AMG Third Quarter 2026 Earnings Call - AFFILIATED MANAGERS GROUP INC

Financial Performance:

• Record Q3 2026 results with Assets Under Management (AUM) reaching $974 billion, up 3% quarter-over-quarter and 21% year-over-year.
• Adjusted EBITDA totaled $354 million in Q3, a 41% increase year-over-year; year-to-date adjusted EBITDA reached nearly $987 million.
• Economic earnings per share (EPS) grew 56% year-over-year to a record $9.50 per share; year-to-date EPS was $26.
• Fee-related earnings accounted for approximately 95% of year-to-date economic earnings, highlighting high earnings quality.
• Net client inflows reached $21 billion in Q3, with $31 billion in alternative strategies; total firm-wide inflows for the last 12 months were $68 billion.
• Share count reduced by approximately 11% compared to the prior year due to repurchases, driving EPS growth.
• Private markets raised a record $10 billion in Q3 and $30 billion over the last 12 months; liquid alternatives generated $22 billion in Q3 inflows.
• Differentiated long-only equities saw $12 billion in net outflows, partially offset by $1 billion inflows in multi-asset and fixed income.

Guidance and Future Outlook:

• Q4 2026 Adjusted EBITDA guidance set at $405 million to $475 million, assuming current AUM levels and excluding material private market catch-up fees.
• Q4 2026 Economic EPS guidance projected between $11.37 and $13.43, based on an adjusted weighted average share count of 25.1 million.
• Full-year 2026 adjusted net performance fees expected to range from $145 million to $205 million, aligning with the five-year average midpoint.
• Long-term target for economic earnings per share growth remains 15% to 20%, though recent acceleration suggests potential for higher rates (50% growth expected in 2026).
• Management expects cumulative free cash flow over the next 5-7 years to approximate the company's entire current market capitalization.
• Full-year 2026 share repurchase guidance increased to over $900 million, with an expectation to reduce the average economic share count by 10% for the year.

Business Segments and Product Lines:

• Alternative strategies now represent nearly 70% of the company's earnings profile, up from less than 35% in 2019.
• Four key secular growth drivers identified: secondary solutions in private markets, infrastructure strategies, absolute return strategies, and tax-aware investing.
• Private Markets: 11 affiliates managing $161 billion in AUM; strong demand in decarbonization, healthcare, secondaries, and real assets.
• Liquid Alternatives: Affiliates manage $338 billion; tax-aware strategies led with ~40% organic growth over 12 months, while other liquid alt grew 14%.
• Strategic shift toward higher fee and margin structures, with over half of affiliates operating on a margin model.
• New affiliate investments completed in BBH Credit Partners and Highbrook Investors; incremental minority stake in Garda Capital Partners.
• Private market fundraising generates long-duration, locked-up vehicles with management fees and potential carried interest.

Market and Competitive Landscape:

• AMG differentiates itself through a unique partnership model supporting independence for ~40 affiliates, contrasting with typical private equity or public equity models.
• Market trends show increased client demand for differentiated return sources and diversification in complex market environments.
• Tax-aware investing is described as entering a broad adoption phase, representing a strategic asset allocation shift rather than tactical.
• Private markets fundraising is broad-based and resilient, driven by long-duration asset demand.
• Industry headwinds noted in long-only equities (outflows), though pockets of strength remain in specific strategies.
• No significant disruption from recent regulatory or political changes (e.g., midterm elections) expected to alter long-term secular trends.

Risks and Challenges:

• Potential slowing of tax-aware inflows mentioned as a scenario to monitor, though management views the trend as durable with strong pre-tax performance and low turnover.
• Regulatory scrutiny on tax-aware strategies (IRS/Treasury activity) noted, but viewed as part of an evolving ecosystem rather than a fundamental risk.
• Large prime broker capping new accounts in long/short strategies observed, but impact on AMG flows was minimal due to new platform additions.
• Dependence on continued market performance and organic growth to sustain the "50% growth" trajectory mentioned for 2026.
• Potential disruption if the company were to go private, which could negatively impact affiliate relationships and perceived independence.

Management Commentary and Tone:

• Tone is highly confident, emphasizing "record results," "exceptional momentum," and the successful execution of the strategic shift toward alternatives.
• Management expresses strong conviction in the four secular growth trends and the durability of alternative strategies.
• Emphasis on capital allocation discipline, highlighting the ability to redeploy cash into new affiliates, existing partners, and share repurchases.
• CEO explicitly stated they do not offer a dividend, viewing share repurchases as the superior method for compounding earnings and returning excess value.
• CFO highlighted the "superior earnings quality" driven by the shift to fee-related earnings and the ability to leverage margin expansion.

Analyst Questions and Answers:

• Capital Deployment: Management confirmed ample flexibility to deploy free cash flow; share repurchase "natural limit" is distant, and the company remains a buyer of its own shares alongside affiliate investments.
• Public vs. Private Status: Management argues remaining public provides permanent capital, access to debt markets, and brand flexibility, whereas going private would disrupt affiliates and remove capital market advantages.
• Political/Regulatory Environment: Management dismissed concerns regarding recent election outcomes and tax policy shifts, stating the four key growth trends have long-term tailwinds unaffected by short-term political changes.
• Flow Diversity: Confirmed flows are broad-based across affiliates and strategies; private markets raised record amounts, while liquid alts growth was led by tax-aware and institutional absolute return strategies.
• Fee Growth vs. AUM Growth: Explained that organic base fee growth exceeds AUM growth due to the shift toward higher-margin alternatives, margin ownership at affiliates, and higher management fee products in private/liquid alts.

Other Key Points:

• AMG has executed $400 million in share repurchases in Q3, bringing year-to-date repurchases to $775 million.
• The company has been a buyer of its own shares for the third consecutive quarter of net inflows.
• AQR is highlighted as a key affiliate contributing significantly to the high-fee tax-aware strategy performance.
• The company operates with a unique "capital allocation" business model, treating capital deployment as the most impactful strategic element.
• Management reiterated the expectation that the business will continue to compound shareholder value through a combination of organic growth, affiliate expansion, and buybacks.