Greetings, and welcome to the AMG Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Anjali Aggarwal, Head of Investor Relations for AMG. Thank you. You may begin.

Good morning and thank you for joining us today to discuss AMG's results for the fourth quarter and full year of 2021. Before we begin, I'd like to remind you that, during this call, we may make a number of forward-looking statements, which could differ from our actual results materially and AMG assumes no obligation to update these statements. A replay of today's call will be available on the Investor Relations section of our website, along with a copy of our earnings release and a reconciliation of any non-GAAP financial measures, including any earnings guidance announced on this call. In addition, we posted an updated investor presentation to our website this morning and encourage investors to consult the website regularly for updated information. With us today to discuss the company's results for the quarter are Jay Horgen, President and Chief Executive Officer, and Tom Wojcik, Chief Financial Officer. With that, I will turn the call over to Jay.

Thanks, Anjali. And good morning, everyone. AMG achieved outstanding results in 2021 through the strong execution of our growth strategy, the excellent performance of our affiliates and increasing momentum across our business. AMG generated over $1 billion of EBITDA, up 33% year-over-year, and record economic earnings per share of $18.28, representing annual growth of 37%. Our demonstrated commitment to investing for growth across both existing and new affiliates, while simultaneously returning capital to shareholders, has resulted in significant business momentum and compounded earnings growth, which continues in 2022. Stepping back, over the last few years, we have renewed our focus on AMG's foundational values of entrepreneurial spirit, ownership mindset, and disciplined execution, which has resulted in reinvigorating our new investment strategy, enhancing our strategic engagement with affiliates, and realigning our resources with our most significant growth opportunities. Through these initiatives, we have meaningfully increased our long-term earnings power, and more importantly, are reshaping our business in favor of fast growing areas, including private markets, liquid alternatives, Asia, wealth management and ESG, all of which are well positioned to deliver strong growth over time. More broadly, we believe that the investment environment has fundamentally changed. Following a decade of globally coordinated monetary policy, ultra-low rates and highly correlated returns across asset classes, a new paradigm is forming. Looking ahead, given the combination of elevated inflation, rising interest rates, and an increasing focus on climate change and sustainability, taking an active approach to investing is critical to achieving clients' goals and objectives. AMG's affiliates are industry leading active managers with proven track records of delivering excellent risk adjusted returns for clients across market cycles and are well positioned for this evolving environment. In parallel with a fundamental shift in the investment environment, clients are changing the way they manage their exposures as…

Thank you, Jay. And good morning, everyone. As Jay highlighted, we delivered excellent results in 2021, with strong momentum across affiliate performance, organic growth and capital deployment. And we entered 2022 with enhanced earnings power and significant liquidity and capital flexibility. Our diverse group of affiliates is well positioned to deliver strong outcomes for clients in an environment where active management is critical to navigating the fundamentally changing investment landscape. And we continue to focus on strategically evolving our business towards attractive secular growth areas and driving long-term durable earnings growth. Turning to the quarter. Adjusted EBITDA of $357 million grew 40% year-over-year and economic earnings per share totaled $6.10, up 45% year-over-year. On a full-year basis, adjusted EBITDA of $1.06 billion and economic earnings per share of $18.28 each grew more than 30% versus the prior year. Net client cash flows, excluding certain quantitative strategies, were $4 billion for the quarter. Outflows from certain quant strategies totaled $10 billion and continue to have a de minimis impact on our earnings. Over the course of 2021, our core organic growth trends gained momentum quarter by quarter, delivering $14 billion in total inflows ex quant for the year. We enter 2022 with an enhanced overall AUM, earnings and organic growth profile, with a strong presence across private markets, liquid alternatives, Asia, wealth management and ESG strategies, areas where active management is delivering significant value for clients and growth is accelerating. Turning to business performance by asset class and excluding certain quantitative strategies. In alternatives, net inflows totaled $12 billion, driven by strength across private markets and liquid alternatives and reflected the continuing impact of our strategy to evolve our business toward growth. In private markets, we continue to see very strong fundraising levels across Baring Asia, Pantheon, EIG and Comvest, with…

[Operator Instructions]. Our first question comes from the line of Robert Lee with KBW.

Maybe I'd just like to start with, actually, one question, two parts. But looking at Systematica, could you maybe update us on, I guess, two related things. Number one how you see the opportunity set for similar types of kind of increases in your stakes in existing affiliates in a similar manner. And then, secondly, maybe as we look ahead, there's certain amount of existing stakes that you could get put back to over the coming year. Can you maybe just update us on what that would be and maybe what would that would mean for capital usage and maybe any EPS accretion or E&I accretion that would that would come from that?

Let me take the first part of this question, which I'll expand and just talk about Systematica, and I'll also talk about our investments in minority owned businesses, ones that we – existing affiliates that we already have. And then, Tom, maybe you'll talk about the recycling and the affiliate equity through the year after that. So, let me start by just talking about Systematica. I'm very excited about this transaction. Systematica, as you know, led by Leda Braga, widely recognized as one of the industry leading systematic trading managers in the world. And it's one of the largest, if not the largest, woman-owned and woman-led alternative firm in the world. It had a great 2021. The business had a great 2021. Strong momentum into 2022, given its performance. It has a unique profile in the market in liquid alternatives. Its most notable product, Systematic Alternative Markets, which is known as SAM, was up 28% last year. They also recently launched China market strategy, which is growing quickly, generating excellent returns. And over the past six years later, Leda and her team have grown Systematica into a $13 billion business. That's a 50% increase from the $8 billion that we saw at the time of our initial investment, and that growth is accelerating. We do see momentum going into 2022. It's a diversified business today from one primary strategy five years ago to five distinct systematic strategies and each is that scale or has scale. We have tremendous respect for Leda, the rest of the team there and the opportunity to increase our investment in Systematica at this time was exciting. Leda participated in the in the purchase. And we did purchase an ownership stake from a prior owner and that did complete the full transition of the business. In…

In terms of affiliate equity repurchases and recycling, you should assume that, on a normalized basis, we're doing something like $100 million to $150 million a year. And that midpoint was probably a pretty good number for 2021, and I think you should think about that as being a pretty good number for 2022 also. These repurchases tend to be a very constructive multiple. So, they do tend to be accretive to our earnings. They're part of an ongoing process to ensure that we have an appropriate level of equity in the hands of the partners running these businesses. So, it's really a dynamic process. A lot of the repurchases also tend to be skewed toward those businesses that have grown the most. So, we're buying more of our highest quality businesses. So, it's something that ultimately is accretive to our earnings profile. With respect to the capital planning part of your question, we generally have good visibility into the timing and quantum as well as controls in place to make sure that we're managing the magnitude in any given year. So, you should assume that, as we go through our capital planning process, we have pretty good color on where we're going to be spending our capital with respect to affiliate repurchases. And when we give you guidance for $400 million of repurchases, you should assume that we've got quite a bit of firepower earmarked for making new investments, in addition to affiliate equity repurchases, and then in addition to our ability to complete share repurchases as well.

Our next question comes from line of Craig Siegenthaler with Bank of America.

As you compete for new deals in the private market space, I wanted to see if you could talk about some of the qualities of your targets and also your capital terms and see how they're different than the largest three general partners staking models out there. I also want to know, as these firms and their businesses have gotten larger, if you've also seen any increase in the competitive intensity for deals just in the private markets vertical.

I'll take that. And if I missed anything, Tom, feel free to add. I'm going to obviously take a step back first and just restate that – and I think everyone on the phone knows this – we offer a permanent partnership solution to independent firms. Our primary objective is to be an excellent strategic partner, supporting our affiliates achieve their long-term objectives. Ultimately, we want to do what's in the best interest of their businesses, their partners and their clients. What we're most known for, of course, is succession planning. We have done succession planning over three decades. I think we're the best at it. And I think we've proven that over a long period of time. We also offer growth capital and liquidity through minority interest transactions. And it's there where we, from time to time, bump up against the, what you would call, stake buyers in the private markets businesses. But we see our partnership solution as differentiated relative to really any strategic alternative or competitive offering because we support independent firms with our resources and our capital, while also letting them run their businesses. And so, I think that's an important differentiation. We are in the business of independence, and we don't compete with our affiliates. In fact, we design all of our resources and support services to help our affiliates with their growth plans, so that we are collectively better together as partners. And our reputation was built on the long-term success of being the supportive partner over all these years. So, we have the longest continuous track record of success. And I believe we're entering a significant growth phase for AMG. We have been one of the most active investors in independent firms over the past two years. We are focused on making disciplined…

I think you've covered most of it. Maybe just one quick point which is I think another big differentiator for us in the market is the flexibility of our solution. The firms that you referenced tend to take a very direct approach in terms of the amount of performance fee and management fee, EBITDA of the business that they're willing to capitalize. AMG takes much more of an alignment-oriented approach. And we really try to bring a blank piece of paper type solution to every individual scenario. So, as Jay spoke about, a lot of the value-add things that we bring to the table in terms of distribution and strategic support are critically important. And when you put those hand in hand with having a lot more flexibility around creating an aligned structure, I think that also inures to our benefit quite a bit for those businesses who really have a strong sense for what they're looking for in the market.

Our next question comes from line of Bill Katz with Citigroup.

Just trying to tie some numbers together for a moment. I think, in 2021, sounds like you did a combination of deals and buyback that was effectively equal to adjusted EBITDA. Just sort of running some of your math here and not taking into consideration the seasonality of fourth quarter 2022 performance fees potentially. If you simply analyze the quarterly guide on adjusted EBITDA and you get off your $900 million plus type number around [Technical Difficulty] guide to $40 million for buyback and round numbers $125 million for recycling. A, why not more buyback? And B, can you maybe give us a discussion on how you sort of see the deals absorption relative to residual cash flows?

Tom, that's a perfect one for you to answer. I think maybe review our capital last year and our forward view.

Maybe I'll just start on really a framework around earnings guidance, so you can kind of take all the factors that you walked through and put them together. Going back well before my time at AMG, we have a long history of providing a framework to think about earnings. First, we always give you color on EBITDA and economic earnings per share a quarter forward, and then we break out performance fees, so you have a pretty good sense for the underlying trends that get you to a run rate for the business. And then, you can put some basic marketing growth assumptions in as well. Second, we told you that we think 10% of our earnings is a pretty good average level to model for performance fees over the full year. So that gives you a good sense for overall earnings power. And then, Bill, to your point, we did provide guidance on repurchases, and that's about $400 million for 2022. And I'll talk a little bit more about capital overall and how we get to that. So then, knowing the overall earnings power of the business, the amount of cash we'll spend on repurchases, we talked in an earlier question about affiliate repurchases as well, you can sort of back into how much capital we have to invest for growth. And that's going to be primarily through new investments. And none of that's in the run rate today. So, when you take all that together, I think you've laid it out in a good way, you can get to a really good framework for being able to get a sense for the overall earnings power of the business. With respect to capital allocation overall, look, first and foremost, there's a lot of momentum in the business. And that…

I'd like to just come over the top here and just say that being part of that long history of the framework myself, another way to look at this just top-down is, we have about $1 billion to spend. We articulated that our plan is $400 million of share repurchases, plus the recycling that Rob Lee asked about, call it, $100 million to $125 million. And we just did Systematica in the first several days of the year. So, I'm going to throw in another $125 million to $150 million range on that. So, $550 million would be a round number to think about what we've articulated. So, what we haven't articulated or what we don't know the timing of is further new investments. What we do know is we have a robust pipeline. And we do have conversations that continue in various stages. And I would describe that as some are more advanced than others, but even those that aren't advanced can move quickly. So, those numbers are not out there, right, as you think about it into your own planning of your 2022 numbers. You have to think about the amount that we've reserved on. And the last thing I'd say is I used a billion, but for the right opportunity, could we take leverage up a little bit? Sure, we could. So that number could expand. There's flex around that billion, but I think that's just a good number to have in your head. And so far, we really only plan for the amounts that we have. Hopefully, those will be in new investments. If not, we will consider further repurchases.

Our next question comes from the line of Dan Fannon with Jefferies.

A couple questions just on flows. And appreciate the additional disclosure in the deck. And so, looking at slide 8, could you remind us exactly what certain quant strategies you're talking about that are included in the AUM, so we know what's included and not? And then, as you think about the momentum in this chart and what you're seeing, if you could elaborate as we think about 2022 and how you see that progressing in the context of these two asset classes. And then, also can you provide a little more color on the global equity bucket for this past quarter where you – it was basically, I think, the largest outflow we've seen in some time and you pulled out a couple mandates, but maybe other trends within that bucket would be helpful.

I think Tom and I will need to tag team this. But let me start with some perspective and then I'll turn it to Tom to answer the more specific questions that you've asked. And so, on that perspective, I think the first thing I would like to note is that we don't think about flows quarter to quarter. And what we have done on this chart is actually shown a rolling 12 months, this new chart, and I think at least that gives you a longer term perspective. But really, we're focused on long-term sustainable growth. And the strategic choices that we're making today with our resources and our capital are being made with that long term growth and value proposition in mind. And we think we're still in the early innings in terms of seeing results on the organic growth side as we execute our strategic plan. As we continue to evolve our business towards the secular growth areas like private markets and liquid alts, ESG Asia, wealth management, as I described in my prepared remarks, given that these businesses are growing faster organically than the industry overall and faster than our existing business, we expect our results to further reflect improving flows and earnings contribution in the future. And so, what you're seeing is very intentional, on our part, to take some time, but you have seen it in our results over the last four quarters. And, look, I think we've got really good momentum because we saw those flows and those areas accelerate the back half of 2021. Each of those areas, private markets, liquid alts and ESG are growing at double-digit rates. So, our flows really are going to be an output of successfully executing on our strategy. And as we continue to reshape our business mix towards these areas of secular growth, both by doing new investments, but also in growing and helping our existing affiliates in these areas, these very areas, whether that's our own support services or making investments directly in affiliate through seed capital or other types of strategic opportunities, we see this profile for us continuing to improve like it did over the entire course of 2021. Frankly, it started way back in 2020. So, when I look forward from here, I do think we're in the best position from a forward growth perspective that we've been really in the last four years. And as I say, really want to focus on the fact that it's going to take some time, but we're definitely putting up some results in this regard. So now, Tom, why don't you give some more color, put the fourth quarter in context and maybe specifically talk about global.

I'll go a layer deeper and give you some more color on the themes that Jay laid out. And, Dan, let me try and address your two specific questions first. On the page on certain quant and really the way we've been talking about our flows now for some time, what we've done is we've tried to take a look at those businesses that continue to be a relatively large part of our AUM, but are contributing a disproportionately small piece of our earnings. So, effectively, where we believe the AUM flow profile is kind of obfuscating what's actually happening under the surface in terms of earnings contribution. And we've done that at the affiliate level and really just tried to take a broad stroke at it. And you can see on that page that that AUM contribution to our business was about 26% going back two years ago and has come down to about 16% in terms of overall AUM today and contributing less than 2% on an EBITDA basis. On global equities, for the quarter, we had about $8 billion out excluding challenged quant. That was primarily driven by two large institutional redemptions that were about two thirds of that number. The overall performance in the category remained strong. We feel good about the quality of our managers, we feel good about some of the differentiated strategies we have, particularly around Asia and ESG. So, we think, long-term, that business is in very good shape. When we go into kind of some more detail, our setup for future growth is really a result of executing against our strategy. A lot of the headwinds we've faced historically in areas like quant have lessened. They aren't meaningfully impacting our earnings, as I've said, and frankly, we have a lot of…

Our next question comes from the line of Brian Bedell with Deutsche Bank.

Just wanted to circle back on alternatives, increasingly larger part of your business overall at nearly now 30% of AUMs, just split evenly between liquids and liquids. In terms of the distribution trend on that, obviously, as you know, traditional managers are increasingly bulking up in this space via acquisition and using their distribution clout within the traditional channels, given the higher demand for alternative. And of course, alternative managers are also ramping up their retail distribution efforts. How do you feel you're positioned in that area on the retail distribution of alternatives? And are you making more investments in that? And as you look to make future investments in new affiliates, what might be particularly attractive to even advance that? Maybe, I guess, I'm thinking of private credit, is it your sort of desire to get even larger in that?

I'm going to have Tom start here. But maybe with one caveat, I'll say that this relates back to a prior question, which is one of the benefits of AMG is we are – this partnership solution for independent firms allows these independent firms to continue to operate in that way, but then we bring resources and services to bear. And we've done that for such a long time now, I think it's it stands on its own, both when we are looking at new investments, but also with existing affiliates who are very much trying to access this new marketplace and would like assistance. It's very much a strategic differentiator for AMD today. So maybe, Tom, you can start and I'll finish.

Maybe going to distribution overall, and then I'll focus in on the retail alternative opportunity, but really Jay said it right. It's about the combination of what the affiliates do great today, and then delivering the AMG definition of scale to those affiliates in the distribution landscape. And really distribution is one of the most impactful things that we can do on behalf of our affiliates. We've been very focused over the course of the past several years on optimizing the impact of our distribution resources. And we're seeing the results both in our flows as well as in our conversations with both existing affiliates, and importantly, also with new prospects. So, to give you an overall flavor for our distribution, today, we have nearly 50 client-facing individuals who support them more than 500 client facing people at our affiliate businesses. We've helped them to raise more than $110 billion in our global institutional platform. And we've also built a $45 billion US wealth platform, which offers SMAs, 40 Act fund and private fund vehicles on behalf of our affiliates. On the institutional side, the way to think about it is we really act as a magnifier for our affiliates. We allow them to leverage our strategically positioned distribution resources, we help them create scale and efficiency, and we really enable them to maximize their global reach. We've added resources there specifically focused on private markets, and alternatives more broadly, and we continue to evaluate opportunities to add talent, given the efficacy that we're seeing there. On the US wealth side, we have a vertically integrated one-stop shop offering. It really enables our affiliates to tap into this market in an efficient and scalable way. And we can help them with everything from identifying client demand trends, to building the…

Yeah, I'll just maybe summarize further. We agree that the democratization of private markets into the wealth retail channel, it's a significant opportunity for everyone. We think it's a significant opportunity for our affiliates because they're well placed, given the high quality nature of their businesses, the differentiated nature of their businesses. And we do have plans in 2022 to expand on what we've already done in private markets. We've been successful there bringing a number of affiliates into the channel, Comvest, Baring Asia, Abacus just to name several that Tom named, in addition to introducing new products at Pantheon, which we have plans to do in 2022. But there's also a corollary to our liquid alts managers, which haven't gotten as much airtime given how much people are talking about private markets. I'd just note that we have $120 billion of private market AUM, we have $70 billion of liquid alt AUM. And we do think that there's an opportunity as well to continue to bring these uncorrelated, less correlated return streams during this period of heightened market volatility, increased inflation as sort of a change in the environment. We think those products will be right for wealth, as well. And so we do have a plan in 2022 there. And then, the last thing is, across all of our distribution, including our institutional, we are just seeing a pickup in activity generally and interest in liquid and illiquid alts. So, with our enhanced capabilities in both institutional and US wealth, we enter 2022 with a strategic plan to further capitalize on the democratization of alternatives.

Our next question comes from the line of Patrick Davitt with Autonomous Research.

I think in the past, you've suggested that the new affiliate deal pipeline can freeze and extend when we see periods of volatility. So, curious if you could give an update on any early shifts there. Is there any reason to think maybe this period of volatility could be different than what you've experienced in the past?

You're right, we have said that. Look, we're only 4% or 5% off highs. I know there's a lot of talk about what's going to happen in the future. So, I do think that there is – in prospect, there may be a different environment versus the one that we're in today. It hasn't disrupted our pipeline. If anything, it might have accelerated it because these pull backs remind everyone that time is of the essence. But I think you're right. I think there are periods where the environment can be more extreme. We tend to do well in those environments. Obviously, during the period, there's a pause, but coming out of those periods, I think, have – we've demonstrated over three decades that those are some of the best times to invest. So, we're not – I think we're sort of heads down focused on prosecuting through what we have today, feeling good about the types of businesses along the strategic objectives that we described. And if we do see a major pullback or a real major shift, I think we'll be ready with our capital and our resources and our prospecting to capitalize on that environment.

Thank you. Ladies and gentlemen, this concludes our time allowed for questions. I'll turn the floor back to Mr. Horgen for any final comments.

Thank you all again for joining us this morning. AMG had a strong finish to 2021. The earnings power of our business has increased considerably, and we remain focused on the significant opportunities ahead of us. I hope everyone remains safe and healthy. And we look forward to speaking with you next quarter. Thank you.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.