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Assets Keep Fleeing Affiliated Managers Group

Dan Caplinger, The Motley Fool

In the asset management business, keeping your clients is the most important measure of success. Affiliated Managers Group (NYSE: AMG) has had to deal with a high level of client outflows over the past year, and even though asset levels seemed to have stabilized last quarter after markets recovered to some extent, the company still hasn't been able to return to its high-water mark in terms of assets under management.

Coming into Monday's second-quarter financial report, AMG shareholders wanted to see continued signs of a rebound from the tough period at the end of 2018. Some of AMG's numbers still looked weak, but the long-term strategy that the asset manager is following still looks solid.

AMG is still playing catch-up

Affiliated Managers Group's second-quarter results showed the ongoing challenges the asset manager faces. Consolidated revenue was down a bit more than 1% to $591.9 million, which actually held up quite a bit better than the much larger top-line decline that most of the following the stock were looking to see. Net income fell 8% to $107.7 million, and AMG's preferred net economic earnings metric was $3.33 per share, down almost 8% from year-ago levels.

Green triangles on a gray background.

Image source: Affiliated Managers Group.

AMG is still having to deal with the fallout from the market's tantrum late last year. Assets under management finished the quarter at $772.2 million, down $2 billion from where levels were three months ago and down more than $50 billion from year-ago levels. Net client cash flows amounted to a $15.1 billion outflow, doubling what AMG saw during the first quarter. Fees also suffered. Aggregate fees for AMG were down more than $120 million to $1.16 billion, continuing a downtrend from previous quarters.

Drilling down on where investors are nervous, nearly all of AMG's business segments saw outflows. The biggest exodus came in alternative investments, where $7.4 billion fled the funds. Global equities saw outflows of $6 billion, and domestic equities saw a $2.3 billion outflow. Only the multi-asset & fixed income category managed to attract money during the quarter, and that amounted to just $600 million in assets. Looking at client categories, institutions pulled out the most money, but retail investors had slightly larger outflows as a percentage of their assets. Only high net worth individuals stuck with the market, eking out a $100 million net inflow.

It took highly favorable market conditions to contain the blow for Affiliated Managers Group. Market changes added $16.6 billion to assets under management, with the biggest move higher coming in the global equities division. All four areas saw positive movement from market performance.

What's next for AMG?

New CEO Jay Horgan explained the situation and tried to stay positive. Outflows "were driven primarily by ongoing performance headwinds in quantitative strategies across liquid alternatives and global equities," Horgan said. But the CEO also took a longer-term view, arguing that "we are continuing to benefit from organic growth in illiquid alternatives and in fixed income, across relative value and traditional strategies, and are positioned for long-term organic growth in fundamental global and emerging markets equities."

AMG has high hopes for some recent strategic moves. The new partnership with Garda Capital Partners will add expertise in the fixed income realm, and the company is optimistic that it will be able to attract even more boutique investment specialists to join its network and enhance its overall value proposition.

Investors weren't initially happy with AMG's news, and the stock dropped almost 4% on Monday following the announcement and remained under pressure as the week went on. Given how much the stock market has recovered, it's imperative for Affiliated Managers Group to get its assets growing again. Otherwise, it'll call into question whether clients truly value the services that the company provides.

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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.