Affiliated Managers Group, Inc. (AMG) Q4 2014 Earnings Report, Transcript and Summary

Greetings and welcome to the Affiliated Managers Group Fourth Quarter 2014 Earnings Call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host Ms. Ally Lynn, Senior Vice President Corporate Strategy and Investor Relations for Affiliated Managers Group. Thank you, you may begin.

Thank you for joining AMG to discuss our results for the fourth 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 at www.amg.com a replay of the call and a copy of our announcement of our results for the quarter, as well as a 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 Chief Executive Officer; Nate Dalton, President and Chief Operating Officer; and Jay Horgen, Chief Financial Officer. With that, I'll turn the call over to Sean Healey.

Thanks, Ally, and good morning everyone. We were pleased to report economic earnings per share of $3.55 for the fourth quarter and a record $11.45 for the full year as assets under management were over $620 billion at year end, an increase of 15% year over year. Our excellent results for the quarter and the year were driven by the strong long term investment performance and new business momentum of our affiliates as well as significant deployment of capital through our new investment strategy, resulting in the addition of four highly regarded new affiliates and a meaningful incremental investment in an existing affiliate. Even in a difficult quarter for industry flows into return oriented products, we recorded our 19th consecutive quarter of positive net client cash flows. While our net flows in the fourth quarter were impacted by some specific factors that Nate will describe, we have a substantial pipeline of new mandates this quarter and are confident that we will continue to generate strong organic growth ahead. Our consistent track record of net flows reflects the outstanding quality of our specialist affiliates and their excellent investment performance, our unique position in highly attractive product areas and the ongoing success of our global distribution strategy. We continue to benefit from our strategic focus on products which are on the alpha side of the barbell where we see outstanding secular growth opportunities and our boutique affiliates are recognized as among the world’s best managers in their respective disciplines. This theme is especially pronounced among non-US investors and we’ve been able to capitalize on the opportunity through our global distribution strategy which continues to generate significant new business as together with our affiliates, we continue to build relationships with the largest and most important clients around the world. During the fourth quarter, we won a record number of new mandates as well as numerous expansions of mandates through every covered region of AMG-centralized platform, including Continental Europe, the Middle East, Asia and Australia. We see incremental opportunities for our affiliates to gain further market share with existing clients and win new clients across an increasingly broad range of regions and channels around the world. We continue to see strong client demand for our affiliates’ return oriented strategies among our institutional client base as sophisticated global institutions seek differentiated value-added strategies in active equities and alternatives and we believe that over time demand for these products will likewise increase among retail clients who will inevitably require larger allocations through return oriented strategies to meet their long-term objectives. Turning to new investments. We were very pleased with the excellent execution of our new investment strategy in 2014. We deployed over $1.3 billion over the course of the year adding four new affiliates, SouthernSun, River Road, EIG and Veritas and most recently making a significant additional investment in AQR. Cliff Asness, David Kabiller and John Liew and their rest of their partners have built AQR into an exceptional franchise with tremendous growth and innovation and outstanding future prospects. So we were especially pleased to deepen our partnership 10 years after our initial investment. Notwithstanding the record level of capital deployed on our new investments in 2014, we’re entering 2015 with a substantial pipeline of outstanding prospective affiliates and our forward opportunities to partner with the highest quality boutiques worldwide are better than ever. In addition, we are continuing to innovate and pursue investment opportunities in excellent firms which extend beyond the universe of prospective asset management affiliates. One example of this broader strategy is of course wealth management. And as Nate will describe we just announced this morning the addition of an outstanding firm Baker Street Advisors to our Wealth Partners affiliate group. Looking ahead, the transaction environment remains highly favorable to AMG and with our two decade track record of successful partnerships, we’re uniquely positioned to execute on our diverse opportunity set. Looking across our business, we've entered 2015 in an outstanding position to continue to successfully execute our growth strategy. First, our affiliates are recognized as industry leaders in attractive product areas with excellent performance track records and tremendous commitment to their future growth. Second, in addition to the strong organic growth prospects of our existing affiliates, we have a tremendous opportunity to build incremental scale, capacity and diversification in our business through additional new affiliate investments. And third, as you'll hear further from Nate and Jay, the greater scale of our business is increasingly an advantage in itself. As we demonstrated in 2014 we now have the scale and cash generation to fund our new investment strategy while also returning capital to shareholders through share repurchase. We’re able to leverage the scale and brand -- our scale and brand to market on behalf of our affiliates in more and more regions and channels around the world. And this distribution capability makes us a uniquely attractive partner to the best boutiques around the world. And as we add new affiliates, the increased diversity and scale of our product set makes us a more attractive counterparty to the largest and most sophisticated clients globally. We and our affiliates offer our clients the best of both worlds, the benefits of scale where scale is the benefit and the preservation of the special aspects of boutique managers, including the distinct and focused investment processes, alignment of interest and unique entrepreneurial cultures which are hallmarks of independent firms where management partners own direct equity in their own business. All of these characteristics give boutique firms the competitive advantage in generating alpha. And while the prevailing narrative is that active management can’t outperform passive products, the best active managers in the industry, including especially our boutique affiliates do add value for their clients, in many cases complementing a client’s allocation of asset beta. We strongly believe that the forward organic growth opportunity for AMG and its affiliates is extremely attractive. As always, we know that our future success requires an ongoing focus on excellent execution across all aspects of our business and we look forward to continuing to create significant long-term shareholder value in the years to come. With that, I’ll turn it to Nate to discuss our affiliates in greater detail.

Thanks. Good morning everyone. As Sean said, 2014 was a very good year for AMG. We added four excellent new boutiques in our affiliates outstanding long-term investment track records combined with our robust global distribution strategy and resources resulted in another year of strong net client cash flows with over 20 billion for the year, including 2.6 billion in the fourth quarter. A particular highlight of the year was our additional investment in AQR. Of course, it was an attractive investment, increasing our exposure to one of the fastest growing, most innovative asset management firms. For us, it was also a testament to the strong partnership and friendship we’ve built with Cliff, David and John and their partners over the past decade and we look forward to continuing to work together as AQR grows. Stepping back for a moment, 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 strategies, especially in US, global and emerging markets equities and liquid and illiquid alternative strategies. It’s been very interesting to look back not just at the volatility in the past month and the specific environment we’re in today but also over the past decade or two and see the opportunities for focused boutique managers, the ability of boutiques to outperform has increasingly been recognized by sophisticated investors worldwide. One of the ways we’ve seen this in practice in which we continue to benefit from is with many investors who are complementing their core passive exposures with so called barbell allocation to very active strategies managed by our affiliates across equities and alternatives. And turning to investment performance, and staring with the global developed markets category. Our affiliates generate good investment performance with highlights for the quarter and full-year, including excellent performance from products of AQR, Harding Loevner, and Tweedy, Browne whose flagship global value fund ranked in the 1st percentile for the year in its Morningstar category. In the emerging markets category, we had very strong performance for the year in all of the major products managed by AQR, Genesis and Harding Loevner are ahead of their benchmarks for the one, three and five year periods. Turning next to our alternatives category where, as Sean noted, we offer broad suite of strategies. Many of our affiliates’ most significant products performed very well, including at affiliates AQR, Pantheon and ValueAct. Affiliates that have incentive fee structures, including both alternatives and traditional strategies performed well in 2014 which not only led to fees being recognized in the fourth quarter but also set us up well going into 2015 from a performance and the opportunity standpoint. Finally, with respect to our US equity products. Performance was relatively mixed with GW&K, Time Square and Tweedy Browne underperforming while Yacktman on the other hand performed well during the quarter. Frontier also delivered very strong performance for the full-year and across longer time periods. Now turning to flows. As I said, we had 2.6 billion in positive net client cash flows last quarter. While these flows were good, in the quarter, we also had two significant lumpy outflows in the institutional and sub-advisory channels and our retail mutual funds were impacted by some negative seasonality from dividends and distributed gains not all of which were invested. These factors masked underlying strengths in our new business generation as we have one of our strongest growth sales quarters ever. While as we emphasize on every call, flows especially in the institutional and sub-advisory channels are inherently lumpy, looking ahead, we continue to see good institutional sales momentum and an improving retail flow picture this quarter. Turning to the channel review and starting with the institutional channel. We had positive net flows of approximately 5 billion. These flows came across alternate strategies in US and EM equities, including notable contributions from AQR, BlueMountain, GW&K and Pantheon. Similar to previous quarters, we had a number of high quality wins coming from leading institutions located around the world. In our high net worth channel, flows were essentially flat for the quarter with a meaningful contribution from GW&K. As you saw this morning, we were also pleased to welcome Baker Street, a leading wealth management firm based in San Francisco with approximately 6 billion in AUM to our Wealth Partners Group. Jeff Colin, Mike, Chris and Jim and the team run a great firm and make a fantastic addition to our Wealth Partners Affiliates. Including Baker Street, we now have four Wealth Partners affiliates with over 25 billion in AUM. Moving to the mutual fund channel. We had outflows of 2.5 billion. While we had positive flows into many global and emerging markets equities and alternative strategies which came from a number of affiliates including especially AQR, Artemis, Harding Wealth Management [ph], Veritas, these were more than offset by outflows from US equity products of several affiliates. As you know, our US retail business unlike our broader business, has a skew towards US equities. Also, as I mentioned, it was one lumpy sub-advisory outflow in the quarter and the fourth quarter does have some negative seasonality. Speaking about our US retail platform AMG Funds more broadly. Even though it was a challenging flow quarter for the reasons I mentioned, we continued to make good progress in building out our retail distribution business. As you know, during the year, we made some key senior hires and rebranded AMG Funds to help replicate the success we’ve had through our institutional focused platforms. As we’ve discussed on previous calls, we believe that clients and intermediaries ultimately must allocate to return oriented products to meet their objectives. At the same time, we think there is a unique opportunity to create the point of contact through which platforms and intermediaries and other channel partners can access the world’s broadest array of return oriented boutiques. Finally, in terms of updating you on our global institutional distribution platforms, we continue to help our affiliates to generate strong flows among a diversified set of products and across geographies. We also continued to build up the platforms and just added another senior sales professional in Asia with a particular focus initially in Korea where we have good high level of penetration but also see an increasing demand for the types of products that our affiliates manage. In terms of where the platform is today, we have combined many of the benefits of a large organization’s distribution capabilities with a focused product performance of outstanding boutiques. We are also beginning to get the benefit of the AMG brand as an aligned permanent partner who can bring to bear the largest collection of boutique managers in the world into our client conversation. To put this in context, we now have dialogues with most of the largest institutions and intermediaries in the world and are increasingly capitalizing on that investment with a first or second sale into relationships that should over time develop many more. We are also just starting to deepen our penetration in these markets into the higher volume next level institutions and intermediaries and to build the packaging that will allow us to get on their platforms, so many many opportunity is yet untapped. And with that, I’ll turn it to Jay to discuss the financials.

Thank you, Nate. As Sean discussed, we're pleased to report another year of strong earnings growth with the continued successful execution of our new investment growth strategy and positive net client cash flows despite global market volatility. As you saw in the release, we reported economic earnings per share of $11.45 for 2014. For the fourth quarter we reported economic earnings-per-share of $3.55 which included net performance fees of $0.78. And on a GAAP basis, we reported earnings per share of $3.02. Turning to specific modeling items. For the fourth quarter EBITDA was 279 million reflecting continued organic growth as well as fourth-quarter performance fees. With the full-year effect of our five investments in 2014, we entered 2015 with approximately 1 billion in run rate EBITDA, reflecting the strength, diversity, and scale of our global business. In the fourth quarter, the ratio of our EBITDA to end of period assets under management was approximately 18 basis points or approximately 13.4 basis points excluding performance fees. These figures include the partial quarter impact of EBITDA from Veritas and AQR which closed in the quarter. In the first quarter of 2015, we expect the ratio of EBITDA to end of period assets under management to be approximately 14 basis points which includes the full run rate impact of our fourth quarter new investments. With regard to our taxes, we had offsetting items that ran through our GAAP tax rate and our intangible related deferred tax add-backs that did not impact our economic earnings. These items resulted from the year-end restructuring of our non-US entities. As a result, our effective GAAP tax rate for the quarter was 23% and our intangible related deferred taxes were negative 6.5 million. Going forward we expect our GAAP tax rate to be approximately 34% and our cash tax rate to be approximately 23%. In addition, we expect our intangible related deferred taxes to return to approximately 20 million per quarter. Our share of amortization for the quarter, including the closing of Veritas and AQR was 31.7 million with 9.1 million of amortization from affiliates accounted for under the equity method. For the first quarter, we expect AMG’s amortization to be approximately 30 million, primarily due to the scheduled roll-up of amortization of certain affiliates. Our interest expense for the fourth quarter was 22.4 million including 2.5 million of pretax non-cash imputed interest expense. In the first quarter we expect our interest expense to increase to approximately 23.5 million as a result of higher revolver balances primarily from the financing of AQR. Now turning to our balance sheet. The size, scale and diversity of our business enabled us to deploy 1.3 billion across five investments in 2014 and returned capital to shareholders through repurchases while simultaneously improving our credit ratings. In the fourth quarter, these included the funding of our new investments in Veritas and AQR, repurchasing over 9000 shares and being upgraded to BBB plus by S&P and rated A3 by Moody’s. Looking ahead we continue to position our balance sheet to take advantage of our tremendous opportunity set in new investments and given the attractive rate environment and the strength of our credit we look to opportunistically extend our maturities and lower our long-term cost of capital. This, combined with approximately 650 million of undrawn capacity on our $1.25 billion revolver and run rate EBITDA of 1 billion ensures that we continue to be well-positioned to create meaningful incremental opportunities for earnings growth while also returning capital. Now turning to guidance. We are raising our 2015 guidance as we expect economic earnings-per-share to be in the range of $13 to $14.25. This guidance assumes our normal convention of actual market through yesterday for the current quarter and 2% quarterly market growth beginning in the second quarter of 2015. We also assume a weighted average share count for the year of approximately 56.5 million. The lower end of our guidance range includes a modest 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 do not include earnings from future new investments and are based on our current expectation of affiliate growth rates, performance and the mix of affiliate contribution to our earnings. Of course, substantial changes in markets and earnings contribution of our affiliates would impact these expectations. Now we’ll be happy to answer your questions.

[Operator Instructions] Our first question comes from the line of Craig Siegenthaler with Credit Suisse.

First, just on capital management, I am wondering if you could discuss appetite and availability of new investment in 2015. And given the increase in share repurchase activity in 4Q, should we view that as any indication of how the pipeline looks or was that more as a tool to prevent dilution in ‘15?

Well I appreciate the question because I think historically sometimes people misinterpret share repurchase activity as reflecting some indication on the new investment opportunity set. Given the scale that the business has grown to, given the size of the – which I will be happy to talk further about -- given the size of the opportunity set for new affiliates and a current environment that is very attractive with a very strong competitive position, we are very optimistic about our forward new investment prospects, the strength of our existing pipeline, the prospects for new investment in the over the medium to long term. But given the scale of our business we can’t as we showed in 2014 both make substantial new investment activity over 1.3 billion last year while also continuing to buy back stock. And even in a scenario where we’re making substantial new investments you should expect there will be buybacks to manage dilution and of course in periods where we see less immediate opportunity for new investments and the buyback will increase. Jay, do you want to comment on credit rating and the overall positioning?

Yes, so the position of our balance sheet today is very strong, Craig and as you look at I guess the reflection on the ratings A3 now by Moody’s and continuing to be upgraded by S&P two times over the last two years, I think it does reflect where we stand today which is we have opportunity on our balance sheet both from the revolver that’s undrawn, we have 650 million but also the senior debt market where playing into the level of our credit we can fund very efficiently amongst the lowest cost of capital in the industry and gives us that opportunity to both be flexible but also repurchase shares. As Sean said, in periods where deal doesn’t happen in a quarter or in periods where deals happen in the quarter, and we can do both. So I think that’s – and we also, just to point out that our leverage is still low, very low on a historic basis. So we're not levering the balance sheet to do this. And I think the biggest and most important point is just the cash flow from the business itself which is about $1 billion run rate EBITDA today, that translates into about $750 million of after-tax earnings and that comes in quarterly as we all know. So that is our funding mechanism throughout the year in addition to leverage that we might take on.

Thank you Jay and just as my follow-up. If we take a step back and look at the EPS run rate in 4Q, performance fee contribution from the institutional channel was actually quite low versus the last few years. And I am just wondering do you view the 4Q run rate as low versus sort of where we are in the cycle? And can you provide any color on the contribution of absolute return generating assets versus relative return performance fee generating assets?

I think I will start but ask Nate to comment on the performance fee opportunity generally. I think the last few years, certainly the last two years you’ve seen strong performance fees really kind of above the 5% to 10% level that we included in our guidance and we felt like this was another strong -- not as strong as the prior year but another strong performance year and we’ve of course increased our exposure to performance fee opportunities or investment in – our new investment in AQR. But Nate, why don’t you talk more broadly?

Sure. So – and I think this is sort of implicit in your question but if you step back just a bit, you understand our book exactly right which is broadly performance fees across both absolute return and also more data sensitive products. There is also, as you understand a wide range of different fee structures across that, right, so some benchmark, relative to some absolute return, some kind of highly structured, single year and multi-year, so there is a pretty broad mix of fee structures that fit under those two categories. So if you look specifically to this quarter, last quarter and maybe compared to the prior year, I would say couple things here. So one is I think the diversity of the opportunity is increasing. So some of this, as Sean said, the addition of new affiliates, some of it is existing alternative – or for instance the existing alternative product sets broadening and diversifying their own product sests. AQR is a good example of that, but BlueMountain and First Quadrant and others are as well. So I think if I were going to sort of describe it, I would say, it’s more diverse which should create more consistency to the booking and obviously to performance fees and there will be volatility to it but that increase in diversity will create more consistency but ultimately I think I would echo what Sean said, we look back and I think it was a good year, I don’t think we look at and say it was sort of a great year, years it could be and I do think there is more upside opportunity, but we look back and think it's a good year with an increasingly diverse mix of potential –

And happily given the nature of the products, it positions us for as good or indeed an even better year prospectively.

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

I guess, Jay, first, if you could let us know, is there buybacks assumed in your guidance next year and if you could also let us know what the mark is as of today for your kind of blended mix to give us a sense of the inputs?

Yes, okay. Dan, I will try to cover all of the items of guidance and which capture those couple of things that you’ve said in the few more. So at the highest level, we raised range to $13 to $14.25 reflecting the full-year effective AQR, the mark-to-market which I will go into a second, since our last call, and a few other items including Baker Street as well as share count itself. So on the beta, just to remind everyone our modeling convention when we last gave guidance was third quarter call, November 3 was the date. We assumed 0% markets for the remainder of fourth quarter but we had 2% in the first quarter -- for first quarter 2015, and each quarter thereafter. Since that third quarter call we experienced some market volatility but our blend still ended up to yesterday, it was up 0.5% across all products. And as you know, Dan, that replaces the 2% assumption. So the convention, no additional market beta for the remainder of the quarter. Removing the 2% means that our realized market performance was minus 1.5 lower or just minus 1.5 than the last time we gave guidance, So this will partially offset the accretion of AQR and the share count. You will also note that our share count from the last time we gave guidance which we gave on November 3 said 57 million weighted-average next year, we’re now saying 56.5 million, that’s a 1.5 million share difference, that is a weighted-average number for the year. So it does reflect a constant share count effectively, does not include any additional share reduction. On performance fees, I will just note that we talked about that just a minute ago, we booked a dollar this year of performance fees, so $0.78 plus $0.22 in the prior three quarters which was 8.7%, it’s just a good year, not a great year. We would still generally say that while growing, because our earnings growth in the range and at the midpoint of our new range is 19% over the 11.45 for this year. So performance fees are growing but so is our business. So it’s sort of growing into our business. We still generally expect 5% to 10% but at the very top end of our $14.25 we could see a little extra performance fees just given the opportunity set.

And then Nate, I have a couple of questions on flows. If you could first give us some color around, I think you highlighted two redemptions in the institutional channel. And then just at a high level you’re just thinking about this past year aggregate numbers are still good but you’re roughly 50% down on a net basis versus where you were in 2013. And so I want to characterize how you think about the set up into next year versus where you were last year, is this -- we know that the mutual fund channel has been where there's been a source of slowness but the institutional side has been very good. I guess just looking for a little more detail around how you’re thinking of the set up into this year versus maybe where we were at the start of last year?

Sure. So I will try and hit those kind of in that order. So first, I think the two flows I highlighted, one was institutional and one was sub-advisory which shows up for us in our mutual fund channel, so that’s a little bit just a nuance there. But what’s happening with those, I’d say a couple things. So first, you never really know around these kind of flows and so can't really ever be certain. But let me do one just sort of example, kind of give you what we mean by these outflows. And so the example I highlighted is just a good performing product, has good traction, otherwise has good flows, the mandate actually not that of the mandate, so everything seems well set up and then there was a management turnover to specific clients, new CIO and you’re always risking those things happen, they made some changes, do we really know exactly what the reasonable change were but certainly not the kind of thing that as you look ahead, you look at that product and say, okay, wait, maybe there is something, something they are asking. So I think it’s that kind of thing – this can happen but moving from that part of the question to the other part of the question, if we sort of think about the underlying drivers, so these are the things we talk about which is we feel really good about how we are positioned, good performance in the underlying products in areas that we think have good opportunities especially as we look at the global potential in active equities and alternatives, and I said good performance and we – which is a theme we’ve had for last year as well. So I don’t think it’s difference but think feel really good about is increasing distribution resources against that really well performing product set, which set us up very well going into 2015. And then the other thing I’d say and this is not a new point but I think it’s an important point is as we look at the full picture we have this unique opportunity set which is we’ve added, as Sean said, four outstanding new affiliates to the group, those firms as with new firms we will add during this year. Those firms bring outstanding products, good track records, and those are immediately leverageable into this increasing distribution. So we feel really good about how we are set up on those dimensions. I think you are also right to highlight if you sort of look at the distribution picture ex US retail, it looks much stronger, and I think in US retail we feel very good about the opportunity set medium to long-term. We feel very good about the team that we brought together, the people that we brought on board, we feel good about the rebrand that we did and you will see us do additional work on the product set, some of that is to diversify. As I said in the prepared remarks, there is a US equity skew there which hasn’t helped. We also have some products that have been closed and those will open at some point. So again we feel good about it and but recognize that there is more skew there as well.

Yes, I mean the point that we all understand is that all of this is against a relatively challenging backdrop in terms of industry flow trend into return oriented products. I think we will see that relatively few if any of our peers will probably be reporting positive net flows into active equities and alternatives. And so for us what that really means is as we look forward we see broad macro trends coming into our favour and it’s anybody's judgment as to when there is this rotation out of fixed income into active equities and alternatives but we see it coming. And we think last year was an extraordinarily difficult year for active equities generally, probably this year will be a better year and in any event, the way that we have positioned our business is very much focused on the end of the barbell that – that is alpha generating products and we see current and even stronger, as Nate said, future opportunities and demand for those products.

Thank you. Our next question comes from the line of Bill Katz with Citigroup.

First, just staying with Nate, I was listening to what you'd said in terms of Dan's question about the lumpy numbers. Can you quantify the specific level of that? It seems like it is more of a client-driven move on both sides, but just trying to frame out the actual redemption level. And the second part of the question is, you mentioned in some of your prepared remarks -- Sean, I think it was yourself -- that you have some great opportunity outside the United States to deepen the platform. I was just wondering if you might be able to expand on where you see some of that growth as you look out to 2015?

So first on the sort of the two lumpy alphas, as we mentioned, they were both – they were large mandates and it’s over a couple billion and that’s the way to think about it. And as I think I sort of went through the explanation kind of side of that, you never really know, as I said. To the other part of your question, as we look out on global distribution and build out, so maybe thing just to step back for a second, we’ve been building into regions and our approach has been at high-level hire very experienced senior folks with good marketplace knowledge understanding, but even with that and given the breadth of the product they will be able to bring to bear, it takes a little while for each region to sort of grow and come up the curve. And so some of our regions – and we talked about stacking this growth curve. So some of our regions we’ve been there for a while they are mature at that – at the high end both with the largest clients and large intermediaries and we’ve made now multiple sales into those. And in those regions one of the places we see the big opportunity and we’ve talked about this on prior calls as well is to bring additional resources online and move into the higher volume parts of the market including platforms and we’ve done that in Australia as an example, we’ve done that in the Middle East into ultra high net worth market as well. And those have to come up the curve as well. So we are in the market, we have a good brand, we have a good reputation, we’ve built a scale business and we’re extending by channel. There are other places where we've been now for a year or two and you can think about Germany and Switzerland and the Nordics, and they are starting to contribute but we really expect them to their level of contribution. So that’s another source of growth and then there are some markets, and I mentioned Korea in the prepared remarks where we see a significant opportunity and have added resources and it will be a little while before that increases its level of contribution but those will come online as well and then there's also a component part of it which is increasing the packaging which we still need to do. But we are now in a place where we are working with most of our affiliates across most of these regions. And so the opportunity set as we continue to add distribution resources and increasingly work with our affiliates, there is also a feedback loop that we didn’t really talk about in the prepared remarks but there is a feedback loop here where we are bringing that global demand information back which helps our affiliates focus on where they spend their resources, also feeds back into the product development, package development conversation, which creates another level of uplift that we haven’t really been able to experience yet but all of those together make us incredibly optimistic about this, all we can built which goes to the point we were making in the prepared remarks about trying to be – trying to capitalize on these opportunities would be the best of the benefits of scale, without that scale getting in the way of the thing that makes boutiques so special and attractive to these sophisticated institutional investors.

And then maybe one for Jay or Sean. Obviously, you put a lot of capital to work in 2014. You announced today's deal. But as soon as you step back, the markets got a little more choppy as we have gone over the last month or two. Is that either delaying or accelerating the conversations? And where are you sort of most focused at this point in terms of new investments?

I would say the recent bit of volatility is not really having any effect. I think as we all know as it becomes severe, or extreme, then it would have a dampening effect. This amount of volatility I think one could argue might even be helpful. The current pipeline is, as we said, very strong skewed slightly I would say to non-US opportunities and skewed to alternative opportunities but a very healthy mix of firms across geographies and product categories. And the long term opportunity as we discussed is enormously attractive. We began trying to give investors more insight into the magnitude of the opportunity set and we talked about our 150 most attractive largest prospective affiliates, firms where we have an existing relationship and we believe that they are oriented toward our investment approach and where we think we’re well-positioned. And if you sort of say, how big is that opportunity set in terms of purchase price, if you understand and we’ve looked, as you would expect in detail, we know of these firms, so the average AUM of these firms is 12 billion, and if you sort of think about what that means in terms of AMG purchase price that would mean a typical transaction might be 300 million to 400 million depending on the fee rate and the aggregate amount of the opportunity could approach 50 billion of purchase price. And so we think about that size of an opportunity where we believe we have the strongest competitive position and as we know these will almost all inevitably pursue some kind of a succession and transition solution. So there are transactions coming over – they won’t all happen in the next year or two but over the next 5 to 7 year period most of these firms will pursue a transaction.

And then just one last one for me. And thanks for taking all the questions. Jay, you mentioned that you got -- you upgraded by S&P and Moody's. You have sort of one of the lowest cost of capitals out there right now. As I quickly scan your balance sheet, your debt is somewhere between 4% and 6% and some odd percent. How are you thinking about refinancing versus maybe expansion of the balance sheet, if you will?

So as it relates to our current debt and capital structure, as you know we’ve been moving towards simplifying it. So clearly we’ve taken out two convertibles in favour of debt. We also have what looks like higher-priced debt now just given the timeframe which we did it when we were a triple B minus company. So we really do have a tremendous opportunity just a lower cost of capital just by refinancing out most of our capital structure. So I think we are focused on that, it will take us some time, we will be opportunistic. Really the incremental debt will come along only if we spend more than the $750 million of after tax per year that I described, now that did happen in 2014. So it is possible and we will add debt where appropriate.

Thank you. Our next question comes from the line of Michael Kim with Sandler O'Neill.

First, just focusing on the retail channel, it looks like the outflows for the quarter were maybe a bit more widespread across different affiliates and strategies. And I understand the industry backdrop played a role in that as well. But just wondering what some of the drivers may be in terms of potentially turning flows around in that channel. Is it mostly a function of more favorable demand trends across the industry, or do you think you can continue to gain market share, even if risk appetites remain more muted, just as you may be increasingly leveraged, performance, and/or distribution advantages?

So I will try to hit all those. I think look, there is no question, as Sean said, the overall environment that we are operating in has a huge effect. So that’s one thing I’d say. A second thing is we mentioned this I think before, the US retail, our US retail product set is more heavily skewed to US equities than our overall business. And so we are more exposed in that sense to what's going on in US equities. I think the other thing I'd say, one of the reasons it may look a little more widespread or broader this quarter may be the seasonality that I mentioned which is having an impact and it’s a noticeable impact across a bunch of portfolios. So that may be a bit of that. When you look forward, while I think it’s true that we are subject to what goes on with the overall environment, look, we believe that ultimately, as we improve our execution and increase resources available, and we have good performance, there should be the opportunity -- we believe there will be the opportunity for us to generate meaningful positive flows, even in a more difficult environment. And I think if you went back a year or two ago, if we have significant good performing product with Cathie [ph], we do have the ability, we have a platform which is a scale platform, has selling relationships, good key account coverage and field coverage, we have the ability to drive sales. And so I think we feel good about that opportunity set, recognizing that, as Sean said, we're going to be subject to the environment we are operating in.

But just to be clear, we are seeing -- and we are only part way into the quarter. But we are seeing more positive trends in retail this quarter for a variety of reasons than we did last quarter, just so that we are making the --

Yes. And just to finish that thought. Thank you, Sean. Just to finish that thought, obviously, there was this -- if you look at it from a channel perspective, there was this one lumpy outflow that I mentioned, which was significant, as well as the seasonality. Both of those obviously don't apply to this quarter. But even in addition to that, the underlying trend looks -- as Sean said, looks better.

And just in terms of the institutional channel from a mix perspective, I know it can be a lumpy business on a quarterly basis. But if you sort of look back over longer periods of time, have you seen any trends play out in terms of particular regions, affiliates, or strategies maybe driving an outsized proportion of flows in that channel? Just trying to think about sort of positioning in the context of diversification and broader allocation trends.

So if I were going to highlight a couple things here, one, I would go to the -- first, sort of, I'll go macro down, I think, here. I think, first, I would go to the point that both Sean and I talked about before, which is there is this macro trend of -- we use the word barbelling. But there is this macro trend where people are large, sophisticated institutions, intermediaries who serve them. And we think further down the market as well, where this trend towards taking some of your portfolio and taking on passive exposures, while increasing allocations to sort of really active managers who are running more concentrated and taking more sort of active return postures managers. We think that’s a trend. We think we have benefited from that trend, as I said before, and we think we will continue to benefit from that trend. So that is certainly one. We think this is a largely -- there is obviously exceptions region by region. We think this is a largely global phenomenon. So that, I think, is part of it. When you look back over longer periods of time for us in the institutional channel -- and I think this holds true looking forward as well -- the other thing I would say is just the increasing acceptance of boutiques as a source of these active return streams. And I think that’s something that we have really seen take hold if you sort of look back over the last decade around the world. And we’ve benefited from that. Another trend I would raise -- and I answered this a bit in answer to a prior question -- is we have been increasing our distribution resources. And so just enabling a boutique that sits in the US to very easily acquire the right clients who really want their kind of return stream in Australia or in China or in Southeast Asia or in Korea or, go around the globe. And to be able to access the appropriate clients quickly and easily is just something that is just a complete new growth opportunity which we have capitalized on over this last period. And as I said before, the level of resources coming online is increasing. And when we think that opportunity holds true, not just for all of our existing boutiques, but also as we add additional boutiques to easily plug -- and not to be too glib about it, but easily plug those outstanding return streams, those outstanding boutiques into this distribution and bring them into the market is a really powerful opportunity. So I think those are things that impacted us sort of looking backwards, but also looking forward, I think those are true. And by product area, I think it’s the themes we have talked about global and EM equities. We continue to see good demand and we also see good demand for US equities in some of these global regions. And then, obviously, alternatives -- liquid and illiquid -- there has been a long-term trend that we think will continue.

The only thing I would add to that is that if you look back or you think about the sources of growth from a geographic perspective, where we think that we will continue to get very good results out of markets like Australia or the Middle East, where we’ve had a presence for more than five years. But think about the markets in Asia, for example, where we’ve had a presence for a much shorter period of time and the second senior-level person in Korea that Nate mentioned, we just hired, just a few weeks ago. So the forward opportunity is very substantial on a broad base in the markets where we already have been, but it’s not static. We are rapidly expanding and building into new markets where, as Nate noted, there is inevitably some seasoning that needs to take place. But we think about that forward opportunity and the composition from a geographic standpoint, to some extent from a product standpoint, will be different and even broader and diverse going forward.

Thank you. Our next question comes from the line of Chris Shutler with William Blair.

Sean, you mentioned broadening your new investment strategy, I think, maybe moving into some adjacent areas. And I know one example is Wealth Partners where you have been now for a couple of years. But just anything that you could elaborate on that topic and maybe help us size any additional opportunities that you see, at least relative to the Wealth Partners business?

Sure. Well the first point to note, similar to Craig's initial question, is by talking about broadening -- innovating and broadening the opportunity set, what I am absolutely positively not saying is that the universe and opportunity among boutique asset management firms, prospective affiliates, is anything but extraordinary. I mean, we think it’s a huge opportunity. We are very, very well positioned. And just like with share repurchase, talking about broadening the investment opportunity set should only be interpreted as an incremental positive. So what are some examples? The first thing I guess I would say is that in every single case, our focus always -- I mean, people would say this, but if you look at our track record, we really mean it. We only want to partner with firms that are excellent, that are committed to excellence and execution and are people of integrity and they are committed to building enduring franchises. Now that said, what are some specific examples that maybe go beyond? Certainly, Wealth Partners. There is a number of excellent wealth management firms -- and maybe Nate can talk about some of the opportunities over time to sort of find synergies. But just on a standalone basis, the opportunity to invest in firms like Baker Street is excellent. And so the more of those that we can do, the better. Second, there are opportunities that we probably would not have pursued historically with smaller firms, both traditional and alternative, where there is a particular appeal -- a little bit what Nate was saying earlier, the feedback loop where we know -- we have a good sense, a better sense than we have ever had of client demand and opportunities for growth in discrete product areas, where we see a smaller firm -- an excellent, smaller firm that we think will be particularly attractive from a distribution standpoint, will be more focused on pursuing those kinds of transactions. The business is increasingly global. We have relationships with firms in more than a dozen countries. And in some cases -- Value Partners in Hong Kong might be an example. We will make an investment that is in a different structure and just be more willing to be innovative and build relationships and sort of see where it takes us. As long as, of course, there is all the other attributes, including, especially, alignment in the investment. There are product areas like specialty private equity, our investment in EIG. We are thrilled with that investment and see opportunities in other kinds of firms like that, which has not been part of our traditional opportunity set. And then finally, I would say there are third-party sales -- sales of third-party interest in excellent firms, often alternative firms. And some of those opportunities might not look -- because we are stepping into the shoes of someone else -- might not look exactly like our existing affiliate relationships. Indeed, they might -- the firm might want a different kind of relationship. As long as the firm is excellent, as long as there is the alignment, and as long as, over time, we see the opportunity to build a very strong relationship and fit consistently with the rest of our business, we will be willing to look at those kinds of transactions. Again, always a very high bar in terms of the quality of the firms and maybe indeed an even higher bar where it looks different from the existing opportunity set. But to say again what I said at the outset, we are extraordinarily optimistic about the opportunity among the traditional and alternative boutique asset management firm universe where we see a very substantial set of opportunities, currently and prospectively, over the coming years. But we are willing to innovate as we have in the past, and investing in alternative firms. Our investment in AQR 10 years ago was viewed as surprising and different and I think was the first in the industry. And then, of course, there were a number of transactions with different kinds of entities. Not all ended so well. But anyway that was an important innovation for us. Obviously has worked extraordinarily well and we have made several other investments and will make several other. And then Wealth Partners, we think, is, again, what’s surprising, we think, is a very attractive and interesting opportunity. In that case, with an entirely separate team, focused on identifying, building relationships and then executing investments in those firms. Nate, maybe you can just add a bit to the discussion of Wealth Partners.

Sure. So just to -- and maybe using it as illustrative of some of the stuff Sean talked about. So we think there are lots of similarities, but also some differences. And so we are investing in firms like Baker Street, using a very similar structure, but a slightly different -- there are differences. And so we think, for example -- and this is, again, same quality bar kind of starting point that Sean described -- but we think with the Wealth Partners firms, for example, there are things we can be doing to be helpful to them in their organic growth. Again, we have a well-developed track record now in other areas, helping affiliates without interfering with their autonomy and helping them with organic growth. So we have been able to -- and are working on some of those things with the Wealth Partners affiliates. Same thing is true on the operational side. So we have some well-developed platforms that we have used as our affiliates in areas like legal and compliance or what have you. And so evolving some of those offerings to create some operational efficiencies and some increased operational excellence with the Wealth Partners firms are the kind of things that we can do there. And then, the other thing -- and in an AMG way, be incredibly respectful of the autonomy each of these firms have and their relationships with their clients. We also think that, over time, there is the opportunity for us to build pipes between some of the products that our affiliates are running and some that they are building and these wealth partner firms. And just as we talked about, the feedback loop phenomenon with the global distribution, that same kind of thing works in the wealth management industry as well, where we now have very close relationships, obviously, with four outstanding wealth management firms and bringing that information back to affiliates is also helpful as they work on product development and things. So we think there's some really good opportunities to extend what we are doing and also some really good synergies between the parts of our business.

And then just one more quick one on EIG. I was just wondering if you could give us a quick update in terms of how far along they are in committing capital to their new fund and whether -- I'm guessing the big decline in oil could actually present some nice opportunities investment for them. And then, lastly, do you expect them to contribute to performance fees in 2015?

So high level -- and Nate can fill in if I miss something. High level, you have got it exactly right. They have a large fund that they've just raised. And so looking forward, they are where a lot of other people are -- want to be. In other words, I think there are a lot of people who wish they had large funds that were available to take advantage of opportunities, which we are sure are going to present themselves. Historically, and this is just not to go too much into the details of the particular investment, but I think broadly, people understand that the management partners bought the business out of TCW and so there was an arrangement where our participation is really on the funds since they have that -- since they separated from TCW. So for us, the forward opportunity is we think tremendous. We are not really impacted by the performance fees or whatever happens or doesn't happen in performance fees on historical funds. By the way, the nature of their approach has always been to be extremely conservative and consistent in a way that they invest. And so we actually think this kind of volatility will -- is an environment or a market where, looking back a year from now, I think clients will be rewarded and appreciate the conservatism and the diversification that EIG has. And so I think as in any difficult period, the best firms really distinguish themselves. You sort of aren’t happy that you are going through that difficult period, but when you come out the other side of it, the forward opportunity -- the long-term opportunity, I think, is going to be even better.

Thank you. Our next question comes from the line of Robert Lee with Keefe, Bruyette & Woods.

I guess a big first question, I guess, for Jay. You mentioned restructuring the non-US investments. Could you maybe kind of walk us through a little bit of the why of that and maybe some of the benefits and how we should think of it flowing through the P&L?

Sure. So the commercial aspects of it, I think they tie back to the scale of our business. When you think about the early days of AMG, we need all of our money back in the US to pay down our debt. And now that we have all this cash flow coming out of the core business and a much more diverse business and, frankly, more offshore entities that source capital offshore, it affords us the opportunity to match our sources and uses, because as Sean mentioned, our pipeline as well as this past year reflected new investments that could be non-US. And having that need for capital offshore and the ability for us to structure the uses and sources close together, it gives us the benefit of a global tax rate as opposed to a US tax rate. So what you see in the numbers is really the accounting entries that occurred in the fourth quarter. We plan for it through the year. I think, from the prior call, you remember we had some extra deal expenses related to structuring in the second and third quarter when we knew Veritas was coming in. We completed all of that in the fourth quarter. And these accounting entries effectively unwound the tax liability that we had in the US that accumulated over time for businesses that really were generating earnings offshore in favor of experiencing this global tax rate so it went through our taxes -- our GAAP tax rate. That is why they equally offset. That number was about $26 million. So if you add $26 million back to our IRDT, it would have been $20 million in the quarter. It would have been a normal quarter. If you add $26 million back to our GAAP taxes, you would have seen a tax rate that was consistent with GAAP, that’s 34%, 35%. So what does that mean? It means nothing for 2014 other than accounting. But going forward, it gives us the ability to just experience a lower global tax rate, which is lower than the US, because the US hasn't caught up to other countries' tax rates. And so it will add to our bottom line over time. It won't be in the magnitude that we see for the accounting, but as you've probably heard from me over the last couple quarters, we are already seeing the forward benefits of the 2015 GAAP tax rate is expected to be 34% and the cash much lower than that at 23%. So we are already starting to see it. That was in our 2015 guidance. But what we don't give is 2016 or 2017 or 2018 guidance, so we do expect that to continue to go down over time. So there is a cumulative effect of that over time.

And then maybe also sticking with capital management. One of the things that you have seen across the industry, which you guys haven't had to deal with, but you have seen increased seed capital demand. I mean, a lot of companies deployed -- deploying a lot of capital towards seeding new products. And it may be helpful, at least for me, to walk through what is it about your structure that you haven't had to really face those capital demands, so to speak, to help affiliates seed new products to any substantial degree, at least?

I will start and then ask Nate to give you some specific examples. I would say, at a higher level -- or at the highest level, we are investing in firms which, by definition, when we make the investment, have a good track record, excellent performance, and products with capacity, the opportunity for and commitment to, in a measured way, achieve strong growth in assets and earnings over time. And so to some extent, it is not as if we inherited or arrived with a whole set of products which were at capacity and then we had to sort of scramble to create them. Our affiliates absolutely -- and there's a great track record and we give you lots of examples -- they do innovate. And part of running an excellent business and building an enduring franchise is thinking strategically about the development of product capability over time, different of course, for every affiliate. So we absolutely do have that, but we also have uniquely, I would say, relative to peers of our size, the opportunity to, through our new investment strategy, to bring in through investments and new affiliates, new products, which are already immediately saleable. They have got a great track record and they add immediately to the capacity of the product set broadly. And so that, I think, is very distinguishing. That said, on an ongoing basis, one of the things that we are going to do, including in broadening the scope of our investment activity, is continue to support what our affiliates are doing in building out their product set. And in some cases, that involves seed capital. Maybe I will let Nate give a little more detail.

I think that is -- so that is exactly right. So just picking up where Sean left that off, and this is -- I will tie back to the feedback loop comment that I made before and sort of this -- one of the virtuous circles that we have created. So as we are being able to bring back more of this information to our affiliates and participate in a different way than we would have 5 or 10 years ago in a product development opportunity conversation, we are more involved broadly in that product development opportunity conversation. And a component part of that has been at a very small level. But over time, one could see increasingly including using capital to help grow products. And I think it is probably the idea of seeding, but also probably bringing product to scale. So that’s a piece of it. So I don't -- I think, as Sean said, it’s something we have done and also at a small level, but you could see increasing. The other piece is, as we increase our packaging capability, that’s the other place that you will see some seed capital possibly come into the product development conversation. And so as we are building out that -- those distribution platforms and as we are increasing the information we are bringing back to our affiliates and participating in the product development conversations, this is something that we do do and you can see increasing over time.

Yes. And we are going to do it in an offensive way -- in an opportunistic way as opposed to, in some settings, we see others talk about seed capital almost from a defensive standpoint. For us, the only thing I would add to the comments that we have made. If you think about it, one of the essential elements of our business strategy is the skin in the game -- the alignment of interest and our affiliate partners have direct equity in their firms. And they also are committed to their firms in the sense that their net worth is not just in the equity, it is also in the firm's products. And that is something that is very appealing to clients and we see that across the product set, for traditional and alternative. And very often, the proceeds that come out of an investment by AMG go right back into the firm's products, which of course clients love.

Thank you. Our next question comes from the line of Brian Bedell with Deutsche Bank.

Just a little bit more on the organic growth fourth quarter to first quarter. I think Nate, you talked about roughly $1 billion outflows that were lumpy from the subadvisory and the institutional mandates in the fourth quarter. So that would sort of bring you back to where you were in the third quarter, with the $6 billion of institutional flows and $1.5 billion out of mutual fund. Just coming into the first quarter, given the mandates that you won in the fourth quarter to be funded coming into the first quarter, and then as you think about the mutual fund business, with the positive seasonality that we have in the first quarter and the progress that you are making, do you think you can turn that mutual fund outflow around to a positive inflow in the first quarter? And then do you guys still feel good about the roughly $5 billion to $10 billion type of quarterly run rate in net flows?

Yes. Again, I don't think I would build it up that way, frankly. So I think if you -- a couple things, just to make sure we are -- I was sort of being clear when I went through the fourth quarter first. So we talked about two lumpy outflows and I think each kind of in that range or sort of average kind of in that range you just described. So I think, just to be clear about that. And then when we look at the underlying drivers, so how would I sort of describe the quarter and then we can sort of go back through them and say, well, how do these play out going forward. So if I just at a very high level think about the fourth quarter, I'd say very strong growth sales; the mutual fund channel, as you have observed, sort of impacted by general headwinds in US equities; and our mutual fund book being skewed to US equities. So there was that headwind in the quarter. And we had a couple lumpy outflows, as we've talked about, sort of institutional and subadvisory, both impacted by that. And for us, remember that subadvisory flow is showing up in the mutual fund channel. So I think you can look at those being kind of one-offs. Some seasonality in the mutual fund channel. So we talked about that. And again, sort of sizing that, sort of a little under $1 billion or something is maybe a way to size that. So there is that sort of seasonality in the channel. And then you sort of ask, okay, well, how does that set you up going into Q1. And I think -- I'm not sure I would say much more than what I did, which is when you sort of look at the underlying drivers -- the product set, the performance, and the distribution resources that we have got, institutional continues that trend, as you observed. And the mutual fund channel is trending better and we can look at that in the numbers that are in. But it’s very, very early in the quarter. But those are the things I would say. So underlying drivers. We feel good about the performance. We feel good about the -- we sort of look at the level of activity and the level of our fees and the level of finals and sort of can see that in the institutional channel that kind of consistency. And then, the mutual fund channel is shaping up so that January is sort of a better month than the month in the fourth quarter.

Yes. I think we will leave it there. Hopefully gives you some insight into what we see in the forward opportunity. But I think we are the only public asset management firm to give forward earnings guidance. I don't also want to be the only public asset manager management firm to give forward flow guidance. So we'll leave it where we have. But hopefully, it was helpful.

Yes. That was very helpful. Maybe just the last one from me is on the Wealth Partners, strategy with Baker Street. I guess, do you see that -- and I know you touched on this a little bit with the broad investment pipeline comments. But from a wealth management perspective, do you see adding more boutiques like that? And then how do you think about distributing the AMG product through those boutiques such as Baker Street? Should we think of that as a compelling growth opportunity?

Yes. So the first part of your question, our Wealth Partners colleagues definitely have a strong pipeline. Lots of good conversations. And I would say that our brand -- we have been doing it for a couple years now and our brand is sort of increasingly becoming known in the channels. It just takes some time. We have built the AMG brand in the boutique asset management firm over 20-plus years and they are building the AMG brand among the best wealth management firms and doing a great job and have obviously added a fantastic affiliate just announced this morning. So that pipeline is good and they are making good progress. So that is the first part of it. The second part -- and I think I said some of this in answer to a prior question. I think we won't -- I am not sure the right way to think about it is just -- and again, maybe I am getting too caught up in the way we talk about it. But I'm not sure the right way to describe it exactly is AMG distributing through these firms. I think the way I would talk about it is we have outstanding partnerships, relationships, friendships with a bunch of the best active -- manufacturers of active return streams, manufacturers of return streams in the world. And they have products, that are the kinds of products that many of these wealth firms do today use. And there is some use already today. And so if we can make that -- just as we talk about with institutional distribution or elsewhere. If we can make the access easier, make sure people clearly understand the products and how to use them and where use them. But we make that access easier. And we make the sales marketing clients process easier, we think we can make -- we can create an opportunity for some of the best wealth management firms in the world, who face the same problem – same problem that institutions around the world face, which is how do they allocate their time to be able to access easily some of the best manufacturers of return streams in the world. We think there will be an opportunity for them to use our affiliates. And so we certainly see the opportunity for them to use our affiliates and we see the opportunity for our affiliates to build very strong client relationships there. But I don't think we would necessarily talk about it as sort of a -- in sort of a product push kind of -- not to imply that.

Absolutely. And the two things I would add. One, a couple years ago when we were talking about this, I think people said, oh, interesting. How big can it be? And I said, well, maybe in 5 years, it could be $50 billion and maybe it could be even bigger than that. So with $25 billion across these four affiliates is -- makes just in a couple of years our platform one of the largest independent wealth management firms in the country. And so we see lots of opportunity from organic growth to of course investments in additional Wealth Partners affiliates. And then that is a one. Number two is, remember, again, this is entirely incremental. Different team, different approach, and leveraging, of course, the infrastructure and capabilities that we have. But it’s entirely incremental to the core affiliate investing activity. And as we look at other opportunities that are broadening to our opportunity set, they have the same feature incremental, positive opportunities.

Thank you. Our next question comes from the line of Greggory Warren with Morningstar.

More sort of a high level thought. When we look at the industry flows for December, they are a little bit quirky on the active side. I think there's only two categories -- sector equity and muni bonds where there is actually positive flows into active funds during the month. And things have sort of tempered a bit as we roll into January here. I'm just wondering, I mean, first quarter is kind of a big period for reallocations amongst institutional and advisor clients. And just wondering what kind of trends you are seeing right now. How are clients looking to sort of set up for this year? I know Morgan Stanley came out this morning and pushed out their forecast for interest rates rising into next year. So I'm just kind of curious what kind of trends you are seeing out there right now?

Well, first, the fourth quarter was unusual in a number of respects. Obviously, you had -- long-term fixed income flows were impacted by one firm having one major news event. And last year was a tough year for active equities for reasons we all understand. Prospectively, it’s anybody's guess as to -- and it really is a guess. I think we all can -- in the short term, no one knows. In the medium to long term, I think, with a level of underlying optimism about the American economy and world economies and an appreciation for history, one can imagine that fixed-income flows will reverse as rates rise. Even if rates don't rise, they stay at these very low levels for an extended period. There is no way for individuals or institutions who need to generate returns in order to fund retirement or meet plan objectives that they can do that by investing in fixed income. So our view is that there will be -- again, anybody's guess as to exactly when -- but there will be a rotation out of fixed income into return-oriented products. There is a second phenomenon, of course, occurring, which is the whole active-passive debate. And the prevailing narrative that you read in every newspaper is, of course, the death of active equity. And I think it will be a tough period or there will be volatility in the industry and many active equity managers who don't have high active share and don't add value are going to be replaced by passive products and they should be. But the world isn't as simple. And in our view, we see and we are privileged to be partners with a number of really excellent firms, who have very differentiated approaches. Obviously, we think there is something special about boutiques in these alpha generating product areas. And so over time, just as you see with the largest, most sophisticated clients in the world who were early into barbelling, taking a lot of the beta exposure they wanted and doing it either themselves or very cheaply in passive products, but have an ongoing and in some cases increasing demand for differentiated alpha generating products, we think that -- just as that phenomenon continues to play out among global institutional investors, we think that will increasingly play out among retail investors for some of the same reasons. And so in the short term, who knows. In the medium to long term, we think these trends will be significant and enduring and very much -- not exclusively to us, but we think that our strategy and product set will be a large beneficiary.

Okay. Could we just take that maybe one step further, then? If we think about the notion that -- because it’s sort of our thought, too, as we look out longer-term. Active managers that are underperforming, or closet indexing that aren’t beating their benchmarks are likely to either close down, consolidate in other funds. You're going to have potentially consolidation within the industry. I'm just wondering as you look at sort of the longer-term picture, does this kind of benefit you if some of the smaller boutique managers are, a) having a more difficult time getting onto platforms because you have got these larger asset management firms overall, especially on the broker-dealer channel, kind of vying for that shelf space. Does this really improve the profile of your firm over the long run?

Why don't I let Nate answer the question with respect to how we benefit or how that kind of a phenomenon could benefit us. The one other point I wanted to make before I hand over to Nate is, remember, our product set is focused on global and emerging market equities, where I think it is easier to add alpha. For sure, excellent focus niche US equity managers can do that as well. But we are predominantly global and emerging market equities and alternatives, including in the retail channel liquid alternatives. And so that plays into or helps as you think about product positioning over time. And being -- having products on the right side of the barbell.

Sure. So let me take -- let me try and approach that last part of the question that you asked. Because I think we fundamentally agree with it. Well, I think we fundamentally agree with where you are coming out. I think that there are some questions around what is causing it and I think what may cause it and I think the causes may be linked and may leverage off each other. So if you sort of step back and use the example of the wires or some very large platform. So and some of what I'm going to say here is also applicable to the platforms we are encountering around the world and also just some of the large institutions around the world. So one of the things that -- and I will put all of it under the theme of bringing the benefits of scale while keeping scale out of the picture in the places where we think focus boutiques add value and where scale is the enemy, not your friend. But bringing benefit to scale to bear. So agree with the conclusion I think you're coming to, which is if you sort of think about one of the wires -- so what are the kinds of things that we can help with. So some of it is just the operational and risk management and all of those things that the wire is going to worry about. Because they have a fundamental problem, which is how do they meet the needs of their clients, how do they build the best portfolios, given the liability streams they are trying to help their clients with and the risk profiles of their clients. So some of it is just the ease of interaction and building the operational pipes, the right packages. And so absolutely scale is helpful there and we have done lots of that. Some of it is understanding that and then what their priorities are and being able to have the kinds of conversations with them at sort of a key accounts or for a key client relationship kind of level to really understand what their priorities are and to help them meet those needs. And to be able to bring to bear all of the products that our affiliates have into those conversations. So that is worth them having a very complete joined up conversation with us about all of the kinds of things they are working on. We are one of the largest places that they could go, one of the most complete places they could go, for these active return streams and equities and alternatives. We are one of the largest in the world in those areas if you think about it as a single point of access. So that kind of key accounts, understanding them, helping them meet their needs, ease of access, those are places where we do think we should be able to benefit. Lots more work to do, but I think we're -- other teams are making good progress. And then the final thing I will add -- and this is definitely true for the retail channels -- is the ability to support. So we, at our scale, will be able to provide the kinds of support, hopefully, that they would receive from the largest institutions with whom they have a relationship. So I think we should be able to have that complete engagement and so if we are able to achieve that, I think those trends will absolutely benefit us. And I think to the extent those things are important, whether it is on the operational side, whether it is on that kind of key accounts and complete understanding and ease of access, whether it is on the support, those are all things that are very challenging for a boutique to build and maintain against a single investment process or a single investment product or discipline. So to the extent those things happen, I think that will benefit us. I do think, whether that is also coming from the sort of the closet indexing points you made [indiscernible], I think they are related and complementary points.

And I think the one other piece that was embedded in your question was with all that we are building and these positive trends unfolding, does that give us an incremental opportunity to build capability and capacity through investments in smaller firms that have attractive products. And the answer is absolutely yes and we think that will be an increasing theme going forward.

Our next question comes from the line of Mike Carrier with Bank of America Merrill Lynch.

Keep this quick. Just given the moves that we have seen in FX and commodities, I guess first on FX, just a strong dollar. How does that impact the P&L? And then, on commodities, just any significant exposures among the affiliates? And then, Jay, I think last quarter, you guys mentioned just the level of buybacks. This quarter, I don't think I heard it, so I just wanted some clarity. I would expect it to be lower, just given the amount of capital deployed in the quarter, but just wanted to get some clarity on that.

Sure. So on FX, it runs through our investment performance line. So as an AUM matter, it just comes out in that line item. So we have been impacted negatively for the past several quarters, I think it is three quarters running, by the AUM having an FX component to it. And it has been noticeable. It’s not a small amount, but it has been noticeable. I think most recently, it's started to reverse itself. So maybe there is some positive lift going forward as currencies start to stabilize around the world. So that is where it runs through. As it relates to client billings and other aspects of our business, it is a much more modest impact. So we have very little mark to market exposure, in part because most of our clients -- not all, but most of our clients are billed in US dollars. And where they are not, it is either modest level of exposure or we have agreed with that affiliate to pay us in US dollars. So there is also some contractual arrangements there. And where we have operations offshore, we keep cash offshore to match funds. So that is how we handle FX and I think other than the AUM impact, everything else is relatively small. Hopefully that answers that question. And then as it relates to your share repurchase, yes, the way I answered it, which I think it did answer it, last quarter, we gave guidance that 2015 would have 57 million shares weighted average, which of course the weighted average number. We have moved that down to 56.5 million. We are actually below that level right now, but that would be expected. We're 56.3 million weighted average in the fourth quarter. That would be expected if you think about the whole four quarters of next year. That implies no new share repurchases.

And maybe just a second on the points you asked about commodities. So I think there is nothing really I would focus you on. I mean, we do have a set of affiliates that have commodities products, including some long short commodities and some balance risk commodities. I think some benefited, some didn't. I think the balance risk things did really well because the relatively worse performance in oil. But so there is that. We obviously talked -- Sean spoke to EIG before and the real opportunity they see. In fact, they have a bunch of capital put to work and are also out raising capital for additional products, given the opportunity set. They see -- and then, as a relates to how those things play through our different equity portfolios, again, I think there is sort of a mix -- some that have benefited, some that hadn't. I would probably say couple of the Canadian portfolios, some regional equities were -- it has probably made things a little tougher. But overall, nothing I would really call out, other than the EIG we talked about already. End of Q&A

Thank you. Mr. Healey, there are no further questions. At this time, I would like to turn the floor back to you for any final remarks.

Thank you again for joining us this morning. As you have heard, we were pleased with our results for the quarter and the year and we are confident in our ability to continue to generate meaningful earnings growth, both through organic growth and accretive investments in new affiliates going forward. We look forward to speaking with you again in April. Thank you.