Affiliated Managers Group, Inc.

Greetings and welcome to the AMG first quarter 2020 earnings conference 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 Agarwal, Vice President and Best Relations for AMG. Thank you. You may begin.

Thank you for joining AMG to discuss our results for the first quarter of 2020. During this call, certain matters discussed will constitute forward-looking statements. Our actual results could differ materially from those projected due to a number of factors, including those referenced in our Form 10-K and other SEC filings. 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 a replay of this call, a copy of our earnings release, as well as a reconciliation of any non-GAAP financial measures, including any earnings guidance announced on this call. As a reminder, we posted an updated investor presentation on our website this morning and encourage investors to consult our site 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. Before I begin our discussion on our results and forward prospects, I would like to say, on a personal note, that I sincerely hope that everyone on the call today is well and that you and your families are healthy and safe. Our thoughts are with those most affected by the virus, and we remain focused on the health and well-being of the individuals and families at AMG, our affiliates, and the community at large. This is an extremely challenging time for all of us. The COVID-19 crisis is impacting all elements of the world in which we live and work, and it has had a profound effect on the economy and financial markets. Given the nature of our decentralized operations and our entrepreneurial culture, we and our affiliates remain fully operational and have experienced minimal disruption in continuing to serve our key stakeholders, most importantly our clients. We are operating in a time of tremendous uncertainty, and no one knows when the economy and markets are going to recover or what changes in behavior may shape that recovery. While this uncertainty will likely remain for some time, I am confident in our ability to navigate through the challenges we face, to find unique growth opportunities amid dislocation, and to emerge as an even stronger organization in the future. Our business and our affiliates have been tested before, as has our management team, through extremely volatile periods like the global financial crisis, 9-11, and the dot-com bubble. While this crisis will be different, Through the strength and diversity of our business, together with the quality of our partner-owned affiliates, AMG has an opportunity to prove once again to clients worldwide the value of independent active management in periods of dislocation and volatility, as well as an opportunity to deliver the benefits of AMG's differentiated partnership approach to our shareholders. While volatility in markets and asset levels may have a near-term impact on quarterly results, Our primary focus has been on the potential depth and duration of the economic downturn and its impact on the execution of our long-term strategy. As you would expect, we have a plan for all aspects of our business across a range of potential outcomes. And we are focused on maximizing our ability to execute on our strategy through an extended downturn. Even with lower asset levels, our business and our balance sheet continue to be well-positioned. We enhanced our financial flexibility coming into this period through a number of strategic decisions over the last couple of years, including the repositioning initiatives we implemented in 2019, and we further aligned our management team with our shareholders, all of which I'll elaborate on in a moment. Stepping back, as we think about our business in the context of the current crisis, let me first discuss the unique advantages our affiliates have in leading clients through challenging times. In addition, I'll touch on the structural advantages of our model and how these attributes afford us the ability to invest for growth in all environments. AMG has built its business over the past quarter century on the principle that independent active boutiques have unique competitive advantages in delivering market-leading returns to clients, including and especially during times of volatility, has demonstrated in our recently published study the independent boutique advantage in volatile environments. With excellent long-term performance records, outstanding reputations, and superior client engagement, our affiliates are recognized globally as being among the leaders in their respective investment disciplines. They have highly focused investment-centric operating cultures, and as equity owners in their firms, our affiliate partners have ultimate accountability, in stark contrast to passive indexing. Such entrepreneurial cultures typically attract the very best talent, principals who invest their own money alongside clients, and truly experience both the risk and reward in their investment decisions. Therefore, in times of significant volatility, independent boutiques are better positioned to protect capital and pivot quickly to the areas of greatest opportunity. And while the full impact of this crisis on the economy is still in its early days, our affiliates are generating strong performance across a number of strategies. Our global managers, including Harding Levener, GW&K, and Veritas, are generating strong relative performance in their products and are opportunistically considering new product development. Our value managers, most notably Yachman and Tweedy Brown, significantly outperformed peers during the quarter, and are well-positioned to capture future inflows given top quartile performance. And finally, our alternative managers, including Capula, Guarda, and Systematica, have delivered strong returns and are benefiting from increased client allocations and a renewed appreciation for their uncorrelated return streams. This collective strength across our affiliates is a direct result of nearly three decades of successful and deliberate execution of our strategies. to invest in leading independent partner-owned active boutiques through a proven partnership approach. We have built a business that is scaled and broadly diversified across products, investment styles, and distribution channels. Given our diversity, the quality of our affiliates, and our unique partnership structure, AMG is able to capitalize on long-term growth across cycles and also benefit from stability in times of market stress. Turning to our results for the quarter, AMG reported economic earnings per share of $3.16 for the first quarter of 2020, down 3% year over year. Consistent with recent quarters, outflows were driven almost entirely by certain quantitative strategies that contribute only a low single-digit percentage of our run rate EBITDA. The stability of our financial results against the backdrop of the crisis reflects not only the strength of our business position, but also the strategic actions we took in 2019 to reposition certain affiliates in our business and to align our resources and capital with growth opportunities. While these efforts are largely complete, we continue to collaborate with a select few affiliates to position their businesses for future success and optimize outcome for their partners and clients. Looking ahead as we evaluate the potential duration and severity of the economic downturn, we are focused on continuing to position our business to operate effectively and create value across a range of potential scenarios. Our balance sheet is a critical component of that planning process, and as a result of many years of focus on creating capacity and flexibility, it is also a source of significant strength. Our capital flexibility together with the cash flow generated by our business create a distinct competitive advantage in the current environment. While challenging markets require careful execution, they often present unique opportunities. As many of you will remember, in the period following the global financial crisis, we made some of our most successful new investments, and we anticipate seeing similarly attractive opportunities over the coming quarters and years as businesses, individual partners, and corporate owners reassess their strategic and financial needs. This will take time to play out, and it will require capital and resources to execute, and we will remain focused and disciplined on partnering with businesses well aligned with our strategy. As you saw earlier in the quarter, we established a new partnership with Comdesk, a leading middle market private credit and private equity manager with a long track record of delivering returns to clients across market cycles. We structured our partnership with Convess to fund our investment over time and in line with the growth of their business, which enabled AMG to put more capitals to work in higher growth scenarios and provide the level of protection in lower growth scenarios. As we continue to align pricing and structure to a range of future outcomes, this disciplined approach to capital allocation will result in higher returns across our entire opportunity set. More broadly on new investments, given market volatility and recent events, this is a natural time for us to take a step back and reassess, in particular as the environment is changing rapidly and because we anticipate seeing favorable impact on pricing structure and our opportunity set as a result. We will be disciplined, focused, and patient with our capital deployment as we explore partnership opportunities in this environment. In addition, we continue to selectively evaluate opportunities to invest in our existing affiliates, enhancing their ability to meet evolving client needs, and in centralized capabilities to further enhance our affiliates' growth potential. We have been in active dialogue with our affiliate partners regarding distribution, launching new products, opportunistic liftouts, and ongoing succession plans. We also continue to seek strategic partnerships that leverage the collective strength of AMG's relationships on behalf of our affiliates. To that end, during the quarter, we established a strategic relationship with iCapital, a distribution technology platform building on our momentum and fundraisings across our affiliate's alternative products. And as we have said in the past, we remain committed to efficiently returning excess capital to shareholders. Against the backdrop of dislocation in equity markets, we have made the decision to reallocate the remaining capital that we had set aside for dividends in 2020 in favor of share repurchases, which Tom will describe in a moment. As I stated earlier, while there is tremendous uncertainty, we are confident that our business will successfully weather this challenging period. Given the environment, we believe that active management, in particular, when executed by independent partner-owned firms, is more relevant and important now than ever before. And AMG's approach and track record in partnering with these businesses remains unmatched in our industry. Our partnership approach resonates deeply with entrepreneurial management teams who are completely aligned with their clients, and we anticipate our opportunity set across new and existing affiliates to grow significantly. And finally, over the past year, our board has taken actions to further enhance the alignment of our directors and executives with shareholders, building ownership through changes in our equity programs. Further evidencing our collective confidence in the business, members of our board and management team have been active buyers of the stock in the open market in recent months. I have personally purchased AMG shares in each of the last three quarters, and plan to continue to purchase this quarter given my view of our forward growth prospects. Looking ahead, it is with this ownership mindset that we will execute on our strategy. I am as confident as ever that we will emerge from this challenging time as an even stronger organization. With that, I'll turn it over to Tom to review the details of the quarter.