Greetings, and welcome to the AMG Second Quarter 2023 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 your host, Patricia Figueroa, Head of Investor Relations for AMG. Thank you. You may begin.

Good morning and thank you for joining us today to discuss AMG’s results for the second quarter of 2023. Before we begin, I’d like to remind you that during this call, we may make a number of forward-looking statements, which could differ from our actual results materially, and AMG assumes no obligation to update these statements. A replay of today’s call will be available on the Investor Relations section of our website, along with a copy of our earnings release and a reconciliation of any non-GAAP financial measures, including any earnings guidance announced on this call. In addition, we posted an updated investor presentation to our website this morning, and encourage investors to consult our site regularly for updated information. With us today to discuss the company’s results for the quarter are Jay Horgen, President and Chief Executive Officer; and Tom Wojcik, Chief Financial Officer. With that, I’ll turn the call over to Jay.

Thanks Patricia, and good morning, everyone. AMG’s second quarter results reflect the positive impact of our capital allocation strategy across both growth investments and share repurchases. During the quarter, we announced a new partnership with Forbion, marking our seventh investment in alternatives over the last four years, further evolving the composition of our business towards in-demand strategies. We continue to see attractive new investment opportunities and advanced several of them during the quarter. Looking ahead, we expect to deploy additional capital toward private markets and liquid alternatives through investments in new and existing affiliates. Given our robust financial flexibility, which will be further enhanced by the proceeds from the veritable transaction, along with our capital allocation discipline and differentiated partnership model, AMG is uniquely positioned to deliver significant shareholder value over time as we continue to execute on our long-term growth strategy. In June, we announced a minority investment in Forbion, a leading European life sciences venture capital and growth equity firm with more than $3 billion in assets under management. Forbion is well-positioned to benefit from strong investor demand for the development and commercialization of innovative drug therapies. The firm will be our first affiliate focused on venture capital, bringing further diversification to our business profile. And this new partnership broadens our participation in private markets, as well as life sciences, a sector with robust client demand trends and meaningful societal impact. The Forbion team chose to partner with AMG because of our unique approach, which preserves their operational autonomy and investment independence while providing access to our strategic capabilities. The Forbion partners were attracted to AMG given our firm’s deep cultural alignment, including our respective entrepreneurial cultures and long-term partnership orientations, as well as our capital formation capabilities, which we expect will expand Forbion’s client base. Building an…

Thank you, Jay. And good morning everyone. Our high level of activity in the second quarter reflects the increasingly attractive opportunity for AMG to execute our growth strategy and evolve the composition of our business. During the quarter, we simultaneously invested for growth, returned capital to shareholders and strengthened our balance sheet to Enhance Future flexibility. In the past 90 days, we announced a growth investment in Forbion completed our accelerated share repurchase program and repurchase additional shares, sold the remaining state and EQT and announced the veritable transaction, which will add significant capital to our strong balance sheet. Taken together, we have and will continue to reshape the composition of AMG. We expect that our strategic activity levels will remain elevated going forward as we further evolve our business mix toward areas of secular growth and return excess capital to our shareholders to drive long-term earnings per share growth and value creation. Turning to our second quarter results, adjusted EBITDA of $214 million included $20 million of net performance fee earnings, and reflected the on-going execution of our strategy to invest in secular growth areas, as well as strong performance in liquid alternative strategies. Economic earnings per share of $4.45 grew 10% year-over-year, and benefited from incremental share repurchases as well as discrete foreign tax benefits. Net client cash outflows excluding certain quantitative strategies were $7 billion, driven primarily by global equities, which offset continued strength in alternatives. Turning to performance across our business, and excluding certain quantitative strategies. In alternatives, we again reported strong results, with nearly 2 billion in net inflows in the second quarter. These inflows reflect nearly 2 billion and private market flows at Pantheon EIG and Comvest. Our affiliates continue to generate outstanding investment performance, and their excellent long-term track records across credit, real…

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Dan Fannon with Jeffries. Please proceed with your question.

Yes, good morning everyone. This is actually Rick [Ph] Roy on for Dan. And so earlier on, on the topic of affiliate investments, you mentioned private market and liquid office potential areas of interest. Just given the recent bail of veritable to tax on that occur in the quarter. Do you also see, wealth management as an immediate term priority and perhaps any interest in trust or custody services and things of that nature.

Well, thanks for your question, Rick. Let me address the wealth question in the context of our strategy and maybe I’ll just state our strategy is to invest in areas of secular growth. We do think wealth is one of those areas. Liquid alternatives, private markets, Asia and sustainability are the other areas. And maybe then to just go right at your question, wealth continues to be an area focus. And we do approach wealth really in two ways to capture the secular growth trend. And that’s first by investing directly in wealth management firms that want to remain independent. And while that universe of potential partners has become smaller, given consolidation trends in the industry, specifically within the RAA channel where roll up strategies have become the dominant business model, where we see these strategies are generally PE sponsored and they’re taking out costs and putting leverage on the business. That has also driven up pricing and you can see that and the proceeds we got on the variable transaction. However, there are opportunities for partner owned firms that see more value and remaining independent. And we currently have a number of them in our pipeline. The second primary way that we experience growth in the wealth channel is through opportunities by investing AMG Capital to expand our affiliates access to the channel, especially in alternatives, both liquid and private markets. We see a growing demand for our private markets and liquid alternatives in that channel where AMG has been successful in bringing affiliate strategies to market and strategically supporting the infrastructure necessary to grow. Of the numerous opportunities within wealth, the introduction of private markets in the U.S. and non-US markets continues to be the largest growth area for us. The democratization of alternatives, not just private markets, but other areas of alternatives. It’s a major secular trend. We continue to see this play out as individuals increase allocations to both private markets and liquid alternatives. We think that’s going to be further enabled by technology regulation and product packaging. So again, coming back to your question, wealth is going to continue to be a major focus for us. It’s multi-faceted, as I just mentioned, and we do have a long-term strategy to try to capture opportunities in the space.

Thank you for the question.

Thank you. Our next question comes in line of Alex Blostein with Goldman Sachs. Please proceed with your question.

Thanks, guys. Good morning. I was hoping we could spend a little bit more time on sort of the pivot. You’ve been articulating over the last couple of quarters towards faster growth areas, particularly the old. Do you anticipate that also involving pruning of the traditional businesses? Any opportunities you guys see to either reduce stakes or sell as a whole part of the traditional business. Thanks.

Yes, thanks, Alex. And I’ll start Tom. It’s a really good question, and it really talks to the shape of our business. So I might take a minute and elaborate and then Tom, if you haven’t been to add. It is true that the shape of our business is changing. Today we, approximately, just under half a right round half of our EBITDA is coming from alternatives, both private markets and liquid alternatives, differentiated equities is something like 35% to 40% and the remainder is multi asset. I think there’s an IR slide on that, and it’s worth just noting and even comparing that to three years ago, five years ago. It’s definitely changing. Most of that’s coming from our investments in new affiliates. We did our seventh alternative investment just with Forbion and Forbion as you probably saw in the release and in my prepared remarks. Very exciting business focused on life sciences is our first investment in, in venture, in this area, and also in life sciences, so it’s very diversifying for us. So we are keeping our business through investment, new investments in growth areas. Also, in investments in existing affiliates, a few years ago we made a second investment in systematic. We made investments in our distribution that have helped affiliates like Pantheon grow in the wealth channel. So, when you think about capital, sometimes it’s easiest to think about it as a new investment, but oftentimes it can be done in existing affiliates or directly in capabilities to help affiliates grow. So what you’re really seeing, and I think I said it in my prepared remarks, our flows are being off-skated by the underlying momentum in alternatives. To your question on, I think it’s sort of driven by the variable transaction. And so maybe to,…

And I think Jay covered it very well and maybe I’ll follow up just with a couple of points. With respect to continuing to grow that secular growth bucket, as Jay walked through kind of the categories, we’ll do that in really three ways. One through new investments, two, through pointing the AMG capabilities, largely around product and distribution, more toward those growth areas and three, there’s going to be a natural organic growth difference between some of those businesses and businesses that are facing more organic growth headwinds. So we’re really attacking that business mix shift opportunity as part of our strategy in a number of different ways. I think very importantly, and again, Jay covered much of this. There’s no proactive part of our strategy to move away from our existing very high quality active equity oriented affiliates. In fact, in many ways, right quite the opposite. These are high quality businesses with very strong long-term track records with very unique investment capabilities. And we’re focused in working with many of these affiliates from a strategy perspective on how those investment capabilities can be better delivered to clients over time, whether that’s adjacent strategies, whether that’s new wrappers and taking advantage of new trends in the market. But ultimately, a lot of these businesses have delivered very strong returns over time. They continue to be an important part of our cash flow. And we’re working with them to continue to ensure that their great businesses that are delivering for clients and are important part of the overall AMG story.

Thank you. Our next question comes from the line of Craig Siegenthaler with Bank of America. Please proceed with your question.

Hi, good morning. Thank you for taking the question. This is actually Maggie Cal [Ph] filling in for Craig. It would just be helpful to get an update on how your M&A pipeline has evolved over like the last six months. And if you’re seeing any signs that sellers now are more motivated to execute over the near term. Thank you.

Yes, thanks for your question, Maggie. So maybe I’ll start by saying, unlike the general environment for M&A kind of within asset management across all of asset management, I think we’re seeing a steady flow of opportunities and transactions. So, asset management really hasn’t slowed down and we’re continuing to see high quality independent partner own firms in our pipeline. I’d like to say I have an obvious answer to why we continue to see steady flow where the rest of the general kind of M&A environment has really slowed down. It’s possibly that asset management has really quite a quite a dynamic group of partner own firms and even larger firms in our industries. There’s a lot going on in it. And so I think that’s why we’ve kind of continue to see a backdrop that’s constructive. So it’s constructive for us too, because expectations have come down. Valuations have moderated in a lot of areas including in private markets. And we’re seeing structures that better share risk between the buyer and seller. So, we haven’t -- AMG hasn’t done anything different, but the market’s kind of move more or direction. We see that as an incremental tailwind. But what I would really want to land here is our pipeline has really grown over time for some of the actions that we’ve taken over the last few years. And I think the first one is really focusing on the areas that we want to focus on those areas of secular growth primarily alternatives, both liquid alternatives and private markets. We mentioned wealth earlier, sustainable investing, Asia would be another big theme for us. We’ve been methodically targeting these areas over the last several years, which is generated significant pipeline for us. We expanded our product universe across the globe,…

Thank you. Our next question comes from line of Patrick Davitt with Autonomous Research. Please proceed with your question.

Hi, good morning everyone. This is what the last question. So you’ve obviously mentioned a strong pipeline growing pipeline and you’ve announced a couple smaller transactions recently. Is there a pipeline of larger, more impactful deals in that pipeline or is it more these smaller ones that we should expect to be the norm. And in that vein is there a limit on the number of affiliates you can support if you keep layering on a lot of these smaller ones. Thank you.

Yes, thanks. Thanks, Patrick. Thanks for your question. So the short answer is we actually have a good, I guess, diverse pipeline of both small medium and large transaction types. In the main, they range from on the low side, 100 million and maybe on the high side it could be up to 500. That’s probably our target zone for partnerships in terms of capital outlay. The other thing I would say, is that we’re only investing in some cases 20% in other cases, 50 up to 50, maybe just over 50. So just to give you a sense for that’s only half of the enterprise value of these firms. So it kind of helps think about the framework. And when you look at our deployment over the last, four years, we have really been disciplined in our approach. And so I think, and we’ve also been intentional in our approach. So we are trying to strategically evolve AMG deliberately investing in those areas of growth and doing so with this approach to not make really outsize that. It doesn’t mean we can’t do a large transaction, it just means that the bar is very high for those larger transactions. And really sticking to our knitting of businesses that are in a growth phase and those businesses that we think we can strategically engage with and magnify their success. So, hopefully that gives you a little more color as to what we’re looking looking for and also why we’re looking for it. We do think that the, that the investable universe for us is such that we can put out a majority of our capital in any period into growth investments and that could be in two or three a year by depending on the size that could be, $500…

Thank you. Our next question comes in line of Michael Brown with KBW. Please proceed with your question.

Great. Thank you. Good morning. I wanted to begin a little bit on the veritable proceeds and how those will be used. You just kind of walk us through the various levers that you’re, you’re considering there in, in your accretion guidance. Does it, assume it’s, it’s going to include a level of, I’m sure, five acts, but there also includes some, some delivering. And then I guess what are your thoughts on the timing behind that 2% to 3% accretion that you actually laid out? What are some of the variables we should consider when we think about how that could play through for 2024?

Yes. So thanks, Mike, good morning to you. I’m going to have Tom take that one.

Yes, Mike good morning and thanks for your question. The reality is whether you think about the bearing proceeds or the veritable proceeds, we really think about plugging all of that capital into our overall capital allocation strategy. So it’s less about specifically where each of those dollars are going to be spent. And I think it’s more about the quantum of capital that we have and ultimately how we use the entirety of that quantum of capital to drive shareholder value over time. As you know, we have a very strong liquidity position today and that’s going to be further enhanced when we receive the proceeds from the veritable transaction. We recently announced the Forbion partnership so we used some capital there. We’ve increased our buyback guidance for 2023 to at least 500 million. So again, another increase in capital allocation there. And as Jay talked about in both his prepared remarks as well as in the answer to several questions, we see a tremendous amount of opportunity in front of us to invest for growth. That’s both that existing affiliates as well as on the new investment front and we’re seeing a lot of opportunity across both of those areas. We also want to make sure that we maintain significant flexibility in our capital and in our liquidity. Given that we’re in a more volatile time and markets and we always want to be in a position where we’re people to play offense and able to capitalize on the great opportunities in front of us. In terms of how we use our capital from here, the goal is never going to be to push all of that capital out the door in a single quarter or calendar year. It’s really going to make sure that we’re prepared. In…

I just wanted to, that was a really good summary by Tom. I just wanted to maybe take it way back out here and just say our business is really well positioned today as you can see in the profile of the business. We have really good diversity across affiliates. We don’t have any significant contributor to our earnings. We have a broad base set of affiliates. Our profile is really leaning in towards alternatives, both liquid and private markets and leaning into growth areas. Our new investment pipeline continues. We’ve been very methodical and consistent in terms of making investments. Again, the seventh investment, we’ve made an alternative in this most recent transaction Forbion and we continue to see good opportunities in that pipeline. And then to cap it all off, our financial flexibility and really our balance sheet strength is probably not been better, at least not in recent history. So we’re very excited about the positioning of AMG today.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I’ll turn the foreback to Mr. Horgen for any final comments.

Well, thank you all for joining us this morning and we look forward to speaking with you next quarter.

Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.