AMG Earnings: Veritable Transaction Boosts Earnings and Covers for Mixed Operating Results

While there was little in narrow-moat Affiliated Managers Group’s AMG third-quarter results that would alter our long-term view of the firm, we expect to lower our $159 per share fair value estimate to $144 to account for revised near- and long-term expectations for assets under management, or AUM, revenue, and profitability.

AMG closed out the September quarter with $635.8 billion in managed assets, down 5.7% sequentially and down 1.4% year over year. While this was worse than our internal forecast for $648.2 billion in AUM, most of that came down to the timing of the closing of the Veritable sale (which eliminated $17.8 billion in managed assets at the end of the third quarter).

Third-quarter outflows of $9.4 billion were only slightly worse than the $7.9 billion quarterly run rate for outflows experienced by AMG the past three years. Given the ongoing weakness of the firm’s global equity performance, with just 45% and 39% of AUM outperforming benchmarks on a 3- and 5-year basis, respectively, at the end of September, we expect AMG to continue to face flow headwinds in that part of its business—noting that the segment’s $22.2 billion in outflows during the first three quarters of 2023 accounted for nearly all of AMG’s $23.1 billion of outflows since the start of the year.

With average AUM down 2.4% year over year during the September quarter, the firm reported a 9.2% decline in revenue when compared with the prior year’s period, due primarily to mix shift and ongoing fee compression (offset somewhat by higher performance fee income). AMG’s year-to-date top-line decline of 13.1% was worse than our forecast for a high-single-digit decline during 2023, which we expect to revise downward in our updated valuation. As for profitability, AMG’s year-to-date adjusted EBITDA margins of 41.1% were 335 basis points higher year over year, as lower compensation and other costs kept margin compression at bay.