Greetings, and welcome to the AMG Third Quarter 2024 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 third quarter of 2024. 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. Also, please note that nothing on this call constitutes an offer of any products, investment vehicles, or services of any AMG affiliate. 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, this morning, we posted an updated investor presentation to our website and encouraged 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; Tom Wojcik, Chief Operating Officer; and Dava Ritchea, Chief Financial Officer. With that, I'll turn the call over to Jay.

Thanks, Patricia, and good morning, everyone. AMG delivered another quarter of strong results with 18% growth in economic earnings per share, reflecting the ongoing momentum in our business and the positive impact of our capital allocation strategy. Our growth strategy continues to drive the evolution of our business mix towards secular growth areas, with alternative strategies meaningfully and increasingly contributing to AMG's earnings. The ongoing demand for our specialized private market strategies accelerated in the quarter, as evidenced by the $7 billion in new capital raised at Pantheon, Forbion, EIG, Peppertree, and Comvest. In addition, our liquid alternative strategies generated positive flows in the quarter and we see opportunities for organic growth, particularly at AQR as demand for tax-aware alternative solutions in the US wealth channel continues to build. Stepping back, the growth investments we have strategically and deliberately made over the last several years have played a critical role in reshaping AMG's business profile. Having invested our capital in firms and initiatives aligned with long-term growth trends, most notably in alternative firms, operating in specialized areas where independent partner-owned firms thrive AMG's affiliates now manage more than $265 billion in client assets and alternative strategies, where approximately one-third of our AUM split between private markets and liquid alternatives, which together generate approximately half of our EBITDA. As we further shift AMG's business profile towards alternatives, we believe we are not only improving our long-term organic growth prospects but also enhancing the stability of our cash flow. By increasing our private markets exposure, we expect that the quantum and duration of locked-up capital in our business will grow, and as we expand and diversify our footprint in liquid alternatives, we expect that AMG's earnings power will be even more resilient across all stages of a market cycle. In total, our…

Thank you, Jay, and good morning, everyone. AMG's business profile continues to evolve, driven by the strong organic growth of our affiliates managing alternative strategies, the increasing EBITDA contribution from new investments made over the past few years, and our enhanced strategic capabilities, including product development and capital formation. In the third quarter, our net client cash outflows of $3 billion were a significant improvement compared to the year-ago period. AMG's organic growth story continues to be bifurcated with strength in private markets fundraising and ongoing client demand for alternatives more broadly, offset by industry headwinds in active equities. We expect organic growth and alternatives to continue, and together with investments in both new and existing affiliates, especially through product development and distribution, we will continue to actively evolve our business mix towards secular growth areas, which will in turn further enhance our long-term organic growth profile over time. Our private markets affiliates generated $7 billion in net inflows in the quarter, bringing year-to-date fundraising to $18 billion, and representing an annualized organic growth rate of more than 20%. In the quarter, a number of our affiliates' strategies exceeded their fundraising targets, including some of our most recent partnerships like Peppertree in the digital communication infrastructure space and Forbion in biotech and life sciences. The fundraising momentum of AMG's dedicated private markets affiliates reflects investors' conviction in their specialist investment strategies and the positive fundamentals of their sectors. We also generated positive flows in liquid alternative strategies, an area where we are seeing increasing opportunities for organic growth. As clients continue to focus on portfolio construction to address the changing market environment and more fully recognize the value of these strategies in their portfolios, we expect increasing allocations to liquid alternatives. Within differentiated long-only strategies, we saw net outflows of…

Thank you, Tom, and good morning, everyone. We continue to see strong momentum in our business given increasing average assets under management, the continued evolution of our business mix towards areas of secular demand, and the strength of our balance sheet. Taken together, these factors provide us with the continued capacity to execute on investments in growth areas and return capital to shareholders. In the third quarter, we had adjusted EBITDA of $214 million, up 3% year-over-year, which included $5 million in net performance fee earnings. These results primarily reflect higher earnings driven by growth in average AUM for the period and recent new investments that contributed to our results. This was offset by lower net performance fees and private market catch-up fees in the quarter compared to Q3 2023. Economic earnings per share of $4.82 further benefited from the impact of share repurchases and grew 18% year-over-year. Now moving to fourth quarter guidance, where a reconciliation slide has been posted to the Investor Relations section of our website, where you can find detailed modeling items for the fourth quarter. We expect adjusted EBITDA to be in the range of $260 million and $270 million. This is based on current AUM levels reflecting our market blend, which was down 1% quarter-to-date as of Friday, and it includes net performance fee earnings of approximately $50 million. We expect fourth quarter economic earnings per share to be between $5.94 and $6.17, assuming an adjusted weighted-average share count of 31.3 million shares for the quarter. Stepping back, let's put fourth quarter guidance in the context of our expected full-year results and go-forward expectations. Our full-year performance fees are anticipated to be below our historical average of $150 million due to the underperformance at certain absolute return strategies. However, we remain confident that performance…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Bill Katz with TD Cowen. Please proceed with your question.

Okay. Thank you very much. I appreciate the updated commentary. So just trying to triangulate between Jay, your commentary around the pipeline starting further seasoning. And Dava, it sounds like you're now sort of at $700 million of buyback versus maybe something a bit higher than that. How do we think about capital deployment from here? There's been a ton of transactions around you and AMG has not been sort of as visible. So just trying to understand where are we in terms of the pipeline and maybe the capital allocation as we look out to 2025. Thank you.

Yes. Thanks, Bill, and good morning. I'll take the new investment side of it and then I'll ask Dava to talk about our capital deployment and repurchases. So to your question on pipeline and seasoning, you heard in my prepared remarks, we have continued to advance our pipeline throughout this year. We've had several -- we now have several opportunities in the later stages. When we look at this pipeline, I would say the quality is very high. The potential partnerships both in private markets and liquid alternatives would be kind of as we look at it, that would be the composition, and we're obviously, trying to gain more exposure to secular growth trends, and we think that is expressed in our current pipeline. You know the timing of it is, you know as we all know, it really happens when they happen. Most of them will take an orderly approach and I think in some ways, it really just depends on each unique situation. So I guess they're all bespoke. I think the good news is we progressed some steadily throughout the year and that's why in my prepared remarks, I said fewer in the later stages. Broadly, though, the pipeline remains robust so even at the front end and middle of our pipeline, we have the potential for additional new affiliate transactions. So kind of all stages and we're feeling good about that. When you think about maybe our competitive positioning, I would say our competitive position is very strong and really because of a couple of things I think you're aware of, most importantly, as businesses have evolved here over the last decade, independent firms really need a more engaged partner, someone who can help them be both strategic while also preserving their independence. And in our minds, AMG is the best partner to offer both the benefits of maybe a large consolidator, but for us, we leave them independent and we're also differentiated relative to the passive financial buyer. So if you want someone who can help magnify your successes and be strategic, but also preserve your independence and alignment, that would be AMG. So we feel like our competitive positioning is very good. We think that's why firms are choosing us and so we're very constructive on our pipeline from here. And I'll just mention that, that it has been in our minds when we look at our repurchase activity. So I won't steal Dava's thunder here, but it has been something that we're monitoring as our pipeline is relatively robust. But maybe I'll let Dava add to it.

Great. Thanks, Jay. So as we've been consistently buying back our shares over the last several years, averaging roughly $500 million and about 10% per year. This year, given a combination of factors that compelled us to take a more opportunistic view on repurchases, we significantly increased both the pace and quantum of our repurchases. Through the third quarter, we repurchased $580 million in shares and are on track to repurchase about $700 million in 2024, which will be the largest share repurchase year in our history. We have a disciplined capital allocation strategy to deploy capital to the areas of highest growth in return, and as Jay just mentioned, we feel really good about our new investment prospects in the near term. So we are incorporating the potential need for capital to execute on our growth strategy with share repurchases in the near term. In addition, any share repurchases will be subject to market and price consideration. We'll provide some more color on 2025 expectations on our Q4 call, but what I can say is that as we're closing the year, we're in a very strong capital position and have ample flexibility to continue to execute both on our growth strategy and to continue to repurchase shares. Thanks for the question, Bill.

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

Hey, good morning. Thanks for the question. I was hoping we could double-click into the performance fee guidance and just kind of maybe flesh out a little bit on what specific absolute return strategies have struggled this year. Any implication for a high watermark as we sort of start to think about 2025? And the flip side of that, I guess you talked about private markets contributing more to the bottom line in terms of carry over time. I was wondering if you could help us frame what that accrued carry balances are in terms of the flow through to AMG's bottom line. Thanks.

Sure. Thanks, Alex. I'll take this one. So as I said in my prepared remarks, we currently expect to be below our five-year average of about $150 million of performance fees, given more challenged investment performance at some of those absolute return strategies, specifically within our trend-following strategies. We continue to think $150 million is a good through-a-cycle expectation of our annual performance fees, but we could see some softness in this number in 2025 given some of the performance challenges within some of these absolute return strategies this period. But as there's a lot of time between now and when these strategies would crystallize the 2025 performance fees. Let me just take a minute to step back on performance fees in general. So we do have a highly diversified and complementary set of performance fee-generating assets totaling about $200 billion across a dozen affiliates across beta-sensitive absolute return and private market strategies. And performance fee earnings are an important part of our business and all of those performance fee earnings for us are reported on a realized basis. So that's a real cash task that we can use to execute on our growth strategy. And in a year like 2024 where performance fees are expected to come in a bit lower, our core business fundamentals continue to improve, which highlights the diversification and complementary nature of these performance fees to our overall business. Of course, there's still a couple of months left in the year and there's a number of significant macro events on the horizon that could impact markets in different ways. So things overall could change but we remain confident in our ability to drive those performance fee earnings to contribute to earnings power over the long term. With regard to carried interest, typically when we purchase our private market affiliates, we don't buy in the ground carry when we're making these new investments, and so it tends to be a longer-term opportunity for us to start to play into that carry and we expect their contributions to performance fees to increase naturally a bit overtime for us.

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

Great. Good morning. Just following up on that previous line of questioning. So specifically what were -- what is carried interest in 2024, your kind of expectation that range or contribution, and obviously, we think you think it's going to scale going forward, but curious as to what you expect this year. And then also just on the liquid strategy, you talked about increased demand so ultimately maybe better flows for some of the AQR tax advantage products. So I want to get a little more color on what that type of AUM where that sits today. Are there performance fees attached to some of these products? Or are there liquid strategies that you are seeing demand that maybe don't correlate economically the same way to your existing book of business?

Yes. Good morning, Dan. Thanks for your question. I'm going to -- let me start just where Dava left off and see if I can add some color and then maybe Tom can help me with your second -- second part of your question. Just on carry, so Dava is right, we typically do not buy in-the-ground carry. However, the sort of the seasoning of our private markets businesses because over the last several years, as you know, we've made a number of private markets investments, Comvest being one, Forbion, OCP in Asia, we had most recently Ara. So we're starting to see that next fund that got raised after we made the investment start to pay out. We do have some carry this year. We had a little last year. It's expected to grow both on its own but as a percentage over time. It's hard to predict obviously because it has a lot to do with exits and the way the fund structures work. But we do see carry being a greater percentage of our performance fee opportunity going forward. In any one year, it's a combination of absolute return, beta sensitive. We even have some long-only businesses that have some performance fees and then of course, carry. So I think the benefit for us is as we look across the sort of average $150 million that Dava mentioned is kind of our best estimate as to what we think a typical year would be without understanding exactly how -- what the macro-environment is for that year. So I think that's the work that we've done on that. I might just say one other thing just on the private markets and liquid alternatives kind of flow profile because if you look at the capital that we've raised in both of those areas that just the opportunity for performance fees grows as the AUM grows. And so I'll turn it to Tom to talk a little bit more about some of the liquid alternative strategies, namely maybe AQR, but the reality is as that -- as those assets come into those firms in liquid alternatives and in private markets, just the opportunity set is greater going forward.

Yes. Thanks, Jay, and thanks for your question, Dan. I think to get to your specific question on some of the tax advantage product, that shows up in alternatives and shows up in our high net worth channel from a client-type perspective. We have seen really nice growth there. You've seen some press around what AQR has been doing as well as some others in the industry, and I think that there's a lot of focus on after-tax returns with respect to wealth management generally. So I think this plays into a really important overall macro theme. So that's been an excellent growth opportunity in the last couple of years. We expect to continue to see a lot of growth as well as a lot of innovation coming from firms like AQR as they continue to think about delivering those types of outcomes for end clients.

Yes. And let me just say one other thing on AQR. The overall investment performance there is significantly improved and is strong, and that obviously, bodes well for flows. Liquid alternatives has become a greater percentage of their business so that is -- plays out in their business mix and their average fee rates and the opportunity for performance fees. And then as Tom said, the tax-aware business, it's very innovative and the reality is putting tax-aware into a liquid alts of strategy, it sort of makes them more interesting, more -- maybe slightly more sophisticated than the first-generation of tax-aware products. So that innovation is paying off for them and we're seeing significant growth in the assets. So we're pretty excited about what's happening at AQR, and we're pretty excited about the liquid alternatives business generally. Thanks. Thanks a lot for your question.

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

Great. Thanks. Good morning, folks. If I can ask about a little bit more detail on the democratization pipeline for new products being launched across your private affiliates. Maybe if you can talk about maybe how much you think you can scale that. I think you mentioned $5 billion on the wealth platform, and in terms of potentially like for perpetual products, maybe if you can talk about the idea of raising performance fees from -- or getting performance fees from perpetual products, maybe to what extent are they contributing now and then to what extent do you think that can become a very meaningful part of your performance fee pipeline going forward.

Thanks, Brian. So look, as you know, we're really excited about the US wealth opportunity. Our main strategy at AMG is to partner with independent firms and magnify their advantages. And this is right in the sweet spot of a way that we can do that and really do it in a way that no one else in the industry can. And as part of our strategy, we're collaborating with our affiliates on a number of growth opportunities, investing capital and resources into new strategies, creating new products, and trying to connect them more directly with clients in US wealth. We have a vertically integrated US wealth platform. I think that's really important. Everything from product development through to touching-end clients and then having the underlying risk management and operating platform to be able to support that ecosystem, and that enables our affiliates to access the large and growing wealth market in a way that would be extremely difficult for any independent firm to do on its own given just the scale and resources that are required to be effective in that channel. We've been very successful in bringing affiliate strategies to market through this platform and a lot of that success is based on having launched one of the first-ever Evergreen funds in the private equity space several years ago, the AMG Pantheon Fund, which as we mentioned, is now north of $4 billion in AUM and roughly doubled over the course of the past 12 months. Just this year alone in 2024, we've also invested alongside our affiliates to bring several new products to the market. That includes seeding a new Pantheon private equity fund for the non-US wealth market in a CCAV wrapper, partnering with Pantheon to launch seed and distribute the first private credit secondaries fund…

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

Hey, good morning, everyone. Is there any reason that the 4Q flow seasonality and/or annual rebalancing would be different than what we usually see at AMG and in the industry? And in that vein, given market highs and most people's view that alternative realizations are going to pick up, do you think we should be modeling more of an AUM headwind from alternative distributions from here? Thank you.

Thanks for your question, Patrick. I think it's a little early still to think about year-end seasonality. We haven't seen anything thus far in our conversations with affiliates or clients that suggests there should be a materially different pattern to what we've seen in past years. But as you know, seasonality in the fourth quarter at AMG is relatively muted. It's not a dramatic driver. We'll certainly call out what we do see. But I wouldn't expect it -- particularly as our business shifts more and more toward alternatives over time, I wouldn't necessarily expect it to be of the same magnitude that you would see in a very mutual fund-heavy business like we see with others in the industry, or frankly, in some ways even like AMG may have looked 10 years ago. With respect to the overall opportunity and alternatives regarding realizations, as I mentioned in some of my prepared remarks, we're seeing incredible strength in fundraising. We've seen more than 20% annualized organic growth thus far in our affiliate fundraising. So certainly, as you see the return of a positive market environment and a more positive environment for realizations generally, our affiliates will look to take advantage of that. But I don't view it as a material headwind to the long-term growth that we're seeing in the overall size and quality of that alternative, and in particular, private markets segment of our business.

And just to add on to that last point. Per the other conversation we had around carry, just the nuance here is when you see some realizations from AMG, it's a bit more nuanced because some of those are on older funds that we did not own any carry. So most of the opportunity set for us going forward for both the fee -- the net management fee, earnings, but also the performance fee earnings are coming from the flows that you're seeing us raise now, and so the opportunity for earnings power is growing. I think the last thing I just want to note, and we've said it several times in different ways and I guess I've said it maybe in the past too, which is the liquid alternatives area is super unique for us because in volatile and choppy times, you would see -- generally speaking, you would see that part of our business perform well. And in past kind of bull markets and near market highs when that pullback occurred, for example, in 2022, that was one of our stronger years in performance fee earnings. So we like the nature -- the diversified nature of our business, but also in some ways the lower correlation or inversely correlated aspect of some of our strategies.

And Pat, maybe just one quick additional point with respect to realizations. We have talked about just the differentiated nature of AMG's private market exposures, things like life sciences, decarbonization, private equity, multi-family real estate. So we have less of a concentration to regular way private equity and leveraged buyouts, which is where a lot of the slowdown in realizations has taken place. Given the fact that we've had these more specialized exposures, we've continued to see pretty good DPIs, pretty good realizations through the cycle, which is in part been contributing to why our fundraising has remained so strong. So I agree with your point that we will likely see more realizations in the industry, but maybe less of a rate of change for AMG given we've already seen pretty strong performance here.

Thank you. Ladies and gentlemen, this concludes our Q&A session and thus concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.