-term along growth long-term on be that leveraging you generate the to to We, and I role sustainable value. rest my welcome new create earnings first significant forward we've management would Tom quarterly with as good It's with CFO. team, over as like CEO to on look advantages AMG's shareholder call of AMG established in our his executing

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driven organic giving of and client often management Traditional by disruption. are business mergers in cost and in periods resulted recent industry have synergies acquisitions growth lower and many asset prolonged the

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And quarter. details turn Tom to with the that, I'll to of review the over

everyone. Thanks, Jay, and good morning

look and with humbled excited to to working AMG execute on in joined strategy have both to come. the and team to years leadership our our growth I'm forward

cash Jay will level alternatives are global strategies outflows outflows as of that were continue billion across we And performance expect this these of quantitative in similar $XX.X likely pace Net in a areas as net said, challenges concentrated liquid at and equity. addressed. client

for Alternative AUM, and outflows partially driven products. reported accounts offset class. we net strategy alternative from our positive by flows liquid of by billion by which to asset our Turning In $X.X illiquid of segment XX% contributions

underperformed liquid performance remain our broader net recent value strategies with an investment as assets sustained outperforming long-term benchmarks area alternatives factor on and challenged, of management flows. five-year have strong pressure a at historic resulting in markets While has this been under performance XX% period, over level in

category And area At from liquid several including in the forward same the to generating strategy. we in within affiliates income momentum strong relative coming results additional momentum the are this alternatives in quarters. Capula's look Garda fixed time, value

ongoing as growing and our strong continue an opportunity outperforming in a on at existing industry new to base. see the capabilities very with also affiliates on illiquid, build benchmarks in recent is with EIG, this of Baring fundraising and XX% performance quarter. Asia vintages AMG's We our category Pantheon, steadily in product IRR

growth the of additional to of by quarter as be over this and outperformance carry We are an expect benefits earnings also beginning long-term. to of realization driver we realize this way the did

XX% Now turning AUM. which to of global for our account equities,

strategies new While emerging in we were quarter global in market in strategies, wins saw primarily net billion contributor. fundamental mandate $X quantitative outflows of the and positive

with XX% performance long-term to of in a AUM benchmark ahead global continue strategies equities over particularly affiliates our Our period. fundamental strong five-year in generate of

outflows institutional offset inflows. In billion XX% driven U.S. for we $X.X our reported AUM, equities partially redemptions net by which of of retail and accounts by

be our outperforming overall a improvement in five-year to with on saw we our some quarter, While by of U.S. performance basis. value affected benchmark equities continues buy, the strategies XX%

fixed for our and income accounts of AUM. multi-asset to XX% which Turning

driven million by generate systematic by continue inflows municipal in Here which fixed products net posted supported good income we AQR's products flow and momentum. primarily to bond $XXX GW&K's

equity during our it this headline flows, With difference mentioned, AMG's XX% financial results. our the their impact respect outsized large net our the between EBITDA while of of an flows had the less quarter, to client contributed cash quarter. represents affiliate as this impact Jay A on than overall business method and affiliate flows approximately on AUM, important to understand is XX%

Now turning financials. our to

quarter. of you fees by the be by $X.XX including illiquid carries fourth the quarterly we earnings would release, initially decreased economic saw driven in in As net realized per year-over-year X% $X.XX performance share that anticipated alternative to

driven quarter, second aggregate X% declined AUM. lower to fees billion $X.X by the primarily For average

XX% offset count in $XXX.X as by declined as equity in our X% higher margin. EBITDA certain earnings lower economic per EBITDA, aggregate year-over-year million where the share we from affiliates lower decline share lower of method adjusted to contributions partially by taxes. of a driven reflects fees share well to cash primarily Adjusted Relative

modeling Now specific items. turning to

ratio quarter, adjusted fees. the XX.X basis EBITDA supported average was to second management higher the by under For of assets points performance

third the be reflecting EBITDA In we points. basis of Garda. assets approximately under basis the XX.X XX.X expect average was fees management adjusted and ratio performance quarter, lower to this fees, performance Excluding to addition points seasonally

booked and of illiquid into With our through a significant the cash $X.XX earnings respect half $X.XX third first QX pull-forward in $X.XX to our year estimated fees performance reflecting for expect to $X.XX of diversity we the Over fees performance opportunity second the of between given of performance fees, the growth half reported XXXX quarter. and of generation number in remain product we $X.XX be the and to set, flow fees time AMG. the and performance fees

the million approximately interest In subordinated third $XX issued notes roughly our higher on share was in at we $XX.X interest million. to for the expect share junior quarter of expense interest expense the quarter, first of flat remain quarter second reflecting XXXX. of Our

reported equity of from second the under for quarter method. million $XX for was the million share Our affiliates accounted $XX amortization including

approximately ahead be of the reported Looking expect amortization third to share our $XX to quarter, we million.

the GAAP effective was rate our XX% tax cash XX.X% was and second for quarter. Our tax rate

modeling For respectively. rate XX% to and expect approximately cash XX% GAAP and our we tax be purposes,

in Intangible we the second related million the and related approximately deferred $X expect million. intangible for taxes deferred quarter were to taxes be third quarter $X.X

economics $X.X for items quarter. million the Other million we be for were to economic third approximately and $X expect other the quarter second

expect approximately we share count $XX.X the share adjusted second average million quarter million quarter. for third Our weighted to $XX count the was and be for

balance to And our sheet. finally, turning

the business current cash cap market our and to Our growth free of model capital business. to significant flow particularly highest we and generates will return relative continue our allocate areas to in

timeframe. new July. of in dividend in million level the $XX.X $X.XX Garda During quarter, investment reflecting per more shares shares paid the the repurchased modest we closing share that repurchasing and our the anticipate over upon of a activity over early million in depending approximately market and level in of repurchases investment given second conditions of half second the year We $XXX

to extending continue and have opportunities growth market. while prudent maintaining sheet repositioned on of over to in capacity even a challenging maintain last duration, We quarters, our level capitalize flexibility balance the leverage several and

Given demand are are flexible that AMG's unique stable organic earnings client that both our and well-positioned combination for our ability affiliates make and our accretion, future of create trends, long-term distinct new value aligned well independent to deliver cash profile, balance investments against to sheet, shareholders. we flow growth

be would to your I questions. Now, happy take

[Operator Instructions]. you. Thank

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

than Thanks. Great. that taking my up carry consolidated because Did that higher seems maybe I think kind the show quarter. any I thanks us kind to you in of be for the were really line Good of question. of guess that morning, Tom; I maybe suggested expecting? lot just impacted think a revenue

Yes. Rob. question, for Thanks the

case on one did have an fees affiliates. the this our performance So of preponderance consolidated in the quarter. from And come did impact

bit of guided of the first we've booked through Just $X.XX. we've reiterate in half to a to now half $X.XX from little and the the the second year of year, $X.XX color

So in carry some thought fourth ended that us quarter. of quarter impacting current saw we in the what of was quarter likely hit we and really to the was illiquid a this up pull-forward

longer-term fundraising expect past the the to I we've over you just of quarters we obviously that to our over and book good give illiquid pretty some color, time. think seen continue course several across

of years. think that contributors over course So we're illiquid positive will of next the performance build continuing several be a the to fees earnings book we

here. And Rob up follow one point I'll just

diversity great our as done portion the we've affiliates our we, into reported come quarter itself as a two in that have quarter. our and the historically has years, And fees in years fundraising express Tom significant we is illiquid talked performance fourth The our the And opportunity the fee really lag quarter. years. mentioned, seen in we've Tom first that with So coming -- earnings, in that the been in starting mentioned. about fourth three performance over to we've performance on seasonality a then fee some are opportunity past

in carry. new With through the fees more we performance opportunity going business less seasonality in illiquids, in quarters opportunity which more this or in to come we our the this are see growing express

And quarter see I so years. this in that we'll the happened that that future and think

you. Thank

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

looked on adjusted Thanks. an XX% of color or want you to organic see affiliate that that flows just Good quarter if morning in everyone. any this than I less EBITDA had how of the rate the quarter? given net growth your from most outflows EBITDA contributed were

and And to that in you solid, our yet the themselves and the global We, were contribution were the our just modest Yes, earnings. these contribution we we in products organic thanks headline did liquid relative is the remarks, and Craig. flows this This his prepared mentioned, our more a can of to earnings see number have Jay. equity reported quantitative on both elevated. disproportionate EBITDA as Tom earnings,

noting affiliate affiliate of contribution large contribution than lower contribution of these that equity lower AQR which our is one flows to were and of on that basis equity much method now the EBITDA. our method the is So XX%

The XX.X we model -- we're guiding basis experienced. that a the and is points, XX.X XX.X convention know, as that to we that

the see this We decline over we've ratio of experienced ratio. we at most think that are time. that And move in, point we will that up in

you. Thank

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

Thanks. Tom good morning. Hey Jay,

perspective. their current affiliates and last the update an of just still the guys quarter from share Just respect any from guess cost do EBITDA picture stand EBITDA how maybe you is negative structure maybe drag reduction where in share? or and profit perspective us And building with can you revenue coming fact I the on typical this net point, more current is initiatives BlueMountain AQR Thanks. other bigger either are towards think BlueMountain I AMG's envision guys to that that pushing versus much

Alex. thanks Yes,

one of first the to note here. take a BlueMountain. I'll BlueMountain On just So being things couple

being It in repositioning is we're resolve to on impact and we profitability. to towards work the business this We moving by dollars a we're any numbers. BlueMountain financial couple already the and direction so continue -- with quarter year-end, in that resolved see profitability see track million We modest the the do by was that by in that year-end.

and path place. a on good that's in So

your question moment Maybe taking for AQR stepping and a just back on AQR.

of given including So very AUM equities, in the total strong business, to or decade record this outperformance, times and several These business they're the process through of very lots of business a stronger we very equity know, lines as before and and having AMG's track $XXX and products nearly strength We distinct aligned team businesses positive can alternative. in holders also they've the important organization, that -- long-term their as in multi difficult do as portfolios, proven each the in investment business the time income, emerging position. focused, great business their team return. dramatically. a new you long-term their see generate return, absolute in management and firm leadership billion There's is It's fixed large that majority scale diversified traditional trends. fully believe of and been firm, AQR's ability are investment Cliff new products, culture and are optionality lots across return entrepreneurial a and strongly

they their and invest that running certain AQR at run have scale ability growth see future we're the over made the taking And for very at for margin. that benefit temporarily seeing on that the business we a areas supportive we see that them the of and to businesses years. Today, industry in and long-term that's the they've short-term down growth of decision we're margin repeatable

AUM. this all They've their was we out have in know, the only business. over opportunities $XX new years in in business these and they made number diversified when grown investment lines. Today, you building billion a of business As

performing First, equity, ESG risk including strategies. in managed tax parity, a a fixed defensive number and and example income. high for of number the products they also of growth investing including areas are They're

AQR. returning see we longer-term we growth do at So see margins returning,

And great very so see business we're bullish business. I'll that this and the we optionality in on repeat just

of these is revenue the covered EBITDA by XX% from Away our two, share.

said One these margin we we by itself it's have year-end. just as exposure. really resolve two is to going that So

question. The Thanks others in margin for upside got here. from tremendous your

Thank you.

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

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

a be then, opportunity around by of sorry an sort bolt-on what transactions. ring of might some two-part help the consolidate size make. assessment there risks if cautionary the be sort So just I risk comments as suggest of type to wondering fence the to around bit unrelated, a opportunity global and here your Does perceive terms or equities And that but that question comments so quantify in other you you're of basing you Jay, liquid or company see of and more of the might the an you integration structures? able that areas is what in risk of affiliate holding

different our questions. near clients in outflows in do elevated improve and bit hard at let it's in portfolios. in quantitative flows But to color as levels we always in two in prepared do me global look we've remarks, their equity need products. term these these Longer-term, flows. also products see see are said we similar liquid the Those on general. start And And the to provide more predict

secular trends still are in place. the So

have products. a of broad alts and We global array liquid equity

did outflows. in localized note all second for these But our quarter that account nearly products of in will the outflows products. were I just Our certain

fixed noting traditional that markets. we other some managers equities our including And momentum fundamental in including equities increasingly a for value alternative even our we're being number positive seeing areas, are which recognized just equity, defensive for closed, global their strategies And in as in masking equities. investors recently the U.S. emerging looking we income that of have and Garda illiquid orientation so just was of business

broad localized in products. alts flows were areas. So was product quantitative a our array and global the and of liquid all -- XXX% nearly were it equity of quantitative not it And our in really few

a Systematica, still but CTA of we has affiliates those with products. quarter Winton, the has And momentum that the and products across the from know better you driven Quadrant, which As have AQR suffering some including are although even gotten speaking better. this gotten have headwinds number exception of also performance First in all lot product improving in performance affiliates and generally we're quarter these a product in the is frankly

is do we performance set this localized see And So products. of returning. a

on of excellent cornerstone incremental has to trends. secular questions. maybe relates question asked well your pipeline will M&A, industry back and firms to trends be course cost partnering and or always discuss consolidation as as towards To the growth strategy the will the moment, our Stepping take I since for with opportunity a of two our integration. earnings of of client initiative as without our moving it risk adding you

number new you with I time I've meaningful ago team this this over we're CEO increase coming our as time of Today management to my Bill, investment function, and a strategy world. capital responsible prospective years and the amount and more our growth relationships to I'm firms strategy. going allocated in career affiliates not my to and to spending towards my of joined whole around And And in we years affiliates. we're to already building for looking calling the investments as our our use of effort. the even forward XX hope AMG area know, to largest really -- spending great relationships on only new M&A going our a the over being been started oversee broaden

managers We're as well actively of global mix you remarks, fundamental both momentum long-only equities. our new a current as the and alternative illiquid pipeline, opportunities. in I've have And of and evaluating good at look we activities. When prepared said a range liquid we're broad in building as in my primarily investment EM

investment for large boutique and is market The management.

managers expect for number for of do and there and solution. the do And our we demand see that solution so attractive so to our being is large appropriate we

and Specifically costs focused M&A consolidation some But has consolidation, is about for as in will that's and there industry efficient consolidation. to really areas been be distribution. such your always particularly activity can on point firms be to reduce

However is that consolidated enemy your there you in particularly performance. and careful investment can't your one not have to because there. active is friend be be area that's management Scale

of is is there offer course of while we it's in areas of economies and scale our other areas that and boutique in So business do our investment in the primarily performance. managers distribution to not

we'd succession model. that If and into have is I relates it you've they then, quality that to we've in have as use to model them larger And And transactions planning would to you on standard execute. are have said of a other how course to side. our come in difficult the to we that our talked our but always note extent investment process firms Planning ultimately on execute unique get those at about were on view affiliates, they we we would to and bar We high. were at Succession ability we to have both lastly, partnership -- larger larger be look to have our that a would transactions. level they have with our think model. the And consider multiple a transactions that of we And I new that to important obviously fill would those place believe the think it's things

management to in AMG do that's at butter we to of of active and firms we bread when do. we're opportunity; is which the see and growth think high look quality going what plenty And management. forward our boutique I opportunity investment

Thank you.

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

good Hi morning. guys,

pipeline. talked you pipeline, building the on So in the about Jay, momentum

what relative felt going on basis to annual their an you means us six what timetables capital how of do could at own months deals reasonable or but or maybe that of these give do you is way Just ago, know forward? the XX better you amount happen looking things a I a of think that sense and

Chris. Yes,

think decade and and firms. amount transition next-generation. months the always made relationships look though you the we think been had the I about always a you XX through stressed good I've have some we've this asked energy It's active so my prepared and cultivating as transition that XX been to say time ago, in firm and know with fair our forward months we've multi and So when spent focus remarks we've we've next-generation I to ago, -- as I of of at even relationships

We that build, ability the the broaden are people own activity seeing who the of pipeline my number AMG build, including at to calling here are time. the

do capital and greater than I months of transactions the avoiding the is prospect that think that certainly forward I So because things transactions said. XX of some ago of

it period. accelerate in us of be opportunity can It There's alone Markets an on succession example market course reasonable it terms the look always regulatory In that taxes capital, and change I firm gives environment. firms just with a reasonable any can each mean certain natural in can supply and depend for independent because does own is inevitable. has accelerant. accelerate therefore its

so over additional the we about do investments. it of forward do capital prospect next general Maybe think Tom allocation growth the I'll and we XX to environment As favorable a transaction in is new about XX let see it. and months capital talk through as look to we

that and color hand-in-hand Chris. question, Thanks, allocation just for think goes with provided. Obviously, I all Jay, certainly the capital Jay thanks your

free flow. a predictable million our generates you after-tax tremendous on we year the As something had order flexibility know balance of and with flow in respect stream cash to our significant unencumbered And a also probably of $XXX cash free business sheet.

We have a billion $X.XX revolver.

lot So we of a have capacity.

over $X these come position. still easily put transactions quite months and out in do some extent fruition, leverage that we we the to So can very reasonable next to in a the of XX think be billion capital

cash capital in when putting on are flows. course work bringing investments, Of we're we to new

cash think ratios we come about as flows overall, So leverage into those business. the and

that on. and The capital Jay that extent use will clearly find we've important be to the has the in to have through of that best focus think But done I touched return capital we primary for we is other reasons our here opportunities, our what over to share to thing and long-term and to believe the are repurchases mention that new we past. investments the don't the continue as in excess addition dividends all

than we've Since through our repurchases over share $X and by share paid also dividends. than XX% $XXX more XXXX, have million that period more count than returned diluted we've time in more and reduced billion

also So the our look build for to point to to business return extent to to with new continue to that have. thoughtful we'll Jay's in be partner affiliates way we outstanding and the continue excess we and cash very we'll that prudent

And really I summary. that was think a good Yes.

desire me the what and don't diversity and our a say of go-out design, we have the our the and I given say business thing investment AMG. Let revenue business and target has can any period scale capacity both has balance to capital do. luckily, just model important quality sheet instability, energy be but that execute going to that repurchase because we'll new a have our we free shouldn't the that by because the go-out productive we given that's entrepreneurial shares. flow And share our model cash is strategy, to in and excess is the most and any very continue And our or and to notwithstanding luckily

Thank you.

with your question. next Davitt Our Autonomous with proceed Please question from Patrick comes Research.

good guys, you. thank Hey morning

could market ranges. the target you even and the XQ the and all mentioned if help many maybe in bucket that in Pantheon, side, frozen strategies in market frame AUM some illiquid with some some, broad You Baring just it's are the EIG, how in on and

of would think really us. all I that helpful be for

Yes.

next with a funding mode all were actually normal and Baring because having sales And the to as in be Asia because I So they Patrick headline temporary at think alternatives will illiquid fund closings in it's that to EIG, our look the a in the in liquid to year. addition made comments products. look light. each it we just we And the illiquid softer point and fourth when was quarter, Pantheon you quarter question raising have think into third to side, in out, and quarter al in return and second the multiple did as you continue idiosyncratic quarter we even on addition the good -- gross

that does dozen they're what more out So or that products marketing. half actively

Thank you.

Bank comes of the question with proceed Please of Mike from America. question. with next Carrier line your Our

given looking and the other just or annual you drive new on are focused whether the offsite guys in growth can Good strategic then and and over be board for management place team that now products, taking affiliates, value besides Maybe initiatives you areas that any it's guys time? like morning. Thanks in new there distribution, others expenses, question. will quality the for the

Michael. Thanks,

periods. you the important first and volatile more to the in be as our in into is move in think more superior do which alpha. future our and So we strategy capabilities we even that's going stated objective believe we And generating of boutiques especially

I the been press lot we on think recent boutiques. into moving of thesis there's a the of are this certainly age that support and we

by model virtue model scales that or pause us That and else think affiliate protect me doing boutique Let the clients, partners, cost allows have no fact of boutiques capability of without we everyone and that investment a inherent of integration. risk we the that the scale manufacturing shareholders. the the value of our process in a say to and equity I to clear that so with one and that alignment way can you it's

advantage trends expect move it about allows be strategy think in a as of very something is towards ours continue you demand to do clear that competitive a we client long-term matter an excellent trends over demand So to as agile, on you time. and execute way us to client that secular if

growth both Trilogy it bringing and resources and firms. do capital are Those growing time have growth affiliates so away be invest and we our supported into maybe levers so. been initiative multiple things existing these they initiatives any obviously franchise. and opportunities new both distribution, and affiliates, the in to both product the being growth GW&K investments. for see are and the to would just something Trilogy emerging we've our new I that for and than prepared and mentioned in for very like And moment new helping in our GW&K ever was we products, -- We grow in at market remarks that our and of more recently, a from business There active can in products secular we active we assisted And my use cyclical been have for packaging. new of

their see in list with we've We retail. also Japan. where Beyond opportunity in and on that We've investment We've continue for assisted affiliates additional new and build as seeded our to opportunities at both an and marketing and example Pantheon into have that product launching out. we acquisitions assisted Pantheon reach have in can affiliates that U.S. products extending brands worked capabilities.

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you. Thank

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

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records Brian have the where seen period track recent outflows and number or the and to funds to add of over course we've Jay's I've areas thing performance outflows weak point, of those in the areas performance multi-decade of that been incredibly seen just have short seen time product we've a think that other I are areas. only Yes, a strong really relatively individual

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Thank you.

comes proceed question. this from question final of morning Please Fannon Dan from Our Jefferies. line with your the

and Thanks. in publicly you obviously new talk of your the come and managers a asset Can about for stock for other just have multiples pricing deals traded kind lot.

has at the And transactions curious how in of pricing looking terms you're changed? so private just what and markets

I alignment, bucket. and structure, would so all in the put Dan, ownership pricing same

very that initially And equity succession interested that model, investment. the in time plan long-term alignment at so as our continues to of at partnership we initial the place we're our of really the amount know model you ownership an in only purchase put the

of because it discussion to I -- dominate The that here really why that selling plan. a you're are your half you for And reason and tends looking portion growth how equity tends businesses and really then be succession when going business to a and started only is who partner say lot the care these to in a half transact. the is the your put profile other or they're about

lagged, one boutiques. parcel come That But managers have in would say have down pricing it come down I areas we So has down. in it for and seen public exception other being of most seen come come model. the part we down pricing because and said, has while illiquid. been multiples have our of areas, of pricing industry the always and possibly

look multiple acceptable levels we where to our at we even seeing relative stock When is. structuring today, and are pricing

end of And so to of X no historically the our kind transacting see that at problem we've XX we transacted. times multiple lower

to you. Thank back for Horgen comments. the and that concludes any our turn gentlemen session. Ladies final question-and-answer I'll Mr. floor

this us you morning. again thank for all joining Well

value our with quarter. to our to against time. over with strategy, along model business ability growth we're unique our ability next through and execute forward create in our long-term speaking confident heard sustainable you generate look you We to shareholder As

This concludes you. Thank teleconference. today's

your time. you this your Thank for You lines participation. may disconnect at