Affiliated Managers Group, Inc.

Greetings and welcome to the AMG third 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, Anjali Agrawal, Vice President Investor Relations for AMG. Thank you. You may begin.

Thank you for joining AMG to discuss our results for the third 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, but not limited to, those referenced in the company's Form 10-K and other filings we make with the FTC 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, 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. As macro factors continue to fuel uncertainty and volatility in markets, AMG's diversification and unique partnership structure provide stability and enable us to continue to evolve our business to meet long-term client demand trends. Boutique managers have a proven ability to outperform in more volatile markets, and given their long-term performance track records, our affiliates are well-positioned to benefit as clients seek differentiated, risk-adjusted returns that only active managers can provide. More broadly, with AMG's unique competitive advantages built over the last 25 years, we are confident that our business will generate long-term growth and shareholder value. AMG reported economic earnings per share of $3.16 for the third quarter. Net client cash outflows of $19.7 billion were driven primarily by certain quantitative strategies across liquid alternatives and global equities and included a single low fee redemption of $5 billion. As we said last quarter, and as Tom will discuss in more detail, it's important to note that these outflows had a disproportionate impact on our reported AUM relative to their more modest impact on our earnings. While we expect outflows in these quantitative strategies to continue in the near term, we anticipate that AMG's aggregate level of net outflows will moderate in the fourth quarter, given a number of large institutional and subadvisory wins which are expected to fund by year end. Notwithstanding our near-term flow results, we are well positioned for strong organic growth over time. AMG is diversified across a broad array of strategies and active management, including a significant position in product areas currently benefiting from secular client demand trends. I want to take a moment to discuss these growth areas within our alternatives, multi-asset, and fixed income categories. The first is our illiquid managers. Pantheon, EIG, and Bering Asia, which combined, account for nearly 20% of our run rate EBITDA and are benefiting from record levels of client allocations to private markets. Of these, Pantheon is the largest and most diversified, generating two-thirds of our EBITDA contribution from the liquid. Pantheon is a world-class private market solutions provider, offering clients a diverse array of primaries, secondaries, and co-investments, across private equity, infrastructure, real assets, and private debt on a global basis. This business continues to grow, and its earnings stream is highly stable, given that nearly all of its revenue is fee-based and tied to committed capital. In addition, EIG and Bering Asia offer unique exposure to fast-growing segments within private markets. EIG is a leader in energy, renewables, and infrastructure investing globally. while Bering Asia is one of the largest independent private equity and real estate firms focused on Asian markets. In addition to fee-related earnings, EIG and Bering Asia have significant upside potential from a growing performance fee opportunity. Collectively, our private markets affiliates manage nearly $100 billion in assets and have generated over $20 billion of net inflows over the last two years. These businesses continue to drive innovation in new structures and solutions, making private markets more accessible to clients globally. Second, within our multi-asset and fixed income category, AMG is benefiting from strong secular tailwinds in wealth management space through four affiliates, Veritable, Baker Street, Welsh & Forbes, and MyCIO, that manage nearly $50 billion in ultra-high net worth assets. In addition to the growing concentration of investable assets in this area, Wealth clients are actively transitioning from legacy manager selection models towards holistic advice and portfolio construction. Our affiliates' strong client relationships, solution orientation, and focus on innovation are driving consistent inflows and earning stability. In addition, we have a meaningful exposure to a number of attractive areas across traditional and alternative fixed income through both growth initiatives at existing affiliates such as GWK and AQR, as well as new investments in market-leading affiliates such as Capfield and Garda, both specialist in relative value fixed income. In aggregate, traditional and alternative fixed income accounts for approximately $70 billion in assets and provides another growth opportunity in an area of strong client demand. These growth opportunities in aggregate across private markets, wealth management, and fixed income account for approximately 30% of AMG's EBITDA today, and we expect these areas to play an even more significant role in our business over time. Our fundamental managers across active equities and liquid alternatives, including Genesis, Harding-Levner, Tweedy Brown, ValueAct, Veritas, and Yachman, continue to build on their strong long-term track record and have further distinguished themselves as asset dispersion has increased, particularly in less efficient markets such as small caps, emerging markets, and global equity. These strategies represent approximately 60% of our EBITDA, and given improving performance against the backdrop of volatile markets, alongside capacity reopening in a number of strategies, we are confident in our long-term organic growth prospects across our fundamental equity and liquid alternative managers. And finally, we continue to believe strongly that quantitative strategies across long-only equities and liquid alternatives play an important role in client portfolios. And we expect these strategies to be meaningful contributors to our organic growth profile over time. And while these products account for approximately 30 percent of our AUM today, given fee rates and ownership levels, they contribute only 10 percent to our EBITDA. Stepping back, our core strategy is to generate long-term value by investing in leading independent active managers through a proven partnership approach. allocating resources across AMG's unique opportunity set to the areas of highest growth and return. This strategy has remained consistent, and in the quarter, we made good progress in executing against our strategic plan. Early in the quarter, we completed our investment in Garda, a specialist fixed-income relative value manager with an exceptional performance track record. We are building momentum in our new investment activities across a broad range of prospective affiliates offering in-demand products. Our transaction pipeline includes a diverse range of high-quality growing independent firms that are attracted to our model, and we are well-positioned to structure partnerships that align affiliates, clients, and shareholders. Unique ability to evolve and scale our business through new investments without the risk or cost of integration is a distinctive competitive advantage. We are dedicating significant resources to this effort, and I'm confident in our ability to continue to generate earnings growth and further diversify our business through additional accretive partnerships over time. In addition, we continue to work closely with our affiliates by supporting them in the execution of their individual growth strategies as they position their firms to capitalize on client demand trends. We have worked with our affiliates to seed and launch new products and enter new regions and channels. we have partnered together to evaluate and execute on potential lift-outs and acquisition opportunities. In other cases, we are collaborating with affiliates that are facing headwinds to help them position their businesses to achieve the best outcomes for their clients, as was the case with Blue Mountain. We are pleased to have had a good partnership with Blue Mountain over the many years and that we were able to work together to find the best path forward for their clients and employees and for AMG shareholders. More broadly, consistent with the work we are doing with our affiliates, we are similarly focused on positioning AMG for future growth. And to that end, we have engaged in a number of strategic initiatives in the quarter to align our resources and talent base with those areas where we can deliver scale and expertise to help our affiliates grow and diversify their business. For example, within our global distribution platform, We've adjusted coverage in certain regions and reallocated resources to focus on the clients that represent the largest growth opportunities for our business, including deploying additional resources towards building strategic relationships with leading institutions and intermediaries that are consolidating their relationships with scale players like AMG. Leveraging our scale can also take different forms. In certain areas, delivering partnerships with industry-leading service providers to our affiliates can be more efficient provide better outcomes, particularly where AMG's scale can improve pricing, access, and service. For example, we recently partnered with ACA Compliance Group to support affiliates seeking to lower their compliance costs and access a greater breadth of services. Finally, in the quarter, we have simplified certain elements of our business, reduced operational costs, and taken steps to optimize our footprint. These initiatives will free up approximately $20 million in capital annually, which we will redeploy towards higher growth opportunities in our business. Finally, our entrepreneurial culture remains critical to our success and our ability to adapt ahead of changing industry dynamics. While the environment has been challenging, difficult markets yield compelling opportunities, and we remain confident in the quality and profile of our existing affiliate base and are actively positioning our business for future growth. AMG's business diversification and unique partnership structure provide the resources and flexibility to execute on our growth strategy while consistently returning capital to shareholders. And with that, I'll turn it over to Tom to review the details of the course.