AMG
#Well, I think we covered the variance in our prepared remarks around a small number of institutional clients who chose this quarter to reposition their portfolios independent of performance.
So, that I think is the dominant fact.
<UNK>, would you add anything to that.
So, first, I think we talked about this quarter and the three specific things that impacted it.
One, the one you called out which I would say is really US equities in general rather than just sort of Yacktman specific.
So, US equities in general, especially US equities in retail where we said in our prepared remarks is disproportionately larger, and then we had the specific to this quarter events.
Other than that, I think you look at the long-term trends.
We feel good pretty good about it and I think that includes the trends over this multi-year period, which is a large number of good performing products, the global distribution platform is growing.
We have this opportunity to keep adding products both from product development as well as from new investments and investments in additional Affiliates as you saw today.
And so I think those long-term trends over the long term I think remain in place.
Obviously any one quarter will have the kinds of things we talked about an our remarks.
But on an overall basis we see as we noted a resumption of the momentum that we've had for now a very long term.
Sure, <UNK>.
It's <UNK>.
I mentioned just earlier that we have ---+ we expect to close at the end of the year and have $500 million drawn on our revolver which leaves $800 million under the revolver spot rate, plus of course we have $1 billion of EBITDA annually, so depending on the timing of new investments have all that we need from revolver or the cash flow from the business.
As it relates to your question on repurchases, we repurchased $53 million in the quarter and $332 million year-to-date.
We do not expect to repurchase in the fourth quarter, but we would resume our model convention for 2016.
Sure.
So, on the deals I think I'd maybe start where the last question left off.
We had $60 million drawn on the revolver at September 30.
Of course we got our distributions from Affiliates in the third quarter this past month, so we've obviously paid off our revolver.
I think we expect our revolver balance to be a little over $500 million at 12/31, expecting to close all of the deals at that time.
So we are not individually calling out the purchase prices, but I think you can tell order of magnitude the amount of capital deployed.
When you think about typical capital deployment in the deals, we've said in the past we see accretion in the $0.10 to $0.14 range per $100 million spent, so I think you can get a good sense for what is in the 2016 guidance based upon that capital and that metric.
Because we expect them to close on 12/31, you will get a full year of that in 2016.
Maybe I will take a step back and talk about 2016 more broadly if that's okay, <UNK>, which is that range of $13.20 to $14.80, it obviously starts with our pro forma AUM with those deals in it since we're going to get a full-year effect, includes markets as of Friday and that blend was up a little bit less than 4% as of Friday, for the quarter to date.
So that's since the end of the quarter because you can see what our AUM was at the end of the quarter.
You have to put myCIO which closed on 10/01 into that number, grow it by the 4% more or less, and then you end up adding the deals and you can see what the full-year effect would be in 2016.
We have our normal model convention of 2% per quarter beginning the first quarter of 2016, no market performance through the rest of the 2015 period.
And then we have a range of performance fee assumptions for the year, and then we also have our model convention of repurchasing 50% of annual economic net income, and I gave you the weighted average share count that we expect next year of 54 million down from 55.2 million.
So I think that's the broad set of assumptions that I think you'll need for 2016.
As we indicated, the pipeline continues to be very strong, I would say including traditional alternative firms, wealth management firms on a global basis.
The volatility ---+ I think if the volatility in the quarter had continued, it probably would've had an effect, but there's no discernible effect that we're seeing on the firms that are in our pipeline at this point.
The large majority of our opportunities continue to be in negotiated transactions that arise out of proprietary relationships.
We do our best to avoid organized auction processes and you saw the effect in the transactions we announce where all of them, as I noted, arose out of proprietary relationships and were negotiated in a way that was attentive to the particular circumstances of each new Affiliate, and going forward we think that by far that's the most attractive way to make investments, most appropriate way to make investments and obviously results we think in a much better transaction for everybody.
Good question.
So, the 2015 guidance range of $12.20 to $12.80 so first, <UNK>, that reflects the actual results, right.
We've already booked $8.93 year-to-date.
We do have an estimate in our model for the fourth quarter, and that's based upon the third quarter AUM plus the closing of myCIO, and then noting that quarter-to-date market blend up a little less than 4% gets you to a reasonable estimate for where our AUM is right now in early November.
We don't assume anymore beta, so the last bit then would be performance fees, and performance fees are the primary driver of the range at this point.
We have lowered our expectation for performance fees given the market volatility over the past three months, especially in products that are beta sensitive.
That being said because of the diversity of our performance-fee opportunity in both the absolute products as well as the beta sensitive products we still see the 2015 performance fees coming in at 5% to 10% of earnings.
If you remember last quarter we thought it might be a little bit higher than 10% at the top end, but we're back to that 5% to 10%, just also noting that we've already booked $0.23 year-to-date, so there's already 2% that's already done.
And then as it relates to 2016, just to round that out.
I mentioned the impact in 2015 on the performance fees in the beta sensitive products, but in the main these products have good long-term track records with annual resets, and so they're well-positioned to generate meaningful performance fees in 2016, so when you think about these products combined with a broad range of absolute products as well as the new investments that we just made, each of which have some performance fee opportunity, but especially Systematica and Ivory, we do expect slightly higher contribution from performance fees at the top end of our 2016 range.
We've reflected that a bit in the wider range in the guidance of $1.60, so we do have that opportunity as our AUM in alternatives is growing.
I think the last thing I would say about performance fees, just to round it out, is as we add more diversity to our already broad range of performance fee opportunity, I think we said this in the past, we feel good about a base level of performance fees.
The diversity creates a positive asymmetry for investors as it increases the probability at the bottom end of our range of achieving that level of performance fees while at the top end gives us more optionality because we could experience upside above our range as there's no cap on performance fees.
So I think that's how we characterize our performance fee opportunity.
So I'll answer the first bit and then turn to <UNK> for the broader part of your question.
With respect to the new Affiliates where we announced investments today, they are all doing very well both from a performance standpoint as well as in terms of organic growth.
You would expect that in a way because firms generally choose to pursue investment transactions when they have strong momentum in their business, and these three certainly do.
Systematica has terrific long-term and near-term performance, is opening new products and gaining market share in their larger existing products.
Abax, the same goes for them, having an excellent year in terms of performance with a very exciting opportunity to build a global equity product or build on and grow an already very successful well-performing global equity product.
And then Ivory, as we noted, an outstanding long-term alpha generation record that has a long-only product which has just terrific prospects for growth and excellent performance.
So these three Affiliates I think are all very well positioned to generate strong growth as is our overall franchise, but I'll let <UNK> add more color to that.
Sure.
So, I think the way you set it up was a really good way to do it which is look out the next couple of years and I will try and do it that way, but then I also think there are some longer term trends even in that, that maybe I'll touch on.
So as you look at this medium-term year or two trend out I think our Affiliates continue to benefit from a set of trends that we have talked about on prior calls which is investors need to get returns into their portfolios and investors continue to ---+ we've talked about it as barbelling their portfolios between exposures on one end and then active return-seeking managers to meet their return goals and how boutique firms, specialist firms are very well positioned to meet those needs.
And we've actually talked about that also in the white paper that we published early in the year.
So, I think those trends benefit our Affiliates on this time dimension you described.
In addition, and this is the thing that AMG can bring to bear on behalf of these Affiliates is in addition we are taking these good-performing products and we are marrying it to scope and scale of an increasingly diversified global distribution platform; institutionally in many, many markets, retail in some markets, US we've begun building some retail exposure and others.
So we're taking those Affiliates that on their own have this really good opportunity set over the next couple of years and we're marrying it to this distribution business that further enhances their opportunity.
And we've talked about on calls that we take those together, we're able to build a relationship with the marketplace which is really a unique relationship and again we are in the early stages of doing this which is building a relationship where we can bring all of this to bear with the most sophisticated institutions with the intermediaries who serve them with platforms and allow them access to all of this fantastic manufacturing through a single very high-quality point of contact.
And so when you think about bringing those together and then the last thing I'll say here is the virtuous circle component which is as we continue to execute that on behalf of these Affiliates we're having very good success, that obviously makes us more attractive as a potential partner to additional Affiliates.
And that was part of some of these things ---+ the firms ---+ investments you saw announced today which is they understand that opportunity that we bring them.
So I think the firms have a very good opportunity on their own, but I think combining that with what AMG is doing in distribution is a very significant opportunity.
Sure.
I can understand the question given the number of transactions, but it is actually just the fortuity of the circumstances, and as you know, our investments in the main arise out of proprietary relationships that we've built over the years and obviously that's a very important part of our forward opportunity set.
The timing of transactions is driven by idiosyncratic circumstances of each prospective Affiliate and it varies from demographic considerations to an outside investor's preferences, for example, in the part of what was involved in the Systematica investment.
The market volatility in the quarter I would say had really no effect.
Those transactions were well underway and importantly as I had said in response to an earlier question, going forward we don't see any discernible effect from the market volatility on our forward opportunity set and we continue to be very optimistic about our prospects going forward with a very strong pipeline and a competitive position that continues to be extremely strong.
So, lots of good opportunities but they will never appear in a precise orderly timing because that's just not how it works.
So let me try and take those in order.
So I think the question about deferred funding.
So, as I said in the prepared remarks we did have some mandates in the third quarter that were deferred due to that volatility.
A number of them have funded, some of them have not and obviously the ones that have not obviously you're never 100% sure until it's done.
I do think the volatility may have ---+ there were a few mandates that I'm not sure, and again this is completely unrelated to performance.
I do think the volatility in some product categories did have some potential investors say that their slowing it and I think some of those might not come back, I think it's entirely possible but, again, you'll see what happens if things are stable from here.
So I think that is the first bit which is I think we've had a number of them fund, not all.
I think there are a couple that you don't know.
And then the other thing I'd say on flows, looking ahead, so we've got those obviously still early in the quarter and all that, but the trends that we've been seeing look like they're ---+ sort of meaningful trends look like they are all there and good, and then the other thing I'd say which were in our prepared remarks a bit but just to be clear, if you look at the mutual fund channel, I think we're continuing to see good inflows in alternatives global and emerging markets and we are seeing slowing outflows in US equities, so that channel in particular looks better.
And with respect to your question about guidance, <UNK>, as you know, we never guide to flows.
So you have heard I think a pretty optimistic and positive view of our forward organic growth prospects and embedded in the earnings guidance which we gave, of course, is I think very good growth looking ahead which obviously if the markets are better and we make additional new investments, we'll be even higher than we forecast, but just the earnings forecast itself I think embeds some strong internal growth without getting to the place of guiding to flows specifically.
Let me just talk a little bit about what we're doing right now in the US retail business.
So, first, I'd say we're making good progress on the product development side and a little bit of this is related specifically to we have a scale business with the exposures that it has, but we have a bunch of very good opportunities to take the team that we've got there and the sales marketing client service infrastructure and marry it with ---+ we've talked about this on prior calls, marry that with the very good performing products, especially in alternatives, global and emerging markets.
So, when you focus on this quarter, I think we've done a lot of work on that what I'll call product development side and maybe I'll call out two specific examples.
One is we've started working with Harding Loevner in the wirehouse channel, which is taking their products which are performing well, having good flows in many distribution channels and leveraging the places that we think we can really be additive, for one example.
And another example I'd give, and this goes specifically to the opportunity set in alternatives, we had ---+ I think we talked about on prior calls a product that we've been building with Pantheon in bringing private equity into the 40 Act Fund space.
We've built that.
We've now got that 33 Act registered this past quarter.
We will be rolling that out through the team, and so things like that making additional progress in product development and concentrated equity things and some other alternative product, so good progress in product development to leverage our Affiliate's capabilities through the distribution team.
The other thing I'd say is the judgments about that business and what it can achieve are in the forecast that we've given you and in the forecast we're not really assuming any big trend changes to that trajectory as some of these product development things come on.
We expect it will take a little while to really gain traction and sort of change things, but the last thing I'll say, to repeat a point I made earlier, we are seeing slowing outflows in US equities and we are seeing good momentum on the alts, global and on end side, both within our AMG Funds platform but within our retail distribution more broadly.
So, I think it's very hard to generalize.
I think the repositioning came I'll say it had sort of three pieces.
There were some, and this wasn't the bulk of it, but there were some where it was related to performance, so that's some of it.
I think the others where it is clearly unrelated to performance and performance was quite good, I think it would be very hard to generalize and assign it to a strategy.
It was a couple things and they were all, we think, unrelated.
So I don't think there's something I would generalize beyond that in there.
Because we closed on 10/1 but we had actually expected to close 9/30, we had already drawn from myCIO at the end of the quarter.
Well, thank you again for joining us this morning.
As you've heard, we were pleased with our earnings growth in the third quarter and especially to welcome three outstanding new Affiliates.
We remain confident in our ability to continue to create shareholder value through both organic growth of our existing affiliates as well as accretive investments in new affiliates going forward.
We look forward to speaking with you in January.
