Affiliated Managers Group, Inc. (AMG) Q1 2014 Earnings Report, Transcript and Summary

Greetings. Welcome to the Affiliated Managers Group First Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Alexandra Lynn. Thank you, Ms. Lynn. You may now begin.

Thank you for joining AMG to discuss our results for the first quarter of 2014. In this conference call, certain matters discussed will constitute forward-looking statements. Actual results could differ materially from those projected due to a number of factors, including, but not limited to those referenced in the company's Form 10-K and other filings we make with the SEC from time to time. We assume no obligation to update any forward-looking statements made during this call. AMG will provide on its website a replay of the call and a copy of our announcement of our results for the quarter, as well as the reconciliation of any non-GAAP financial measures to the most directly comparable GAAP financial measures. With us on the line to discuss the company's results for the quarter are Sean Healey, Chairman and CEO; Nate Dalton, President and COO; and Jay Horgen, CFO. With that, I'll turn the call over to Sean Healey.

Thanks, Ally. Good morning, everyone. With economic earnings per share of $2.48 for the first quarter, AMG is off to an excellent start in 2014 with strong execution across all elements of our growth strategy, including the announcement of 3 new Affiliate investments, the strong performance for our Affiliates return-oriented products and the continued outstanding growth from net client cash flows, bringing our total pro forma assets under management to just under $600 billion and substantially increasing the scale, diversity and earnings power of our business. While Jay will talk about earnings guidance in a moment, to give you a sense of the magnitude of our earnings growth, our run rate EBITDA of roughly $1 billion is almost double what it was 2 years ago, and 4x the level of 5 years ago. We generated $7 billion of net client cash flows during the quarter, which marked our 16th consecutive quarter of strong positive net flows. Even in a relatively volatile market environment, we continue to benefit from our strategic focus on value-added products, especially global and emerging market equities and alternatives. While uneven markets may have dampened retail investor risk appetite, we continued to see strong institutional client demand for return-oriented products, particularly alternatives and global equities. Our flows were, again, broadly distributed across all channels and coverage regions, reflecting the marketing efforts of our Affiliates, as well as a meaningful contribution from our global institutional and retail distribution platforms. Given our Affiliates' exceptional long-term track records of investment performance, we see strong ongoing demand around the world for our differentiated return-oriented strategies as the trends of portfolio globalization and the barbell-ing of alpha and beta play out. Global institutional clients are increasingly recognizing boutique firms as having a competitive advantage in generating alpha, and at the same time, are attracted to the scale, resources and risk management of a global asset management franchise. AMG uniquely offers the breadth and diversity of an array of independent managers with distinct brands and specialized investment processes, combined with the efficiency of in-market client service and a single point of contact. Finally, as Nate will discuss further, we see substantial additional opportunities to extend our distribution franchise in the U.S. retail market. In this quarter, we announced important strategic initiatives, including the rebranding to AMG Funds and the hiring of Jeff Cerutti to lead the effort. Turning to new investments. This morning, we were pleased to announce our partnership with Veritas Asset Management, one of the industry's most highly regarded global and Asian equity managers. With over $17 billion in assets under management, Veritas has a tremendous track record of investment performance across its award-winning strategies, and I'm very pleased to welcome Charles Richardson and his partners to our Affiliate group. Veritas is the fourth new Affiliate we've announced in the past 5 months. And we were delighted to welcome EIG Global Energy Partners, River Road Asset Management and SouthernSun Asset Management over the past several weeks. Each of these investments grew out of an existing relationship we had developed over time with the firms' senior partners. And looking ahead, we see a very substantial set of new investment opportunities in outstanding traditional and alternative firms where we have already built strong relationships. Virtually all of these firms will inevitably face a need for succession planning solution, and when they decide the time is right to move forward, the strength of our existing relationship and the success of our 20-year track record as a strategic partner to some of the leading boutique firms in the world give us a unique competitive advantage. Finally, it's important to note the degree to which the successful execution of our global distribution strategy not only enhances our extant Affiliates' organic growth but also makes us an even more attractive partner to prospective Affiliates. In fact, as we invest in additional new Affiliates, we create a virtuous circle in which we have incremental earnings accretion while also enhancing our position in the most attractive product areas to clients worldwide. Each additional Affiliate adds immediately salable products, which further diversify our business while also enriching the strategic dialogues we have with clients and intermediaries around the world. Given the strength and scale of our existing business and our unmatched opportunities to partner with leading boutique firms, together with the distribution capabilities we offer to enhance their growth, we are confident in our ability to continue to create outstanding shareholder value going forward. With that, I'll turn it to Nate to discuss our Affiliate results in greater detail.

Thanks. Good morning, everyone. As Sean said, our results from the first quarter demonstrated the strength and diversity of our business and the multiple ways AMG can drive significant growth. We generated $7 billion in positive net flows in what was our 16th consecutive quarter of strong flows, totaling over $110 billion in flows over that period. Although it was a relatively volatile quarter in the market, we continued to benefit from some of the favorable flow trends as clients separate their portfolios into passive beta exposures at one end and active alpha at the other. And for the alpha portions of their portfolios, clients worldwide are increasingly attracted to boutiques. In the quarter, for example, we saw sizable flows and wins from a broad range of alternative product areas, from liquid-managed futures and risk-balancing products to illiquid private equity, with multi-strat and credit products also being significant contributors. In addition, we continue to generate significant wins in active global and emerging markets equities and high-conviction U.S. equities. As you know, AMG includes the broadest array of return-oriented boutiques in the world. And our Affiliates have outstanding long-term investment track records across a wide range of alpha-generating strategies. These are the product areas where we generated the bulk of the positive net flows over the last 16 quarters. And for much of that period, many of these areas were out of favor, for example, during the time when investors significantly increased allocations to fixed income. Now, as risk appetites increase and our Affiliate track records remain strong and we enhanced our distribution resources, we'll be even better positioned to drive significant positive flows going forward. Turning to our Affiliates' investment performance for the quarter. Against the backdrop of relatively volatile markets, our Affiliates generated good investment results. Starting with the global developed markets category, highlights for the quarter included notably strong performance from AQR across the suite of global, international and global defense of equity products; and from Tweedy, Browne, where all of their global equity products including global, international and worldwide high-dividend outperformed for the quarter. In the emerging markets category, we continue to have generally strong performance, as all of the major EM products managed by Genesis and Harding Loevner beat their benchmarks in the quarter and remain well ahead for the 1-, 3- and 5-year periods. In our U.S. equity category, we had a solid quarter in the performance side, where Affiliates including AQR, First Quadrant, Frontier, Renaissance and Tweedy, Browne delivered outstanding performance across their respective equity products. While near-term performance at Yacktman was challenged, largely due to their defensive positioning, the funds maintain top decile rankings for the 5-year period and first percentile rankings for the 10- and 15-year periods. Finally, turning to our alternatives products category. Looking across our Affiliate Group, as you know, they manage a very broad array of liquid and illiquid strategies. Broadly speaking, our Affiliates started the year with good performance. This includes best in class credit, control equity, currency, multi-strat and private equity products. As you saw, we also added a new Affiliate, one of the world's leading energy investment firms, EIG Global Energy Partners, this past quarter. While it's early in the year, the good performance in the first quarter results in some performance fees being recognized. Now, turning to flows for the quarter. As I said, we had another strong quarter with $7 billion in positive net client cash flows. As we emphasize on every call, flows, especially in the institutional and sub-advisory channels, are inherently lumpy. However, overall flow momentum continues to be good. Turning to the channel review and starting with the Institutional channel. We had positive net flows of approximately $4.6 billion. These flows came primarily in alternative strategies and emerging markets products and were broadly spread across Affiliates. Notable contributions came from AQR, BlueMountain, First Quadrant, Harding Loevner, Pantheon, Systematic and ValueAct. Similar to previous quarters, we had a number of great wins coming from leading institutions located around the world. Moving to the Mutual Fund channel. We have positive net flows of $2 billion. From a product category standpoint, we had strong flows into global equities and alternative strategies. While our AMG funds platform had negative flows due to the significant allocation to U.S. equity, the positive flows in the channel came from a number of Affiliates including AQR, Artemis, Harding Loevner and Tweedy, Browne. In our High Net Worth channel, flows were over $350 million for the quarter with contributions coming primarily from GW&K, Harding Loevner and ValueAct, with a significant contribution from our AMG retail platform. Now, stepping back from the quarter-to-quarter flows, I want to orient everyone to the global distribution strategy we've employed over the last 7 or 8 years. Starting with our Affiliates high quality product and outstanding long-term track records into return-oriented areas we focus on, and our Affiliates outstanding dedicated sales, marketing and client service teams, we have added a global distribution platform covering many of the most attractive institutional markets around the world with very strong local teams with deep market knowledge. The results from combining our global teams with our Affiliates' own dedicated resources are clear. If you look at those 16 quarters and over $110 billion of net flows, roughly $65 billion were in the Institutional channel, 75% of which came from outside the U.S. This leads to another important point. It's not just the absolute net flows that matter, but also we've added significantly to the global diversification of our asset base. For example, we're now one of the largest non-Aussie asset managers in Australia. And we are shortly going to begin launching local Australia investment trust to extend our presence in the platform markets there. We have already built a significant business in the Middle East, and just added another channel specialist to the team to further extend our footprint. In Europe, we recently added dedicated coverage to the Netherlands and also a new head of Europe to work with the expanded team there. And they are now covering all the critical institutional markets in Europe. We feel like we've accomplished a great deal, but there may be much bigger opportunity ahead. We and our Affiliates have now built client relationships with many of the largest and most sophisticated institutions worldwide, as well as the largest global and regional consultants and many of the other intermediaries, and we can now leverage these relationships across Affiliates, product areas and regions. In addition, there's still a number of white spaces, regions we have not launched in yet, as well as channels within coverage regions where we have significant untapped opportunities. Now picking up on the theme Sean mentioned. Obviously, this distribution platform makes us an even more attractive partner to potential Affiliates. But also as we bring on new Affiliates, their products can be immediately available to our distribution teams around the globe, which in turn, makes us an even more attractive partner to clients and intermediaries worldwide. Now as I described, there's a tremendous opportunity to continue to drive positive net client cash flows through our global institutional platforms. But in addition, we believe that over time, we also have an opportunity to build a leading retail distribution business, especially in U.S. retail. In part, this is because we believe demand trends are shifting in our favor as, over time, clients and intermediaries must allocate to return-oriented products to meet their objectives, but also fundamentally, we think there is a unique opportunity to be the point of contact through which platforms and intermediaries and other channel partners can access the world's broadest array of return-oriented boutiques. There are really only a very few asset managers in the world that have the same breadth of performance-oriented products as our Affiliates manage. Now as Sean described, we've recently took several critical steps towards this goal, with Jeff Cerutti joining as CEO of our U.S. retail business, which we rebranded AMG Funds effective yesterday. And we all look forward to working with Jeff as he helps us capitalize on these opportunities. Looking ahead, as our Affiliates maintain their excellent long-term performance records, and as global demand for alpha-generating products managed by some of the best investors at their respective disciplines continues to build, we are confident that we can continue to generate strong growth. With that, I'll turn to Jay.

Thank you, Nate. As Sean noted, with nearly $600 billion in return-oriented assets, including the significant organic growth from net flows in the quarter, and the continued successful execution of our new investment strategy, we have meaningfully increased the earnings power of our business and are well-positioned for future growth. As you saw in the release, we reported economic earnings per share of $2.48 for the quarter with net performance fees contributing $0.07. On a GAAP basis, we reported earnings of $1.40 for the quarter. Turning to more specific modeling items. With the integration and rebranding of our retail business this quarter, we are providing enhanced disclosure around AMG's portion of EBITDA as well as guidance on an EBITDA to end-of-period assets-under-management basis. This ratio provides a clear metric for indicating the earnings power of AMG as a whole, and as with any profitability ratio, we will make note of material items such as new investments, performance fees or intra-quarter periods of volatility. For the first quarter, the ratio of EBITDA to end of period assets under management was approximately 13.8 basis points, which includes the closing of SouthernSun at the end of the quarter. For the second quarter, we expect this ratio to be approximately 13.6 basis points, which includes the closing of EIG in April and the expected closing of River Road at the end of the second quarter. As regard to our taxes, our effective GAAP tax rate for the quarter was 37.1% and our cash tax rate was 24 points -- 24.7%. For modeling purposes, we expect our GAAP tax rate to be approximately 35% and our cash tax rate to be approximately 25%. Intangible-related deferred taxes for the first quarter were $16.9 million, and we expect this number to increase to approximately $19 million for the second quarter, given our recent new investments. Our share of amortization for the quarter was $27.3 million, including $5.4 million amortization from Affiliates accounted for under the equity method, which was lower than previous quarters as we experienced the scheduled roll-off of amortization at certain equity-method Affiliates. We expect AMG's amortization to be approximately $29 million for the second quarter, given our recent new investments. Our interest expense for the quarter was $40.1 million, including $22.5 million of pretax, noncash computed interest expense, of which $18.8 million was a onetime noncash item resulting from the retirement of our 2006 convertible trust preferred securities. For the second quarter, we expect our total interest expense to be $22 million, including $2.6 million of pretax noncash computed interest expense. Turning to our balance sheet. We further increased our balance sheet flexibility and capacity by raising a $400 million 10-year senior bond and a $250 million 5-year term loan, both at very attractive rates. And by retiring our 2006 convertible trust preferred securities for shares during the quarter. Looking ahead, we continue to focus on positioning our balance sheet to take advantage of our new investment opportunity set and given the growing scale of our business, our approximately $750 million of run rate after tax cash flow and approximately $1.2 billion of undrawn revolver capacity will continue to meaningfully contribute to our earnings growth. Now turning to guidance. We are raising our 2014 guidance, as we expect economic earnings per share to be in the range of $11.10 to $12.20, which of course, only includes the partial-year impact of new investments. We also assume our normal convention of actual market performance through yesterday for the current quarter and 2% quarterly market growth beginning in the third quarter of 2014. We also assume a weighted average share count of approximately 56.5 million for the year. The lower end of our guidance range includes a modest incremental contribution from performance fees and organic growth, while the upper end of the range assumes a more robust contribution from both performance fees and net client cash flows. As always, these assumptions are based on our current expectations of Affiliate growth rates performance and the mix of Affiliate contributions to our earnings. Of course, substantial changes in markets and the earnings contribution of our Affiliates would impact these expectations. Now we'll be happy to answer your questions.

[Operator Instructions] Our first question is from Craig Siegenthaler of Crédit Suisse. Craig Siegenthaler - Crédit Suisse AG, Research Division: First question. Just given the high level of M&A activity since December, should we expect kind of a cooldown period as you guys kind of regroup and go back and meet with new potential Affiliates? Or do you think there's more potential for other acquisitions and investments in 2014?

Without giving specific guidance around quarter-to-quarter new investment activity, I would say, broadly, we continue to see a very substantial set of new investment opportunities, traditional and alternative, and I would say in the near and long-term. And maybe this is a little broader than your question, Craig, but I think it's important to illustrate the way in which we build our new investment strategy and execute. If you look at the most -- the 3 most recently announced investments, they illustrate nicely the quality and diversity of our opportunity set, as well as our competitive advantage relative to other firms. First thing about EIG, an outstanding energy-focused PE firm, it's a tremendous firm in one of the most sought after areas of the alternative space, $16 billion in assets under management. River Road, an excellent diverse -- differentiated U.S. equity manager, highly-regarded entrepreneurial management team, it was an divestiture from Aviva, $11 billion in assets under management. Veritas, the firm we announced our investment in this morning, a leading global and Asian equity -- one of the leading global and Asian equity managers in the world, I would say, U.K.-based, $17 billion in assets under management. In each case, we had built a strong relationship with the senior partners of the firm years earlier. And if you'd asked me a year ago whether I thought we would have an opportunity to invest in these firms, I think, we were confident at that point that we would at some point. Each of them over the period of time that we got to know each other, each of us spent time knowing each other as -- getting to know each other as people, getting to know our businesses. Obviously, these firms would've all checked out AMG with our Affiliates and gotten the recommendation and insights from their experience, in some cases over decades. And in each case, these are different firms, different geographies, different products, et cetera. But in each case, the firm's partners chose AMG. They chose AMG because they wanted to bet on themselves, they wanted continued strong significant equity participation in their firm, and they chose AMG because of the distribution capability, which as Nate and I noted, is increasingly important in the decisions that prospective Affiliates make. And finally, they chose AMG because of our track record and reputation. And so as we look forward, there are a very substantial set of outstanding boutique asset management firms, traditional and alternative on a global basis, where we've already built strong relationships. And looking ahead, for any individual firm, it may be difficult to precisely estimate when they'll choose to take the step to move forward, but on a broad basis, we're very confident that there is this very substantial set where they will inevitably need to pursue a transaction. And we are very, very well-positioned with what I described as really a unique competitive advantage. And so taking all of that, taking a market environment which is relatively volatile, but it's sufficiently stable that it's a very attractive backdrop. So we see, on an ongoing basis, the execution of this tremendous opportunity set that we've built over time. Craig Siegenthaler - Crédit Suisse AG, Research Division: And just as my follow-up here. I'm wondering beside the Australian product additions that Nate mentioned in the prepared remarks, if there are other funds at your existing or even some of the newer Affiliates that you want to relaunch and rebrand through the AMG Funds retail platform. And I'm also wondering if there's any initial plans from Andrew Dyson or Jeff Cerutti on how they look to upgrade the platform?

Okay. So yes, and to be clear, the Australia reference, that is something that we're looking at doing but it's -- that's one just very specific example I happen to have pulled out. The way I would talk about the retail, take the bulk of your question, the way I would talk about what we're doing with the retail business. So first, and we said some of this in our prepared remarks, over the medium term, we think we can build a really leading retail franchise. Some of that is what you described, which is bringing Affiliates with institutional products into these channels, all right. And some of it is as simple as that. Some of it is -- alternatives, as an example, is a product area where we're working on some very interesting product innovations with firms like Pantheon. And as those go forward, there's no reason that same technology can't be used as we use it in PE, to be used in liquid credit or to be used with EIG, for example. So, there is definitely a component part of it which is what you described, bringing Affiliates from channel to channel. But so most fundamentally, if you sort of step back, and look we took 2 -- couple of key steps that you mentioned, hiring Jeff and then also the rebrand as AMG. But if you sort of step back, fundamentally, there's -- let me give you 2 perspectives, right. So as Sean said, when we talk to an Affiliate or a prospective Affiliate, what we can now say to them, and we are still building it, but we can now say to them is, in institutional and retail, we can help you access the most appropriate clients for your product set in a way that's entirely complementary to the distribution you already have, whether that's institutions from one region into another region, whether that's cross channel, as you mentioned, right. So that's one perspective to Affiliates or prospective Affiliates. And at the same time, from a marketplace standpoint, right, we're able to look to institutions, consultants, other intermediaries including platforms in the retail space, and say, we can be a single point through which you can access the broadest array of performance-oriented products, right, and the only place that you can really get this performance -- these performance-oriented products managed by boutiques, right, at this scale. And this brings me back to the AMG Funds and I know what Andrew and Jeff will be working on, which is we can interact with you worldwide under 1 brand and across the -- and this is important, across the range of packaging that you may want. So we're able to have those complete conversations in ways that allow market participants to use us to address all -- address many of the potential sort of issues or challenges they're facing, which is a very powerful way to interact with them.

Our next question comes from the line of Dan Fannon of Jefferies.

I guess, Jay, to start just with the guidance, there's a lot of moving parts since you last gave it. Could you kind of break down the components, kind of what's from the deals and kind of the mark-to-market, and then if there was any change in your assumptions around performance fee opportunity?

Okay. Yes sure, Dan. You're right. There's a number of items. I think there'll be 4 that I will tick off here. The first is new investments. So we've closed now on 2 of these 4 new investments at the beginning of -- end of the first, beginning of the second, that was SouthernSun and EIG. We expect to close 2 more: River Road at the end of the second and Veritas at the end of the third, respectively. So importantly, our guidance for 2014 reflects only the partial-year impact of these new investments. The second thing to highlight is we position our balance sheet, as I described in my prepared remarks, for both capacity and continued flexibility. We raised $650 million between the 10-year and the 5-year. We settled our TruPS with shares, and so the net impact of all of those actions, which is front-loading quite a number -- quite a bit of our financing, was $1 million of additional shares. So that's why our share count is at 56.5 million, and that's the real impact of the capital planning. I think the benefit that we have is we have a $1.2 billion undrawn revolver and the recurring cash flows from our business now to move forward with our pipeline. And then third, just reminding everyone of our modeling convention and the mark-to-market. We assume that markets in the current quarter, this second quarter, up to the date of this call, captures 100% of the performance in the quarter for modeling convention. Since the last time we gave guidance, which was February 4, then we experienced 4.5% appreciation since that call, which we would have assumed 2% to have been in model conventions, so 2.5% higher than our standard 2% convention and we've reflected that in our guidance. So taking that together, and I'll comment on performance fees in a second. We've raised our midpoint by $0.55 to $11.65. That of course, assumes that partial-year impact of new investments, so there's more run rate effect in 2015 but we don't guide yet to that. On performance fees for this year, we continue to assume a typical year in performance fees. That's -- the typical year for us is 5% to 10% of our total economic net income. Of course, we've already booked $0.07 in the quarter, so it can't be less than that, and, of course, like 2013, it can be more than 10%.

Okay. And then just to clarify in terms of the balance sheet and the revolver that's available. So if you -- we shouldn't assume any kind of funding based on the announcement today, any need to fund or lack of additional leverage for other than tapping into the credit line?

Correct. So the credit line is, as we stand today, almost completely undrawn, so we have $1.2 billion of capacity. No new leverage is needed. And I will just note that we've actually delevered through this period because of the substantial cash flow and the scale of our business.

Great. And then just a follow-up with Nate. In terms of this quarter's flows, and just kind of comparing to last quarter, it looks like from the buckets, they all kind of broadly improved. But I guess, would you point to any region or specific Affiliate or strategy that might have improved or seen, even on a go forward basis, acceleration in either demand trends or the opposite in terms of rate of change to the negative?

Yes, so I don't have much to add to what we talked about, but look, at a high-level, right, the demand trends remain in place, right, so we're seeing very good activity. Our fee is final one but not funded, that -- those kind of demand trends, that's mostly an institutional comment there, but those kind of demand trends remain good, right, and in place. If I was going to call out maybe where would I say the biggest -- where have I seen sort of particular strength and the biggest changes, something like that, I think the alternatives area has been very strong for us across channels, both institutional and retail. Some of that is, I think, sort of broader market comments, and some of that I think is the mix of Affiliates and Affiliate products. But that was definitely something that we saw in the quarter. And then as I step back, as I said, this is much more a sort of a medium-term comment, but as I sort of step back at a very high level, more and more product coming online, some of that is the comment we made about additional Affiliates, obviously. But also some of it's product development and more and more distribution resources coming online. And as we've talked about on prior calls, as distribution resources come online -- and we've added a number over the last sort of 4 quarters. As distribution resources come online, there is a period where they sort of ramp-up and all that and there is a period where it really starts to kick in and, I think, we've probably mentioned maybe on the last call that last year was really kind of a breakthrough year for us in Asia, and that was -- that's now become a kind of a steady contributor. And so at a high level, more and more product and more and more distribution resources, both of those should continue to impact.

Our next question is from the line of Bill Katz of Citigroup.

Just in terms of 2 things, unrelated. Sean, I'll start with you. I sort of heard you loud and clear on the opportunity both in the near-term and long-term. Has the market -- in terms of deals. Has the market chop over last few weeks substantially change any of the momentum that you are seeing? Obviously, you have a deal today, but just more broadly in your conversation with investors?

No, I wouldn't -- I wouldn't say it has. And I think as I mentioned, if you look at the market performance through the first part of the year, the relative volatility that we've seen is, in some respects, is normal for this kind of a market stage. And I think it's salutary for new investment activity because people are reminded that -- well, I'll say it differently. Periods of extreme volatility, either up as in last year or down as in '11 and '12 and certain parts of the year, are difficult. They're difficult for people to stop and make a permanent decision, understandably. As we look forward, if we continue to be in a period of relative stability with volatility that may be periodically accelerated but, on an overall basis, is within tolerable limits, I would say that's a very positive backdrop for new investment activity. And remember that in many cases, the investments that we're making, the firms that we're in conversations with actually have products which are less or even uncorrelated to broader equity markets.

And then, one follow-up for Nate, and this one might be a harder one to answer, specifically, but you seem to have very good diversified growth. Just sort of wondering how much of the momentum is just coming from your own efficacy of the business model versus picking up market share from others. So when you're getting these wins, what are you hearing from either consultants or the gatekeepers about why the AMG model is being selected?

Okay. Well, I think the second half of the question is actually easier than the first. I did not [ph] predict, in terms of any particular set of win, how much of it is somebody is making a change versus the -- sort of the model change versus a replacement search or what have you. Sometimes you know, but that's anecdotal and hard to generalize. The second part of the question, which is -- which I'm going to focus on, is on the feedback that we're getting from other intermediaries on the AMG business model. And I tried to speak to this a little bit in the prepared remarks, which is we are now in a place where, in many markets and many channels, there's now a very good understanding of the advantages of the AMG business model, and I'll use one word for it which is alignment, right, which is as you talk to the intermediaries, consultants and platforms and others, they understand that AMG is very well aligned with the Affiliates and the Affiliate management teams are very well aligned with the clients and that, that carries through. And they also understand that we're aligned with them as channel partners and that -- and so there's a unique relationship that can be built over time in these markets and channels and with these other channel participants, consultants and platforms and others. And that is what we are starting to see. The feedback we're getting is very positive. They like our model because they now -- I mean, some of it, obviously, is track record, right. They can look at the track -- the 20-year track record, but I think, they really do understand and appreciate it. And they want -- and this another important point, many of these channel participants want to deal with boutiques, right, and they're -- I don't mean to be -- sort of minimize it, they're busy and it's hard to do a really good job getting to know lots of boutiques around the world that don't have the resources maybe to access all these markets and access a regional consultant somewhere or what have you. And so through AMG, they're able to get what they want, which is access to boutiques who are good alpha return-generating managers. They believe that, they want that, that is definitely a trend we're seeing. And through us, we're trying to make it easy for them to access those managers on one level, and we're also trying to make sure they really do understand the benefits of our structure and the long-term stability that it provides to the underlying boutiques, and I think, increasingly, they do understand that. And that I do think is a potentially very powerful force.

Okay. And then just a follow-up on the first part of my question. When you are winning these mandates, is it just -- money is coming from different pools of assets or is it coming from competition? What's your sense there?

I think -- again, I said I think it's both. There are certainly anecdotes which are we're taking -- they are growing pools and we're taking allocations in growing pools and we're taking allocations where people and making model changes, absolutely. And then there's certainly places where we know we're taking allocations from competitors. But, again, I think the data, the information is anecdotal. It's very hard to generalize and say, what percent overall is one or the other.

Our next question is from the line of Robert Lee of Keefe, Bruyette, & Woods. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Sean, I have a question, I guess, mainly for you maybe. As you go out and you look at your pipeline of transactions or talk to prospective investments, I mean, to what extent mainly in the alternative world are you're seeing, I guess, I'd call it increased competition? You've had some firms out there raise permanent capital vehicles, invest in alternative managers with the promises of giving them some funding, asking their management as well as distribution, and is that at all changing the type of conversation or just who you're speaking with, particularly in the alternative space?

Well, we've been doing this for more than 2 decades, so we're used to competition. I would say broadly, across our business, we're in a stronger competitive position now than we've ever been. I think, when you talk about the alternative space specifically, it's important to understand there are an increasing number of opportunities. As really outstanding alternative firms have institutionalized their businesses, the founding partners are older than they were and increasingly thinking about the advantages and appropriateness of bringing in a strategic partner. The offering that we provide is really unique. And I'm not saying across our business that there aren't firms that will choose, for one reason or another, to pursue a different path. And you should understand that there are many opportunities where we get to know a firm and we decide that it really isn't an appropriate thing for us to want to be their partner. But among the relatively large number of very attractive firms where we built relationships and we believe that at some point, they will pursue a transaction and where they describe the elements of what they're looking for in a partner and they include probably first, more than anything, a track record and a reputation, a firm that knows what they're doing and a firm that has a series of investments which have been very successful over time, where the senior partners of those firms are known to the prospective Affiliate partners. And if you think about AMG's investments in the alternative space, AQR, ValueAct, BlueMountain, now EIG, extraordinarily successful firms, and you could understand that any prospective Affiliates in the alternative space would reach out and talk to those firms' partners. The other elements of our approach include, of course, the strategic capabilities that we offer across our business in a way that is on offer, never required of Affiliates. And especially in the distribution area, where as Nate has described, we're able to provide a platform which complements what our Affiliate partners do and what their distribution teams do. And we are -- there's no one in the industry that has anything like the track record of success that we have in working with our Affiliate partners and selling to the largest and most sophisticated clients around the world differentiated alternative products run by, managed by different independent boutique firms. And that's just a -- that's a different thing to do than to sell your -- an individual integrated firms-branded products. Obviously, different firms will describe different advantages but broadly speaking, entities that are private-equity sponsored vehicles, and they are a number out there, and there have been a number in the past and there will be a number in the future, those kinds of entities have very different kinds of capabilities and they have -- they inherently cannot offer the same kind of track record and certainty of an AMG partnership. And so I sometimes smile, well I always smile when I sometimes hear that 1 firm or another has been started and that their business opportunity is to become the AMG of alternatives. I can tell you who the AMG of alternatives is. And you can ask EIG, you can ask AQR, you can ask ValueAct, BlueMountain, and I can assure you a number of other investments that we'll make in the future, and they'll tell you that AMG is the AMG of alternatives. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Fair enough. And maybe a question for Nate. At the distribution front, on the global distribution platform, I mean, clearly as you said, you continued to make investments there and kind of deepen your penetration in different markets. But maybe just to play devil's advocate a little bit, to what extent does your success create, maybe it's a high class problem, of almost having too much product? How do you kind of manage the access to it? Because you also do have some Affiliates that in some ways may compete against each other in terms of the types of strategies they run. So how do you like manage access and kind of keep kind of the -- even as you expand the pipe, kind of keep it clear and flowing and manage that product?

So I certainly track the theoretical -- or the points you made, right. And maybe the way I'll set up the answer is compare what we're doing to a very large integrated firm that has -- that's distributing products around the world. And the point I'll make, and again, because I think your starting point for conversation...

Under 1 brand.

Under 1 brand. The starting point for the conversation is important because they're marketing -- they have the same -- a version of the same but much worse problem, which is they are top-down managed as one firm trying to figure out what to do. And so they -- and they've build distribution and everything else around that model. Our distribution is designed to be complementary, and it's designed to introduce, as I said in the prepared remarks, to introduce Affiliate product to appropriate buyers and intermediaries. And what we're trying to do is educate the intermediaries and the most sophisticated buyers around the world on the capabilities of the product that our Affiliates manage. It's a fundamentally different job than trying to sell a product. We're trying to make sure we really do an excellent job of educating the, again, as I said, the clients and the consultants. And that's why I said in answer to the earlier question, this alignment point is a really important point because the relationship that we can have with the marketplace is a different kind of relationship than many other firms, I would say most other firms, can try to have. We have breadth. We do have multiple high-quality products doing things in the same style box. And they do them very differently, right, and part of our job is to make sure that people understand the differences. But our job is to do an excellent job making sure that the intermediaries and the end very sophisticated clients understand the products managed by our Affiliates. We are aligned with each of our Affiliates, right. We have a very strong alignment with each of those multiple Affiliates. And we also have an alignment with our channel partners, right. These are all also very important relationships to us. But again, I think we're playing -- we're playing a fundamentally different role than just trying to sell products and trying to pick a product that we can push and raise the most assets, where it really is about making the appropriate -- getting the appropriate clients, making sure we do a really good job in education, that's what we're trying to do.

Our next question is from the line of Michael Kim with Sandler O'Neill. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: First, maybe just a follow-up on that last question. I'll take the flip side. Are you maybe starting to see cross-selling activity pick up where an investor may have had money with 1 of your Affiliates and goes on to establish a relationship with a different Affiliate just because of the connections across the platform, if you will? And any way to potentially quantify that in terms of maybe tracking sort of the number of strategies per client, for example?

Yes, so to answer your question -- and thank you very much for the question. The answer to the question is an unqualified yes, right. So we are -- and this is the point we were trying to make, which is we are absolutely getting a leverage within clients across Affiliates, certainly within intermediaries, global consultants, regional consultants across affiliates, and it's coming for multiple reasons. One is there -- we are absolutely educating people, clients and intermediaries, on the AMG model and the benefits of AMG model. Another is they are realizing that they can get access to a bunch of very high-quality boutiques in a scale way and they're doing -- the AMG is -- can be that single point of access. Another is -- as I said, we're hiring very good, very experienced local teams that know the clients and the markets well, and some of it is just they're doing a good job covering those clients. But there is absolutely cross-Affiliate leverage within a single client or intermediary. Some of it extends across regions because the intermediate -- intermediaries extend across regions. Some of it -- and I tried to mention this relative to the AMG Funds question. Some of it also extends across packages, right. So as we build out AMG Funds, if we're interacting with a client on a DB plan over here, we can interact them with on a DC plan over here, if we have the packaging right. And so there are many, many points of leverage within this model, some of which we have begun to exploit, some of which we have not yet really begun to exploit and so -- but absolutely, the opportunity there is very real and we are doing it.

Just to clarify and expand slightly Nate's comments, when you talk about cross-selling, I think sometimes people can imagine that it's 1 Affiliate calling up another Affiliate and introducing an opportunity. Of course, that occasionally happens but really what we're describing is what is occurring through the development of strategic relationships with the largest most sophisticated clients and their intermediaries through AMG's global distribution platform. With AMG personnel, supported by senior management, telling the AMG story and building the relationship with these important clients. I'm just back from a week in the Middle East and I can tell you from there and broadly, as Nate described, the largest, most sophisticated clients in the world are increasingly focused for the return part of their product allocation on the attractiveness of -- and appeal of boutique firms, independent boutique firms, across a broad array of strategies. And there is a -- just for efficiency purposes, there's an increasing appreciation for the ability to have strategic relationships where you have a single point of contact and you're able to get not only certainty around business stability and risk management, relationship, but also the single point access to all of these firms and their various products. And I think that is a trend that is increasing and it absolutely favors us. Michael S. Kim - Sandler O'Neill + Partners, L.P., Research Division: Okay, that's helpful. And then just a follow-up on the flows in the Institutional channel. I know the sales and redemptions can be lumpy, particularly when you're looking quarter-over-quarter. But any -- just any incremental color on maybe some of the underlying puts and takes during the quarter, especially as it relates to rebalancing and/or just broader asset allocation trends that you may be seeing?

Yes. Again, I think the only one that I would really call out in the Institutional channel, there were good wins in emerging and global and U.S. equity and other places. But the only real trend I would call out was some very good alternative wins that came through. As I said again, I think some of that is probably on the allocation side, top-down, and some of it is very specific and some of these are conversations that have been going on for a long time. But there are some good institutional wins in the alternative space. Across a number of Affiliates. I mean, it was liquid and illiquid both and -- but a number of good wins.

Our next question is from the line of Marc Irizarry with Goldman Sachs.

Great. Sean, can you give some perspective on the retail initiative in AMG Funds? How do you expect the response going forward from Affiliates who are currently on board? I mean, should we be thinking about more Affiliates signing up to sort of be on the platform, if you will? And how does that compare maybe to the experience that you're seeing with the buildout of global distribution?

Well I think we have, as Nate and I both indicated, a tremendous opportunity to build a leading retail franchise. And we've done it. And in some respects, it may have been, in hindsight, more difficult if you looked back 7 years ago and said, would AMG have been able to build the global institutional platform and have the success that we've had in an absolute sense and certainly, relative to really any other firm in the world? I think that might have seemed the taller order. Now, it's not going to be easy and we don't think that it will happen overnight, but we have an outstanding team led by, of course, the addition of Jeff Cerutti. I think it is going to be quite meaningful over time, rebranding the business AMG Funds and giving the scale -- leveraging the scale and reputation and relationships of AMG. And over time, the opportunity set, of course, includes other existing Affiliates coming onto that platform, but that's not going to be required. And remember, we have a very large -- we have over $100 billion in mutual fund assets away from the AMG Funds platform. And very successfully managed and distributed. So no requirement to add existing Affiliates, but I'm sure over time that will occur. And then we see an increasing opportunity to bring in prospective Affiliates and gain leverage that way. And over time, all of the elements that we've described about the strategic relationships that we're building and have built with the most sophisticated global institutional clients, we're doing the same thing in the U.S. retail space and with the most important distributors. Would you add anything to that, Nate?

The only thing I'd to add is I do think there are Affiliates -- so when we talk about the rebranding with Affiliates, there are certainly Affiliates who are working with us in global institutional markets, who will be more likely to work with us here. Because then again, is it just the rebrand? I don't know. It's certainly our commitment, that we've evidenced in a lot of ways, to building a leading retail franchise that's helping them with their decision. But there's also cross leverage between work we're doing with some intermediaries on the institutional side and what we're doing in the retail side. And I think being able to do it under a unified brand is certainly something that make sense to all of the Affiliates that are working with us in -- or to some of the Affiliates that are working with us in institutional markets who might be deciding to work with us in the retail markets. So I do think it's helpful. It's not just the brand, it's everything. It's a commitment to building a truly leading franchise there. But I do think on the margin, branding is a symbol of it certainly, and I do think it's helpful in the conversations.

Next question comes from the line of Chris Shutler with William Blair. Christopher Shutler - William Blair & Company L.L.C., Research Division: On the Veritas deal, so it looks like they've added a pretty significant amount of AUM over the last 18 or 24 months. Can you just -- to the extent possible, can you talk about the flow potential from that business both over the near- and long-term?

Sure. They have products that are highly scalable in the global area and an Asian product -- or a set of Asian equity products that have tremendous opportunity, including an alternative product. So as with all outstanding firms, they're focused above all else on continuing to maintain an outstanding performance record for their clients. So they are sensitive to making sure that the growth is measured, but the Veritas partners are -- it's a young group. They're focused on building -- continuing to build an outstanding franchise and to serving their clients. So we certainly expect strong growth over time. Christopher Shutler - William Blair & Company L.L.C., Research Division: Okay, great. And then Nate, you talked about there still being number of white spaces which you see. I know that's a pretty broad comment, but I'm guessing it relates to both geographies and different product areas. But can you may be drill down into that a little bit more and maybe what are the top 1 or 2 incremental opportunities you see from here?

So I'd say, the 2 areas where I'm talking about white spaces are primarily geographies and also channels within geographies rather than product areas. It's really geographies and then channels within geographies. And so if you sort of look backwards, we're focused on sort of building out teams in some of the geographies we already had covered, and we started to move into some white spaces, I referenced Australia, referenced Middle East. We're starting to move into channels where we weren't. So some of the white space is just moving within channels in places where we already have very strong sort of what I'll call high-end institutional and high-end intermediary coverage. And in some ways it's easier because there's a lot of cross leverage with some of those intermediaries, and also reputationally with the fact that -- with some of the client relationships that we've already built. And so there's already familiarity with AMG, there's already familiarity with a number of Affiliates, right. So some of the white space is just moving within channels. And then there are sizable geographies. I'll just do sort of one example, which is Japan, which -- yes, there's just sizable geographies where we haven't yet decided exactly how we will try to help our Affiliates access appropriate clients. These are places -- I just gave one example, but there are several of them. These are places where there are significant assets, we think there are significant opportunities and it's sorting out on our list of priorities and also how,, the right way to do it and finding the right people and the rest of it. So it's both geographies and then also channels within geographies we're already covering are, I'd say, the 2 primary white spaces.

I would add to that, that as we continue to build out our platform and find opportunities to serve Affiliates and generate organic growth for our business, we are aware of the opportunities and thinking hard about the most efficient and effective way of executing those opportunities, but we don't think about our business as one where we need to be in certain places at all costs, whether or not it's efficient and effective. And so that financial screen, that discipline is overlaid across really all of our activities. Doesn't mean that we're not investing for the long run because we've described the array of new initiatives, coverage regions, new personnel. I mean, we're growing substantially, building out the organic growth engine that will continue to drive future growth. But if you look back at the track record of what we've done, it's one where we have generated very strong growth, in some ways against the tide of where industry client demand flows were. And we see that continuing. And as we look forward, where we've been we'll continue to work, and I think the -- there are a lots of additional opportunities.

Our next question comes from the line of Cynthia Mayer of Bank of America.

Now that you're focusing in building out your distribution more, I'm just wondering if you could talk a little about the economics of it? For instance, for a minority-owned Affiliate versus majority, how do you -- how does it work for instance, if you sell a retail fund version of an institutional product for an Affiliate where you have a minority stake, how do you -- do you rearrange the previous split you have with them? Do you somehow add the cost of distribution to their expenses, how do you make sure that that's covered since you're making the effort and going through the expense?

Okay. So the answer to the question is yes. So we approach every one -- as Sean said, and it's very important to emphasize, we're not top-down pushing Affiliates to do something one way or the other. But of course, you're exactly right, which is we're very conscious of making sure that we appropriately share the cost of building out these platforms with the Affiliates that are using them. And so there is a way in each channel -- and I'm not going I don't think go through the specifics of it. But there is a way in each channel of ensuring that we're fairly sharing the costs of the activity and the rewards of the success. But we think about it as appropriately sharing the cost of the buildout of those platforms and the ongoing operating costs of those platforms with the Affiliates that are using them. And again, it's important to remember Affiliates have the opportunity to pick and choose across the whole thing. So that's something that's done on a platform-by-platform, even platforms within regions kind of basis, making sure the Affiliates feel comfortable with the -- that they are of course receiving excellent value for money, right. So Affiliates should look at any 1 of these offerings, and do look at these offerings, and realize that they're getting access to world-class distribution resources, packaging resources at scale and all the rest of it in a way that they couldn't do or it would be very challenging for them to do on their own. They also don't have to manage all those things and they can access all those resources at scale, benefit from the work that's already been done, and share really in the incremental cost of their participation is the way -- is sort of a crude way to think about it.

And it's critical to underscore that last bit. It's sharing the incremental cost, and we do it in a very transparent way. What Affiliates know is that we're not creating separate profit centers in distribution where they have to worry about negotiating a separate profit margin. We're seeking cost sharing, cost recovery, and then generating our earnings growth in the same way the Affiliate partners do through the growth of their businesses.

So does it make any difference economically to you if you -- if you're selling a product for a majority-owned firm versus a minority-owned firm or not particularly?

Not particularly. I mean, by definition, the incremental share of revenues might be different from 1 firm versus another but that's -- we don't think about that when we're out or our distribution team is out working with Affiliate partners. We're trying for growth of the overall enterprise and supporting each individual Affiliates' growth.

Great. And just more broadly on that, circling back to another question you had on just all of the strategies you have and the embarrassment of riches. Now that you're doing more distribution, does it at all influence how you think about your pipeline, what kinds of investments you want to make? Are you any more, say, wary of investing in managers that have overlapping strategies? Or are you incrementally more interested in investing in managers to fill a hole in the kinds of products you could sell, or to sell something that the clients you're talking to really need? Does the distribution influence the front end at all?

Yes, of course. No, it's a good question. But I would say, first, we're not embarrassed by the breadth and diversity of our products. We're enthusiastic. And as we look at new opportunities, I think, as Nate noted and as you know, if you say global equity, there are myriad different variations and different strategies within that 1 style category, and certainly sophisticated clients appreciate those differences and so there's lots of opportunity for diversity, even among broad categories. And then you're right. As -- what is completing the virtuous circle that I described in my prepared remarks is actually we're getting insight from our strategic dialogues with the largest clients and intermediaries about what product categories they think are most interesting to them on a forward basis. Now, it doesn't mean that we're able to immediately turn and find an outstanding prospective Affiliate that we can immediately invest in. But broadly, we build relationships with the finest boutique firms in the world. And certainly, in prioritizing our prospecting efforts and the time that I and other senior executives will spend building relationships, we can focus more on those products. And when we're able to make an investment in a product area where we know there's demand, the enormous advantage we have relative to integrated firms is we're not incubating a product. We are bringing, as we said, immediately salable products with, by definition, outstanding track records of success. That's why we wanted to invest in the firm. And so it allows for a scalability and leverage in our distribution that's really different and unique relative to other entities.

Okay. And then finally, I just wondering if you can update us on the wealth management strategy, because all the deals have been sort of traditional Affiliates and not wealth management. Is that still percolating? Or are you focused more on areas that sort of play to your building distribution?

Well, it's important to understand that that's an entirely separate team, separate location and they're focused entirely on building relationships with the most outstanding independent wealth management firms and teams and waiting for the right opportunities, in the same way that we do in executing our new investment strategy with boutique asset management firms. So they are -- they've done a fine job, we've done a fine job in making investments in several really outstanding wealth management firms. We're in the low- to mid-20 billions in assets across that group and there is a good list of prospective opportunities, of pipeline that they're working on. And so I feel very good and very optimistic about our prospects for that business.

Our final question will be a follow-up from the line of Robert Lee of Keefe, Bruyette, & Woods. Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division: Just 1 question real quickly. As you expand -- as you work more closely with Affiliates to developing the new products and strategies as the number of Affiliates expand, are you seeing any or expect any increased demands for providing incremental seed capital or incremental fund commitments on new strategies, and that was it.

Well I think -- and I'll ask Nate to give 1 or 2 examples. But we invest in outstanding firms that are -- they're outstanding businesses. And so like all excellent businesses, the firms' partners are focused on building enduring franchises and carefully and appropriately adding to their product set over time. And we absolutely support them in every way that we can, including on occasion and perhaps, in an increasing way, providing seed capital to support that. It honestly is not as much of a demand in most cases as you might expect. These are very successful firms and they -- when they incubate products, they've got a track record of doing it with the partners' own funds and with clients who support them and are interested in supporting new products that appeal to that client, let's say. So there's a lot of product development that occurs across the system. And I would say, increasingly, we are actually using -- to answer or to extend the answer I made to an earlier question, increasingly using the insights that we glean from our global distribution team to feed that information back to Affiliates to help them think about how their product strategy should develop over time. Nate, there might be 1 or 2 examples we could give?

Sure. Well I think the places I'd focus here from a product development standpoint, some of it's what you'd expect with the sort of logical extensions of product lines within an Affiliate, right? But the place where I think there is a real significant opportunity in the reasonably short-term, I don't know, how many quarters there is whatever, but in the reasonably short-term -- and this is a place where we are absolutely working with them, and I mentioned it in response to an earlier question, is helping them bring product cross-channel, where we have expertise, depth of relationship, but also just the scale of having -- the scale of the AMG Funds platform allows us to efficiently launch product. And so we have been doing some things on the infrastructure side, extending our licensing to allows us to do some different kinds of packaging, and I do think you'll see us bring -- and I mentioned this especially around alternative, I do think you'll see us bring product from firms like a Pantheon into the more retail market, which has the potential to be an enormous, enormous opportunity if we can execute well. So that -- if I were going to pick a place to focus on, that's a specific thing which is more across channel, certainly more in the alternatives area, and maybe specifically a firm like a Pantheon, where we're definitely working closely with them today.

Thank you. At this time, I'll turn the floor back to Mr. Sean Healey for closing comments.

Thank you, again, for joining us this morning. As you've heard, we're pleased with our results for the quarter and the year, and we're confident in our prospects for continued strong growth ahead. We look forward to speaking with you next quarter.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.