Q2 2020 Affiliated Managers Group Inc Earnings Call

Greetings and welcome to the AMG second quarter 2020 earnings call. At this time all participant lines are in listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I.

I would now like turn the conference over to your host Ms. onto the <unk> head of Investor Relations for AMC thinking you may begin.

Good morning, and thank you for joining us today to discuss Angels results for the second quarter of 2020.

Before we begin I'd like to remind you that during this call. We may make a number of forward looking statements, which could differ from our actual results materially at Aintree assumes no obligation to update the statement.

A replay of today's call will be available on the Investor Relations section of our website.

Along with a copy of our earnings release, and a reconciliation of any non-GAAP financial measures, including any earnings guidance knocked on this call.

In addition, we posted an updated investor presentation to our website. This morning.

And encourage investors to consult our site regularly for updated information.

[music].

With us today to discuss the company's results for the quarter, RJ Horrigan, President and Chief Executive Officer, and Tom Lojack, Chief Financial Officer.

With that I'll turn the call over to Jay.

Thanks on Julie and good morning, everyone.

Before I discuss this quarter's results.

I want to take a moment to speak about my friend and mentor for 27 years.

Sean Healey.

Sean cost in May falling, but to your battle, where they allowed.

And I know I'm not alone and feel like as Walt.

Many of you set your thoughts in condolences.

And I wanted to get express my appreciation on behalf of everyone at AMC.

Sean was a pioneer in our industry.

He transformed AG from a nascent start up over 25 years ago.

To the global business it is today.

Well it has been difficult time for all about sitting Mg.

We're proud to carry on the shared vision, Sean passionately shape.

You entrepreneurial ism.

Relentlessness.

Excellent execution.

Well, Sean will be greatly missed.

And she is fortunate to have a tremendously talented energized and motivated next generation leadership team.

That is well aligned with a long term interest of our shareholders.

And in a rapidly evolving market environment.

I feel strongly that across the organization, we have the right combination of history.

Experience.

And fresh perspective to adapt our business and create shareholder value over time.

It is transitioning to a remote work environment more than four months ago.

We in our affiliates have remained fully operational and highly attractive and continuing to serve our clients in key stakeholders.

Well Cobot 19 has necessitated changes to our approach.

It does not meaningfully slow progress against our strategic agenda.

Our existing relationships have proven to be extraordinarily valuable during this period.

Our proprietary relationships with new investment prospects.

As well as our longstanding distribution relationships.

We've seen a recent pickup in activity in dialogue across both these areas that's clients and prospects worldwide are reengaging.

And during this challenging period, the ability to leverage AMG local sales teams around the world has become even more valuable to affiliates as they focus on remaining closely connected with our clients.

We continue to believe that partner owned active managers are most successful on generating alpha overtime.

Particularly in volatile periods.

A number of our affiliates of generate strong performance year to date, having capitalize on market volatility and decreased dispersion in particular, those managing specialty fixed income global macro and fundamental equity strategies.

And as market uncertainty in the recovery further play out we anticipate additional opportunities for our affiliates to distinguish themselves.

Throughout the pandemic a number of investment themes have remained intact, including the ongoing demand for illiquids.

All other trends have accelerated.

Such as increasing appetite for responsible impact investing.

All against the backdrop with an improving environment proactive management.

Well quite allocation decisions will take time to play out.

You're already seeing investors increasingly recognize the value enrolled active management in their portfolios.

Now turning to our results for the quarter and GE reported economic earnings per share.

Pardon 74 cents.

Consistent with recent quarters.

Well they didn't net outflows were driven almost entirely by redemptions and quantitative strategies.

As we have previously discussed these strategies currently account for more than 25% of our a you out.

But less than 5% or EBITDA.

That's performance challenges persist across these strategies impart due to underperformance in value.

We anticipate outflows in the category to continue in the near term.

Excluding these quantitative strategies, our net flows were broadly stable.

Illiquid fund raising and.

Especially fixed income inflows continued to meaningfully contribute to our results.

Stepping back as you know over the past year, we have taken strategic action across a number of areas to actively position our business for long term growth.

I continue to differentiate and enhance aimed east position in the market.

We reshaped our resources in footprint to reallocate capital to areas and growth.

Bob Radie with certain affiliates to reposition their businesses.

Invested alongside affiliates and in a and b capabilities to support growth opportunities.

And enhanced our capital position.

With these initiatives now largely complete.

We're better positioned today to fully focused on executing and advancing our growth strategy.

Turning to grow.

Garda in combat our two most recent new investments are good examples of the successful execution of our strategy.

Which focuses on identifying high quality entrepreneurial firms positioned to benefit from secular trends.

Providing strategic sport in the form of distribution resources in growth capital as needed.

Since our investment in 2019.

Florida has nearly doubled its earnings.

As it is benefiting from secular demand for its strategies and its outstanding investment track record.

In the case, a calm best AMPU provided growth capital along with global engagement by our sales team, which together have enhanced affirms fundraising activity.

As evidenced by combat significant inflows in the second quarter.

More broadly on new affiliate investments given the strength of our existing proprietary relationships with outstanding firms are new investment activity has rebounded we continued to be focused on firms operating areas a secular growth in client demand.

Overtime and evolving to meet the needs of partner on firms.

The expanded our partnership approach to include growth capital and resources for new affiliates such as combat.

As well as existing affiliates such as pantheon.

To support a wide variety of growth initiatives.

For example.

Hard to recent favorable regulatory developments in private equity funds for retail investors.

AMG distribution team had been working with pantheon to build out their access to wealth and retirement channel.

We invested strategic capital and resources to accelerate this initiative.

Today Pantheon is well positioned for significant growth opportunities and these channeled due to our collective efforts.

And our recent strategic partnership I capital further enhances Klein access to pass against products in this market.

While we continue to evolve.

Succession planning solutions like core component they entries partnership approach.

Generational succession and transition is inevitable.

Partner own firms and our long term success in expertise and collaborating with affiliates to develop and execute management transition plans and align incentives across generations of affiliate partners.

They they significant differentiating factor that's from select AG as their institutional partner.

And today, having worked with affiliates on these matters for 27 years.

Expertise in succession planning is itself, creating new opportunities.

For example, during the quarter, we announced a new partnership with inclusive capital partners.

Which was enabled by the successful completion of generational transition at our long time affiliate value Act.

With AMC is partnership value ex found new generation executed its plan over the course of 13 years.

And has now been succeeded by truly outstanding next generation group of partners led by Mason more of it.

They sent his exceptional invest through his demonstrate exemplary leadership over the years and I'm confident that he will guide the next generation of value back to continued success.

This transition enable value ex founder to retire and launch conclusive capital partners and AMG partnership with Encap represents our first investment that business wholly dedicated to responsible capitalism.

This is a particularly important moment in time for asset managers to address long term sustainability to the allocation of capital.

Client demand for new and more inclusive ways of allocating capital has intensified.

We are focused on meeting client needs by investing AG is capital in resources accordingly across existing affiliates and considering new affiliate partnerships.

The ongoing success the value Act and our continued relationship with our partners I didn't catch up our testaments to the strength of our affiliate relationships. The attractiveness of our model to entrepreneurial investment teams and the flexibility in evolution of our investment approach.

Looking ahead, we're highly confident in our growth strategy and are focused on executing on opportunities.

Putting those which may arise from ongoing market and economic uncertainty.

We believe that in this environment active management, particularly when executed by independent partner own firms is more important than ever and AMG is approach to investing in these firms is unparalleled.

Our ability to execute on the opportunities before us is enhanced by our financial flexibility further enabled by our strong corporate culture.

With its hallmarks entrepreneurial isn't a partnership orientation.

Any significant focus I corporate citizenship.

With that I'll turn it over to Tom to review the details for the quarter.

Thank you Jay and good morning, everyone.

With the combination of Angies distinctive partner owned affiliates are unique ability to generate both earnings and organic growth accretion through the execution of our new investment strategy.

Our stable cash flow profile and flexible balance sheet.

We are well positioned to generate long term earnings growth and shareholder value.

As I'm totally noted earlier, we have posted a new investor presentation to our website, which reflects the evolution of our strategy and more fully describes the unique elements of am g.'s value proposition.

Now turning to the quarter and beginning with flows.

We reported elevated net client cash outflows of 18.2 billion this quarter.

More than 95% those outflows were driven by ongoing performance challenges in certain quantitative strategies that contribute less than 5% of EBITDA on a run rate basis.

Before I turn to flows by asset class I'll provide a breakdown of the impact of quantitative strategies and then go through our customary flow discussion by asset class excluding Kwan.

So that I can provide a bit more texture on what's happening in those areas, where we generate the majority of our profitability.

Outflows in quantitative strategies totaled 17.3 billion.

Including 10 billion within liquid alternatives.

5 billion in global equities, and 2 billion in U.S. equities.

As performance challenges across these strategies persist.

I think it'll be due to value factors lagging growth.

We anticipate near term outflows will remain elevated.

In contrast, we continued to see positive momentum in secular growth areas of the business.

Leading private markets wealth management, and fixed income as well as relative stability across our fundamental active equity strategies.

Turning to flows by asset class and excluding quantitative strategies, we thought total net client cash outflows of less than 1 billion inflows into illiquid alternatives and multi asset and fixed income.

Offset by outflows in certain equity strategies.

In alternatives, we reported net inflows of 3 billion driven by strong continued demand at our private markets affiliates, particularly at pantheon, where we saw significant fund raising momentum in infrastructure and regional primary strategies.

Gee, which completed capital raising sports fit private debt fund and combat and non sponsor backed direct lending where our distribution team is playing a key role in fundraising.

The significant dry powder from recent capital raises across each of our liquid managers will enable them to continue to put money to work at attractive return levels in the current environment.

We also continue to see strong client demand and corresponding inflows in relative value fixed income strategies at Capula and Garda as a result of their strong near and long term track records and in light of recent opportunities to capitalize on market dislocation.

And we are seeing client interest instamatic investments as well as volatility focused strategies, including currency and global macro.

Moving to global equities, we reported outflows of 3.7 billion.

Driven primarily by global develop strategies as clients continue to grapple with market uncertainty and adjust risk levels in their portfolios.

Several of our largest affiliates in this area, including Harding Loevner Genesys and Vera tossed continue to generate strong performance across a number of global and emerging market strategies.

U.S. equities showed stability in the quarter with net outflows of 500 million.

Our investment performance in this category has significantly improved overtime and today, 70% of assets under management are outperforming benchmarks on a five year basis.

So I go up our fundamental managers, including Yacktman and River Road are building new business momentum given their strong and improving long term performance track Records.

Finally.

In multi asset and fixed income, we generated 400 million of net inflows in the quarter.

And by continued positive momentum in fixed income products at GW in K and artemus.

This area of our business continues to drive steady recurring growth and remains well positioned for the future.

Now turning to financials.

For the second quarter adjusted EBITDA of 162 million included 4 million of performance fees and decline year over year as a result of the Pandemics impact on average and you when levels.

In addition, the shape of our flows and the impacted the resulting mix shift on revenue.

Lower performance fees.

And accelerated share based compensation also contributed to the change versus a year ago.

Economic net income of 130 million benefited modestly from lower cash taxes.

And economic earnings per share of $2.74 reflect ongoing share repurchase activity.

Now moving to specific modeling items.

We expect adjusted EBITDA in the third quarter to be in the range of 170 to 175 million based on current anyone levels, reflecting our market blend, which was up 2.5% as of Friday, and seasonally lower performance fees of one to 5 million.

Our share of interest expense was 22 million for the second quarter, and we expect third quarter interest expense to be approximately 23 million.

Our share of reported amortization and impairments was 86 million for the second quarter.

In the third quarter, we expect this line item to be approximately 50 million.

Our effective GAAP and cash tax rates, a 3% at 13% respectively.

Were lower in the second quarter, primarily as a result of onetime tax benefits.

For modeling purposes, we expect our GAAP and cash tax rates to be approximately 25% and 18% respectively going forward.

Intangible related deferred taxes were negative 3 million in the second quarter, primarily given the impact of amortization and impairments and we expect intangible related deferred taxes to return to more normalized levels and the third quarter of approximately 6 million.

Other economic items were negative 16 million and included Mark to market impact on GP and seed capital investments.

In the third quarter for modeling purposes, we expect other economic guidance, excluding any mark to market impact to be 1 million.

Our adjusted weighted average share count for the second quarter was 47.3 million and we expect share count to be approximately 46.5 million for the third quarter.

Finally, turning to the balance sheet and capital allocation.

Over the past several months given market uncertainty, we remain prudent by building liquidity, extending duration and enhancing flexibility to position the company for future growth.

During the quarter, we took advantage of the strong investment grade market tissue 350 million senior notes at a 3.3% coupon rate.

It was financing cost and AMG history on a leveraged neutral basis.

We continue to have access to substantial liquidity, including the free cash flow generated by our business, our 1.25 billion dollar revolver.

And proven access to capital markets to fund growth investments going forward.

We repurchased 50 million of shares during the quarter and expect to repurchase at similar levels in the third quarter subject afford prospects for new investments and market conditions.

We remain highly selective and disciplined in our approach to capital allocation.

Are you waiting all investment decisions under a common framework.

Whether that be assessing and new investment prospect accelerating growth in an existing affiliates.

Adding resources to support our centralized services or repurchasing shares.

We remain focused on capitalizing on our core differentiators and competitive advantages as we execute against our strategy to drive long term earnings growth and shareholder value creation.

Now we're happy to take your questions.

Thank you.

This time will be conducting a question and answer session.

I'd like to ask a question. Please press star one on your telephone keypad, a confirmation Tom will indicate your line is into question can you.

You mean for start you if you'd like to remove your question from the Q.

Participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys.

Any interest of time, we request that you each keep to one question. Thank you.

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

Great. Thanks, and good morning, everyone.

Maybe maybe drill and like all along from <unk> you were.

Yeah.

ER physicians are.

No cash flow.

You should you know issue would you be but yet you think you know kind of a positive contribution.

Given that.

I.

The vast vast bulk of the outflows.

Oh, so it's just that one basis.

Okay.

So thanks for the question, Rob I'm little hard to hear you there, but I think I got all of it.

Let me try and answer from a a couple of different angles. One I'll just give you a little bit of color on flows and then try and kind of come right out of directly but maybe just to start overall on flows you know consistent with what we've seen in past quarters as I said in my prepared remarks about 95% of those outflows were driven by quantitative strategies.

Now contributing less than 5% of our EBITDA on a run rate basis, obviously that EBITDA contribution numbers come down quite a bit over the course of the last couple of years.

As Jay noted in his prepared remarks, given the fact that these strategies do represent a 25% of already you. When we expect to see I continued flow pattern on the asset side that is fundamentally disconnected from the overall impact on earnings.

To answer your question more directly in terms of kind of what's happening beneath the surface I think the impact of of what you suggested with respect to quanta is the right way to think about it certainly the asset flows that we're seeing in Kwan are not having nearly the impact on EBITDA or that the quantum of those asset flows would suggest.

With respect to the rest of the business. There are few positives and then there are also if you I guess, what I'd call mix oriented headwinds that we're experiencing.

On the positive side certainly the inflows were seeing on a illiquid alternatives private markets relative value fixed income are very positive in terms of their contribution to EBITDA overtime.

And this quarter in particular, you did see a little bit of an elevated number around global equity outflows and I think you know a in the global equity space. Those do tend to be some of our consolidated affiliates, where we have a larger ownership percentage. So we do have a little bit of mix or you know working against US there just in terms of businesses, we own a larger percentage of at relatively high fee.

That's where we've seen some outflows so.

So I think overall.

Certainly the picture in terms of the organic.

Based fee impact or the organic EBITDA impact.

Significantly better than what we're seeing on the asset side, but there are number of moving parts that are kind of happening beneath the surface.

With respect to kind of the forward look I would say that we continue to believe that this is a time an independent active managers can really help clients to navigate market uncertainty and deliver significant alpha and we believe should translate to for to flows across a number of areas of our business overtime and when you look at the overall shape of our affiliate base performance track record.

<unk> as well as our ability to add new and growing affiliates through new investments over time, we're very confident that we're positioned to deliver strong organic growth in the future both on an asset basis as well is on.

EBITDA basis, you know obviously once we were able to work through some of these client headwinds.

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

[noise] you guys. Good morning, I want to follow up one, but the point there about the use of global equity bucket, maybe just for a provide a little more detail they're talking about the reasons for the elevated outflows and what's the outlook I'm as you look at the pipeline appears to be.

Yeah, Tom do you want to give a little bit more detail and I'll speak more broadly.

Sure.

Thanks Your question, Chris So a couple of things happening here first I'd say overall, you know the gross flow picture in global equities has been relatively consistent what we've seen particularly this quarter was really more on the redemption side.

You know and in particular a bit of a pick up.

On the retail side, where we had a couple of idiosyncratic outflows.

One related to a change in our model allocation that didn't really have any performance impact.

And and things of that nature.

At a high level you know, we do have a number of managers, who are delivering very strong performance across a number of different strategies. Both in terms of global and emerging markets. You know we feel good about the long term prospects. There we feel good about the overall environment for active and the quality of some of the client conversations that we're having.

Kind of just did see on the fundamental side as I said, a couple of it idiosyncratic things there.

You know that are happening this quarter.

Yeah, and I, Tom started to pick up on where I was going to go with this Chris Thanks for your question.

We do have very very good three and five year numbers across a broad array of global managers, including Harding Loevner Genesis stereotypes Tweedy Browne.

Performance is good obviously this was a unusual quarter you know by by its nature global pandemic slowdown.

We have seen a pickup and dialogue in activity. We we feel very good about our global products, we feel very good about the brands in the global space for us.

And as a investors increasingly look to active managers to lead them through this environment. We use we do see that global is a key element of of.

Our.

Of our contribution to two cash flows and and our success going forward.

Thank you. Our next question comes on line dancing with Jefferies. Please proceed with your question.

Thanks. Good morning, So just a follow up on that I was wondering if you could talk about short term performance you know slide seven gives us to be in five your numbers can you talk about the one year performance for either mobile equity or U.S. equity.

Yes, Thanks, Dan I'll take that Tom if you have anything to add.

Oh pause for a moment.

Our performance, especially on the U.S. equity has improved pretty significantly including in the short term a period that over the three and five year as well.

Yeah, I Commend River Road, you tell would be three though I would highlight for you.

You know we've had over really the last five seven years, we have had difficulty on the flow side with U.S. equities, but it was off the back of a mixed performance. Our performance has greatly improved on the U.S. equity side I think that is a that bodes well.

For our positioning going forward, obviously and I think most people notice about us we have oh.

Slightly higher concentration in value a and so that has been the longer term story. The five year seven years story, but in this most recent period we have seen.

Our affiliates distinguish themselves the volatility has been good for active management, especially for a number of our affiliates.

And ER and we've seen that play out in the numbers our year to date performance or from a distinguishing perspective. It spans not only a U.S. equities global equities, but also alternatives, we saw BARDA and calculus put a very strong numbers year to date.

Oh, we have PFM as well who has had very very strong numbers in first quadrant. So we've seen a number.

Frankly, a large number of our affiliates distinguish themselves in the year to date period.

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

Hi, good morning. Thanks, Thanks for taking the question quick follow on Ocwen business I appreciate all that incremental color on both flows and EBITDA contribution up I believe it you are is the only profit share affiliated you guys have at this point. So maybe can you walk us through what profitability there looks like EBITDA margins.

Or anything like that and with risks off continued outflows there how would you, but definitely a navigate and maybe she'll holding company from EBITDA pressure there if it does slip into negative.

Alex This is Jay I'll take that thanks for your question like we talked about eight youre.

Quite a bit in the last several quarters, you know I'll just start by saying.

John David the rest of partners, they're very focused and aligned.

We do have a profit interest as you point out and as.

Tom mentioned and I mentioned in my prepared remarks, the contribution of all of our client strategies is less than 5% of our EBITDA. You should you should be able to that calculation for yourself, but if you assume eight yours, a large percentage of that three 4% of EBITDA translates into 30 $40 million.

And then more broadly you know as we look at our affiliate diversification and as we have structural element to our model. We are aligned directly with with the partners there which means.

That you know that the distributions to all partners, including us come out before Oh come out after the expense base of the business before any other partner distributions and then as it relates to to all of our affiliates we have individual partnership.

Structures at each at each entity. So you know the.

The contribution of of eight you are to US has really to the decline has already been felt in our numbers.

Thank you. Our next question comes from line of Brian, but with Deutsche Bank. Please proceed with your question.

Great. Thanks, very much good morning, just maybe just sort of economic on the courtside I appreciate the commentary on some of the steps are there have a 25% of the U.M. from one shred, maybe you can talk about.

What do you believe is the remaining and that you contribution.

And and EBITDA contribution from from strategy that you think are are most at risk of continued outflows that that you cited near term just to get a sense of sort of that that trajectory and and then maybe longer.

Bigger picture.

Look for a investment strategies and its you investing in the future I have you have you started on corn, all together as a strategy, where there's still appealing elements that other current strategy in the marketplace that you <unk> you might want to continue to invest in general.

Thanks, Ryan So I'm not sure there's anything more to say I think we've we've we've covered it very well both from the prepared remarks end to end. The Q anyway contribution is in that 3% to 5% range and I think that's the key metric to stay focused on in terms of.

In terms of that exposure.

Other 95% to 97% of our EBITDA contribution you know, there's a lot a lot of good things going on and that and not a contribution we've got a pretty strong orientation towards liquids, a with pantheon E. G Baring Asia.

As well as most recently calm best as you heard in a quarter, we have been successful through our own succession planning its value actually partner with a new entity and cap, which is focused on impact investing.

I would like to just mentioned that that area is an area of focus for us.

This is our first investment in a business wholly dedicated to responsible capitalism.

And we do believe that this is an important time.

In the asset management industry as capital allocation to support long term environmental social and governance considerations is going to be a key sustainable.

Theme over the next decade I'm. So this this is you know momentous for us in our and our development more broadly we see a number of our affiliates being leaders and sustainable investing most notably pantheon is a leader and responsible investing you know the illiquid space and then.

More broadly you'll see that Oh, we have a number of affiliates that.

I have started or or continuing to develop products in this space, including E. G who has a a renewable energy product as well as a number of our other affiliates, where we have actually seeded a products. So we see that as a.

Sustainable theme fixed income alternative products as Tom mentioned I've been a highlight for US a garden capulet, both significant flows but away from those those businesses, you'll see that we've had flows in GW K fixed income products and more and more broadly.

At age you are in their fixed income products. So you know when you look at the 95% of EBITDA contribution there's a lot of growth there and as we transition from a mix perspective.

Away from client you will see the the growth driving through the numbers overtime.

Thank you Sir our next question comes from the line of Bill Katz with Citi. Please proceed with your question.

Okay. Thank you very much for taking the questions one and good morning, and just passing along my condolences again to the AG family. Just a question maybe moving away from some of the flow stuff or just in terms of capital maybe a little bit more around the the debt raise now and then it should think about acquisition opportunities one of the maybe the one or two.

Who areas you, particularly focused on as you look ahead. Thank you.

Tom Once you take a capital first then I'll come back on new stuff.

Sure. So thanks for your question Bill and I'll give you a little bit on the bond issuance and then maybe also just more broadly around capital. So I put the bond offering itself.

Squarely in the camp of us, having a constant focus on enhancing our balance sheet, improving our long term capital flexibility.

We had a good opportunity to extend duration a at very attractive time in the market by issuing a 10 year bond we use those proceeds to pay down our outstanding revolver balance in a portion of our term loan a while also enabling us to hold some excess cash on the balance sheet <unk> had a bit of a more challenging a you know time in terms of overall market uncertainty and also where we see opportunity.

I'd.

If you kind of put that in the context of our overall capital allocation framework, we're highly focused on allocating our resources to the areas of highest growth in our business and we continue to believe that new investments when price and structured appropriately represent the best use of our capital and I know jail talk a bit more about that.

All of our capital allocation decisions are running through a common frameworks to ensure that we're earning an appropriate risk adjusted return for our shareholders and making the best long term decisions for our business.

And in the current period, we are operating with a bit more caution I'm you know just as we see the significant amount of uncertainty that exist in the market as well as based on our past experience. The taught us that these periods of market dislocation can create unique opportunities and we want to ensure that we're in a position to be front footed when those opportunities present themselves.

And so we are holding a little bit of extra cash to to ensure we're prepared for that so Jay.

Yeah, and I am just picking up on the on the new investment side, maybe maybe three points. One on market are you know <unk> market environment market opportunity and then the secular growth trends that we're pursuing and then just discipline on pricing. So first on the market environment.

No. This is a uncertain time, we've been through times like this before we've seen a pretty sharp rebound and end market environment I'm in the last 45 days really with that has come a rebound in our own prospect in pipeline, we're staying cautious obviously.

Its been a a a very unusual year and I think we expect opportunities to come out of this volatility and that has done a based on our own experience and we're staying close to the opportunity set.

As we as we move forward here. So we think opportunities come out of this market environment and then second thing that I would say is we are very focused on those areas of secular opportunities, we talked about them as it relates to our own existing affiliates or just a moment ago, but I would say that applies also to new investments continue to.

<unk> prospect for illiquid managers that allocations by global clients continue.

To grow in the illiquid space fixed income alternatives and it's important to us stress the word alternatives given the low rate environment, finding opportunity and relative value. For example is a is a key area, yes, Gee I would be another. Another example, and then fundamental hi.

Quality active managers four buckets, so that would be secular opportunities as well as the individual characteristics I think that we're looking for an independent partner own firms and then lastly, I think over the over the past Ah Ah two transactions that we've done we've we've.

Enhanced our focus on on structuring clearly pricing is.

Something that people focus on when you when you think about how much did you pay what does that relative to your opportunity cost I think the thing that.

Or the element of the new investments that that people don't talk about restructuring having structure for more outcomes that Ah that provides the right risk reward framework and to that the answer is yes, we've enhanced our own a disciplined around restructuring I think having that.

A in the last two transactions has played out well for us as I mentioned, both Garda in combat or performing at sort of above our own expectations and a and were structured in a way that oh. It was designed to to define you know to allow us to being a decision that we're in today.

Thank you. Our next question comes on line of Patrick data with Autonomous Research. Please proceed with your question.

Good morning, Thanks for taking my question.

It sounds like you've hinted a couple of times about the potential for increased interest in kind of traditional active strategies I, but we're really seeing that and kind of the broader industry mutual fund flow data. So do you think this is a trend that's gonna be more on the institutional side coming out of the recent volatility so in that benefit a tone that benefits.

Those managers with a bigger institutional mix.

Got it lends could you maybe broadly framed the one but unfunded pipeline, you're seeing relative to last quarter last year.

Yeah. Thanks, Patrick Thanks for your question, Yes, I do think it has a you know that the statements really were more around instead institutional and retail I think retail tends to react more to market swings as well as historical prefer.

Format and I do think that we are seeing a you know our discussions pivot towards active being a more importantly in portfolios institutional portfolios in the forward environment.

It is a bit tough to.

To predict because obviously the work from home environment did cause a slow down in terms of others are getting through due diligence process season getting through contracts when everything went virtual Ah. So I do think it's harder to predict that it would be in a normal environment, but we think that the.

The orientation of of active being important and portfolios during a period of extreme volatility is something that we see as a theme a and as it relates to one but I find it we know.

In terms of our own pipeline I'll, just say more broadly we have seen a pickup of activity and again. The last 30 to 45 days in terms of conversations and in particular, where there was a bit of a slowdown in the first part of the quarter a use of liquids as an example, because it's a longer tail.

Due diligence process, we have seen material closings in the quarter right at the end of the quarter and I think that bodes well for the rest of the year.

Thank you. Our next question comes from line of my carrier with Bank of America. Please proceed with your question.

Hi, good morning, they seem to question just to clean up on the flows so any significant unreasoning on the horizon in some of your illiquid affiliate and then just on the deal front I just wanted to get an update on what you're seeing in terms of sellers willingness to transact maybe pricing you know in this answer.

A lot.

Okay. So those are those are two different questions I'll see if I can hopefully I'll get both of them Tom will help me if I I don't.

[noise] on Illiquid fund raising obviously, there's a we have to be careful there are some regulation around talking about.

Fundraising, we do have a number of affiliates that have open fund raising or in the current period and through the rest of this year.

Those fund raiser ongoing.

I would say.

In all cases, they've been going well or even better than expected. Although there has been a.

A couple of months slowed down, but we continue to see fund raising a that is strong we do we also see it towards the end of this year early part of next year, a number of new planned campaigns and so we will see additional fund raising start at the end of this year go into a well end.

The 2021, so I guess the.

The calendar of illiquid Fundraisings continues to be strong for us and a in in some of our most notable product you know products across infrastructure for example.

As well as a private credit of of combat.

So so that's on the.

The liquid fund raising side, you know pivoting to your other question different question on err on the new investment side.

The as I mentioned in my prepared remarks, there too we have seen a pick up a rebound I guess I would say in discussions.

We have a number of prospective partner on firms in our pipeline that we've had longstanding proprietary relationships I feel I might just point out that in this environment existing proprietary relationships or T. Both from a new investment perspective, but also a district.

Fusion perspective, leveraging those proprietary relationships, continuing the conversation and being able to transact in a work from home environment. It's something I think we can do and maybe unique to us and so that as an opportunity that I'd like to point out as it relates to buyers and sellers coming to debt together.

Clearly this volatility while it creates uncertainty. It also creates fresh perspectives I think that gives us an opportunity in some cases to come together, a and obviously pricing for the right a return or returns for all of our stakeholders, including our shareholders is is critical we talked.

About pricing and being disciplined on pricing and having structures that that will allow us to experience returns appropriate over a series of outcomes. Those are all things that we are doing and that is acceptable in many cases to the sellers and I think there is oh.

Optimism here that we will be able to continue our pace of Garda caused us and the next one.

[noise] and maybe I can just had actually a point to each of the things that Jay just went through you know in the first around our private markets franchises.

Remember that each of those businesses into themselves are pretty diverse businesses with a number of different product lines in areas and then when you think across the totality of those businesses. It looks like a very diverse overall business. So it's it's not an area, where we're dependent on one single fund raising any given year that that kind of drives our year. It really is a pretty concern.

Just in having products in the market long term client relationships and the like and everything that Jay said around the environment I think is relevant there secondly, just with respect to.

You know the new investment opportunity I'd bifurcate, a little bit also that you know there are a lot of firms who are in the market today, who see opportunity in this environment and our actually more focus on looking for growth capital today. So Jay I don't know if maybe you want to spend just a moment talking a little bit about growth capital and the way we're pivoting.

Hi, there as well yeah, that's a very good point, Tom and I. Appreciate you raising it as Tom mentioned importantly, our dialogue with potential new investments are expanding beyond just you know succession and liquidity driven transactions that is something that is important in the longer duration of any.

A partnership that we do and its president and all partnerships to our capabilities on succession planning and liquidity planning, but as Tom mentioned, what we're saying is opportunities to deploy strategic capital into new investments.

As well as an existing affiliates that we we highlighted but that just staying focused on new investments and what does that mean, you know, making an investment in a business that is looking to accelerate their growth by putting up a capital directly onto their balance sheet. These would not be liquidity.

Transactions, but more to accelerate the growth in AG would would direct would would invest for its ownership stake onto the balance sheet partners, then would use that capital to leverage it in there either new product development or an existing products to scale. That's what's happened here in combat.

For example, and where that is a a reasonable portion of our current new investment pipeline and when you think about that ER our ways to help.

Phil its ROE, we can do that at that time of a new investment or we can do that as a affiliates bring us opportunities.

And in their existing business and using pantheon. As example, I mentioned that we invested strategic capital four years ago to launch their 40 Act funds, they're C.I.T. and to support their efforts in the the wealth in individual channel and in private equity, we put capital and all that capital has been returned to us.

Because I propose products have now scaled and as you all know the of the most recent.

Deo well letter that was recently released while limited in scope. We believe this is a significant milestone foreshadowing a shift in attitudes are and in access of illiquid and the individual retirement and wealth channel now. The example.

Where we use our own strategic capital to accelerate an existing affiliates opportunity set so we see that happening in Newark, new affiliates and existing affiliates and so I would expect is some portion of our our new transactions will include this this type of strategic capital.

Thank you, ladies and gentlemen that concludes our time allow for questions I'll turn the floor back to Mr. Horgan for any final comment.

Thank you all again for joining us this morning.

As discussed we are excited about the compelling opportunities ahead.

And we will continue to leverage our core strengths to further enhance our competitive position and create shareholder value overtime.

I hope everyone remain safe and healthy and we look forward to speaking with you next quarter. Thank you.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.