Affiliated Managers Group Inc (AMG) 2010 Q1 法說會逐字稿

Greetings and welcome to the Affiliated Managers Group first quarter earnings conference call. At this time all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). This conference is being recorded. It is now my pleasure to introduce your host, Alexander Lynn. Thank you, Ms. Lynn, you may now begin.

Thank you for joining Affiliated Managers Group to discuss our results for the first quarter of 2010. By now you should have received a press release we issued this morning. However, if anyone needs a copy, please contact us at 617-747-3300, and we'll send you one immediately following the call.

In this 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 10-K and other filings we make with the SEC from time to time. We assume no obligation to update any forward-looking statements made during this call. 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 website a replay of the call and a copy of our announcement for our results of this quarter as well as reconciliation to 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 Sean Healey, President and CEO; Nate Dalton, Chief Operating Officer; and Darrell Crate, Chief Financial Officer. And now I'd like to talk -- turn the call over to Sean Healey. Sean?

Thanks, Ali. Good morning, everyone, and thank you for joining. With cash earnings per share of $1.14, AMG had a strong first quarter as our affiliates extended their long-term track records of investment outperformance, and we announced the addition of three outstanding new affiliates, while maintaining a strong forward pipeline of additional new affiliate prospects.

The past 12 months have obviously been a remarkable period for all of us in the asset management business. All of us have benefited from the market recovery, and we were all tested by the extraordinarily challenging environment of 2008 and early 2009. Looking back, I'm very pleased with what we've accomplished in the past year. First, both AMG and our affiliates weathered the financial crisis well, and we emerged from the crisis in a very strong, competitive position. Along with continued excellent investment performance by our affiliates through the successful execution of our new investment strategy over the past year, we have substantially increased the scale, diversity and earnings power of our business. Including a pending investment, our assets under management have grown by 66% year-over-year from $157 billion a year ago to $260 billion now. And while you will hear Darrell talk about earnings guidance in a moment, to give you a sense of the magnitude of our earnings growth, our pro forma earnings for 2010 will be over 50% higher than the $4.37 we reported for 2009.

Our new investment activity has not only significantly enhanced our forward earnings power but has also accelerated our strategy of increasing our exposure to outstanding global equity and alternative products, which now account for 65% of our earnings. In addition, our recent new investments in firms such as Pantheon, Artemis, Value Partners and Harding Loevner have meaningfully increased our exposure to the non-US clients, which now account for 50% of our earnings contribution.

While both retail and institutional investors continued to favor fixed income products in the first quarter, we believe we are increasingly well-positioned for strong, long-term growth. Our client cash flows were essentially flat in the quarter, as positive flows to global and international equity products were offset by some residual redemptions in our alternative area, but our flow trends continue to improve. Everything we are seeing now, especially a pickup in both global search activity and funding so far in the second quarter, suggestion that the inevitable reallocation by institutional investors to return-oriented assets is beginning to accelerate. We are seeing increasing benefits to our global distribution platform as non-US investors increase funding generally and specifically to return-oriented products, while naturally favoring global and emerging markets equities and alternative products.

Finally, as we all know, though sales in marketing are important, success in the asset management business is ultimately based on delivering outstanding investment performance to clients. Our boutiques include some of the leading investment managers in their respective disciplines across asset classes and regions, and they continue to outperform their peers and benchmarks. Highlights for the first quarter included strong returns among our affiliates products in alternative and global and international equity areas, including excellent results from Global Value manager Tweedy Browne and international and emerging managers -- emerging markets managers Genesis and Harding Loevner, as well as positive returns across an array of absolute return product from all of our alternative managers from AQR to BlueMountain to First Quadrant to ValueAct. With our affiliates' strong long-term track records of outperformance and the broadening of our affiliates' product set along with AMG's expanding global distribution footprint, we have strategically positioned our business to attract substantial client flows as investor risk appetite returns.

In addition to accelerating organic growth, we also expect that our new investment activity will continue to be elevated for the foreseeable future. We were pleased to welcome Artemis, Aston and Pantheon to our affiliated group this quarter,and while the past 12 months have been an extremely active period for us we, continue to be very busy in our new investments area. We have a strong and diverse pipeline, which includes subsidiaries of corporate sellers, as well as an increasing number of succession-oriented opportunities with both traditional and alternative boutiques around the world. Against the backdrop of a highly favorable transaction environment and given our unique competitive position, we are confident in our ability to continue to add materially to our earnings growth through accretive investments and new affiliates. With that, I'll turn it over to Nate to discuss our affiliates operating results in further detail.

Thanks, Sean. Good morning, everyone. We did very good first quarter, driven mainly by our new investment activity, as well as our affiliates' strong investment performance, especially among global equities, emerging markets and alternative products. From a flow standpoint, overall flows were pretty flat, with positive flows into the mutual fund and high network channels offset by outflows in the institutional channels. And I'll discuss these in a moment.

Stepping back for a minute on flows, the environment for return-oriented assets is continuing to improve, and in particular, at the end of the first quarter and so far in the second quarter, we're seeing investors return to global equities and alternatives in particular.

Now, turning to investment performance for the quarter and starting with global equities. All of Tweedy's major global equity products outperformed their benchmarks for the quarter and remain ahead for the one, three and five year periods. Their flagship Global Value Fund remains well ahead for all relevant time periods, maintaining its 5 star top decile ranking by Morningstar. In addition, all of Harding Loevner's major global and international products outperformed, while AQR's [Efee] and Third Avenue's international products trailed their benchmarks for the quarter. Finally, at our new affiliate, Artemis, while several of their funds trailed for the quarter, most of their funds, including their 4-star rated Artemis Income and Artemis Special Situations Fund, feature very strong long-term performance.

On the emerging market side, Genesis continues to deliver outstanding performance, with their flagship product beating its benchmark by over 300 basis points in the quarter and roughly 2600 basis points for the trailing year, with absolute returns of nearly 110%. Obviously, they're well ahead of benchmarks and peers for all relative time periods. In addition, Harding Loevner's 4-star rated Emerging Markets Fund beat its benchmark by over 110 basis points in the quarter.

Moving to our domestic products, performance was mixed on both the value and growth side. Starting on the value side, Tweedy Browne's Value Fund trailed the S&P 500 by 95 basis points in the quarter, but remains well ahead of its benchmark for the one, three and five-year period. All Systematic Financial Management's major products beat their benchmarks, while Third Avenue's value and small value products underperformed benchmarks in the quarter. Within our growth category, Friess Associates' all cap and large cap products outperformed in the quarter, while TimesSquare's Small Cap and Mid Cap Growth Funds, which both carry a 5-star rating by Morningstar, trailed their respective benchmarks for the quarter; however, the funds continue to feature very good performance for longer periods.

Frontier Capital Strategies had a challenging quarter, but all of their products feature very good long-term performance records. I would note that Frontier Strategies are gaining traction in a number of fronts, as the firm recently won its first international mandates to our global distribution platform, and Vanguard just hired them for a second subadvisory mandate through our domestic platform Managers Investors Group.

Next, turning to our alternative products. Performance among our largest products was quite strong across the board, including at AQR, BlueMountain, First Quadrant and ValueAct. AQR's Absolute Return, Global Stock Selection and Global Asset Allocation funds all significantly outperformed their benchmarks in the quarter, as did their hedge fund data and Global Risk Premium products. First Quadrant's Global Macro, [GTIA] and Global Currency Strategies all beat their absolute benchmarks in the quarter as well. And similarly BlueMountain's Credit Alternatives Fund and Equity Alternatives Fund posted very strong positive returns, continuing a very good run.

Now turning to flows. We had positive flows in both the mutual fund and high network channels in the quarter, but those were offset by negative flows in the institutional channel. Now started starting there, institutional outflows were $1.9 billion. There were two significant items I would highlight. First we saw some significant rebalancing in one affiliates' emerging markets product, where both absolute and relative performance had been extraordinarily good. To be clear, this was not client losses but rebalancing. Second, we saw some residual outflows in alternative products, including one product where there was an annual redemption opportunity in the quarter and redemptions were higher than we had expected given the very good performance of that affiliate.

Now while we could always be surprised, given the very good performance of most of our alternative products, we believe that elevated alternative outflows were behind us. From a trend standpoint, putting aside that one emerging markets product I noted, we saw positive flows to our non-US products and especially from non-US clients, offset by continued outflows in US equities.

In the mutual fund channel, we had positive net flows of $345 million in the quarter, with inflows to global and emerging markets equities, as well as inflows building at alternative mutual funds, most especially at Third Avenue's Focus Credit Fund, AQR's Diversified Arbitrage Fund and Managers' FQ Global Alternatives Fund. Finally, in a high net worth channel, we had positive net flows of $130 million for the quarter. The drivers here continued to be inflows at Gannett Welsh & Kotler, Canadian affiliate Beutel, as well Harding Loevner.

Now, I wanted to take a minute to talk about where are with our distribution initiatives. From a tactical standpoint, in terms of flows, we're making good progress and had substantially wins in the quarter at each of our global distribution platforms -- Australia, Middle East and Europe --although a couple fundings got pushed to the beginning of April. In the US our Managers platform continues to grow and in particular has been making significant progress in the subadvisory space, with wins in the quarter at Vanguard, Prudential and SEI. In addition, we're making good progress toward the opening of our Hong Kong office and expect it will be operational in the next three to four months.

But I would say that the most important thing to understand is the opportunity we have to help our affiliates, which are all high quality performance oriented boutiques, access different geographies and channels. While the opportunity has existed for a while, the scale of the opportunity is much greater today. As Sean described, this is because of the confluence of the evolving market recovery and reallocation to return-oriented assets on the one hand, combined with our having added a number of new outstanding new affiliates in the global and emerging markets and alternative asset categories on the other. Given the meaningful growth opportunities in this area, we are allocating increasing amounts of both time and resources to these important to these strategic initiatives in working with our affiliates across channels and geographies. With that, I'll turn it over to Darrell to discuss our financials.

Thank you, Nate, good morning, everyone. As Sean mentioned, AMG had a very strong first quarter. Not only did our affiliates continue their long-term track records of excellent performance, but we closed or announced investments in three new affiliates, Artemis, Aston and Pantheon. These transactions significantly enhance the scale, earnings power and cash flow of our business. In addition, as investors increasingly reallocate to return-oriented assets, we are well-positioned for organic growth going forward.

As you saw in the release, we reported cash earnings per share of $1.14 for the quarter. On a GAAP basis we reported earnings of $0.38 for the quarter. Performance fees added about $0.02 to our cash earnings.

Now turning to some modeling items. The ratio of our EBITDA contribution to end-of-period assets under management was about 14.9 basis points for the first quarter, reflecting the closing of Artemis late in the quarter. As we look to the second quarter of 2010, we expect this ratio to increase to about 16.7 basis points, reflecting the timing of the closing of our investments in Aston and Pantheon. On a full run rate basis, pro forma for the full effect of these transactions, we expect this ratio to be about 18.5 basis points.

Holding company expenses were $18.2 million for the first quarter, as we recognized approximately $5.6 million in expenses associated with our new investment activities. As you will remember, new accounting rules now require us to recognize costs associated with new investments as they are incurred. We expect holding company expenses to be approximately $21.5 million in the second quarter, which would include an additional $7.5 million in one-time expenses, principally related to transaction and integration activities of our new investments and to a lesser extent investment in our global distribution efforts.

With regard to taxes, our effective GAAP tax rate for the first quarter was 39%, and we expect the rate to decrease to 37% for the second quarter. While our cash tax rate for the first quarter was 9%, we expect this rate to trend up in later quarters given our positive outlook for organic growth. Intangible-related deferred taxes were $10.7 million for the first quarter, and will increase to about $11.8 million for the second quarter. Pro forma for the closing of Aston and Pantheon, intangible-related deferred taxes will be $11.2 million. This is the appropriate amount to model going forward.

Amortization for the quarter was $16.7 million, including $8.1 million of amortization from affiliates accounted for using the equity method. The earnings from equity method affiliates are included in the income from equity method investments line on the income statement, all net of amortization. We expect amortization to increase to approximately $20.6 million for the second quarter and $24.1 million for the third quarter, which will again recognize the full effect of all announced new investments.

Depreciation for the first quarter was $3 million, with $1.9 million of that amount attributable to affiliate depreciation. Depreciation will increase to about $3.5 million in the second quarter and $3.8 million in the third quarter. We reported total interest expense of $19.9 million for the first quarter, of which $3.6 million was noncash interest expense related to the recent accounting changes for three of our convertible securities. We expect interest expense to increase to about $21 million in the second quarter, reflecting borrowings related to the closing of our new investments.

Now turning to our new investments, as you are aware we completed our investments in Artemis in mid-March and financed the transaction with a combination of cash and revolver borrowing. Aston closed early in the second quarter and was financed through the issuance of approximately 1.7 million shares of AMG stock. We expect Pantheon to close in late May, with consideration being paid primarily with borrowings under our bank revolver and the issuance of approximately $100 million or 1.4 million shares in AMG common stock under our forward equity arrangement. The financing components of these transaction have not changed from what was contemplated on our last investor call and are consistent with the assumptions that we have used to determine our current and prior earnings guidance.

As we look forward, from a capital perspective we're well-positioned to execute our new investments activity. Following our announced transactions, we have approximately $300 million of cash resources and a business that will be generating approximately $100 million of cash flow per quarter, which enables us to fund $500 million of additional investments by year end without accessing the capital markets. That said, even in the midst of this period of elevated new investment activity, we remain committed to looking for opportunities to efficiently manage our capital base, such as repurchasing stock to maximize value to shareholders.

Now turning to guidance, we are increasing our 2010 guidance and expect our cash earnings per share to be in the range of $5.90 to $6.65. This guidance factors in actual markets as of today and further assumes 2% quarterly growth in markets for the remainder of the year. We also assume a weighted average share count of 47.9 million, which incorporates shares related to both our recent investment in Aston as well as our pending investment in Pantheon. Our convention, of course, is to give guidance on the earnings we expect to report in 2010. Given our announced investments represent a significant contribution relative to our existing earnings base and will be owned for a partial year, it is important to focus on the increase in our pro forma earnings power. That is, the earnings if we owned each of our new affiliates for the full year. These pro forma earnings are $0.50 higher. It is our intent to begin to discuss earnings expectations for 2011,which of course incorporate the full earnings contribution of all of our affiliates, on our July investor call.

As is also our convention, our earnings guidance for 2010 does not include additional earnings from investments in new affiliates. Our guidance also assumes an earnings pattern similar to the one you've seen from us in prior years. where we have recognize the majority of the earnings from alternative products and performance fees in the fourth quarter. The performance of these products was generally strong during the first quarter of 2010, and these products can provide considerable upside opportunity and deliver material performance fees in future periods. Our guidance for 2010 is based on current expectations about affiliate growth rates, performance and the mix of affiliate contributions to our earnings. Of course, substantial changes in the equity markets and the earnings contributions of our affiliates would impact these expectations. And I will be happy to answer any questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from Bill Katz from Citigroup Inc.

Thank you and good morning, everyone.

Good morning, Bill.

I guess maybe a couple questions. First one just maybe for Nate. Could you talk more about, if you could dimension maybe the flows coming from outside the United States versus those in the United States? I don't know if you can put any kind of handle around it. And then could you document [or] just talk a little bit about what the pipeline might look like today versus the end of the year. And then also you mentioned a little bit from Darrell, spending a little bit on global distribution. Wondering if you could talk about what you're doing there? Actually I have a follow-up on that.

Okay. Let's make sure I try to get all the ones that were allocate today me there. So flows, US versus global, we're seeing significantly more flows coming through global. But I want to unpack that for a second. So there's a few things going on here, right?One is product mix. We have a very strong lineup of products -- global equities, emerging markets, alternatives -- that are attractive to those markets. One is the general feeling right now that in those markets they are also not buying as much US equity, although I think we noted before we actually are seeing a little bit of demand for US equity coming through global distributions, so that's interesting. But certainly more global versus US.

In terms of pipeline, pipeline has grown significantly. Let me do a couple of pieces to that. One is the activity level, RFP. That's actually the place we've seen the most significant growth, which is good, because we were already seeing RFP growth. Now some of that's also coming because we're bringing more resources on line. Significant increased RFPs, finals activity also up, and then another piece of it, which I did quickly in the prepared remarks, we also had some wins that we had won in the fourth quarter, first quarter, where the fundings got pushed into the second quarter. So -- and some of those have actually already funded. So the pipeline continues to grow, but it's coming from a bunch of those pieces.

Okay. And just on terms of the global distribution, could you talk a little bit about specifically what actions you're doing at the margin?

Okay. So the things that we're doing. So the way we're coming after global distribution, we're working with affiliates where we think they have appropriate products for the various geographies, we are hiring senior sales marketing client service professionals in target regions and bringing affiliates into those markets, and also picking up some client servicing responsibilities for affiliates that are already in those markets. And there's a whole bunch of leverage in that, right? Both dedicated resources providing leverage for those affiliates, but then obviously the very, very significant cross-sell opportunities. So the scope of the opportunity is enormous.

You can look at some -- so the markets we've been operating in -- I guess let me do it this way. The market we've been operating in the longest, Australia, is a perfect example, where we've been able to drive some very large wins for affiliates, and you can see this build that starts with one or two affiliates and then the cross-sell opportunities starts to kick in. And we're now having to add more resources behind that on the client service side as we're building that book of business. So it's maybe more than you wanted, but it's adding senior sales market and client service professionals facing off against the market place, usually starting with the institutional channel and very high into the institutional channels. Sorry, one of the other think I should say. It is leveraging consultant relationships that affiliates already have and also trying to grow those, so it is not just leveraging those relationships, [it's a global pension consulting firm], but also building them at the local pension consulting firms or other intermediaries in those markets. In a lot of cases the first time affiliates have come to those intermediates who drive -- who have significant assets. And then obviously the other thing we have to do is build the infrastructure internally. And I think we've done a good job doing that, meaning interacting with the affiliates.

Okay.

And I would add that -- two things. One, as you can tell, this is a very important ongoing strategic initiative for us. And we expect more high-quality professionals to be added to this function and increasing in the existing geographies and an increasing number of geographies. And it fits well with, and there is, as you heard Nate describe, but just to emphasize, a virtuous circle, where we are increasing our investment and the proportion of our earnings contribution from outstanding and emerging markets equities products, as well as outstanding alternative products. These are the kinds of products that are inherently more attractive to global investors. And so the cross-sell opportunity Nate describes gets multiplied as we have more success n the new investment area as well.

Okay. And then just on the guidance. So the Pantheon transaction edged an incremental $0.50 above and beyond the full year impact? Or is it based on the fourth quarter -- second quarter, this quarter, going forward? How do you think about the incremental $0.50?

What I was trying to articulate is again the all three of the new investments in Artemis, Aston and Pantheon make a significant contribution relative to our existing business. And the $0.50 represents the earnings that we would receive if we had owned each of those investments since the beginning of 2010. So again, for Artemis that's the period from January 1st to March 15th. For Aston that's the period from January 1st to April 15th and for Pantheon the period from January 1st approximately to around May 20th.

Okay. That's helpful. Thank you.

Thank you. Our next question is coming from Dan Fannon from Jefferies & Company.

Good morning.

Good morning.

Hi, Dan.

Darrell, a couple questions for you. In terms of your -- the new guidance for this year, that includes the incremental transaction costs that are going to be incurred here in the second quarter? And then also, could you let us know if we ex out the transaction costs that is were booked in the first quarter, what the kind of core running rate earnings is based on the 1-Q levels?

Sure. So what we've shared in our first quarter conference call around fourth quarter earnings and then this conference call is roughly $12.5 million of one-time fees. That almost all of that is related to the closing of these transactions, some integration costs, as well as a little over $1 to $2 million for building out the global distribution effort. So when you look at our first quarter earnings, at $1.14, without those one-time charges our base business is running at about $1.20.

Okay. And then the guidance of the $5.90 to $6.65 does include --

Oh, Yes. Absolutely it includes all of those one-time charges.

Great. And then Nate, in terms of the flow picture which you gave good color on, is it reasonable to assume based on what you guys are seeing today that you are getting -- you can -- as we get into the second quarter, start to look at positive flows across all three channels?

Yes. So again, obviously as I said in our prepared remarks, we can always get surprised. And we do have more visibility on wins and positive flows, right, because you're seeing the work being done as they move from the pipeline from win to funding. But looking at it today it looks good and the institutional channel continues to look good and mutual fund and high network channels.

And again, the product set that we have favoring global and international equities and alternatives are categories which in general in the industry are getting more flows and getting increasing traction, I would say. And our perspective is of course quite broad, based on the -- on our existing group of affiliates. But we also have the opportunity through our new investment activities to gain visibility on the forward prospects of other outstanding firms in these various categories. So that informs our relative optimism about forward flows and this reallocation by investors to return-oriented assets that we're seeing.

Great. Thank you.

Thank you. Our next question comes from Robert Lee from KBW.

Thanks. Good morning, everyone.

Good morning.

Real quickly going back to the flows, [if] a -- I guess as a follow-up to the pro forma cash earnings impact of having owned those organizations a full year, do you have each of those organizations on the books, so to speak, in Q-1? Would the flows have changed meaningfully? Would they have been positive, more negative?

So if you have included the firms, flows would have improved. Yes, so flows would have improved if we include those.

Yes. Just to be clear, the number that we -- the 1-1, that is pro forma.

Okay.

So there was a slight improvement, but not a material.

Okay. Great. And question for Darrell, I know you guys always look at alternatives for how you manage the balance sheet. But given all the draw down on your facilities with the -- all the transactions, I mean, is there -- how are you currently thinking about the need to kind of maybe term out some of the debt you're taking on? Should we be expecting that over the coming months as opportunities arise you'll be going to see whether additional converts or straight debt? And I guess within that, is there any general feeling that you'd prefer to, given today's low rate environment, kind of have more straight debt kind of make the balance sheet a little less complex?

Well, as -- I would say just as we think that it's -- that investors haven't fully realized the pro forma earnings power of the business, I'd say it's also people have not internalized the degree to which this business generates a tremendous amount of cash. And so with $100 million of cash coming out of the business on a quarterly basis, again that's dollars that are available for new investments. But also the bank facility, that I have to remind folks that LIBOR plus 80, can be paid down very, very quickly. So as we look forward there is nothing that we need to do in the capital markets, given the business today, even after we close each of these transactions.

As we look forward, the convertible trust preferred market is an attractive market. That is something that we always pay attention to. And it's a market where if we were to -- as I said, we have enough cash to fund $500 million of deals by the end of the year. But as we look -- but we have a very full pipeline. And as we look at all of those opportunities, I think building that convertible trust, that junior capital portion of our balance sheet is where we would focus. And I hear the point with regard to complexities of the balance sheet. And we're going to be looking for ways to make that balance sheet less complicated but also, as we always have, make sure that we are very disciplined about attracting capital at attractive rates to the Company to maximize shareholder value.

Okay, great --

But again I just want to be completely clear that where we are, there is nothing that we need to do today to finance these transactions by accessing the capital markets. And we will prospectively, as we always have been, be opportunistic about making sure we finance the Company with very long-term maturities and at attractive rates.

Okay. And thanks. And the follow-up question for Sean, and I apologize because I got on the call a little bit late, so I may not have heard all your comments. But from what I did hear it kind of sounded like, at least relative to last quarter -- the last time you spoke I guess was maybe following the Pantheon deal, I forget exactly when. But while you still had a lot of capital and good pipelines, a couple months ago you sounded, without reading too much into it, maybe that there were a few things -- things were less likely to happen over kind of the near-term just given everything going on, just what you're seeing in the pipeline. And this time it almost felt like -- and maybe I'm reading too much into it -- that maybe you weren't as -- maybe not suggesting that it's going to take a while for some -- who knows when these things happen. But kind of sounded like, gee, it's not likely to happen later it. Could happen sooner. I mean, at least relative to what you said in the last call, I think.

Well, I think in the last call -- I don't have the transcript handy. But I think I referred to the fact that we had announced five investments in the prior seven months, and that we didn't see that pace sustaining. But really what has occurred, even from that call, is just the passage of a couple of months, right? And so what we have been able to do, which is a credit to our new investment team, is while -- and also a reflection of this very favorable transaction environment and the reputation that we have built over the years, and you put all that together and our team continued to work with outstanding prospective affiliates while also executing transactions. And so what we're seeing is the product of that work, which in some cases, in many cases goes back over a period of years, as well as the market changing.

And I think you heard me say that it is increasingly involving succession-oriented transactions, which is of course historically the main focus of our investing activities. But given the volatility in the markets and the challenging environment we all lived through, as you would expect over the past year the activity's been much more concentrated in divestitures. And that's been fine and we've been very successful with that. But we'll see some ongoing divestitures, more succession-oriented transactions with independent firms. And all of these factors, including changes in the tax environment, which you've heard us talk about before, all are very favorable to us. And so we are optimistic without ever wanting to precisely forecast when we will have new investments announced.

I appreciate that, and maybe if you could indulge me one last follow-up question. As the environment's improved, as asset values have rebounded, are you seeing any increase in the competition for some of these as people who kind of went away the last year and a half, two years, are all of a sudden starting to come back to the market place?

Well, we really -- I mean, not to sound glib or to overstate, but there really are no direct competitors in the market to us. Nobody who presents the alternative, the permanent partnership relationship, ongoing autonomy, ongoing retained equity, obviously a whole array of strategic support functions. That pack -- and a long track record and reputation and recommendations from our existing affiliates. All of that is -- all of those advantages are things which no other entity really has. Now of course there are many fine firms out there who seek to invest in boutique asset management firms. So we -- on a broader basis of course we have competition.

But the competitive landscape is overall still very much favoring buyers. Fewer -- far fewer buyers in the market -- just think of the universe of banks and insurance companies -- we're really not seeing with very few exceptions those kind of participants. Private equity I would say just recently is more active. But that -- the private equity for boutique asset management firms, especially involving succession-oriented transactions, is not nearly as attractive for most of the firms that we would -- or I would say rather all of the firms that we would want to invest in. It's just a different model, appropriate for some subset of the universe, but not the ones that we focus on.

And then finally the public market is of course more available, I suppose, than it has been. But given what occurred to a number of boutique firm that is had gone public, and given what occurred just in general, we see fewer -- I'm sure there will be some IPOs in the next year. But we see far fewer large boutique firms that are actively considering the public market alternative. So it's an ever-changing landscape, and I'm sure at some point big banks and insurance companies will all decide that they want to buy boutique asset management firms, and it will be a little more challenging. But we've got a ways to go before that cycle comes around.

Well, thank you very much for answering my questions.

Thank you. Our next question comes from Roger Smith from Macquarie group.

How are you doing? Thanks a lot. I just want to make sure I understand the guidance from the performance fee perspective. On the low end of the guidance, the $5.90, is that contemplating zero performance fees and really we have a range of $0.75 performance fees embedded in this guidance?

Yes. The most of that $0.75 range is performance fees. Also in the upper end of the range it makes some assumptions about greater flows and greater outperformance. But the range really is accounted for by performance fee expectations.

Okay. And then on the performance fees, I think last quarter you said you had 30-something billion of AUM and 50% of them were at the high-water mark. And that markets going up 6% would give you $0.90 and 10% would give you $1.50. And I know and appreciate that you don't want to get ahead of yourself on the performance fee expectations, but how can we think about those numbers? Because I think from the point that we were at at that time through the end of the quarter, the markets were up somewhere around 9% on average.

Yes. So a couple of things. The guidance that we gave last time was for all of those products were to be up 6%, that that would generate around $0.90 of performance fees. And as you did hear from Nate, and as you saw in the release, performance at AQR, BlueMountain, the firms that generate performance fees has been strong. It was a good quarter for performance fee assets. More assets are at high-water mark than at our last call. But you're just right. We don't -- again, we're just at the end of the first quarter. We don't want to get performance fee expectations continually elevated through the year. But I'll tell you, as we look at that book, and we look at the end of this first quarter, we are right in line with a performance fee year that's just consistent with our range.

Okay. And then on -- you said $300 million of resources available today. I'm assuming that's a little bit on the forward and a little bit on the revolver. Can you just give us those numbers?

Yes. There's a little bit on the forward. There's cash that we have. And this is all again prospective for the closing of Pantheon. So the timing of Pantheon and when we receive cash is still uncertain. But roughly for the $300 million we've got a little over a third of that that's under the forward opportunity under the bank revolver and in cash.

Okay. Perfect. Thanks very much.

Thank you. Our next question comes from [Michael Kim] from Sandler O'Neill & Partners

Hi, guys. Good morning.

Good morning.

Most of my questions have been asked, but just a couple of quick ones. First, I know you talked a little bit about this earlier, but could you may be give us a little bit more color in terms of the flows to your alternative affiliates during the quarter, just excluding some of the residual redemptions that hit in the first quarter?

Okay. So if you -- so the residual outflows were sizeable. So if you took those flows out, alternative flows for quarter would have been positive. Included in that there's a couple of different pieces. I'll give you some color here. Which is wins were outpacing losses. There was a lot of activity, meaning a lot of activity in the industry and there's a lot of activity in that book. But wins outpaced losses. There were other rebalancings in that book besides those residual outflows. But if you backed out the residual outflows, which were sizeable, the flows in alternatives would have been positive.

Was it pretty broad-based across the affiliates?

It came -- there were -- yes, so a couple of things. The residual outflows were from more than one film, although it was largely one firm, it was from more than one firm. So if you back those out, then the alternative flows were broadly-based, but there were some firms like AQR where flows were pretty good.

Okay. And then focusing on Australia, is there an opportunity to maybe pick up some market share, assuming some of these tax changes that are being discussed ultimately go into effect? And then how much of Pantheon's portfolio is invested in Australia at this point, if you know that number?

Yes, I don't have that right in front of me. They do have a book of business in Australia. And that is a market where we look forward to working together. We've already started some work. They've had the team down there in our office for a little bit. And so there is definitely opportunity for us to work together there. But I don't have that right in front of me.

Okay. So no kind of thoughts on the potential impact of a tax change as it relates to -- I think it's more on the private equity side down there?

Yes. I don't really have -- don't really have a view.

Okay. Thanks for taking my questions.

Thank you. Our next question comes from Cynthia Mayer from Bank of America Merrill lynch.

Hi. This is really a follow-up on the performance fee discussion. I'm just wondering if you can update us on the total performance fee assets at this point? What percentage is above high-water marks. And also, what percentage of the performance fee assets actually have benchmarks or hurdles, as opposed to just getting performance on absolutes? I'm sorry, getting fees on absolute performance?

So the overall size of the performance fee asset book is over $30 billion. And over half of those -- I don't have the exact number in front of me. Over half of those --

Roughly half of the one in 20 structure, and the other half is above benchmark. And from a high-water mark perspective, roughly around 55, maybe even a bit higher are above high- water mark.

It might be worth just amplifying a little bit the range of different kind of exposure that we have. Because then we talk about this big number. But maybe --

Okay. So to describe the alternatives book with performance fees, we have a significant component of it if you look at it by AUM, which is large institutional separate account. More of those are in that second bucket that Darrell was describing which is the fees tend to be customized rather than the one in 20. A number of those do have relative to benchmarks performance hurdles, right? So if up you think about it by AUM, that's a significant piece of the book. And then the rest of it tends to be more fund form, that tends to be more the kind of one in 20 that Darrell was describing. And the other thing I'd say is the -- sorry, one last point on the institutional component of it. The fee timing on those does tend to be spread more through the year, right? So it can more customized. The advantage of that over funds, it can be more customized when the fees are charged.

The one other thing I'd say, just again from a big picture standpoint as we're talking about this book, which is a lot of those large, separate account strategies tend to be in the more quant-oriented book, whereas much of the other strategies would tend to be in that fund form.

I think it's worth maybe talking further about the specific strategies because we don't often go through what the -- how our quant differs from industry quant, and then talk about BlueMountain and ValueAct.

Sure, sure. So, if you talk about -- So, start on the quant side. So a lot of our quant -- when we talk about our quant book, maybe that's less of a quant equity book, although we have a quant equity component to that book. But a lot of that, and certainly when we're talking about the performance fees piece of it, a lot is in the Global Macro, [GTIA], tactical currency, those kind of products. But most broadly we have a very wide range of alternative products, as Sean noted, from the BlueMountain Credit Alternative product and Credit Longshore product to the ValueAct, which is a more control-oriented, concentrated position with catalyst for change. But there's really a very wide array of performance-oriented products in that alternative book.

The other thing I'd say is there's also a decent-sized piece of that, and a little bit growing, because we see more and more opportunities for these, of performance-fee-oriented products from more traditional -- what you think of as more traditional asset products.

Firms like Third Avenue and Genesis, which have attractive alternative products. I think, Cynthia, we'll over time try to give increasing context. Obviously as you hear us talk about our forward new investment pipeline, including a significant component of alternative, we'll be continuing to add to this. But I think the headline is very diverse exposure early in the year, but really all of our alternative firms are doing well thus far in the year.

And then the last thing I would say is that quant, has with quotes around it, has been an area of concern generally in industry talk. And I think while there's pieces of especially the quant equity that we have, our exposure through AQR and First Quadrant is actually much broader and very difficult to predict. But the trends that we're seeing both on the flow front and on the performance side are actually good. So --

Okay. And apologize if you've mentioned this. But did you say how many performance fees were in this quarter?

Just about $0.02 was in our current earnings.

Okay. And just one more conceptual question. It sounds like you're positioning -- you're thinking about acquisitions in terms of wanting to be more exposed to global and alternative products. And I'm just wondering are you at all concerned that a strengthening dollar would actually diminish flows to global products and increase the flows to -- I know you have good US equity measures, but are you at all concerned that you're heading in a global direction as the dollar is strengthening?

Well, we have already headed there, right? We have a much more significant global and alternative exposure, I believe, than any of our peers on our proportionate basis. So that is a bet that we are making. It is obviously a long-term bet, and one that is based on a judgment of firms that -- and product areas where boutiques can succeed and generate alpha for their clients and find very receptive client bases. And outside the US, that is what they're looking for. I mean, Nate mentioned that we've seen some anecdotal interest on the part of international investors in US equity products. And I think over time the world will evolve and that will be more of a direct component of global investors' allocations.

But for the foreseeable future, clients in Australia, when they're not buying Australian equities, they want global equities and they want global alternatives. And the same in the Middle East, the same in Hong Kong, et cetera. So that's really the focus, the long-term focus of our strategy. We have -- you said it --we have some outstanding US equity managers, and if there are changes in the dollar, and there are going to be period, which none of us can predict, where US equities outperform global equities, et cetera. They did this quarter. So it's not a -- we're making permanent decisions. So it's not a short-term allocation judgment. But we have had the strategy for a while. We're committed to it. Our pipeline includes of course some outstanding US equity managers. But it also absolutely still includes some very attractive international firms and some terrific alternative firms as well.

Great. Thank you.

Sure.

Thank you. At this time we have know further questions. I'd like to turn the call back over to Sean Healey for any closing.

Thank you all again for joining us this morning. As you've heard, we're pleased with how the year started, and we're well positioned for both strong organic and continued success in our new investment strategy. We look forward to speaking to you again next quarter. Thanks.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.