10-Q: Affiliated Managers Group Reports Q3 2024 Results, Impacted by Prior Year Gain

Affiliated Managers Group's Q3 2024 results show a decrease in net income compared to the previous year, primarily due to the absence of a significant gain from the sale of Veritable, LP, which occurred in Q3 2023.

Summary

• Affiliated Managers Group (AMG) reported a net income of $123.6 million for the third quarter of 2024, a decrease from $217.0 million in the same period of 2023.
• The decrease in net income is primarily attributed to the absence of a $133.1 million pre-tax gain from the sale of Veritable, LP, which was recorded in Q3 2023.
• Adjusted EBITDA for the quarter increased by 3% to $214.1 million, driven by a 16% increase in aggregate fees.
• Economic net income increased by 2% to $153.2 million, reflecting the underlying performance of the business.
• Assets under management (AUM) reached $728.4 billion, a 15% increase year-over-year.
• Aggregate fees increased by 16% to $1,157.1 million for the quarter, driven by both asset-based and performance-based fees.
• The company repurchased 0.6 million shares of its common stock at an average price of $163.23 per share during the quarter.
• AMG issued $400 million in senior unsecured notes and $450 million in junior subordinated notes during the quarter.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong AUM growth and increased aggregate fees, but tempered by the decrease in net income and the absence of a one-time gain. The company's strategic focus on alternative investments and its ability to access capital markets are positive indicators, but the overall financial results are mixed.

Positives

• Adjusted EBITDA increased by 3% year-over-year, indicating strong underlying operational performance.
• Economic net income increased by 2%, showing growth in core profitability.
• Assets under management grew by 15% year-over-year, demonstrating strong client demand and market performance.
• Aggregate fees increased by 16%, reflecting growth in both asset-based and performance-based fees.
• The company successfully issued new debt, indicating access to capital markets.
• Share repurchases continue, returning capital to shareholders.

Negatives

• Net income decreased by 43% year-over-year, primarily due to the absence of a one-time gain from the sale of Veritable, LP.
• Consolidated revenue decreased by 2% for the quarter, primarily due to a decrease in asset-based fees.
• Investment and other income decreased by 1% for the quarter and 31% for the nine months ended September 30, 2024.
• Equity method intangible impairments increased by $39.9 million for the nine months ended September 30, 2024.

Risks

• The company's performance is subject to market fluctuations, which can impact assets under management and fee revenue.
• Changes in interest rates could affect the fair value of the company's fixed-rate debt securities.
• The company's reliance on key personnel and the performance of its Affiliates could pose operational risks.
• The company is subject to various legal and regulatory risks, which could impact its financial performance.
• The company's performance is subject to the performance of its Affiliates, which can vary.

Future Outlook

The company expects to continue investing in new and existing Affiliates, focusing on areas aligned with long-term client demand trends, particularly in private markets and liquid alternatives. They also anticipate that independent investment firms will continue to seek access to an evolving range of partnership solutions.

Management Comments

• Management believes that independent firms have fundamental competitive advantages in offering unique return streams.
• Management is focused on allocating resources to areas of highest growth and return.
• Management expects to further evolve the business mix and better position AMG to benefit from industry growth trends.

Industry Context

The report reflects the ongoing trend of client demand for alternative investment strategies, while also noting outflows in equity strategies, which aligns with broader industry trends. The company's focus on private markets and liquid alternatives positions it to capitalize on these trends.

Comparison to Industry Standards

• AMG's AUM growth of 15% year-over-year is strong, but it is important to compare this to peers such as BlackRock, which has seen similar growth in AUM, and other asset managers like T. Rowe Price, which has seen more modest growth.
• The company's focus on alternative investments is in line with industry trends, as many asset managers are increasing their exposure to these strategies. Firms like Blackstone and Apollo are key competitors in this space.
• AMG's adjusted EBITDA growth of 3% is moderate, and it would be beneficial to compare this to the EBITDA growth of other asset managers to assess its relative performance. Companies like KKR and Ares Management are good comparables.
• The company's share repurchase program is a common practice among asset managers, but the scale of repurchases should be compared to peers to understand its significance. Companies like Franklin Resources also have active share repurchase programs.
• The issuance of new debt is a common strategy for asset managers to fund growth and manage capital structure. It is important to compare AMG's debt levels and interest rates to those of its peers to assess its financial health. Companies like Brookfield Asset Management are good comparables.

Related Party Transactions

• A prior owner of one of the company's consolidated Affiliates retains interests in certain of the Affiliates private equity partnerships and, as a result, is a related party of the company.
• The company may invest from time to time in funds or products advised by its Affiliates.
• The company's executive officers and directors may invest from time to time in funds advised or products offered by its Affiliates, or receive other investment services provided by its Affiliates, on substantially the same terms as other participating investors.
• The company and its Affiliates earn assetand performance-based fees and incur distribution and other expenses for services provided to Affiliate sponsored investment products.
• Affiliate management owners and the company's officers may serve as trustees or directors of certain investment vehicles from which the company or an Affiliate earns fees.
• The company may enter into ordinary course engagements for capital markets, banking, brokerage, and other services with beneficial owners of 5% or more of the company's voting securities.
• The company has related party transactions in association with its deferred and contingent payment obligations, and Affiliate equity transactions.

Stakeholder Impact

• Shareholders may be impacted by the decrease in net income, but also benefit from share repurchases.
• Employees may be impacted by changes in compensation accruals at Affiliates.
• Clients may benefit from the company's focus on alternative investment strategies.
• Creditors may be impacted by the company's debt issuances and repayments.

Next Steps

• The company will continue to invest in new and existing Affiliates.
• The company will focus on areas aligned with long-term client demand trends, particularly in private markets and liquid alternatives.
• The company will continue to manage its capital structure consistent with an investment grade company.
• The company will continue to return excess capital to shareholders primarily through share repurchases.

Key Dates

Keywords

asset management, investment management, financial results, AUM, EBITDA, net income, share repurchase, debt issuance, alternative investments, private markets