AFFILIATED MANAGERS GROUP, INC. Q3 2025 earnings call

Good morning, and thank you for joining us today to discuss AMG's results for the third quarter of 2025. Before we begin, I'd like to remind you that during this call, we may make a number of forward-looking statements which could differ from our actual results materially. AMG assumes no obligation to update these statements. Also, please note that nothing on this call constitutes an offer of any products, investment vehicles, or services of any AMG affiliate. A replay of today's call will be available on the Investor Relations section of our website, along with a copy of our earnings release and reconciliations of any non-GAAP financial measures, including any earnings guidance provided. In addition, we have posted an updated investor presentation to our website and encourage investors to consult our site regularly for updated information.

With us today to discuss the company's results for the quarter are Jay Horgen, Chief Executive Officer; Tom Wojcik, President and Chief Operating Officer; and Dava Ritchea, Chief Financial Officer. With that, I'll turn the call over to Jay.

Thanks, Patricia, and good morning, everyone. It has been a landmark year for AMG, with record net inflows in alternative strategies and near-record levels of capital deployed in growth investments across both new and existing affiliates. Our third-quarter results reflect a building momentum in our business, with a 17% year-over-year increase in EBITDA and a 27% growth rate in economic earnings per share. In addition, our organic growth profile continued to improve in the third quarter, driven by alternative strategies with $9 billion in firm-wide net inflows, bringing our year-to-date total net inflows to $17 billion, which represents a 3% annualized organic growth rate. Through the third quarter, across both organic growth and new affiliate investments, AMG has added approximately $76 billion in alternative assets under management, representing an increase of nearly 30% in our total alternative AUM. This increase includes $51 billion in net inflows into alternatives.

Today, our affiliates manage $353 billion in alternative AUM, contributing 55% of our EBITDA on a run-rate basis, and including sizable contributions from two of AMG's largest and longest-standing affiliates, Pantheon and AQR. Both firms continue to capitalize on the tailwinds in their respective areas by leveraging their scale, innovative cultures, and differentiated expertise, which are collectively driving strong, ongoing organic growth for AMG. These elements are continuing to have a meaningful impact on our business profile and earnings. As you know, we expect each affiliate to be a double-digit contributor to AMG's earnings this year.

Given the substantial increase in our alternative AUM, the significant growth and margin expansion at AQR and Pantheon, the positive contributions resulting from capital deployed in growth investments, and the positive impact of our ongoing allocation of capital to share repurchases, we anticipate a meaningful increase in our full-year economic earnings per share in 2026. Looking ahead, we have expanding opportunities to further invest in growth by investing in new and existing affiliates, and by investing in AMG's strategic capabilities to magnify our affiliate success. Our new investment pipeline remains strong, with active ongoing dialogue with prospective affiliates operating in both private markets and liquid alternatives. Our investment model continues to resonate with the highest quality partner-owned firms seeking a strategic partner that can enhance their long-term success while also supporting their independence. Our strategic capabilities, particularly in capital formation, increasingly differentiate AMG in our dialogue with prospective affiliate partners.

We recently announced a strategic collaboration which highlights the value of AMG's capital formation capabilities in the U.S. wealth channel. Brown Brothers Harriman, a globally recognized 200-year-old firm with considerable scale, chose to strategically collaborate with AMG to develop innovative products and deliver structured and alternative credit solutions to the wealth channel, a very strong statement on AMG's value proposition. Also, in the third quarter, we announced the sale of AMG's minority stake in Comvest's private credit business. AMG invested in Comvest to provide a combination of growth capital and strategic capabilities that accelerated the growth of its credit franchise. We were pleased that AMG's strategic engagement ultimately resulted in a positive outcome for all stakeholders, including AMG shareholders. The significant return of capital, nearly 3x our purchase price, highlights the underlying value of our affiliates managing alternative strategies.

Having committed more than $1 billion across five new growth investments so far in 2025, we continue to actively expand AMG's participation in areas of secular growth. We have an excellent capital position, which was further enhanced by the significant proceeds from the sale of our interest in Peppertree and Comvest. Given our ample financial flexibility and our distinct competitive advantages, we have an outstanding opportunity to further increase our earnings growth by continuing to make growth investments and return capital to shareholders. Finally, it has been an extraordinary year for AMG in terms of both organic growth and new affiliate investments, laying the groundwork for accelerating EBITDA and earnings growth in 2026. As we continue to execute our strategy, building upon more than three decades of successful partnerships, we are confident in our ability to continue to generate long-term earnings growth. With that, I'll turn it over to Tom.

Thank you, Jay. And good morning, everyone. AMG's activities over the course of this year illustrate our strategy in action. As we evolve our business mix more toward alternatives, our business is generating strong organic growth in both liquid alternatives and private markets. We continue to invest in both our affiliates and in AMG's own capabilities to support future growth opportunities. This year, we have entered four new investment partnerships with alternative firms squarely aligned with long-term secular growth trends. We also announced a strategic collaboration to bring structured credit products to the U.S. wealth marketplace with BBH Credit Partners, highlighting the strength of AMG's capital formation capabilities. And we engage strategically with our affiliates across a range of business initiatives, including new product launches, building out adjacent capabilities, and supporting two of our private markets affiliates in their sales to consolidators.

Taken together, these strategic actions and many other elements of our unique model drove significant earnings growth and cash flow generation, which we have invested and will continue to invest for growth, fueling the execution of our strategy and the forward evolution of our business, while simultaneously returning capital through share repurchases and further delivering value to our shareholders. In the third quarter, AMG delivered $9 billion in net client cash inflows and $17 billion on a year-to-date basis, representing an annualized organic growth rate of 3% thus far in 2025. Our strong organic growth this year reflects rapidly growing client demand for liquid alternative strategies and ongoing momentum in private markets fundraising.

In the quarter, our affiliates generated $18 billion in net inflows in alternatives, more than offsetting $9 billion in outflows in active equities and highlighting the advantages of AMG's business profile that is increasingly weighted toward high-growth alternative asset classes. In liquid alternatives, our affiliates' value proposition continues to resonate with clients. With $14 billion in net inflows, AMG posted the strongest quarterly net flows in liquid alternatives in our history, driven primarily by tax-aware solutions and supported by positive contributions from a number of affiliates. Client demand for tax-aware strategies remains substantial, and AMG's affiliates offer highly attractive products. More broadly, AMG's diverse group of affiliates managing liquid alternative strategies is well-positioned to deliver excellent risk-adjusted returns for clients and attract new flows over time.

Our private markets affiliates raised $4 billion in the quarter, mainly driven by another strong quarter at Pantheon and positive contributions from EIG and Abacus, demonstrating the diversity of our affiliates' offerings across private market solutions, credit, private equity, real estate, and infrastructure. The ongoing fundraising momentum of our private markets affiliates reflects investors' conviction in their specialized investment strategies, along with the impact of ongoing secular growth trends. Looking ahead, the management and performance fee potential across our private markets affiliates, including some of our most recent new investment partnerships, which are not yet reflected in our results, represents a significant source of upside for the long-term earnings profile of our business.

As we continue to form new partnerships with growing high-quality independent firms, such as our new investments in NorthBridge, Verition, Montefiore, and Qualitas Energy this year, and our strategic collaboration with BBH Credit Partners, we are broadening our exposure to fast-growing specialty areas within alternatives and further diversifying our business. BBH's taxable fixed income franchise has delivered top quartile performance across strategies and market environments. Our strategic collaboration will bring the firm's industry-leading structured and alternative credit expertise into the U.S. wealth marketplace. As high-net-worth clients and their advisors continue to drive demand for alternative strategies, credit remains a core focus. The return characteristics and scalability of structured credit make this area uniquely attractive. BBH is one of the industry's longest-tenured and most active players, with a differentiated structured credit investment track record across the full capital stack.

In combination with AMG's product development and distribution capabilities, we see significant opportunity to build unique investment solutions to meet growing demand. AMG provided excellent alignment with BBH's goals for a number of reasons: the complementary strengths of our respective businesses, access to significant seed capital, the permanent nature of our model, and strong cultural connectivity across our firms. The strategic collaboration will accelerate the expansion of BBH's structured credit franchise and will further enhance AMG's position as a leading sponsor of alternative strategies for the U.S. wealth market. The rapidly growing demand in U.S. wealth for distinctive alternative products is one of the most visible mega trends in the asset management industry today. AMG is uniquely positioned to benefit. AQR has been a leader for more than a decade in developing and delivering excellent investment solutions to U.S.

wealth clients, and its innovation in tax-aware strategies continues to drive rapid adoption. Pantheon was one of the earliest innovators in limited liquidity vehicles in private markets, and product development and flows are accelerating across its product line. Our collaboration with BBH Credit Partners speaks to the success that AMG has seen thus far in driving growth and alternatives in the wealth channel, and we see significant opportunities ahead. As clients increasingly look to AMG as the industry's leading entry point to access the differentiated alternative investment capabilities of independent partner-owned firms, AMG's footprint in U.S. wealth is well-positioned for rapid growth. Importantly, the success that we are having in the U.S.

wealth channel is resonating not only with clients and existing AMG affiliates, but also with new investment prospects, as accessing this attractive market requires scale and is difficult, if not impossible, for many independent firms to do on their own. As we continue to invest in new partnerships with alternative firms, we look forward to collaborating with additional affiliates to broaden their reach and expand their platforms. AMG's business has continued to evolve in 2025, driven by our focus on allocating our resources and capital to areas of secular growth. As we execute our strategy, we expect the contribution from alternative businesses to further increase, enhancing our long-term organic growth profile and earnings profile, and we are excited about the opportunities ahead. With that, I'll turn the call over to Dava to discuss our third-quarter results and guidance.

Thank you, Tom, and good morning, everyone. It has been an exciting year for AMG. In 2025 to date, we have committed approximately $1.5 billion in capital across growth investments and share repurchases, and we continue to be in a strong position to execute on future growth opportunities and return capital to shareholders, given our significant cash generation and strong balance sheet. I will start by walking through the results for the quarter, then we'll discuss the positive impact of recent capital activity on our forward earnings power, and conclude with a discussion on our balance sheet. In the third quarter, we reported adjusted EBITDA of $251 million, which grew 17% year-over-year. This included $11 million in net performance fee earnings and reflected a full quarter contribution from Verition and Peppertree's final contribution.

Fee-related earnings, which exclude net performance fees, grew 15% year-over-year, driven by the positive impact of our investment performance and organic growth in our alternative strategies, partially offset by outflows from fundamental equity strategies. Economic earnings per share of $6.10 grew 27% year-over-year, additionally benefiting from share repurchases. Now moving to fourth-quarter guidance, we expect adjusted EBITDA to be in the range of $325 million-$370 million, based on current AUM levels reflecting our market blend, which was up 1% quarter-to-date as of Friday, and including net performance fees of $75 million-$120 million, bringing expected performance fees for this year to between $110 million and $155 million. This guidance includes a full quarter contribution from Montefiore, a full quarter contribution from Comvest's private credit business, and no impact from our announced investments in Qualitas Energy and BBH Credit Partners, which are expected to close in Q4 and Q1 2026, respectively.

We expect fourth-quarter economic earnings per share to be between $8.10 and $9.26, assuming an adjusted weighted average share count of 28.9 million for the quarter. Looking further ahead, we anticipate a meaningful increase in our full-year adjusted EBITDA and economic earnings per share in 2026, mainly driven by strong organic growth and our capital allocation strategy. I'll describe each of these further. Organic growth in our existing business is having a meaningful impact on bottom-line earnings. Strong organic growth in alternatives, including record inflows in alternatives year-to-date, is driving growth in AUM, having a positive impact on our aggregate fee rate relative to the prior year and incrementally expanding margins at some of our largest alternative affiliates.

Furthermore, the approximately $1.5 billion committed to growth investments and share repurchases, combined with the sale of our stakes in two of our private market affiliates, is expected to substantially increase our earnings in 2026. Additionally, we believe there is incremental upside to our earnings potential over time as we strategically engage with each of our five new partners in the next phase of their success. This combination of organic growth in our existing business and new investment activity has led to strong year-over-year earnings growth so far in 2025. It underpins our confidence in our 2026 earnings profile. Importantly, most of this earnings growth is in fee-related earnings delivered by products with longer expected duration. Finally, turning to the balance sheet and capital allocation, we repurchased approximately $77 million in shares in the third quarter, bringing year-to-date repurchases to approximately $350 million.

We are increasing our full-year guidance for repurchases and now expect to repurchase at least $500 million, subject to market conditions and capital allocation activity. Our balance sheet remains in a strong position with long-dated debt, significant capacity from ongoing cash generation, and access to our revolver. Additionally, we received pre-tax proceeds of approximately $260 million from the sale of our stake in Peppertree, which closed in the third quarter, and will receive approximately $285 million in proceeds from the sale of our stake in Comvest. Given our ample financial flexibility, which is further enhanced by the proceeds from these affiliate transactions, we are well-positioned to continue to invest in growth opportunities and return capital to shareholders. We continue to employ a deliberate, strategic, and disciplined approach to allocating our capital and investing in the ongoing growth of our business.

We have a diverse, unique set of opportunities available to us, including investments in new affiliate partnerships in and alongside existing affiliates and in AMG capabilities. Through our capital allocation framework, we selectively engage in opportunities that align with our overall business strategy and that we believe will create significant long-term value. Looking ahead, we are confident in our ability to continue to generate substantial value for our shareholders. Now we are happy to take your questions.