Executive Summary / Key Takeaways

• Affiliated Managers Group (AMG) is strategically transforming its business mix towards higher-fee, longer-duration alternative strategies, particularly private markets and liquid alternatives, which now contribute approximately half of its EBITDA and are expected to exceed 50% of future earnings.
• This evolution is driven by deliberate capital allocation, including $700 million committed to three new partnerships in secular growth areas year-to-date 2025, expected to add approximately 8% accretion to run-rate economic EPS starting in 2026, net of the Peppertree sale.
• AMG's unique partnership model, which preserves affiliate independence while providing strategic capabilities like its vertically integrated U.S. wealth platform, is a key differentiator, driving significant AUM growth in alternative products within this channel and attracting new partners.
• Recent financial performance reflects this shift, with Q1 2025 seeing record $10 billion liquid alternative inflows largely offsetting equity outflows, though GAAP results were impacted by intangible impairments and lower performance fees compared to the prior year.
• The company maintains a strong balance sheet and capital flexibility, enabling significant share repurchases ($700 million in 2024, $173 million in Q1 2025) alongside growth investments, with plans for approximately $400 million in repurchases in 2025.

The Evolution of a Partnership Model

Affiliated Managers Group, Inc. (AMG) operates as a distinctive strategic partner within the global asset management industry. Unlike traditional consolidators or passive financial buyers, AMG's core strategy centers on acquiring minority or bare majority equity stakes in high-quality, independent investment firms, which it refers to as Affiliates. This model allows the entrepreneurial management teams of these firms to retain significant autonomy and direct equity ownership, fostering alignment with clients and preserving the unique investment cultures that often drive differentiated performance. AMG's role is to enhance these inherent competitive advantages by providing strategic support, growth capital, and access to capabilities that independent firms might find challenging to build or access on their own.

This partnership approach positions AMG uniquely against larger, more integrated competitors like BlackRock (BLK) or State Street (STT), which primarily offer in-house products and centralized platforms. While firms like BlackRock leverage scale and proprietary technology like Aladdin for efficiency and broad market coverage, AMG competes by enabling its diverse network of affiliates to maintain specialized expertise and agility in niche markets. AMG's model allows for potentially faster innovation cycles in specific strategies compared to large, centralized structures. Against mid-tier competitors such as Invesco (IVZ) and T. Rowe Price (TROW), AMG's global distribution network and capital flexibility provide an edge, particularly in accessing international markets and funding strategic initiatives. However, AMG's decentralized structure can sometimes lead to higher operating costs per AUM unit compared to the scale efficiencies of larger players, and while it invests in strategic capabilities, it lacks a single, overarching technological platform comparable to some rivals.

A critical component of AMG's strategic differentiation and a key area of investment has been the development of its "vertically integrated U.S. wealth platform." While not a traditional software technology, this platform represents a significant operational and technological capability designed to connect AMG's independent affiliates with the large and growing U.S. wealth market, particularly for alternative products. This capability includes dedicated distribution teams (such as for the RIA channel), enhanced marketing resources for advisor education, and expertise in product development and structuring (like evergreen funds, interval funds, and BDCs). The tangible benefits are evident: alternatives AUM on this platform has grown dramatically, exceeding $6 billion by the end of 2024, up more than tenfold in five years, and driving $2.5 billion in alternative net inflows in 2024. AMG has successfully launched and seeded several products through this platform, including the AMG Pantheon Fund, which has scaled to approximately $5 billion in AUM, and the AMG Pantheon Credit Solutions Fund, described as the first private credit secondary interval fund. This capability serves as a vital operational moat, enabling affiliates to access a market segment that is difficult for independent firms to penetrate alone due to the required scale and resources, thereby attracting new partners and driving future growth.

Over the past five years, AMG has deliberately invested approximately $1.8 billion in areas aligned with long-term secular growth trends, such as the expanding digital economy, biotechnology, industrial decarbonization, wealth management, and private credit. This strategic capital allocation has been instrumental in reshaping AMG's business profile, accelerating its evolution towards alternative strategies. The contribution to EBITDA from alternative strategies has grown from one-third to approximately half over this period and is expected to exceed 50% of future earnings. This shift is also reflected in AUM growth, with total alternatives AUM increasing by 14% over the last 12 months ending Q2 2024, driven significantly by a 24% growth in private markets AUM. This transformation is fundamental to AMG's investment thesis, aiming to improve long-term organic growth prospects and enhance the stability and quality of cash flows through exposure to higher-fee, longer-duration assets with potential for performance fees and carried interest.

Performance Reflecting Strategic Shifts and Market Dynamics

AMG's recent financial performance provides a window into the impact of this strategic evolution amidst varying market conditions. For the first quarter of 2025, consolidated revenue saw a slight decrease to $496.6 million from $499.9 million in the prior year period, primarily due to a decrease in asset-based fees partially offset by an increase in performance-based fees from private markets strategies. Net income controlling interest decreased significantly to $72.4 million in Q1 2025 from $149.8 million in Q1 2024. This decline was largely driven by a substantial increase in intangible amortization and impairments attributable to the controlling interest ($62.4 million increase) and a decrease in Equity method income net ($42.2 million decrease), partially offset by a decrease in income tax expense attributable to the controlling interest.

The increase in intangible amortization and impairments in Q1 2025 included a $70.0 million aggregate expense related to the impairment of indefinite-lived acquired client relationships for certain mutual fund assets, resulting from declines in AUM and forecasted revenue. An additional $7.0 million aggregate impairment was recorded due to the closure of a mutual fund product. Management noted that a sensitivity analysis indicated further declines in 5-year revenue growth rates or increases in discount rates could lead to additional impairments.

Adjusted EBITDA controlling interest decreased by 12% to $228.2 million in Q1 2025, primarily due to a 14% decrease in aggregate fees, driven by lower performance-based fees. Economic net income controlling interest decreased by 15% to $158.7 million, influenced by the lower Adjusted EBITDA and increased interest expense (up 14% due to recent debt issuances), partially offset by lower taxes.

Looking back at full year 2024, adjusted EBITDA was $973 million, up 4% from 2023, including $126 million in net performance fee earnings. Fee-related earnings grew approximately 10% for both Q4 and the full year 2024, driven by growth in average AUM and new investments, offset by lower net performance fees compared to 2023. Economic earnings per share reached a record $21.36 for full year 2024, growing 10% year-over-year, benefiting significantly from share repurchases.

Flow trends highlight the strategic shift. While overall net client cash flows were roughly flat in Q1 2025, this masked significant underlying movement: a record $10 billion in net inflows into liquid alternative strategies (driven by tax-aware solutions) and $3.4 billion net inflows into private markets, largely offsetting $13.7 billion in outflows from equity strategies. This bifurcated flow profile, with strength in alternatives countering headwinds in long-only equities, has been a consistent theme, though the magnitude of liquid alts inflows in Q1 2025 was notable. Private markets fundraising remained strong, with $24 billion raised in full year 2024, representing approximately 20% annualized organic growth.

Capital Allocation and Future Outlook

AMG's strong balance sheet and capital flexibility are central to its strategy. The company maintains investment-grade credit ratings (A3/BBB) and a long-dated debt structure with a weighted average maturity of 21 years. As of March 31, 2025, it had no outstanding borrowings on its $1.25 billion revolver and sufficient cash and investments to cover debt maturities through 2034. This financial strength enables a disciplined capital allocation approach focused on both growth investments and returning capital to shareholders.

In 2024, AMG executed its largest share repurchase year in history, buying back approximately $700 million in shares, representing about 13% of shares outstanding. In Q1 2025, the company repurchased an additional $173 million. For the full year 2025, AMG expects to repurchase approximately $400 million in shares, subject to market conditions and new investment activity.

The pace of new investment activity has accelerated, with AMG committing approximately $700 million to new partnerships year-to-date in 2025. These include minority investments in NorthBridge Partners (industrial logistics real estate), Verition Fund Management (global multi-strategy), and an agreement for a minority stake in Qualitas Energy (renewables infrastructure), expected to close in Q4 2025. These investments are strategically aligned with increasing exposure to secular growth areas within alternatives.

AMG also actively manages its portfolio through divestitures, as evidenced by the agreement to sell its interest in Peppertree Capital Management as part of its acquisition by TPG (TPG). This sale, expected to close in Q3 2025, is anticipated to yield approximately $240 million in total consideration and represents a significant gain, doubling AMG's initial investment.

Management expects the collective impact of the Northbridge, Verition, and Qualitas Energy investments, net of the Peppertree sale, to be approximately 8% accretive to run-rate economic earnings per share on an annualized basis beginning in 2026, with strong future upside potential.

For the second quarter of 2025, AMG provided Adjusted EBITDA guidance of $210 million to $225 million, based on current AUM levels (market blend up 1% quarter-to-date as of May 7) and including seasonably lower net performance fees of up to $10 million. This guidance includes a partial contribution from Verition but no impact from Qualitas Energy or the Peppertree sale.

While performance fee earnings were below the historical average of $150 million in 2024 due to underperformance in certain absolute return strategies (particularly trend-following), management maintains that $150 million remains a reasonable through-a-cycle expectation, with a growing contribution expected from private markets carried interest in the future. Potential softness in performance fees in 2025 is acknowledged but offset by the improving core business fundamentals and diversification.

Key risks to the outlook include continued industry headwinds in long-only equities, volatility in performance fees, the potential for further intangible impairments if AUM declines persist, and the successful integration and performance of new affiliate partnerships.

Conclusion

Affiliated Managers Group is executing a deliberate and impactful strategic transformation, shifting its business mix towards the higher-growth, more durable segments of private markets and liquid alternatives. This evolution, supported by a unique partnership model that leverages AMG's strategic capabilities, particularly its U.S. wealth platform, is driving improving organic growth trends and enhancing the long-term earnings profile. Recent investments underscore a commitment to this strategy, promising future accretion and upside potential. While facing industry headwinds in traditional equity strategies and variability in performance fees, AMG's strong balance sheet and disciplined capital allocation provide the flexibility to invest for growth and return capital to shareholders. The investment thesis for AMG rests on the continued successful execution of this strategic shift, the ability of its differentiated model to attract and grow high-quality alternative managers, and the effective deployment of capital to capitalize on secular growth opportunities, positioning the company for sustained value creation despite market volatility and competitive pressures.