Many financial companies rely on the health of the stock market to keep them profitable. Brokers need customers to stay interested in buying and selling stocks, and financial managers that take client assets and invest them have to show good returns to keep customers happy. A strong stock market helps in that regard, and for Affiliated Managers Group (NYSE:AMG), the goal has been to squeeze the most profit possible from the market's latest run toward all-time highs.
Coming into Monday's second-quarter financial report, AMG shareholders wanted to see stronger signs that the asset manager would be able to take full advantage of recent gains in major stock market indexes and turn them into more revenue for its business. AMG did better than most investors had expected in that regard, and many think that the resulting bounce in its stock price could signal an end to its lackluster performance over the past six months.
A nice boost for AMG
Affiliated Managers Group's second-quarter results showed further favorable progress for the asset manager recently. Sales were higher by 5%, to $600.1 million, which was slightly greater than what most of those following the stock were expecting to see. Net income dropped slightly, to $117 million, but AMG's favored measure of bottom-line success -- economic earnings -- climbed 8%, to $3.61 per share. That was greater than the consensus forecast among investors by about $0.02.
At first glance, it might seem that some of AMG's fundamental performance was subpar. In addition to the net income decline, assets under management were down by about $6.7 billion over the past three months, to $824.2 billion.
Yet a big part of the drop in assets under management came from lackluster performance internationally, both in absolute terms and after accounting for currency fluctuations. The $8.1 billion in assets lost from adverse foreign exchange movements wiped out the $4.3 billion in net client inflows during the quarter, and poor market performance internationally held back gains in AMG's domestic equity portfolios.
What was especially favorable was the fact that institutional clients started moving money back into AMG management, offsetting small outflows among retail and high-net-worth individuals. That helped to push aggregate fee revenue higher, climbing almost $60 million, to $1.28 billion during the quarter.
New CEO Nathaniel Dalton, who replaced Sean Healey after he left due to health issues, was happy with how the company did. "Against the backdrop of mixed global equity markets," Dalton said, "AMG generated strong results for the quarter, including organic growth from net client cash flows." The CEO also pointed to demand for alternative investments as a potential hedge to traditional stock market investing vehicles.
What's next for AMG?
AMG knows it has more work to do. In Dalton's words, "Looking ahead, we continue to benefit from substantial interest in highly differentiated strategies for the alpha portions of client portfolios." The asset manager believes that by working closely with its affiliates, it can deliver stronger performance that combines the talent of specialized investment firms with the scale that a large asset base and management infrastructure can bring.
In particular, AMG sees plenty of opportunities in the immediate future. Early on in the third quarter, the company has already seen positive fund flows and strong levels of activity in generating business. The new products that the company intends to develop alongside its affiliate partners should be a continuing source of business going forward. What's especially useful is that AMG has the geographical diversification that gives it some protection even if the strong U.S. market loses its leadership position.
Shareholders in AMG were happy with the news, sending the stock up more than 4% in the two days after the Monday morning announcement. With so much potential to cash in on markets both in the U.S. and abroad, Affiliated Managers Group is tapping into favorable trends and hopes to find new vehicles to take advantage of customer interest in investing for the foreseeable future. If it does so, the recent bounce could continue for the foreseeable future.