The business
Affiliated Managers Group (NYSE:AMG) is one of the largest investment management firms in the world, with $723 billion in assets under management (AUM), spanning investments across an array of strategies with over 500 different investment products. AMG makes equity investments into boutique investment management firms, and in return, gets a certain percentage of the performance fees (“revenues”). The nature of the agreement varies with each affiliate (especially relating to expenses - some are fixed, some vary in relation to AUM), but the company’s revenue is largely contingent on the AUM of the affiliated firms.
AGM can be best thought of as a publicly traded “fund of funds”. To those unfamiliar, a fund of funds is pretty much what it sounds like: an investment vehicle that raises capital from investors and puts said capital into work at other investment firms. AMG raises capital both via equity investors (separate from the company's stock holders) and debt markets, and subsequently invests those funds into the “affiliated” investment firms. Essentially, the company makes investments into specific investment vehicles offered by firms including Tweedy Brown, Yacktman, Third Avenue, AQR, etc.
Affiliated Managers Group takes stakes in boutique investment firms with a long track record and a pristine reputation, but the investment firm receiving the capital from AMG maintains complete autonomy over the investment operations of the fund. This is attractive for the fund managers, as they receive the capital and operational support of a firm much larger than their own without having to compromise on investment strategy. Similarly, this setup is attractive for equity holders of AMG, as the company benefits from having exposure to a diverse set of investment strategies while not having single-firm exposure. Conceptually, this should allow it to have exposure to any alpha generation by the various funds while not facing blow-up risk.
