Market downturns drag many stocks along for the ride, and in the financial industry, asset management companies are especially prone to reversals in investor sentiment. Even though Affiliated Managers Group (AMG +1.07%) did a good job of finding ways to avoid the full brunt of a jittery market early in 2018, the volatility that investors have experienced during the last part of 2018 proved to be a tougher storm for AMG to weather.
Coming into Monday's fourth-quarter financial report, AMG shareholders were prepared to deal with short-term hits to the company's results, but they also expected reassurance that the asset manager would successfully adapt to changing conditions. AMG did about as well as most had expected, and it has a lot of hope that the early part of 2019 is signaling a return to healthier conditions for the asset management company.
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Assessing the damage at AMG
Affiliated Managers Group's fourth-quarter results showed just how considerable the market correction during the period actually was. Consolidated revenue of $564.4 million was down almost 7% from year-ago levels, faring somewhat worse than the 6% decline that most of those following the stock were expecting to see. Market-related declines caused AMG to suffer a net loss under GAAP rules, but the company's favored net economic earnings weighed in at $3.53 per share, matching expectations but down almost 25% from the fourth quarter of 2017.
The damage looked a lot more severe at the fundamental level. Assets under management at period end came in at $736 billion, down by more than $100 billion from where the company finished 2017. Most of that drop came in the last three months of the year, and even though market changes were responsible for fully two-thirds of the drop, net client cash outflows of $15.8 billion didn't help AMG's results, either. Even the much-vaunted alternative investment category suffered big outflows. Moreover, the company faced negative pressure from foreign exchange movements as well. Aggregate fees for the quarter amounted to $1.23 billion, which was off by 27% from the year-earlier quarter.
All of AMG's client groups suffered. Institutional, retail, and high-net-worth clients all had net outflows and took market-related hits to their assets under management, although high net worth held up the best among the groups on a pro rata basis. Retail investors seemed the most panicked, with the largest outflows among the groups.
CEO Nathaniel Dalton tried to maintain a long-term view. "While industrywide risk aversion as well as anticipated seasonal redemptions affected our net client cash flows for the quarter," Dalton said, "we see meaningfully improving flow results already in 2019." He went on to say that volatile conditions actually produce advantages for active asset managers to add value, and AMG is optimistic that it will capitalize on these opportunities in the market cycle.
Check out the latest AMG earnings call transcript.
What's ahead for AMG?
AMG also is looking at the continued possibility of finding new asset managers to add to its group. "We are able to focus on the highest growth opportunities within our existing Affiliates while also investing in excellent new Affiliates and remaining committed to disciplined capital allocation," said Dalton.
Moreover, as a sign of its commitment to a long-term view, AMG chose to increase its quarterly dividend. The asset manager announced a payout of $0.32 per share, up 7% from its previous dividend, which will be paid at the beginning of March. In addition, AMG authorized the repurchase of up to a total of 5 million shares, allowing it to continue the buybacks on which it spent close to $490 million over the past year.
Shareholders in AMG have already gotten more optimistic about the company's prospects during a favorable January for the markets. If the asset manager can keep riding more favorable trends toward a full recovery, then that should bode well for the stock's long-term prospects as well.
