Affiliated Managers Group, Inc.

Greetings, and welcome to the AMG second quarter 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Anjali Agarwal, Vice President and Best Relations for AMG. Thank you. You may begin.

Thank you for joining AMG to discuss our results for the second quarter of 2019. In this conference call, certain matters discussed will constitute forward-looking statements. Actual results could differ materially from those projected due to a number of factors, including, if they're not limited to, those referenced in the company's Form 10-K and other filings we make with the SEC from time to time. We assume no obligation to update any forward-looking statements made during this call. AMG will provide, on the investor relations section of its website, at ir.amg.com, a replay of the call, a copy of the announcement of our results for the quarter, and a reconciliation of any non-GAAP financial measures that are not announced on this call to the most directly comparable GAAP financial measures. As a reminder, we have also included an updated investor presentation on this section of our website. AMG encourages investors to consult the Investor Relations section of its website regularly for updated information. With us on the line to discuss the company's results for the quarter are Jay Horgan, 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. It's good to be with you on my first quarterly earnings call as CEO of AMG, and I would like to welcome Tom in his new role as CFO. We, along with the rest of the management team, look forward to executing on AMG's long-term strategy, leveraging the significant competitive advantages that we've established over our 25-year history to generate long-term sustainable growth and create shareholder value. AMG reported economic earnings per share of $3.33 for the second quarter. Outflows of $15 billion were elevated, driven primarily by quantitative strategies across liquid alternatives and global equity. and will likely remain at similar levels in the near term given ongoing performance headwinds in these areas. As Tom will discuss in further detail, it's important to note that these outflows had a disproportionate impact on our headline organic growth profile relative to their impact on earnings. More broadly, we are seeing positive momentum across our affiliate group in multiple product areas. Industry growth and global private equity, infrastructure, and real assets is benefiting our illiquid strategies at affiliates such as EIG, Pantheon, and Bering Asia, as well as fixed income strategies across traditional and relative value alternative products at affiliates such as GWK and Capula. And with the closing of our investment in Garda, we are increasing our exposure to these in-demand fixed income alternatives. In addition, our affiliate group includes some of the industry-leading global and emerging market equity managers, such as Harding Loebner, Tweedy Brown, Genesis, and Veritas. And given their excellent long-term performance track records, we are well-positioned for future growth in this category. At the highest level, AMG's boutique-focused model is positioned to capitalize on key industry trends, including the recognition by clients that alpha generation is driven by skill, not scale, and that the essential characteristics of independent firms result in inherent advantages in generating alpha relative to large-scale manufacturers. These fundamental characteristics include boutiques' entrepreneurial investment-centric cultures, specialized focus, and direct management ownership, which together foster a long-term orientation and an alignment of interests. And, as AMG's research has empirically demonstrated, boutique managers have outperformed both indices and non-boutiques over time, especially in volatile markets. We have deep expertise in identifying and selecting high-quality boutique investment firms and structuring permanent partnerships that align the interests of our clients, our affiliate partners, and our shareholders. In addition, AMG offers a single point of access to these industry-leading boutique capabilities at scale, while preserving their unique investment cultures, which are critical to individual affiliate success. And finally, we have extensive industry relationships that we can leverage to enhance the growth of our affiliates and our business. With these competitive strengths, in combination with the execution of our strategy, AMG has unique agility in evolving and enhancing our exposure to a number of the fastest growing areas in the asset management industry through both collaborating with existing affiliates and partnering with new affiliates. Over the years, AMG has worked closely with our affiliates as they evolve their investment and product capabilities to pursue growth initiatives to meet client demand trends. Through this collaboration, we have encouraged our affiliates to innovate in ways that further enhance their growth, stability, and global client reach. For example, we have helped affiliates to successfully launch new business lines to expand into new asset classes and channels, leveraging our capital and distribution resources to establish and market new products. We've also assisted affiliates in sourcing and executing lift-outs, acquisitions, and new business development opportunities, including most recently combining Trilogy's emerging market team into GWK last year, and today these products are winning new mandates. One of the most significant examples of our ability to leverage AMG's talent, resources, and scale to support growth of our affiliates is the successful execution of our global distribution strategy built over the past 15 years. Through the strong relationships and dialogues we have developed with asset owners and intermediaries around the world, we continue to evolve our global distribution platform to meet changing buyer preferences and objectives. As we discussed last quarter, AMG is making progress in building strategic relationships with key financial institutions, distributors, and solution providers globally to enable our affiliates to gain access to high-quality scale distribution, particularly in regional wholesale channels, where we believe partnerships are the optimal way to extend our reach and scale. Turning to new investments, earlier this month we closed on our investment in Guarded Capital Partners, a premier relative value fixed income specialist, adding to our organic growth profile in this in-demand product category and further enhancing the earnings power of our business. We are building momentum in our new investment activities and are actively evaluating a broad range of prospective affiliates. Our transaction pipeline includes a diverse range of high-quality, growing independent firms that are well aligned with our partnership criteria. AMG's model continues to be highly attractive to our target prospect universe. Independent firms inevitably need to address succession planning, and those firms seeking a solution that preserves and protects their entrepreneurial cultures among successive generations of management are drawn to AMG's partnership approach. In executing new investments, we are not only adding excellent talent, but also in-demand and immediately saleable products that will drive growth and sustain our competitive positioning in an evolving industry. And our ability to evolve and scale our business without the risk or cost of integration is another distinctive competitive advantage. Traditional acquisitions and recent mergers in the asset management industry are often driven by cost synergies. and many have resulted in prolonged periods of lower organic growth given client and business disruption. Through the successful execution of our new investment strategy, AMG is well-positioned to simultaneously grow our earnings while enhancing the long-term growth profile of our business. Through our revenue share model, which minimizes operating leverage, and the scale and diversity of our global franchise, we generate significant stable free cash flow, and together with modest leverage, we have substantial capacity and flexibility to execute on our growth initiatives. We will remain disciplined in deploying capital and selective in partnering with the highest quality firms in our industry. We will also continue to return capital to shareholders through dividends and share purchases as we demonstrated this quarter and over the last three years, resulting in a significant reduction in our share count. Stepping back, having just returned from our annual strategic board off-site, and as our leadership team transitions to the next generation, we are bringing together the history and experience of operating AMG's successful partnership model and the focus and energy of a new generation of management. This change has reignited the entrepreneurial culture and partnership orientation that has always defined AMG. And I am as optimistic as ever about our ability to capitalize on key industry trends through the excellent execution of our vision. Our strategy is to generate long-term value by investing in leading independent active investment managers through a proven partnership approach and allocating resources across AMG's unique opportunity set to the areas of highest growth and return. And as the role of boutiques in generating alpha and delivering superior client outcomes becomes even more differentiated, We believe that our strategy is as important as ever in aligning the interests of clients, affiliates, AMG, and our shareholders. As we position our business for growth, we will evolve and shape our resources to align with our strategy and focus our organization on the most significant growth opportunities before us. AMG's model is truly unique. We have built a diverse business which includes long-term partnerships with many of the most highly regarded independent firms in the world with established track records of outperformance across a wide array of investment strategies and in a number of the fastest-growing segments of the industry. Given our reputation as the partner of choice to excellent firms and expertise in making new investments, we are able to simultaneously grow our earnings and enhance our organic growth profile while also consistently returning capital to our shareholders. And with that, I'll turn it over to Tom to review the details of the quarter.