Greetings, and welcome to the AMG Second Quarter 2022 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 second quarter and 2022. 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 Web site, 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 Web site this morning and encourage investors to consult our site 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'll turn the call over to Jay.

Thanks, Anjali, and good morning, everyone. AMG's business proved resilient in the second quarter, delivering economic earnings per share in line with the year-ago quarter despite a significantly more challenging market and industry backdrop. Our results demonstrate the strength and efficacy of our business model. Through disciplined execution, we have evolved our business by increasing our exposures in areas of secular growth and further diversified and enhanced the resiliency of our earnings. Today, AMG is positioned to deliver differentiated business performance in all market environments, including the current one. The era of globally coordinated monetary policy has been replaced by inflationary pressures, rising rates, and increased geopolitical uncertainty, creating challenging economic conditions. Markets are reflecting these dynamics, and investors reduced risk in their portfolios in the first-half of 2022. During the quarter, changes in client behavior resulted in elevated outflows in our equity strategies, particularly in global equities. However, given the impact of our capital decisions and our affiliates' investment performance, especially in liquid alternatives, our earnings per share grew in the first-half of the year relative to the year-ago period. And with our affiliates' strong investment results and momentum in our business, we expect continued strength in second-half earnings which would result in annual growth on a per-share basis, highlighting our differentiated business profile and earnings power. As we've been saying for some time now, the market environment has fundamentally changed, and a new paradigm has formed. For the better part of the last decade owning passive equities in a low-volatility rising market proved to be an effective strategy and allowed for complacency to set into portfolio construction. Today's increased market volatility underscores the imperative for investors to change course, rather than simply betting that markets and risk assets will continue to rise. Taking an active approach will be…

Thank you, Jay, and good morning, everyone. Against the backdrop of a changing market environment, AMG's unique partnership model and disciplined approach to capital allocation again contributed to the resilience of our financial results. Our earnings this quarter and our expectations for the full-year evidence AMG's ability to utilize the comparative advantages inherent in our business model to deliver earnings stability and growth, positively differentiating our results. Market drawdowns impact asset managers in different ways, and AMG's unique advantages position us well to outperform in challenging markets. And you are seeing exactly that, as affiliate performance and associated performance fee earnings, continued investments in new and existing affiliates, and the impact of share repurchases position AMG to deliver growth in earnings per share. Turning to our second quarter results, economic earnings per share were $4.03, in line with last year's quarterly results as new investment activity and share repurchases offset the impact of markets, foreign exchange rates, and net flows. Net client cash outflows were $11 billion. Excluding certain quantitative strategies, net outflows were $6 billion. These flows were primarily a result of redemptions in global equities, while we saw continued strong demand in private markets, liquid alternatives, and ESG strategies. Turning to performance across our business and excluding certain quantitative strategies, we saw another strong quarter for our alternatives businesses, with $6 billion in net inflows, led by private markets with $5 billion. Illiquid fundraising strength was broad-based across our affiliates and their diverse book of strategies this quarter, with inflows at Pantheon, Comvest, EIG, and Abacus. Performance in these strategies remains excellent, and the mix of equity, credit, real estate, infrastructure, and secondary capabilities create ongoing fund raising stability and provides a stable source of long duration management fees and the potential for future carried interest. These businesses…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Dan Fannon with Jefferies. Please proceed with your question.

Thanks. Good morning. Wanted to follow-up on just the outlook for the second-half of the year, and certainly the performance fee numbers seem to be quite strong. So, typically that we -- well, based on your guidance you can see that that's a fourth quarter kind of event. And given we're sitting here in August 1, is there some contractual component that gives you, I guess, the increased confidence that we typically -- you typically don't give this good of guidance this early in the year for what might be a fourth quarter. So, again, a little more color around the strategies and the firms. And than also, you mention absolute return, but does that include the quantitative firms that have been struggling for -- that have been doing better this year, but previously been struggling?

Good morning, Dan. Thank you for your questions, nice to hear from you. Tom, why don't you start, and then I'll add. I think there's a couple different sub-questions in there, and I think we can address all of them.

Sure. Thanks, Jay, and thanks, Dan. So, Dan, let me talk a little bit about performance fee earnings. And as I referenced in my prepared remarks, we did include a new slide in our investor materials, and I'll talk more about that as well. But performance fee earnings are a really important part of our business. They provide us diversification, they provide significant cash generation that enables us to execute on our growth strategy. And given the diversity of our affiliates in our investment strategy, they're a real differentiator for AMG, particularly in times of market dislocation. And to your question, it's not a contractual thing or a specific outcome that is giving us confidence in the year, it's really the breadth and the excellence of performance across the breadth of our business that's giving us confidence, and then being able to kind of project the way we think the year will likely shakeout. As I mentioned, this quarter, we added a new page to our material that really highlights that stability and diversity of our performance fee earnings over time. As you know, Dan, our industry does tend to discount performance fee earnings given there's often a lot of volatility. For many firms, there's one or two products that tend to drive the majority of performance fees. And I think this page really underscores the fact that AMG is just different. The breadth that we have is incredibly unique, the diversity and the variable nature of just the types of businesses we have is really unique in our industry. Importantly, all of our performance fee earnings are reported on a realized basis, so that's real cash to us. They're spread across more than a dozen affiliates, and really a multiple of that in terms of the individual products that…

Yes, thank, Tom, that was a good summary. Look, Dan, it is the case that we have got good performance. I think we've also got good business momentum here. And I think we're constructively looking to the second-half with that business momentum as well as the performance, and saying we're positive on the outlook for the rest of the year. And just commenting a moment on the business momentum, and I said it in my prepared remarks, 25% of the business in private markets, ESG, and wealth, and another 25% in liquid alternatives. So, our overall positioning is very advantaged, certainly relative to other periods where really everything was growth-oriented, and the liquid alternatives segment was not really expressing itself. So, I think you're seeing, in 2022, the liquid alternatives concentration -- our concentration of liquid alternatives really adding to our earnings flow. The other thing that I think we've talked in the prior call, but I'll revisit it again, is value equities. So, when you look at our [long-only] [Ph] book, in general, we have a value orientation. And as we've all seen, value has outperformed significantly this year. And clients, as they think about their allocations, we think they will increasingly look to more value-oriented strategies, which is going to benefit a number of our affiliates, including AQR, but also Yacktman, River Road, Tweedy, and Veritas. So, we're very constructive on the portion of our business that's long-only equities as well. And then lastly, I think, just to make a finer point, the impact of our capital allocation strategy is notable this year. Clearly, investment in new affiliates are contributing, but also the excess capital that we've returned through repurchases, having done already about 5% year-to-date. All of those things taken together, I think, are the reasons why we've made the comments on the second-half.

Thank you. Our next question comes from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.

Hey, good morning, everyone.

Morning.

So, my question is on the M&A pipeline. So, I was curious to see how the pipeline has evolved year-to-date. And also, how are your conversations going with some of these targets? Are they looking to take a step back and pause just given AUM levels? So, an update on the M&A pipeline would be helpful. Thank you, guys.

Yes, thanks, Craig. And that's a good question. Maybe I'll just connect it to the prepared remark. I think what we -- the setup has been, for the last couple quarters that the environment really has changed or is changing or has changed. The more challenging environment that we're in, I think, is constructive for AMG because we have a proven track record of capitalizing on new investment opportunities in periods just like this. Our strategy of providing solutions to independent partner-owned firms, and acting as a catalyst to support their growth initiatives, it operates across all market cycles, because independent firms are always in need of solutions and strategic support. So, may be taking a step back before I specifically talk about the pipeline. At the end of a growth cycle, I think we all know this, in every industry people talk about inorganic growth or acquisitions. We're no longer in that growth cycle, so just ponder that for a moment. We're in a more challenging environment. But that's AMG shines, because of our commitment to our strategy in periods of market dislocation and volatility. So, we see a more favorable environment for investing in independent firms today for several reasons. The first, just really being the buyer universe is changing. Opportunistic buyers, they tend to step aside in these environments. Consolidators, they become inwardly focused on their strategy, they often freeze inorganic growth plans. And even the well-capitalized financial buyers, they become more conservative. The second thing that's going on, we think in this environment, is the needs of independent firms have become more acute. And therefore, they're more motivated. So, increasingly what we're seeing is independent firms are seeking a partner to support their business goals, whether it be growth capital, in distribution, strategic advise, or just…

Thank you. [Operator Instructions] Our next question comes from the line of Brian Bedell with Deutsche Bank. Please proceed with your question.

Hi, thanks. Good morning, folks. Great answers to the last few questions that those are mine as well. But let me expand on that second one Jay, if I can, on the investment opportunities in the pipeline, given how you've described it, in this new environment, which may last for a while in terms of how management's of potential investments may be thinking about partnering, if you really do see an acceleration of that desire, and you can create good investment opportunities, both on pricing and strategically additive. Would that shift your capital allocation strategy oriented more towards fulfilling those investments as opposed to buy back? And would you end up pausing on buyback, if that pipeline looked like it was going to come to fruition even with the markets down here?

Yes, good, very good question, Brian, and good morning to you. Let me start. I think I will turn it over to Tom after I give a little more color on the opportunity set. And then we're going to talk about capital, because I do think the short answer to your question is we're going to do both, I think we're going to make investments in new and existing affiliates. And we're also going to return capital to shareholders, because generally speaking, we have a lot of capital and a very strong balance sheet. And Tom was going to elaborate further on that, but maybe to get one layer deeper on the investment opportunities and pipeline, I think this is just a current environment comment. It's sort of been building over the last five, seven years, at least, maybe it's been over the last one to two decades, independent firms, they want to stay independent, generally speaking, and but they need help. And so, I think our three decades of experience, our track record with helping our affiliates, both strategically and through distribution efforts, as well as new product support, that's really our differentiating advantage in the marketplace today. So, you can kind of have your cake and eat it too. We can, we will leave you alone. It's your business. We're going to support your goals. But we're also going to try to help and I think we're getting better at that each day that goes by, and we've proven that over a longer period of time. And I think we are starting to really lean into it from an engagement perspective and from a distribution perspective. So, when we look at our current pipeline, we are very excited about the opportunity not only to structure at attractive levels…

Yes, thanks, Jay, and thanks for your question Brian. So, Jay and I both talked about this in our prepared remarks that capital is incredibly valuable to us. It's incredibly valuable to our shareholders. We take a very disciplined approach to where we are going to allocate that capital. And we do that because we know the value that we can create if we allocate our capital efficiently and if we allocate it to the best place is to ultimately drive long-term value. So, there is nothing that we debate culturally more so internally than where to put our capital. It's hugely important to the shape of our business and executing on our strategy. As you know, our business is highly diversified. Our P&L has significant structural advantages in the context of market volatility. And you are really seeing that play out in the resilience of our earnings. And that translates into strong and recurring cash flows for our business. Now it's a super valuable asset for us. As you also know, we have a very strong balance sheet flexible, long duration. And that's further going to be advanced with a significant amount of additional liquidity that come through post the close of the Baring transaction. And I will talk a little bit more about that in a moment. Taken together, as Jay said, that enables us really to be opportunistic in terms of investing for growth where we see great opportunities but also always discipline to make sure that we have that right combination of investing for the long-term growth of the business. But keeping the bar very high and then returning excess capital to shareholders through both repurchases and managing our leverage. As Jay mentioned, we put more than a billion dollars of capital to work in growth…

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Horgen for any final comments.

Thank you all, again, for joining us this morning. As you heard, we are pleased with AMG's second quarter results. And given our strong business momentum, we're confident in our ability to generate earnings growth in 2022, as well as compounded growth over the long-term. We look forward to speaking with you next quarter.

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