The market plunge in late 2018 took many Wall Street experts by surprise, and the fear of a prolonged downturn sent many investors into a near-panic. Asset management companies like Affiliated Managers Group (NYSE: AMG) had to reassure investors that the long-term prospects for their investments were still solid. In that light, the subsequent rebound in financial markets to start 2019 was especially welcome.
Coming into Monday's first-quarter financial report, AMG shareholders were ready to see a bit of a hangover show up in the asset manager's results. That did in fact happen, but AMG believes that it should be able to get back on track and find new ways to grow as it brings in a new CEO and seeks to add new financial partners.
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How AMG held up
Affiliated Managers Group's first-quarter results reflected the extent of the loss of investor confidence at the close of 2018. Consolidated revenue came in at $543.1 million, down 11% from the first quarter of 2018 and roughly matching the size of the decline that those following the stock had expected. A massive $415 million noncash expense led to more red ink for AMG, and although the preferred net economic earnings metric came in at $3.26 per share -- matching the consensus forecast among investors -- it was still down 17% from year-ago levels.
It was evident from AMG's fundamental performance that investors are still reeling from the market's turbulence. Assets under management finished at $774.2 billion, up more than $38 billion over the past three months. Yet despite more than $51 billion in positive market-related returns, AMG continued to see outflows, which totaled $7.4 billion for the quarter. Global equities and alternative investments suffered the lion's share of the flows out of AMG funds, but even the U.S. equity side of the business saw an exodus despite the sharp bounce among major stock indexes. Aggregate fee revenue came in down almost $400 million, with just over $1.25 billion coming in during the period.
Among AMG's various groups of clients, only the high net worth category showed resolve to stick with the market during its turbulent recovery. Inflows for that group amounted to $1.1 billion. But big outflows from both institutional and regular retail investors were considerable, as ordinary investors seemed to pull the most money out on a percentage basis.
Can AMG recover?
Outgoing CEO Nathaniel Dalton was hopeful, saying, "Looking ahead, in addition to the positive earnings impact of the year-to-date market rebound, we believe that our long-term organic growth profile will be enhanced by our affiliates' improving investment performance across multiple product areas, including global and emerging-markets equities, and U.S. growth equities." Dalton also said that AMG's agreement to bring on alternative asset manager Garda Capital Partners was just one example of how the company is looking to bring on partners with strong track records of investment performance to add to its overall value proposition.
AMG also took major steps ahead with its long-term succession plan. In a separate news release, AMG said that incoming CEO Jay Horgen will succeed Dalton at the conclusion of the annual shareholders meeting. Horgen has been with AMG since 2007, most recently as its chief financial officer. The new CEO intends to keep moving forward with the same culture and values that AMG has had in place for years, but his private equity and investment banking experience could give him a chance to put his skills to the test in driving new business for AMG.
As markets returned to turbulent conditions on Monday, investors in AMG had to deal with the question of whether the investing climate will be favorable for the company's future results. The asset manager has overcome difficult times before, though, and there's reason for shareholders to believe that AMG is on the right path to weather the storm and mount a long-term rebound.
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