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AMG Earnings: Outflows Offset Market Gains as Firm Looks to Recover From Market Dislocation

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Affiliated Managers Group Inc
(AMG)

There was little in narrow-moat Affiliated Managers Group’s AMG first-quarter results that would alter our long-term view of the firm. We expect to leave our $145 fair value estimate in place and view the shares as fairly valued.

AMG closed the March quarter with $668 billion in managed assets, up 2.6% sequentially but down 14.0% year over year. This was only slightly better than our forecast for $667 billion in assets under management. The firm did do a better job on the flow front, generating $3.2 billion in outflows during the first quarter relative to our expectation for $4.7 billion. This was also significantly better than the $9.4 billion quarterly run rate for outflows that AMG experienced the past three years.

Given the ongoing weakness of AMG’s global equity performance, with just 56% and 36% of AUM outperforming their benchmarks on a three- and five-year basis, respectively, at the end of March, we expect the company to continue to face flow headwinds in that part of its business. The segment’s $5.1 billion in outflows during the first quarter accounted for the majority of AMG’s outflows.

With average AUM down 16.1% year over year during the March quarter, AMG reported a 14.8% decline in revenue compared with the prior-year period, despite a slightly more favorable mix shift and a modest level of performance fee income. That said, we still envision top-line growth being down low single digits for the full year as the company starts to lap its most difficult quarters from 2022.

First-quarter adjusted operating margin (by our calculations) of 32.4% was 740 basis points lower year over year, well below our projected range of 36%-40% for 2023, but things should improve some as we get through the rest of the year. AMG reported first-quarter economic earnings per share of $4.18, above the FactSet consensus of $4.16 but in line with our own estimate.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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