Affiliated Managers' CEO Discusses Q4 2012 Results - Earnings Call Transcript

Jan.29.13 | About: Affiliated Managers (AMG)

Affiliated Managers Group (NYSE:AMG)

Q4 2012 Earnings Call

January 29, 2013 11:00 AM ET


Alexandra Lynn - Vice President, Corporate Strategy and Investor Relations

Sean Healey -Chairman and Chief Executive Officer

Nathaniel Dalton - President and Chief Operating Officer

Jay Horgen - Chief Financial Officer


Craig Siegenthaler - Credit Suisse

Daniel Fannon - Jefferies & Company

Bill Katz - Citigroup

Michael Kim - Sandler O'Neill

Cynthia Mayer - Bank of America Merrill Lynch

Chris Shutler - William Blair


Greetings, and welcome to the Affiliated Managers Group fourth quarter 2012 earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host, Ally Lynn, Vice President for Corporate Strategy and Investor Relations.

Alexandra Lynn

Thank you for joining Affiliated Managers Group to discuss our results for the fourth quarter and full year of 2012. In this conference call, certain matters discussed will constitute forward-looking statements. Actual results could differ materially from those projected due to a number of factors including, but not limited to, those referenced in the company's Form 10-K and other filings we make with the SEC from time to time. We assume no obligation to update any forward-looking statements made during this call.

AMG will provide on its website, at, a replay of the call and a copy of our announcement of our results for the quarter, as well as a reconciliation of any non-GAAP financial measures to the most directly comparable GAAP financial measures.

With us on the line to discuss the company's results for the quarter are Sean Healey, Chairman and Chief Executive Officer; Nate Dalton, President and Chief Operating Officer; and Jay Horgen, Chief Financial Officer.

With that, I'll turn the call over to Sean Healey.

Sean Healey

Thanks, Ally, and good morning, everyone. We were pleased to report record earnings for both the quarter and the full year period, with economic earnings per share of $2.55 for the fourth quarter and $7.71 for the full year, an increase of 16% over 2011. And assets under management were approximately $432 billion at yearend an increase of 32%.

Our excellent results for the quarter and year were driven by the strong investment performance and new business momentum of our affiliates as well as significant deployment of capital through our new investment strategy. We continue to benefit from our affiliates outstanding investment performance and our strategic focus on global and emerging markets equity and alternative products.

These return oriented product areas are increasingly in demand by global clients for the out-proportions of their portfolios, and unlike more scale-oriented product categories such as fixed income or passive equity in value-added product categories like global and emerging market equities and alternatives. Boutiques have a competitive advantage in generating excess returns and boutique firms, including our affiliates are recognized as among the best managers in the world.

For example, in global and emerging market equities, our largest affiliates in these categories, Tweedy, Browne, Genesis and Harding Loevner have substantially outperformed their peers and benchmarks in every relevant time period. While in the alternative area, affiliates such as Pantheon, ValueAct, AQR and BlueMountain offer a broad array of the most highly regarded alternative strategies in the industry, and their excellent performance generated meaningful performance fees in 2012.

Given their consistently excellent performance records across this diverse range of product categories and investment strategies, our affiliates are well positioned for continued strong organic growth. In addition, we anticipate and are seeing early signs of broad based reallocation to return oriented products by both retail and institutional investors.

We believe that the outsized flows into fixed income products over the past several years will inevitably reverse. And when that occurs, AMG will not be impacted by the decline of assets from fixed income outflows or the depreciation and value of fixed income products.

We continue to generate outstanding organic growth from net client flows, even against this industry backdrop of muted investor risk appetite. AMG's 11 consecutive quarters of strong positive net flows, including over $30 billion in 2012, reflect not only the excellent investment performance of our affiliates, but also the ongoing success of our global distribution strategy, which combine the affiliate level marketing and distribution with the scale and resources of a global asset manager.

For the past five years, we've been building our global platform in key markets around the world to extend the reach of our affiliates marketing efforts and the strategic investment we made in opening offices in Sydney, London, Hong Kong, Dubai, and now Zurich, has resulted in meaningful contributions to AMG's overall organic growth.

With new mandates won in every coverage region over the past 12 months and the enhanced depth and breadth of marketing coverage across our global platform, we see ongoing new business momentum and client demand for our affiliates industry leading products. And we are continuing to invest in our distribution platform worldwide with additional resources and key markets and client channels in the years ahead.

Turning to new investments. We were very pleased with the strong execution of our new investment strategy in 2012. With over $0.75 billion deployed over the course of the year, we added two outstanding new affiliates. Veritable, our first wealth partners affiliate, and Yacktman, a highly regarded value equity manager, and made a significant additional investment in renowned credit alternatives manager, BlueMountain.

Looking ahead, the transaction environment remains highly favorable to AMG and with our two decade long track record of successful partnerships, we are uniquely positioned to execute on our diverse opportunity set, including a broad array of traditional, alternative and wealth management firms.

Looking back on 2012, I'm very pleased with what we accomplished last year. Through the successful execution of our growth strategy, including the organic growth of our affiliates as well as partnering with new affiliates, we have continued to increase the scale, diversity and earnings power of our business. Looking forward, AMG is tremendously well positioned on a global basis across all elements of our growth strategy.

We will remain focused on our core strategy, but at the same time the increased breadth and scale of our business as well as our global reputation will continue to create additional avenues of growth, whether through extending the marketing reach of our affiliates in additional markets around the world, building strategic relationships with key global clients and enhancing capabilities across channels or deploying capital through a diverse array of new affiliate investments.

In this, the 20 anniversary of AMG's founding, even with the outstanding growth we've achieved to date, I know that the best days are still ahead of us and we're positioned to create substantial shareholder value in the years to come.

With that alternative, Nate to discuss our affiliate results in greater detail.

Nathaniel Dalton

Good morning, everyone. 2012 marked another year of significant growth for AMG. As Sean said, we continue to benefit from our strategic focus on global emerging markets equities and alternative investments. These are areas, where we see significant macro growth opportunities and our leading affiliates with products in these areas extended our outstanding investment track records last year.

Now, our continued strong investment performance combined with our robust global distribution strategy and resources resulted in another year of good net client cash flows in 2012, over $5 billion in the fourth quarter and $30 billion for the year. We've now had $55 billion of net positive client cash flows over the past two years, appeared when broad industry flow trends have favored fixed income and passive products.

Now, one point regarding the significant growth in passive allocations, generally, we believe that this is ultimately very good for truly differentiated return oriented managers, as clients are dividing their portfolios between passive exposures and alpha, which I would define broadly as including all the ways clients are taking risks to their actual return.

These so called barbell approaches clearly benefit providers of passive market data, but they also benefit the better providers of this extra return. Now, we view this as a long-term trend and believe that funds such as our performance oriented affiliates will continue to attract strong flows, as they have, even as passive product grow.

Now, turning to investment performance. In the global developed markets category, Tweedy, Browne's largest strategies outperformed on a relative basis for the year and remained well ahead of benchmarks across all irrelevant time periods. Harding Loevner also had a very good year overall with the global equity funds outperforming and remaining well ahead for the year in longer period. In addition, AQR, Artemis, Third Avenue and Trilogy each had a strong performance year in the category.

Turing to emerging markets. We had mixed performance in the quarter, performance track records for the full year and longer periods are very good. In fact, all the products managed by Genesis, Harding Loevner and AQR in the category are well ahead of their respective benchmarks for the one, three and five year periods.

Turning to alternatives category. We had strong performance among several of our largest products. We still have a meaningful performance fees for the year. Highlights included excellent performance from products at BlueMountain and ValueAct. At BlueMountain, the outstanding performance continued across all funds, including our flagship credit alternatives fund as well as our long/short credit fund, while ValueAct had another great year with excellent performance across all their strategies.

Overall, we've been very broad, diverse, exposure to alternatives, including an array of products in each of private equity, infrastructure, credit, control oriented equity, global macro, market neutral, commodities and currencies, which are managed by some of the leading firms in their respective disciplines. While in any given year, performance and performance fees, they come from one set or another of these products. This diversity positions us extremely well for strong consistent performance free contributions going forward.

Now, turning to our U.S. equity products and starting on the value size. Tweedy brand generated outstanding performance in the quarter of systematic investment and more mixed quarter a year. On the growth side, our largest affiliates performed well across both short and long-term periods. Highlights here included the strong performance at Frontier and Times Square, where all of their products from small cap to all cap outperformed for both the quarter and year.

Now, turning to flows for the quarter. As I said, we had another strong quarter with $5.1 billion in positive net client cash flows, again coming principally in global equities, emerging markets equities and alternatives.

Starting with the institutional channel, we had positive flows of approximately $3.1 billion. These flows came mostly in those areas, global, emerging markets and alternatives with notable contributions from BlueMountain, AQR, Genesis, Harding Loevner and Pantheon. As we always say, flows in the institutional channel are inherently lumpy, and this quarter was no exception, as there were some great wins in the quarter, but also some rebalancing outflows at a few clients.

Moving to the mutual fund channel. We had positive flows of $1.9 billion, again continuing the positive trends we've had over the past several quarters and from a category standpoint, we had strong flows in the global and alternative strategies. The flows this quarter, once again included very strong flows in the subadvisory channel. In our high net worth channel, flows are about $30 million for the quarter. We had positive flows from GW&K, which continues to attract flows through their sales force is also a U.S. retail distribution platform. And our partners at GW&K have done a terrific job, building their business, since our investment in 2008.

Finally, turning to our overall global distribution efforts. 2012 was another terrific year of growth for us. We won significant new business in every one of our regions, Asia, Australia, Europe, the Middle East and of course in the U.S. with our retail and subadvisory efforts. As you know, our strategy is to identify those countries and regions, where we believe we can work closely with our affiliates to drive significant flows over time.

Each region generally takes a few years to really come on line, as we built traction with the highest quality prospects and intermediaries. As our penetration in the region takes hold, we can then deepen our exposure, both by geography and by channel it in a region.

For example, in the past couple of months, we strategically added experienced sales people in Switzerland and Germany to our European team, are opening an office in Zurich, and earlier last year opened a new office in Dubai to further strengthen our Middle East sales and client servicing efforts.

Looking ahead, we believe we are still in the early days of executing on the opportunity to come under distribution scope and scale of a global asset management firm with our broad array of outstanding performance oriented affiliates, and we remain confident in our ability to continue to generate significant organic growth going forward.

And with that, I'll turn it to Jay.

Jay Horgen

Thank you, Nate. As Sean and Nate discussed, our record 2012 results reflect AMG's industry-leading organic growth and the excellent execution of our new investment growth strategy. As you saw in the release, we reported economic earnings per share of $7.71 for 2012. For the quarter, we reported economic earnings per share of $2.55, which included net performance fees of $0.61. On a GAAP basis, we reported earnings of $1.40 for the quarter.

Now, turning to more specific modeling items. The ratio of our EBITDA contribution to end of period assets under management was approximately 19.5 basis points in the fourth quarter, reflecting the strong contribution of performance fees. We expect this ratio to be approximately 15.25 basis points for the first quarter of 2013, and for the full year we expect it to be just under 16 basis points, which include the reasonable assumption for performance fees and organic growth.

Holding company expenses were approximately $29 million in the fourth quarter, reflecting final yearend expenses, and we expect them to return to approximately $23 million in the first quarter.

With regard to our taxes, our effective GAAP tax rate for the quarter was approximately 32% and our cash tax rate was approximately 27%. Going forward, we expect our GAAP tax rate to be approximately 34% and our cash tax rate to return to approximately 22%. Intangible-related deferred taxes for the fourth quarter were $17.5 million and we expect this number to return to approximately $14 million per quarter going forward.

Our share of reported amortization for the quarter was $26.5 million and together with $10.4 million of amortization from affiliates accounted for under the equity method, AMG's controlling interest portion of amortization was $36.9 million. We expect AMG's amortization to be approximately $35 million going forward.

Our portion of total interest expense for the fourth quarter was $33.3 million, including $9.1 million of pre-tax non-cash imputed interest expense. We expect our total interest expense to be approximately $31 million for the first quarter.

Now, turning to guidance. We are raising our 2013 guidance, as we expect economic earnings per share to be in the range of $8.60 to $9.50. Our guidance assumes our normal convention of actual market performance through yesterday for the current quarter and 2% quarterly market growth beginning in the second quarter.

We also assume our weighted average share count of approximately 54.5 million shares for 2013. The lower end of our 2013 guidance includes a modest contribution from performance fees and organic growth, while the upper end of the range assumes to be more robust contribution from both performance fees and net client cash flows.

As always, these assumptions do not include earnings from future new investments and are based on our current expectations of affiliate growth rates, performance and the mixed affiliate contributions to our earnings. Of course, substantial changes in markets and earnings contribution of our affiliates would impact these expectations.

Now, we will be happy to answer your questions.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Craig Siegenthaler of Credit Suisse.

Craig Siegenthaler - Credit Suisse

Just walking through the potential uses of excess capital deployment this year, especially if you deploy less capital acquisitions than your current $500 million roughly free cash flow generations, how do you look at deploying capital into potential acquisitions versus deals and maybe even calling some of your convertible debt?

Sean Healey

As you know, we always over time, all things being equal, prefer to invest in new affiliates, and we look to take advantage of investment opportunities and outstanding firms. Whenever and wherever we find them and really without regard to what our excess capital, I wouldn't use that term. Whatever the available cash on the balance sheet is, it wouldn't really matter. Those opportunities are rare, and so we're focused on executing on them whenever we can.

Obviously, as you know, and virtually every year, that we've been public, we've repurchased equity. And so along the way I suspect that, that will be an element of our capital deployment as well, although we don't have a particular timeline or a target. Jay, do you want to add to on the convert?

Jay Horgen

I'm still on the convert, Craig. We do have the opportunity to call the convert this year. It's all right. It would be in August of this year and we can call it anytime after August as well just to make note of that. We have plenty of cash as you mentioned, to call it, as we approach kind of the middle of the year, I think we'll make a determination on our capital needs and opportunistically look to refinance part or all of that out, if that's course of the action.

And as we evidence by our debt offerings last year, we continue to have an excellent opportunity to access low cost of capital. And as we've said in prior calls, we are continuing to see our balance sheet evolve to more of a straightforward kind of simpler mix of debt and equity.

Craig Siegenthaler - Credit Suisse

And then just as a reminder, what is the capacity left on the revolver today? And also, what's the notional amount on the equity forward sale on the strike price here?

Jay Horgen

Today we have virtually over $800 million of undrawn revolver plus the $500 million that we just talked about. In addition, the notional amount, but no shares issued of about 150 under the forward. So you add all those numbers up, it's close to $1.5 billion.

Craig Siegenthaler - Credit Suisse

And can you remind us, what the strike price was on the 150 equity forward sale?

Jay Horgen

Yes, 122, thereabout.


Our next question comes from Daniel Fannon of Jefferies & Company.

Daniel Fannon - Jefferies & Company

Just in terms of the flows and thinking about 4Q and your outlook for next year. Maybe if there was anything going off that you might highlight that might have been on a more of the redemption side or negative or a delay, maybe in terms of decision making in 4Q? Then also just kind of characterize the backlog or conversation today versus various other points that you had in 2012?

Sean Healey

So I think I'll start by saying broadly the trends we've been seeing remain in place. If you start with looking back at the last quarter and then you sort of ticked up on it implicit in your question. Yes, there was a little bit of the tick up in redemption and there was especially in the institutional channel. I think that was some sort of idiosyncratic specific and rebalancing decisions that clients made.

And the things I would call out, I mean obviously, there is the broad stuff, but the things I would call out, some of that was mangers who've done very well, right. So it's sort of explicable, they've done very, very well and there were some rebalancing away. And some of them were just some portfolio rebalancing decisions, those kind of things, and I'm not sure is anything notable there that I would call out.

And then to the other question, which is I was looking forward. I guess again, probably break it down by channel is a way to talk about it. So institutional broad trends remain the same. We think, this had in our prepared remarks, investors are looking for ways to get returns into their portfolios with a broad array of differentiated return oriented managers.

So those broad trends remain there, and if you look at, whether it's searches, RFPs, finals all that, I think again the broad trends remain pretty consistent. I don't really have anything specific on the high net worth channel, but I think if you look sort of more to the retail side and Sean sort of mentioned this in his remark, if you look at the retail side that is the place where we like others have seen elevated positive equity flows this moment. It's very early in the quarter. It's only a couple of weeks all that, but that's only both U.S. equities and global equities, we've seen the pick up.

Jay Horgen

I think it's worth underscoring and I know you know this Dan that, when we talk about continued trends or continued momentum that really is quite unique in the industry. I mean, we now have 11 consecutive quarters of strong positive flows into return oriented products, not fixed income, not passive equity.

And so for us, the trends remain in place and what underlies them is the really outstanding performance of our affiliates that continues in these return oriented product categories especially, as well as the continued strong execution of our distribution strategy. And as we each mentioned, we see as we continue to build out that strategy globally, additional opportunities, additional avenues of growth, so that gives us even more confidence looking ahead.

Daniel Fannon - Jefferies & Company

And then, I guess just at the individual affiliate level, given the success you have been having, are there any capacity issues, maybe focusing more on the alternative guys that might be facing PKUMs?

Sean Healey

I think probably the best way to answer this is actually answer it in a broad level across the group, right. So there is certainly a few products, at capacity, over capacity is something they're seeing and they're managing flows carefully, and whether they're extending pipelines of flows out in the future and all that. So there is definitely some of those.

But in our view, if you start thinking about it in the high level that's much more than offset by new products coming online at a are really broad range of affiliate. So whether that's at a place like BlueMountain, where they're extending their product lines with things like their credit opportunities funds, they've launched one of those. There will certainly be others, whether it's a place like Pantheon, extending their co-investment vehicles and extending their infrastructure business. AQR has obviously launched a range of both new products and new packages.

Even on the equity side at Harding Loevner's is rolling its easiest version of global equities and emerging markets equities and Frontier equities. So there is plenty of new product, sort of coming online, that is again, in our view is sort of more than offset, but of course, you're right there will be given the success, there will always be places where one or the other, where capacity is something we have to manage.


Our next question comes from Bill Katz of Citigroup.

Bill Katz - Citigroup

On some of the rebalancing you highlighted, two-part question. So where are you seeing it coming from? And then the second question is, you've talked about the fact that you don't have the fixed income exposure, and certainly appreciative of that. Is there any concern about potential rotation out of global equity and emerging market back to domestic? And could there be a little bit of a mismatch on volumes, just given the relative sizes of the underlying portfolios you have in your affiliate mix?

Nathaniel Dalton

I'll try to go in order. So the first, I'm not sure, I really agree with the sort of starting premise. There were rebalancing. And I don't want to make too much out of it, but I do think they were at least in part, just sort of very idiosyncratic things. So I don't think I would, sort of look at those, and say, hey, there is some trends here.

I think the point I was trying to make is the flows in institutional are very lumpy and there were some on sort of both sides with this quarter, that's the first thing.

Then to the second part of the question, so speaking as said in earlier question, I think out where we see activity, right, so we can look back across the full pipeline, if you will. We're still seeing. And again, decision making cycles in institutional are long, but we're still seeing very good, high levels of activity, such as RFP's, finals and the one, the non-funded pipeline is looking very good. So we're seeing very good activity. It continues to be as we said, emerging, global, developed and alternatives in all the other areas.

So again, that's mostly an institutional comment. And then the one place where we have seen, again very short duration signals is on the retail side. But those have been both. As I said those have been both, U.S. and global equity, where we've seen good pickups and flows. Again Now again, all the caveats apply. That's three or four weeks of data. But where we've seen that change it's been both global and domestic, both.

Bill Katz - Citigroup

Just on that, maybe a follow-up. And then one for Jay after that. If you were to look at year-on-year instead of quarter-to-quarter, are you seeing the same kind of rotation, or is it more seasonal, in your mind?

Nathaniel Dalton

I'm not sure, you mean, just focused on the mutual fund?

Bill Katz - Citigroup

Yes, though, I think it's a rotation?

Nathaniel Dalton

So I have to be a little bit careful here, because again I'm focused on our products at, right. And our products set has also evolved a little bit year-on-year, probably from new investments and things like that. So I think it is different. I do. I think we're seeing good flows. That pickup and flow, I do think is stronger this year. I do think that's something we're seeing.

Sean Healey

I think again similar to that earlier question. I would just emphasize that first, our trend line and momentum is quite distinct from the industry. And so we're not seeing any of these trends that you suggest in your question that others might be seeing with a change or a slowdown in international. In fact, to the contrary, the AMG specific theme is that we're still building out our global distribution platform. And we saw at the end of last year, big wins in Asia, our Hong Kong office is still relatively new big wins in the Nordics.

And we're building out capabilities, Korea, Zurich office and Germany and Switzerland with dedicated focus coverage their. So we see continued trends and momentum in the extant regions. But as we continue to build out our distribution capabilities, we see additional opportunities for growth. And that's really unique, I think relative to the industry broadly.

Bill Katz - Citigroup

And then just one for maybe yourself and Jay, and maybe China, read through a few leaves here on the M&A opportunity. Jay, you mentioned that, as you get to the summary, you sort of reassess your capital planning needs. Does that imply that the deal pipeline is more in the early stage of discussions versus the latter stages, or is that reading too much into the commentary?

Jay Horgen

Well, let me say this and of course everybody is curious about the deal pipeline and tries understandably to read into nuances of what we say, sometimes where we don't intend nuances. If you sort of step back at the end of last year what happened. And I think this is largely based on market volatility through the year of political instability and uncertainty and the whole fiscal cliff issue. I think across the industry, there was less activity than what might have been expected.

As we look forward into 2013, I think it will be a very strong year for the industry, and I think it will be a very strong year for AMG. We entered the year with a very good pipeline. And if you sort of look forward and think about the broad trends and this will be 2013 and beyond. The first and most important when we're talking about boutique firms, we have demographic issues, demographically driven success in transactions or to some extent inevitable. They may not all go to AMG, but every boutique firm have to at some point have a solution to their demographically driven transition issues.

And what's important to understand is the base of firms that face these issues has expanded globally among traditional firms, but also includes an increasing number of alternative firms, also includes for us, wealth management firms.

Second thing to understand is that when you have a period of rising markets and relative stability, then those are the essential ingredients for an acceleration and activity. And it seems as if, certainly the year is beginning in that way. Obviously, if we have some event, which with renewed market volatility, that would have a chilling effect on transactions.

But it's important to understand, there has been a big build up of these potential transaction across the industry, and of course, for us as well. And so we're quite optimistic as we look forward. I'd also say, there are ongoing divestitures, and that's less of the theme for us, because we're highly selective and only a subset of those of the divested firms are really applicable to us.

But looking forward we are extremely optimistic. We have a very, very strong competitive position, really a unique position in the industry. It doesn't mean that every perspective transaction is appropriate for us, right. It's got to be the right kind of firm looking for our kind of solution.

And we are very, very selective. So it's always going to be a subset of the transactions out there. But that drop is very, very positive for our new investment activity. And that drives us as we think about allocating resources and positioning our capital. That's what's underlying those decisions.

Jay Horgen

Yes, I think the only other thing I was going to say that my comment was just really around the convertible, Bill, so it was not meant to be a more, a broader statement. It was just a convertible's call going August.


Our next question comes from Michael Kim with Sandler O'Neill.

Michael Kim - Sandler O'Neill

First, not to be the dead horse but, Sean, just curious to get your take on kind of the recent step-up in flows into equity, mutual funds, so how much of that do you think is more tactical in nature versus maybe more durable shift in allocation trends? And then assuming investors continue to move up the risk curve, how do you see your flow trends kind of playing out as you look across your product capabilities and your affiliate base.

Sean Healey

As we have said, we think that a broad based reallocation from fixed income into risk assets is inevitable. Whether we're seeing it now is uncertain. Certainly, there is anecdotal information in the industry trends broadly, and we have seen anecdotally some evidence that this is occurring.

Otherwise, I must say that the moment that this becomes conventional wisdom, and people start talking about the corporate rotation and everybody thinks this is the year. It makes me wonder, whether this might not be the year, either it might be little ways off. So the honest answer is no one knows. No one knows in the short term and we will see.

The thing that I do know, for a certainty, is that such a broad based reallocation to risk assets is not factored in to our guidance and to the extent that occurs, that is a huge positive for us. Because we're a firm with no fixed income, with very little fixed income exposure. No core fixed income exposure. And so our product set is ideally positioned for a broad reallocation rotation into risk assets.

And then from a sort of competitive standpoint, if you will, we're pleased that we're in a position over the past five years, we've been asked a number of times why we don't have more fixed income. And I think maybe, five years ago, we would have wanted more, but now given where we see industry trends, whenever this great rotation occurs, we know that we have; a, have a product set that is ideally positioned for future investor demand, retail, and institutional.

And we also know that what we don't have is a product set that is going to be subject to fixed income that is going to be subject to outflows and depreciations. So that gives us a degree of confidence. And as the trends are the same that they've been through the past couple of years, we're very confident in how our business is positioned, and our ongoing momentum. And to the extent that you believe that now is the time, as everybody seems to be saying that, that so much the better, much better for us.

Michael Kim - Sandler O'Neill

Then on the deal front, I know they offer a very different value proposition, so to speak, but it does seem like private equity money is maybe coming more into play, particularly with the availability of financing. So just wondering, how that could potentially impact the competitive environment for deals more broadly or is that not really an issue for you guys just given your structure?

Jay Horgen

Well, I think one of the benefits of this being our 20-anniversary as a company, is that we have been through market cycles and we've been through periods of various different competitor types coming to the floor. Private equity has been around for the whole duration. And I must say, relative to European banks paying 20 times EBITDA, which we lived through a little period like that.

Private equity tends to be rational and relatively disciplined in the pricing. And then, the most important point is that it is a completely different model. I think it's appropriate for firms that anticipate and desire as second-stage transaction. So they need somebody to come in, and maybe, help them change some things about their business. And then, shortly thereafter, they want to go public or they want to sell to somebody else. It makes sense there.

If you're talking about a boutique asset management firm, which has demographically driven succession issues, what they want is a solution that is a permanent solution. They don't wanted to have to go back to their clients a few years later, and say, we're back and now we're doing a different transaction. It's just a poor fit with the kinds of firms that we're interested in partnering with.

And so we end up, while they are contextually, competitors just like banks. And when banks were buying were competitors, it really is a very different transaction type. And so we don't end up competing with them, except in a few very isolated situations.

Michael Kim - Sandler O'Neill

And then just maybe one final one for Nate, obviously, momentum across the global distribution platform continues to build, but would it be possible that maybe we could get some color on where you kind of see the biggest opportunities, within some of the markets where you've been the longest, or maybe Australia and Europe in particular?

Nathaniel Dalton

Sure. And Sean actually had covered a little bit of this already, which is we'll step back, what we're doing is remarrying excellent performance-oriented boutiques, with the scope and scale of global distribution platform, right that's the broad thing. And we're certainly seeing new regions that we can go into as we have with our existing regions. And each time we enter one, there is a curve where they grow. And we see opportunities to keep doing that and you will see us do that.

But where we see huge opportunities in the shorter-term or for more focused resources within the broad region, an example, where we have really done this and already executed was we added someone in the Nordics, great folks in the Nordics, kind of 18 or so months ago. And that's already, really producing, and that's faster than going to new region as an example. And we're now adding Germany and Switzerland.

So there is definitely one team right there, which is much greater, more focused-resources within broad region, Europe especially, where we're really focusing. And then the other place, you're going to see us adding some resources. Again, we'll only do this when we see really good return opportunities, like you'll see us add resources to diversify channels within places where we're already seeing greater results.

And you mentioned Australia, and that's an example, where we see, where we've had some very good success over the years. But we do see some opportunity to specialize by channel there. And the kind of thing where we could see, make it a small incremental investment and get returns in terms of new flows, a bit faster than going to new region. So those are the things you will absolutely see us doing.


Our next question comes from Cynthia Mayer of Bank of America Merrill Lynch.

Cynthia Mayer - Bank of America Merrill Lynch

Question on the fee rate, if I look at your management fees, from majority owned affiliates. It looks like the average ticked down. I'd say, it's little hard to see because it's a performance fee quarter, but can you give us a sense of where the blended fee rate is now, ex-performance fees and where you see that going?

Sean Healey

Nate can help me on this, Cynthia. I think the first comment is kind of taking a step back on fee rates. The actual calculation has as much to do with the ownership of our affiliates and which affiliates are growing, which once are not within the consolidate affiliates, being mindful that only as a portion of our total affiliate base, because the equity method has, as many as, seven additional affiliates in that category.

So we really don't look at our business on this basis. And maybe Nate can comment on just fee rates generally, but it's not our fee rates going up or down. It has more to do with the ownership rates and the combination of all the factors.

Nathaniel Dalton

So to extent the question is what are we seeing happened with the fee rates across the whole book. There are definitely isolated instances where you're seeing some fee pressure. But the broad comment I'd make is for differentiated managers with good performance track records. We're seeing plenty of demand and ultimately that's really what it is, it's just supply and demand.

I think the demand point is, and this is echo something Sean said earlier, the demand point is it's not only all the places where we're seeing it right now, but we are bringing these products into new regions. And in the main, we're not really seeing any issues on the fee side getting consistently high fee rates.

Jay Horgen

And then to kind of capital loss, Cynthia, when you look at our EBITDA contribution to sort of the end of period assets under management you see that that level being stable or maybe even ticking up a little bit. So that is really reflective of some of the growth and some of our higher fee rate businesses like the odds segment. It's interesting that actually occurred. And remember EBITDA contribution for us is representative of our revenue share of those affiliates.

Sean Healey

And so only thing I'd add is some of those partner business that are fast growing, you have to certainly think about those full effective fee rate including the expected performance fee component of that, right. So some of that is sort of more episodic, either backend loaded to the fourth quarter or just episodic. Some of those seem to be multiyear too.

Cynthia Mayer - Bank of America Merrill Lynch

Multi-year fee, is that you're saying?

Sean Healey


Cynthia Mayer - Bank of America Merrill Lynch

Well, since you bring it up, are you expecting any difference in multi-payouts at multiyear fees, say this year versus less?

Nathaniel Dalton

No. I don't think I would characterize it that way, the only way of making, as I do think as the alts part of the business is going to perform and see, part of the business is growing. Obviously it's part of that.

Cynthia Mayer - Bank of America Merrill Lynch

I understand you look at it more as EBITDA than fee rate. Maybe just one question on the guidance, correct me if I'm wrong, but it sound like you lifted a little bit less than the equity markets have gone up since you last gave guidance. Is there some offset there or is that conservatism or maybe the combination of alts, which wouldn't be geared directly of S&P?

Jay Horgen

I think we're reflecting fully on our market blends, so I think maybe one place that's a little different. It's just, remember you might see some metric equity market up a percentage, but not all of our affiliates are tied directly to equity data. So for example, Pantheon is not, so I think you have to remember that there is a factor there. So far, this quarter we've seen our blend to up about 3.3%, which incorporates all of the different types of the affiliates that we have.

The only other thing I would say is, we did mentioned that share count is up about 0.5 million shares from the last time we gave guidance. So there is a little bit of an effect of that, but generally speaking sort of the answer to your question is, no, we fully reflected our market blend and the share count, and indeed increased beyond that.


Our next question comes from Chris Shutler with William Blair.

Chris Shutler - William Blair

One more on the pipeline, so if you look at the pipeline or prospects that maybe are a little bit more near-term in that pipeline. How do you think that the upper trajectory of the markets that were so far this year really impacts their timing? I mean, obviously, it's going vary on a case-by-case basis, but just broadly, do you think that positive markets cause sellers to hold out a little longer or do you feel like you're ability to maybe structure deals in various ways essentially neutralizes that kind of thinking?

Sean Healey

Well, the first thing to say is that your question which is a fair question is really only applicable to a subset of our opportunities. In other words, alternative firms aren't really affected by equity market moves necessarily. I think broad stability is positive for all transaction types, but the equity markets wouldn't necessarily affect an alternative manager. Similarly with wealth mangers, they're of course, going to get a benefit. But it's going to be a little bit more muted than it would be with the pure equity manager.

And even among equity managers, I would say if they make the decision to proceed than they will absent typically extreme negative volatility in the markets continue ahead. And we've got lots of experience as you can imagine designing a structure or adjusting our structure to take account of settings whether it might be extreme volatility or usually it's a large anticipated funding from a new client, let's say.

So it doesn't really pose an issue for us. And I would say, as I said earlier, that broadly speaking the backdrop both in terms of the number of high-quality firms which need a succession solution as well as the equity markets and the relative stability in the markets, so far is that that backdrop is extremely positive.

Chris Shutler - William Blair

When you guys look at the flows over the last year, can you give us some sense of how concentrated those flows have been if you look at them on kind of a client level, meaning if you take the top, let's say, handful of clients, where you've institutional wins over last year. Would those clients represent a meaningful percentage of the flows or is that very widely are distributed?

Nathaniel Dalton

The highest level comment would be it's widely distributed. But no, there have been some good significant positive flows. And we've built some significant multi-affiliate relationships with some significant clients around the world. So again, you have to think about it sort of both ways, even though a single mandate may not be fruitful, if we have good success with the some large institutions, we're now in a place.

And this is also absolutely a by-product of the success we're have in global distribution, where we're able to build relationships between our guys in a region and some of these clients where we're able to then play multiple affiliates into this conversation. So again, we're having some good success, but those are multiple mandates at single relationships. And so that's good. But look the highest level has been very broad based.

Chris Shutler - William Blair

So from that standpoint, it sounds like you're having more significant conversations with not fewer players, but more affiliates with a concentrated number of players. I mean, is that something that you're come back to continue, I guess? That could be a very good thing, because it could improve the visibility in the model certainly?

Jay Horgen

I think it's a good thing. But let me go back please, and make one really important point here which is there is no real element of this concentrating, right, because at the same time that we are building these very high-quality, multi-affiliate relationships at some of the largest clients and prospects. The important thing is its clients and the prospects, right.

So now there are some of these relationships, the number of these relationships that we've build compared to the number of these relationships we can build, this goes back to the early days comment, right, we're still at the very early days. We are doing within the regions we've been in. This is a long process, right. These kinds of relationships don't get built overnight. These are long process involving lots of different levels at AMG, right.

So this involves, Sean on the road, and all the rest of it. So those are ongoing. We have had some good success at some small number of the potential prospects. But there is a very large number of these that we are still in that process with, and there is a large number of them that we haven't even really started that process with. And so it is good. What we've done is good. It does elevate the recognition and all of that. But there is a lot more that we can do here.

Sean Healey

I would agree with all of that certainly, and add to it the following. If you take a large sovereign wealth fund as a generic client type, and obviously, there are lots of them around and you have to deal with them on a specific client basis, and different clients, different regions, vary tremendously. But if I can generalize, it takes longer to explain our approach, because we have more complicated model, and so it's at the most senior levels of AMG, building a relationship.

Its AMG regional personnel building a relationship, it's each affiliates product team and often sales and marketing team building a relationship. And then when we have a strategic relationship when we get individual mandates that come out of that relationship, the great advantage to our structure.

If the disadvantage is, it takes a little longer and is more complicated to explain, because we don't have a single brand. Clients understand both that we can, in different product categories, let's say emerging market equities or various alternative categories. We have a number of affiliates with similar products and we have more ways to win.

We have a broader product base than you would expect even given our scale. And as well because the clients ultimately are choosing individual affiliates products, they understand that what happens with one affiliate isn't necessarily, let's say, that they under perform, that doesn't necessarily say anything about what another affiliate does. So I think both, we have more opportunities to scale our business overtime with large clients around the world. But it also is a more stable and defensively position business strategy.


It appears we have no further questions at this time. I would now like to pass the floor back to Sean Healey for closing comments.

Sean Healey

Thank you again for joining us this morning. As you've heard, we're pleased with our results for the quarter and the year, and we're confident in our prospects for a continued strong growth ahead. We look forward to speaking with you in April.


This concludes today's teleconference. You may disconnect your lines at this time. And thank you for your participation.

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