July 31, 2020, 4:31 p.m. EDT

10-Q: AFFILIATED MANAGERS GROUP, INC.

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Operating Performance Measures

Table of Contents

The following table presents our key aggregate operating performance measures:







                                               As of and for the Three                   As of and for the Six
                                                Months Ended June 30,                    Months Ended June 30,
        (in billions, except as noted)             2019         2020       % Change        2019          2020       % Change
        Assets under management                $    772.2     $ 638.4       (17 )%     $    772.2     $  638.4       (17 )%
        Average assets under management             774.2       635.7       (18 )%          773.4        649.4       (16 )%
        Aggregate fees (in millions)              1,163.1       960.9       (17 )%        2,415.1      2,214.0        (8 )%
        


As of and for the three and six months ended June 30, 2020, assets under management and average assets under management exclude the assets under management of certain Affiliates in which we have repositioned or are repositioning our interests. These Affiliates are not significant to our operating performance measures or our results of operations. Assets under management is presented on a current basis without regard to the timing of the inclusion of an Affiliate's financial results in our operating performance measures and Consolidated Financial Statements. Average assets under management reflects the timing of the inclusion of an Affiliate's financial results in our operating performance measures and Consolidated Financial Statements. Average assets under management for mutual funds and similar retail investment products represents an average of the daily net assets under management, while for institutional and high net worth clients, average assets under management represents an average of the assets at the beginning or end of each month during the applicable period.

The outbreak of COVID-19 has created significant disruption in economic activity. The impact of the COVID-19 outbreak on our Affiliates and their clients' demand for investment strategies is currently uncertain, and could result in changes in investor demand for our strategies in ways that cannot be predicted but could vary from recent trends. During the six months ended June 30, 2020, we experienced a decline in average assets under management and, therefore, asset based fees as a result of COVID-19. If financial markets were to worsen as a result of COVID-19 or other factors, the Company's average assets under management and asset based fees could be adversely impacted.

Table of Contents

The following charts present information regarding the composition of our assets under management by active, return-oriented strategy and client type as of June 30, 2020:

(1) Alternatives include illiquid alternative strategies, which accounted for 16% of our assets under management as of June 30, 2020.

(2) Global equities include emerging markets strategies, which accounted for 8% of our assets under management as of June 30, 2020.

The following tables present changes in our assets under management by active, return-oriented strategy and client type for the three months ended June 30, 2020:







        By Strategy - Quarter to Date
                                                                                                  Multi-Asset &
        (in billions)                     Alternatives     Global Equities     U.S. Equities       Fixed Income         Total
        March 31, 2020                   $      226.1     $         204.3     $        72.5     $        97.0        $   599.9
          Client cash inflows and
        commitments                               7.6                 8.9               4.3               5.2             26.0
          Client cash outflows                  (14.9 )             (17.7 )            (6.8 )            (4.8 )          (44.2 )
            Net client cash flows                (7.3 )              (8.8 )            (2.5 )             0.4            (18.2 )
          Market changes                          2.4                33.2              14.7               6.8             57.1
          Foreign exchange(1)                       -                 0.8               0.1               0.4              1.3
          Realizations and distributions
        (net)                                    (0.5 )              (0.1 )               -                 -             (0.6 )
          Other(2)                               (0.2 )              (0.2 )            (0.8 )             0.1             (1.1 )
        June 30, 2020                    $      220.5     $         229.2     $        84.0     $       104.7        $   638.4
        


Table of Contents







        By Client Type - Quarter to Date
        (in billions)                              Institutional      Retail       High Net Worth       Total
        March 31, 2020                            $       347.8     $   149.9     $       102.2      $   599.9
          Client cash inflows and commitments              10.7          10.7               4.6           26.0
          Client cash outflows                            (21.5 )       (17.9 )            (4.8 )        (44.2 )
            Net client cash flows                         (10.8 )        (7.2 )            (0.2 )        (18.2 )
          Market changes                                   28.1          19.4               9.6           57.1
          Foreign exchange(1)                               0.8           0.2               0.3            1.3
          Realizations and distributions (net)             (0.5 )        (0.1 )               -           (0.6 )
          Other(2)                                         (0.5 )        (0.4 )            (0.2 )         (1.1 )
        June 30, 2020                             $       364.9     $   161.8     $       111.7      $   638.4
        By Strategy - Year to Date
                                                                                                  Multi-Asset &
                                          Alternatives     Global Equities     U.S. Equities       Fixed Income         Total
        December 31, 2019                $      241.2     $         274.9     $       100.0     $       106.4        $   722.5
          Client cash inflows and
        commitments                              16.3                17.3               7.7              10.8             52.1
          Client cash outflows                  (26.0 )             (32.9 )           (14.5 )           (10.7 )          (84.1 )
            Net client cash flows                (9.7 )             (15.6 )            (6.8 )             0.1            (32.0 )
          New investments                         3.7                   -                 -                 -              3.7
          Market changes                        (10.8 )             (24.6 )            (7.8 )            (0.6 )          (43.8 )
          Foreign exchange(1)                    (3.1 )              (5.1 )            (0.4 )            (1.3 )           (9.9 )
          Realizations and distributions
        (net)                                    (0.7 )              (0.1 )               -              (0.1 )           (0.9 )
          Other(2)                               (0.1 )              (0.3 )            (1.0 )             0.2             (1.2 )
        June 30, 2020                    $      220.5     $         229.2     $        84.0     $       104.7        $   638.4
        By Client Type - Year to Date
                                                   Institutional      Retail       High Net Worth       Total
        December 31, 2019                         $       407.2     $   198.1     $       117.2      $   722.5
          Client cash inflows and commitments              21.4          21.4               9.3           52.1
          Client cash outflows                            (37.8 )       (36.0 )           (10.3 )        (84.1 )
            Net client cash flows                         (16.4 )       (14.6 )            (1.0 )        (32.0 )
          New investments                                   3.7             -                 -            3.7
          Market changes                                  (23.3 )       (16.8 )            (3.7 )        (43.8 )
          Foreign exchange(1)                              (5.1 )        (4.3 )            (0.5 )         (9.9 )
          Realizations and distributions (net)             (0.7 )        (0.1 )            (0.1 )         (0.9 )
          Other(2)                                         (0.5 )        (0.5 )            (0.2 )         (1.2 )
        June 30, 2020                             $       364.9     $   161.8     $       111.7      $   638.4
        ___________________________
        


(1) Foreign exchange reflects the impact of translating into U.S. dollars the assets under management of our Affiliates whose functional currency is not the U.S. dollar.

(2) Other includes assets under management attributable to product transitions and reclassifications.

Aggregate Fees

Table of Contents

Aggregate fees consists of asset and performance based fees. Asset based fees include advisory and other fees earned by our Affiliates for services provided to their clients and are typically determined as a percentage of the value of a client's assets under management. Performance based fees are based on investment performance, typically on an absolute basis or relative to a benchmark, and are recognized when they are earned (i.e., when they become billable to customers and are not subject to claw-back). Performance based fees are generally billed less frequently than asset based fees, and although performance based fees inherently depend on investment performance and will vary from period to period, we anticipate performance based fees will be a recurring component of our aggregate fees.

Aggregate fees is generally determined by the level of our average assets under management, the composition of these assets across our active, return-oriented strategies that realize different asset based fee ratios, and performance based fees. Our asset based fee ratio is calculated as asset based fees divided by average assets under management.

Aggregate fees were $960.9 million for the three months ended June 30, 2020, a decrease of $202.2 million or 17% as compared to the three months ended June 30, 2019. The decrease in our aggregate fees was due to a $191.9 million or 16% decrease from asset based fees and a $10.3 million or 1% decrease from performance based fees. The decrease in asset based fees was due to a decrease in our average assets under management, principally in our alternative strategies and global equity strategies due to net client cash outflows, and a change in the composition of our assets under management.

Aggregate fees were $2,214.0 million for the six months ended June 30, 2020, a decrease of $201.1 million or 8% as compared to the six months ended June 30, 2019. The decrease in our aggregate fees was due to a $298.4 million or 12% decrease from asset based fees, offset by a $97.3 million or 4% increase from performance based fees. The decrease in asset based fees was due to a decrease in our average assets under management, principally in our alternative strategies and global equity strategies due to net client cash outflows, and a change in the composition of our assets under management.







        Financial and Supplemental Financial Performance Measures
        The following table presents our key financial and supplemental financial
        performance measures:
                                            For the Three Months                   For the Six Months Ended June
                                               Ended June 30,                                   30,
        (in millions)                         2019         2020       % Change         2019             2020        % Change
        Net income (loss) (controlling
        interest)                          $   107.7     $  30.7        (71 )%     $   (93.1 )       $    15.1     N.M.(2)
        Adjusted EBITDA (controlling
        interest)(1)                           219.3       162.1        (26 )%         434.8             362.4         (17 )%
        Economic net income (controlling
        interest)(1)                           170.1       129.6        (24 )%         339.1             280.9         (17 )%
        ___________________________
        


(1) Adjusted EBITDA (controlling interest) and Economic net income (controlling interest) are non-GAAP performance measures and are discussed in "Supplemental Financial Performance Measures."

(2) Percentage change is not meaningful.

Adjusted EBITDA (controlling interest) is an important supplemental financial performance measure for management as it provides a comprehensive view of our share of the financial performance of our business. While aggregate fees decreased $202.2 million or 17% in the three months ended June 30, 2020, our Adjusted EBITDA (controlling interest) decreased $57.2 million or 26%. Adjusted EBITDA (controlling interest) decreased more than aggregate fees on a percentage basis due to a decline in earnings at certain Affiliates in which we share in revenue less agreed-upon expenses and the recognition of performance based fees at Affiliates in which we hold less of an economic interest. The decrease was also due to a $12.3 million increase in share-based compensation primarily due to an event that accelerated certain share-based compensation.

greater than the decline in Adjusted EBITDA (controlling interest) primarily due to a $33.0 million increase in Intangible amortization and impairments attributable to the controlling interest and a $22.6 million increase in Investment and other expense attributable to the controlling interest. These decreases were partially offset by a $32.3 million reduction in Income tax expense attributable to the controlling interest.

Jul 31, 2020

COMTEX_368706927/2041/2020-07-31T16:30:35

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