Q1 2024 Affiliated Managers Group Inc Earnings Call

Speaker Change: [music].

Greetings and welcome to the AMG first quarter 2024 earnings call.

At this time all participants are in a listen only mode. A brief 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.

It is now my pleasure to introduce Patricia Figueroa head of Investor Relations. Thank you. Please go ahead good morning, and thank you for joining us today to discuss Amg's results for the first quarter of 'twenty 'twenty four.

Patricia Figueroa: 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 in a N. G assumes no obligation to update these statements.

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

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

Speaker Change: In addition, this morning, we posted an updated investor presentation to our website and encourage investors to consult our site regularly for updated information.

Speaker Change: With us today to discuss the company's results for the quarter R. J Horrigan, President and Chief Executive Officer Tom.

Speaker Change: Tom <unk>, Chief operating Officer, and Dave Ritchie, Chief Financial Officer, with that I'll turn the call over to Jay.

Thanks, Patricia and good morning, everyone.

Speaker Change: AMG delivered strong results in the first quarter of 2024.

Speaker Change: With 260 million in EBITDA, driven by continued momentum across both our private markets and liquid alternative strategies.

Jay: And together with the positive impact of our disciplined capital allocation.

Jay: We generated economic earnings per share of $5.37.

Jay: Genting at 28% growth rate year over year.

Jay: During the quarter, our ongoing collaboration with affiliates resulted in a number of exciting developments.

Jay: Including new product launches and continued strength in private markets fundraising.

Jay: Each position our affiliates for long term success and accelerate amg's growing exposure to alternatives, both private markets and liquid alternatives.

Our value proposition for independent partner owned firms continues to resonate with prospective affiliates given our proven partnership model and our ability to strategically magnified their competitive advantages while also preserving their independence.

Jay: During the quarter.

Jay: We advanced several attractive new investment opportunities.

Jay: And with our increased financial flexibility.

Jay: We have a significant opportunity to invest our capital in new and existing affiliates to accelerate Amg's business next evolution in our long term growth.

Jay: And in April we evolved Amg's leadership team.

Jay: Further aligning our talent with our growth prospects by expanding roles for key executives to capitalize on our momentum in capital formation and isolate engagement.

Jay: And by recruiting new leaders with experience in our focus areas of private markets and liquid alternatives.

Jay: As a strategic partner.

Jay: AMG engages with our independent affiliates to enhance their long term success.

Jay: <unk> by offering seed and growth capital.

Jay: Business and product development.

Jay: Institutional and wealth distribution and succession planning expertise.

Jay: This distinctive approach enables affiliates to build on existing strengths as illustrated by the success of two of our alternative affiliates pantheon and systematically.

Jay: Yeah.

Jay: In March supported by our long term engagement pantheon announced its management succession plan.

Jay: Catherine leaf will become Chief Executive Officer, succeeding Paul Ward, who will become executive chairman.

Having built pantheon highly successful infrastructure business and given her extensive experience as a private markets investor Kathryn is well positioned to lead the next generation of executives at pantheon and the ongoing evolution of their business.

Jay: In addition, AMG has collaborated closely with pantheon on its growth opportunities over the years.

Jay: Investing our capital and resources to develop and distribute new pantheon strategies and products to meet evolving client needs.

Jay: Together, we successfully launched one of the first evergreen funds and the private equity space.

Jay: A M G Pantheon fund.

Jay: Which is now one of the largest and most established private markets products in the U S wealth channel with more than 3 billion in assets under management.

Jay: Building on that success. We are further supported pantheon strategic growth by seeding a new private equity fund for the non U S wealth market.

Jay: And partnering to launch seed and distribute a first of its kind private credit secondaries interval fund.

Jay: Since Afg's investment 14 years ago, which reestablish pantheon as an independent partner owned firm.

Jay: Its assets under management have grown from approximately 25 billion to more than 65 billion.

The combination of Pantheon partners entrepreneurial spirit.

Amg's strategic engagement.

Jay: <unk> the firm's transformation from a private equity fund to funds business to a leading solutions provider in private markets across private equity infrastructure credit and real estate.

Jay: Both institutional and wealth clients globally.

Jay: Also in 'twenty, 'twenty, four and partnership with systematic up one.

One of the industry's leading independent technology, driven investment managers, we launched in ceded and we will distribute a new trend following fund expanding systematic as reach into the U S wealth market.

Jay: Yeah.

Jay: The firm is led by later Braga, who has decades of experience as an innovator in quantitative investing has enabled systematically to deliver.

Jay: Outstanding performance for clients.

Jay: Similar to pantheon, when we first invested in systematic in partnership with later nearly a decade ago, we established it as an independent partner owned firms.

Our ongoing collaboration with systematic whose management team on strategic initiatives has resulted in substantial growth and business diversification enhancing the firm's durability and its capabilities.

Jay: Systematic has grown from a single product business at the time of our initial investment to affirm was 17 billion today.

Jay: I forget suite of differentiated strategies and customized solutions across trend following macro in relative value and equity market neutral.

Jay: Given systematic has excellent long term performance and the ongoing client demand for liquid alternatives.

Jay: We are excited about the firm's prospects and the ability to continue to create significant value together.

Jay: Okay.

Jay: Pantheon and systematic as success demonstrates the power of Amg's unique partnership model to strategically engage with our affiliates to enhance their long term prospects, while also supporting their independence.

Jay: More broadly over the past several years, we have deliberately diversified our business through capital allocation.

Jay: The combination of our investments in growth opportunities at existing affiliates.

Jay: And our investments in high quality, new affiliates operating and secular growth areas has reshaped amg's business profile from one characterized largely by long only strategies to one with a majority contribution from alternatives.

Jay: Today with half of our earnings coming from alternative strategies.

Jay: <unk> across private markets and liquid alternatives Amg's business profile is unique in our industry.

Jay: Our diversified portfolio of high quality independent partner owned firms operating across private markets liquid alternatives and differentiated long only strategies is a competitive advantage that both enhances our earnings stability given the complementary nature of these strategies and also supports our capacity to continue investing in the areas of.

Jay: The highest growth and return.

Jay: Yeah.

Jay: Amg's strategic expertise and collaborating with partner owned firms has been honed over the course of three decades of successful partnerships and is increasingly attractive to independent firms seeking an engaged strategic partner.

Jay: We have been one of the most active investors and independent asset managers over the past five years, having made 10 investments in new affiliates since 2019.

Jay: And looking ahead, given our 30 year track record.

Our new investment origination capabilities, and our significant financial flexibility.

Jay: We are well positioned to increase our level of new investment activity, particularly in alternatives.

Jay: As always we will remain disciplined in our capital allocation decisions as we continued to strategically evolved AMG investing in growth, while also returning excess capital to shareholders.

Jay: Yeah.

Speaker Change: Now before I turn the call over to Tom I want to take a moment to congratulate him on his new role as Chief operating officer.

Tom: In alignment with our increased focus on magnifying, our affiliates' long term success, especially through collaboration on capital formation initiatives.

Speaker Change: Yeah.

Speaker Change: I also want to congratulate to visa Todd yard on her new role as general counsel.

Tom: And welcome David Ritchie, our newly appointed Chief Financial Officer to the team.

Tom: We have known David for many years and giving her direct experience with Amg's partnership model and her extensive experience in private markets and liquid alternatives. She is uniquely positioned to make valuable contributions to AMG.

Tom: As evidenced by our ability to both develop outstanding talent within AMG and also attract excellent leaders to our team.

Tom: A M G is thriving and well positioned for future growth.

Tom: And with that I'll turn it over to Tom.

Tom: Thank you Jay and good morning, everyone.

Tom: I'm proud to have served as Amg's Chief financial officer for the past five years.

And look forward to the contributions that David will make to AMG going forward.

Tom: Having been a public company CFO in our industry.

Our experience and skill set are well suited for both the current and future state of our business.

Tom: I'm also excited for my new role and the opportunity to focus on driving organic growth through our product development and capital formation capabilities as.

Tom: As well as direct strategic engagement with many of our largest affiliates.

Tom: Our first quarter results reflect the strong momentum we are experiencing across our business in each of private markets liquid alternatives and differentiated long only strategies.

In private markets, our affiliates and their excellent performance continued to drive strong fund raising and organic growth.

Tom: And liquid alternatives outstanding investment performance contributed to significant net performance fee earnings.

Tom: And continued business momentum.

Tom: In differentiated long only strategies.

Tom: We benefited from rising asset levels and strong investment performance in the quarter.

Tom: We also strengthened our balance sheet by extending the average duration of our debt to more than 20 years.

Tom: Innovated alongside our existing affiliates on several product development initiatives and returned excess capital through share repurchases.

Tom: Our actions reflect amg's attractive opportunity set.

Tom: And as we continue to execute our disciplined capital allocation strategy, we are confident in our ability to generate significant long term shareholder value.

Tom: Turning to our first quarter results.

Tom: Adjusted EBITDA of 260 million grew 20% year over year and included 40 million in net performance fee earnings as well as 20 million in catch up and other fees from private markets affiliates.

Tom: Economic earnings per share of $5.37 grew 28% year over year and further benefited from the impact of share repurchases.

Tom: This quarter, we are returning to our historical as reported basis for net new flow reporting and will no longer report flows excluding certain quantitative strategies.

Tom: As you May recall, we move to the X quant paradigm several years ago, given the significant disconnect between the outflows we were seeing in certain quant.

Tom: And the muted impact on our earnings given the de Minimis EBITDA contribution of those flows.

Tom: And that gap is now sufficiently closed.

Tom: In the first quarter, our net client cash outflows of 4 billion reflects strength in private markets fund raising.

Tom: Offset by fundamental equities.

Turning to performance across our business.

Tom: In alternatives, we again reported strong results with nearly 5 billion in net inflows in the quarter driven by private markets fund, raising and strategies, including private credit infrastructure private equity and solutions mandates from both institutional and wealth clients.

Tom: Our private markets affiliates continue to generate outstanding investment performance and we expect the strong demand that you're seeing from clients to continue.

Tom: Amg's eight private markets affiliates manage approximately 120 billion in client assets and operate in areas of significant long term demand, including infrastructure private market solutions private credit and specialty areas like industrial de Carbonization life.

Tom: Sciences and multifamily real estate.

Tom: And liquid alternatives, our affiliates continued to deliver excellent investment performance, particularly in quantitative strategies.

Tom: And saw improved demand trends in the quarter.

Tom: Given our affiliates' outstanding performance over the last three years across a range of products.

Tom: Significant portion of our performance fee earnings eligible AUM is currently above high watermarks, and we're well positioned to capture growing demand trends and add diversification and stability to client portfolios.

Tom: Within differentiated long only strategies, we entered the second quarter with higher AUM levels and earnings power driven by market beta and investment performance. Despite net outflows of approximately 10 billion in equities.

Tom: We generated inflows of 2 billion in multi asset driven by strength in wealth management and ongoing demand for fixed income strategies.

Tom: Now moving to second quarter guidance.

Tom: We expect adjusted EBITDA to be between 215 and $220 million.

Tom: On current AUM levels, reflecting our market blend, which was down 1% quarter to date as of Friday.

Tom: And including and including seasonally lower net performance fee earnings.

Tom: Between 10 and $15 million.

Tom: We expect second quarter economic earnings per share in the range of $4 50 to $4 60, assuming an adjusted weighted average share count of $33 9 million shares for the quarter.

Tom: We posted a guidance reconciliation slides to the Investor Relations section of our website, where you can find detailed modeling items and given the activity in our balance sheet through a combination of debt repayment and issuance in the first quarter that I'll touch on in a moment.

Tom: I wanted to highlight the interest expense line item of approximately 34 million in the second quarter.

Tom: Finally.

Tom: Turning to the balance sheet and capital allocation.

Tom: Our balance sheet continues to be in an excellent position.

Tom: During the quarter, we issued $450 million of 40 year Junior hybrid notes, which offset the repayment of 400 million in 10 year notes that came due in February.

Tom: And the Paydown of $50 million of our term loan.

Tom: Taken together these actions extended the average duration of our debt to more than 20 years and further enhanced our financial flexibility to execute our growth strategy.

Tom: We continue to maintain significant liquidity to not only make growth investments in new and existing affiliates, but also to continue to return excess capital to our shareholders.

Tom: We repurchased approximately $150 million in shares in the first quarter and for the full year 'twenty 'twenty four we now expect to repurchase at least 450 million in shares subject to market conditions and new investment activity.

Tom: In addition, we expect to invest up to 100 million in seed capital. This year, alongside our affiliates and new alternative products for the U S and global wealth markets.

Tom: <unk> approximately $20 million that was funded in the first quarter.

Tom: We expect the balance of that capital to support the products Jay discussed at Pantheon and systematic Ah.

As well as at converse partners to bring non sponsor backed middle market lending to.

Tom: Wealth clients.

Tom: As part of our capital formation capabilities.

Tom: <unk> product development operational support and comprehensive sales coverage.

Tom: Amg's vertically integrated U S wealth platform enables affiliates to access the large and growing wealth market that is difficult or in many cases impossible for independent firms to enter on their own.

Tom: We are excited about the opportunity to engage with our affiliates to bring a series of differentiated alternative offerings to the market.

Tom: By combining our multi decade experience in U S wealth and our substantial balance sheet capital with our affiliates index investment expertise.

Tom: Today Amg's balance sheet has approximately 400 million in value cross private market G. P commitments seed.

Tom: Seed capital and strategic investments.

Tom: And we expect that balance to grow over time, as we continue to partner and launch products with new and existing affiliates with a focus on private market strategies.

Tom: The momentum in our business is accelerating.

Tom: And with the excellent performance of our affiliates managing alternative strategies.

Tom: Our diverse set of affiliates positioned for growth.

Tom: Our strong balance sheet.

Tom: And significant liquidity.

Tom: We are well positioned to invest in and alongside our affiliates. In addition to making new affiliate investments in areas of secular growth to drive incremental shareholder value over time.

Now we're happy to take your questions.

Speaker Change: Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is another question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up.

The handset before pressing the star Keys again, Thats Star one to register a question.

Speaker Change: Today's first question is coming from Craig Siegenthaler of Bank of America. Please go ahead.

Craig William Siegenthaler: Hey, good morning, Jay and Tom Hope, you're doing well and Tom just we wanted to offer you a big congrats on being named CEO in the quarter too.

Craig William Siegenthaler: Thanks, Craig Good morning, and thank you for that.

Craig William Siegenthaler: So or question is we wanted to dive a little deeper into the positive inflection.

Tom: Institutional channel net flows so we know there's always some lumpy wins in redemptions in this channel, but based on the composition of the flows in the quarter the current pipeline.

Speaker Change: Can you provide us your thoughts on the ability to maintain positive flows in this channel going forward.

Speaker Change: Craig Let me answer the question on institutional and then maybe just broadly spend a few more minutes on the overall flow profile and importantly, how our strategy is really influencing that broke that flow profile overtime on institutional what you're seeing is really the strength of private markets are and that's where we've seen extreme.

Strong fund raising not only in the prior quarter, but over the course of the past several years and I think what came through this quarter was a combination of that continued strength in private markets. Some stability in the liquid alternative side and then some general improvement in terms of what we've seen in long only.

Speaker Change: Now when you put that in the context of our overall flow profile and just kind of thinking about the business as I said the main point to take away is that our growth strategy is continuing to drive an evolution of our business mix more toward secular growth areas, and especially alternatives with that focus on private markets.

Speaker Change: And as we continue to execute against our strategy. We do expect to continue to enhance the long term organic growth and earnings growth profile of the business and I think you've seen that really over the course of the last five years as alternatives have gone from less than a third to more than half of our business on an EBITDA basis.

Speaker Change: You saw it this quarter again, you know that that sort of push and pull between the strength, we're seeing in private markets and some of the headwinds on long only and that'll be a big driver of where we land on institutional but also where we land overall.

Speaker Change: On the long only side, particularly within fundamental active equities. There is some volatility in it sometimes is a bit hard to predict but we did have a better quarter here in the first quarter.

On private markets, we're continuing to benefit from the diversity and the depth of those affiliates, they're raising assets across a number of really well position strategies infrastructure credit private market solutions.

Speaker Change: Specialty areas like industrial de Carbonization, and life Sciences, and as you know these are really valuable flows for AMG given their fee rate their long duration and the potential to generate carried interest over time.

Speaker Change: And then on liquid alternatives, we're seeing excellent investment performance, we saw that drive very strong performance fee earnings here in the quarter and we've seen that now over the course of the past several years and we're continuing to see more and more demand for liquid alternative strategies from clients as they think about the volatility of the markets that we're investing in today and what the.

Speaker Change: Cost of the next decade May look like in terms of their portfolio construction.

Speaker Change: One other thing to mention is we did have a very strong quarter in multi asset and fixed income across our wealth management businesses as well as some of our fixed income.

Speaker Change: Products, there as well so when you put it all together a sizeable portion of our business is both in flowing today as well as very well positioned for the future and we feel very confident in our ability to generate growth and that our strategy is going to continue to push us more over time as we evolve our business mix towards client demand trends.

Speaker Change: And toward growing areas like alternatives.

Yeah.

Speaker Change: Thank you. The next question is coming from Bill Katz of TD Cowen. Please go ahead.

William Raymond Katz: Okay. Thank you and good morning, everybody, Tom and David Congratulations both Dave look forward to working with you again, so just Jay maybe for you are it sounds like there's a lot of good things going on in terms of seed capital back into the business a bunch of new funds coming to market in the wealth management section.

And then sort of stepped up the buyback how do we think about deal activity against the other uses of capital as we look ahead to 'twenty four 'twenty five thank you.

Jay: Yeah. Good morning to you Bill Thanks for your question.

Jay: Let me let me start by just saying you know our strategy is simply stated is to invest in areas of highest growth and return in our industry and we do that by investing in new affiliates and also investing in and alongside our existing affiliates. So I think that does capture.

Jay: If you know what you were just saying which is we our goal is to invest in new affiliates seed capital alongside of existing affiliates and obviously.

Other areas with with existing affiliates like distribution in places that we can we can help them accelerate their own business plans.

Jay: To the extent that and I will just touch on it really quickly to the extent that we cannot find investments to meet our required returns. We will look to give that excess capital back to shareholders, which has led to significant repurchases overtime. You know again, our first goal is as new investments and we are seeing.

Jay: Healthy flow of new investment opportunities I should say last year, we did two new investments I think I've mentioned on a prior call that we had the opportunity to make several other new investments last year and we chose not to so we are seeing a steady flow I think the pipeline is there obviously its a competitor.

Jay: The environment, we continue to compete well I think our opportunity in the market is that we're both strategic with those affiliates and proving that we can magnify their existing advantages, but we also are able to maintain their independence preserve their independence and that being strategic and maintaining independence is really unique and.

Jay: The market.

Jay: As it relates to you know the question of what we're looking for and or opportunity set we are continuing to search for new affiliates in areas of secular growth Tom mentioned that as it relates to our overall business mix the more investments that we make and affiliates that are operating in areas of of growth. You know you will see.

Jay: Our flow profile change over time it has changed over time, even if you just look back five years, we were about a third in alternatives and today, we're over half from an EBITDA contribution I think that number is going up so when you look at our pipeline our existing pipeline you would see both private markets businesses and liquid alternatives I did mentioned in.

Jay: My prepared remarks that we did move forward in conversations with several affiliate new new prospects. This this past quarter you know as we look forward to the rest of the year. We do think that there's a great opportunity for capital going into new investments again to continue to evolve our business at the same time.

Jay: We're very active in making investments alongside of our affiliates Tom mentioned in his prepared remarks that we are stepping up our efforts in seed capital. We've launched a number of products with pantheon. This year systematic Ah and we're looking to do more with converse, which is our our credit.

Jay: Direct lending business.

Jay: That is really.

In an effort to capitalize on an opportunity that we see in the marketplace to continue to drive growth in the wealth channel where these private markets businesses is another reason why Tom is.

Well, while we've moved him to to over to the COO role he is going to be overseeing the capital formation.

Jay: Business for us and so our own actions with our management team are sort of highlighting where we see strategic opportunity so whether it be our investments in new affiliates or investments in existing affiliates in and alongside we do see an opportunity this year to put substantial capital into those opportunities and we also think that given our flexibility.

Jay: <unk> on our balance sheet, we have a tremendous amount of liquidity a.

Jay: Very strong balance sheet, you probably saw that we.

Jay: Extended the duration of our balance sheet by doing some 40 year securities in the quarter. We're in a great position to return capital to shareholders as well, which we would expect to do as per our comments are as per Tom's comments this year doing more than $450 million in repurchases for the full year.

Yeah.

Speaker Change: Thanks for your question Bill.

Speaker Change: Thank you. The next question is coming from Dan Fannon of Jefferies. Please go ahead.

Daniel Thomas Fannon: Thanks. Good morning, So wanted to follow up on liquid alternatives. It sounds like certainly improving trends, but maybe not in inflows yet. So curious about the gross sales versus gross redemption trends within that bucket and then given your comments, Tom about being above the high watermark for a large percentage of that.

Speaker Change: How you're thinking about performance fees.

In the context of the remaining of this year versus maybe historical ranges.

Speaker Change: Yeah, so I'm going to have Tom.

Tom: Take that question Dan Thanks for your question.

Tom: Maybe I'll just start by saying you know our liquid alternatives business across all of the affiliates had operate there's you know say six seven affiliates that are in that category.

Tom: In the main.

Tom: Our producing significant positive performance for us, which has led to the above high Watermarks has also led to rising asset levels, which of course.

Tom: It does mean a potential for higher performance fees and I think we see you know I guess more more opportunities are around the world more clients noticing.

Tom: This unique return stream that frankly is complimentary to both private markets and to a long only strategy. So we're very constructive about the prospects. It has been as you noted a little slow in terms of the uptake on significant positive flows, but you know honestly, it's been a pretty good period for it.

Tom: What alternatives if nothing else by performance alone, but I would say that we are seeing good client activity I'll, let Tom give you a little more detail.

Tom: Thanks for your question, Dan I think Jay touched on a number of the key themes in his initial remarks here. If you look at what we've seen in liquid alternatives.

Tom: There really are two pieces to the story one is excellent overall investment performance and we're seeing that in number of areas across the liquid alternatives our affiliates in quantitative strategies and trend following strategies in relative value strategies. So one of the core elements of why liquid alternatives are so.

Tom: <unk> to AMG overall is that diversification.

Tom: And the fact that those businesses are able to perform in different environments, often with low or no correlation to equity markets and we're continuing to see these businesses performed really well for clients and you're seeing that come through for us in the form of performance fee earnings both here in the first quarter as well as over the course of the last several years.

Tom: In terms of trends I know, we talked on the fourth quarter call. We did see some headwinds in liquid alternatives in the fourth quarter. So it was really nice to see that bounce back here in the first quarter overall flows in liquid alternatives in the first quarter were roughly flat.

Tom: Versus a fairly meaningful outflow number in the fourth quarter, So a pretty good improvement and when we think about the longer term again, Jay touched on some of this but the real push pull is this these strategies have really been outperforming in client portfolios.

Tom: So for those who have an existing allocation to liquid alternatives, we have seen a little bit of rebalancing over the course of the last couple of years, where strategies that have put up 10 2030, 40% positive returns have offset some of the volatility and headwinds that clients have seen either in their long only books or when dealing with some of the denominator effect.

Tom: Impacts in their private equity books.

Tom:

Tom: At the same time, there are a number of clients, who don't have a large enough liquid alternative allocation in their portfolio I think that's where a lot of the new client conversations have been particularly compelling.

Tom: And where we and our affiliates are really excited going forward, where we think you know having come off this decade post the GSC of very low volatility lot of up into the right high correlation markets. There are a number of clients who moved out of liquid alternatives frankly at exactly the wrong time and felt the pain of that <unk>.

Tom: <unk> in the 2020 in 2022 time periods. So we do see a lot of new client conversations around where these products should live in portfolios as you've probably seen from the industry data you're starting to see some momentum building in retail liquid alternatives, which was a big theme 10 years ago in his kind of quieted. So we're <unk>.

Tom: <unk> to see some momentum there in the industry. So we continue to think that there are a lot of opportunities.

Tom: For AMG, our affiliates and their clients across all three of those buckets investment performance. The performance fee earnings that that can drive and ultimately populating and repopulating portfolios and driving organic growth in that category. Yeah. I mean, I'll just finished Dan by saying you know I think where we're actually somewhat surprised that that more institute.

Tom: <unk> managers are allocators havent noticed the alpha that's being generated especially on the Quant side, you know with the Cta is and some of the Quant manager significant alpha as well as in the and their relative value fixed income space and in the multi strat space I mean.

Tom: The traditional you.

Tom: Long short hedge.

Tom: Hedge funds, which we don't have much of you know have not performed but almost every other category has and so the interesting thing that I would say as you know the thing that our people are going to notice I think what we are expecting to do is.

Tom: Some of those products to the wealth space, where we where we actually do think allocations will will grow both in the or I E.

Tom: Single and multifamily offices and and of course, the wire houses. So we are looking forward to that.

Tom: That opportunity and frankly, if they continue to put up the numbers that they that they have it'll it'll help amg's earnings, but it will also hopefully eventually get into the minds of allocators, because they do need these products in their portfolios as an offset to their private markets and they're long only strategies.

Tom: Thank you. The next question is coming from Brian Bedell of Deutsche Bank. Please go ahead.

Brian Bertram Bedell: Oh, great. Thanks, Thanks for taking my thanks for taking my question and Congrats Tom and and also welcome David.

Tom:

Brian Bertram Bedell: Just sticking with that theme in the alternatives and especially in our in the private markets fund raising can you talk about I guess your confidence that that's the the sales number on the alternative side, you can see potentially secular growth and that sort of quarter after quarter.

Brian Bertram Bedell: Given the pipeline of.

Brian Bertram Bedell: New products that are coming in.

Brian Bertram Bedell: The contribution from private markets, and then, especially as you just talked about on the Quant side.

Brian Bertram Bedell: From the demand I guess, both from you know a QR versus its historical trend.

Brian Bertram Bedell: The same time seem less outflows from that so as soon as the I guess the overall question is should we really be seeing that alternative flying as sort of a leading net flow indicator on a go forward basis.

Speaker Change: Yeah. Thanks, Brian for your question I'll, let I'll, let Tom start.

Speaker Change: Thanks, Brian.

Tom: In a way I think the story has been very consistent in the way that we're thinking about alternatives and in the results that we've put up in terms of alternative performance and flows.

Tom: Really now over the course of the last couple of years.

Tom: In terms of our confidence in private markets on the sales side. There are a number of things that are really driving that confidence and they are core to the strategy that we're employing at AMG really across the board.

Tom: The first is that we continue to look to add affiliates you know to that group, we have eight private markets affiliates today now managing a $120 billion in AUM.

Tom: We added two last year and as Jay said in his answer to a prior question that continues to be a real area of focus and that focus is linked I think in a lot of ways to the success that we're having with our existing affiliates in terms of helping them with product development with fund raising and with accessing the U S wealth channel.

Tom: With some of these limited liquidity products as well as the opportunity to bring their flagship drawdown funds to the channel in a way that I think is extremely compelling, giving given the sales resources that we have in our ability to penetrate our advisors in the channel.

Tom: So if we think about whats happening overall in terms of private market, one where just attracting high quality businesses and two once those businesses are at AMG, we have the ability to help accelerate move them into different channels move them into different products and that can have a multiplier effect over time.

Tom: The other thing that I'd mention is that the businesses that we've invested in private markets have been and will continue to be intentional we've really focused on businesses, where our independent firms have a clear comparative advantage oftentimes specialty products products that are really alpha oriented and alpha driven.

Tom: And we've avoided some of the more commoditized are larger.

Tom: Parts of the market, where you've seen the big denominator effect impact hit fund raising over the course of the last couple of years.

Tom: And then lastly on liquid Alts, I think I hit a fair amount of this in my answer to a prior question but.

Tom: But again now that we're staring down track records that in most cases across three years and really when you look across five and 10 year track Records as well you have very strong overall investment performance aligned with very strong brands.

Tom: And our ability oftentimes to help in terms of product development and entering new channels, we think we're well positioned in liquid alternatives as well.

Both on the gross sales side, but also frankly on on the redemption side given that these products do continue to perform the way that they're supposed to do and are driving a lot of upside in client portfolios. Yeah. Let me, let me just try to bring some of the sum of all of these questions together, because we talked about capital allocation and we will.

Tom: <unk> talked about where we see growth.

Tom: In the three areas that that.

Tom: That our affiliates operate private markets liquid alternatives and differentiated.

Tom: Our long only strategies.

Tom: I would say that we are we are and have been seeing really over the last five years a mix shift at AMG. So today, we have over 125 billion in private markets over 200, and liquid alts in the balanced and differentiated long only we continue to see that our capital is going into the alternative segment both.

Tom: In in alongside the affiliates, but also a new affiliates, we have some excellent very strong differentiated long only strategies. We just we've had a historical balance to having a greater percentage in that area, we see that that balance between the three segments being more balanced in the future so for 50% today and alternative.

As we would expect that to be 60, maybe even two thirds at some point in the next five years that is where we think where our business is going and that reflects not only where the flows are coming from where the growth is coming from.

Tom: And frankly, where our capital is going to.

Tom: Thank you. The next question is coming from Patrick Davitt of Autonomous Research. Please go ahead.

Tom: Yeah.

Michael Patrick Davitt: Hey, good morning, everyone and congratulations on your new roles.

Michael Patrick Davitt: I have a quick follow up on the transaction activity commentary.

Michael Patrick Davitt: You mentioned, it's competitive and we continue to see fairly high deal volume.

Michael Patrick Davitt: For also for smaller alternative managers I think you mentioned you chose not to follow through with some so could you maybe expand on the pricing dynamics, there and to what extent pricing is keeping you out of the flow and are there any signs that the pricing has popped out and can maybe get more attractive point. Thank you.

Speaker Change: Yeah, Thanks, Patrick and good morning.

Speaker Change: Yes, so I will follow up on the prior comment.

Speaker Change: Just starting with the the.

Speaker Change: That you know the activity has actually picked up.

Speaker Change: And the activity that we're seeing.

Speaker Change: Is is pretty significant I mean, when you look at just if you were to look at deal sheets of of of all the players in the in the investment management industry, you would see pretty significant.

Speaker Change: Volume. So I think there is transactions that are happening there've been other times, you know that you've been covering us or others who've covered us where it has been slower. So we definitely see there's there is supply of new businesses out.

Speaker Change: Out there I will say that the needs of independent firms to today are very different than they were 10 years ago or 20 years ago. They are very much looking for a strategic partner I think we fit that that category, especially when you.

Speaker Change: You put it against the context that we've been operating in this business model for 30 years, and we know how to engage with independent firms. There is an art to that end. It is important to know that that you have a partner who knows how to engage with independent firms. So that that I think we've proven we are seeing growth at our affiliates.

Speaker Change: Especially where we engage them and we're very excited about that I think the key differentiator for US is that we also actively preserve independence.

Speaker Change: And that's through equity ownership succession planning and frankly, even just advice around human capital and a lot of a lot of places. So just to kind of carve out where we compete effectively is where people want a strategic partner, but they also want to preserve their independence and I think in that category, we have a lot less competition.

Speaker Change: And then we've ever had as you know a lot of the traditional multi boutiques have gone away and what's left is state buyers, who only will buy a 15% to 20% stake so really where we seem to be most competitive is when we are more flexible in our approach by both being strategic in our ownership.

Speaker Change: Model.

Speaker Change: As such that we can own anywhere from 20% of all the way up to 70% of our business.

Speaker Change: The other thing that is notable about AMG is that we have plenty of liquidity and so we can write checks that are $2 50 up to 500 those are significant cash checks for any independent firm and so we're very competitive on that side as well. So when you look at Amg's competitiveness.

Speaker Change: We're in the category of probably as good as we have been and really any of the recent history. I think we're very front footed in our origination we're out calling on those firms and we are out developing relationships well before transactions happen because having a relationship before a transaction is really in the market.

Speaker Change: It is the most important aspect of both our due diligence as well as beginning that in very important.

Speaker Change: Independent relationship that you have with these firms as it relates to pricing, which was I think part of your question you know pricing for growth is still pretty extreme it has been for some time, so where you see private markets businesses in particular that have grown really fast fast you've.

Speaker Change: <unk> seen pricing very high I think we tend to look at transactions that are more.

Speaker Change: In our context and fitting with us where we can actually help affiliates grow I think that allows us to put a little structure and to allow for some risk sharing between us and the AR and the new potential affiliates.

Speaker Change: I would say, we don't chase deals for pricing purposes in fact.

In most cases when pricing gets extreme we decide that it's better for us to repurchase our shares frankly, just given where our stock has traded over time. So in the category of meeting our returns we do look for mid to high teens on a new investment and when we aren't able to find that.

Speaker Change: And we can't.

Speaker Change: See more product for our affiliates and we will look to return that capital and we've been able to do that and we've actually been able to make low to mid teens on our repurchases as well. So that's kind of the I think the summary of where we see both are competitive.

Speaker Change: Our competitiveness in the market, but also where we see pricing.

Speaker Change: Thank you. The next question is coming from Alex Blaustein of Goldman Sachs. Please go ahead.

Alexander Blostein: Hey, good morning, everybody. Thanks for the question.

Alexander Blostein: Wanted to zone in again on the wealth channel and the progress you guys are making with respect to existing semi liquid products and the new ones youre going to be rolling out.

Alexander Blostein: One maybe help us frame how much these products contribute to the firm's EBITDA today.

Alexander Blostein: Understand it's not a huge number but it sounds like it's growing nicely and there's a plan for that to expand further and then secondly, as you think about going to market with these strategies can you talk a little bit about the competitive dynamics.

Alexander Blostein: What AMG brings to the table relative to other offerings, including how are you thinking about payment for distribution.

Yeah, Great. So Tom why don't you take that.

Tom: Thanks for your question Alex on the first part.

Tom: As you referenced it's a relatively small contribution today, but one that has been growing rapidly and I think we have a very clear strategy to get to scale.

Tom: The biggest contributor that we have in the U S wealth space today in alternatives is the AMG Pantheon fund, which has been a fantastic success story in the industry, thus far and we expect to continue building on from here with that funds now above $3 billion.

There are also a number of other products that we have in the U S wealth market as well as internationally. So you know there are several billion under management today that we're building a base from.

Tom: We expect to continue to push going forward.

Tom: Let me spend maybe a minute on exactly what we're doing in U S wealth and that can play into some of the competitive dynamics and why we think we're positioned well to be successful.

Tom: We offer a vertically integrated solution in the U S wealth market and it's based on the fact that for really the last 30 years, we have a business that has been in that channel today at about $40 billion in terms of the overall size of the platform in the channel covering the largest wire houses.

Tom: Sophisticated <unk>.

Tom: In a number of ways first we're able to actually cover the home offices and the key decision makers and gatekeepers, helping to get our products on the buy list and better understand kind of the key demand drivers at the top of the house and then second with our Wholesaling force in the field, one specifically covering our A's and two.

Tom: Specifically covering the wire houses in order to actually be in the field with advisers, helping to educate as well as helping to explain why these products makes so much sense in client portfolios.

As we pivoted our strategy over the course of the last 18 months or so to capitalize on the alternative opportunity. One we're doing so from a position of strength given what we've been able to accomplish with the AMG Pantheon fund in partnership with Pantheon and the excellent work done by the teams there and two we were able to capitalize on the existing relationships where that 40 billion.

Tom: <unk>.

Tom: Independent partner owned product already exists at these large allocators.

Tom: So we're really building into that.

In terms of competitive dynamics, if you think about the way that clients ultimately allocate of course some of the leaders in the limited liquidity space. Thus far in the industry have been some of the biggest brand names in private markets and those firms are always going to end up with a good sized allocation importantly, though clients also want access to independent partner owned.

Firms and that creates a bit of a conundrum in the market because those firms may have excellent underlying alpha characteristics and ability to create outcomes in client portfolios, but often they don't have the resources to have those conversations at the top of the house with the buying centers and in particular, they don't have the resources to go out and be able to cover the field.

And educate advisors and ultimately sell through product. So AMG employees, a generalist specialist model, where we have the general sales force in the market that can speak to the quality of independent partner owned firms really understands alternatives and then has the ability to bring in specialists from pantheon or from a com burst or <unk>.

Tom: <unk> systematic over time to get down to that next level of depth and really understanding the product. So when you take that combination of we know theres tremendous demand in the market for independent partner owned private markets and overall alternative solutions and there are very few firms that can actually provide the resource to cover the channel that's something very.

Tom: All that we have at AMG and I think you'll see over the course of the coming years that we're going to put a lot of effort and energy through seed capital and through investing in our business as well as through continuing to work with our existing affiliates and make new investments to bring a variety of high quality products and also to become in a lot of ways, what we've been historically.

Tom: Eric Lee on the traditional long only side, which is the leading solutions provider in alternatives amongst independent partner owned firms to the U S wealth channel.

Eric Lee: Thank you at this time I'd like to turn the floor back over to Mr. Horgan for closing comments.

Horgan: Thank you all again for joining us this morning, and we look forward to speaking with you next quarter.

Horgan: Ladies and gentlemen, thank you for your participation and interest in AMG. This concludes today's event you may disconnect. Your lines have log off the webcast at this time and enjoy the rest of your day.

Horgan: Yeah.

Horgan: [music].

Horgan: Okay.

Horgan: Okay.