During bull markets, asset management companies tend to do a good job of gathering assets and earning fee income. When market volatility arrives, though, investors get nervous, which can put a wrench in those companies' growth plans. Affiliated Managers Group (NYSE:AMG) has been through such market cycles before, though, and it has the institutional awareness to recognize the need to be prepared when volatility arrives.

Coming into Monday's third-quarter financial report, AMG shareholders were ready to see the impacts of a more difficult business environment, but they still were expecting at least minimal gains on revenue and income. Even though its numbers were mixed in that regard and the headwinds it faces have not abated, the asset manager has high hopes that it'll be able to find ways to keep growing.

Green triangles on a grey background.

Image source: Affiliated Managers Group.

Affiliated Managers Group makes the most of a rocky summer

The Q3 results reflected the ups and downs in the asset management industry more broadly. AMG's revenue rose 3% to $601.3 million, which was only a bit less than what most of those following the stock had expected. Net income was off a fraction of a percent to $124.9 million, but the company's favored metric -- net economic earnings -- fell a sharper 4% to $184 million. However, that produced economic earnings per share of $3.45, which topped analysts' consensus forecast for $3.42.

Fundamentally, AMG had a mixed quarter. Assets under management rose 3% year over year to $829.6 billion, which was also roughly $5.4 billion higher than last quarter's figures. Favorable markets were primarily responsible for the gain, as investment gains totaled $11.8 billion. However, fund flows were also helpful, adding $900 million to total assets under management. AMG got its best performance from its alternative and multi-asset investments, while it suffered net outflows from its U.S. and global equity investment categories. Foreign exchange impacts and net distributions also held back asset growth.

From a client perspective, AMG continued to be successful in convincing institutions to commit money to its investments. Inflows from institutional investors amounted to $5.7 billion, in sharp contrast to the $4.9 billion net outflows from individual retail investors, and the roughly balanced movements of cash by high net-worth individuals. Yet even with that help, aggregate fee revenue rose by just 0.5% to $1.28 billion.

CEO Nathaniel Dalton was generally pleased. "Notwithstanding industry headwinds," he said, "AMG generated solid results in the third quarter, including year-over-year growth in our economic earnings per share ... and positive net client cash flows." He pointed to the global demand from its institutional investor customers as having been instrumental in the company's overall success.

Can AMG keep itself strong?

The asset management firm has high hopes for the future. As Dalton noted, "Over the past 25 years, AMG has demonstrated the ability to grow across market cycles." In particular, the company's reputation gives it the ability to attract investment partners that can weather market storms, and that opens up long-term growth opportunities that could help it attract still more business, even in under adverse conditions.

Yet it's important to recognize where the potential trouble spots are. Earnings would have fallen much further had it not been for the tax overhaul passed last December, which cut the company's income taxes by more than 25%. That partly masked a substantial rise in expenses, particularly in the areas of compensation and overhead. AMG needs to get its cost structure under control if it wants to be able to ride out the down markets effectively.

AMG shareholders didn't react all that strongly to the report, and the stock was down just half a percent in pre-market trading following the announcement. Investors are a bit on edge about what's going on in the financial markets right now, but Affiliated Managers Group has dealt with tough conditions before, and still expects to find new avenues for growth.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Affiliated Managers Group. The Motley Fool has a disclosure policy.