|
Article Excerpt
PARTICIPANTS
. Brett Perryman, Affiliated Managers Group, Inc., VP of Corporate Communications . Sean Healey, Affiliated Managers Group, Inc., President & CEO . Nate Dalton, Affiliated Managers Group, Inc., EVP of Affiliated Development . Darrell Crate, Affiliated Managers Group, Inc., CFO, EVP & Treasurer . William Katz, Buckingham Research Group, Analyst . Michael Kim, Sandler O'Neill & Partners, Analyst . Craig Siegenthaler, Credit Suisse, Analyst . Dan Fannon, Jefferies & Company, Analyst . Robert Lee, Keefe, Bruyette & Woods, Analyst . DJ Neiman, William Blair & Company, Analyst . Marc Irizarry, Goldman Sachs, Analyst . Cynthia Mayer, Merrill lynch, Analyst . Glenn Sussman, Lapides Asset Management, Analyst . John Boland, Maple Capital Management, Analyst
OVERVIEW
AMG reported full-year GAAP EPS of $0.57 and 4Q08 GAAP loss per share of $1.76. Full-year cash EPS was $5.49 and 4Q08 cash EPS was $1.30. Co. expects 2009 EPS to be $3.75-4.30.
FINANCIAL DATA
A. Key Data From Call 1. Full-year GAAP EPS = $0.57. 2. 4Q08 GAAP loss per share = $1.76. 3. Full-year cash EPS = $5.49. 4. 4Q08 cash EPS = $1.30. 5. 2009 EPS guidance = $3.75-4.30.
PRESENTATION SUMMARY
S1. Business Review (S.H.) 1. Results: 1. In an extremely difficult market environment, AMG reported cash EPS of: 1. $1.30 for 4Q08. 2. $5.49 for full-year. 1. Decline of 17% YoverY vs. 37% decline in S&P 500. 2. Has several one time items in 4Q08 putting a gain in repurchase of trust preferred securities and non-cash charge related to voluntary surrender of management stock options. 1. Result of aforementioned items was net increase of $0.06 to 4Q08 cash EPS. 3. Took $150m non-cash charge reflecting acceleration of amortization expense for investments made in two alternative managers in late 2007. 1. Non-cash amortization expense did not affect cash earnings or deferred tax benefits but resulted in decrease in reported GAAP earnings. 2. Business Model: 1. These are extraordinarily challenging times for asset management firms. 1. Co.'s results reflect difficult environment. 2. Given that AMG has a product mix that is heavily weighted toward equity, business model and affiliates are weathering storm in markets well and positioned to generate strong growth once market stabilize. 2. Business model is based on revenue share structure and substantial retained equity by affiliates. 1. Designed to provide relative stability to earnings in periods of declining assets, since AMG is not exposed to affiliates operating leverage, while ensuring that affiliate partners have strong incentive to manage their businesses with long-term focus. 3. Ten largest affiliates, which contribute 85% of Co.'s EBITDA have been impacted by market declines. 1. All have generated considerable growth since Co.'s investment and even after declines that Co. has experienced, still have substantial excess operating cushion and continue to be significant equity owners in their businesses. 4. While business model enhances consistency of Co.'s results overtime, long-term growth is based on outstanding quality and diversity of affiliates. 1. Boutique affiliates are among industry leaders in their respective investment disciplines with excellent long-term, performance records, outstanding reputations and superior client service. 5. Quality of affiliates was borne out by their results last year. 1. Tweedy, Browne, largest affiliate in EBITDA contribution, generated strong relative performance in each of firms highly regarded deep value products. 1. Tweedy was nominated by Morningstar for Domestic and International-Stock Manager of the Year awards. 2. Third Avenue had outstanding relative performance in its international products. 1. Nominated for International-Stock Manager of the Year. 3. Emerging markets equity manager Genesis had strong relative performance in its largest products for the year. 1. Has outstanding long-term record. 6. Growth managers, Friess Associates, TimesSquare Capital Management and Frontier Capital Management, all generated excellent relative performance and produced positive net client cash flows for the year. 7. Diversity of affiliates products is itself a source of earnings growth and stability. 1. While Co. does not have a material fixed income business, a number of affiliates manage product strategies, which are uncorrelated with equity markets. 2. With 4Q08 volatility, several affiliates including First Quadrant and BlueMountain generated meaningful performance fees in 2008. 8. Over medium to long-term, affiliates' strong relative performance is best indicator of forward client flows. 1. Believes affiliates are well positioned when investors reallocate to return based assets as they inevitably will. 2. In addition of benefiting from reallocation back to equities, many of affiliates have an opportunity to gain market share as investors reallocate among equity managers and seek managers who perform well in 2008 and have superior long-term track records. 9. While Co. had net outflows in 4Q08, on a relative basis, results were encouraging and trends are positive as it looks forward this year. 3. New Investments Area: 1. Restructured investment in Harding Loevner in light of extreme volatility of 4Q08. 1. Essential elements of investment remain consistent with original agreement and provides management team to retain a substantial equity taken the firm. 2. Revised agreement contemplates completion of transaction in 2H09. 1. Purchase price will be based on firm's then current revenues and earnings. 2. Looking ahead, transaction environment is increasingly favorable to Co. as it sees far fewer competitors and lower valuation levels. 1. There continues to be a large number of attractive boutique firms basing demographically driven succession issues. 1. Range of transaction alternatives for these firms has diminished substantially. 2. Believes there will be increasing number of transaction opportunities involving corporate sellers of asset management firms. 3. During Co.'s conversations with perspective affiliates, these firms are seeking an experienced partner that offers an investment approach, which provides incentives for long-term growth while at same time maintaining firm's unique culture. 3. Over past 15 years, AMG has invested in some of industries leading boutique firms and build a strong reputation as a helpful and supportive partner to Co.'s affiliates. 4. In addition to strength of affiliates and their prospects for continued growth, cash flow business generates, supported by strong and stable capital base, provides an additional source of earnings growth. 1. Confident in ability overtime to generate incremental returns by deploying cash flow, stock repurchases and accretive investments in additional affiliates.
S2. Operational Review (N.D.) 1. Highlights: 1. Asset management industry is experiencing an extremely challenging period. 1. 4Q08 was one of worst on record for all risk-oriented asset. 2. As a group, affiliates generated good relative investment performance with most of them outperforming peers and benchmarks for qtr. and full-year. 1. While this overall outperformance is good, key point to focus on is significant relative outperformance of many of largest most financially important products of AMG. 2. Tweedy Browne: 1. Largest financial contributor to AMG. 2. Every one of the products outperformed its benchmark last year by significant margin, ranging from few hundred BP to 1,300 BP. 1. This outperformance was recognized with Tweedy being selected as finalist by Morningstar for International Manager of the Year and Domestic Manager of the Year. 3. Good relative performance of affiliates and especially largest and most profitable affiliates positions Co. to capture significant flows and earnings growth when clients allocate to return-oriented asset classes. 1. While as Co. knows there is significant disruption today: 1. Pension plans and endowments, individuals and foundations, all have liability and spending needs based on generating ROA and without increasing allocations to return-oriented asset classes and managers they simply cannot meet these needs. 3. Global Equities: 1. While MSCI World and EAFE were both down about 40% for year and 20% in 4Q08, MSCI Emerging Markets were down even more, Co. had a good relative year vs. benchmarks and peers across most of global and international equity products, including those managed by Tweedy, Browne, Third Avenue and Genesis. 1. Each of Third Avenue and Tweedy, Browne was nominated for Morningstar's International-Stock Manager of the Year. 2. Tweedy's flagship global value funds beat: 1. Hedged benchmark by 50 BP in 4Q08 and 160 BP for the year. 2. Unhedged benchmark by 190 in 4Q08 and 475 BP for year, placing in 12 percentile with Morningstar category for 4Q08 and top decile for year. 3. Tweedy's worldwide high dividend fund beat its benchmark by 750 BP for 4Q08 and over 1,000 BP for year and ranked in top decile for qtr. and year in Morningstar category. 3. Third Avenue's international value fund continued to significantly outperform, beating its benchmark by 200...
|
