Affiliated Managers Group Inc. (NYSE:MGR) Q2 2016 Earnings Conference Call - Final Transcript

Aug 01, 2016 • 08:00 am ET


Affiliated Managers Group Inc. (NYSE:MGR) Q2 2016 Earnings Conference Call - Final Transcript


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Greetings and welcome to the AMG Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Selene Oh, Vice President, Investor Relations for AMG. Thank you. You may begin.

Selene Oh

(Forward-looking Statements)

With us on the line to discuss the company's results for the quarter are: Sean Healey, Chairman and Chief Executive Officer; Nate Dalton, President and Chief Operating Officer; and Jay Horgen, Chief Financial Officer.

With that, I'll turn the call over to Sean Healey.

Sean Healey

Thanks, Selene, and good morning, everyone. Against the backdrop of volatile markets and muted investor risk appetite, AMG generated solid results in the second quarter, including stable economic earnings per share and year-over-year growth of 8% in our pro-forma assets, bringing our total assets under management to approximately $700 billion.

Our Affiliates produced excellent relative investment performance and positive net client cash flows and we added outstanding new Affiliates, including Winton Capital Management and Capula Investment Management.

As Jay will describe, given the increased earnings power of our business, even in a relatively difficult environment for the asset management industry, we see continued earnings growth for the balance of the year and through 2017.

Notwithstanding, elevated market volatility, which resulted in industry-wide risk aversion, we generated positive net client cash flows during the quarter. As Nate will discuss, our strong net inflows in the retail and high net worth channels were partially offset by lower institutional sales, especially at the end of the quarter as a number of global institutional clients decided to pause implementation of investment decisions in response to the unexpected outcome of the UK's Brexit referendum.

We believe that this was essentially a short-term response, and looking ahead as markets have stabilized and investor expectations adjusted, we are seeing a resumption in sales momentum and expect to benefit from these delayed fundings through the balance of the year.

We also believe that rise in dispersion in the market will increasingly favor differentiated performance-oriented strategies, including focused active equities and a range of value-added alternative investment products. Our Affiliates' equity strategies performed well in the quarter, including Tweedy, Browne, Harding Loevner and Genesis; which all posted strong absolute and relative performance in global and emerging market equities; and the Yacktman and TimesSquare, which in particular generated excellent results in U.S. equities.

Our alternative managers also generally performed well amid the volatility, as several of our Affiliates, including AQR, First Quadrant and BlueMountain generated meaningful alpha during the quarter. Looking forward, contrary to conventional wisdom around challenges in the hedge fund industry, there is significant and growing client demand for alternative strategies across distribution channels; particularly those which are additive at a total portfolio level, given their lack of correlation to traditional equity and fixed income markets.

We believe this is an enduring trend. The diversification and balanced risk-and-return offered