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AMG (Business (48% equities (15% exposure to US equities), 39% alternative…
AMG
Business
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Since IPO, earnings have compounded at 14%/year
Affiliates manage more than 550 products across styles, asset classes and geographies
Own a collection of companies in Institutional, Mutual Funds and High Net Worth solutions that provide cash flow to AMG that they use to acquire new companies, pay down debt or return capital to shareholders.
48% equities (15% exposure to US equities), 39% alternative, 13% multi-asset
Alternatives primarily include fixed income, equity relative value, systematic diversified, private equity and real assets
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Own Tweedy, Browne Global Value and Beutel Goodman Canadian equity, ValueAct Flagship,
They partner with investment managers (like ValueAct) who retain investment autonomy and equity ownership in business. AMG provides the distribution.
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58% of clients are institutional, 28% retail, 14% high net worth
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ability to acquire AUM leads to out performance of just markets.... FCF/share has increased by 3.9x since 2009. The S&P 500 has increased 3.5x since then... but AMG is diversified
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Revenue-share arrangements with 39 affiliates benefit the firm in down markets where it doesn't see operating margin contract
Competitors = Dyal, Blackstone (Strategic Capital), BrightSphere (BSIG).
Affiliates are attracted to AMG's permanent model that provides big company benefits (distribution, product innovation, succession-planning) while preserving the small company advantages (culture, turnover, compensation, performance)
AMG is one of the largest alternative managers in them world with $322B of AUM... 70% of earnings from this segment come from higher quality management fees rather than performance
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Debt Covenants: Max Debt/EBITDA of 3.25x and Min EBITDA/Cash Interest Expense of 3x.... they were 1.3x and 14.5x at the end of 2017.
Risks
Fund outflows
In Retail (28% of AUM), outflows of $4.9B in Q3
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In institutional (58% of AUM), inflows in Q3
High-Net Worth (14% of AUM), net inflows of $0.1B in Q3
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In Q1 2018, AMG had negative fund flows
Driven by institutional fund outflows of $6B (Emerging market equities).... inflows driven by alternatives business
See CS April 30, 2018 for outflow/inflow data
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market decline
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In 2008, alternatives were only 20% of their business..... now it is 40% of business (in an effort to diversify)
In October 2018, equity indices down 10%, alternatives at AMG down only 2%
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AUM decreased in 2016
While total AUM increased in 2016, AMG's share of AUM decreased in the year
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Management fee declines (2014 = 0.429%, 2015=0.401, 2016=0.335%, 0.296 in 2017, 0.292 in 2018)
in 2017, there was a 3% decline in asset based fee ratio
"3 secular headwinds: Active-to-passive, high to low fee, MF to ETF/SMA"
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Concern that flows to Alternatives (including PE) could slow as private equity fundraising fades in 2018
Management
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As of Q3 2018, 2.5million shares authorized under repurchase program (was 5M at end of 2017). 2.5/59M shares = 4% of market cap.
Valuation
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At 40-50% discount to EV/EBIT, EV/EBITDA, PE, P/B
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