Greetings, and welcome to the AMG Second Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patricia Figueroa, Head of Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us today to discuss AMG's results for the second 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. Our strong results for the first half of 2024 reflect the continued momentum in our business, driven by the ongoing organic growth of our private markets affiliates, the excellent performance of our liquid alternatives managers, and the positive impact of our disciplined capital allocation strategy. During the quarter, we invested our capital and resources, alongside our affiliates, to enhance their growth, including seeding a number of new alternative products in the wealth channel. We advanced several discussions with new investment prospects, and we accelerated our share repurchase activity, repurchasing at more than twice our historical pace. Through the disciplined execution of AMG's strategy to invest our capital and resources in the areas of highest growth and return, we have invested $1.8 billion over the last five years in areas of secular growth, including in durable trends, such as the expanding digital economy, breakthroughs in biotechnology, industrial decarbonization, the emerging opportunities in wealth management, and the expanding opportunities in non-bank asset management, including in private credit. We have invested in new and existing affiliates in specialized areas where independent partner-owned firms thrive. And we have built AMG resources in areas where our engaged partnership approach can meaningfully amplify our affiliates' efforts, including in product development, distribution, capital, and strategic capabilities. AMG's strategy has accelerated the evolution of our business towards private markets and liquid alternatives. And today, approximately half of our EBITDA is generated by alternative strategies. With a significant contribution from each of private markets, liquid alternatives, and differentiated long-only strategies, AMG's business profile is unique, and increasingly well-positioned to capitalize on both long-term secular trends and the opportunities unfolding in the current environment. Our diversified portfolio of high-quality affiliates, operating across each of private markets, liquid alternatives, and differentiated long-only strategies, is a…

Thank you, Jay, and good morning, everyone. AMG's growth strategy is driving an evolution of our business mix towards secular growth areas, most notably in private markets and liquid alternatives. Over the last five years, our EBITDA contribution from alternative strategies has grown from one-third to approximately half. And over the last 12 months, our total alternatives AUM has grown by 14%, driven by private markets AUM growth of 24%, while differentiated long-only, AUM has remained roughly flat, furthering AMG's positive mix shift trajectory. Over the long term, we expect that our continued business evolution will lead to more durable and predictable growth trends. Over the past five quarters, the improvement in our flow profile has been primarily driven by ongoing momentum in private markets fundraising, improving trends in quantitative strategies, and further stabilization in differentiated long-only products. For the second quarter, our affiliates generated $1 billion in net client cash inflows. AMG's nine private markets affiliates now manage $125 billion in client assets and operate in areas of significant long-term demand, including private credit infrastructure, private market solutions, and specialty areas, like industrial decarbonization, life sciences, and multi-family real estate. In the quarter, supported by their outstanding long-term performance track records, our private market affiliates generated $6 billion in net inflows, primarily in private credit and infrastructure. At a time when more commoditized private market firms are struggling to attract capital, two aspects of AMG's strategy are driving our results. First, our focus on specialized, thematic investment strategies with strong long-term client demand trends; and second, our significant strategic push into alternatives in U.S. wealth, which is a multi-decade growth opportunity and a differentiator for AMG. Flows and liquid alternatives were flat in the quarter. Our affiliates are well-positioned to capture growing demand trends given their outstanding long-term performance…

Thank you, Tom, and good morning, everyone. We continue to see strong momentum in our business given improving organic growth over the past several quarters, increasing average assets under management, and our flexibility to deploy capital in both growth investments and in repurchasing AMG shares. In the second quarter, we had adjusted EBITDA of $218 million, which included $11 million in net performance fee earnings. These results primarily reflect higher average AUM for the period and recent new investments that contributed to our results. This was offset by lower performance fees in the quarter compared to Q2 2023. Economic earnings per share of $4.67 grew 5% year-over-year, benefiting from the impact of share repurchases partially offset by higher cash taxes as last year we had a discrete foreign tax benefit run through our results. Given the seasonality in our performance fee earnings throughout the year, it is helpful to evaluate our year-to-date results in addition to our quarterly results. We reported economic earnings per share of $10.06 in the first half, up 17% year-over-year, driven by an increase in average AUM, affiliate performance fees, and the positive impact of our capital allocation strategy, including new investment activity and share repurchases. Now moving to third quarter guidance. We expect adjusted EBITDA to be between $210 million and $220 million based on current AUM levels, reflecting our market blend, which was up 2% quarter-to-date as of Friday and including net performance fee earnings of up to $10 million. As a reminder, the second and third quarters are seasonably low performance fee quarters. The vast majority of our performance fees typically crystallize in the fourth quarter and impact our earnings primarily in either the fourth quarter or the first quarter of the following year given that several affiliates report on a one-quarter lag.…

[Operator Instructions] Our first question today is coming from Alex Blostein of Goldman Sachs. Please go ahead.

Hi. Good morning, everybody. Thanks for the question. Maybe we could start with momentum you guys are seeing in the alt business. Quite a bit of discussion on that on the call this morning, including the flattish, I guess, flows you highlighted from the liquid alt book. So can we talk a little bit about the areas of strength that you're seeing, whether there was anything sort of lumpy this quarter in your outlook for organic growth in the alts book for the rest of the year?

Good morning, Alex. Thanks for your question. I'm going to let Tom take that one.

Thanks, Alex. Maybe I'll talk about our overall flow momentum overall and certainly touch on both private markets and liquid alternatives in that context. As you heard in my prepared remarks, I think really the main point to take away on flows is that our overall growth strategy is continuing to drive an evolution of our business mix more towards secular growth areas, most importantly alternatives and really with a focus on private markets, which is where a lot of the strength is that we've been seeing. And as we continue to execute against that strategy over time, we expect to enhance the long-term organic growth and earnings growth profile of the business. And you've seen that over the last five years as alternatives have gone from roughly one-third to more than half of our business on an EBITDA basis. And really, that's an intentional output of our strategy. In terms of the nearer-term flow profile, there's a really nice page, actually, in our investor materials, where you can see over the past five quarters, the improvement in our flow profile. And that's been primarily driven by a few areas. One, ongoing momentum in private markets, and I'll talk a bit more about that in a moment; two, improving trends in quantitative strategies as well as liquid alternatives overall; and then thirdly, some further stabilization in our differentiated long-only product areas. And this past quarter, that resulted in about $1 billion in positive net client cash flows. So now to talk about a couple of the areas you focused on specifically. In private markets, we continue to benefit from the diversity as well as the depth of our affiliates. And they're raising assets across a number of well-positioned strategies. Those include infrastructure, credit, private market solutions, as well as specialty…

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

Thanks. Good morning. So I wanted to follow up just on capital. The buyback number is quite strong, obviously, in the second quarter, and now, as you look at through the rest of the year, raising that guidance. I was hoping to get a little bit more perspective on what's different today versus when you started the year to kind of drive that increase more buyback. And then in the context of new investments, the commentary seems quite similar to what we've heard from you in terms of the prospects of capital deployment and dialogues progressing. As we think about the election in the back half of the year, is there -- do you think there's any pause or decision-making maybe delayed as a result of change in White House or other external factors as opposed to kind of normal course of business?

Yes. Good morning, Dan. Thanks for your question. Let me start with the buybacks in the quarter and our rationale. So let me start with the rationale of -- for elevated share repurchases in the quarter and really for the year, and then I'll move on to the new investment question and talk about what we see for the remainder of the year. Maybe just to level-set, we've been buying back our shares for some time now. Really, over the past five years, we've averaged just under $500 million per year, which is about 10% of our share count per year. But this half of year, the first half of 2024, we've significantly increased the pace in quantum. We're doing about double that rate now. And a combination of factors have come together really to compel us to take more of an opportunistic view on these share repurchases. I think the first factor I'll highlight to you, is the significant excess liquidity we've had on our balance sheet, really since the baring veritable transactions. And really the other thing that Dava mentioned, is that we've strengthened our balance sheet, over the last couple of years, issued a number of 40-year securities. And given the earnings growth and balance sheet movements that we've had, we've driven our leverage well below our two to 2.5 time target. So we have lower leverage than two times today. So the second thing, and Tom touched on it, we see accelerating momentum in our business. Probably this is the most significant factor here. Just driven by the mixed shift towards secular growth areas and alternative strategies generally. And that's been evidenced in our earnings growth over the past 12 months, and importantly, our improving growth profile over the past five quarters, which led to the…

Great. Thanks, Jay. So given the recurring cash flow generated by our business, the strength and duration of our balance sheet, and our current leverage position. We have ample capital flexibility, to make both growth investments in new and existing affiliates, and to continue to repurchase our shares. Just to give you a few numbers and a little more color on this, our balance sheet generates approximately $1 billion in pre-tax cash flow annually, which we expect to deploy in either growth investments, or return of capital each year. Our net debt position is approximately $1.6 billion, given we have nearly $600 million of available cash, and $400 million of balance sheet investments in products and securities that, will be returned to AMG over time. Finally, our leverage ratio of 1.7 times continues to be much lower than our target of two to 2.5 times. And with our $1.25 billion revolver, we have access to additional liquidity and leverage capacity, to execute on our pipeline of growth investments. Taken together, we have plenty of capacity to execute on elevated growth investments, and repurchases in the near term, and also over the long-term as well. Thanks for the question.

Dan, I'll just finally say that the combination of all those factors that I just mentioned, new investments, the momentum in our business, and really the capacity that Dava just mentioned, juxtaposed against the low valuation of our shares. And we've had a low valuation for some time, but relative to the momentum that we're seeing in our business, I think that's really the answer to your question. That's what compelled us to be opportunistic.

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

Okay. Thank you very much for the comments and guidance. Just coming back to deals, Jay, just in terms of, I certainly appreciate the sort of laser-like focus on some of the faster growth areas. I wonder if you could maybe frame out the pipeline in terms of maybe size and shape, of some of the things you might be looking at. And then unrelated, but separately and separately. I was wondering if you could talk a little bit about on the wealth management side, maybe just an update of where we are in terms of number of distributors you're working with today, and where you think that can get to and how many incremental sort of sales folks you're looking to add on over the next ex number of quarters? Thank you.

Yes, so I will start with the new investment. Well, thanks for your question first, Bill, and I'll start with the new investments, just maybe rounding out what we're looking for and try to touch on the size. And I'll have Tom talk about our efforts in wealth. So maybe the first thing that, I'll just pick up where you left off is we are focused on areas of secular growth. Primarily within private markets and liquid alternatives, and just selectively and differentiated long-only strategies. And what we're really focused on, is trying to find capital formation businesses that are in demand, around these long-term secular themes that Tom mentioned. I won't go through the litany of them, but it includes things like the digital economy, breakthroughs in biotechnology, industrial decarbonization, just to name a few. And I think, we've been successful in doing so over the last five years. You can look back at our new investments, and see that almost every one of them, I guess all of them, really do follow those themes. And that's what's driving, I think, our business momentum and our organic flow profile as well. And as it stands today, about half of our business comes from private markets and liquid alternatives. And we think we're going to go well over half, both from new investments, but also growth with the existing affiliates. When you look at our pipeline today, and just pausing for a moment to think about it. We do see a pretty good variety of size in the pipeline. We actually have a few transactions on the larger size. For us, a larger size check is probably 250 to 450, 500. And underneath that, we still have a number of high-growth firms that the check size would be a bit…

Thanks, Jay. And Bill, thanks for the question. Look, the U.S. Wealth Channel, is one of the things that we're really excited to talk about, both with our existing affiliates as well as new affiliates. We've been making a big investment there, and we really think that that investment is starting to pay off. And we have a uniquely positioned offering that, is a real differentiator for AMG. As part of our overall capital formation capabilities, we have this vertically integrated U.S. wealth platform that enables our affiliates, to access the large and growing wealth market. And when you think about it, that's something that's extremely difficult for an independent firm to do on its own, given the resources required to be effective in that channel. If you think of many of our private markets affiliates, we have firms with, you know, $5 billion to $10 billion in AUM, maybe 30 to 50 employees. We have more client-facing individuals than some of our affiliates have employees. And that is the way you have to play in U.S. wealth. You really have to have the scale to be able to cover that market from the top down. The buying centers at the top of the house, at the large wires and the large, sophisticated RIAs, but also with boots on the ground in the field in terms of wholesaling resources, desk resources, marketing resources to really be able to penetrate the channel. And that's something that most independent firms just can't do on their own. And in partnership with AMG, that can be really, really powerful. You asked about the number of platforms we're on. Remember, we're not new to the U.S. wealth space. We have a $40 billion business in that space. And through our predecessor firms, we've really been…

So I wanted to just emphasize, or amplify one of the things that Tom said here. The wealth opportunity for private markets, affiliates, liquid alternative affiliates, and our ability to get our affiliates access to that channel is a huge strategic advantage for us. It probably - I guess we can't underscore it enough. When you think about it, right, an independent firm who's seeking a partner, oftentimes they will have a criteria for seeking that partner, and almost always they don't want to be consolidated. There are times where they will turn over the keys, if you will, but most of the time they do not. So for us to win the space of being strategic, while allowing them to continue to preserve their independence, is really - there's not really anyone in the world that does that. And I think, we are running to that as fast as we can, especially given our opportunity in wealth.

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

Hi, good morning, everyone. All my topical questions have been asked, so I just have a couple of cleanup items. Could you give some more color on the intangible noise you highlighted, and if it was related to any specific affiliate? And secondly, to what extent were there any false catch-up fees in the 2Q result? Thank you.

All right, thanks for your question, Patrick. Dava, do you want to start?

Sure, I can take that. On the impairment side, we had a modest reevaluation event at one of our small equity method affiliates in the second quarter, and to your second question, there were no catch-up fees in the second quarter.

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

Hello great, thanks. Good morning, folks. Maybe just going back to the organic growth and private wealth theme. If you assume your long-only business and your quant business is stable, what's your confidence level in generating sustainable positive flows, just from both the private markets and the alts business? Just trying to get a sense of the durability of that, obviously notwithstanding seasonal patterns that we typically get, let's say, in the fourth and first quarters. And then on the just on the wealth distribution side, how - do you share those costs between the affiliates, or do they mostly run through the EBITDA P&L at AMG, or is there a method where you share that distribution cost with the affiliates you're working for?

Great, Brian. I think both Tom and I will weigh in on the answer to this, but I'm going to just set the stage that I think we see organic growth from private markets, and we have been for some time. You can see it on our chart in the IR deck. I think liquid alts, it's been both positive and negative, but I think when we look forward, we think liquid alts is generally a positive organic growth story for us mainly, because performance is really good. And what I think is important to note is, the complementary nature of liquid alternatives to both long-only differentiated strategies, and private markets. And so, when you see upward-sloping markets, you tend to have probably slower growth in liquid alts. When you see choppier, more volatile markets, that's when you really see liquid alts turn on from a performance perspective and oftentimes from a flow perspective. So, we kind of like the complementary nature of it. We think that that is a good balance going forward. But the combination of both private markets and liquid alts, we do see as a long-term secular positive flow story. And then, I'm going to just make one comment, but I'll turn it over to Tom, who will give you more detail We are seeing, consistent with the industry trends, lower gross outflows on long-only equities, which I guess is a positive for us, and that actually does help stabilize that part of our business. So maybe, Tom, I'll let you pick it up from there.

Yes, thanks, Jay. And thanks for your questions, Brian. I actually don't have much to add in terms of the organic growth story. I think Jay covered a lot of it, as well as in our prepared remarks, and the answer to some previous questions. I'll touch just briefly on your question on the wealth model. We've built a pretty sizable team, and I think we do think about effectively joint venturing, right with our affiliates when we enter this market. Particularly in these limited liquidity products, or when we're doing a drawdown fundraise in the wealth channel. So, we have a good economic model, obviously, where we're benefiting from the investment that, we make in the affiliates at the top of the house, but also with some cost and revenue sharing at the product level where it makes sense, in order to both create the right alignment and incentives. And also to enable us to continue to invest for the long-term growth of the business, on behalf of our affiliates.

Yes, and I'll just punctuate that by saying, given that it's a JV and given that we have product revenue as well as affiliate revenue, just to be clear, there are two sources of revenue that come back to AMG. We have an opportunity with scale to earn profit on both. Thanks for your question.

Thank you. This brings us to the end of the question-and-answer session. I'll turn it 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. This concludes today's event. You may disconnect your lines at this time, and enjoy the rest of your day.