Executive Summary / Key Takeaways

• Strategic Transformation Accelerates: Affiliated Managers Group (AMG) is undergoing a profound strategic transformation, aggressively shifting its business mix towards high-growth, long-duration alternative asset classes. This pivot, initiated around 2019, has seen alternatives grow to contribute over 55% of run-rate EBITDA, with a target of two-thirds in the coming years.
• Record Organic Growth Driven by Alternatives: Q2 2025 marked AMG's strongest net flow quarter in over a decade, with $8.1 billion in net client cash flows, representing an annualized organic growth rate of 5%. This was powered by a record $19 billion in alternative inflows, notably from private markets and liquid alternatives like AQR's tax-aware solutions.
• Unique Partnership Model and Technological Edge: AMG's differentiated multi-affiliate model attracts top-tier independent firms by offering strategic resources and growth capital while preserving their autonomy. This approach, combined with affiliates' robust systems (e.g., AQR's trading and risk management) and AMG's capital formation platform, creates a competitive moat, particularly in the burgeoning U.S. wealth channel.
• Strong Financial Position and Shareholder Returns: Despite some short-term GAAP income fluctuations due to impairment charges, AMG's underlying fee-related earnings grew 4% year-over-year in Q2 2025. The company maintains a robust balance sheet, actively deploying capital into new, accretive partnerships and executing significant share repurchases, with a target of $400 million for 2025.
• Positive 2026 Outlook: Management anticipates a "meaningful increase" and "step-up" in full-year economic earnings per share for 2026, driven by the full-year impact of recent strategic investments and continued organic growth in alternative strategies.

Setting the Scene: AMG's Differentiated Model and Strategic Evolution

Affiliated Managers Group, Inc. (AMG) operates as a strategic partner to leading independent investment management firms globally, a model established since its founding in 1993. Unlike traditional asset managers, AMG's core value proposition lies in acquiring minority or bare majority equity stakes in high-quality, partner-owned firms, thereby magnifying their success while actively preserving their entrepreneurial culture and independence. This unique approach fosters specialized expertise and strong client relationships in targeted segments, differentiating AMG from larger, more integrated competitors like BlackRock (BLK) and State Street (STT).

AMG has embarked on a deliberate and accelerating strategic transformation since approximately 2019, systematically reallocating capital and resources towards secular growth areas, primarily alternative asset classes. This strategic pivot is a direct response to evolving industry trends, including the increasing role of private market solutions, the acceleration of alternative flows into the wealth channel, and growing demand for liquid alternatives that offer superior after-tax outcomes and protection against market volatility. This focus on high-growth, long-duration strategies is fundamental to enhancing AMG's long-term organic growth, improving the resilience of its earnings profile, and ultimately driving shareholder value.

The company's competitive standing is bolstered by its ability to provide strategic resources—such as growth capital, product strategy and development, capital formation, and incentive alignment—which are often difficult for independent firms to access on their own. This capability is particularly critical in the U.S. wealth channel, where AMG has built a vertically integrated platform. This platform, combined with the robust trading and risk management systems of its affiliates, such as AQR, creates a significant competitive moat. AQR's systems, for instance, are so sophisticated that "only a finite number of firms in the world could even attempt to do what they're doing," according to CEO Jay Horgen, providing a distinct advantage in developing innovative liquid alternative and tax-aware solutions. This technological and operational differentiation allows AMG and its affiliates to bring complex, high-value products to market efficiently, a capability that rivals like Invesco (IVZ) or Franklin Templeton (BEN) may struggle to replicate across their diverse product suites.

Financial Performance: A Portfolio Reimagined

AMG's financial performance in the second quarter and first half of 2025 reflects the accelerating impact of its strategic pivot. The company reported $771.00 billion in Assets Under Management (AUM) as of June 30, 2025, an increase from $701.00 billion in the prior year. This growth was underpinned by a remarkable organic turnaround, with Q2 2025 delivering $8.10 billion in net client cash flows, translating to an annualized organic growth rate of 5%. This marks AMG's strongest net flow quarter in over a decade, driven by a record $19 billion in alternative inflows.

While consolidated revenue for Q2 2025 decreased slightly by 1% year-over-year to $493.20 million, and H1 2025 consolidated revenue also saw a 1% decline to $989.80 million, this was primarily due to changes in the composition of assets under management, rather than a fundamental weakness. Importantly, underlying fee-related earnings (excluding net performance fees) grew 4% year-over-year in Q2 2025, demonstrating the health of the core business.

Net income controlling interest for Q2 2025 increased 11% year-over-year to $84.30 million, primarily due to a $47.50 million increase in Equity method income net and a $7.30 million decrease in income tax expense. However, H1 2025 net income controlling interest decreased 31% to $156.60 million. This decline was largely influenced by non-recurring items, including a $70.00 million aggregate impairment charge ($59.20 million controlling interest) in Q1 2025 related to indefinite-lived acquired client relationships for certain mutual fund assets, and an additional $7.00 million aggregate impairment ($4.00 million controlling interest) from a mutual fund product closure. These impairments were a direct result of projected declines in AUM, underscoring a key risk in the traditional asset management space. Despite these GAAP impacts, Economic EPS, a key management metric, grew 15% year-over-year in Q2 2025 to $5.39, benefiting from significant share repurchases.

Profitability metrics highlight AMG's unique structure. Its TTM Gross Profit Margin stands at an impressive 65.59%, notably higher than direct competitors like BlackRock (49%), State Street (58%), Invesco (33%), and Franklin Templeton (47%). This suggests strong pricing power and efficient revenue generation at the affiliate level. The TTM EBITDA Margin of 46.58% is also robust, indicating strong operational efficiency. However, TTM Operating Profit Margin (17.41%) and Net Profit Margin (21.79%) are lower than BlackRock's, pointing to higher operating expenses or non-operating costs, potentially related to AMG's multi-affiliate structure and ongoing investment in growth.

Growth Catalysts: Alternatives and the Wealth Channel

AMG's strategic shift is yielding substantial results, particularly in private markets and liquid alternatives. Since 2022, private markets AUM has surged by 50% to $150 billion, driven by high-teens organic growth and seven new partnerships. In Q2 2025 alone, private markets affiliates generated $7.80 billion in net client cash inflows. Pantheon, a long-standing affiliate, exemplifies this growth, having transformed into a leading secondaries investor across private equity, infrastructure, and credit, with its AUM growing from $25 billion to $85 billion since 2010. Pantheon's revenue and profits are "growing mid-teens or higher," fueled by its leadership in the secondary space and the wealth channel for semi-liquids.

Liquid alternatives are another powerful growth engine. Q2 2025 saw nearly $12 billion in net inflows, marking the second consecutive quarter of strong performance. This momentum is largely driven by AQR, which has increased its AUM from $100 billion to $143 billion in the 18 months leading up to Q2 2025. AQR's success stems from its innovative tax-aware solutions, particularly its Flex series (launched 2022), which has rapidly grown to over $20 billion in AUM and offers "higher management fees than their average fee rate" and performance fee eligibility. The shift among high-net-worth investors to focus on after-tax returns is a "game-changing" trend that AQR, with its robust systems and first-mover advantage, is uniquely positioned to capitalize on.

AMG's U.S. wealth platform is a critical enabler for these growth areas. Alternatives AUM on this platform has grown more than tenfold over the past five years, exceeding $6 billion, with $2.5 billion in net inflows in 2024. The company has launched several innovative products for this channel, including the AMG Pantheon Fund (now over $5 billion in AUM), the AMG Comvest Senior Lending Fund (a BDC with $500 million in seed capital), and new active ETFs. These initiatives broaden affiliate reach and enhance client access to differentiated investment capabilities, a crucial competitive advantage given the scale required to effectively penetrate the wealth market.

The company's new investment pipeline remains robust, with four new partnerships announced in 2025 alone: NorthBridge Partners (industrial logistics real estate), Verition Fund Management (global multi-strategy liquid alternatives), Qualitas Energy (renewables-focused infrastructure), and Montefiore Investment (European private equity). These investments, totaling approximately $700 million in commitments year-to-date, are expected to be accretive to earnings and further improve AMG's organic growth profile, underscoring its focus on durable client demand and secular growth.

Capital Allocation and Shareholder Value

AMG's disciplined capital allocation strategy is central to its value creation. The company committed nearly $1.2 billion in capital across growth investments and share repurchases in the first half of 2025. This robust deployment activity is supported by a strong balance sheet, characterized by long-dated debt (weighted average maturity of 23 years for non-senior bank debt) and access to a $1.25 billion revolving credit facility. The $350.00 million senior notes due 2025 were fully repaid on August 1, 2025, further streamlining the debt profile.

In terms of shareholder returns, AMG repurchased approximately $273 million in shares year-to-date through Q2 2025, with a target of $400 million for the full year. This aggressive repurchase program, alongside strategic investments, demonstrates management's confidence in the business's intrinsic value. The company also strategically manages its portfolio, as evidenced by the successful sale of its equity interest in Peppertree Capital Management in July 2025, which more than doubled its initial $140.00 million investment and generated approximately $260 million in pretax proceeds. Similarly, the agreement to sell a portion of its interest in Comvest Partners' private credit business for an expected $285.00 million in August 2025 provides additional capital for redeployment into higher-growth opportunities. These divestitures, driven by affiliate strategic choices, highlight the embedded value within AMG's private markets businesses and provide significant capital flexibility.

Risks and Forward Outlook

While AMG's strategic transformation is compelling, investors should consider several risks. The company remains susceptible to AUM declines from negative investment performance or net client outflows, which could lead to further impairment charges, as seen in Q1 2025. Performance fee earnings, while a growing component, can be volatile and are subject to market conditions and affiliate investment performance, with management noting anticipated softness in 2025 due to underperformance in certain absolute return strategies. Geopolitical and economic uncertainties could also impact market sentiment and client allocations. However, AMG's diversified business profile, with liquid alternative strategies designed to protect against volatility, acts as a significant mitigating factor. Regulatory changes, such as the Pillar Two directive or U.S. federal tax law modifications, are continuously monitored, though currently not expected to have a material impact.

Looking ahead, AMG's outlook is decidedly positive. For Q3 2025, management expects adjusted EBITDA to be in the range of $230 million to $240 million, with economic EPS between $5.62 and $5.87. This guidance incorporates a full quarter of Verition's contribution and the final quarter of Peppertree, but excludes the impact of Qualitas Energy and Montefiore, which are expected to close later in 2025. Management anticipates a "meaningful increase" and a "step-up" in full-year economic EPS for 2026, driven by the full-year impact of the four new partnerships announced in 2025 and the continued organic growth of existing alternative strategies. The collective run-rate economic EPS accretion from Northbridge, Verition, and Qualitas Energy (net of the Peppertree sale) is projected to be approximately 8%, with strong future upside. This forward momentum is a testament to AMG's strategic execution and its ability to consistently identify and invest in high-growth areas.

Conclusion

Affiliated Managers Group is executing a powerful strategic pivot, transforming its business into an alternative asset powerhouse. By leveraging its unique multi-affiliate partnership model, AMG is not merely adapting to industry shifts but actively shaping its future, driving robust organic growth, and enhancing earnings resilience. The company's disciplined capital allocation, focused on high-growth private markets and liquid alternatives, particularly through its innovative U.S. wealth platform, positions it strongly against competitors.

While short-term GAAP results may reflect the costs of this transformation, the underlying economic performance and forward guidance point to a compelling investment thesis. The projected "step-up" in 2026 earnings, fueled by recent accretive partnerships and the continued scaling of key affiliates like AQR and Pantheon, underscores the significant value creation potential. AMG's ability to combine strategic support with affiliate independence, coupled with its technological and distribution capabilities, provides a durable competitive advantage, making it a distinctive opportunity for investors seeking exposure to the secular growth in alternative asset management.