Greetings and welcome to the AMG First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Patricia Figueroa, Head of Invest Relations. Thank you. Please go ahead.

Good morning, and thank you for joining us today to discuss AMG's results for the first quarter of 2024. 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; Tom Wojcik, Chief Operating Officer; and Dava Ritchea, Chief Financial Officer. With that, I'll turn the call over to Jay.

Thanks, Patricia, and good morning, everyone. AMG delivered strong results in the first quarter of 2024. With $260 million in EBITDA, driven by continued momentum across both our private markets and liquid alternative strategies and together with the positive impact of our disciplined capital allocation, we generated economic earnings per share of $5.37, representing a 28% growth rate year-over-year. During the quarter, our ongoing collaboration with affiliates resulted in a number of exciting developments, including new product launches and continued strength in private markets fundraising, which position our affiliates for long-term success and accelerate AMG's growing exposure to alternatives, both private markets and liquid alternatives. Our value proposition for independent partner-owned firms continues to resonate with prospective affiliates, given our proven partnership model and our ability to strategically magnify their competitive advantages, while also preserving their independence. During the quarter, we advanced several attractive new investment opportunities. And with our increased financial flexibility, we have a significant opportunity to invest our capital in new and existing affiliates to accelerate AMG's business mix evolution and our long-term growth. And in April, we evolved AMG's leadership team, further aligning our talent with our growth prospects by expanding roles for key executives to capitalize on our momentum and capital formation and affiliate engagement, and by recruiting new leaders with experience in our focus areas of private markets and liquid alternatives. As a strategic partner, AMG engages with our independent affiliates to enhance their long-term success, including by offering seed and growth capital, business and product development, institutional and wealth distribution, and succession planning expertise. This distinctive approach enables affiliates to build on existing strengths as illustrated by the success of two of our alternative affiliates, Pantheon and Systematica. In March, supported by our long-term engagement, Pantheon announced its management succession plan. Kathryn Leaf…

Thank you, Jay, and good morning, everyone. I'm proud to have served as AMG's Chief Financial Officer for the past five years, and look forward to the contributions that Dava will make to AMG going forward. Having been a public company CFO in our industry, her experience and skill set are well suited for both the current and future state of our business. I am also excited for my new role and the opportunity to focus on driving organic growth through our product development and capital formation capabilities, as well as direct strategic engagement with many of our largest affiliates. Our first quarter results reflect the strong momentum we are experiencing across our business in each of private markets, liquid alternatives, and differentiated long-only strategies. In private markets, our affiliates and their excellent performance continued to drive strong fundraising and organic growth. In liquid alternatives, outstanding investment performance contributed to significant net performance fee earnings and continued business momentum. In differentiated long-only strategies, we benefited from rising asset levels and strong investment performance in the quarter. We also strengthened our balance sheet by extending the average duration of our debt to more than 20 years, innovated alongside our existing affiliates on several product development initiatives, and returned excess capital through share repurchases. Our actions reflect AMG's attractive opportunity set, and as we continue to execute our disciplined capital allocation strategy, we are confident in our ability to generate significant long-term shareholder value. Turning to our first quarter results, adjusted EBITDA of $260 million grew 20% year-over-year and included $40 million in net performance fee earnings, as well as $20 million in catch-up and other fees from private markets affiliates. Economic earnings per share of $5.37 grew 28% year-over-year and further benefited from the impact of share repurchases. This quarter, we…

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Today's first question is coming from Craig Siegenthaler of Bank of America. Please go ahead.

Hey, good morning, Jay and Tom. Hope you're doing well. And, Tom, just we wanted to offer you a big congrats on being named COO in the quarter too.

Thanks, Craig. Good morning and thank you for that.

So our question is, we wanted to dive a little deeper into the positive inflection in institutional channel net flows. So we know there's always some lumpy wins and redemptions in this channel, but based on the composition of the flows in the quarter, the current pipeline, can you provide us your thoughts on the ability to maintain positive flows in this channel going forward?

Craig, let me answer the question on institutional and then maybe just broadly spend a few more minutes on the overall flow profile and importantly, how our strategy is really influencing that flow profile over time. On institutional, what you're seeing is really the strength of private markets. And that's where we've seen extremely strong fundraising, not only in the prior quarter, but over the course of the past several years. And I think what came through this quarter was a combination of that continued strength in private markets, some stability in the liquid alternative side, and then some general improvement in terms of what we've seen in long only. Now, when you put that in the context of our overall flow profile and just kind of thinking about the business, as I said, the main point to take away is that, our growth strategy is continuing to drive an evolution of our business mix more towards secular growth areas and especially alternatives with that focus on private markets. And as we continue to execute against our strategy, we do expect to continue to enhance the long-term organic growth and earnings growth profile of the business. And I think you've seen that really over the course of the last five years as alternatives have gone from less than a third to more than half of our business on an EBITDA basis. You saw it this quarter again, that sort of push and pull between the strength we're seeing in private markets and some of the headwinds on long-only, and that will be a big driver of where we land on institutional, but also where we land overall. On the long-only side, particularly within fundamental active equities, there is some volatility and it sometimes is a bit hard to predict, but…

Thank you. The next question is coming from Bill Katz of TD Cowen. Please go ahead.

Okay, thank you. Good morning, everybody. Tom and Dava, congratulations both. Dava, look forward to working with you again. So just, Jay, may be for you, it sounds like there's a lot of good things going on in terms of seed capital back into the business, a bunch of new funds coming to market in the wealth management section, and then sort of stepped up the buyback. How do we think about deal activity against the other uses of capital as we look ahead to 2024 and 2025? Thank you.

Yes. Good morning to you, Bill. Thanks for your question. Let me start by just saying our strategy, as simply stated, is to invest in areas of the highest growth and return in our industry. And we do that by investing in new affiliates and also investing in and alongside our existing affiliates. So I think that does capture what you were just saying, which is, our goal is to invest in new affiliates, seed capital alongside of existing affiliates and obviously other areas with existing affiliates like distribution and places that we can help them accelerate their own business plans. To the extent that -- and I'll just touch on it really quickly, to the extent that we cannot find investments to meet our required returns, we will look to give that excess capital back to shareholders, which has led to significant repurchases over time. Again, our first goal is new investments. And we are seeing healthy flow of new investments opportunities, I should say. Last year we did two new investments. I think I mentioned on a prior call that we had the opportunity to make several other new investments last year, and we chose not to. So we are seeing a steady flow. I think the pipeline is there. Obviously, it's a competitive environment. We continue to compete well. I think our opportunity in the market is that, we're both strategic with those affiliates and proving that we can magnify their existing advantages, but we also are able to maintain their independence, preserve their independence, and that being strategic and maintaining independence is really unique in the market. As it relates to the question of what we're looking for and our opportunity set, we are continuing to search for new affiliates in areas of secular growth. Tom…

Thank you. The next question is coming from Dan Fannon of Jefferies. Please go ahead.

Thanks. Good morning. So I wanted to follow up on liquid alternatives. It sounds like certainly improving trends, but maybe not in inflows yet. I'm so curious about the gross sales versus gross redemption trends within that bucket. And then, given your comments, Tom, about being above the high water mark for a large percentage of that AUM, how you're thinking about performance fees in the context of the remaining of this year versus maybe historical ranges.

Yes, so I'm going to have Tom take that question. Dan, thanks for your question. Maybe I'll just start by saying, our liquid alternatives business across all the affiliates that operate, there's say, six, seven affiliates that are in that category. In the main are producing significant positive performance for us, which has led to the above-high water market, has also led to rising asset levels, which, of course, does mean potential for higher performance fees. And I think we see -- I guess, more opportunities around the world, more clients noticing this unique return stream that, frankly, is complementary to both private markets and to long-only strategies. So we're very constructive about the prospects. It has been, as you noted, a little slow in terms of the uptake on significant positive flows, but honestly, it's been a pretty good period for liquid alternatives, if nothing else by performance alone. But I would say that we are seeing good client activity. I'll let Tom give you a little more detail.

Yes, thanks for your question, Dan. I think Jay touched on a number of the key themes in his initial remarks here. If you look at what we've seen in liquid alternatives, there really are two pieces to the story. One is, excellent overall investment performance. And we're seeing that in a number of areas across the liquid alternatives affiliates in quantitative strategies, in trend following strategies, in relative value strategies. So one of the core elements of why liquid alternatives are so valuable to AMG overall is that, diversification and the fact that those businesses are able to perform in different environments, often with low or no correlation to equity markets. And we're continuing to see these businesses perform really well for clients and you're seeing that come through for us in the form of performance fee earnings, both here in the first quarter, as well as over the course of the last several years. In terms of trends, I know we talked on the fourth quarter call. We did see some headwinds in liquid alternatives in the fourth quarter, so it was really nice to see that bounce back here in the first quarter. Overall, flows and liquid alternatives in the first quarter were roughly flat versus a fairly meaningful outflow number in the fourth quarter, so a pretty good improvement. And when we think about the longer term, again, Jay touched on some of this, but the real push-pull is, these strategies have really been outperforming in client portfolios. So for those who have an existing allocation to liquid alternatives, we have seen a little bit of rebalancing over the course of the last couple of years where strategies that have put up 10%, 20%, 30%, 40% positive returns have offset some of the volatility and headwinds…

Yes, I mean, I'll just finish, Dan, by saying, I think we're actually somewhat surprised that more institutional managers or allocators haven't noticed the alpha that's being generated, especially on the quant side, with the CTAs and some of the quant managers' significant alpha, as well as in the relative value fixed income space and the [multistrat] (ph) space. I mean the traditional long-short hedge funds, which we don't have much of have not performed, but the almost every other category has. And so, the interesting thing that I would say is, the thing that our people are going to notice, I think what we are expecting to do is bring some of those products to the wealth space where we actually do think allocations will grow, both in the RIA, the single and multifamily offices, and of course, the wirehouses. So we are looking forward to that opportunity. And frankly, if they continue to put up the numbers that they have, it'll help AMG's earnings, but it'll also hopefully eventually get into the minds of allocators because they do need these products in their portfolios as an offset to their private markets and their long-only strategies.

Thank you. The next question is coming from Brian Bedell of Deutsche Bank. Please go ahead.

Oh, great. Thanks. Good morning for taking -- thanks for taking my question, and congrats, Tom, and also welcome, Deva. Just sticking with that theme in the alternatives and especially in the private markets fundraising, can you talk about, I guess, your confidence that that's the sales number on the alternative side? You can see potentially secular growth in that quarter after quarter given the pipeline of new products that are coming in, the contribution from private markets and then especially as you just talked about on the quant side from the demand, I guess, both from AQR versus its historical trend, and at the same time seeing less outflows from that. So I guess, the overall question is, should we really be seeing that alternatives line as sort of a leading net flow indicator on a go-forward basis?

Yes, thanks, Brian, for your question. I'll let Tom start.

Thanks, Brian. In a way, I think the story has been very consistent in the way that we're thinking about alternatives and in the results that we've put up in terms of alternative performance and flows, really now over the course of the last couple of years. In terms of our confidence in private markets on the sales side there are a number of things that are really driving that confidence, and they're core to the strategy that we're employing at AMG, really across the board. The first is that, we continue to look to add affiliates to that group. We have eight private markets affiliates today now managing $120 billion in AUM. We added two last year, and as Jay said in his answer to a prior question, that continues to be a real area of focus. And that focus is linked, I think, in a lot of ways to the success that we're having with our existing affiliates in terms of helping them with product development, with fundraising, and with accessing the U.S. wealth channel with some of these limited liquidity products, as well as the opportunity to bring their flagship drawdown funds to the channel in a way that I think is extremely compelling given the sales resources that we have and our ability to penetrate advisors in the channel. So if we think about what's happening overall in terms of private markets, one, we're just attracting high-quality businesses, and two, once those businesses are at AMG, we have the ability to help accelerate, move them into different channels, move them into different products, and that can have a multiplier effect over time. The other thing that I'd mention is that, the businesses that we've invested in in private markets have been and will continue to be intentional. We really focused on businesses where independent firms have a clear comparative advantage, oftentimes specialty products, products that are really alpha-oriented and alpha-driven. And we've avoided some of the more commoditized, larger cap parts of the market where you've seen the big denominator effect impact hit fundraising over the course of the last couple of years. And then lastly on liquid also, I think I hit a fair amount of this in my answer to a prior question, but again, now that we're staring down track records that in most cases across three years, and really when you look across five and 10 year track records as well, you have very strong overall investment performance aligned with very strong brands, and our ability oftentimes to help in terms of product development and entering new channels. We think we're well positioned in liquid alternatives as well, both on the gross sales side, but also frankly on the redemption side, given that these products do continue to perform the way that they're supposed to and are driving a lot of upside in client portfolios.

Yes, and let me just try to bring some of all these questions together, because we talked about capital allocation and we've talked about where we see growth. In the three areas that our affiliates operate, private markets, liquid alternatives, and differentiated long-only strategies, I would say that we are and have been seeing, really, over the last five years, a mixed shift at AMG. So today we have over $125 billion in private markets, over $200 billion in liquid alts and the balance in differentiated long-only. We continue to see that our capital is going into the alternative segment, both in and alongside the affiliates, but also in new affiliates. We have some excellent, very strong differentiated long-only strategies. We just -- we've had a historical balance to having a greater percentage in that area. We see that balance between the three segments being more balanced in the future. So for 50% today in alternatives, we would expect that to be 60%, maybe even two-thirds at some point in the next five years. That is where we think our business is going. And that reflects not only where the flows are coming from, where the growth is coming from, and frankly, where our capital is going to.

Thank you. The next question is coming from Patrick Davitt of Autonomous Research. Please go ahead.

Hey, good morning, everyone and congratulations on your new roles. I have a quick follow up on the transaction activity commentary. You mentioned it's competitive and we continue to see fairly high deal volume for smaller alternative managers. I think you mentioned you chose not to follow through with some. Could you maybe expand on the pricing dynamics there and to what extent pricing is keeping you out of the flow? Are there any signs that the pricing has topped out and could maybe get more attractive for you. Thank you.

Yes, thanks, Patrick. Good morning. Yes, so I will follow up on the prior comment, maybe just starting with the statement that the activity has actually picked up. And the activity that we're seeing is pretty significant. When you look at just, if you were to look at deal sheets of all the players in the investment management industry, you would see pretty significant volume. So I think there is transactions that are happening. There have been other times that you've been covering us or others have covered us where it has been slower. So we definitely see there's supply of new businesses out there. I will say that the needs of independent firms today are very different than they were 10 years ago or 20 years ago. They are very much looking for a strategic partner. I think we fit that category, especially when you put it against the context that we've been operating in this business model for 30 years and we know how to engage with independent firms. There is an art to that and it is important to know that you have a partner who knows how to engage with independent firms. So that, I think, we've proven. We are seeing growth at our affiliates, especially where we engage, and we're very excited about that. I think the key differentiator for us is that, we also actively preserve independence, and that's through equity ownership, succession planning, and frankly even just advice around human capital in a lot of places. So just to kind of carve out where we compete effectively is where people want a strategic partner, but they also want to preserve their independence. And I think in that category, we have a lot less competition than we've ever had. As you know, a lot…

Thank you. The next question is coming from Alex Blostein of Goldman Sachs. Please go ahead.

Hey, good morning, everybody. Thanks for the question. I wanted to zone in again on the wealth channel and the progress you guys are making with respect to existing semi-liquid products and the new ones you're going to be rolling out. I guess one, maybe help us frame how much these products contribute to the firm's EBITDA today. I understand it's not a huge number, but it sounds like it's grown nicely and there's a plan for that to expand further. And then secondly, as you think about going to market with these strategies, can you talk a little bit about the competitive dynamics and what AMG brings to the table relative to other offerings, including how are you thinking about payment for distribution? Thanks.

Yep, great. So Tom, why don't you take that one?

Thanks for your question, Alex. On the first part, as you referenced, it's a relatively small contribution today, but one that's been growing rapidly, and I think we have a very clear strategy to get to scale. Clearly the biggest contributor that we have in the U.S. wealth space today and alternatives is the AMG Pantheon Fund, which has been a fantastic success story in the industry thus far, and we expect to continue building on from here with that fund now above $3 billion. There are also a number of other products that we have in the U.S. wealth market, as well as internationally. So there's several billion under management today that we're building a base from and that we expect to continue to push going forward. Let me spend maybe a minute on exactly what we're doing in U.S. wealth, and that can play into some of the competitive dynamics and why we think we're positioned well to be successful. We offer a vertically integrated solution in the U.S. wealth market. And it's based on the fact that for really the last 30 years, we have a business that has been in that channel today at about $40 billion in terms of the overall size of the platform, in the channel covering the largest wirehouses, the most sophisticated RIAs in a number of ways. First, we're able to actually cover the home offices and the key decision makers and gatekeepers helping to get our products on the buy lists and better understand kind of the key demand drivers at the top of the house. And then second with a wholesaling force in the field, one specifically covering RIAs and two specifically covering the wirehouses in order to actually be in the field with advisors helping to educate, as…

Thank you. At this time, I'd like to turn the floor back over to Mr. Horgen for closing comments.

Thank you all again for joining us this morning, and we look forward to speaking with you next quarter.

Ladies and gentlemen, thank you for your participation and interest in AMG. This concludes today's event. You may disconnect your lines and logoff the webcast at this time, and enjoy the rest of your day.