10-KPeriod: FY2018

AFFILIATED MANAGERS GROUP, INC. Annual Report, Year Ended Dec 31, 2018

Filed February 22, 2019For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported a challenging year in 2018, with assets under management (AUM) decreasing by 12% to $736.0 billion, primarily driven by broad declines in equity markets in the fourth quarter and continued investor preference for passive investment products. This led to a 2% decrease in aggregate fees to $5.44 billion. Consequently, net income attributable to controlling interest saw a significant drop of 65% to $243.6 million. Despite the AUM decline, average AUM increased by 5% to $819.9 billion, reflecting strong performance earlier in the year and growth in alternative and multi-asset strategies. AMG's business model relies on its partnerships with boutique investment management firms (Affiliates) that focus on active, return-oriented strategies. The company's strategy is to grow through existing Affiliates and new investments, supported by a unique partnership approach that aligns interests and preserves operational autonomy. While the company faced headwinds in 2018, it continues to benefit from strong client relationships and a diversified range of investment products. The company also remains committed to returning capital to shareholders, evidenced by its share repurchase programs.

Financial Highlights

41 data points
Beta

Revenue

$2.38B

Net Income

$243.60M

10.2% Net Margin

EPS (Diluted)

$4.52

Total Assets

$8.22B

Cash & Equivalents

$565.50M

Free Cash Flow

$1.12B

Financial Statements
Beta
Revenue$2.38B
SG&A Expenses$417.70M
Operating Expenses$1.69B
Interest Expense$80.60M
Net Income$243.60M
EPS (Basic)$4.55
EPS (Diluted)$4.52
Shares Outstanding (Basic)53.60M
Shares Outstanding (Diluted)53.80M

Key Highlights

  • 1Assets Under Management (AUM) decreased by 12% to $736.0 billion in 2018, impacted by market declines and shifts to passive investing.
  • 2Aggregate fees declined by 2% to $5.44 billion, driven by lower performance fees and a slight decrease in asset-based fee ratios.
  • 3Net income attributable to controlling interest fell significantly by 65% to $243.6 million in 2018, largely due to equity method investment impairments and a one-time tax benefit in the prior year.
  • 4Average AUM increased by 5% to $819.9 billion, indicating underlying growth despite market volatility.
  • 5The company continued its share repurchase program, with 3.3 million shares bought back in 2018.
  • 6AMG's strategy remains focused on investing in leading boutique investment management firms with active, return-oriented strategies.
  • 7The company reported effective internal controls over financial reporting and maintained a strong credit rating (A3/A-).

Frequently Asked Questions

The primary drivers were a significant decline in equity markets in Q4 2018, leading to a decrease in Assets Under Management (AUM) and impacting performance fees. Additionally, a continued industry trend towards passively managed products affected demand for active strategies. Impairments on certain equity method investments also significantly impacted net income.

AMG's model involves equity investments in boutique investment management firms (Affiliates) while allowing them operational autonomy. The company's revenue is largely derived from asset and performance-based fees from these Affiliates. Changes in AUM, fee structures, and the performance of these Affiliates directly impact AMG's aggregate fees and overall financial results. The structure also means that a significant portion of expenses, such as compensation, is often attributable to non-controlling interests.

AMG's strategy is to generate shareholder value through the growth of its existing Affiliates and by making new investments in other leading boutique investment management firms. The company focuses on firms with active, return-oriented strategies, including alternative and global equity strategies, and aims to benefit from its reputation as a strategic partner for succession planning and growth.

AMG maintains significant credit facilities and senior notes. In 2018, it repaid some senior debt and continued to manage its capital structure, which includes outstanding convertible securities. The company also has ongoing share repurchase programs to return capital to shareholders and expects operating cash flows and available credit to be sufficient for its future needs, including investments in new and existing Affiliates.