Affiliated Managers Group, Inc. (AMG) is a strategic partner to leading independent investment management firms globally. The company's innovative approach has enabled it to build a diversified portfolio of high-quality Affiliates across a range of alternative and differentiated long-only strategies, positioning it for long-term success in an evolving investment landscape.

Business Overview and History

Affiliated Managers Group was founded in 1993 with the vision of creating a strategic partnership model that would allow entrepreneurial investment management firms to maintain their autonomy and direct equity ownership, while leveraging AMG's capabilities to enhance their long-term growth and success. The company's partnership approach has been the foundation of its success, enabling it to attract and retain some of the industry's most talented and innovative independent firms.

In its early years, AMG focused on building its portfolio of affiliates by acquiring minority or majority stakes in high-quality independent investment management firms. The company developed a reputation as a supportive partner that could provide growth capital, product strategy and development, and incentive alignment for affiliate firms. A significant milestone in AMG's history came in 2000 when it acquired a majority stake in Tweedy, Browne Company, a storied value investing firm founded in 1920. This was followed by investments in other well-known firms such as AQR Capital Management in 2004 and Pantheon Ventures in 2007.

AMG faced challenges during the global financial crisis of 2008-2009, as market volatility and investor redemptions impacted its affiliate firms. However, the company's diversified business model and long-term orientation allowed it to weather the storm. In the years following the crisis, AMG continued to selectively add new affiliates and support the growth of its existing partnerships.

Over the past three decades, AMG has strategically expanded its Affiliate roster, selectively adding new partners in areas of secular growth, such as alternatives and specialized long-only strategies. As of September 30, 2024, the company had $728.4 billion in assets under management, diversified across private markets, liquid alternatives, and differentiated long-only investment strategies.

Financial Snapshot

AMG's financial performance in recent years has been marked by consistent growth and strong profitability. In 2024, the company reported net income (controlling interest) of $511.6 million, or $15.13 per share, on revenues of $2.04 billion. The company's economic earnings per share, a non-GAAP metric that adjusts for non-cash expenses related to the acquisition of Affiliate interests, grew 10% year-over-year to $21.36.

Financials

AMG's balance sheet remains strong, with $625 million in cash and $475 million in investments across GP commitments, seed capital, and other strategic investments as of September 30, 2024. The company's leverage ratio, as measured by total debt to total capital, stood at 43.9% at the end of the third quarter, providing ample financial flexibility to fund growth initiatives and return capital to shareholders.

For the most recent quarter (Q4 2024), AMG reported revenue of $524.2 million, a decrease of 1.2% year-over-year, and net income of $162.1 million, a decrease of 10.5% year-over-year. The decreases were primarily due to lower performance fees and higher expenses. Despite these quarterly decreases, the company's full-year 2024 performance remained strong, with adjusted EBITDA of $973 million, up 4% year-over-year.

AMG's financial metrics demonstrate the company's ability to generate strong cash flows and maintain a solid balance sheet. The debt-to-equity ratio stands at 0.440, indicating a conservative capital structure. The company's current ratio and quick ratio are both 2.216, reflecting strong short-term liquidity.

Liquidity

AMG's strong liquidity position is supported by its robust cash flow generation and access to capital markets. The company's cash and investments provide a solid foundation for its ongoing operations and strategic initiatives. In addition to its $625 million in cash, AMG has a $1.25 billion revolving credit facility, which was undrawn as of the end of Q4 2024, further enhancing its financial flexibility.

Evolving Business Mix and Growth Opportunities

A key strategic focus for AMG has been to increase its exposure to alternative strategies, which now account for 26% of the company's total assets under management, up from 19% five years ago. This shift has been driven by the company's selective investments in high-quality independent firms operating in areas of secular growth, such as private markets, liquid alternatives, and specialized long-only strategies.

AMG's private markets Affiliates, for example, raised $24 billion in 2024, representing annualized organic growth of approximately 20%. These inflows were driven by a broad base of Affiliates, including Comvest, EIG, Forbion, Pantheon, and Peppertree, reflecting investors' conviction in their specialized investment strategies and the positive fundamentals of their sectors.

In liquid alternatives, AMG's Affiliates saw a second consecutive quarter of positive net inflows of $2 billion in the fourth quarter of 2024, driven primarily by AQR, Winton, Systematica, and Garda. As clients continue to focus on portfolio construction amid rising market volatility expectations, the company sees increasing opportunities for organic growth in this area.

AMG has also made significant investments in its capital formation capabilities to develop and distribute alternative products in the high-growth U.S. wealth market. Over the past five years, alternatives AUM on the company's U.S. wealth platform has grown more than tenfold, ending 2024 at more than $6 billion. This has included the launch of several new evergreen products, such as credit secondaries and infrastructure offerings with Pantheon, a non-traded BDC with Comvest, and two trend-following strategies with Systematica. The U.S. wealth platform saw $2.5 billion in alternative net inflows in 2024 alone.

Asset Management Segment

AMG's Asset Management segment encompasses the diverse investment strategies and solutions offered by its autonomous partner-owned Affiliates. These Affiliates provide a wide range of differentiated return streams through their specialized investment processes across multiple asset classes.

Alternatives Strategies, which include private markets, liquid alternatives, and other specialized investment approaches, represent 36.6% of the company's assets under management as of September 30, 2024. These strategies have seen strong client demand, with net inflows during the first nine months of 2024. AMG's private markets strategies, accounting for 18% of total AUM, have delivered strong investment performance, with 82% of private markets AUM outperforming their benchmarks on a since-inception internal rate of return basis.

Global and U.S. Equity Strategies make up 26.7% and 20.8% of total AUM, respectively. While these strategies experienced outflows during the period, in line with broader industry trends, AMG's Affiliates have demonstrated solid long-term performance, with 54% and 79% of Global Equity and U.S. Equity AUM, respectively, outperforming their benchmarks over the 10-year period.

Multi-Asset and Fixed Income Strategies, which account for 16% of total AUM, are primarily focused on wealth management and solution-oriented offerings. These strategies saw modest inflows in Q4 2024 and $3 billion for the full year 2024.

AMG's aggregate fees increased 6% year-over-year to $3.73 billion for the nine months ended September 30, 2024. This growth was driven by a 7% increase in asset-based fees, primarily due to the increase in average AUM, particularly in the Alternatives strategies, as well as changes in the composition of AUM driven by investments in new Affiliates.

Adjusted EBITDA (controlling interest) increased 8% year-over-year to $691.4 million for the nine months ended September 30, 2024. Economic net income (controlling interest) increased 4% year-over-year to $495.8 million for the same period.

Risks and Challenges

While AMG's diversified business model and strategic focus on alternatives provide a strong foundation for growth, the company is not without its risks and challenges. The investment management industry continues to face headwinds, such as fee compression, increased competition from passive strategies, and evolving client preferences. Additionally, the performance of AMG's Affiliates, which can be subject to market volatility and investment-specific risks, can impact the company's financial results.

The company's reliance on its Affiliates' investment performance and ability to attract and retain client assets is also a key risk factor. AMG's success is closely tied to the performance and growth of its Affiliate partners, and any underperformance or client outflows could negatively impact the company's financial condition and prospects.

Outlook and Conclusion

Looking ahead, AMG remains well-positioned to navigate the evolving industry landscape and continue delivering value for its shareholders. The company's strategic focus on alternatives, its robust capital position, and its disciplined approach to capital allocation position it for continued growth and success.

For the first quarter of 2025, AMG expects adjusted EBITDA to be in the range of $220 million to $230 million and economic earnings per share to be between $5.02 and $5.26, assuming an adjusted weighted average share count of 30.7 million shares. The company also expects annual performance fees to be around $150 million, consistent with their prior 5-year average.

In 2025, the company expects to repurchase at least $400 million in shares, subject to market conditions and new investment activity, demonstrating its commitment to creating shareholder value. Additionally, AMG's pipeline of potential new Affiliate investments remains strong, with several late-stage opportunities that could further enhance the company's growth prospects.

The asset management industry has seen a compound annual growth rate of 5-7% over the past 5 years, driven by growth in alternative and private market strategies. AMG's strategic positioning in these areas of secular growth, combined with its strong financial performance and robust business model, suggests that the company is well-positioned to capitalize on these industry trends.

Overall, Affiliated Managers Group's innovative partnership model, diversified business mix, and strategic focus on secular growth trends make it a compelling long-term investment opportunity in the asset management industry. With no reported scandals, short seller reports, or CEO departures, and a track record of consistent financial performance, AMG appears poised for continued success in the evolving investment landscape.