Many have been fearful about the prospects for asset managers like Affiliated Managers Group (AMG +3.35%) lately. After nearly a decade of exceptionally strong performance from the stock market, the big ups and downs that investors have had to deal with so far in 2018 have some thinking that the end of the long bull market could finally be here.
Coming into Monday's first-quarter financial report, AMG shareholders still hoped that the company would be able to find ways to use its proprietary expertise to stay ahead of the crowd and produce solid results. AMG actually did even better than that, exceeding most expectations and finding ways to attract new assets even as some investors look to exit traditional stock market investments.
Image source: Affiliated Managers Group.
How AMG started 2018
Affiliated Managers Group's first-quarter results didn't let up one bit from the momentum the asset manager built in 2017. Revenue climbed 12.5% to $612.4 million, which extended a streak of accelerating quarterly growth rates and was stronger than what most of those following the stock were expecting to see. Total net income came in at $224 million, and adjusted earnings of $2.77 per share also exceeded the consensus forecast among investors.
Some aspects of AMG's numbers did reveal the pressure on the industry during the quarter. Over the past three months, market changes cost the company $6 billion in assets, and net client outflows took away another $1.9 billion from AMG's coffers, leaving it with $830.9 billion under management. Those trends were most pronounced among AMG's institutional clients. By contrast, both retail investors and high net worth individuals had net inflows, suggesting they were taking advantage of market volatility to pick up bargains even as institutions sold.
AMG benefited from its diverse lineup of investment strategies. The equity segment saw net outflows both in the U.S. and abroad, dropping a total of $7.8 billion in assets as a result. Yet the alternative asset segment made up much of the difference, with $5.6 billion in inflows, and small boosts in multiasset investment also helped cushion the asset blow for AMG.
AMG likes to use the economic earnings metric to measure success, and there, it showed solid results. Economic net income rose 17% to $215.2 million compared to the year-ago period, producing economic earnings of $3.92 per share. Cost containment played an important role in boosting that figure, as even sizable rises in compensation and overhead expenses weren't enough to keep operating income from rising at a faster rate than sales.
Can AMG keep weathering the storm?
CEO Sean Healey summed things up quite simply: "Strong inflows across our liquid and illiquid alternative strategies," Healey said, "were offset by equity outflows from institutional clients." Yet the CEO pointed to the long-term strength that asset manager's affiliates have produced in helping to stem the tide of somewhat panicked investors and keeping them confident in their eventual success.
The key to Affiliated Managers Group's growth is continuing to find new opportunities to expand its business to encompass a wider variety of clients. AMG is constantly on the lookout for prospective new affiliates that can fit in well with its existing lineup, and other partnerships have also been successful in making the business bigger over time.
Affiliated Managers Group shareholders weren't entirely comfortable with the news, although some of the stock's 3% drop on Monday following the announcement once again seemed tied more to a general drop in the stock market than to specific concerns about AMG. If the asset manager can keep working to attract new assets and avoid seeing dramatic outflows, then it should have what it takes to weather the storm and deliver long-term value to its shareholders.
