Executive Summary / Key Takeaways

• The transformation is complete and accelerating: Alternatives now contribute 55% of EBITDA on a run-rate basis, up from one-third five years ago, with $51 billion in net inflows year-to-date through Q3 2025 driving nearly 30% growth in alternative AUM. This shift fundamentally changes AMG's earnings power toward higher-fee, longer-duration strategies.

• The partnership model creates measurable value: Successful exits like Peppertree ($260M proceeds, $127.6M gain) and Comvest ($285M proceeds on $125M initial investment) demonstrate AMG's ability to generate multiples on invested capital while recycling proceeds into higher-growth opportunities, with new 2025 partnerships expected to be 8% accretive to 2026 earnings.

• Capital allocation is driving earnings leverage: With $1.5 billion committed to growth investments and share repurchases in 2025, management expects a "meaningful increase" in 2026 economic EPS. The combination of organic growth and strategic deployment of divestiture proceeds creates a powerful compounding engine.

• The U.S. wealth channel represents a structural growth driver: Alternative AUM on the platform has grown from $1 billion to over $7 billion, driven by tax-aware liquid alternatives that are "difficult, if not impossible" for independent firms to replicate without AMG's scale and resources.

• Valuation reflects quality and growth: Trading at 15.8x EV/EBITDA and 8.5x price-to-free-cash-flow with a 16.2% ROE, AMG's multiples are supported by superior capital efficiency and a business mix shift that is incrementally expanding margins at key affiliates like AQR and Pantheon.

Setting the Scene: The Partnership Model in a Changing Industry

Affiliated Managers Group, founded in 1993, operates a unique business model in asset management. Rather than acquiring and integrating firms, AMG partners with high-quality independent investment boutiques, providing strategic resources and capital while preserving their autonomy. This approach creates a network effect: affiliates gain access to distribution, technology, and operational support they couldn't afford independently, while AMG captures economics without the overhead of traditional asset management.

The industry is undergoing a secular shift from traditional active equities to alternative strategies. AMG recognized this early, beginning its pivot in 2019. The strategy is working. Alternatives have grown from approximately one-third of earnings five years ago to over half by mid-2025, reaching 55% of EBITDA on a run-rate basis by Q3 2025. This matters because alternative strategies command higher fees, longer lock-up periods, and performance fee potential—fundamentally improving the quality and durability of earnings.

AMG's $804 billion in aggregate AUM as of September 30, 2025, spans private markets, liquid alternatives, and differentiated long-only strategies. The mix is shifting rapidly. While long-only equities represented about 55% of AUM at the end of 2021, they now account for roughly 40%. This evolution positions AMG to benefit from industry tailwinds while mitigating the headwinds facing traditional active management.

Technology, Products, and Strategic Differentiation

AMG's "product" is its partnership infrastructure. The company has built a platform that solves the independent manager's dilemma: how to scale without sacrificing the entrepreneurial culture that drives alpha. This is not a technology stack in the traditional sense, but a systematic approach to affiliate support that includes capital formation, product development, and distribution access.

The U.S. wealth channel exemplifies this advantage. AMG has grown alternatives AUM on its wealth platform from about $1 billion to over $7 billion, a sevenfold increase that reflects the difficulty independent firms face in accessing this market. As management noted, "accessing this attractive market requires scale and is difficult, if not impossible, for independent firms to do on their own given the resources required to be effective in the channel." This creates a durable moat: AMG's affiliates can reach high-net-worth clients through tax-aware liquid alternatives and private market solutions that would be prohibitively expensive to build independently.

AQR's growth illustrates the platform's power. AUM expanded from approximately $100 billion at the beginning of 2024 to $166 billion by September 30, 2025, with most growth from organic flows. AQR now manages over $30 billion in long/short tax-aware strategies for wealth clients, with its Flex series growing to over $20 billion since its 2022 launch. This demonstrates AMG's ability to identify and scale innovative products that meet evolving client demands.

Pantheon's evolution reinforces the thesis. Since partnering with AMG in 2010, Pantheon has grown from $25 billion to $85 billion in private markets AUM, becoming a leading secondaries investor. This 240% growth over fifteen years shows how AMG's partnership model enables affiliates to compound capital over extended periods, creating value that accrues to both the affiliate and AMG shareholders.

Financial Performance & Segment Dynamics: The Numbers Tell the Story

AMG's Q3 2025 results validate the strategic pivot. Adjusted EBITDA rose 17% year-over-year to $251 million, while economic earnings per share jumped 27% to $6.10. The key driver was fee-related earnings growth of 15%, reflecting the shift toward higher-fee alternative strategies. This matters because it demonstrates operating leverage: as alternative AUM grows, margins expand without proportional cost increases.

The segment dynamics reveal a tale of two businesses. Alternative strategies generated $18 billion in net client cash inflows in Q3, more than offsetting $9 billion in active equity outflows. Year-to-date, alternatives have produced $51 billion in net inflows while equities have experienced consistent outflows. This bifurcation is structural, not cyclical. Clients are reallocating from traditional active management to private markets and liquid alternatives, and AMG's affiliate portfolio is positioned to capture this shift.

The financial implications are significant. While AMG tends to own more of the firms experiencing equity outflows, the higher fee rates from alternative products more than offset this impact. Aggregate fees grew 16% in Q3 to $1,346 million, driven by a $185.6 million increase in asset-based fees. Performance-based fees added $3.3 million, primarily from liquid alternatives. This mix shift is moving the business toward a higher contribution from fee-related earnings, which grew 15% year-over-year.

Capital allocation discipline is evident in the numbers. AMG repurchased $77 million in shares during Q3, bringing year-to-date repurchases to approximately $350 million. The company has committed roughly $1.5 billion across growth investments and share repurchases in 2025. Management noted that, over the last five years, about 60% of capital was deployed into share repurchases and about 40% into new investment opportunities, though the 2025 mix has shifted toward growth investments.

The balance sheet provides strategic flexibility. Cash and cash equivalents totaled $476 million as of September 30, 2025, with only $100 million drawn on the $1.25 billion revolving credit facility. The weighted average maturity of outstanding non-senior bank debt is 23 years, with all maturities in 2030 and beyond. This long-duration capital structure insulates AMG from near-term refinancing risk and supports long-term affiliate partnerships.

Outlook, Management Guidance, and Execution Risk

Management's guidance for Q4 2025 and 2026 reflects confidence in the trajectory. Q4 adjusted EBITDA is expected in the range of $325-370 million, including net performance fees of $75-120 million. This would bring full-year performance fees to $110-155 million, consistent with the prior five-year average of $150 million. Economic earnings per share for Q4 are projected at $8.10-9.26, implying meaningful acceleration from Q3's $6.10.

The 2026 outlook is even more bullish. Management anticipates a "meaningful increase" in full-year economic earnings per share, driven by three factors. First, the full-year impact of 2025's new investments will replace their partial-year contribution. Second, continued organic growth in alternatives will drive AUM and fee rate expansion. Third, the approximately $1.5 billion committed to growth investments and share repurchases, combined with proceeds from affiliate stake sales, is expected to substantially increase earnings.

The expected accretion is quantified. The three new investments in NorthBridge Partners, Verition, and Qualitas Energy, net of the Peppertree sale, are projected to add approximately 8% to run-rate economic earnings per share on an annualized basis starting in 2026. This demonstrates AMG's ability to generate high-return investment opportunities and realize value through strategic exits.

Execution risks center on affiliate performance and market conditions. While alternative inflows have been robust, any slowdown in client demand or deterioration in investment performance could impact growth. Management acknowledges that "further declines in assets under management resulting from negative investment performance or net client outflows above our estimates could result in additional future impairments," referencing the $70 million impairment recorded in Q1 2025 for indefinite-lived acquired client relationships.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is affiliate dependence. AMG's growth relies on the investment performance and fundraising success of its partner firms. While the diversified portfolio mitigates single-affiliate risk, broad-based underperformance or key personnel departures could trigger outflows. The sensitivity analysis on impairment provides a quantitative framework: a 200 basis point decrease in revenue growth rates would result in an additional $49 million impairment, while a 100 basis point increase in the discount rate would add $91 million.

Active equity outflows represent a persistent headwind. With $9 billion in outflows in Q3 and $11 billion in Q2, this trend could accelerate if clients continue shifting to passive strategies. While AMG's exposure is partially offset by higher ownership percentages in these firms, the fee pressure from lower-margin equity products remains a drag on overall growth. The risk is that outflows could exceed the pace of alternative inflows, though current trends show alternatives growing fast enough to more than compensate.

Regulatory and tax changes pose external risks. AMG is monitoring the OECD's Pillar Two directive for a global minimum corporate tax rate of 15%, though it currently does not expect a material impact. Similarly, U.S. tax law changes enacted in July 2025 are being evaluated but are not projected to materially affect financial statements. These assessments could prove optimistic if implementation details create unexpected burdens.

The concentration of performance fees adds earnings volatility. While management expects $150 million annually, Q3 performance fees were just $11 million, and full-year guidance of $110-155 million implies a wide range. Private markets carry potential could boost this over time, but the timing and magnitude remain uncertain. This creates potential for earnings disappointments in quarters with weak performance fee realization.

Competitive Context and Positioning

AMG competes with both traditional asset managers and alternative investment platforms. Direct competitors include SEI Investments (SEIC), Artisan Partners (APAM), Janus Henderson (JHG), and Franklin Resources (BEN). Each represents a different model: SEIC emphasizes technology-enabled processing, APAM focuses on concentrated active strategies, JHG offers global multi-asset capabilities, and BEN provides scale through acquisitions.

AMG's partnership model creates distinct advantages. Unlike BEN's acquisition-driven integration, AMG preserves affiliate independence, which management argues is "why they chose us." This fosters long-term alignment and retention of key talent. Against SEIC's technology focus, AMG emphasizes investment performance over operational efficiency, targeting alpha generation rather than cost reduction. Compared to APAM's equity concentration, AMG's alternatives-heavy mix provides better diversification and growth exposure.

The financial comparisons are revealing. AMG's 16.8x P/E ratio sits between SEIC's 15.4x and JHG's 13.5x, while its 15.8x EV/EBITDA exceeds SEIC's 14.5x but is well above JHG's 6.9x and BEN's 7.4x. This premium reflects AMG's superior growth trajectory and capital efficiency. AMG's 16.2% ROE exceeds BEN's 3.8% and JHG's 11.2%, though it trails SEIC's 29.3% and APAM's 49.6%. The debt-to-equity ratio of 0.56 is moderate, higher than SEIC's 0.01 and APAM's 0.45, providing financial flexibility without excessive leverage.

The U.S. wealth channel highlights AMG's differentiation. While competitors struggle to access this fragmented market, AMG's platform has enabled affiliates to grow alternatives AUM from $1 billion to over $7 billion. This creates a self-reinforcing cycle: success in wealth management attracts new affiliates, which expands the product suite and deepens client relationships. As management noted, "the success that we are having in the U.S. wealth channel is resonating not only with clients and existing AMG affiliates but also with new investment prospects."

Valuation Context: Pricing a Transformation

At $277.39 per share, AMG trades at a market capitalization of $7.88 billion and an enterprise value of $9.86 billion. The valuation multiples reflect a company in transition. The price-to-free-cash-flow ratio of 8.53x and price-to-operating-cash-flow of 8.48x are attractive relative to the company's growth rate and capital efficiency. These cash flow multiples are more meaningful than the 16.8x P/E ratio for assessing a capital-light business with significant non-cash items.

The EV/EBITDA multiple of 15.8x sits at a premium to traditional asset managers but is justified by the shift toward higher-margin alternatives. For context, SEIC trades at 14.5x EV/EBITDA but lacks AMG's alternatives exposure, while JHG and BEN trade at 6.9x and 7.4x respectively, reflecting their slower growth and structural challenges in active equities. AMG's premium reflects the market's recognition that its business mix is becoming more valuable.

The balance sheet supports the valuation. With $476 million in cash, minimal debt maturing before 2030, and a $1.25 billion undrawn revolver, AMG has the firepower to fund growth investments and weather market downturns. The company's return on equity of 16.2% demonstrates effective capital deployment, though it trails the most efficient peers like SEIC and APAM. The key valuation question is whether the 8% expected accretion from 2025 investments and the continued mix shift toward alternatives can sustain earnings growth that justifies the current multiple.

Conclusion: A Capital Allocation Engine at Inflection

AMG has evolved from a traditional asset management rollup into a focused alternatives growth platform. The partnership model, honed over 30 years, is delivering measurable results: record inflows, successful value realization from affiliate stakes, and a business mix that generates higher-quality earnings. The $51 billion in alternative inflows year-to-date and the 55% EBITDA contribution from alternatives confirm that the strategic pivot is working.

The investment thesis hinges on two variables. First, can AMG sustain the pace of alternative inflows, particularly in the U.S. wealth channel where it has established a defensible moat? The early success with AQR and Pantheon suggests yes, but execution risk remains. Second, will the 2025 investments in NorthBridge, Verition, Qualitas, and Montefiore deliver the projected 8% earnings accretion in 2026? The track record of successful exits provides confidence, but affiliate performance is inherently variable.

The stock's valuation at 15.8x EV/EBITDA and 8.5x free cash flow appears reasonable for a company growing alternative AUM at nearly 30% annually while maintaining disciplined capital allocation. The balance sheet provides flexibility, and the partnership model creates durable competitive advantages. For investors, the critical monitorables are alternative inflow trends and affiliate investment performance. If both remain strong, AMG's transformation will continue to generate substantial value for shareholders.