Q4 2024 Affiliated Managers Group Inc Earnings Call
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Speaker Change: Greetings and welcome to Amg's fourth quarter 2024 earnings Conference call.
At this time all participants are in a listen only mode.
Speaker Change: Question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce your host Patricia Gorilla head of Investor Relations. Thank you.
Speaker Change: Please begin.
Speaker Change: Good morning, and thank you for joining us today to discuss Amg's results for the fourth quarter and full year 'twenty 'twenty four.
Speaker Change: 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 and AMG assumes no obligation to update. These statements also please note that nothing on this call constitutes an offer of any.
Speaker Change: <unk> investment vehicles or services of any AMG affiliate.
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 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 and full year R. J Horgan.
Jay: Didn't and Chief Executive Officer, Tom Wojcik, Chief operating Officer, and Dave Ritchie, Chief Financial Officer, with that I'll turn the call over to Jay.
Speaker Change: Thanks, Patricia and good morning, everyone.
Speaker Change: AMG delivered record economic earnings per share in 2024.
Speaker Change: With full year earnings up 10% year over year, reflecting the ongoing evolution of our business and the positive impact of our disciplined capital allocation strategy.
Speaker Change: In 2024, we continued to strategically evolve AMG.
Speaker Change: Increasing our exposure to alternatives.
Speaker Change: Which further enhances our long term growth prospects.
Speaker Change: Our private market affiliates raised approximately $24 billion during the year.
Reflecting the ongoing demand for our affiliates' specialized strategies.
Throughout the year, we continue to invest our capital and resources alongside our affiliates, especially in collaboration with our affiliates to develop new products for the U S wealth channel, including additional innovative alternative solutions across private markets and liquid alternatives.
Speaker Change: Amg's unique model continues to attract outstanding firms seeking a strategic partner.
Speaker Change: This morning, we announced a minority investment in a new affiliate.
Speaker Change: North Bridge partners, a private market's manager specializing in industrial logistics real estate.
Speaker Change: The demand for real estate associated with last mile logistics continues to grow.
Speaker Change: Driven by the expanding digital economy and evolving supply chain dynamics.
Speaker Change: Over the past decade, Northbridge is experienced and entrepreneurial management team has delivered excellent performance for its Lps.
Speaker Change: I'll also expanding its team is geographical footprint and diversifying its strategies.
Speaker Change: Taken together the combination of these factors underpin northbridge is strong forward growth prospects.
Speaker Change: Our partnership with Northbridge is in line with our strategy of investing in high quality independent firms operating in areas of secular growth, especially.
Speaker Change: Especially in private markets and liquid alternatives.
Speaker Change: We believe that both private markets and liquid alternative strategies are well positioned for future client demand.
Speaker Change: Areas, where amg's engagement and strategic capabilities can magnify our affiliate's success.
Speaker Change: The northbridge team chose AMG, because they were seeking a strategic partner that could provide both growth capital and proven capabilities to support the development of their business. While also actively preserving their independence.
Speaker Change: More broadly.
Speaker Change: Our new investment pipeline remains strong.
Speaker Change: Including several late stage opportunities.
Speaker Change: And we continue to focus on partner owned firms operating in specialized areas of alternatives given the incremental growth and further diversification that these firms can bring to amg's overall business.
Speaker Change: Stepping back.
Speaker Change: The growth investments, we have strategically and deliberately made over the last several years have played a critical role in reshaping amg's business profile.
Speaker Change: As we continue to execute on our strategy investing our capital in firms and initiatives aligned with our long term growth trends.
Speaker Change: We expect to accelerate the evolution of our exposures towards greater participation in alternatives and.
Speaker Change: Enhancing our long term growth prospects and the stability of our cash flows.
Speaker Change: By increasing our private market exposure.
Speaker Change: We expect the quantum of duration of long locked capital in our business to grow.
Speaker Change: And as we expand and diversify our footprint and liquid alternatives, we expect that Amg's earnings power will be even more resilient across all stages of our market cycle.
Speaker Change: Our diversified group of high quality independent partner owned firms operating across private markets liquid alternatives and differentiated long only strategies is not only a distinct competitive advantage.
Speaker Change: It also supports our capacity to continue investing across our opportunity set in the areas of highest growth and return to benefit our shareholders.
Speaker Change: Our opportunities to invest for growth or expanding.
Speaker Change: And with our strong capital position, we have ample capital flexibility to execute on our growth opportunities and also return capital through share repurchases.
Speaker Change: As always we remain disciplined as we evaluate capital allocation decisions.
Speaker Change: AMG enters 2025 with significant momentum across our business.
Speaker Change: Each element of our growth strategy from investing in new affiliate partnerships to investing in existing affiliates and investing in amg's capabilities to magnify our affiliate's success.
Speaker Change: It's driving the evolution of our business composition towards greater contribution of in demand strategies.
Speaker Change: And as we continue to execute on our strategy, we see increasing opportunities to create meaningful additional shareholder value overtime.
Tom: And with that I'll turn it over to Tom.
Thank you Jay and good morning, everyone.
Speaker Change: Amg's 'twenty 'twenty four results reflect the ongoing evolution of our business.
Which has been driven by strategically allocating our capital and resources to areas of long term secular growth.
Speaker Change: With continued strength in private markets fundraising.
Speaker Change: Increasing momentum in liquid alternatives and.
Speaker Change: And expanding opportunities to invest for growth.
Speaker Change: We entered 2025, well positioned to drive earnings growth and shareholder value.
Speaker Change: Net client cash outflows of 8 billion in the quarter continued to reflect ongoing strength in alternatives offset by industry headwinds in equities.
Speaker Change: Despite the challenges in equities, our long term organic growth profile has improved meaningfully over the last five years and given our ongoing strategy to evolve our business mix more toward alternatives. We expect further improvement in flow trends over time.
Speaker Change: Our private markets affiliates raised $6 billion in the quarter.
Speaker Change: Bringing full year fund raising to 24 billion.
Speaker Change: And representing annualized organic growth of approximately 20%.
Speaker Change: These inflows were driven by a broad base of affiliates, including Com Vest E G.
Speaker Change: Behan pantheon and pepper tree.
Speaker Change: The fundraising strength of Amg's private markets affiliates reflects investors' conviction and Theyre specialist investment strategies and the positive fundamentals of their sectors.
Speaker Change: Our private markets affiliates are at the forefront of secular growth trends and continue to generate outstanding investment performance across a number of high growth areas include.
Speaker Change: Including infrastructure credit private market solutions, and specialty areas, including industrial de Carbonization life Sciences multifamily real estate and now industrial logistics through our partnership with Northbridge.
Speaker Change: In liquid alternatives, our affiliates value proposition is gaining momentum with clients and resulted in a second consecutive quarter of positive flows with 2 billion of net inflows driven primarily by AQR Winton systematically and Garda.
Speaker Change: Our affiliates managing liquid alternative strategies have excellent long term track records across those beta sensitive and absolute return strategies, including global macro relative value fixed income.
Speaker Change: Tax aware strategies and trend following.
Speaker Change: Many of our liquid alternative strategies are designed to protect against volatility and drawdowns complementing our private markets and differentiated long only strategies.
Speaker Change: As clients continue to focus on portfolio construction amid rising market volatility expectations.
Speaker Change: We see increasing opportunities for organic growth in liquid alternatives and continue to focus on growing amg's exposures in this area.
Speaker Change: In equities we.
Speaker Change: We saw net outflows of approximately 16 billion in the quarter, reflecting industry and near term performance headwinds as well as some modest seasonality.
Speaker Change: We continue to collaborate with our affiliates on developing new vehicles, including active etfs to optimize the delivery of their strategies and enhance their alignment with evolving client demand trends.
Speaker Change: Multi asset and fixed income were once again, a positive contributor to net flows with modest inflows in the quarter and approximately 3 billion of inflows for the full year.
Speaker Change: Our affiliates managing multi asset and fixed income strategies have consistently benefited from client demand trends.
Speaker Change: Being generated net inflows in 13 of the last 15 years.
Speaker Change: As we have discussed over the past several quarters, we have significantly invested in our capital formation capabilities.
Speaker Change: Specifically to develop and distribute alternative products in the high growth U S wealth markets.
Speaker Change: And those investments are paying off.
Speaker Change: Over the past five years alternatives AUM on our U S wealth platform has grown more than tenfold ending the year at more than $6 billion in the U N.
Speaker Change: In 2024, we posted 2.5 billion or alternative net inflows to our U S wealth platform.
Speaker Change: In addition, we launched three new evergreen products and filed for two additional strategies that we anticipate will go live later this year.
Speaker Change: These include credit secondaries and infrastructure offerings with pantheon.
Speaker Change: Our non traded BDC with combo.
And to trend following strategies with systematically.
In combination with the AMG Pantheon fund, which recently crossed $4 5 billion in AUM.
Speaker Change: We will now have six alternative continuously offered solutions designed specifically for Amg's U S wealth platform.
Speaker Change: Offering clock science direct access to excellent investment capabilities from specialized independent firms.
Speaker Change: And we continue to work with our affiliates to bring new products to market to capitalize on the multi decade growth opportunity in alternatives in U S wealth.
Speaker Change: Along with the growth that we're generating on the centralized AMG wealth platform, our affiliates, especially pantheon and AQR.
Speaker Change: Continue to take advantage of tailwind in wealth through their own product development and distribution capabilities.
Speaker Change: And as a result, AMG and our affiliates are collectively one of the largest sponsors of alternative products for wealth markets globally with more than 30 billion in totally U N.
Speaker Change: And the success that we're having in the wealth channel is resonating not only with clients and existing AMG affiliates, but also with new investment prospects.
Speaker Change: As accessing this attractive market requires scale and it's difficult if not impossible for independent firms to do on their own given the resources required to be effective in the channel.
Speaker Change: Yeah.
Speaker Change: With our proven strategic capabilities to enhance our affiliates' long term success.
Speaker Change: The ongoing fundraising strength of our private markets affiliates.
Speaker Change: And improving trends in liquid alternatives.
Speaker Change: We have entered 2025 and a position of strength.
Speaker Change: With that I'll turn the call over to Dave to discuss our fourth quarter results and guidance.
Dave: Thank you Tom and good morning, everyone.
Dave: In 'twenty 'twenty four we continued to strategically evolve our business to expand our exposure to secular growth areas, especially alternatives and these efforts have contributed to our earnings results.
Dave: We generated a record proportion of adjusted EBIDTA and fee related earnings from alternative strategies and together with a disciplined ongoing execution of our capital allocation strategy. This contributed to our record economic earnings per share in 2024.
Dave: With our strong balance sheet and business momentum, we are well positioned to generate further growth in 2025.
Dave: In the fourth quarter, adjusted EBITDA of 282 million down 5% year over year.
Dave: <unk> 70 million and net performance fee earnings.
Dave: On a full year basis, we reported adjusted EBITDA of 973 million up 4% versus 2023, which included 126 million and net performance fee earnings.
These results primarily reflect higher fee related earnings, which grew approximately 10% for both the quarter and the full year driven by growth in average AUR and the impact of recent new investments.
Dave: This was offset by lower net performance fees compared to the fourth quarter and full year 2023.
Dave: Economic earnings per share of $6 53 for the fourth quarter and $21 36 times for the full year 'twenty 'twenty four.
Dave: Further benefited from the impact of a record year of share repurchases on.
Dave: On a full year basis economic earnings per share grew 10% demonstrating how our capital allocation strategy. It can create value for shareholders.
Dave: Now moving to first quarter guidance.
Conciliation side has been posted to the Investor Relations section of our website, where you can find detailed modeling items for the first quarter.
Dave: We expect adjusted EBITDA to be in the range of $220 million and 230 million.
Dave: This is based on current AUM levels, reflecting our market blend, which was up 2% quarter to date as of February 4th.
Dave: Net performance fees of 10 to 20 million and includes no earnings contribution from the investment we announced in North branch, which will start in Q2 and will be modestly positive earnings contributor in 2025 with strong future upside potential.
Dave: Turning to performance fee earnings looking at the bigger picture the Nexus shadow supply by our affiliates that generated performance fees is diverse across both liquid alternatives and private markets.
Dave: And historically during times of volatility and stress we have seen strong performance from our absolute return strategies, many of which are designed to protect against market volatility and downturns.
Dave: We continue to believe $150 million is a reasonable expectation for our annual performance fees and consistent with our prior five year performance fee earnings average.
Dave: In the first quarter, where our results are primarily driven by affiliates, who report to us on a one quarter lag.
Dave: That performance fee earnings to be $20 million to $30 million below the year ago period.
Dave: And while we are starting the year lower than where we have been in the past we remain confident that performance fees will continue to contribute meaningfully to our earnings over the long term.
Dave: Including a growing contribution from private markets carried interest in the future.
We expect first quarter economic earnings per share to be between $5 and Tucson and $5.26.
Dave: And adjusted weighted average share count of 37 million shares for the quarter.
Dave: Finally, turning to the balance sheet and capital allocation.
Dave: We focus on strengthening our balance sheet and enhancing our capital flexibility in 2024 with strong results.
Dave: Issued 850 million of long duration debt.
Dave: Paid down 750 million of short term senior debt and extended our Undrawn 1.25 billion revolver for five years.
Dave: With these actions the weighted average duration of our debt is now more than 20 years and we continue to be in a strong liquidity position with $625 million in cash and $475 million in investments across GP commitments seed capital and other strategic investments.
Dave: Our current leverage position remained below historical averages and our cash plus balance sheet investments equal our existing debt maturities through 2034.
Dave: This provides us with a lot of capital flexibility as we look out over the next few years.
Dave: In terms of capital allocation and in the fourth quarter, we repurchased $120 million in shares, bringing us to approximately 700 million for the year or 13% of our shares outstanding.
On a full year basis, given a combination of factors, including our strong liquidity position strength of the balance sheet.
Dave: Leverage levels and our view of the value of our business, we were compelled to take a more opportunistic view on the quantum of our purchases in 2024.
Dave: We will continue to apply our disciplined capital allocation framework, which is embedded across all elements of our investment process and culture to make long term value maximizing decisions on behalf of our shareholders.
Dave: And as Jay mentioned, we have real momentum on the new investment side with several opportunities in late stages.
Dave: So we anticipate that we will deploy a balance of capital between both new investments and share repurchases.
Dave: Based on this we expect to repurchase at least 400 million in shares in 2025 subject to market conditions and new investment activity.
Dave: We are confident in our ability to execute our disciplined capital allocation strategy and generate meaningful shareholder value over time.
Dave: Now we are happy to take your questions.
Speaker Change: Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the 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.
Dave: He is.
Dave: Today's first question is coming from Dan Fannon of Jefferies. Please go ahead.
Speaker Change: Hi, This is Trevor daus on for Dan.
Speaker Change: Can you discuss in more detail the pipeline for new investments and how that compares to this time a year ago.
Speaker Change: So did the change of administration have any impact on conversations or dialogue with prospective affiliates.
Speaker Change: Oh, great. Thanks, Trevor for your questions. This morning, and good morning to you so maybe I'll take that one.
Speaker Change: No.
Speaker Change: As I said in my prepared remarks.
Speaker Change: Our pipeline has and continues to be strong North bridge was just one of those prospects in our pipeline and we announced that this morning.
Speaker Change: When we look across our pipeline, we still have several in the later stages in in terms of development, maybe I'll take the second.
Speaker Change: And talk about North bridge.
Speaker Change: And then you know.
Speaker Change: Related to the broader environment for M&A for US and then well I'll address your question on <unk>.
Speaker Change: The change in administration, so so taking.
From the top maybe on North bridge, So north bridge.
Speaker Change: You know very high quality independent firm operating in an area of secular growth, which is our strategy to invest in businesses in areas of secular growth. It is a private markets manager and it specializes in industrial logistics and importantly, it's picking up on key trends like the E Commerce.
Speaker Change: Environment accelerating our consumer demand for shorter delivery times and the onshoring of supply chain. So we think this opportunity has real upside for us.
Speaker Change: We're excited about adding a new private market's manager and excited about adding a real estate manager since those are diversifying for us and that really does give you some sense for a broader pipeline, which is predominantly in areas of alternatives.
Speaker Change: And specifically in private markets and liquid alternatives are.
Speaker Change: Sort of our attractiveness in the market I think has never been better.
Speaker Change: Mainly because.
Speaker Change: We are unique in that we offer both strategic resources to independent firms, but we also preserve their independents over time, so they really get the best of both worlds and when do you think about why northbridge chose AMG, they really did choose us.
Speaker Change: Because we have a history of magnifying our affiliate's success through through engagement through strategic engagement and they were looking for growth capital.
Speaker Change: For their for their funds and the growth of their funds. They were also looking for some seed capital.
Speaker Change: Which we are going to provide and they were attracted to our business strategic business development help as well as product development and distribution capabilities all of those things factored into why they chose us.
Speaker Change: When we look more broadly at our pipeline.
We see that dynamic playing out.
Speaker Change: And we think that we compete very well in this environment independent firms looking for the benefits of our strategic partner, but also leaving them alone in terms of the operations as the day to day and their investment and their investment strategies, so very attractive environment for us to participate to your.
Speaker Change: Question on the administration look I think the administration change it probably does favor more new investments for us anytime there's a potential for them you know lower regulation and and you know more business development. It generally is pro pro.
Speaker Change: Pro investment pro risk on and so we are we do think that that has the opportunity should be attractive to us in this environment to accelerate our new investment pipeline.
Speaker Change: Thank you. The next question is coming from Bill Katz of T. D. Cowen. Please go ahead.
Bill Katz: Okay. Thank you very much for taking the question congrats on the on the small transaction today as you think about the pipeline from here a.
Speaker Change: Jay is the is the go forward are the norm.
Speaker Change: For each kind of model, where you haven't been already stake in a smaller franchise that you can then sort of lever through your you're more advanced global distribution platform or could there be some larger deals that might move the flow and do a strategic need a little more quickly.
Speaker Change: At the end of the day.
Yeah, I mean, the short answer is both actually bill.
Speaker Change: To put it direct I think we have a number of them sort of midsized firms that we think can triple or do even more than a triple and frankly, using our resources to help them get there as Tom said in his prepared remarks, you know where where we're.
Speaker Change: We're actually a pretty significant player in bringing private markets products and and liquid alternative products to the wealth channel. So I think we look we look at our pipeline and say Theres a number of firms that are choosing us and we are choosing them because we can accelerate their growth.
Speaker Change: But we also have some larger of new investments in our pipeline where.
Speaker Change: Where are we where we might be able to put even more capital and they just happened to be larger franchises, but the growth dynamics there are attractive as well.
Speaker Change: We do have the reputation in the market of being a very supportive partner.
Speaker Change: Whatever the needs of the firm you know really is so in some cases, we are much more active with our affiliates in other cases, we're still strategically engage but we we we have more of a business development longer term perspective, and they engage with us as they as needed. So when we look at the pipeline we have a mix of all of the above.
Speaker Change: Both you know relatively small and much larger transactions.
Speaker Change: Oh in the category of and I've said before you know sort of enterprise value between $2 50 to 750 of which we would typically buy either a minority or majority stake in all cases, leaving the business alone. So that's kind of our opportunity set now there are times, where we might actually go.
Speaker Change: Beyond that and you've seen us do that in in prior years and that's not off the table for US we actually think that there are some attractive opportunities out there for us, but we would obviously make sure that the bar was high when we make those investments.
Speaker Change: Thank you. The next question is coming from Alex Blaustein of Goldman Sachs. Please go ahead.
Speaker Change: Hey, good morning, everyone. This is Luke on for Alex. Thanks for Thanks for taking the question. So the last few quarters, you've provided really helpful detail into your retail vault product pipeline I was hoping you could give us an update on the trends you are seeing evolve from both a client demand perspective in distribution fee arrangements.
Speaker Change: And how active are you guys currently in developing active Etfs for your affiliates. Thank you.
Speaker Change: Yeah. Thanks Louise for your question I think Tom you're well positioned to take that one.
Tom: Oh, yeah, Thanks, Jay and thanks, Luc So you know as.
Tom: As I talked about in my prepared remarks, and really as we've been talking about now over the course of the last couple of years.
Tom: AMG has pivoted pretty hard with respect to our strategy to really support our affiliates and attract the next new investment prospects.
Tom: Through our capabilities in the U S wealth channel and more broadly as we think about product development the ability to use our balance sheet to seed exciting new product opportunities and when you kind of take a full step back the most unique and interesting thing that we have at AMG are the investment capabilities that exist across our affiliates.
Tom: The world in long only asset classes and liquid alternative asset classes and in private market asset classes.
Tom: In 'twenty 'twenty, four we aggressively ramped our pace of getting new products to market. It's been quite sometime since we've launched a new product into the U S wealth space and last year, we successfully launched three.
Tom: And filed for two more so we now have six continuously offered products that are available. We also had a drawdown. So a sort of a traditional more closed end private equity style funds in the market in the U S. While channel last year. So we really feel like we're off to the races with respect to alternatives are in U S wealth.
Tom: In terms of the forward product development pipeline.
Tom: We really view our opportunity set in this space as being a conduit to deliver excellent independent partner owned alternative product across the spectrum of liquid alternatives and private markets to the U S wealth space through this sort of single channel that is AMG and it allows us to bring really differentiated independent partner.
Tom: One firm product, but with a sophisticated product development and sales force effort that can really comprehensively cover the channel and we don't think there's anyone else in the industry, who brings together that combination of unique investment expertise and the ability to educate advisers work with home offices and really get those.
Tom: Into the market.
Tom: With respect to the long only side, we do see active Etfs is a really interesting and exciting opportunity.
Tom: Been a tremendous amount of innovation that's taken place there over the course of you know not only the last decade, but really some acceleration over the course of the last couple of years, particularly with respect to adoption of actively managed Etfs.
We had a couple that were launched this past year by some of our affiliates. We are spending a lot of time with a group of affiliates.
Tom: About the right way to enter those markets and we see it as a really exciting opportunity again to combine excellent investment expertise with where client demand is going in the market.
Tom: With respect to the ability to generate returns, but also putting those returns in an inappropriate wrapper that clients can consume them. So it's a great question look and it's really a big part of our strategy and we think it's a big growth driver for us in the future.
Tom: Thank you ladies and gentlemen, this brings us to the end of the question and answer session. We would like to thank you for your participation and interest in AMG. You may now disconnect. Your lines I'll talk up the webcast and enjoy the rest of your day.
Okay.
Tom: Okay.
Tom: Yeah.
Tom:
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Tom: Hum.
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Tom: Yeah.
Tom: Okay.
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