10-QPeriod: Q2 FY2006

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 9, 2006For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported robust financial performance for the second quarter and first half of 2006, demonstrating significant revenue and net income growth compared to the prior year. This growth was driven by a substantial increase in assets under management across its Mutual Fund, Institutional, and High Net Worth distribution channels, fueled by positive investment performance, strategic acquisitions in 2005, and healthy net client cash flows. The company's balance sheet reflects continued expansion, with total assets growing. However, liabilities also increased, notably due to new debt issuances, including a significant $300 million in Junior Convertible Trust Preferred Securities. Despite increased interest expenses and minority interest, AMG managed to improve its profitability, highlighting operational efficiency and effective asset management. Investors should note the company's ongoing strategy of acquiring and integrating mid-sized investment management firms, which contributes to both asset growth and increased amortization expenses related to acquired intangibles.

Key Highlights

  • 1Revenue increased by 36% for the three months ended June 30, 2006, and 37% for the six months ended June 30, 2006, compared to the prior year periods, driven by a significant increase in assets under management.
  • 2Net income grew by 29% for the three months and 34% for the six months ended June 30, 2006, indicating strong profitability despite rising expenses.
  • 3Average assets under management across all distribution channels saw a substantial increase, growing by 50% for the quarter and 47% for the year-to-date period compared to the prior year.
  • 4The company issued $300 million in Junior Convertible Trust Preferred Securities in April 2006, increasing its total debt, and also saw a significant increase in its Senior Revolving Credit Facility.
  • 5Interest expense rose by 78% for the quarter and 60% for the six months ended June 30, 2006, primarily due to new debt issuances and higher interest rates on convertible securities.
  • 6Operating expenses increased, with compensation and related expenses up 43% year-over-year, largely due to the revenue-sharing model with Affiliates and expenses related to new acquisitions.
  • 7The company repurchased 3.3 million shares of its common stock in the six months ended June 30, 2006, indicating a commitment to shareholder returns.

Frequently Asked Questions

AMG reported a strong performance, with revenue increasing by 36% to $283.1 million for the three months ended June 30, 2006, and net income rising by 29% to $33.9 million compared to the same period in 2005. This growth was primarily driven by a 50% increase in average assets under management across its distribution channels.

The growth in assets under management was attributed to several factors, including positive investment performance, strategic investments in new Affiliates made in 2005 (such as the acquisition of First Asset Management Inc.), and positive net client cash flows. This led to a 50% increase in average assets under management for the quarter.

AMG significantly increased its debt by issuing $300 million in Junior Convertible Trust Preferred Securities in April 2006. This, along with increased borrowings under its Senior Revolving Credit Facility and higher interest rates on floating rate convertible securities, led to a substantial rise in interest expense, which increased by 78% for the quarter and 60% for the six-month period compared to the prior year.

AMG continues its growth strategy by acquiring and integrating mid-sized investment management firms. While this drives revenue and asset growth, it also leads to increased operating expenses, particularly compensation and related expenses, and amortization of intangible assets related to these acquisitions. For example, compensation and related expenses increased by 43% year-over-year.