Greetings and welcome to the AMG Fourth Quarter 2023 Earnings Call. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Patricia Figueroa, 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 2023. 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, this morning, we posted an updated investor presentation to our website 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, Patricia, and good morning, everyone. AMG's full year results reflect a positive impact of our strategy and our capital allocation discipline, across both growth investments and share repurchases. In 2023, we further diversified our business by investing in secular growth areas, welcoming two new Affiliates operating in distinct fast-growing areas of private markets, Forbion and Ara Partners. We also collaborated with our existing Affiliates and expanding their reach into new geographies and channels including the development of several new and innovative products. Finally, we meaningfully enhanced our liquidity position and further strengthened our balance sheet, while also returning significant excess capital to shareholders. AMG's business composition is changing. And as we enter 2024, I wanted to reflect on this strategic evolution. Over the past several years, we have deliberately diversified our business by investing in high-quality independent new Affiliates operating in secular growth areas. And by investing in and alongside our existing Affiliates to capitalize on their growth opportunities. These growth investments have reshaped AMG's business profile, from one that was characterized largely by differentiated long-only strategies to one that has the majority contribution from alternatives. Today, half of our earnings come from alternative strategies, balanced between private markets and liquid alternatives, with the other half of our earnings coming from differentiated long-only strategies. With substantial contributions from each of the private markets, liquid alternatives, and long-only strategies, AMG's business profile is unique in our industry. And looking ahead, we are well-positioned for long-term success across all three areas, as I'll discuss further. In private markets, our Affiliates offer differentiated return streams in sectors aligned with durable client demand trends. Over the course of 2023, amid a challenging fundraising environment, our private markets Affiliates raised approximately $16 billion, highlighting the appeal of their specialized strategies and providing them with…

Thank you, Jay, and good morning everyone. Our business continue to evolve in 2023, driven by our focus on allocating our resources and capital to areas of secular growth. AMG's strong fourth-quarter results illustrate the momentum we are seeing across our business and position us well for 2024. We had our best quarter of the year in private markets, where our Affiliates' excellent performance continued to drive strong capital-raising and organic growth. In liquid alternatives, outstanding investment performance contributed to approximately $160 million in performance fee earnings for the year, and our differentiated long-only AUM ended 2023 at the highest levels of the year, increasing our forward earnings power. We entered 2024 with fundraising momentum in private markets, a diverse set of Affiliates positioned for growth, a strong balance sheet, and significant liquidity to deploy capital to drive long-term durable earnings growth and shareholder value. Turning to our fourth-quarter results. Adjusted EBITDA of $296 million included $104 million of net performance fee earnings, reflecting strong Affiliate investment performance and the ongoing execution of our strategy to invest in secular growth areas. Performance fee earnings continued to be a valuable and consistent source of earnings and cash flow that further diversify our earnings profile and enhanced our earnings power. Our Affiliates' strong investment performance generated performance fee earnings across each of our eligible asset areas, absolute return strategies, beta-sensitive, and private markets for both the quarter and the year. Today, we have approximately $185 billion of performance fee-eligible AUM and we expect to continue to grow our alternatives footprint, further expanding our performance fee earnings opportunity through a combination of organic growth, new Affiliate partnerships, and new products. Economic earnings per share of $6.86 benefited from the impact of share repurchases and included approximately $0.60 of discrete tax benefits, primarily related…

[Operator Instructions] Our first question comes from the line of Bill Katz with TD Cowen. Please proceed with your question.

Okay. Thank you very much for taking the question. Thanks for the guidance. Maybe a two-part, if I could cheat. The first part is, where you think you are in terms of the new deal pipeline and how you think some of the recent deal multiples are affecting that if at all? And then within the liquid alts discussion, how much of this discussion about things getting better is just your expectations, subject to view or versus just real-time conversations with the consultant community in terms of those allocations? Thank you.

Yes, well, thanks Bill, and nice to hear from you. Maybe I'll start with the new deal pipeline question, address valuation, and then I'll have Tom talk about liquid alts and our expectations there. The framework of what I'll start here with new investments is just again remind you of our strategy with new investments and then maybe talk about the market environment and the dynamics there. Our strategy as you know is to invest in areas of secular growth within private markets, liquid alternatives, and differentiated long-only strategies. In addition to that, we are focused on certain themes that cut across, all three areas and that includes sustainable investing, wealth, and other themes. We have made several investments this year, last year, and the year before in these areas. We expect to continue to do so. Maybe to put a finer point on, this sort of strategic investing for us is really as I said in my prepared remarks is changing our business composition, and today alternatives generate about half of our EBITDA and we see that continuing to grow. As a result, a focus has been in private markets and liquid alternatives on the new investment side. And within private markets, we're focused on a number of areas and have been for some time that have structural tailwinds like infrastructure, like private markets solutions, private credit, and some other specialty strategies. And if you think about the new investments that we've made over the last five years, the benefit that we have is we can help these Affiliates grow and we are increasingly looking for opportunities where we can partner with a new Affiliate, not only one that's growing on their own, but then to magnify their advantages as they grow. And the way we do that is…

Thanks, Jay, and thanks for your question, Bill. I'll be brief. I think Jay, actually touched on a number of the drivers when he talked about the new investment opportunities we are seeing on the liquid alt side. But, Bill, maybe to break your question into two parts, the first sort of what's happening in real-time and the second, what that means for our expectations around liquid alternatives for the future? What's happening now is excellent performance and performance that's really delivering on the value proposition that clients are looking for when they invest in liquid alternative strategies. As I talked about in my prepared remarks, we delivered $160 million in performance fee earnings this year, $600 million over the last three years, and more than $1.2 billion over the last 10 years, primarily driven by liquid alternative strategies across a really diverse group. And we use that cash to invest in our growth strategy and to drive some of the new investment opportunities that Jay just went through. If you think about the strategies that are at play here, we have relative value strategies at firms like Garda and Capula that are performing extremely well on both a relative and absolute basis in delivering high sharp ratios across market cycles. We have trend-following strategies at firms like Winton, AQR, and Systematica that have extremely strong long-term track records and it performed very well over the volatile period we've seen over the last several years. We see really strong absolute return performance at firms like AQR. So all of that is contributing to a combination of strong performance for clients, strong performance fee earnings, and importantly also growing AUM to continue to contribute to the performance fee earnings opportunity over time. In terms of the future, and I think the core of your question, what does this mean for client demand? I think it's a combination of both, one, we've seen cycles over time where clients sort of move in and out of liquid alternative products and there are lot of things that are well set up in the environment today as we look to the next 10 years. In terms of expectations for the volatility picture that played very well into the value proposition for liquid alternatives. We are seeing lots of really strong client conversations in terms of that opportunity and populating, and in some cases repopulating portfolios with the types of strategies that can really deliver strong risk-adjusted returns and stability and diversification in more volatile times. So we're excited about the liquid alts opportunity both in terms of the Affiliates we have today and to Jay's point, those that may join us in the future.

Thank you. Our next question comes from the line of Alex Blostein with Goldman Sachs. Please proceed with your question.

Hi, good morning, everybody. Thanks for taking the questions. Well, so, Jay, you guys have been pivoting the business towards alts for a couple of years now. And you highlighted a number of times that over 50% of EBITDA now comes from alternatives. Can you talk a little bit about the expectations for EBITDA growth over the next couple of years for both the private side and the liquid alt side as we're thinking about continued improvement in flows for both of these categories? Thanks.

Thanks. Yes, thanks, Alex. Good morning to you. Maybe, Tom and I will each give you some perspective on this. From a top-down perspective, I would say that we just do fundraising alone on the private market side this year. If you look at - we didn't own Ara and Forbion, the whole year, but if you look at all of their fundraising activity through the course of the year, it was $16 billion on a base of about $100 billion. So, it gives you a sense of fundraising capabilities. And look, I think when we look out in the next couple of years, we think that the - in some cases, they're ahead of it. I mean, we have a number of infrastructure-related managers including Pantheon, which has a very sizable infrastructure business, but we also have Peppertree, which is an infrastructure. We have EIG, which is an infrastructure and we have Ara Partners, which is an infrastructure. So, I think we're sort of ahead of these trends we think. And so, we actually expect, you know that these trends will continue. Maybe even accelerate the other area, where I would say, we're still seeing extraordinary growth. I don't know how to otherwise characterize it is on the direct lending side with Comvest. And as you heard, Pantheon has created a secondary credit strategy where we think that's going to be meaningful as the secondaries business really develops around the primaries direct lending area. So we're very excited about some of these trends. We think we're ahead of them. So in addition to what we saw a strong this year, we see it potentially increasing. On the liquid alts side, I would say that we have seen here at AMG very clearly the benefits of these businesses in choppy times. So 2022, we had a terrific year in liquid alts, and I think clients have noticed. And as Tom said there repopulating with these strategies, I do think that if you're looking out several years, it is our expectation that clients will turn to these liquid alternatives to supplement what they're doing in their portfolios. The first thing that's important to note is they are liquid. And then the second thing to note is that there are, generally speaking, either absolute returns or lower or no correlation to markets, and we think that's very important, especially as we are headed for a different kind of period than what we've had in the past. So yes, I think that 50%, we do see growing both as a percentage of AMG and also driving our EBITDA growth. I would say that we're somewhere in the middle of this journey, having started three to five years ago. So, I do think in the next three to five years, we did see alternatives being two-thirds of our business and driven by a balance of both of those. And maybe I'll let Tom add, if you like, Tom.

Yes, maybe just a couple of quick things to add to the point that Jay made. If you think about sort of why it matters, right, to continue moving our business more toward alternatives. One, I think it's very important as we approach that two-thirds level and maybe even get beyond that to three-quarters level over a longer period of time. That's going to change pretty dramatically, the nature of the duration of the locked-up capital that we have. It's going to continue to change the fee profile that we have. It's going to continue to change the performance fee and carry the opportunity that we have. And all of that should contribute to the overall AMG fundraising and flow profile. So those things are all I think incredibly important in terms of what our business mix look like to Jay's point five years ago and what our business mix looks like today, as well as what it may look like in the future. The only other point that I'd add is, what's also really important are the things that we bring to the table that help to attract, not just private markets or liquid alternatives firms, but the highest-quality, fastest-growing, best-positioned private markets, and liquid alternatives firms. And that's where something like what we're doing on the U.S. wealth side is a real differentiator for us, helping some of these firms to get into the highest-growth space in the industry, helping Pantheon to not only launch new products but also continue to drive growth, working with firms like Systematica and Comvest on new product opportunities. One, that helps us to really differentiate ourselves in the market as firms are looking for a strategic partner. And two, once those firms become part of the overall AMG ecosystem, can help to drive outsized growth relative to what they may be able to do on their own. So, I think all of those things are really important part of our strategy and ultimately driving our business mix and the overall health and growth profile of our business, higher over time.

Yes, I think one other thing I would say, and it actually relates to the capital allocation strategy is like, we remain disciplined in getting to our destination. It is the case that we see a lot of opportunities and we could change our business mix really quickly, but in order to do so we would have to lose our discipline. So our - the one thing, I would mention here is that patience is a virtue and we are exercising that patience. But we - make no mistake about it, we are - we believe that we're making good new investments that are changing the composition of our business. And when we can't find new investments that meet our return thresholds, we're fortunate to be able to repurchase our shares at the level that we're repurchasing it, and therefore we're just planning for more growth in the future, where we have fewer shares.

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

Good morning, Jay and Tom, hope your both doing well.

Good morning.

Also want to congratulate you on the on the 30-years into your employees' job.

Yes, well, thank you. Thanks for saying that, Craig.

My question is on net flows. So it's nice to see the improvement, and that's actually despite the fact that sometimes there's negative seasonality in 4Q, but it looks like we didn't see any of that in that number. But I think the math is pretty simple going forward. It's improving private market flows and then it's less outflows in active equities. But my question is kind of based on what we've seen, and we've seen flows improve. And then a lower exit rate heading into '24, where do you think flows are heading versus the $30 billion-ish of net outflows we saw over the last two years? And then just a follow-up is, how did the EBITDA flows look underlying the net flow number, just given the much stronger contribution from privates where fees are higher?

So, Craig, maybe I'll take that and I'm sure, Jay may want to add some thoughts as well. But the biggest point of uncertainty for us is what's happening on the overall active equity side. We have a number of extremely strong Affiliate brands there, with very strong long-term performance track records. But obviously, that's where we've seen some of the variability. And I think some of that variability will likely continue, but your point is exactly right. When you think about our core strategy, we're really driving this evolution of our business mix more towards secular growth areas, and especially with the focus on alternatives in private markets. And as we execute against that, we do expect to continue to enhance the long-term organic growth and earnings growth of the business, and you've seen the evidence of that over the course of the last several years. So, if you think about what that means to your question on the $30 billion that we saw this year. As the business mix continues to move, right, a higher and higher percentage of our business is going to be in areas that are experiencing growth, and those areas that are seeing headwinds, one, should continue to be a smaller part of our overall business, but two, we're also entering into an environment where we think the opportunity for active management continues to improve and where the highest-quality franchises like AMG's Affiliates have the best opportunity ultimately to drive growth longer-term. So, we feel like we're very long the opportunity on the alternatives in secular growth side, but we also think that we have a real opportunity on the long-only side for those businesses to recover and ultimately be big contributors. In terms of the underlying EBITDA story, I think it's really important…

Yes, and I'll just - Tom did a nice job. I'll just summarize by saying that, there are challenges and there are opportunities. I think, obviously, the challenge with respect to AUM and flows for us really relate to the long-only active investing. But we don't think, it's going away. The long-only active investing is not going away. And I think the way some of the attitude towards that part of businesses in our industry, not just ours, but those who have more legacy sizable businesses, we don't believe it's going away. We think it's been right-sized. We think the quality has gone up. And ultimately, we do think that, whether it's product structures or it's just the evolution of technology, we think the delivery of active management is going to improve and therefore be successful in client portfolio. So that's the challenge, right? That's a challenge on AUM. The opportunity on AUM is all the alternatives businesses that we keep describing and where we're seeing, we had a good year this year. We had a good year the prior year. We had a good year, the year before, and we expect those to continue maybe even increase. So it really is a mix-shift question for us. And as Tom said, underlying that mix-shift, we think that the quality, stability, length, and the average fee rates are just going up because of that mix-shift.

Thank you. Our next question comes from the line of Dan Fannon with Jefferies. Please proceed with your question.

Thanks, good morning. I wanted to ask about the liquid alts. And specifically, do you think 2024 is where we can - where you will stop saying, ex quant or ex certain quant strategies? And in terms of the flows and specifically, how do you think about those Affiliates and the prospects given some of the performance has been good, performance fees have been good? How do you think about growth in specifically those Affiliates?

So, thanks for the question, Dan. If you go back in history a bit, just to maybe remind others, why we started reporting ex quant. We did have a situation where we had large outflows on the quant side, add an affiliate or a couple of Affiliates, who ultimately weren't delivering a substantial amount of earnings. So, there was a pretty big disconnect between the quantum of AUM that was leaving the system, which was not really having a material impact on our overall earnings and our overall EBITDA profile. So we thought it was a much more transparent way to communicate with shareholders to help them to understand the overall earnings profile of the business. We do think that we're at a point now where that has normalized. So we're going to continue to evaluate the way that we've been reporting ex quant, but I do think a combination of the normalization of where we are on AUM and earnings contribution, as well as the really strong performance we're seeing in a number of those businesses, probably does put us in a position where it's time to rethink that.

Yes, I would say that sometime this past year in 2023, we probably crossed over that point where we saw the normalization. And so looking forward, it probably is time for us to change that. And maybe making one specific point here, there were a number of firms that were in that bucket, the most notable being AQR and AQR, I guess we are increasingly optimistic about their forward prospects, and they had very strong results in '23 and '22, particularly in the liquid alternatives area, excellent performance, performance fees, and even seeing some organic growth. We think that business has regained momentum. And again, because it's normalized, the size has normalized relative to the contribution that is the real reason that we think that we can pivot back to just showing it straight flows.

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

Hi. Great. Good morning, folks. Thanks for taking my question. Maybe just some sort of summing up a lot of the commentary that you've just discussed in the Q&A section and you're also in your prepared remarks, it sounds like that you're definitely positioning this firm for a stronger organic growth profile in the future. Certainly, from a let's say predictability perspective, given the pipeline of fundraising that you potentially have and maybe if you can comment on the diversity of that fundraising pipeline, but also I'd like to touch on just the distribution angle in terms of your partnership and your contribution to distribution across your firms. Have you noticed that is improving and that can also help that profile, if you can just basically talk about that?

Yes, so, I think you're right in the summary. But I'll summarize it to by saying, we ultimately think long-term flows are an output of our strategy and our strategy is to invest in areas of secular growth, and to the extent that we're correct, then we will see flows turned, whether that happened this quarter, it happens some other quarter, it seems to us as long as we have conviction and execution on that strategy, we will see positive flows in the future as - in aggregate. What we faced recently is just the cross currents of the traditional business versus the alternatives business, which is fast-growing and we're at kind of 50-50, now. So, I think that is the summary statement there. Maybe, I'll turn it to Tom to talk about what we're seeing on the distribution side.

Yes. If you kind of take a look at our distribution, Brian, at a high level, we do really two primary things, on the global institutional side, we look to magnify the efforts that our existing Affiliates already have today, helping them get into new geographies and meet with new clients that they haven't had access to historically, that's been a long-term part of our business. We've raised more than $100 billion for our Affiliates over the course of time and I think continues to be a really good opportunity for us. The one where we're seeing a real sort of change in the pace of growth is on the U.S. wealth side and I mentioned some of this earlier. We have about a $40 billion U.S. wealth platform comprised of a combination of mutual funds, separately managed accounts, and increasingly limited liquidity vehicles on the private market side. And we've really been leaning in over the course of the past 18 months or so, toward new opportunities on that limited liquidity front. So, we see that as an important opportunity for two reasons. One, it's the single largest growth market in the world, it is the alternatives market in the U.S. wealth space. And two, as I mentioned earlier, it not only helps us to drive growth at existing Affiliates, similar to the success that we've seen with the AMG Pantheon Fund, which is now approaching $3 billion, but it also helps us to attract the next new Affiliate, who is looking to break into that area, and really doesn't have the scale or the ability to do it on their own. So we think AMG distribution and what we do broadly in capital formation, including thinking about product strategy and really working with our Affiliates on how to launch the right new product in the right wrapper into the right geography, is going to be an increasingly differentiating part of our value proposition. It's something we've had a lot of success on over the long-term, but we also do see it as an accelerant, as we shift the strategy now more and more toward alternatives.

Thank you. Our next question comes from the line of Patrick Davitt with Autonomous Research. Please proceed with your question.

Hi, good morning. Thank you. I have a follow-up on that in the liquid all. So, I know, you don't like to talk about specific strategies, but maybe looking over the fundraising calendars of all your liquid alts managers layering on the plan, limited liquidity wealth products to the point you just made, could you maybe at a higher level try to frame how the volume of the liquid flows is looking versus what we've seen, maybe last year or the year before? Thank you.

Yes. Patrick, thanks for your question. We certainly aren't going to project flows for a specific part of the business, but I think if you think about the overall shape, you know, as Jay mentioned on a pro-forma basis last year for the new investments that we made in both Ara Partners and Forbion, we're at about $16 billion, $17 billion of fundraising for the full year and we're continuing to add to the diversification and the overall group of Affiliates. I mentioned in some of my prepared remarks, we're now partnered with eight private markets Affiliates, cross about $115 billion of AUM, with the big buckets being infrastructure, private market solutions, private credit, and then a variety of really specialized in exciting areas. So one of the things that, I think that I think set us apart in a very difficult fundraising environment in 2023 was the fact that we are - we have a series of managers, who have highly in-demand products that are not necessarily the big mainstream large-cap LBO-type products. And that's enabled us to find places in client portfolios where we can really add value, and where there is a scarcity value to a lot of what we do. I think that the outlook for us going forward will be a function of a couple of things, right One, the existing Affiliates we have today and what they're doing in their flagship products and new adjacencies that they're working to launch. Two, to your point, the efforts that we're putting forth in the U.S. wealth space, which is really opening up an entirely new client channel, a new leg of the stool if you will, for a number of these Affiliates. And then all of that great news, helping us to partner with the next new Affiliate. So, we think the long-term trajectory in terms of the flows on the private market side continues to be very positive for us and we're looking to continue to add to that in a number of different ways.

Yes. I'll just round out alternatives by just talking about liquid alts as well. Look, we have really good performance in liquid alts. It's just an obvious statement is the performance has led to higher asset levels, has led to above-high watermarks has led to more ability, I guess to greater ability to generate performance fees. But it also has attracted more inquiry, more interest by large pools of capital, and adding those to the portfolio. I already mentioned AQR and it's sort of positive momentum, and in particular in its liquid alternative strategies, we have a number of sizable Affiliates in liquid alts that can really generate organic growth over time. So, we see growth both on the private market side as well as the liquid alts side in part because the performance is just so good.

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. We look forward to speaking with you next quarter. Thanks.

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