Affiliated Managers Group Inc (AMG) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Affiliated Managers Group first quarter results conference call. At this time all participants are in a listen only mode. Following today's Presentation instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star followed by the zero. As a reminder this conference is being recorded today Wednesday April the 27th of 2005. I will now turn the conference over to Ms. Brett Perryman, Vice President of Corporate Communication. Please go ahead.

Thank you and thank you for joining Affiliated Managers Group to discuss our results for the first quarter of 2005. By now you should have received the Press Release we issued. However, if anyone needs a copy please contact us at 617 747-3300 and we'll fax you one immediately following the call.

In the conference call certain matters discussed will constitute forward-looking statements. Actual results could differ materially from those projected due to a number of factors including, but not limited to those referenced in the Company's form 10K and other filings we make with the SEC from time to time. In this call the investment performance of certain products will be discussed and the benchmarks are deemed by AMG to be the appropriate benchmarks. AMG will provide on its Web site a replay of the call and a copy of our announcements of our results for the quarter as well as a reconciliation of any non-GAAP financial projections to the most directly comparable GAAP financial measure. You can access this information at www.amg.com. With us on the line to discuss the Company's results for the quarter are Bill Nutt, Chairman, Sean Healey, President and Chief Executive Officer, Nate Dalton, Executive Vice President in charge of affiliate development, Darrell Crate, Executive Vice President and Chief Financial Officer, and Seth Brennan, Executive Vice President in charge of new investments and now I'd like to turn the call over the Bill Nutt. Bill.

Thank you, Brett. Good morning everyone and welcome to AMG's conference call discussing our financial and operating results for the first quarter of 2005. AMG had an excellent start for the year and we are very pleased with our affiliate's results for the quarter, both in terms of their investment performance and net client cash flows. Our affiliates strong investment results were achieved despite what we all know was a challenging market environment for equity investors. While the S&P and DOW reached 3-year highs in early March, they decline markedly throughout March and ended in negative territory. In addition, the NASDAQ declined even more during the quarter and the major international markets were generally flat to DOW. With respect to client cash flows our affiliates, particularly our largest affiliates, had excellent net flows during the quarter. International and domestic value equity products and those in the mutual fund and institutional channels attracted significant new investments. These net client cash flows occurred during a quarter when flows in the industry generally were less than in the first quarter of last year. Our results in the first quarter demonstrate the strength of our business, both in the terms of the quality of our affiliates as well as well as the breadth and diversity of their product offerings. In addition to generating solid internal growth for the quarter we further enhanced our position with the recent announcement of our investment in 6 of Canada's leading mid-sized investment management firms through the acquisition of First Asset Management. As Sean will describe in greater detail, this investment is an excellent opportunity to meaningfully enhance the diversity of our international product offerings to include a broad range of Canadian, US, International value and growth equity products, as well as balanced fixed income and venture capital products.

In sum we are very pleased with our accomplishments during the quarter and remain very well positioned to generate excellent results for the remainder of the year and beyond. With that overview let me turn it over to Sean for a more in depth discussion of the results for the quarter.

Thanks Bill. Good morning everyone. During the first quarter of 2005 we generated strong results across our business as our affiliates produced solid growth, even as the major indices declined, and we benefited from accretion to earnings from recent new investments. Cash earnings per share was $1.12, an increase of 23% over the first quarter of 2004. AMG's results reflect solid performance across our affiliates, especially among our largest affiliates by EBITDA contribution including Tweedy Browne, Friess Associates, Third Avenue, Genesis, AQR and First Quadrant, which together contribute approximately 70% of AMGs EBITDA. Each of these firms generated strong growth in assets both through investment performance and significant net client cash flows.

As you saw in the release we had a good quarter in terms of client flows as positive net client cash flows from directly managed assets were approximately 1.4 billion, resulting in an increase of approximately 2.2 million to our annualized EBITDA. As Nate will explain in a moment strong flows and directly managed assets were offsets by the loss of a singe overlay account, which had no impact upon our EBITDA.

AMG's internal growth from performance in client cash flows reflects not only the quality of our affiliates, but also the breadth and diversity of their investment products. As you know, we have a strong position in domestic equity products through a broad array of small, mid and large cap products with styles ranging from the deep value disciplines of Tweedy and Third Avenue to the growth strategies of firms such as Essex [ph] and Friess Associates, but what's less well understood about AMG is the significant exposure we have to international and alternative products, which tend of course to have higher margins and are among the fastest growing areas of the industry. Measured in terms of contribution to AMG's earnings international products now provide 26% of our earnings, while alternative products contribute 14%. Obviously pro forma for our first asset acquisition the earnings contribution from international and alternative products will be even higher. Given this diversity and the quality of our group of affiliates we're optimistic about our prospects for continued strong internal growth in our earnings.

Now in addition to the ongoing growth of our existing affiliates we continue to seek opportunities to further strengthen and diversify our business through investments and new affiliates. As we said in our call last week, we were very pleased to announce our investment in 6 Canada's leading mid-sized asset management firms through the acquisition of First Asset Management, our holding company. These new affiliates collectively manage over 23 billion in assets and have generated solid growth from performance and flows with 1.5 billion in net flows last year and 850 million year-to-date. Voist and Gordon and Payne [ph] First Assets' fastest growing affiliate and the largest contributor to its EBITDA has excellent recent and long-term performance across all its produces and its assets under management have grown at a compound annual rate of over 50% since 2000.

Looking ahead to our new investment strategy more broadly, we continue to have a strong pipeline of investment prospects from a diverse universe of growing mid-sized asset management firms. As you've heard us say in the past, while the timing of new investments is inherently difficult to predict we remain confident in our ability and our capacity to continue to make accretive investments in additional affiliates. With that I'll turn to Nate to discuss these results in greater detail.

Thank you, Sean. Good morning everyone. Before I describe performance across our 3 principal distribution channels I would reiterate that the story for the first quarter really is the continued strong investment performance on significant positive client cash flows at our largest affiliates, including Tweedy Brown, Third Avenue, Friess, First Quadrant, AQR and Genesis.

Now turning to those distribution channels, first we continued to have very good results in the mutual fund channel with net inflows of approximately 1.2 billion for the quarter. Stepping back across the industry net flows in the mutual funds during the first quarter were focused in non-domestic funds and with the newest equity funds and equity income funds, a more value oriented strategy. AMG is well positioned to participate in these trends through a number of highly rated and strong performing products, including the Third Avenue value family of mutual funds as well as Tweedy Brown's Global Value Fund. In fact 3 of our mutual fund families, Third Avenue, Tweedy Browne and Brandywine Funds [ph] all ranked in top quartile of the industry in net inflows.

Turning to specific affiliates within the mutual fund channel and starting with Third Avenue the firm continues to grow at an impressive pace and increased its assets under management by more than 18% for the quarter, driven by outstanding investment performance and net flows across all of its major products. In the first quarter each of the Third Avenue value, small cap, real estate and international funds out performed the respective benchmarks and peer groups. Each of these funds ranked near the very top of the Lipper category. Specifically, the Third Avenue Value Fund ranked 2nd out of 318 funds. Small cap ranks 14th out of 616 funds. Real estate ranks 4th out of 225 funds and the Third Avenue International Fund ranks 5th out of 49 funds. Given the outstanding investment performance and strong positioning of Third Avenues' major products we remain very enthusiastic about the firms continuing growth potential.

Tweedy Browne also had a good quarter in the mutual fund channel, both with respect to performance and flows. Tweedy Browne's stock selection remains one of the best in our investment discipline and the Global Value Fund generated strong investment results, outperforming the hedged EC index by 40 basis points and the un-hedged index by 400 basis points. The Global Value Fund also ranks at the top of its Lipper category placing 4th out of 50 funds for the quarter. In addition, our larger growth oriented mutual fund products including the Brandywine Funds generated strong investment performance in the first quarter. Their flagship Brandywine Fund, which is rated 4 stars by Morningstar out performed the S&P 500 by more than 300 basis points for the quarter and the Brandywine Advisors Fund out performed the Mid Cap Index by over 150 basis points. Both of these funds also rank in the top quarter against the respective Lipper peer categories. Notwithstanding the quarter's industry trend of outflows in growth funds client cash flows for the Brandywine mutual funds were also positive in the quarter, in part due to sales through our managers investment group platform.

Moving to the institutional channel, net client cash flows of directly managed assets totaled approximately 2.1 billion for the quarter. We continue to see significant net client cash flows into larger institutionally focused affiliates, which have consistently strong investment performance in their discipline, such a Genesis where the firm's emerging markets equities product continue to out perform their peers and benchmarks and AQR, where both the firms multi-strategy hedge funds, as well as their long only products continue to have good success. We also continue to see increasing flows from firms that have become more active in marketing their products in the institutional space since becoming AMG affiliates such as Friess Associates and Third Avenue. In addition, First Quadrant continues to generate excellent investment performance and won a number of significant mandates during the quarter. As Sean mentioned, these very strong flows of First Quadrant appeared a bit offset by a single large overlay account from First Quadrant's London based operation. While the asset size of the overlay account was large, this extremely low fee account made literally zero contribution to First Quadrant's earnings or to AMG's EBITDA.

In the high net worth channel we had outflows of approximately 1.9 billion, again driven by Rohr [ph] Asset Management. Looking more broadly across the remainder of the high net worth channel, results were basically flat as positive flows from several affiliates in the ultra high net worth segment as well as through Managers Investment Group were offset by the closing of 2 products that had been managed by Burrage [ph]. With respect to Managers Investment Group we have been generating good momentum in the retail channel gaining additional product placement with many of the larger sponsors. In addition, gross sales continue to grow through the platform. As you know, Managers provides a centralized approach to retail distribution for select AMG affiliates and its sales force serves as a singe point of contact for more than 75 AMG institutional quality investment products. While we remain conservative in our expectations for manager's results for this year, as we continue to build up platforms capabilities and infrastructure we are pleased with its early success in the first quarter and we are optimistic that we will see strong flows from managers in 2006 and beyond. With that I'll turn it over to Darrell for discussion of our financials.

Thanks, Nate. Good morning everyone. As you saw in this morning's release, we reported cash earnings per share of $1.12 for first quarter. GAAP earnings per share were $0.61 for the quarter. EBITDA was 58.6 million and the ration of EBITDA contribution to end of period assets under management was 20.7 basis points in the quarter. We expect this ratio to decline modestly in the second and third quarters related to the continued investment in our retail distribution platform. Performances added roughly a penny for the quarter. Holding company expenses were 9.8 million for the quarter, which includes an accrual for a pro rata share of the $10 million of equity based compensation that we've been forecasting to award this year.

With regard to taxes our tax rate was 38% for the first quarter. We expect our tax rate to remain flat during the second quarter and then decline to 37% for the remainder of the year as we realize the benefits of lower GAAP tax rates associated with the First Asset transaction. Our cash tax rate was 19.4% for the first quarter. We expect this rate to remain essentially flat during the second quarter and then begin to increase into the low 20's in the third and fourth quarters of the year as we incorporate our recent investments and our business continues to grow. Total deferred taxes were 7.7 million for the first quarter. Of this amount we only add back to cash earnings the 7.4 million that is related to intangibles as these will not reverse but for sale or impairment. I would note that, as many of you know, the additional $300,000 of deferred taxes related to the floating rate convertible securities was also cash actually received by AMG. We forecast deferred taxes to remain at 7.7 million in the second quarter and decline to 6.9 million by the fourth quarter as a result of the closing at the first half of the transaction.

Amortization for the quarter was 7.7 million including 2 million of AQR related amortization that was reported in investment and other income. Depreciation for the quarter was 1.5 million with 1 million of that amount attributable to affiliate depreciation. As you recall, affiliate depreciation is the non-cash charge we include in cash net income as the replenishment of these depreciated assets is paid by the affiliates and non-AMG shareholders.

Interest expense was 8.1 million for the first quarter. We anticipate that our interest expense will increase to approximately 8.6 million in the second quarter as a result of expected LIBOR increases. As you recall, of our 551 million of senior debt 150 million has a fixed coupon of approximately 3.3% as a result of a series of interest rate swaps we entered into last year. 124 million is related to our convertibles and has a fixed coupon of just 50 basis points. An additional 76 million has a fixed coupon of 5.4% and the remaining 201 million has a floating rate coupon based on LIBOR.

At the end of the first quarter we had 350 million available under our expanded credit facility and the holding company cash of approximately 30 million. Stockholders equity was $737 million. To revisit the financing for the First Asset transaction for those of you who were not on the call last week, consideration of approximately $250 million for this transaction will be financed with a combination of cash from our balance sheet, borrowings under our credit facility and the issuance of approximately 400,000 shares of AMG stock. We anticipate total outstandings under our credit facility, pro forma for the closing of this transaction in the third quarter will be approximately 220 million. This will leave approximately $185 million of unused capacity under this facility as immediately available capital for new investments and repurchases of our stock. Moreover the strong free cash flow generated by our business will provide additional significant capacity in the near term. We anticipate that after the close of this transaction we will have capacity to complete approximately $500 million of transactions over the following year without needing to raise additional equity.

As you recall, in October of last year we entered into $100 million forward equity sale agreement. The forward contract provided AMG with additional on-demand capital during a period where we had a particularly strong new investment pipeline and the timing of our investments was unclear. Since that time we have closed our investments in Time Square Capital Management, AQR, Fremont [ph], and our additional 19% investment in Friess and we announced our pending transaction with First Assets. Given the schedule for closing these transactions coupled with our strong internal cash generation, we will be able to complete all of these transactions without issuing this additional equity. Therefore, we have unwound substantially all of this contract. This will have the effect of reducing our quarterly share count by approximately 300,000 shares.

Turning to our guidance on future earnings, during our conference call announcing the First Asset transaction last week we updated our guidance and today we reaffirm our expectations that our 2005 cash earnings per share will be in the range of $4.55 to $4.70. Now let me repeat the assumptions that underpin this guidance. As you know, our typical convention for guidance assumes equity markets will increase 2% per quarter. However, as a result of the decline in the equity markets to date in the quarter our updated guidance assumes markets remain unchanged from current levels for the rest of the second quarter and then increase at 2% in each of the third and fourth quarters. This guidance also assumes a weighted average share assumption of approximately 37.5 million shares using the Treasury stock method to account for our convertibles. Finally, we assume the early third quarter close of the First Asset transaction. Our guidance does not include additional earnings from performance fees, accretion from additional investments in new affiliates or the effect of repurchases of our stock and is based on current expectations about our affiliate growth rates and the mix in affiliate contributions. Substantial changes in the equity markets would, of course, impact those expectations. Now I will be happy to answer any questions.

[Operator Instructions] Mark Constant with Lehman Brothers.

A couple of questions-- let me start with the little numbers question on something you mentioned at the end there, Darrell. The forward contracts or equity contract that you're unwinding or unwound I guess, what would be the timing of the reduction in the share count and how is the cost of that make whole or whatever you want to call it with Merrill [ph] reflect in the P&L?

The share count recognition would be almost immediate as we've almost completed the full unwind of the contract and the difference between--

So it's like half of the second quarter effect and then full quarter third quarter? Is that right?

I would say for almost all of the second quarter and then, of course, going forward and the cost to unwind was from where we set it to the average price to where we unwound. The cost was approximately $10 million and that's cash that we will pay off the balance sheet and it directly reduces stockholder equity. It has no P&L impact. It's just a balance sheet effect.

Got it. Got it. Okay and my transition to operating question I guess on the Rohr side you guys have said before that your guidance assumes no contribution from Rohr but I just wanted to clarify, confirm that there are no potentially adverse expenses related to Rohr or if they were to continue the significant asset outflow in terms of expense hangover, shut down impairment, anything like that?

Why don't I have Nate answer that?

The short answer to that is that's exactly correct. There's nothing like that.

Okay and also from a sort of ongoing affiliate and the I guess good problem to have question which is looking at the exception growth of places like Third Avenue and some of the other large managers, are there any sort of capacity issues in any of the major products that have been driving their growth in any of those major sort of EBITDA driving affiliates right now?

No. The answer to that-- a little bit surprisingly the answer is no. If you look at the product suites at the largest affiliates that are driving the growth with one or two exceptions you know you'd expect something like a small cap product or what have you to have it but if you look at Tweedy Browne or Third Avenue or Friess or First Quadrant or AQR, you look at those firms and there's lots of capacity remaining in the bulk of their product lines.

Okay and the last question, the expenditure curve for the MIG [ph] investments this year kind of were-- how much of that is spent in the first quarter and what is sort of the timing over the balance of the year?

When we originally gave our guidance we were estimating about $5 million would be put into the project this year. We spent a modest amount in the first quarter, I'd say a little less than $1 million and it's compliments to the folks who are working on the project. It's really going along quite well and we would see second quarter probably $2 to $3 million of the $5 million being put to work and then I would say the remainder of the investment in the third quarter.

Okay and that's all in operating expenses but not holding company expenses. Is that correct?

That's correct.

William Tanona with JP Morgan.

Just on Rohr, I mean obviously this business has actually declined pretty dramatically and so I'm trying to get an understanding as to is this entity now kind of running beyond its operating allocation that was originally set for it? And also in terms of how do we think about possible impairment charges going forward as these assets continue to decline?

This is Nate. Let me take the first part of that question. Rohr is-- remember what we've said is we continue to assume zero contribution from Rohr. We have been and continue to assume zero contribution from Rohr to AMG. Implicit in that is, of course, the fact that they're not spending within their operating allocation. We are assuming we aren't getting, and have been assuming, that we aren't getting anything from them.

Let me spend a moment to remark more broadly on Rohr which is while their large cap product it did actually outperform its benchmark in the first quarter. We continue be very conservative in our views about the firm, expect the outflows to continue and probably not at the rate it did this quarter but certainly expect them to continue but we-- I want to reiterate we are assuming no contribution from Rohr to AMG.

I guess I understand that. I guess I'm trying to figure out whether or not they're being a drag to kind of your earnings as a result of their expenses currently. Are they exceeding what should be allocated to them under your owner's operating agreement and if so, are they eating into your part of the equity as well?

It's Sean. As Nate said, by definition if we're assuming no contribution they're not operating within the bounds of the revenue sharing agreement and that's what's implicit in our forecast and assumption, that there's zero earnings contribution. I think unless you assume that the asset, the remaining 2 plus billion assets run off in the next quarter, which I think even the most conservative among us would not assume, in which case there would be some acceleration of expenses and that probably would be more than what we've contemplated but using very conservative assumptions regarding the remainder of the year, we don't see a case where it's going to impact us negatively. And indeed as the firm has been running off-- obviously it still has relatively significant assets and those assets are in fees so, Darrell, why don't you address the--

Yes, from a balance sheet perspective all of these specific intangibles related to Rohr have been fully amortized as we did the deal a little more than a handful of years ago so we don't see any balance sheet impact and again, I think as we've all emphasized when we were very conservative about our guidance for 2005 and said that we have no expectation for Rohr to have an impact on our P&L, we also mean that it will not have an impact on our balance sheet. So while I think we keep posting investors on what's going on at Rohr, I cannot emphasize enough that when we look at our prospect and prospects for our business that they have no effect on our earnings.

That's very helpful and then in terms of the minority interest, I saw that declined pretty sharply quarter-over-quarter and also if you look at kind of minority interest as a percentage of the operating income, that also declined so I was wondering if you could help us out to understand what might have gone on during the quarter?

Sure, there are two factors. One is the having a full quarter's of results of Time Square and that, of course, moves the number but as well in the fourth quarter there was cash that was owned by our affiliates that they had invested in products and those products had some nice returns so in the fourth quarter the gains on affiliate cash, their minority interest cash that's not distributed in their business, had earnings. Those earnings were in our investment and other income, which you also saw was higher in the fourth quarter as compared to the first and those earnings were offset by higher minority interest charges in the fourth quarter as well. If you look going forward I would take this quarter's results as probably the best forecast of minority interest results.

Okay, it didn't have anything to do with people putting stock to you towards year end or anything like that?

No.

Bill Katz with Buckingham Research Group.

I want to start with your notion that you could put $500 million to work over the next year without tapping the markets. I'm just sort of curious what type of sort of targeted leverage ratio would you have under that scenario?

I think that we would approach 3 times in that scenario. As you know that's well within the guidelines by the rating agencies. But I would also mention that when we look at our balance sheet and look into next year we have convertibles that are callable and we have some flexibility that will allow us to de-lever the balance sheet at will so we get comfortable stretching our range to the 2 1/2 - 3 times, which is just stepping outside of our range. That said meaningful capacity under the revolver, cash and additional leverage capacity that would come from those new deals and, of course, I'm not assuming that a $500 million is tomorrow but in reasonable course between now and closing between now and a year from now. That's a reasonable assumption.

Okay, in reference to sort of the pipeline, I was sort of wondering if you could comment a little bit how if any impact the market volatility has had on the pipeline in the United States? And I guess the last couple of deals have been somewhat critical esoteric relative to your track record and I'm just sort of curious as you comment on the outlook for opportunities in the United States?

Bill, I'll prefer to call them opportunistic as opposed to esoteric. We think they were all great firms and settings where we were able to invest in a way that's completely consistent with our basic philosophy and indeed, as I mentioned, increase our participation in some of the fastest growing areas of the market. Perspectively we feel very good about our forward prospects and don't see any impact of the volatility on the pace and number of conversations that we're having with folks. Of course, you're right to point out that if this kind of volatility continues or increases, that historically and I think going forward probably would have a dampening effect on M&A activity in the industry and probably for us as well. But we continue to find a very large number of very attractive firms that are interested in our succession solution, interested in retaining substantial equity and see continued substantial growth in their businesses and that is our-- that's right in the middle of our strike zone and I would say going forward probably more of our investments will continue to look like that "traditional" AMG affiliate but we will continue to be opportunistic and pursue investment opportunities that maybe look a little different but are, as I said, completely consistent with our basic philosophy and approach.

And one final question-- I sort of curious as to the overlay business and I appreciate the fact that it's low margin business but it seems like it has been lumpy over time. I'm just sort of curious if there's any way to sort of think about overall AUM exposure and what kind of markets would drive further outflows if you will?

I think the right way to think about to try and get our arms around it is while there is other overlay business the right thing to focus on here is are there other overlay accounts like this that have this sort of extremely low or in this case literally zero impact and there's only about a billion and a half of that kind of asset left and all of those assets are resident in the London officer of First Quadrant. So to sort of by reference to that I think that should be helpful.

And are these a similar type of margin as the one you lost?

Correct.

[indiscernible-multiple speakers]

--meaning no margin.

David Hays [ph] with Fox, Pitt and Kelton [ph].

Just a couple quick questions-- first one on the comp ratio. If back out, and I assume it's 2.5 million of the restricted stock comp that you had in the comp line this quarter. If I back that out it looks the comp ratio versus revenue ticked up a bit. I was wondering if there was anything sort of one timish in there or what the reason for that was?

No, I think that's just seeing the full results of Time Square integrated into the transaction in addition to decrease as well and, as you remember, a compensation related expense is in many respects a plug happily as our firms grow. Of course, there's increased operating-- the operating bucket or operating allocation that they have that is not going to the direct expenses of running the business and that is put into a bonus pool or a deferred bonus pool and those reflected as compensation expense on our financial statements.

But the way to think about it but for the compensation at the holding company, which we describe and you see what our historical patter has been. The compensation that shows up elsewhere on the income statement-- or sorry, that shows up on the income statement from compensation at affiliates is actually a cushion to us. It's a benefit and we'd like to see that go up.

Second question just on Rohr, I don't know. Did we get the actual number or actual amount of outflows in the quarter from Rohr relative to the 1.9 billion of outflows in the high net worth channel?

Yes, as Nate had said, without the Rohr flows there would have been essentially flat and in the high net worth channel there were some, in the especially ultra high net worth, there were some growth offset by a closing of two products at Verge.

And some positive growth for Managers as well.

Okay and then next question is just on MIG also is in terms of where you expect that to get to with respect to scale, what do you ultimately see the margins in that business being? Are those going to be comparable to sort of your generic mutual fund manager or what sort of expansion opportunities do you see there?

I would say they'll generally be lower margins but in some respects too early to tell as we're going to continue to grow that business.

Part of it is as you think about the wide mix of products being distributed on that platform now from single manager SMAs, single manager mutual funds, multi-manager SMAs, multi-manager mutual funds and we're looking at some of the other sort of developments in the industry and so as that mix evolves it will confirm that judgment.

Okay and final question just on acquisitions, based on the last couple of I guess opportunistic acquisitions you've done, how does the tax benefit, the IRS tax benefit, sort of factor into your decision making with respect to what affiliates to buy? How do you look at that today?

It doesn't. It factors into valuation but not into which affiliates are attractive. Does that make sense?

Yes, absolutely. Okay, thanks very much.

Mark Lane with William Blair and Company.

Within the guidance the 37.5 million shares, what average stock price does that imply between now and the end of the year?

An average price of approximately $65.

And MIG, on last quarter's conference call you had said that MIG was running about $100 million of gross sales-- was that a month or a quarter?

When I said it that was a month, yes.

Per month so how was that-- what was the average gross sales?

Gross sales are running a bit ahead of that so it is raising which is good.

And so the Rohr relative to large cap relative value product has about $1 billion of assets right now then?

The large cap product has a little bit over-- I'd say a little bit over $1.5 billion of assets in it still.

And the firm together has about 2.5 of assets under management.

So the outflows then in the first quarter were away from that as well then?

Were both. Yes, the-- to take it sort of one level further down here the growth in outflows quarter-over-quarter sort of what drove it this quarter, the large value and balanced both were terminated at a couple of sponsors, a couple of good sized sponsors, and we have not had that experience this quarter so far.

And again, I can't emphasize enough with Rohr that the degree to which assets are declining we will-- expenses will decline in accordance with that so there will be no impact on our forward guidance on this speed paced time, further developments at Rohr in 2005.

Sure and then in retrospect with the forward equity sale done in the second week of October and I mean basically what's changed other than some market strength in the fourth quarter, some market weakness in the first quarter? I mean you basically announced two acquisitions where you committed about $450 million, right? So let's say it's roughly 200 for AQR and 250 for First Asset so I'm trying to understand why unwind the deal? Was it potentially that-- I mean all the other sources of cash would have been there regardless so was the pipeline bigger than you thought? Was there a larger transaction that you were looking at than ultimately closed?

Okay, is that your question? The first thing I would say is think of this forward contract a little bit in the nature of an insurance policy and ask yourself if you buy insurance on your house and your house doesn't burn down, are you mad that you bought the insurance? No. Now you might say, "Hey, was that too much insurance?" Hindsight, of course, it was. The house didn't burn down. At the time we had transactions which have been announced and also transactions that we elected not to pursue and the timing was uncertain and looked like it could have involved the requirement for us to put more money to work sooner than has transpired. And we are-- historically we have been and we will continue to be conservative about how we finance the business and finance ahead of the opportunities and in this case as things unfolded we didn't need that contract. Now why not just leave it out? Well, we think we're going to continue to grow and think the stock is going to go up and as the stock rises that contract gets more expensive. We think we were opportunistic at taking it out when the stock traded down into the 50s for a little while and while it cost us something, it wasn't in the scheme of things that big an expense.

Okay, thanks. That's helpful.

Cynthia Mayer with Merrill Lynch.

If you stand back now and look at your equity AUM, where would you say you are in terms of value versus growth and does that factor at all in terms of looking for acquisitions? And similarly it also looks like your high net worth channel is providing maybe 14% of your EBITDA at this point. Does that influence you in terms of acquisitions? Are you looking for particular balance in either of in terms of channels or in terms of growth versus value?

I think right now where we are not pro forma for First Asset is about 50% of our earnings from domestic equity products broken down roughly 30-20 value to growth. That's pretty good diversity and there's a whole bunch of products, as I said, through the cap range that are encompassed, lots of different variations on the style etcetera. Perspectively we continue to look first and foremost for the highest quality firms, the highest quality management teams to partner with and only secondarily to the particular style or asset class. Obviously we're not indifferent to adding diversity and increasing our participation in fast growing, high margin areas. We've talked about how we wanted to make sure people understood how we have positioned the business over the last year into those areas to a much greater extent than I think people realize and probably than other pure companies. So we will continue to look broadly but not in the sense that we're going to focus on filling any particular gap. We feel very good about the diversity and breadth of our exposure now and are going to continue to add to that incrementally.

Okay, also a follow-up on the overlay. I understood there's about 1.5 billion left of the kind you describe but what about other overlay assets?

There are overlay types of products but those are contracts that are unlike those that we have described in that they do attract higher fees and are just of a different nature. The distinction that we've tried to make in prior disclosures between directly managed assets that have a more normal management fee and then these overlay assets, which have significant impact on our AUM flow number but nonetheless do not have a material impact on the earnings of AMG. And I would say that those other overlay assets are quite similar to just the normal business that goes on at First Quadrant.

So overlay assets don't tend to have more inflows and outflows than any other kind of business?

The asset level can fluctuate but the point-- to continue the point that Darrell is making, the other overlay assets, again as distinguished from that billion and a half number I gave you, have fee structures and other characteristics that just make them like other assets.

Right. Okay, great. Thanks a lot.

Douglas Zipkin [ph] with Wachovia.

Most of my questions have been answered. Just two quick follow-ups I guess and just really a clarification. On the deferred tax add-back guidance I'm just a little confused how I guess when the first asset acquisition closes how it comes down from like I guess 7.2 to 6.9. I would think that it just wouldn't increase so if you could just walk me through some of the accounting on that that would be helpful. And then in addition I would just-- it's a bit nit pick but I'm looking at the goodwill balance and it actually declined a touch this quarter. I would think with the new investment it actually would increase at least marginally so if you could just walk through that quickly but thanks again. That's it.

Sure, with the deferred tax balance what is unique about the First Asset transaction is that again as we are buying 6 firms we are buying them because we're conducting a transaction with a holding company. The way that transaction is structured and what's appropriate in Canada is such that the intangibles are not deductible in this transaction, unlike almost all the other intangibles that we have on our balance sheet. Accordingly when we closed this transaction the accounting journal entries are such where we will take and set up a deferred tax liability associated with the non-deductible goodwill and then each quarter we'll take that liability and continue to reduce it in the amount that we're reducing our deferred taxes by Associated with the transaction. And that the bread and butter normal deferred tax liability accounting that we've all been familiar with. What's unique about the bulk of our deferred tax liability is that it arises out of us having taxable intangibles, intangibles that we can deduct for tax purposes arising out of the FAS 142, which was adopted at the beginning of 2002 and accordingly the deferred tax that is on our balance sheet just adds to-- on our P&L just adds to our deferred tax liability and as I've reminded folks on calls prior, that that portion of our deferred tax liability does not have a recipient and has the same characteristics as common equity, which is why we add back just those deferred taxes to our cash earnings.

And then with regard to the goodwill on the balance sheet there were, as there always are, some equity transactions with affiliates and when we are buying or selling equity with affiliates we will on the balance sheet reduce our intangibles appropriate to the value of that equity that affiliates might be buying.

That's great. That's helpful and then just a clarification on the leverage guidance, are you talking about run rate leverage to EBITDA or trailing?

That's a great question. I'm talking about run rate and that's how we think about it from a management perspective. But, of course, and I think this is where you're going. You're correct that there's a lag effect so the last 12 months leverage would certainly be such that it would give us even more cushion when we announce our leverage relative to our range.

I think the other thing to say on the leverage point is that we're giving you leverage ratios in the way the banks and the rating agencies look at them. From a management standpoint some of the securities, convertibles that are in the money, mandatory preferreds which are effectively equity, common equity, are-- we don't think of them as being leverage in the same way that the rating agency would although we're sensitive to the rating agency's perspective.

Just furthering that point when we put on our convertibles and staggered them on our balance sheet they were intended to as they became callable just give us more flexibility. That was built into our balance sheet. We have every intention of those convertibles resolving themselves as debt. We see them as a senior obligation. That said, we have a history of being able to raise our capital very attractively and we'll continue to do that but as such we're comfortable getting to higher leverage levels today than we would have been 2 or 3 years ago because of the inherent flexibility in the nature of the convertibles that are in our balance sheet that soon become callable.

Great, that's helpful. Thanks a lot.

[Operator Instructions] Robert Lee with KBW.

Good morning. It's hard to believe there are any more questions but two real quick ones-- I'm just curious. In addition to a Tweedy Browne when those close on a couple of products given the strong growth of Third Avenue or anyone else, do you see any affiliates who have been very successful recently closing down some large products in the near future?

Well, let me say two things here. One, Tweedy Browne, we expected their funds-- this is really not a capacity kind of question. It's an investment opportunity question. They've closed their products before and we expect them to reopen the funds when they receive opportunities to invest. Looking more broadly, as I said before, the vast majority of largest affiliates, which again as we've all said are the ones that are doing very well, experiencing very positive flows. The vast majority of the product lines at those firms don't have any of these capacity sorts of issues and if you look at them sort of down the line whether it's a free Third Avenue or First Quadrant AQR, they're just-- these kinds of issues just aren't there for the bulk of their product line.

Great and lastly I'm just curious how your experience with a Rohr [ph] may have changed how you look at certain types of affiliates and I mean specifically in the managed account business and it's happened at other asset managers where you-- business is great for a few years, got bucketfuls of assets and then performance suffers for a year or two and the money flows out in a torrent. And that kind of volatility, has that made you look differently at affiliates that made potential investments out there that maybe the SMA business is less attractive if there's a potential investment that is dependent upon that?

I think, of course, over the years and through all of our investments there is an awful lot that we've learned and I think we're sensitive to all of the issues that you touch on about balance and diversity of a firm's product, depth of its management team etcetera. There will always be products at any asset management firm that go in and out of favor and we're sensitive to that and indeed given the breadth of our exposure and the number of products we have, we think relative to other asset management firms we're actually very well positioned to absorb such situations. I think you make a good point about the managed account space in particular and it is one where we have done some rethinking and that's embedded in part in what we've done with Manager's Investment Group. Why don't I ask Nate to just finish on that point?

Sure. I think as Sean said if you look at what we're doing with Manager's Investment Group from a strategic standpoint, we think there are lots of attractive things about not only the managed account space but also sort of the platform sales that you gain with the extended cross product lines. There are some characteristics of some of these channels including this volatility in flows point and so what we've chosen to do is to build a platform that a broad array of affiliates with appropriate products can access but we can leverage the infrastructure both on the sort of marketing sales, distribution, servicing side but also on the operation side, leverage that infrastructure across a wide array of product for the channel. We get managed accounts and others but across a wide array of products with a channel so that affiliates would not have the experience of building to participate in the channel on their own against limited product line.

Great, very helpful. Thank you, guys.

Management, I am showing we do not have any more audio questions. I'll turn it back over to you for any closing statements you may have.

Thank you. Thank you all once again for joining us this morning. In sum, we are very pleased with our results for the quarter and we remain confident in the prospects for our affiliates continued internal growth as well as our ability to execute investments in new affiliates. Thank you all very much.

Ladies and gentlemen, that concludes the Affiliated Managers Group first quarter results conference call. You may now disconnect.

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