10-QPeriod: Q1 FY2008

AFFILIATED MANAGERS GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 7, 2008For Securities:AMGMGRBMGRMGRDMGRE

Summary

Affiliated Managers Group, Inc. (AMG) reported total revenue of $335.0 million for the first quarter of 2008, an increase of 8% compared to the same period in 2007. This growth was primarily driven by a higher level of performance fees and an 8% increase in average assets under management, particularly in the Institutional distribution channel. However, net income declined by 10% to $32.8 million in the first quarter of 2008 from $36.6 million in the prior year. This decline was attributed to increased operating expenses, including compensation and SG&A, and higher interest expenses related to new debt issuances, which outpaced the revenue growth and increased income from equity method investments. The company also saw a significant decrease in its cash and cash equivalents, from $223.0 million at the end of 2007 to $162.2 million at the end of the first quarter of 2008, reflecting substantial use of cash in operating and investing activities.

Key Highlights

  • 1Total revenue increased by 8% year-over-year to $335.0 million, driven by higher performance fees and growth in average assets under management.
  • 2Net income decreased by 10% year-over-year to $32.8 million, impacted by rising operating and interest expenses.
  • 3Average assets under management grew by 5% to $257.6 billion, with the Institutional channel showing the strongest growth (8%).
  • 4The company retired its floating rate senior convertible securities and 2004 mandatory convertible securities in Q1 2008, issuing approximately 10.8 million shares of common stock.
  • 5Total operating expenses increased by 11% to $219.6 million, primarily due to higher compensation and SG&A costs.
  • 6Cash and cash equivalents decreased significantly from $223.0 million at year-end 2007 to $162.2 million at the end of Q1 2008.
  • 7Interest expense rose by 16% due to the issuance of $500 million in junior convertible trust preferred securities in October 2007.

Frequently Asked Questions

AMG's primary revenue driver was investment management fees, which are generally based on a percentage of assets under management. In the first quarter of 2008, revenue also saw a boost from a higher level of performance fees compared to the prior year.

Net income decreased by 10% primarily because operating expenses and interest expenses increased at a faster rate than revenue. Compensation and related expenses, selling, general, and administrative expenses, and interest expenses all saw significant increases.

In the first quarter of 2008, AMG retired its floating rate senior convertible securities and its 2004 mandatory convertible securities, leading to the issuance of approximately 10.8 million shares of common stock. The company also increased its borrowings under its senior credit facility.

AMG's liquidity decreased during the quarter, with cash and cash equivalents falling from $223.0 million at December 31, 2007, to $162.2 million at March 31, 2008. This was due to substantial cash outflows for operating activities and investments.